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Schroder Capital Funds (Delaware), et al. – ‘485BPOS’ on 5/17/96

On:  Friday, 5/17/96, at 9:42am ET   ·   Effective:  5/17/96   ·   Accession #:  912057-96-10213   ·   File #s:  2-34215, 811-01911, 811-07483   ·   Correction:  This Filing’s “Filed as of” Date was Corrected and “Changed as of” 7/1/96 by the SEC on 4/1/04. ®

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/17/96  Schroder Capital Funds (Delaware) 485BPOS®    5/17/96    2:938K                                   Merrill Corp/FA
          Schroder Capital Funds/Delaware

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485BPOS     Post-Effective Amendment                             309±  1.27M 
 2: EX-99.11    Miscellaneous Exhibit                                  1      6K 


485BPOS   —   Post-Effective Amendment
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
4Advisor Shares
"Prospectus Summary
"The Fund
"Investment Adviser
"Risk Considerations
"Fee Table
"1 Year
"Financial Highlights
"Net Asset Value, Beginning of Period
"Investment Objective and Policies
"Investment Objective and the Portfolio
"Investment Policies
"Additional Investment Policies and Risk Considerations
"Investment Restrictions
"Investment Types
"Emerging Markets
"Geographic Concentration
"Management
"Board of Trustees
"Investment Adviser and Portfolio Manager
"Administrative Services
"Distribution Plan and Shareholder Services Plan
"Expenses
"Portfolio Transactions
"Code of Ethics
"Investment in the Fund
"Purchase of Shares
"Retirement Plans
"Individual Retirement Accounts
"Redemption of Shares
"Net Asset Value
"Dividends, Distributions and Taxes
"The Portfolio
"Other Information
"Capitalization and Voting
"Reports
"Performance Information
"Custodian and Transfer Agent
"Fund Structure
"Other Classes of Shares
"Independent Accountants
"Table of Contents
5Investor Shares
6Forward Foreign Currency Exchange Contracts
"Illiquid and Restricted Securities
"Loans of Portfolio Securities
"Options and Futures Transactions
8Investment Objective
"Repurchase Agreements
"Short Sales Against-The-Box
9Investment Objectives and Policies
10Other Information Capitalization and Voting
11International Equity Fund
12Additional Purchase and Redemption Information
13Introduction
"Foreign Securities
"Depository Receipts
14Use of Forward Contracts in Foreign Exchange Transactions
"U.S. Government Securities
"Bank Obligations
"Short-Term Debt Securities
16Officers and Trustees
20Distribution of Fund Shares
21Service Organizations
22Portfolio Accounting
"Fees and Expenses
23Investment Decisions
"Brokerage and Research Services
25Redemption in Kind
"Taxation
27Organization
28Principal Shareholders
29Custody of Fund Assets
"Transfer Agent and Dividend Disbursing Agent
30Counsel
"Registration Statement
"Financial Statements
40Covered Call Writing
44Futures Contracts
45Currency Futures
72Warrants
75Stock Index Futures
79Trustees and Officers
99Restricted Securities
100Leverage
113Item 24. Financial Statements and Exhibits
115Item 25. Persons Controlled by or Under Common Control With Registrant
"Item 26. Number of Holders of Securities
116Item 27. Indemnification
118Item 28. Business and Other Connections of Investment Adviser
119Company
121Item 29. Principal Underwriters
122Item 30. Location of Accounts and Records
123Item 31. Management Services
"Item 32. Undertakings
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As filed with the Securities and Exchange Commission on May 16, 1996 File No. 2-34215 File No. 811-1911 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 52 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 33 -------------------------------------------------------------------------------- SCHRODER CAPITAL FUNDS (DELAWARE) (FORMERLY SCHRODER CAPITAL FUNDS, INC.) (Exact Name of Registrant as Specified in Charter) Two Portland Square, Portland, Maine 04101 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, including Area Code: 207-879-1900 -------------------------------------------------------------------------------- Thomas G. Sheehan, Esq. Forum Financial Services, Inc. Two Portland Square, Portland, Maine 04101 (Name and Address of Agent for Service) Copies of Communications to: Scott M. Shepard, Esq. Jacobs Persinger & Parker 77 Water Street, New York, New York 10005 -------------------------------------------------------------------------------- It is proposed that this filing will become effective: X immediately upon filing pursuant to Rule 485, paragraph (b) ----- on [ ] 1996 pursuant to Rule 485, paragraph (b) ----- 60 days after filing pursuant to Rule 485, paragraph (a)(i) ----- on May 3, 1996 pursuant to Rule 485, paragraph (a)(i) ----- 75 days after filing pursuant to Rule 485, paragraph (a)(ii) ----- on [ ] pursuant to Rule 485, paragraph (a)(ii) ----- ----- this post-effective amendment designates a new effective date for a previously filed post-efffective amendment. The Registrant has registered an indefinite number of shares of beneficial interest under the Securities Act of 1933 (the "1933 Act") pursuant to Rule 24f-2 under the Investment Company Act of 1940 (the "1940 Act"). Accordingly, no fee is payable herewith. A Rule 24f-2 Notice for the Registrant's fiscal year ended October 31, 1995 was filed with the Commission on about December 28, 1995. INTERNATIONAL EQUITY FUND AND SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO OF REGISTRANT ARE STRUCTURED AS MASTER-FEEDER FUNDS. THIS AMENDMENT INCLUDES A MANUALLY EXECUTED SIGNATURE PAGE FOR THE MASTER FUNDS. Effective January 9, 1996, Schroder Capital Funds, Inc. (the "Company"), a Maryland Corporation, reorganized as Schroder Capital Funds (Delaware) (the "Trust"), a Delaware business trust. The Trust hereby files this Post-Effective Amendment to the Registration Statement of the Company and expressly adopts the Registration Statement of the Company as its own for all purposes of the 1933 Act, the Securities Exchange Act of 1934, and the 1940 Act. -1-
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SCHRODER CAPITAL FUNDS (DELAWARE) FORM N-1A CROSS REFERENCE SHEET PART A Form N-1A Item No. (Caption) Location in Prospectus (Caption) --------- ---------------------- -------------------------------- 1. Cover Page Cover Page 2. Synopsis The Fund 3. Condensed Financial Information Not Applicable 4. General Description of The Fund - Investment Objective Registrant and Policies; Additional Investment Policies; and Risk Considerations 5. Management of the Fund Management - Board of Trustees; Investment Adviser and Portfolio Manager; Administrative Services; Distribution Plan and Shareholder Services Plan Expenses; Portfolio Transactions; Other Information - Custodian and Transfer Agent 5A. Management's Discussion of Not Applicable Fund Performance 6. Capital Stock and Other Information - Capitalization Other Securities and Voting; Shareholder Inquiries; Dividends, Distributions and Taxes 7. Purchase of Securities Investment in the Fund - Purchase of Shares; Retirement Plans; Individual Retirement Accounts; Net Asset Value; Management of the Fund - Distribution 8. Redemption or Repurchase Investment in the Fund - Redemption of Shares; Net Asset Value 9. Pending Legal Proceedings Not Applicable -2-
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PART B Form N-1A Location in Statement of Additional Item No. (Caption) Information (Caption) --------- ---------------------- --------------------- 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Other Information - Organization 13. Investment Objectives and Investment Policies; Investment Policies Restrictions 14. Management of the Fund Management - Officers and Directors 15. Control Persons and Principal Not Applicable Holders of Securities 16. Investment Advisory and Management - Investment Adviser; Other Services Officers and Directors; Administrative Services; Distribution of Fund Shares; Fees and Expenses; Portfolio Transactions - Brokerage and Research Services; Other Information - Custodian and Transfer Agent; Independent Accountants 17. Brokerage Allocation and Portfolio Transactions Other Practices 18. Capital Stock and Other Other Information - Capitalization Securities and Voting 19. Purchase, Redemption and Pricing Determination of Net Asset Value of Securities Being Offered Per Share 20. Tax Status Taxation 21. Underwriters Management - Distribution of Fund Shares; Fees and Expenses 22. Calculation of Performance Data Other Information - Performance Information 23. Financial Statements Not Applicable -3-
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SCHRODER INTERNATIONAL FUND TWO PORTLAND SQUARE PORTLAND, MAINE 04101 ____________ ADVISOR SHARES GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 FUND LITERATURE (800) 290-9826 SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - ADMINISTRATOR & DISTRIBUTOR This Prospectus offers Advisor Shares of Schroder International Fund (the "Fund"), a separately-managed, diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund's investment objective is long-term capital appreciation through investment in securities markets outside the United States. Investments in foreign securities involve special risks in addition to the risks associated with investments in general and there can be no assurance that the Fund's objective will be achieved. THE FUND CURRENTLY SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY HOLDING, AS ITS ONLY INVESTMENT SECURITIES, AN INTEREST IN INTERNATIONAL EQUITY FUND (THE "PORTFOLIO"), A SEPARATE PORTFOLIO OF SCHRODER CAPITAL FUNDS ("SCHRODER CORE"), A REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. ACCORDINGLY, THE FUND'S INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY WITH THE PORTFOLIO'S INVESTMENT EXPERIENCE. SEE "OTHER INFORMATION -- FUND STRUCTURE." This prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996. PROSPECTUS SUMMARY THE FUND. The Fund is a separately managed, diversified portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The Fund's investment objective is long-term capital appreciation through investment in securities markets outside the United States. Currently, the Fund seeks to achieve its investment objective by investing exclusively in the Portfolio, a series of Schroder Core, itself a registered open-end management investment company. The Portfolio has substantially the same investment objective and policies as the Fund. Accordingly, the investment experience of the Fund will correspond directly with the investment experience of the Portfolio. The Fund currently offers two separate classes of shares: Advisor Shares ("Advisor Shares") and Investor Shares ("Investor Shares"). Only Advisor Shares are offered through this Prospectus and are sometimes referred to herein as the "Shares." INVESTMENT ADVISER. The Portfolio's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. The investment advisory fee paid to SCMI by the Portfolio is borne indirectly by the Fund. See "Management - Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors"), formerly Schroder Capital Distributors, Inc., serves as Administrator and Distributor of the Fund, and Forum Financial Services, Inc. ("Forum") serves as the Fund's Sub-Administrator. PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $2,500, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. There can be no assurance that the Fund will achieve its investment objective, and the Fund's net asset value and total return will fluctuate based upon changes in the value of the securities in which the Portfolio invests. The Portfolio's objective of investing in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of U.S. issuers, including risks of foreign political and economic instability, adverse movements in exchange rates, and the imposition or tightening of limitations on the repatriation of capital. Accordingly, the Fund is not a complete investment program. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor in Advisor Shares would incur. There are no transaction expenses associated with purchases or redemptions of Advisor Shares. Annual Fund Operating Expenses (as a percentage of average net assets)(1), (2) Management Fees (after fee waivers) . . . . . . . . . . . . . . . 0.75% 12b-1 Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25% Other Expenses (after expense reimbursements) . . . . . . . . . . 0.49% Total Fund Operating Expenses (1) . . . . . . . . . . . . . . . . 1.49% (1) The amounts of expenses reflect the operating expenses of the Fund prior to its investment in the Portfolio and are based on amounts incurred for the Fund's most recent fiscal year ended October 31, 1995, after restatement to eliminate certain voluntary fee waivers and to reflect current fees borne by holders of Advisor Shares. Absent estimated fee waivers and expenses reimbursements, Management Fees, Other Expenses and Total Operating Expenses would be 0.80%, 0.55%, and 1.60%, respectively. (2) The Fund's expenses have, since November 1, 1995, and will continue to include the Fund's pro rata portion of all operating expenses of the Portfolio, which will be borne indirectly by Fund shareholders. The Trust's Board of Trustees believes that the aggregate per share expenses of the Fund and the Portfolio will be approximately equal to the expenses the Fund would incur if its assets were invested directly in portfolio securities. Investment advisory fees are those incurred by the Portfolio; as long as the Fund's assets are invested in the Portfolio, the Fund pays no investment advisory fees directly. See "Management." (3) Long-term holders of Advisor Shares may pay aggregate sales charges totaling more than the economic equivalent of the maximum front-end sales charge permitted by the Rules of Fair Practice of the National Association of Securities Dealers, Inc. SCMI and Schroder Advisors have voluntarily undertaken to waive a portion of their fees and assume certain expenses of the Fund during the current fiscal year to the extent that the Fund's total expenses exceed 1.49% of the Fund's average daily net assets. This undertaking cannot be withdrawn except by a majority vote of the the Trust's Board of Trustees. See "Management -- Expenses." EXAMPLE Based on the expenses listed above, an investor in Advisor Shares would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: 1 year. . . . . . . . . . . . . . . . $15 3 years . . . . . . . . . . . . . . . $47 5 years . . . . . . . . . . . . . . . $81 10 years . . . . . . . . . . . . . . . $178 THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share of the Fund for the periods shown. Information presented relates to Investor Shares of the Fund for a share outstanding for the periods shown. The holders of Investor Shares bear expenses that are lower than those borne by the holders of Advisor Shares. Prior to the date of this Prospectus, Advisor Shares had not been offered by the Fund. Acordingly, information has not been presented for Advisor Shares. Information for periods prior to August 1, 1989 pertains to the Fund's predecessor-in- interest, and to the Fund thereafter. Information for all periods after the year ended September 30, 1988 has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number for Fund Literature on the cover of this Prospectus. [Enlarge/Download Table] Year Year Year Year Year Year ended ended ended ended ended ended 10/31/95 10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 -------- -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period. . . . . . . . . 23.17 20.38 15.15 16.22 17.70 18.20 Investment Operations Net Investment Income. . . . . . . . 0.46 0.18 0.08 0.25 0.25 0.15 Net Realized Gain (Loss) . . . . . . (0.18) 2.69 5.27 (1.04) (0.25) (0.12) Total from Investment Operations . . . 0.28 2.87 5.35 (0.79) 0.00 0.03 Distributions Dividends from Net Investment Income . . . . . . . . - (0.08) (0.12) (0.23) (0.25) (0.16) Distributions from Realized Capital Gains . . . . . . . . . . (2.54) - - (0.05) (1.23) (0.37) Total Distributions. . . . . . . . . . (2.54) (0.08) (0.12) (0.28) (1.48) (0.53) Net Asset Value, End of Period . . . . 20.91 23.17 20.38 15.15 16.22 17.70 Total Return . . . . . . . . . . . . . 2.08% 14.10% 35.54% (4.93%) 0.45% (0.07%) Ratios/Supplementary Data Net Assets, End of Period (Thousands). . . . . . 212,330 500,504 320,550 159,556 108,398 62,438 Ratio of Expenses to Average Net Assets . . . . . . . . . 0.91% 0.90% 0.91% 0.93% 1.07% 1.12% Ratio of Net Investment Income to Average Net Assets . . . . 0.99% 0.94% 0.87% 1.62% 1.59% 0.83% Portfolio Turnover Rate. . . . . . . . 61.26% 25.17% 56.05% 49.42% 50.58% 55.91% Year Year 12/20/85 Month Year ended ended to ended ended 9/30/88 9/30/87 9/30/86 10/31/89 9/30/89 (unaudited) (unaudited) (unaudited) -------- ------- ----------- ----------- ----------- Net Asset Value, Beginning of Period. . . . . . . . . 18.95 14.40 18.02 14.07 10.00 Investment Operations Net Investment Income. . . . . . . . 0.03 0.20 0.05 (0.07) 0.02 Net Realized Gain (Loss) . . . . . . (0.78) 4.44 (2.34) 4.71 4.05 Total from Investment Operations . . . (0.75) 4.64 (2.29) 4.64 4.07 Distributions Dividends from Net Investment Income . . . . . . . . 0.00 (0.04) 0.00 (0.02) 0.00 Distributions from Realized Capital Gains . . . . . . . . . . . 0.00 (0.05) (1.33) (0.67) 0.00 Total Distributions. . . . . . . . . . 0.00 (0.09) (1.33) (0.69) 0.00 Net Asset Value, End of Period . . . . 18.20 18.95 14.40 18.02 14.07 Total Return . . . . . . . . . . . . . (4.01%) 32.2% (0.12%) 34.8% 39.2% Ratios/Supplementary Data Net Assets, End of Period (Thousands). . . . . . 49,740 48,655 29,917 32,553 9,152 Ratio of Expenses to Average Net Assets . . . . . . . . . 1.12%(1) 1.12% 1.30% 1.64% 2.47%(1) Ratio of Net Investment Income to Average Net Assets . . . . 2.29%(1) 1.27% 0.38% (0.42%) (0.12%)(1) Portfolio Turnover Rate. . . . . . . . 21.98%(1) 72.25% 86.19% 84.97% 77.53%(1) (1) Annualized INVESTMENT OBJECTIVE AND POLICIES The Fund is designed for U.S. investors who seek international diversification of their investments by participating in foreign securities markets. The Fund is not a complete investment program and investments in the securities of foreign issuers generally involve risks in addition to the risks associated with investments in the securities of U.S. issuers. See "Risk Considerations." INVESTMENT OBJECTIVE AND THE PORTFOLIO The investment objective of the Fund is long-term capital appreciation through investment in securities markets outside the United States. There is no assurance that the Fund will achieve its investment objective. The Fund currently seeks to achieve its investment objective by investing all of its investment assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Therefore, although the following discusses the investment policies of the Portfolio and the responsibilities of Schroder Core's Board of Trustees (the "Schroder Core Board"), it applies equally to the Fund and the Trust's Board of Trustees (the "Board"). Additional information concerning the investment policies of the Fund and the Portfolio, including additional fundamental policies, is contained in the SAI. INVESTMENT POLICIES The Portfolio normally invests at least 65% of its total assets in equity securities of companies domiciled outside the U.S. Investments by the Portfolio are selected on the basis of their potential for capital appreciation without regard for current income. The Portfolio may also invest in debt securities of foreign governments, international organizations and foreign corporations and, subject to certain restrictions, in the securities of closed-end investment companies investing primarily in foreign securities. The Portfolio may invest up to 5% of its net assets in debt securities with relatively high risk and high yields (as compared to other debt securities meeting the Portfolio's investment criteria). The debt securities in which the Portfolio invests may be unrated, but will not be in default at the time of purchase. The value of debt securities generally varies inversely with interest rate changes. See "Additional Investment Policies and Risk Considerations." Countries in which the Portfolio may invest include, but are not limited to, countries listed in the the Morgan Stanley EAFE-Registered Trademark- Index, which is a market capitalization index of companies in 20 developed market countries in Europe, Australasia and the Far East. The Portfolio invests in the securities of foreign issuers domiciled in at least three foreign countries. The Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country, the Portfolio may be susceptible to factors adversely affecting that country. The Portfolio also may invest in securities of issuers located in countries considered by some to be emerging market countries. See "Additional Investment Policies and Risk Considerations" and "- Emerging Markets." The Portfolio may purchase preferred stock and convertible debt securities, including warrants and convertible preferred stock, and may purchase American Depository Receipts, European Depository Receipts or other similar securities of foreign issuers. The Portfolio also may enter into foreign exchange contracts, including forward contracts to purchase or sell foreign currencies, in anticipation of its currency requirements and to protect against possible adverse movements in foreign exchange rates. Although such contracts may reduce the risk of loss to the Portfolio from adverse movements in currency values, the contracts also limit possible gains from favorable movements. For temporary defensive purposes, the Portfolio may invest without limitation in (or enter into repurchase agreements maturing in seven days or less with U.S. banks and broker-dealers with respect to) short-term debt securities, including U.S. Government securities, certificates of deposit and bankers' acceptances of U.S. banks. The Portfolio may also hold cash (U.S. dollars, foreign currencies or multinational currency units) and time deposits in U.S. and foreign banks. See "Additional Investment Policies and Risk Considerations" below and "Investment Policies" in the SAI for further information about all these types of investments. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and all investment policies of each of the Fund and the Portfolio that are designated as fundamental may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund or the Portfolio, as applicable. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. Unless otherwise indicated, all investment policies are not fundamental and may be changed by the Board without approval by shareholders of the Fund. Likewise, nonfundamental investment policies of the Portfolio may be changed by the Board of Trustees of Schroder Core (the "Schroder Core Board") without shareholder approval. For more information concerning shareholder voting, see "Other Information -- Capitalization and Voting" and "-Fund Structure." FUNDAMENTAL POLICIES The following investment restrictions of the Portfolio are fundamental policies: (a) The Portfolio will not invest more than 5% of its assets in the securities of any single issuer, except U.S. Government securities. (b) The Portfolio will not purchase more than 10% of the voting securities of any one issuer. (c) The Portfolio will not invest more than 10% of its assets in "illiquid securities," which are 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, (i) "restricted securities," which are securities that cannot be resold to the public without registration under the Federal securities laws, and (ii) securities of issuers having a record (together with all predecessors) of less than three years of continuous operation. (d) The Portfolio will not invest 25% or more of its total assets in any one industry. (e) The Portfolio will not pledge, mortgage or hypothecate its assets to an extent greater than 10% of the value of the total assets of the Portfolio. The limitation on investing in illiquid securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Schroder Core Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Portfolio's liquidity. The percentage restrictions described above and in the SAI apply only at the time of investment and require no action by the Portfolio as a result of subsequent changes in the value of the investments or the size of the Portfolio. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES COMMON AND PREFERRED STOCK AND WARRANTS. The Portfolio may invest in common and preferred stock. Common stockholders are the owners of the company issuing the stock and, accordingly, vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, upon liquidation of the company, are entitled to their pro rata share of the company's assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends and, in the alternative, as to the recovery of investment. A preferred stockholder is a shareholder in the company and not a creditor of the company, as is a holder of the company's fixed income securities. Dividends paid to common and preferred stockholders are distributions of the earnings of the company and not interest payments, which are expenses of the company. Equity securities owned by the Portfolio may be traded in the over-the counter market or on a securities exchange, but may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by the Portfolio of a security to meet redemptions by interest holders or otherwise may require the Portfolio to sell these securities at a discount from market prices, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measure of a company's worth. The Portfolio may also invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance) and usually during a specified period of time. FOREIGN EXCHANGE CONTRACTS. Changes in foreign currency exchange rates will affect the U.S. dollar values of securities denominated in currencies other than the U.S dollar. The rate of exchange between the U.S. dollar and other currencies fluctuates in response to forces of supply and demand in the foreign exchange markets. These forces are affected by the international balance of payments and other economic and financial conditions, government intervention, speculation and other factors, many of which may be difficult if not impossible to predict. When investing in foreign securities, the Portfolio usually effects currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market. The Portfolio incurs foreign exchange expenses in converting assets from one currency to another. The Portfolio may enter into foreign currency forward contracts for the purchase or sale of foreign currency to "lock in" the U.S. dollar price of the securities denominated in a foreign currency or the U.S. dollar value of interest and dividends to be paid on such securities, or to hedge against the possibility that the currency of a foreign country in which the Portfolio has investments may suffer a decline against the U.S. dollar. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. This method of attempting to hedge the value of portfolio securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. Although the strategy of engaging in foreign currency transactions could reduce the risk of loss due to a decline in the value of the hedged currency, it could also limit the potential gain from an increase in the value of the currency. The Portfolio does not intend to maintain a net exposure to such contracts where the fulfillment of the Portfolio's obligations under such contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's portfolio securities or other assets denominated in the currency. The Portfolio will not enter into these contracts for speculative purposes and will not enter into non-hedging currency contracts. These contracts involve a risk of loss if SCMI fails to predict currency values correctly. The Portfolio has no present intention to enter into currency futures or options contracts but may do so in the future. Because most of the Portfolio's income will be received and realized in foreign currencies and the Portfolio will be required to compute and distribute income in U.S. dollars, a decline in the value of a particular foreign currency against the U.S. dollar occurring after the Portfolio's income has been earned and thereafter computed into U.S. dollars may require the Portfolio to liquidate some portfolio securities to acquire sufficient U.S. dollars to make such distributions. Similarly, if the exchange rate declines between the time the Portfolio incurs expenses in U.S. dollars and the time such expenses are paid, the Portfolio may be required to liquidate additional foreign securities to purchase the U.S. dollars required to meet such expenses. DEBT SECURITIES. The Portfolio may seek capital appreciation through investment in convertible or non-convertible debt securities. Capital appreciation in debt securities may arise as a result of a favorable change in relative foreign exchange rates, in relative interest rate levels, or in the creditworthiness of issuers. The receipt of income from such debt securities is incidental to the Portfolio's objective of long-term capital appreciation. Such income can be used, however, to offset the operating expenses of the Portfolio. In accordance with its investment objective, the Portfolio will not seek to benefit from anticipated short-term fluctuations in currency exchange rates. The Portfolio may, from time to time, invest in debt securities with relatively high risk and high yields (as compared to other debt securities meeting the Portfolio's investment criteria), notwithstanding that the Portfolio may not anticipate that such securities will experience substantial capital appreciation. The debt securities in which the Portfolio invests may be unrated, but will not be in default at the time of purchase. The Portfolio also may invest to a certain extent in debt securities in order to participate in debt-to-equity conversion programs incident to corporate reorganizations. The Portfolio may invest in debt securities issued or guaranteed by foreign governments (including countries, provinces and municipalities) or their agencies and instrumentalities, debt securities issued or guaranteed by international organizations designated or supported by multiple foreign governmental entities (which are not obligations of foreign governments) to promote economic reconstruction or development, and debt securities issued by corporations or financial institutions. RISK CONSIDERATIONS FOREIGN INVESTMENTS. All investments, domestic and foreign, involve certain risks. Investment in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of U.S. issuers. In general, the Portfolio will invest only in securities of companies and governments in countries which SCMI, in its judgment, considers both politically and economically stable. Nevertheless, all foreign investments are subject to risks of foreign political and economic instability, adverse movements in foreign exchange rates, the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital and changes in foreign governmental attitudes towards private investment possibly leading to nationalization, increased taxation or confiscation of Portfolio assets. To the extent the Portfolio invests substantially in issuers located in one country or area, such investments may be subject to greater risk in the event of political or social instability or adverse economic developments affecting that country or area. Moreover, (i) dividends payable on foreign securities may be subject to foreign withholding taxes, thereby reducing the income available for distribution to the Portfolio's, and thus the Fund's, shareholders; (ii) commission rates payable on foreign portfolio transactions are generally higher than in the U.S.; (iii) accounting, auditing and financial reporting standards differ from those in the U.S., and this may mean that less information about foreign companies may be available than is generally available about issuers of comparable securities in the U.S.; (iv) foreign securities often trade less frequently and with less volume than U.S. securities and consequently may exhibit greater price volatility; and (v) foreign securities trading practices, including those involving securities settlement, may expose the Portfolio to increased risk in the event of a failed trade or the insolvency of a foreign broker-dealer or registrar. EMERGING MARKETS. The Portfolio may invest in securities of issuers located in countries considered by some to be emerging market countries. The risks of investing in foreign securities may be greater with respect to securities of issuers in, or denominated in the currencies of, emerging market countries. The economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The securities markets of emerging market countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and other developed countries. Disclosure and regulatory standards in many respects are less stringent in emerging market countries than in the U.S. and other major markets. In addition, the enforcement of existing regulations may be extremely limited. There also may be a lower level of monitoring and regulation of emerging markets and the activities of brokers in such markets. Investing in local markets, particularly in emerging market countries, may require the Portfolio to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Portfolio. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests. CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest heavily in non-U.S. currency denominated securities, changes in foreign currency exchange rates will affect the value of the Portfolio's investments. A decline in the value of currencies in which the Portfolio's investments are denominated against the dollar will result in a corresponding decline in the dollar value of the Portfolio's assets. This risk tends to be heightened in the case of investing in certain emerging market countries GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country, the Portfolio is susceptible to factors adversely affecting that country. In particular, these factors may include the political and economic developments and foreign exchange rate fluctuations discussed above. As a result of investing substantially in one country, the value of the Portfolio's assets may fluctuate more widely than the value of shares of a comparable fund a lesser degree of geographic concentration. PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but its portfolio turnover rate is not expected to exceed 100%. High portfolio turnover and short-term trading involve correspondingly greater commission expenses and transaction costs. Also, higher portfolio turnover rates may cause shareholders of the Portfolio to recognize gains for federal income tax purposes. See "Taxation" in the SAI. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The business and affairs of the Portfolio are managed under the direction of the Schroder Core Board. The Trustees of both the Trust and Schroder Core are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the respective executive officers of the Trust and Schroder Core may be found in the SAI under the heading "Management - Trustees and Officers." The Board and the Schroder Core Board have separately adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER The Fund currently invests all of its assets in the Portfolio. SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Portfolio and continuously reviews, supervises and administers the Portfolio's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Portfolio's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. For its services with respect to the Portfolio, SCMI receives a monthly advisory fee equal on an annual basis to 0.45% of the Portfolio's average daily net assets, which the Fund indirectly bears through investment in the Portfolio. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly- owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. The investment management team of Laura Luckyn-Malone, a Trustee and President of the Trust and Schroder Core, and Mark J. Smith, a Trustee and Vice President of the Trust and Schroder Core, with the assistance of an SCMI investment committee, is primarily responsible for the day-to-day management of the Portfolio's investments. Ms. Luckyn-Malone, who joined the Portfolio's investment management team in ____________ 1995, has been a Senior Vice President and Director of SCMI since 1990. Mr. Smith, who has managed the Fund's portfolio since October 1989 and the Portfolio's investments since its inception, has been a First Vice President of SCMI since April 1990 and a Director thereof since April 1993. He has been employed by various Schroder Group companies in the investment research and portfolio management areas since 1983. The Fund began pursuing its investment objective through investment in the Portfolio on November 1, 1995. The Fund may withdraw its investment from the Portfolio at any time if the Board determines that it is in the best interests of the Fund and its shareholders to do so. See "Other Information C Fund Structure." Accordingly, the Fund has retained SCMI as its investment adviser to manage the Fund's assets in the event the Fund withdraws its investment. SCMI does not receive an investment advisory fee with respect to the Fund so long as the Fund remains completely invested in the Portfolio or any other investment company. If the Fund resumes directly investing in portfolio securities, the Fund will pay SCMI a monthly advisory fee equal on an annual basis to 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. The investment advisory contract between SCMI and the Trust with respect to the Fund is the same in all material respects as the investment advisory contract between SCMI and Scroder Core with respect to the Portfolio, except as to the parties, the fees payable thereunder, the circumstances under which fees will be paid and the jurisdiction whose laws govern the agreement. For the fiscal year ended October 31, 1995, during which time the Fund invested directly in portfolio securities, the Fund paid SCMI an advisory fee of 0.45% of its average daily net assets. ADMINISTRATIVE SERVICES On behalf of the Fund, the Trust has entered into an administrative services contract with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned subsidiary of SCMI. The Trust and Schroder Advisors have entered into a sub-administration agreement with Forum. Pursuant to these agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. For these services, the Fund pays Schroder Advisors a monthly fee at the annual rate of 0.20% of the Fund's average daily net assets. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. Schroder Advisors and Forum provide similar services to the Portfolio, for which the Portfolio pays Schroder Advisors a monthly fee at the annual rate of 0.15 % of the Portfolio's average daily net assets, a portion of which Schroder Advisors pays Forum for its services with respect to the Portfolio. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN Schroder Advisors acts as distributor of the Fund's shares. Under a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") adopted by the Trust on behalf of the Fund, each month the Trust pays directly or reimburses Schroder Advisors, as distributor, for costs and expenses incurred in connection with the distribution of Advisor Shares. Such payment or reimbursement is subject to a limit on an annual basis to 0.50% of the Fund's average daily net assets attributable to Advisor Shares. The maximum annual amount payable under the Distribution Plan is currently 0.25%, which amount may only be increased by action of the Board. Payment or reimbursement under the Distribution Plan may be for various types of costs, including: (1) advertising expenses, (2) costs of printing prospectuses and other materials to be given or sent to prospective investors, (3) expenses of sales employees or agents of Schroder Advisors, including salary, commissions, travel and related expenses in connection with the distribution of Advisor Shares, (4) payments to broker-dealers who advise shareholders regarding the purchase, sale, or retention of Advisor Shares, and (5) payments to banks, trust companies, broker-dealers (other than Schroder Advisors) or other financial organizations (collectively, "Service Organizations"). Payments to Service Organizations under the Distribution Plan are calculated by reference to the average daily net assets of Advisor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. The Fund will not be liable for distribution expenditures made by Schroder Advisors in any given year in excess of the maximum amount payable under the Distribution Plan in that year. Costs or expenses in excess of the per annum limit may not be carried forward to future years. Salary expenses of salesmen who are responsible for marketing various mutual funds of the Trust may be allocated to those funds, including the Advisor Shares class of the Fund, that have adopted a distribution plan similar to that of the Fund on the basis of average daily net assets. Travel expenses may be allocated to, or divided among, the particular funds of the Trust for which they are incurred. The Trust, on behalf of the Fund, has also adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which Schroder Advisors, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Advisor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. EXPENSES SCMI and Schroder Advisors have voluntarily undertaken to assume certain expenses of the Fund and the Portfolio (or waive their respective fees). This undertaking is designed to place a maximum limit on total Fund expenses (excluding taxes, interest, brokerage commissions and other portfolio transaction expenses and extraordinary expenses) of 1.49% of the average daily net assets of the Fund attributable to Advisor Shares. This expense limitation cannot be modified or withdrawn except by a majority vote of the Trustees of the Trust who are not affiliated with SCMI or Schroder Advisors . If expense reimbursements are required, they will be made on a monthly basis. SCMI will reimburse the Fund for four-fifths of the amount required and Schroder Advisors will reimburse the Fund for the remaining one-fifth; provided, however, that neither SCMI nor Schroder Advisors will be required to make any reimbursements or waive any fees in excess of the fees payable to them by the Fund and the Portfolio on a monthly basis for their respective advisory and administrative services. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Portfolio's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Portfolio may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Commission rates for brokerage transactions are fixed on many foreign securities exchanges, and this may cause higher brokerage expenses to accrue to the Portfolio than would be the case for comparable transactions effected on U.S. securities exchanges. Subject to the Portfolio's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ Schroder Securities Limited and its affiliates (collectively, "Schroder Securities"), affiliates of SCMI, to effect transactions of the Portfolio on certain foreign securities exchanges. Because of the affiliation between SCMI and Schroder Securities, the Portfolio's payment of commissions to Schroder Securities is subject to procedures adopted by Schroder Core's Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Portfolio's brokerage will be directed to Schroder Securities and in no event will Schroder Securities receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Schroder Core Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Portfolio as a factor in the selection of broker-dealers to execute portfolio transactions for the Portfolio. Although the Portfolio does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Portfolio's portfolio transactions would agree to pay designated expenses of the Portfolio if brokerage commissions generated by the Portfolio reached certain levels, might reduce the Portfolio's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Portfolio. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, Schroder Core, SCMI, Schroder Advisors, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Advisor Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information -- Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a Purchase Order (at the address set forth below). The minimum initial investment is $____, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder International Fund, to: Schroder International Fund P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder International Fund C Advisor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the class of shares, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the Transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax- qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the class of shares, the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information - Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $2,000, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $2,000 and be allowed at least 30 days to make an additional investment to increase the account balance to at least $2,000. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets (which is principally the value of the Fund's investment in the Portfolio) less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Portfolio that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over-the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Schroder Core Board. Trading by the Portfolio in securities on European and Far Eastern exchanges and over-the-counter markets may not take place on every day that the New York Stock Exchange is open for trading. Furthermore, trading takes place in various foreign markets on days on which the Fund's net asset value is not calculated. As a result, the Fund's net asset value may be significantly affected by such trading on days when an investor has no access to the Fund. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when net asset value is calculated, such securities will be valued at fair value as determined in good faith by using methods approved by the Schroder Core Board. All assets and liabilities of the Portfolio denominated in foreign currencies are valued in U.S. dollars based on the exchange rate last quoted by a major bank prior to the time when the net asset value of the Fund is calculated. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. THE PORTFOLIO The Portfolio is not required to pay Federal income taxes on its net investment income and capital gain, as it is treated as a partnership for Federal income tax purposes. All interest, dividends and gain and losses of the Portfolio are deemed to have been "passed through" to the Fund in proportion to its holdings of the Portfolio, regardless of whether such interest, dividends or gain have been distributed by the Portfolio or losses have been realized by the Portfolio. Investment income received by the Fund from sources within foreign countries may be subject to foreign income or other taxes, with respect to which shareholders may be entitled to claim a credit or deduction. See "The Fund" immediately above. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Advisor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. From time to time, certain shareholders may own a large percentage of the shares of the Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's and of the Portfolio's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder International Fund P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. FUND STRUCTURE OTHER CLASSES OF SHARES. The Fund has two classes of shares, Advisor Shares and Investor Shares. Investor Shares are offered by a separate prospectus to corporations, institutions, and fiduciaries, including fiduciary, agency, and custodial clients of bank trust departments, trust companies, and their affiliates. Investor Shares incur less expenses than Advisor Shares. Accordingly, the performance of the two classes will differ. Except for certain differences, each share of each class represents an undivided, proportionate interest in the Fund. Each share of the Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of the Fund except that, due to the differing expenses borne by the two classes, the amount of dividends and other distribution will differ between the classes. Information about Investor Shares is available from the Fund by calling Forum Financial Corp. at (207) 879-8903. THE PORTFOLIO. The Fund seeks to achieve its investment objective by investing all of its investable assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Accordingly, the Portfolio directly acquires its own securities and the Fund acquires an indirect interest in those securities. The Portfolio is a separate series of Schroder Core, a business trust organized under the laws of the State of Delaware in September 1995. Schroder Core is registered under the Act as an open-end management investment company and currently has four separate portfolios. The assets of the Portfolio, a diversified portfolio, belong only to, and the liabilities of the Portfolio are borne solely by, the Portfolio and no other portfolio of Schroder Core. The investment objective and fundamental investment policies of the Fund and the Portfolio can be changed only with shareholder approval. See "Investment Objective and Policies" and "Management of the Fund" for a complete description of the Portfolio's investment objective, policies, restrictions, management, and expenses. The Fund's investment in the Portfolio is in the form of a non-transferable beneficial interest. As of the date of this Prospectus, the Fund is the only institutional investor in the Portfolio. The Portfolio may permit other investment companies or institutional investors to invest in it. All investors in the Portfolio will invest on the same terms and conditions as the Fund and will pay a proportionate share of the Portfolio's expenses. The Portfolio normally will not hold meetings of investors except as required by the Act. Each investor in the Portfolio will be entitled to vote in proportion to its relative beneficial interest in the Portfolio. On most issues subject to a vote of investors, as required by the Act and other applicable law, the Fund will solicit proxies from shareholders of the Fund and will vote its interest in the Portfolio in proportion to the votes cast by its shareholders. If there are other investors in the Portfolio, there can be no assurance that any issue that receives a majority of the votes cast by Fund shareholders will receive a majority of votes cast by all investors in the Portfolio; indeed, if other investors hold a majority interest in the Portfolio, they could hold have voting control of the Portfolio. The Portfolio will not sell its shares directly to members of the general public. Another investor in the Portfolio, such as an investment company, that might sell its shares to members of the general public would not be required to sell its shares at the same public offering price as the Fund, and could have different advisory and other fees and expenses than the Fund. Therefore, Fund shareholders may have different returns than shareholders in another investment company that invests exclusively in the Portfolio. There is currently no such other investment company that offers its shares to members of the general public. Information regarding any such funds in the future will be available from Schroder Core by calling Forum Financial Corp. at (207) 879-8903. Under the Federal securities laws, any person or entity that signs a registration statement may be liable for a misstatement or omission of a material fact in the registration statement. Schroder Core, its Trustees and certain of its officers are required to sign the registration statement of the Trust and the registration statements of certain other publicly-offered investors in the Portfolio. In addition, under the Federal securities laws, Schroder Core could be liable for a misstatements or omissions of a material fact in any proxy soliciting material of a publicly-offered investor in Schroder Core, including the Fund. Under the Trust Instrument for the Schroder Core, each investor in the Portfolio, including the Trust, indemnifies Schroder Core and its Trustees and officers ("Schroder Core Indemnitees") against certain claims. Indemnified claims are those brought against Schroder Core Indemnitees but based on a misstatement or omission of a material fact in the investor's registration statement or proxy materials, except to the extent such claim is based on a misstatement or omission of a material fact relating to information about Schroder Core in the investor's registration statement or proxy materials that was supplied to the investor by Schroder Core. Similarly, Schroder Core indemnifies each investor in the Portfolio, including the Fund, for any claims brought against the investor with respect to the investor's registration statement or proxy materials, to the extent the claim is based on a misstatement or omission of a material fact relating to information about Schroder Core that is supplied to the investor by Schroder Core. In addition, each registered investment company investor in the Portfolio indemnifies 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 Core. The purpose of these cross-indemnity provisions is principally to limit the liability of Schroder Core to information that it knows or should know and can control. With respect to other prospectuses and other offering documents and proxy materials of investors in Schroder Core, Schroder Core's liability is similarly limited to information about and supplied by Schroder Core. CERTAIN RISKS OF INVESTING IN THE PORTFOLIO. The Fund's investment in the Portfolio may be affected by the actions of other large investors in the Portfolio, if any. For example, if the Portfolio had a large investor other than the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining investors (including the Fund) might, as a result, experience higher pro rata operating expenses, thereby producing lower returns. The Fund may withdraw its entire investment from the Portfolio at any time, if the Board determines that it is in the best interests of the Fund and its shareholders to do so. The Fund might withdraw, for example, if there were other investors in the Portfolio with power to, and who did by a vote of the shareholders of all investors (including the Fund), change the investment objective or policies of the Portfolio in a manner not acceptable to the Board. A withdrawal could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the Portfolio. That distribution could result in a less diversified portfolio of investments for the Fund and could affect adversely the liquidity of the Fund's portfolio. If the Fund decided to convert those securities to cash, it usually would incur brokerage fees or other transaction costs. If the Fund withdrew its investment from the Portfolio, the Board would consider what action might be taken, including the management of the Fund's assets in accordance with its investment objective and policies by the SCMI, the Fund's investment adviser and subadviser, respectively, or the investment of all of the Fund's investable assets in another pooled investment entity having substantially the same investment objective as the Fund. The inability of the Fund to find a suitable replacement investment, in the event the Board decided not to permit 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, will be liable for all obligations of the Portfolio, but not any other portfolio of Schroder Core. The risk to an investor in the Portfolio of incurring financial loss on account of such liability, however, would be limited to circumstances in which the Portfolio was unable to meet its obligations. 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. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Global Custody Division Woolgate House, Coleman Street London EC2P 2HD, United Kingdom TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand, L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . Investment Adviser . . . . . . . . . . . .... Administrative Services. . . . . . . . . . . Purchases and Redemptions. . . . . . . . . . Risk Considerations. . . . . . . . . . . . . Fee Table. . . . . . . . . . . . . . . . . . FINANCIAL HIGHLIGHTS . . . . . . . . . . . . INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . Investment Objective and the Portfolio . . . Investment Policies. . . . . . . . . . . . . ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS. . . . . . . . . . . . Investment Restrictions. . . . . . . . . . . Investment Types . . . . . . . . . . . . . . Risk Considerations. . . . . . . . . . . . . MANAGEMENT . . . . . . . . . . . . . . . . . Board of Trustees. . . . . . . . . . . . . . Investment Adviser and Portfolio Manager . . Administrative Services. . . . . . . . . . . Distribution Plan and Shareholder Services Plan Expenses . . . . . . . . . . . . . . . . . . Portfolio Transactions Code of Ethics . . . . . . . . . . . . . . . INVESTMENT IN THE FUND . . . . . . . . . . . Purchase of Shares . . . . . . . . . . . . . Retirement Plans . . . . . . . . . . . . . . Individual Retirement Accounts . . . . . . . Redemption of Shares . . . . . . . . . . . . Net Asset Value. . . . . . . . . . . . . . . DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . The Portfolio. . . . . . . . . . . . . . . . OTHER INFORMATION. . . . . . . . . . . . . . Capitalization and Voting. . . . . . . . . . Reports. . . . . . . . . . . . . . . . . . . Performance Information. . . . . . . . . . . Custodian and Transfer Agent . . . . . . . . Shareholder Inquires . . . . . . . . . . . . Certain Servicing Organizations. . . . . . . Fund Structure . . . . . . . . . . . . . . .
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SCHRODER INTERNATIONAL FUND TWO PORTLAND SQUARE PORTLAND, MAINE 04101 ____________ INVESTOR SHARES GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 FUND LITERATURE (800) 290-9826 SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - ADMINISTRATOR & DISTRIBUTOR This Prospectus offers Investor Shares of Schroder International Fund (the "Fund"), a separately-managed, diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund's investment objective is long-term capital appreciation through investment in securities markets outside the United States. Investments in foreign securities involve special risks in addition to the risks associated with investments in general and there can be no assurance that the Fund's objective will be achieved. THE FUND CURRENTLY SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY HOLDING, AS ITS ONLY INVESTMENT SECURITIES, AN INTEREST IN INTERNATIONAL EQUITY FUND (THE "PORTFOLIO"), A SEPARATE PORTFOLIO OF SCHRODER CAPITAL FUNDS ("SCHRODER CORE"), A REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. ACCORDINGLY, THE FUND'S INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY WITH THE PORTFOLIO'S INVESTMENT EXPERIENCE. SEE "OTHER INFORMATION - FUND STRUCTURE." This prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996. PROSPECTUS SUMMARY THE FUND. The Fund is a separately managed, diversified portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The Fund's investment objective is long-term capital appreciation through investment in securities markets outside the United States. Currently, the Fund seeks to achieve its investment objective by investing exclusively in the Portfolio, a series of Schroder Core, itself a registered open-end management investment company. The Portfolio has substantially the same investment objective and policies as the Fund. Accordingly, the investment experience of the Fund will correspond directly with the investment experience of the Portfolio. The Fund currently offers two separate classes of shares: Investor Shares ("Investor Shares") and Advisor Shares ("Advisor Shares"). Only Investor Shares are offered through this Prospectus and are sometimes referred to herein as the "Shares." INVESTMENT ADVISER. The Portfolio's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. The investment advisory fee paid to SCMI by the Portfolio is borne indirectly by the Fund. See "Management - Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors"), formerly Schroder Capital Distributors, Inc., serves as Administrator and Distributor of the Fund, and Forum Financial Services, Inc. ("Forum") serves as the Fund's Sub-Administrator. PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $10,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund - Purchase of Shares" and "- Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. There can be no assurance that the Fund will achieve its investment objective, and the Fund's net asset value and total return will fluctuate based upon changes in the value of the securities in which the Portfolio invests. The Portfolio's objective of investing in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of U.S. issuers, including risks of foreign political and economic instability, adverse movements in exchange rates, and the imposition or tightening of limitations on the repatriation of capital. Accordingly, the Fund is not a complete investment program. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor in Investor Shares would incur. There are no transaction expenses associated with purchases or redemptions of Investor Shares. Annual Fund Operating Expenses (as a percentage of average net assets)(1), (2) Management Fees (after fee waivers) 0.75% 12b-1 Fees None Other Expenses (after expense reimbursements) 0.24% Total Fund Operating Expenses (1) 0.99% (1) The amounts of expenses reflect the operating expenses of the Fund prior to its investment in the Portfolio and are based on amounts incurred for the Fund's most recent fiscal year ended October 31, 1995, after restatement to eliminate certain voluntary fee waivers. Absent estimated fee waivers and expenses reimbursements, Management Fees, Other Expenses and Total Operating Expenses would be 0.80%, 1.20%%, and 2.95%, respectively. (2) The Fund's expenses have, since November 1, 1995, and will continue to include the Fund's pro rata portion of all operating expenses of the Portfolio, which will be borne indirectly by Fund shareholders. The Trust's Board of Trustees believes that the aggregate per share expenses of the Fund and the Portfolio will be approximately equal to the expenses the Fund would incur if its assets were invested directly in portfolio securities. Investment advisory fees are those incurred by the Portfolio; as long as the Fund's assets are invested in the Portfolio, the Fund pays no investment advisory fees directly. See "Management." SCMI and Schroder Advisors have voluntarily undertaken to waive a portion of their fees and assume certain expenses of the Fund during the current fiscal year to the extent that the Fund's total expenses exceed 0.99% of the Fund's average daily net assets. This undertaking cannot be withdrawn except by a majority vote of the the Trust's Board of Trustees. See "Management -Expenses." EXAMPLE Based on the expenses listed above, an investor in Investor Shares would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: 1 year $10 3 years $32 5 years $55 10 years $121 THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share of Investor Shares of the Fund for the periods shown. Information for periods prior to August 1, 1989 pertains to the Fund's predecessor-in-interest, and to the Fund thereafter. Information for all periods after the year ended September 30, 1988 has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number for Fund Literature on the cover of this Prospectus. [Enlarge/Download Table] Year Year 12/20/85 Year Year Year Year Year Year Month Year ended ended to ended ended ended ended ended ended ended ended 9/30/88 9/30/87 9/30/86 10/31/95 10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 9/30/89 (unaudited) (unaudited) (unaudited) -------- -------- -------- -------- -------- -------- -------- ------- ----------- ----------- ----------- Net Asset Value, Beginning of Period 23.17 20.38 15.15 16.22 17.70 18.20 18.95 14.40 18.02 14.07 10.00 Investment Operations Net Investment Income 0.46 0.18 0.08 0.25 0.25 0.15 0.03 0.20 0.05 (0.07) 0.02 Net Realized Gain (Loss) (0.18) 2.69 5.27 (1.04) (0.25) (0.12) (0.78) 4.44 (2.34) 4.71 4.05 Total from Investment Operations 0.28 2.87 5.35 (0.79) 0.00 0.03 (0.75) 4.64 (2.29) 4.64 4.07 Distributions Dividends from Net Investment Income - (0.08) (0.12) (0.23) (0.25) (0.16) 0.00 (0.04) 0.00 (0.02) 0.00 Distributions from Realized Capital Gains (2.54) - - (0.05) (1.23) (0.37) 0.00 (0.05) (1.33) (0.67) 0.00 Total Distributions (2.54) (0.08) (0.12) (0.28) (1.48) (0.53) 0.00 (0.09) (1.33) (0.69) 0.00 Net Asset Value, End of Period 20.91 23.17 20.38 15.15 16.22 17.70 18.20 18.95 14.40 18.02 14.07 Total Return 2.08% 14.10% 35.54% (4.93%) 0.45% (0.07%) (4.01%) 32.2% (0.12%) 34.8% 39.2% Ratios/Supplementary Data Net Assets, End of Period (Thousands) 212,330 500,504 320,550 159,556 108,398 62,438 49,740 48,655 29,917 32,553 9,152 Ratio of Expenses to Average Net Assets 0.91% 0.90% 0.91% 0.93% 1.07% 1.12% 1.12%(1) 1.12% 1.30% 1.64% 2.47%(1) Ratio of Net Investment Income to Average Net Assets 0.99% 0.94% 0.87% 1.62% 1.59% 0.83% 2.29%(1) 1.27% 0.38% (0.42%) (0.12%)(1) Portfolio Turnover Rate 61.26% 25.17% 56.05% 49.42% 50.58% 55.91% 21.98%(1) 72.25% 86.19% 84.97% 77.53%(1) (1) Annualized INVESTMENT OBJECTIVE AND POLICIES The Fund is designed for U.S. investors who seek international diversification of their investments by participating in foreign securities markets. The Fund is not a complete investment program and investments in the securities of foreign issuers generally involve risks in addition to the risks associated with investments in the securities of U.S. issuers. See "Risk Considerations." INVESTMENT OBJECTIVE AND THE PORTFOLIO The investment objective of the Fund is long-term capital appreciation through investment in securities markets outside the United States. There is no assurance that the Fund will achieve its investment objective. The Fund currently seeks to achieve its investment objective by investing all of its investment assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Therefore, although the following discusses the investment policies of the Portfolio and the responsibilities of Schroder Core's Board of Trustees (the "Schroder Core Board"), it applies equally to the Fund and the Trust's Board of Trustees (the "Board"). Additional information concerning the investment policies of the Fund and the Portfolio, including additional fundamental policies, is contained in the SAI. INVESTMENT POLICIES The Portfolio normally invests at least 65% of its total assets in equity securities of companies domiciled outside the U.S. Investments by the Portfolio are selected on the basis of their potential for capital appreciation without regard for current income. The Portfolio may also invest in debt securities of foreign governments, international organizations and foreign corporations and, subject to certain restrictions, in the securities of closed-end investment companies investing primarily in foreign securities. The Portfolio may invest up to 5% of its net assets in debt securities with relatively high risk and high yields (as compared to other debt securities meeting the Portfolio's investment criteria). The debt securities in which the Portfolio invests may be unrated, but will not be in default at the time of purchase. The value of debt securities generally varies inversely with interest rate changes. See "Additional Investment Policies and Risk Considerations." Countries in which the Portfolio may invest include, but are not limited to, countries listed in the the Morgan Stanley EAFE-Registered Trademark- Index, which is a market capitalization index of companies in 20 developed market countries in Europe, Australasia and the Far East. The Portfolio invests in the securities of foreign issuers domiciled in at least three foreign countries. The Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country, the Portfolio may be susceptible to factors adversely affecting that country. The Portfolio also may invest in securities of issuers located in countries considered by some to be emerging market countries. See "Additional Investment Policies and Risk Considerations" and "-- Emerging Markets." The Portfolio may purchase preferred stock and convertible debt securities, including warrants and convertible preferred stock, and may purchase American Depository Receipts, European Depository Receipts or other similar securities of foreign issuers. The Portfolio also may enter into foreign exchange contracts, including forward contracts to purchase or sell foreign currencies, in anticipation of its currency requirements and to protect against possible adverse movements in foreign exchange rates. Although such contracts may reduce the risk of loss to the Portfolio from adverse movements in currency values, the contracts also limit possible gains from favorable movements. For temporary defensive purposes, the Portfolio may invest without limitation in (or enter into repurchase agreements maturing in seven days or less with U.S. banks and broker-dealers with respect to) short-term debt securities, including U.S. Government securities, certificates of deposit and bankers' acceptances of U.S. banks. The Portfolio may also hold cash (U.S. dollars, foreign currencies or multinational currency units) and time deposits in U.S. and foreign banks. See "Additional Investment Policies and Risk Considerations" below and "Investment Policies" in the SAI for further information about all these types of investments. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and all investment policies of each of the Fund and the Portfolio that are designated as fundamental may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund or the Portfolio, as applicable. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. Unless otherwise indicated, all investment policies are not fundamental and may be changed by the Board without approval by shareholders of the Fund. Likewise, nonfundamental investment policies of the Portfolio may be changed by the Board of Trustees of Schroder Core (the "Schroder Core Board") without shareholder approval. For more information concerning shareholder voting, see "Other Information - Capitalization and Voting" and "- Fund Structure." FUNDAMENTAL POLICIES The following investment restrictions of the Portfolio are fundamental policies: (a) The Portfolio will not invest more than 5% of its assets in the securities of any single issuer, except U.S. Government securities. (b) The Portfolio will not purchase more than 10% of the voting securities of any one issuer. (c) The Portfolio will not invest more than 10% of its assets in "illiquid securities," which are 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, (i) "restricted securities," which are securities that cannot be resold to the public without registration under the Federal securities laws, and (ii) securities of issuers having a record (together with all predecessors) of less than three years of continuous operation. (d) The Portfolio will not invest 25% or more of its total assets in any one industry. (e) The Portfolio will not pledge, mortgage or hypothecate its assets to an extent greater than 10% of the value of the total assets of the Portfolio. The limitation on investing in illiquid securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Schroder Core Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Portfolio's liquidity. The percentage restrictions described above and in the SAI apply only at the time of investment and require no action by the Portfolio as a result of subsequent changes in the value of the investments or the size of the Portfolio. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES COMMON AND PREFERRED STOCK AND WARRANTS. The Portfolio may invest in common and preferred stock. Common stockholders are the owners of the company issuing the stock and, accordingly, vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, upon liquidation of the company, are entitled to their pro rata share of the company's assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends and, in the alternative, as to the recovery of investment. A preferred stockholder is a shareholder in the company and not a creditor of the company, as is a holder of the company's fixed income securities. Dividends paid to common and preferred stockholders are distributions of the earnings of the company and not interest payments, which are expenses of the company. Equity securities owned by the Portfolio may be traded in the over-the counter market or on a securities exchange, but may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by the Portfolio of a security to meet redemptions by interest holders or otherwise may require the Portfolio to sell these securities at a discount from market prices, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measure of a company's worth. The Portfolio may also invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance) and usually during a specified period of time. FOREIGN EXCHANGE CONTRACTS. Changes in foreign currency exchange rates will affect the U.S. dollar values of securities denominated in currencies other than the U.S dollar. The rate of exchange between the U.S. dollar and other currencies fluctuates in response to forces of supply and demand in the foreign exchange markets. These forces are affected by the international balance of payments and other economic and financial conditions, government intervention, speculation and other factors, many of which may be difficult if not impossible to predict. When investing in foreign securities, the Portfolio usually effects currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market. The Portfolio incurs foreign exchange expenses in converting assets from one currency to another. The Portfolio may enter into foreign currency forward contracts for the purchase or sale of foreign currency to "lock in" the U.S. dollar price of the securities denominated in a foreign currency or the U.S. dollar value of interest and dividends to be paid on such securities, or to hedge against the possibility that the currency of a foreign country in which the Portfolio has investments may suffer a decline against the U.S. dollar. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. This method of attempting to hedge the value of portfolio securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. Although the strategy of engaging in foreign currency transactions could reduce the risk of loss due to a decline in the value of the hedged currency, it could also limit the potential gain from an increase in the value of the currency. The Portfolio does not intend to maintain a net exposure to such contracts where the fulfillment of the Portfolio's obligations under such contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's portfolio securities or other assets denominated in the currency. The Portfolio will not enter into these contracts for speculative purposes and will not enter into non-hedging currency contracts. These contracts involve a risk of loss if SCMI fails to predict currency values correctly. The Portfolio has no present intention to enter into currency futures or options contracts but may do so in the future. Because most of the Portfolio's income will be received and realized in foreign currencies and the Portfolio will be required to compute and distribute income in U.S. dollars, a decline in the value of a particular foreign currency against the U.S. dollar occurring after the Portfolio's income has been earned and thereafter computed into U.S. dollars may require the Portfolio to liquidate some portfolio securities to acquire sufficient U.S. dollars to make such distributions. Similarly, if the exchange rate declines between the time the Portfolio incurs expenses in U.S. dollars and the time such expenses are paid, the Portfolio may be required to liquidate additional foreign securities to purchase the U.S. dollars required to meet such expenses. DEBT SECURITIES. The Portfolio may seek capital appreciation through investment in convertible or non-convertible debt securities. Capital appreciation in debt securities may arise as a result of a favorable change in relative foreign exchange rates, in relative interest rate levels, or in the creditworthiness of issuers. The receipt of income from such debt securities is incidental to the Portfolio's objective of long-term capital appreciation. Such income can be used, however, to offset the operating expenses of the Portfolio. In accordance with its investment objective, the Portfolio will not seek to benefit from anticipated short-term fluctuations in currency exchange rates. The Portfolio may, from time to time, invest in debt securities with relatively high risk and high yields (as compared to other debt securities meeting the Portfolio's investment criteria), notwithstanding that the Portfolio may not anticipate that such securities will experience substantial capital appreciation. The debt securities in which the Portfolio invests may be unrated, but will not be in default at the time of purchase. The Portfolio also may invest to a certain extent in debt securities in order to participate in debt-to-equity conversion programs incident to corporate reorganizations. The Portfolio may invest in debt securities issued or guaranteed by foreign governments (including countries, provinces and municipalities) or their agencies and instrumentalities, debt securities issued or guaranteed by international organizations designated or supported by multiple foreign governmental entities (which are not obligations of foreign governments) to promote economic reconstruction or development, and debt securities issued by corporations or financial institutions. RISK CONSIDERATIONS FOREIGN INVESTMENTS. All investments, domestic and foreign, involve certain risks. Investment in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of U.S. issuers. In general, the Portfolio will invest only in securities of companies and governments in countries which SCMI, in its judgment, considers both politically and economically stable. Nevertheless, all foreign investments are subject to risks of foreign political and economic instability, adverse movements in foreign exchange rates, the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital and changes in foreign governmental attitudes towards private investment possibly leading to nationalization, increased taxation or confiscation of Portfolio assets. To the extent the Portfolio invests substantially in issuers located in one country or area, such investments may be subject to greater risk in the event of political or social instability or adverse economic developments affecting that country or area. Moreover, (i) dividends payable on foreign securities may be subject to foreign withholding taxes, thereby reducing the income available for distribution to the Portfolio's, and thus the Fund's, shareholders; (ii) commission rates payable on foreign portfolio transactions are generally higher than in the U.S.; (iii) accounting, auditing and financial reporting standards differ from those in the U.S., and this may mean that less information about foreign companies may be available than is generally available about issuers of comparable securities in the U.S.; (iv) foreign securities often trade less frequently and with less volume than U.S. securities and consequently may exhibit greater price volatility; and (v) foreign securities trading practices, including those involving securities settlement, may expose the Portfolio to increased risk in the event of a failed trade or the insolvency of a foreign broker-dealer or registrar. EMERGING MARKETS. The Portfolio may invest in securities of issuers located in countries considered by some to be emerging market countries. The risks of investing in foreign securities may be greater with respect to securities of issuers in, or denominated in the currencies of, emerging market countries. The economies of emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The securities markets of emerging market countries are substantially smaller, less developed, less liquid and more volatile than the securities markets of the U.S. and other developed countries. Disclosure and regulatory standards in many respects are less stringent in emerging market countries than in the U.S. and other major markets. In addition, the enforcement of existing regulations may be extremely limited. There also may be a lower level of monitoring and regulation of emerging markets and the activities of brokers in such markets. Investing in local markets, particularly in emerging market countries, may require the Portfolio to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Portfolio. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests. CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest heavily in non-U.S. currency denominated securities, changes in foreign currency exchange rates will affect the value of the Portfolio's investments. A decline in the value of currencies in which the Portfolio's investments are denominated against the dollar will result in a corresponding decline in the dollar value of the Portfolio's assets. This risk tends to be heightened in the case of investing in certain emerging market countries GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country, the Portfolio is susceptible to factors adversely affecting that country. In particular, these factors may include the political and economic developments and foreign exchange rate fluctuations discussed above. As a result of investing substantially in one country, the value of the Portfolio's assets may fluctuate more widely than the value of shares of a comparable fund a lesser degree of geographic concentration. PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but its portfolio turnover rate is not expected to exceed 100%. High portfolio turnover and short-term trading involve correspondingly greater commission expenses and transaction costs. Also, higher portfolio turnover rates may cause shareholders of the Portfolio to recognize gains for federal income tax purposes. See "Taxation" in the SAI. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The business and affairs of the Portfolio are managed under the direction of the Schroder Core Board. The Trustees of both the Trust and Schroder Core are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the respective executive officers of the Trust and Schroder Core may be found in the SAI under the heading "Management -- Trustees and Officers." The Board and the Schroder Core Board have separately adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER The Fund currently invests all of its assets in the Portfolio. SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Portfolio and continuously reviews, supervises and administers the Portfolio's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Portfolio's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. For its services with respect to the Portfolio, SCMI receives a monthly advisory fee equal on an annual basis to 0.45% of the Portfolio's average daily net assets, which the Fund indirectly bears through investment in the Portfolio. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly- owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. The investment management team of Laura Luckyn-Malone, a Trustee and President of the Trust and Schroder Core, and Mark J. Smith, a Trustee and Vice President of the Trust and Schroder Core, with the assistance of an SCMI investment committee, is primarily responsible for the day-to-day management of the Portfolio's investments. Ms. Luckyn-Malone, who joined the Portfolio's investment management team in ____________ 1995, has been a Senior Vice President and Director of SCMI since 1990. Mr. Smith, who has managed the Fund's portfolio since October 1989 and the Portfolio's investments since its inception, has been a First Vice President of SCMI since April 1990 and a Director thereof since April 1993. He has been employed by various Schroder Group companies in the investment research and portfolio management areas since 1983. The Fund began pursuing its investment objective through investment in the Portfolio on November 1, 1995. The Fund may withdraw its investment from the Portfolio at any time if the Board determines that it is in the best interests of the Fund and its shareholders to do so. See "Other Information -- Fund Structure." Accordingly, the Fund has retained SCMI as its investment adviser to manage the Fund's assets in the event the Fund withdraws its investment. SCMI does not receive an investment advisory fee with respect to the Fund so long as the Fund remains completely invested in the Portfolio or any other investment company. If the Fund resumes directly investing in portfolio securities, the Fund will pay SCMI a monthly advisory fee equal on an annual basis to 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. The investment advisory contract between SCMI and the Trust with respect to the Fund is the same in all material respects as the investment advisory contract between SCMI and Scroder Core with respect to the Portfolio, except as to the parties, the fees payable thereunder, the circumstances under which fees will be paid and the jurisdiction whose laws govern the agreement. For the fiscal year ended October 31, 1995, during which time the Fund invested directly in portfolio securities, the Fund paid SCMI an advisory fee of 0.45% of its average daily net assets. ADMINISTRATIVE SERVICES On behalf of the Fund, the Trust has entered into an administrative services contract with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned subsidiary of SCMI. The Trust and Schroder Advisors have entered into a sub-administration agreement with Forum. Pursuant to these agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. For these services, the Fund pays Schroder Advisors a monthly fee at the annual rate of 0.20% of the Fund's average daily net assets. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. Schroder Advisors and Forum provide similar services to the Portfolio, for which the Portfolio pays Schroder Advisors a monthly fee at the annual rate of 0.15 % of the Portfolio's average daily net assets, a portion of which Schroder Advisors pays Forum for its services with respect to the Portfolio. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN Schroder Advisors acts as distributor of the Fund's shares. Under a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") adopted by the Trust on behalf of the Fund, each month the Trust pays directly or reimburses Schroder Advisors, as distributor, for costs and expenses incurred in connection with the distribution of Investor Shares. Such payment or reimbursement is subject to a limit on an annual basis to 0.50% of the Fund's average daily net assets attributable to Investor Shares. The Fund will make no payment under the Distribution Plan with respect to Investor Shares until the Board further so authorizes. Payment or reimbursement under the Distribution Plan may be for various types of costs, including: (1) advertising expenses, (2) costs of printing prospectuses and other materials to be given or sent to prospective investors, (3) expenses of sales employees or agents of Schroder Advisors, including salary, commissions, travel and related expenses in connection with the distribution of Investor Shares, (4) payments to broker-dealers who advise shareholders regarding the purchase, sale, or retention of Investor Shares, and (5) payments to banks, trust companies, broker-dealers (other than Schroder Advisors) or other financial organizations (collectively, "Service Organizations"). Payments to Service Organizations under the Distribution Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. The Fund will not be liable for distribution expenditures made by Schroder Advisors in any given year in excess of the maximum amount payable under the Distribution Plan in that year. Costs or expenses in excess of the per annum limit may not be carried forward to future years. Salary expenses of salesmen who are responsible for marketing various mutual funds of the Trust may be allocated to those funds, including the Investor Shares class of the Fund, that have adopted a distribution plan similar to that of the Fund on the basis of average daily net assets. Travel expenses may be allocated to, or divided among, the particular funds of the Trust for which they are incurred. The Trust, on behalf of the Fund, has also adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which Schroder Advisors, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. The Trust will make no payments under the Shareholder Service Plan with respect to Investor Shares until the Board further so authorizes. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. EXPENSES SCMI and Schroder Advisors have voluntarily undertaken to assume certain expenses of the Fund and the Portfolio (or waive their respective fees). This undertaking is designed to place a maximum limit on total Fund expenses (excluding taxes, interest, brokerage commissions and other portfolio transaction expenses and extraordinary expenses) of 0.99% of the average daily net assets of the Fund attributable to Investor Shares. This expense limitation cannot be modified or withdrawn except by a majority vote of the Trustees of the Trust who are not affiliated with SCMI or Schroder Advisors . If expense reimbursements are required, they will be made on a monthly basis. SCMI will reimburse the Fund for four-fifths of the amount required and Schroder Advisors will reimburse the Fund for the remaining one-fifth; provided, however, that neither SCMI nor Schroder Advisors will be required to make any reimbursements or waive any fees in excess of the fees payable to them by the Fund and the Portfolio on a monthly basis for their respective advisory and administrative services. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Portfolio's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Portfolio may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Commission rates for brokerage transactions are fixed on many foreign securities exchanges, and this may cause higher brokerage expenses to accrue to the Portfolio than would be the case for comparable transactions effected on U.S. securities exchanges. Subject to the Portfolio's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ Schroder Securities Limited and its affiliates (collectively, "Schroder Securities"), affiliates of SCMI, to effect transactions of the Portfolio on certain foreign securities exchanges. Because of the affiliation between SCMI and Schroder Securities, the Portfolio's payment of commissions to Schroder Securities is subject to procedures adopted by Schroder Core's Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Portfolio's brokerage will be directed to Schroder Securities and in no event will Schroder Securities receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Schroder Core Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Portfolio as a factor in the selection of broker-dealers to execute portfolio transactions for the Portfolio. Although the Portfolio does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Portfolio's portfolio transactions would agree to pay designated expenses of the Portfolio if brokerage commissions generated by the Portfolio reached certain levels, might reduce the Portfolio's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Portfolio. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, Schroder Core, SCMI, Schroder Advisors, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Investor Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information - Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a Purchase Order (at the address set forth below). The minimum initial investment is $____, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder International Fund, to: Schroder International Fund P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder International Fund -- Investor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the class of shares, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the Transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax- qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the class of shares, the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information - Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $2,000, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $2,000 and be allowed at least 30 days to make an additional investment to increase the account balance to at least $2,000. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets (which is principally the value of the Fund's investment in the Portfolio) less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Portfolio that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over-the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Schroder Core Board. Trading by the Portfolio in securities on European and Far Eastern exchanges and over-the-counter markets may not take place on every day that the New York Stock Exchange is open for trading. Furthermore, trading takes place in various foreign markets on days on which the Fund's net asset value is not calculated. As a result, the Fund's net asset value may be significantly affected by such trading on days when an investor has no access to the Fund. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when net asset value is calculated, such securities will be valued at fair value as determined in good faith by using methods approved by the Schroder Core Board. All assets and liabilities of the Portfolio denominated in foreign currencies are valued in U.S. dollars based on the exchange rate last quoted by a major bank prior to the time when the net asset value of the Fund is calculated. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. THE PORTFOLIO The Portfolio is not required to pay Federal income taxes on its net investment income and capital gain, as it is treated as a partnership for Federal income tax purposes. All interest, dividends and gain and losses of the Portfolio are deemed to have been "passed through" to the Fund in proportion to its holdings of the Portfolio, regardless of whether such interest, dividends or gain have been distributed by the Portfolio or losses have been realized by the Portfolio. Investment income received by the Fund from sources within foreign countries may be subject to foreign income or other taxes, with respect to which shareholders may be entitled to claim a credit or deduction. See "The Fund" immediately above. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Investor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. From time to time, certain shareholders may own a large percentage of the shares of the Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's and of the Portfolio's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder International Fund P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. FUND STRUCTURE OTHER CLASSES OF SHARES. The Fund has two classes of shares, Institutional Shares and Advisor Shares. Advisor Shares are offered by a separate prospectus to individual investors, in most cases through Service Organizations. Advisor Shares incur more expenses than Institutional Shares. Except for certain differences, each share of each class represents an undivided, proportionate interest in the Fund. Each share of the Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of the Fund except that, due to the differing expenses borne by the two classes, the amount of dividends and other distribution will differ between the classes. Information about Advisor Shares is available from the Fund by calling Forum Financial Corp. at (207) 879-8903. THE PORTFOLIO. The Fund seeks to achieve its investment objective by investing all of its investable assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Accordingly, the Portfolio directly acquires its own securities and the Fund acquires an indirect interest in those securities. The Portfolio is a separate series of Schroder Core, a business trust organized under the laws of the State of Delaware in September 1995. Schroder Core is registered under the Act as an open-end management investment company and currently has four separate portfolios. The assets of the Portfolio, a diversified portfolio, belong only to, and the liabilities of the Portfolio are borne solely by, the Portfolio and no other portfolio of Schroder Core. The investment objective and fundamental investment policies of the Fund and the Portfolio can be changed only with shareholder approval. See "Investment Objective and Policies" and "Management of the Fund" for a complete description of the Portfolio's investment objective, policies, restrictions, management, and expenses. The Fund's investment in the Portfolio is in the form of a non-transferable beneficial interest. As of the date of this Prospectus, the Fund is the only institutional investor in the Portfolio. The Portfolio may permit other investment companies or institutional investors to invest in it. All investors in the Portfolio will invest on the same terms and conditions as the Fund and will pay a proportionate share of the Portfolio's expenses. The Portfolio normally will not hold meetings of investors except as required by the Act. Each investor in the Portfolio will be entitled to vote in proportion to its relative beneficial interest in the Portfolio. On most issues subject to a vote of investors, as required by the Act and other applicable law, the Fund will solicit proxies from shareholders of the Fund and will vote its interest in the Portfolio in proportion to the votes cast by its shareholders. If there are other investors in the Portfolio, there can be no assurance that any issue that receives a majority of the votes cast by Fund shareholders will receive a majority of votes cast by all investors in the Portfolio; indeed, if other investors hold a majority interest in the Portfolio, they could hold have voting control of the Portfolio. The Portfolio will not sell its shares directly to members of the general public. Another investor in the Portfolio, such as an investment company, that might sell its shares to members of the general public would not be required to sell its shares at the same public offering price as the Fund, and could have different advisory and other fees and expenses than the Fund. Therefore, Fund shareholders may have different returns than shareholders in another investment company that invests exclusively in the Portfolio. There is currently no such other investment company that offers its shares to members of the general public. Information regarding any such funds in the future will be available from Schroder Core by calling Forum Financial Corp. at (207) 879-8903. Under the Federal securities laws, any person or entity that signs a registration statement may be liable for a misstatement or omission of a material fact in the registration statement. Schroder Core, its Trustees and certain of its officers are required to sign the registration statement of the Trust and the registration statements of certain other publicly-offered investors in the Portfolio. In addition, under the Federal securities laws, Schroder Core could be liable for a misstatements or omissions of a material fact in any proxy soliciting material of a publicly-offered investor in Schroder Core, including the Fund. Under the Trust Instrument for the Schroder Core, each investor in the Portfolio, including the Trust, indemnifies Schroder Core and its Trustees and officers ("Schroder Core Indemnitees") against certain claims. Indemnified claims are those brought against Schroder Core Indemnitees but based on a misstatement or omission of a material fact in the investor's registration statement or proxy materials, except to the extent such claim is based on a misstatement or omission of a material fact relating to information about Schroder Core in the investor's registration statement or proxy materials that was supplied to the investor by Schroder Core. Similarly, Schroder Core indemnifies each investor in the Portfolio, including the Fund, for any claims brought against the investor with respect to the investor's registration statement or proxy materials, to the extent the claim is based on a misstatement or omission of a material fact relating to information about Schroder Core that is supplied to the investor by Schroder Core. In addition, each registered investment company investor in the Portfolio indemnifies 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 Core. The purpose of these cross-indemnity provisions is principally to limit the liability of Schroder Core to information that it knows or should know and can control. With respect to other prospectuses and other offering documents and proxy materials of investors in Schroder Core, Schroder Core's liability is similarly limited to information about and supplied by Schroder Core. CERTAIN RISKS OF INVESTING IN THE PORTFOLIO. The Fund's investment in the Portfolio may be affected by the actions of other large investors in the Portfolio, if any. For example, if the Portfolio had a large investor other than the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining investors (including the Fund) might, as a result, experience higher pro rata operating expenses, thereby producing lower returns. The Fund may withdraw its entire investment from the Portfolio at any time, if the Board determines that it is in the best interests of the Fund and its shareholders to do so. The Fund might withdraw, for example, if there were other investors in the Portfolio with power to, and who did by a vote of the shareholders of all investors (including the Fund), change the investment objective or policies of the Portfolio in a manner not acceptable to the Board. A withdrawal could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the Portfolio. That distribution could result in a less diversified portfolio of investments for the Fund and could affect adversely the liquidity of the Fund's portfolio. If the Fund decided to convert those securities to cash, it usually would incur brokerage fees or other transaction costs. If the Fund withdrew its investment from the Portfolio, the Board would consider what action might be taken, including the management of the Fund's assets in accordance with its investment objective and policies by the SCMI, the Fund's investment adviser and subadviser, respectively, or the investment of all of the Fund's investable assets in another pooled investment entity having substantially the same investment objective as the Fund. The inability of the Fund to find a suitable replacement investment, in the event the Board decided not to permit 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, will be liable for all obligations of the Portfolio, but not any other portfolio of Schroder Core. The risk to an investor in the Portfolio of incurring financial loss on account of such liability, however, would be limited to circumstances in which the Portfolio was unable to meet its obligations. 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. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Global Custody Division Woolgate House, Coleman Street London EC2P 2HD, United Kingdom TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand, L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . Investment Adviser . . . . . . . . . . . .... Administrative Services. . . . . . . . . . . Purchases and Redemptions. . . . . . . . . . Risk Considerations. . . . . . . . . . . . . Fee Table. . . . . . . . . . . . . . . . . . FINANCIAL HIGHLIGHTS . . . . . . . . . . . . INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . Investment Objective and the Portfolio . . . Investment Policies. . . . . . . . . . . . . ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS. . . . . . . . . . . . Investment Restrictions. . . . . . . . . . . Investment Types . . . . . . . . . . . . . . Risk Considerations. . . . . . . . . . . . . MANAGEMENT . . . . . . . . . . . . . . . . . Board of Trustees. . . . . . . . . . . . . . Investment Adviser and Portfolio Manager . . Administrative Services. . . . . . . . . . . Distribution Plan and Shareholder Services Plan Expenses . . . . . . . . . . . . . . . . . . Portfolio Transactions Code of Ethics . . . . . . . . . . . . . . . INVESTMENT IN THE FUND . . . . . . . . . . . Purchase of Shares . . . . . . . . . . . . . Retirement Plans . . . . . . . . . . . . . . Individual Retirement Accounts . . . . . . . Redemption of Shares . . . . . . . . . . . . Net Asset Value. . . . . . . . . . . . . . . DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . The Portfolio. . . . . . . . . . . . . . . . OTHER INFORMATION. . . . . . . . . . . . . . Capitalization and Voting. . . . . . . . . . Reports. . . . . . . . . . . . . . . . . . . Performance Information. . . . . . . . . . . Custodian and Transfer Agent . . . . . . . . Shareholder Inquires . . . . . . . . . . . . Certain Servicing Organizations. . . . . . . Fund Structure . . . . . . . . . . . . . . .
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SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO TWO PORTLAND SQUARE PORTLAND, MAINE 04101 ____________ ADVISOR SHARES GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 FUND LITERATURE (800) 290-9826 SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - ADMINISTRATOR AND DISTRIBUTOR This Prospectus offers Advisor Shares of Schroder Emerging Markets Fund Institutional Portfolio (the "Fund"), a separately-managed, non-diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. Investing in securities of emerging market issuers involves special risks in addition to those associated with investments in securities of U.S. issuers. THE FUND CURRENTLY SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY HOLDING, AS ITS ONLY INVESTMENT SECURITIES, THE SECURITIES OF SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO (THE "PORTFOLIO"), A SEPARATE PORTFOLIO OF SCHRODER CAPITAL FUNDS ("SCHRODER CORE"), A REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. ACCORDINGLY, THE FUND'S INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY WITH THE PORTFOLIO'S INVESTMENT EXPERIENCE. SEE "OTHER INFORMATION -- FUND STRUCTURE." This prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996. PROSPECTUS SUMMARY THE FUND. The Fund is a separately managed, non-diversified portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. Currently, the Fund seeks to achieve its investment objective by investing exclusively in the Portfolio, a series of Schroder Core, itself a registered open-end management investment company. The Portfolio has substantially the same investment objective and policies as the Fund. Accordingly, the investment experience of the Fund will correspond directly with the investment experience of the Portfolio. The Fund currently offers two separate classes of shares: Advisor Shares ("Advisor Shares") and Investor Shares ("Investor Shares"). Only Advisor Shares are offered through this Prospectus and are sometimes referred to herein as the "Shares." INVESTMENT ADVISER. The Portfolio's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. The investment advisory fee paid to SCMI by the Portfolio is borne indirectly by the Fund. See "Management -- Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors"), formerly Schroder Capital Distributors, Inc., serves as Administrator and Distributor of the Fund, and Forum Financial Services, Inc. ("Forum") serves as the Fund's Sub-Administrator. PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $250,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." Purchases of Fund shares are subject to a purchase charge of 0.50% of the amount invested. Redemptions of Fund shares are subject to a redemption charge of 0.50% of the amount invested. See "Investment In The Fund -- Purchase of Shares" and "-- Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. Investments in securities of foreign issuers, particularly in countries with smaller, emerging capital markets, involve certain risks not associated with domestic investing, including fluctuations in foreign exchange rates, uncertain political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. The Fund is not intended for investors whose objective is assured income or preservation of capital. The Fund should be considered a means of diversifying an investment portfolio and not in itself a balanced investment program. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor in Advisor Shares would incur. SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchase None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Purchase Charge (based on amount invested)(1) 0.50% Redemption Charge (based on net asset value of shares redeemed)(1) 0.50% ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)(2) Management Fees (after fee waivers)(3) 0.36% 12b-1 Fees 0.25% Other Expenses (after expense reimbursements) 1.49% Total Fund Operating Expenses(3), (4) 2.10% (1) The Purchase Charge and the Redemption Charge are paid to the Fund and are imposed on all purchases and redemptions of Shares, respectively, other than with respect to Shares purchased through the reinvestment of dividends or distributions. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." (2) The amounts of expenses reflect the operating expenses of the Fund prior to its investment in the Portfolio and are based on annualized estimated expenses incurred for the Fund's most recent fiscal year ended October 31, 1995, after restatement to reflect current fees borne by holders of Advisor Shares. The Fund's expenses have, since November 1, 1995, and will continue to include the Fund's pro rata portion of all operating expenses of the Portfolio, which will be borne indirectly by Fund shareholders. The Trust's Board of Trustees believes that the aggregate per share expenses of the Fund and the Portfolio will be approximately equal to the expenses the Fund would incur if its assets were invested directly in portfolio securities. Investment advisory fees are those incurred by the Portfolio; as long as the Fund's assets are invested in the Portfolio, the Fund pays no investment advisory fees directly. (3) Management Fees for the Fund reflect the annual fee rate that the Fund pays for investment advisory (1.00%) and administrative (0.25%) services. Absent estimated fee waivers and expenses reimbursements, Management Fees, Other Expenses and Total Operating Expenses would be 1.00%, 1.49%, and 2.95%, respectively. (4) Long-term holders of Advisor Shares may pay aggregate sales charges totaling more than the economic equivalent of the maximum front-end sales charge permitted by the Rules of Fair Practice of the National Association of Securities Dealers, Inc. SCMI and Schroder Advisors have voluntarily undertaken to waive a portion of their fees and assume certain expenses of the Fund during the current fiscal year to the extent that the Fund's total expenses exceed 2.10% of the Fund's average daily net assets. This undertaking cannot be withdrawn except by a majority vote of the the Trust's Board of Trustees. See "Management -- Expenses." EXAMPLE Based on the expenses listed above, you would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) no redemption and full redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: No Redemption Full Redemption ------------- --------------- 1 year $ ___ 1 year $ ___ 3 years $ ___ 3 years $ ___ 5 years $ ___ 5 years $ ___ 10 year $ ___ 10 year $ ___ THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share of the Fund for the periods shown. Information presented relates to Investor Shares of the Fund for a share outstanding for its first fiscal year. The holders of Investor Shares bear expenses that are lower than those borne by the holders of Advisor Shares. Prior to the date of this Prospectus, Advisor Shares had not been offered by the Fund. Acordingly, information has not been presented for Advisor Shares. This information is part of the Fund's financial statements and has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number for Fund Literature on the cover of this Prospectus. March 31, 1995* through October 31, 1995 ----------------- NET ASSET VALUE, BEGINNING OF YEAR 10.00 ------- INVESTMENT OPERATIONS Net Investment Income 0.02 Net Realized and Unrealized Gain on Investments 0.61 ------- Total from Investment Operations 0.63 NET ASSET VALUE, END OF PERIOD $10.63 ------- ------- TOTAL RETURN 6.30%(a) ------- ------- RATIO/SUPPLEMENTARY DATA: Net Assets, End of Year (Thousands) 18,423 Ratio of Expenses to Average Net Assets 1.58%(b)(c) Ratio of Net Investment Income to Average Net Assets 0.46%(b) Portfolio Turnover Rate 44.10% * Commencement of operations (a) Does not reflect purchase charge of 0.50% (b) Annualized (c) During the period, various fees and expenses were waived and reimbursed, respectively. Had such waiver and reimbursement not occurred, the annualized ratio of expenses to average net assets would have been 2.45% INVESTMENT OBJECTIVE AND POLICIES The Fund is designed for investors who seek the aggressive growth potential of emerging world markets and are willing to bear the special risks of investing a portion of their assets in those markets. The Fund should be considered a means of diversifying an investment portfolio and is not a complete investment program. Investments in the securities of foreign issuers generally involve risks in addition to risks associated with investments in the securities of U.S. issuers. See "Additional Investment Policies and Risk Considerations." The Fund is not intended for investors whose objective is assured income or preservation of capital. INVESTMENT OBJECTIVE AND THE PORTFOLIO The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. Current income will be incidental to the Fund's objective. There is no assurance that the Fund will achieve its investment objective. The Fund currently seeks to achieve its investment objective by investing all of its investment assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Therefore, although the following discusses the investment policies of the Portfolio and the responsibilities of Schroder Core's Board of Trustees (the "Schroder Core Board"), it applies equally to the Fund and the Trust's Board of Trustees (the "Board"). Additional information concerning the investment policies of the Fund and the Portfolio, including additional fundamental policies, is contained in the SAI. INVESTMENT POLICIES Under normal conditions, the Portfolio invests at least 65% of its total assets in emerging market equity and debt securities, including common stocks, preferred stocks, convertible preferred stocks, stock rights and warrants, convertible debt securities and non-convertible debt securities. Investments in stock rights and warrants will not be considered for purposes of setermining compliance with this policy. The Portfolio may invest up to 35% of its total assets in high risk debt securities that are unrated or rated below investment grade. See "Additional Investment Policies and Risk Considerations." Under certain circumstances, the Portfolio may invest indirectly in emerging market securities by investing in other investment companies or vehicles. See "Additional Investment Policies and Risk Considerations -- Other Investment Vehicles" below. In recent years, many emerging market countries have begun programs of economic reform: removing import tariffs, dismantling trade barriers, deregulating foreign investment, privatizing state owned industries, permitting the value of their currencies to float against the dollar and other major currencies, and generally reducing the level of state intervention in industry and commerce. Important intra-regional economic integration also holds the promise of greater trade and growth. At the same time, significant progress has been made in restructuring the heavy external debt burden that certain emerging market countries accumulated during the 1970s and 1980s. While there is no assurance that these trends will continue, the Portfolio's investment adviser will seek out attractive investment opportunities in these countries. "Emerging market" countries generally include all countries in the world other than those included in the Morgan Stanley Capital International World Index ("MSCI World") of major world economies. Where the investment adviser determines that the economy of a particular country included in the MSCI World more appropriately reflects an emerging market economy, however, the adviser may include such country in the emerging market category. The following countries currently are excluded from the Portfolio's emerging market category: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United Kingdom, and the United States of America. The Portfolio will not necessarily seek to diversify investments on a geographic basis within the emerging market category and, in this regard, the Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country or area, the Portfolio is susceptible to factors adversely affecting that country or area. See "Additional Investment Policies and Risk Considerations -- Risk Considerations - - Geographic Concentration" below. An issuer of a security will be considered to be domiciled or doing business in an emerging market when (1) its issuer is organized under the laws of an emerging market country; (2) the issuer's primary securities trading market is in an emerging market country; or (3) in the judgment of the investment adviser, at least 50% of the issuer's revenues or profits are derived from goods produced or sold, investments made, or services performed in emerging market countries or which have at least 50% of their assets situated in such countries. The Portfolio may acquire emerging market securities that are denominated in currencies other than a currency of an emerging market country. The Portfolio may consider investment companies to be located in the country or countries in which they primarily invest. In anticipation of the currency requirements of the Portfolio and to attempt to protect against possible adverse movements in foreign exchange rates, the Portfolio may enter into forward contracts to purchase or sell foreign currencies. Although such contracts may reduce the risk of loss to the Portfolio due to a decline in the value of the currency which is sold, they also limit the gain that might result should the value of such currency rise. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and all investment policies of each of the Fund and the Portfolio that are designated as fundamental may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund or the Portfolio, as applicable. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. Unless otherwise indicated, all investment policies are not fundamental and may be changed by the Board without approval by shareholders of the Fund. Likewise, nonfundamental investment policies of the Portfolio may be changed by the Board of Trustees of Schroder Core (the "Schroder Core Board") without shareholder approval. For more information concerning shareholder voting, see "Other Information -- Capitalization and Voting" and "Other Information -- Fund Structure." FUNDAMENTAL POLICIES The following investment restrictions of the Portfolio are fundamental policies: (1) The Portfolio will not concentrate investments in any particular industry; therefore, the Portfolio will not purchase the securities of companies in any one industry if, thereafter, 25% or more of the Portfolio's total assets would consist of securities of companies in that industry. (This restriction does not apply to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.) (2) The Portfolio will not issue senior securities, borrow money or pledge its assets in excess of 10% 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. Usually only "leveraged" investment companies may borrow in excess of 5% of their assets; however, the Portfolio will not borrow to increase income but only as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to settle securities transactions which may otherwise require untimely dispositions of Portfolio securities. The Portfolio will not purchase securities while borrowings exceed 5% of total assets. (For the purpose of this restriction, collateral arrangements with respect to the writing of options, futures contracts, options on futures contracts, and collateral arrangements with respect to initial and variation margin are not deemed to be a pledge of assets and neither such arrangements nor the purchase or sale of futures or related options are deemed to be the issuance of a senior security.) (3) The Portfolio will not make investments for the purpose of exercising control or management. Investments by the Portfolio in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of investments for the purpose of exercising control or management. The percentage restrictions described above and in the SAI apply only at the time of investment and require no action by the Portfolio as a result of subsequent changes in value of the investments or the size of the Portfolio. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES EQUITY SECURITIES. The Portfolio's emerging market investments will comprise primarily equity securities. Such investments will consist predominantly of common stock or preferred stock of established companies listed on recognized securities exchanges or traded in other established markets. However, the Portfolio may invest to a limited extent in convertible preferred stock, warrants and stock rights. Due to the absence of established securities markets in certain emerging market countries and restrictions in certain countries on direct investment by foreign entities, the Portfolio may invest in certain emerging market issuers exclusively or primarily through the purchase of sponsored and unsponsored American Depository Receipts ("ADRs") or other similar securities, such as American Depository Shares, Global Depository Shares or International Depository Receipts; or through investment in government approved investment companies or other vehicles. ADRs are receipts typically issued by U.S. banks evidencing ownership of the underlying securities, into which they are convertible. These securities may or may not be denominated in the same currency as the underlying securities. Unsponsored ADRs may be created without the participation of the foreign issuer. Holders of these ADRs generally bear all the costs of the ADR facility, whereas foreign issuers typically bear certain costs in a sponsored ADR. The bank or trust company depository of an unsponsored ADR may be under no obligation to distribute shareholder communications received from the foreign issuer or to pass through voting rights. DEBT SECURITIES. The Portfolio may also seek capital appreciation through investment in emerging market convertible or non-convertible debt securities. Capital appreciation in debt securities may arise as a result of a favorable change in relative foreign exchange rates, in relative interest rate levels, or in the creditworthiness of issuers. The receipt of income from such debt securities is incidental to the Portfolio's objective of long-term capital appreciation. Such income can be used, however, to offset the operating expenses of the Portfolio. In accordance with its investment objective, the Portfolio will not seek to benefit from anticipated short-term fluctuations in currency exchange rates. The Portfolio may, from time to time, invest in debt securities with relatively high risk and high yields (as compared to other debt securities meeting the Portfolio's investment criteria), notwithstanding that the Portfolio may not anticipate that such securities will experience substantial capital appreciation. The debt securities in which the Portfolio invests may be unrated, but will not be in default at the time of purchase. The Portfolio also may invest to a certain extent in debt securities in order to participate in debt-to-equity conversion programs sponsored by certain emerging market countries or corporate reorganizations. The Portfolio may invest in debt securities ("sovereign debt") issued or guaranteed by emerging market governments (including countries, provinces and municipalities) or their agencies and instrumentalities ("governmental entities"), debt securities issued or guaranteed by international organizations designated or supported by multiple foreign governmental entities (which are not obligations of foreign governments) to promote economic reconstruction or development, and debt securities issued by corporations or financial institutions. The Portfolio may invest a portion of its assets in certain debt obligations known as "Brady Bonds." Brady Bonds are created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with debt restructurings. To date, debt restructurings utilizing Brady Bonds have been undertaken in Mexico, Venezuela, Argentina, Albania, Ecuador, Jordan, Poland, Uraguay, Bulgaria, the Domican Republic, Costa Rica, Brazil, Nigeria, and the Philippines. Other countries, including Ecuador, Panama and Peru are expected to implement Brady Bond debt restructurings in the future. Brady Bonds are of recent origin, and accordingly do not have a long payment history. Brady Bonds are actively traded in the over-the-counter secondary market, and may be collateralized or uncollateralized. Although most Brady Bonds are denominated in U.S. dollars, they are issued in various currencies. U.S. dollar denominated Brady Bonds may be fixed rate par bonds or floating rate discount bonds. They are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the Brady Bonds. Interest payments on U.S. dollar denominated Brady Bonds generally are collateralized on a one year or longer rolling forward basis by cash or securities in an amount, in the case of fixed rate bonds, that is equal to at least one year of interest payments or, in the case of floating rate bonds, that is initially equal to at least one years interest payments based on the current interest rate and is thereafter adjusted at regular intervals. Certain Brady Bonds are entitled to "value recovery payments" in certain circumstances, which in effect are supplemental interest payments but are not generally collateralized. Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) collateralized interest payments; (iii) any uncollateralized repayment of principal at maturity; and (iv) any uncollateralized interest payments. These uncollateralized amounts are referred to as "residual risk." Because of their residual risk and, among other factors, the history of defaults in commercial bank loans in countries issuing Brady Bonds, investments in Brady Bonds are considered speculative. INVESTMENT IN OTHER INVESTMENT COMPANIES OF VEHICLES. The Portfolio may be able to invest in certain emerging markets solely or primarily through governmentally authorized investment vehicles or companies. Pursuant to the Act, the Portfolio generally may invest up to 10% of its total assets in the aggregate in the shares of other investment companies and up to 5% of its total assets in any one investment company, as long as each investment does not represent more than 3% of the outstanding voting stock of the investment company in which the Portfolio invests at the time of such investment. Investment in other investment companies may involve the payment of substantial premiums above the value of such investment companies' portfolio securities, and is subject to limitations under the Act and market availability. The Portfolio does not intend to invest in such investment companies unless, in the judgment of SCMI, the potential benefits of such investment justify the payments of any applicable premiums or sale charges. As a shareholder in an investment company, the Portfolio would bear its ratable share of the investment company's expenses, including its advisory and administrative fees. At the same time, the Portfolio would continue to pay its own management fees and other expenses. TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes, the Portfolio may invest without limitation in (or enter into repurchase agreements maturing in seven days or less with U.S. banks and broker-dealers with respect to) short-term debt securities, including U.S. Government securities, certificates of deposit and bankers' acceptances of U.S. banks. The Portfolio may also hold cash and time deposits in foreign banks denominated in any major foreign currency. See "Investment Policies" in the SAI for further information about all these securities. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. To hedge against adverse price movements in the securities held in its portfolio and the currencies in which they are denominated (as well as in the securities it might wish to purchase and their denominated currencies), the Portfolio may engage in transactions in forward foreign currency exchange contracts ("forward contracts"). A forward contract involves an obligation to purchase or sell a currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. The Portfolio will generally not enter into a forward contract with a term of greater than one year. Forward contracts are not exchange traded, and there can be no assurance that a liquid market will exist at a time when the Portfolio seeks to close out a forward contract. Nor is there any assurance that a counterparty in an over- the-counter transaction will be able to perform its obligations. Currently, only a limited market, if any, exists for hedging transactions relating to currencies in certain emerging markets or to securities of issuers domiciled or principally engaged in business in certain emerging markets. This may limit the Portfolio's ability to effectively hedge its investments in those markets. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also limit the opportunity for gain if the value of the hedged currencies should rise. In addition, it may not be possible for the Portfolio to hedge against a devaluation that is so generally anticipated that the Portfolio is not able to contract to sell the currency at a price above the devaluation level it anticipates. See "Investment Policies - Forward Foreign Currency Exchange Contracts" in the SAI. ILLIQUID AND RESTRICTED SECURITIES. The Portfolio will not purchase or otherwise acquire any security if, as a result, more than 15% of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or because of legal or contractual restrictions on resale ("restricted securities"). There may be undesirable delays in selling illiquid securities at prices representing their fair value. This policy includes over-the-counter options held by the Portfolio and the "in the money" portion of the assets used to cover such options. As stated above, this policy also includes assets which are subject to material legal restrictions on repatriation. The limitation on investing in restricted securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Schroder Core Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Portfolio's liquidity. See "Investment Policies -- Illiquid and Restricted Securities" in the SAI for further details. LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend portfolio securities (other than in repurchase transactions) to brokers, dealers and other financial institutions meeting specified credit conditions, if the loan is collateralized in accordance with applicable regulatory requirements and if, after any loan, the value of the securities loaned does not exceed 25% of the value of the Portfolio's total assets. By so doing, the Portfolio attempts to earn income through the receipt of interest on the loan. In the event of the bankruptcy of the other party to a securities loan, the Portfolio could experience delays in recovering the securities it lent. To the extent that, in the meantime, the value of the securities the Portfolio lent has increased, the Portfolio, and thus the Fund, could experience a loss. The Portfolio may lend securities from its portfolio if liquid assets in an amount at least equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Portfolio with respect to the loan is maintained by the Portfolio's custodian bank in a segregated account. Any securities that the Portfolio may receive as collateral will not become a part of its portfolio at the time of the loan, and, in the event of a default by the borrower, the Portfolio will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which the Portfolio is permitted to invest. During the time that the securities are on loan, the borrower will pay the Portfolio any accrued income on those securities, and the Portfolio may invest the cash collateral and earn income or receive an agreed upon fee from a borrower that has delivered cash equivalent collateral. Cash collateral received by the Portfolio will be invested in U.S. Government securities and liquid high grade debt obligations. The value of securities loaned will be marked to market daily. Portfolio securities purchased with cash collateral are subject to possible depreciation. Loans of securities by the Portfolio will be subject to termination at the Portfolio's or the borrower's option. The Portfolio may pay reasonable negotiated fees in connection with loaned securities, so long as such fees are set forth in a written contract and approved by the Schroder Core Board. See "Loans of Portfolio Securities" in the SAI for further information on securities loans. OPTIONS AND FUTURES TRANSACTIONS. Although the Portfolio does not presently intend to do so, it may (a) write covered call options on portfolio securities and the U.S. dollar and emerging market currencies, without limit; (b) write covered put options on portfolio securities and the U.S. dollar and emerging market currencies with the limitation that the aggregate value of the obligations underlying the puts determined as of the date the options are sold will not exceed 50% of the Portfolio's net assets; (c) purchase call and put options in amounts equaling up to 5% of its total assets; and (d)(i) purchase and sell futures contracts that are currently traded, or may in the future be traded, on U.S. and foreign commodity exchanges on underlying portfolio securities, any emerging market currency, U.S. and emerging market fixed-income securities and such indices of U.S. or emerging market equity or fixed-income securities as may exist or come into being and (ii) purchase and write call and put options on such futures contracts, in all cases involving such futures contracts or options on futures contracts for hedging purposes only, and without limit, except that the Portfolio may not enter into futures contracts or purchase related options if, immediately thereafter, the amount committed to margin plus the amount paid for premiums for unexpired options on futures contracts generally exceeds 5% of the value of the Portfolio's total assets. All of the foregoing are referred to as "Hedging Instruments." In general, the Portfolio may use Hedging Instruments: (1) to attempt to protect against declines in the market value of the Portfolio's portfolio securities or stock index futures, and the currencies in which they are denominated and thus protect the Portfolio's net asset value per share against downward market trends, or (2) to establish a position in securities markets as a temporary substitute for purchasing particular equity securities. The Portfolio will not use Hedging Instruments for speculation. The Hedging Instruments which the Portfolio is authorized to use have certain risks associated with them. Principal among such risks are: (a) the possible failure of such instruments as hedging techniques in cases where the price movement of the securities underlying the options or futures do not follow the price movements of the portfolio securities subject to the hedge; (b) potentially unlimited loss associated with futures transactions and the possible lack of a liquid secondary market for closing out a futures position; and (c) possible losses resulting from the inability of the Portfolio's investment adviser to correctly predict the direction of stock prices, interest rates and other economic factors. In addition, currently only a limited market, if any, exists for hedging transactions relating to currencies in many emerging markets or to securities of issuers domiciled or principally engaged in business in emerging markets. This may limit the Portfolio's ability to effectively hedge its investments in such emerging market countries. The Hedging Instruments the Portfolio may use and the risks associated with them are described in greater detail under "Options and Futures Transactions" in the SAI. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. The Portfolio may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. When such transactions are negotiated, the price is fixed at the time of the commitment, but delivery and payment can take place a month or more after the date of the commitment. There is no overall limit on the percentage of the Portfolio's assets which may be committed to the purchase of securities on a when-issued, delayed delivery or forward commitment basis. An increase in the percentage of the Portfolio's assets committed to the purchase of securities on a when-issued, delayed delivery or forward commitment basis may increase the volatility of the Portfolio's net asset value. WHEN, AS AND IF ISSUED SECURITIES. The Portfolio may purchase securities on a "when, as and if issued" basis under which the issuance of the security depends upon the occurrence of a subsequent event, such as approval of a merger, corporate reorganization, leveraged buyout or debt restructuring. If the anticipated event does not occur and the securities are not issued, the Portfolio will have lost an investment opportunity. There is no overall limit on the percentage of the Portfolio's assets which may be committed to the purchase of securities on a "when, as and if issued" basis. An increase in the percentage of the Portfolio's assets committed to the purchase of securities on a "when, as and if issued" basis may increase the volatility of its net asset value. RISK CONSIDERATIONS All investments, domestic and foreign, involve certain risks. Investments in securities of foreign issuers, particularly in countries with smaller, emerging capital markets, involve certain risks not associated with domestic investing, including fluctuations in foreign exchange rates, uncertain political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. POLITICAL AND ECONOMIC RISKS. In any emerging market country, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as economic growth rate, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments positions. Certain foreign investments may also be subject to foreign withholding or other governmental taxes that could reduce the return on these investments. Certain emerging market countries may restrict investment by foreign entities. For example, some of these countries may limit the size of foreign investment in certain issuers, require prior approval of foreign investment by the government, impose additional tax on foreign investors or limit foreign investors to specific classes of securities of an issuer that have less advantageous rights (with regard to convertibility, for example) than classes available to domiciliaries of the country. Substantial limitations may also exist in certain countries with respect to a foreign investor's ability to repatriate investment income, capital or the proceeds of sales of securities. The Portfolio could be adversely affected by delays in, or refusals to grant, any required governmental approvals for repatriation of capital. No more than 15% of the Portfolio's net assets will comprise, in the aggregate, assets which are (i) subject to material legal restrictions on repatriation or (ii) illiquid securities. FINANCIAL INFORMATION AND STANDARDS. Often the regulation of, and available information about, issuers and their securities is less extensive in emerging market countries than in the United States. Foreign companies may not be subject to uniform accounting, auditing and financial reporting standards or to requirements or practices comparable to those applicable to U.S. companies. REGULATION AND LIQUIDITY OF MARKETS. Government supervision and regulation of exchanges and brokers in emerging market countries is frequently less extensive than in the United States. These markets may have different clearance and settlement procedures. In certain cases, settlements have not kept pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could adversely affect or interrupt the Portfolio's intended investment program or result in investment losses due to intervening declines in security values. Securities markets in emerging market countries are substantially smaller than U.S. securities markets and have substantially less trading volume, resulting in diminished liquidity and greater price volatility. Reduced secondary market liquidity may make it more difficult for the Portfolio to determine the value of its portfolio securities or dispose of particular instruments when necessary. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher as well. CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest heavily in non-U.S. currency denominated securities, changes in foreign currency exchange rates will affect the value of the Portfolio's investments. A decline in the value of currencies in which the Portfolio's investments are denominated against the dollar will result in a corresponding decline in the dollar value of the Portfolio's assets. This risk tends to be heightened in the case of investing in certain emerging market countries. For example, some currencies of emerging market countries have experienced steady devaluations relative to the U.S. dollar, and major adjustments have been made in certain of such currencies periodically. Some emerging market countries may also have managed currencies which do not freely float against the dollar. INFLATION. Several emerging market countries have experienced substantial, and in some periods extremely high, rates of inflation in recent years. Inflation and rapid fluctuations in inflation rates may have very negative effects on the economies and securities markets of certain emerging market countries. Further, inflation accounting rules in some emerging market countries require, for companies that keep accounting records in the local currency, that certain assets and liabilities be restated on the company's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain emerging market companies. NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging market countries may be limited, the Portfolio, like the Fund, has classified itself as a "non-diversified investment company" under the Act so that it may invest more than 5% of its total assets in the securities of any one issuer. This classification may not be changed without a shareholder vote. However, so that the Portfolio may continue to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), the Portfolio will limit its investments so that at the close of each quarter of the taxable year, (i) not more than 25% of the market value of the Portfolio's total assets will be invested in the securities of a single issuer, and (ii) with respect to 50% of the market value of its total assets not more than 5% will be invested in the securities of a single issuer and the Portfolio will not own more than 10% of the outstanding voting securities of a single issuer. See "Dividends, Distributions and Taxes." To the extent the Portfolio makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. Also, since a relatively high percentage of the Portfolio's assets may be invested in the securities of a limited number of issuers, the Portfolio may be more susceptible to any single economic, political or regulatory occurrence than a diversified investment company. GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country, the Portfolio is susceptible to factors adversely affecting that country. In particular, these factors may include the political and economic developments and foreign exchange rate fluctuations discussed above. As a result of investing substantially in one country, the value of the Portfolio's assets may fluctuate more widely than the value of shares of a comparable Portfolio having a lesser degree of geographic concentration. CERTAIN RISKS OF DEBT SECURITIES. The Portfolio may invest without limitation in emerging market debt securities rated investment grade. The Portfolio may also invest up to 35% of its total assets in unrated debt securities or in debt securities rated below investment grade. Debt securities rated Baa by Moody's Investors Service, Inc. ("Moody's") are considered to have speculative characteristics. Below investment grade securities, i.e. those rated in the medium to lower rating categories of nationally recognized statistical rating organizations such as Standard & Poor's Ratings Services ("S&P") and Moody's and unrated securities of comparable quality ("high yield/high risk securities"), are predominantly speculative with respect to the capacity to pay interest and repay principal, and generally involve a greater volatility of price than securities in higher rating categories. These securities are commonly referred to as "junk" bonds. The risks associated with high yield/high risk securities are generally greater than those associated with higher-rated securities. The Portfolio is not obligated to dispose of securities due to changes by the rating agencies. A description of S&P's and Moody's fixed-income securities ratings is contained in the Appendix to the SAI. In purchasing high yield/high risk securities, the Portfolio will rely on the investment adviser's judgment, analysis and experience in evaluating the creditworthiness of an issuer of such securities. Nonetheless, investors should carefully review the investment objective and policies of the Portfolio and consider their ability to assume the investment risks involved before making an investment. The Portfolio is not authorized to purchase debt securities that are in default, except for sovereign debt (discussed below) in which the Portfolio may invest no more than 5% of its total assets while such sovereign debt securities are in default. The market values of high yield/high risk securities tend to reflect individual issuer developments and to exhibit sensitivity to adverse economic changes to a greater extent than do higher-rated securities, which react primarily to fluctuations in the general level of interest rates. Issuers of high yield/high risk securities may be highly leveraged and may not have available to them more traditional methods of financing. During economic downturns or substantial periods of rising interest rates, issuers of high yield/high risk securities, especially those which are highly leveraged, may be less able to service their principal and interest payment obligations, meet their projected business goals or obtain additional financing. The risk of loss due to default by the issuer is significantly greater for holders of high yield/high risk securities because such securities may be unsecured and may be subordinated to other creditors of the issuer. In addition, the Portfolio may incur additional expenses to the extent it is required to seek recovery upon a default by the issuer of such an obligation or participate in the restructuring of such obligation. Periods of economic uncertainty and change can be expected to result in increased volatility of market prices of high yield/high risk securities and, correspondingly, the Portfolio's net asset value to the extent it invests in such securities. Further, market prices of such securities structured as zero coupon or pay-in-kind securities are affected to a greater extent by interest rate changes and thereby tend to be more volatile than any securities which pay interest periodically and in cash. High yield/high risk securities may have call or redemption features which would permit an issuer to repurchase the securities from the Portfolio. If a call were exercised by the issuer during a period of declining interest rates, the Portfolio likely would have to replace such called securities with lower yielding securities, thus decreasing the net investment income to the Portfolio and dividends to shareholders. While a secondary trading market for high yield/high risk securities does exist, it is generally not as liquid as the secondary market for higher rated securities. In periods of reduced secondary market liquidity, prices of high yield/high risk securities may become volatile and experience sudden and substantial price declines, and the Portfolio may have difficulty in disposing of particular issues when necessary to meet the Portfolio's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain high yield/high risk securities also may make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing the Portfolio's investment portfolio. Market quotations are generally available on many high yield/high risk securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Under such conditions, the Portfolio may have to rely more heavily on the judgment of the Board or SCMI under Board-approved guidelines to value such securities accurately. Adverse publicity and investor perceptions, which may not be based on fundamental analysis, also may decrease the value and liquidity of high yield/high risk securities, particularly in a thinly traded market. Factors adversely affecting the market value of high yield/high risk securities are likely to adversely affect the Portfolio's, and thus the Fund's, net asset value. Investment in sovereign debt involves a high degree of risk. Certain emerging market countries such as Argentina, Brazil and Mexico are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and/or interest on outstanding debt. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest when it is due may be affected by many factors such as its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange, the relative size of the debt service burden to the economy as a whole, and political restraints. The Portfolio, as a holder of sovereign debt, may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which defaulted sovereign debt may be collected in whole or in part. The sovereign debt instruments in which the Portfolio may invest involve great risk and are deemed to be the equivalent in terms of quality to high yield/high risk securities discussed above and are subject to many of the same risks as such securities. Similarly, the Portfolio may have difficulty disposing of certain sovereign debt obligations because there may be a thin trading market for such securities. The Portfolio will not invest more than 5% of its total assets in sovereign debt which is in default. PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but its portfolio turnover rate is not expected to exceed 100%. High portfolio turnover and short-term trading involve correspondingly greater commission expenses and transaction costs. Also, higher portfolio turnover rates can make it more difficult for the Portfolio to qualify as a regulated investment company for federal income tax purposes and may cause shareholders of the Portfolio to recognize gains for federal income tax purposes. See "Taxation" in the SAI. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The business and affairs of the Portfolio are managed under the direction of the Schroder Core Board. The Trustees of both the Trust and Schroder Core are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the respective executive officers of the Trust and Schroder Core may be found in the SAI under the heading "Management -- Trustees and Officers." The Board and the Schroder Core Board have separately adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER The Fund currently invests all of its assets in the Portfolio. SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Portfolio and continuously reviews, supervises and administers the Portfolio's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Portfolio's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. For its services with respect to the Portfolio, SCMI receives a monthly advisory fee equal on an annual basis to 0.45% of the Portfolio's average daily net assets, which the Fund indirectly bears through investment in the Portfolio. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly- owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. The investment management team of John A. Troiana, a Vice President of the Trust and Schroder Core, and Laura Luckyn-Malone, a Trustee and President of the Trust and Schroder Core, with the assistance of an SCMI investment committee, is primarily responsible for the day-to-day management of the Portfolio's investment portfolio. Mr. Troiano, who has managed the Fund's portfolio since ________ 19__ and the Portfolio's investments since its inception, has been a Senior Vice President of SCMI since ______ 1991. He has been employed by various Schroder Group companies in the investment research and portfolio management areas since 1988. Ms. Luckyn-Malone, who joined the Portfolio's investment management team in ____________ 1995, has been a Senior Vice President and Director of SCMI since February 1990. The Fund began pursuing its investment objective through investment in the Portfolio on November 1, 1995. The Fund may withdraw its investment from the Portfolio at any time if the Board determines that it is in the best interests of the Fund and its shareholders to do so. See "Other Information -- Fund Structure." Accordingly, the Fund has retained SCMI as its investment adviser to manage the Fund's assets in the event the Fund withdraws its investment. SCMI does not receive an investment advisory fee with respect to the Fund so long as the Fund remains completely invested in the Portfolio or any other investment company. If the Fund resumes directly investing in portfolio securities, the Fund will pay SCMI a monthly advisory fee equal on an annual basis to 1.00% of the Fund's average daily net assets. The investment advisory contract between SCMI and the Trust with respect to the Fund is the same in all material respects as the Portfolio's investment advisory contract except as to the parties, the circumstances under which fees will be paid and the jurisdiction whose laws govern the agreement. For the fiscal year ended October 31, 1995, the Fund paid SCMI an advisory fee equal to 0.10% of its average daily net assets. On behalf of the Fund, the Trust has entered into an administrative services contract with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned subsidiary of SCMI. The Trust and Schroder Advisors have entered into a sub-administration agreement with Forum. Pursuant to these agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. For these services, the Fund pays Schroder Advisors a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. Schroder Advisors and Forum provide similar services to the Portfolio, for which the Portfolio pays Schroder Advisors a monthly fee at the annual rate of 0.15 % of the Portfolio's average daily net assets, a portion of which Schroder Advisors pays Forum for its services with respect to the Portfolio. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN Schroder Advisors acts as distributor of the Fund's shares. Under a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") adopted by the Trust on behalf of the Fund, each month the Trust pays directly or reimburses Schroder Advisors, as distributor, for costs and expenses incurred in connection with the distribution of Advisor Shares. Such payment or reimbursement is subject to a limit on an annual basis to 0.50% of the Fund's average daily net assets attributable to Advisor Shares. The maximum annual amount payable under the Distribution Plan is currently 0.25%, which amount may only be increased by action of the Board. Payment or reimbursement under the Distribution Plan may be for various types of costs, including: (1) advertising expenses, (2) costs of printing prospectuses and other materials to be given or sent to prospective investors, (3) expenses of sales employees or agents of Schroder Advisors, including salary, commissions, travel and related expenses in connection with the distribution of Advisor Shares, (4) payments to broker-dealers who advise shareholders regarding the purchase, sale, or retention of Advisor Shares, and (5) payments to banks, trust companies, broker-dealers (other than Schroder Advisors) or other financial organizations (collectively, "Service Organizations"). Payments to Service Organizations under the Distribution Plan are calculated by reference to the average daily net assets of Advisor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. The Fund will not be liable for distribution expenditures made by Schroder Advisors in any given year in excess of the maximum amount payable under the Distribution Plan in that year. Costs or expenses in excess of the per annum limit may not be carried forward to future years. Salary expenses of salesmen who are responsible for marketing various mutual funds of the Trust may be allocated to those funds, including the Advisor Shares class of the Fund, that have adopted a distribution plan similar to that of the Fund on the basis of average daily net assets. Travel expenses may be allocated to, or divided among, the particular funds of the Trust for which they are incurred. The Trust, on behalf of the Fund, has also adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which Schroder Advisors, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Advisor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. EXPENSES SCMI and Schroder Advisors have voluntarily undertaken to assume certain expenses of the Fund and the Portfolio (or waive their respective fees). This undertaking is designed to place a maximum limit on total Fund expenses (excluding taxes, interest, brokerage commissions and other portfolio transaction expenses and extraordinary expenses) of 2.10% of the average daily net assets of the Fund attributable to Advisor Shares. This expense limitation cannot be modified or withdrawn except by a majority vote of the Trustees of the Trust who are not affiliated with SCMI or Schroder Advisors. If expense reimbursements are required, they will be made on a monthly basis. SCMI will reimburse the Fund for four-fifths of the amount required and Schroder Advisors will reimburse the Fund for the remaining one-fifth; provided, however, that neither SCMI nor Schroder Advisors will be required to make any reimbursements or waive any fees in excess of the fees payable to them by the Fund and the Portfolio on a monthly basis for their respective advisory and administrative services. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Portfolio's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Portfolio may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Commission rates for brokerage transactions are fixed on many foreign securities exchanges, and this may cause higher brokerage expenses to accrue to the Portfolio than would be the case for comparable transactions effected on U.S. securities exchanges. Subject to the Portfolio's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ Schroder Securities Limited and its affiliates (collectively, "Schroder Securities"), affiliates of SCMI, to effect transactions of the Portfolio on certain foreign securities exchanges. Because of the affiliation between SCMI and Schroder Securities, the Portfolio's payment of commissions to Schroder Securities is subject to procedures adopted by Schroder Core's Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Portfolio's brokerage will be directed to Schroder Securities and in no event will Schroder Securities receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Schroder Core Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Portfolio as a factor in the selection of broker-dealers to execute portfolio transactions for the Portfolio. Although the Portfolio does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Portfolio's portfolio transactions would agree to pay designated expenses of the Portfolio if brokerage commissions generated by the Portfolio reached certain levels, might reduce the Portfolio's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Portfolio. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, Schroder Core, SCMI, Schroder Advisors, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Advisor Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information -- Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a Purchase Order (at the address set forth below). The minimum initial investment is $250,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Purchases of Fund shares are subject to a purchase charge of 0.50% of the amount invested. This charge is designed to cover the transaction costs the Fund incurs (either directly or indirectly) as a result of investments in the Fund, including brokerage commissions in acquiring portfolio securities, currency transaction costs and transfer agent costs, and to protect the interests of shareholders. This charge, which is not a sales charge, is paid to the Fund, not to Schroder Advisors or any other entity. The purchase charge is not assessed on the reinvestment of dividends or distributions or shares purchased through a subscription in kind. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder Emerging Markets Fund Institutional Portfolio, to: Schroder Emerging Markets Fund Institutional Portfolio P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder Emerging Markets Fund Institutional Portfolio -- Advisor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the class of shares, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax-qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. Redemptions of Fund shares are subject to a redemption charge of 0.50% of the net asset value of the shares redeemed. This charge is designed to cover the transaction costs the Fund incurs in redeeming Fund shares (either directly or indirectly as a result of its investment in the Portfolio), including brokerage commissions in selling portfolio securities, currency transaction costs and transfer agent costs, and to protect the interests of shareholders. This charge, which is not a sales charge, is paid to the Fund, not to Schroder Advisors or any other entity. The redemption charge is not assessed on shares acquired through the reinvestment of dividends or distributions or on redemptions in kind. For purposes of computing the redemption charge, redemptions by a shareholder are deemed to be made in the following order: (i) from Shares purchased through the reinvestment of dividends and distributions (with respect to which no redemption charge is applied) and (ii) from Shares for which the redemption charge is applicable, on a first purchased, first redeemed basis. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the class of shares, the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information -- Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $_____, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $_____ and be allowed at least 30 days to make an additional investment to increase the account balance to at least $_____. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets (which is principally the value of the Fund's investment in the Portfolio) less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Portfolio that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over-the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Schroder Core Board. Trading by the Portfolio in securities on European and Far Eastern exchanges and over-the-counter markets may not take place on every day that the New York Stock Exchange is open for trading. Furthermore, trading takes place in various foreign markets on days on which the Fund's net asset value is not calculated. As a result, the Fund's net asset value may be significantly affected by such trading on days when an investor has no access to the Fund. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when net asset value is calculated, such securities will be valued at fair value as determined in good faith by using methods approved by the Schroder Core Board. All assets and liabilities of the Portfolio denominated in foreign currencies are valued in U.S. dollars based on the exchange rate last quoted by a major bank prior to the time when the net asset value of the Fund is calculated. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. THE PORTFOLIO The Portfolio is not required to pay Federal income taxes on its net investment income and capital gain, as it is treated as a partnership for Federal income tax purposes. All interest, dividends and gain and losses of the Portfolio are deemed to have been "passed through" to the Fund in proportion to its holdings of the Portfolio, regardless of whether such interest, dividends or gain have been distributed by the Portfolio or losses have been realized by the Portfolio. Investment income received by the Fund from sources within foreign countries may be subject to foreign income or other taxes, with respect to which shareholders may be entitled to claim a credit or deduction. See "The Fund" immediately above. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Advisor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. As of April 30, 1996, The Robert Wood Johnson Foundation may be deemed to control the Fund for purposes of the Act. From time to time, certain shareholders may own a large percentage of the shares of a Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid, and do not reflect the deduction of purchase charges or redemption charges. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's and of the Portfolio's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder Emerging Markets Fund Institutional Portfolio P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. FUND STRUCTURE OTHER CLASSES OF SHARES. The Fund has two classes of shares, Advisor Shares and Investor Shares. Investor Shares are offered by a separate prospectus to corporations, institutions, and fiduciaries, including fiduciary, agency, and custodial clients of bank trust departments, trust companies, and their affiliates. Investor Shares incur less expenses than Advisor Shares. Accordingly, the performance of the two classes will differ. Except for certain differences, each share of each class represents an undivided, proportionate interest in the Fund. Each share of the Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of the Fund except that, due to the differing expenses borne by the two classes, the amount of dividends and other distribution will differ between the classes. Information about Investor Shares is available from the Fund by calling Forum Financial Corp. at (207) 879-8903. THE PORTFOLIO. The Fund seeks to achieve its investment objective by investing all of its investable assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Accordingly, the Portfolio directly acquires its own securities and the Fund acquires an indirect interest in those securities. The Portfolio is a separate series of Schroder Core, a business trust organized under the laws of the State of Delaware in September 1995. Schroder Core is registered under the Act as an open-end management investment company and currently has four separate portfolios. The assets of the Portfolio, a diversified portfolio, belong only to, and the liabilities of the Portfolio are borne solely by, the Portfolio and no other portfolio of Schroder Core. The investment objective and fundamental investment policies of the Fund and the Portfolio can be changed only with shareholder approval. See "Investment Objective and Policies" and "Management of the Fund" for a complete description of the Portfolio's investment objective, policies, restrictions, management, and expenses. The Fund's investment in the Portfolio is in the form of a non-transferable beneficial interest. As of the date of this Prospectus, the Fund is the only institutional investor in the Portfolio. The Portfolio may permit other investment companies or institutional investors to invest in it. All investors in the Portfolio will invest on the same terms and conditions as the Fund and will pay a proportionate share of the Portfolio's expenses. The Portfolio normally will not hold meetings of investors except as required by the Act. Each investor in the Portfolio will be entitled to vote in proportion to its relative beneficial interest in the Portfolio. On most issues subject to a vote of investors, as required by the Act and other applicable law, the Fund will solicit proxies from shareholders of the Fund and will vote its interest in the Portfolio in proportion to the votes cast by its shareholders. If there are other investors in the Portfolio, there can be no assurance that any issue that receives a majority of the votes cast by Fund shareholders will receive a majority of votes cast by all investors in the Portfolio; indeed, if other investors hold a majority interest in the Portfolio, they could hold have voting control of the Portfolio. The Portfolio will not sell its shares directly to members of the general public. Another investor in the Portfolio, such as an investment company, that might sell its shares to members of the general public would not be required to sell its shares at the same public offering price as the Fund, and could have different advisory and other fees and expenses than the Fund. Therefore, Fund shareholders may have different returns than shareholders in another investment company that invests exclusively in the Portfolio. There is currently no such other investment company that offers its shares to members of the general public. Information regarding any such funds in the future will be available from Schroder Core by calling Forum Financial Corp. at (207) 879-8903. Under the Federal securities laws, any person or entity that signs a registration statement may be liable for a misstatement or omission of a material fact in the registration statement. Schroder Core, its Trustees and certain of its officers are required to sign the registration statement of the Trust and the registration statements of certain other publicly-offered investors in the Portfolio. In addition, under the Federal securities laws, Schroder Core could be liable for a misstatements or omissions of a material fact in any proxy soliciting material of a publicly-offered investor in Schroder Core, including the Fund. Under the Trust Instrument for the Schroder Core, each investor in the Portfolio, including the Trust, indemnifies Schroder Core and its Trustees and officers ("Schroder Core Indemnitees") against certain claims. Indemnified claims are those brought against Schroder Core Indemnitees but based on a misstatement or omission of a material fact in the investor's registration statement or proxy materials, except to the extent such claim is based on a misstatement or omission of a material fact relating to information about Schroder Core in the investor's registration statement or proxy materials that was supplied to the investor by Schroder Core. Similarly, Schroder Core indemnifies each investor in the Portfolio, including the Fund, for any claims brought against the investor with respect to the investor's registration statement or proxy materials, to the extent the claim is based on a misstatement or omission of a material fact relating to information about Schroder Core that is supplied to the investor by Schroder Core. In addition, each registered investment company investor in the Portfolio indemnifies 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 Core. The purpose of these cross-indemnity provisions is principally to limit the liability of Schroder Core to information that it knows or should know and can control. With respect to other prospectuses and other offering documents and proxy materials of investors in Schroder Core, Schroder Core's liability is similarly limited to information about and supplied by Schroder Core. CERTAIN RISKS OF INVESTING IN THE PORTFOLIO. The Fund's investment in the Portfolio may be affected by the actions of other large investors in the Portfolio, if any. For example, if the Portfolio had a large investor other than the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining investors (including the Fund) might, as a result, experience higher pro rata operating expenses, thereby producing lower returns. The Fund may withdraw its entire investment from the Portfolio at any time, if the Board determines that it is in the best interests of the Fund and its shareholders to do so. The Fund might withdraw, for example, if there were other investors in the Portfolio with power to, and who did by a vote of the shareholders of all investors (including the Fund), change the investment objective or policies of the Portfolio in a manner not acceptable to the Board. A withdrawal could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the Portfolio. That distribution could result in a less diversified portfolio of investments for the Fund and could affect adversely the liquidity of the Fund's portfolio. If the Fund decided to convert those securities to cash, it usually would incur brokerage fees or other transaction costs. If the Fund withdrew its investment from the Portfolio, the Board would consider what action might be taken, including the management of the Fund's assets in accordance with its investment objective and policies by the SCMI, the Fund's investment adviser and subadviser, respectively, or the investment of all of the Fund's investable assets in another pooled investment entity having substantially the same investment objective as the Fund. The inability of the Fund to find a suitable replacement investment, in the event the Board decided not to permit 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, will be liable for all obligations of the Portfolio, but not any other portfolio of Schroder Core. The risk to an investor in the Portfolio of incurring financial loss on account of such liability, however, would be limited to circumstances in which the Portfolio was unable to meet its obligations. 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. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Global Custody Division Woolgate House, Coleman Street London EC2P 2HD, United Kingdom TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand, L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY.................................... The Fund.............................................. Investment Adviser.................................... Administrative Services............................... Purchases and Redemptions............................. Risk Considerations................................... Fee Table............................................. FINANCIAL HIGHLIGHTS.................................. INVESTMENT OBJECTIVE AND POLICIES........................................ Investment Objective and the Portfolio................ Investment Policies................................... ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS................................. Investment Restrictions............................... Investment Types...................................... Risk Considerations................................... MANAGEMENT............................................ Board of Trustees..................................... Investment Adviser and Portfolio Manager.............. Administrative Services............................... Distribution Plan and Shareholder Services Plan....... Expenses.............................................. Portfolio Transactions................................ Code of Ethics........................................ INVESTMENT IN THE FUND................................ Purchase of Shares.................................... Retirement Plans...................................... Individual Retirement Accounts........................ Redemption of Shares.................................. Net Asset Value....................................... DIVIDENDS, DISTRIBUTIONS AND TAXES........................................... The Fund.............................................. The Portfolio......................................... OTHER INFORMATION..................................... Capitalization and Voting............................. Reports............................................... Performance Information............................... Custodian and Transfer Agent.......................... Shareholder Inquires.................................. Certain Servicing Organizations....................... Fund Structure........................................
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SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO TWO PORTLAND SQUARE PORTLAND, MAINE 04101 ____________ INVESTOR SHARES GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 FUND LITERATURE (800) 290-9826 SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - ADMINISTRATOR AND DISTRIBUTOR This Prospectus offers Investor Shares of Schroder Emerging Markets Fund Institutional Portfolio (the "Fund"), a separately-managed, non-diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. Investing in securities of emerging market issuers involves special risks in addition to those associated with investments in securities of U.S. issuers. THE FUND CURRENTLY SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY HOLDING, AS ITS ONLY INVESTMENT SECURITIES, THE SECURITIES OF SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO (THE "PORTFOLIO"), A SEPARATE PORTFOLIO OF SCHRODER CAPITAL FUNDS ("SCHRODER CORE"), A REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE AND POLICIES AS THE FUND. ACCORDINGLY, THE FUND'S INVESTMENT EXPERIENCE WILL CORRESPOND DIRECTLY WITH THE PORTFOLIO'S INVESTMENT EXPERIENCE. SEE "OTHER INFORMATION -- FUND STRUCTURE." This prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996. PROSPECTUS SUMMARY THE FUND. The Fund is a separately managed, non-diversified portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. Currently, the Fund seeks to achieve its investment objective by investing exclusively in the Portfolio, a series of Schroder Core, itself a registered open-end management investment company. The Portfolio has substantially the same investment objective and policies as the Fund. Accordingly, the investment experience of the Fund will correspond directly with the investment experience of the Portfolio. The Fund currently offers two separate classes of shares: Investor Shares ("Investor Shares") and Advisor Shares ("Advisor Shares"). Only Investor Shares are offered through this Prospectus and are sometimes referred to herein as the "Shares." INVESTMENT ADVISER. The Portfolio's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. The investment advisory fee paid to SCMI by the Portfolio is borne indirectly by the Fund. See "Management -- Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors"), formerly Schroder Capital Distributors, Inc., serves as Administrator and Distributor of the Fund, and Forum Financial Services, Inc. ("Forum") serves as the Fund's Sub-Administrator. PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $250,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." Purchases of Fund shares are subject to a purchase charge of 0.50% of the amount invested. Redemptions of Fund shares are subject to a redemption charge of 0.50% of the amount invested. See "Investment In The Fund -- Purchase of Shares" and "C Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. Investments in securities of foreign issuers, particularly in countries with smaller, emerging capital markets, involve certain risks not associated with domestic investing, including fluctuations in foreign exchange rates, uncertain political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. The Fund is not intended for investors whose objective is assured income or preservation of capital. The Fund should be considered a means of diversifying an investment portfolio and not in itself a balanced investment program. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor in Investor Shares would incur. SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchase None Maximum Sales Load Imposed on Reinvested Dividends None Deferred Sales Load None Purchase Charge (based on amount invested)(1) 0.50% Redemption Charge (based on net asset value of shares redeemed)(1) 0.50% ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)(2) Management Fees (after fee waivers)(3) 0.36% 12b-1 Fees 0.00% Other Expenses (after expense reimbursements) 1.24% Total Fund Operating Expenses(3) 1.60% (1) The Purchase Charge and the Redemption Charge are paid to the Fund and are imposed on all purchases and redemptions of Shares, respectively, other than with respect to Shares purchased through the reinvestment of dividends or distributions. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." (2) The amounts of expenses reflect the operating expenses of the Fund prior to its investment in the Portfolio and are based on annualized estimated expenses incurred for the Fund's most recent fiscal year ended October 31, 1995. The Fund's expenses have, since November 1, 1995, and will continue to include the Fund's pro rata portion of all operating expenses of the Portfolio, which will be borne indirectly by Fund shareholders. The Trust's Board of Trustees believes that the aggregate per share expenses of the Fund and the Portfolio will be approximately equal to the expenses the Fund would incur if its assets were invested directly in portfolio securities. Investment advisory fees are those incurred by the Portfolio; as long as the Fund's assets are invested in the Portfolio, the Fund pays no investment advisory fees directly. (3) Management Fees for the Fund reflect the annual fee rate that the Fund pays for investment advisory (1.00%) and administrative (0.25%) services. Absent estimated fee waivers and expenses reimbursements, Management Fees, Other Expenses and Total Operating Expenses would be 1.00%, 1.45%, and 2.45%, respectively. SCMI and Schroder Advisors have voluntarily undertaken to waive a portion of their fees and assume certain expenses of the Fund during the current fiscal year to the extent that the Fund's total expenses exceed 1.60% of the Fund's average daily net assets. This undertaking cannot be withdrawn except by a majority vote of the the Trust's Board of Trustees. See "Management --Expenses." EXAMPLE Based on the expenses listed above, you would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) no redemption and full redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: No Redemption Full Redemption ------------- --------------- 1 year $_____ 1 year $_____ 3 years $_____ 3 years $_____ 5 years $_____ 5 years $_____ 10 year $_____ 10 year $_____ THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share of Investor Shares of the Fund for its first fiscal year. This information is part of the Fund's financial statements and has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number for Fund Literature on the cover of this Prospectus. March 31, 1995* through October 31, 1995 ---------------- NET ASSET VALUE, BEGINNING OF YEAR 10.00 ----- INVESTMENT OPERATIONS Net Investment Income 0.02 Net Realized and Unrealized Gain on Investments 0.61 ----- Total from Investment Operations 0.63 NET ASSET VALUE, END OF PERIOD $10.63 ----- ----- TOTAL RETURN 6.30%(a) ----- ----- RATIO/SUPPLEMENTARY DATA: Net Assets, End of Year (Thousands) 18,423 Ratio of Expenses to Average Net Assets 1.58%(b)(c) Ratio of Net Investment Income to Average Net Assets 0.46%(b) Portfolio Turnover Rate 44.10% * Commencement of operations (a) Does not reflect purchase charge of 0.50% (b) Annualized (c) During the period, various fees and expenses were waived and reimbursed, respectively. Had such waiver and reimbursement not occurred, the annualized ratio of expenses to average net assets would have been 2.45% INVESTMENT OBJECTIVE AND POLICIES The Fund is designed for investors who seek the aggressive growth potential of emerging world markets and are willing to bear the special risks of investing a portion of their assets in those markets. The Fund should be considered a means of diversifying an investment portfolio and is not a complete investment program. Investments in the securities of foreign issuers generally involve risks in addition to risks associated with investments in the securities of U.S. issuers. See "Additional Investment Policies and Risk Considerations." The Fund is not intended for investors whose objective is assured income or preservation of capital. INVESTMENT OBJECTIVE AND THE PORTFOLIO The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. Current income will be incidental to the Fund's objective. There is no assurance that the Fund will achieve its investment objective. The Fund currently seeks to achieve its investment objective by investing all of its investment assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Therefore, although the following discusses the investment policies of the Portfolio and the responsibilities of Schroder Core's Board of Trustees (the "Schroder Core Board"), it applies equally to the Fund and the Trust's Board of Trustees (the "Board"). Additional information concerning the investment policies of the Fund and the Portfolio, including additional fundamental policies, is contained in the SAI. INVESTMENT POLICIES Under normal conditions, the Portfolio invests at least 65% of its total assets in emerging market equity and debt securities, including common stocks, preferred stocks, convertible preferred stocks, stock rights and warrants, convertible debt securities and non-convertible debt securities. Investments in stock rights and warrants will not be considered for purposes of setermining compliance with this policy. The Portfolio may invest up to 35% of its total assets in high risk debt securities that are unrated or rated below investment grade. See "Additional Investment Policies and Risk Considerations." Under certain circumstances, the Portfolio may invest indirectly in emerging market securities by investing in other investment companies or vehicles. See "Additional Investment Policies and Risk Considerations -- Other Investment Vehicles" below. In recent years, many emerging market countries have begun programs of economic reform: removing import tariffs, dismantling trade barriers, deregulating foreign investment, privatizing state owned industries, permitting the value of their currencies to float against the dollar and other major currencies, and generally reducing the level of state intervention in industry and commerce. Important intra-regional economic integration also holds the promise of greater trade and growth. At the same time, significant progress has been made in restructuring the heavy external debt burden that certain emerging market countries accumulated during the 1970s and 1980s. While there is no assurance that these trends will continue, the Portfolio's investment adviser will seek out attractive investment opportunities in these countries. "Emerging market" countries generally include all countries in the world other than those included in the Morgan Stanley Capital International World Index ("MSCI World") of major world economies. Where the investment adviser determines that the economy of a particular country included in the MSCI World more appropriately reflects an emerging market economy, however, the adviser may include such country in the emerging market category. The following countries currently are excluded from the Portfolio's emerging market category: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United Kingdom, and the United States of America. The Portfolio will not necessarily seek to diversify investments on a geographic basis within the emerging market category and, in this regard, the Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country or area, the Portfolio is susceptible to factors adversely affecting that country or area. See "Additional Investment Policies and Risk Considerations -- Risk Considerations -- Geographic Concentration" below. An issuer of a security will be considered to be domiciled or doing business in an emerging market when (1) its issuer is organized under the laws of an emerging market country; (2) the issuer's primary securities trading market is in an emerging market country; or (3) in the judgment of the investment adviser, at least 50% of the issuer's revenues or profits are derived from goods produced or sold, investments made, or services performed in emerging market countries or which have at least 50% of their assets situated in such countries. The Portfolio may acquire emerging market securities that are denominated in currencies other than a currency of an emerging market country. The Portfolio may consider investment companies to be located in the country or countries in which they primarily invest. In anticipation of the currency requirements of the Portfolio and to attempt to protect against possible adverse movements in foreign exchange rates, the Portfolio may enter into forward contracts to purchase or sell foreign currencies. Although such contracts may reduce the risk of loss to the Portfolio due to a decline in the value of the currency which is sold, they also limit the gain that might result should the value of such currency rise. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and all investment policies of each of the Fund and the Portfolio that are designated as fundamental may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund or the Portfolio, as applicable. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. Unless otherwise indicated, all investment policies are not fundamental and may be changed by the Board without approval by shareholders of the Fund. Likewise, nonfundamental investment policies of the Portfolio may be changed by the Board of Trustees of Schroder Core (the "Schroder Core Board") without shareholder approval. For more information concerning shareholder voting, see "Other Information -- Capitalization and Voting" and "Other Information -- Fund Structure." FUNDAMENTAL POLICIES The following investment restrictions of the Portfolio are fundamental policies: (1) The Portfolio will not concentrate investments in any particular industry; therefore, the Portfolio will not purchase the securities of companies in any one industry if, thereafter, 25% or more of the Portfolio's total assets would consist of securities of companies in that industry. (This restriction does not apply to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.) (2) The Portfolio will not issue senior securities, borrow money or pledge its assets in excess of 10% 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. Usually only "leveraged" investment companies may borrow in excess of 5% of their assets; however, the Portfolio will not borrow to increase income but only as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to settle securities transactions which may otherwise require untimely dispositions of Portfolio securities. The Portfolio will not purchase securities while borrowings exceed 5% of total assets. (For the purpose of this restriction, collateral arrangements with respect to the writing of options, futures contracts, options on futures contracts, and collateral arrangements with respect to initial and variation margin are not deemed to be a pledge of assets and neither such arrangements nor the purchase or sale of futures or related options are deemed to be the issuance of a senior security.) (3) The Portfolio will not make investments for the purpose of exercising control or management. Investments by the Portfolio in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of investments for the purpose of exercising control or management. The percentage restrictions described above and in the SAI apply only at the time of investment and require no action by the Portfolio as a result of subsequent changes in value of the investments or the size of the Portfolio. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES EQUITY SECURITIES. The Portfolio's emerging market investments will comprise primarily equity securities. Such investments will consist predominantly of common stock or preferred stock of established companies listed on recognized securities exchanges or traded in other established markets. However, the Portfolio may invest to a limited extent in convertible preferred stock, warrants and stock rights. Due to the absence of established securities markets in certain emerging market countries and restrictions in certain countries on direct investment by foreign entities, the Portfolio may invest in certain emerging market issuers exclusively or primarily through the purchase of sponsored and unsponsored American Depository Receipts ("ADRs") or other similar securities, such as American Depository Shares, Global Depository Shares or International Depository Receipts; or through investment in government approved investment companies or other vehicles. ADRs are receipts typically issued by U.S. banks evidencing ownership of the underlying securities, into which they are convertible. These securities may or may not be denominated in the same currency as the underlying securities. Unsponsored ADRs may be created without the participation of the foreign issuer. Holders of these ADRs generally bear all the costs of the ADR facility, whereas foreign issuers typically bear certain costs in a sponsored ADR. The bank or trust company depository of an unsponsored ADR may be under no obligation to distribute shareholder communications received from the foreign issuer or to pass through voting rights. DEBT SECURITIES. The Portfolio may also seek capital appreciation through investment in emerging market convertible or non-convertible debt securities. Capital appreciation in debt securities may arise as a result of a favorable change in relative foreign exchange rates, in relative interest rate levels, or in the creditworthiness of issuers. The receipt of income from such debt securities is incidental to the Portfolio's objective of long-term capital appreciation. Such income can be used, however, to offset the operating expenses of the Portfolio. In accordance with its investment objective, the Portfolio will not seek to benefit from anticipated short-term fluctuations in currency exchange rates. The Portfolio may, from time to time, invest in debt securities with relatively high risk and high yields (as compared to other debt securities meeting the Portfolio's investment criteria), notwithstanding that the Portfolio may not anticipate that such securities will experience substantial capital appreciation. The debt securities in which the Portfolio invests may be unrated, but will not be in default at the time of purchase. The Portfolio also may invest to a certain extent in debt securities in order to participate in debt-to-equity conversion programs sponsored by certain emerging market countries or corporate reorganizations. The Portfolio may invest in debt securities ("sovereign debt") issued or guaranteed by emerging market governments (including countries, provinces and municipalities) or their agencies and instrumentalities ("governmental entities"), debt securities issued or guaranteed by international organizations designated or supported by multiple foreign governmental entities (which are not obligations of foreign governments) to promote economic reconstruction or development, and debt securities issued by corporations or financial institutions. The Portfolio may invest a portion of its assets in certain debt obligations known as "Brady Bonds." Brady Bonds are created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with debt restructurings. To date, debt restructurings utilizing Brady Bonds have been undertaken in Mexico, Venezuela, Argentina, Albania, Ecuador, Jordan, Poland, Uraguay, Bulgaria, the Domican Republic, Costa Rica, Brazil, Nigeria, and the Philippines. Other countries, including Ecuador, Panama and Peru are expected to implement Brady Bond debt restructurings in the future. Brady Bonds are of recent origin, and accordingly do not have a long payment history. Brady Bonds are actively traded in the over-the-counter secondary market, and may be collateralized or uncollateralized. Although most Brady Bonds are denominated in U.S. dollars, they are issued in various currencies. U.S. dollar denominated Brady Bonds may be fixed rate par bonds or floating rate discount bonds. They are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the Brady Bonds. Interest payments on U.S. dollar denominated Brady Bonds generally are collateralized on a one year or longer rolling forward basis by cash or securities in an amount, in the case of fixed rate bonds, that is equal to at least one year of interest payments or, in the case of floating rate bonds, that is initially equal to at least one years interest payments based on the current interest rate and is thereafter adjusted at regular intervals. Certain Brady Bonds are entitled to "value recovery payments" in certain circumstances, which in effect are supplemental interest payments but are not generally collateralized. Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) collateralized interest payments; (iii) any uncollateralized repayment of principal at maturity; and (iv) any uncollateralized interest payments. These uncollateralized amounts are referred to as "residual risk." Because of their residual risk and, among other factors, the history of defaults in commercial bank loans in countries issuing Brady Bonds, investments in Brady Bonds are considered speculative. INVESTMENT IN OTHER INVESTMENT COMPANIES OF VEHICLES. The Portfolio may be able to invest in certain emerging markets solely or primarily through governmentally authorized investment vehicles or companies. Pursuant to the Act, the Portfolio generally may invest up to 10% of its total assets in the aggregate in the shares of other investment companies and up to 5% of its total assets in any one investment company, as long as each investment does not represent more than 3% of the outstanding voting stock of the investment company in which the Portfolio invests at the time of such investment. Investment in other investment companies may involve the payment of substantial premiums above the value of such investment companies' portfolio securities, and is subject to limitations under the Act and market availability. The Portfolio does not intend to invest in such investment companies unless, in the judgment of SCMI, the potential benefits of such investment justify the payments of any applicable premiums or sale charges. As a shareholder in an investment company, the Portfolio would bear its ratable share of the investment company's expenses, including its advisory and administrative fees. At the same time, the Portfolio would continue to pay its own management fees and other expenses. TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes, the Portfolio may invest without limitation in (or enter into repurchase agreements maturing in seven days or less with U.S. banks and broker-dealers with respect to) short-term debt securities, including U.S. Government securities, certificates of deposit and bankers' acceptances of U.S. banks. The Portfolio may also hold cash and time deposits in foreign banks denominated in any major foreign currency. See "Investment Policies" in the SAI for further information about all these securities. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. To hedge against adverse price movements in the securities held in its portfolio and the currencies in which they are denominated (as well as in the securities it might wish to purchase and their denominated currencies), the Portfolio may engage in transactions in forward foreign currency exchange contracts ("forward contracts"). A forward contract involves an obligation to purchase or sell a currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. The Portfolio will generally not enter into a forward contract with a term of greater than one year. Forward contracts are not exchange traded, and there can be no assurance that a liquid market will exist at a time when the Portfolio seeks to close out a forward contract. Nor is there any assurance that a counterparty in an over-the-counter transaction will be able to perform its obligations. Currently, only a limited market, if any, exists for hedging transactions relating to currencies in certain emerging markets or to securities of issuers domiciled or principally engaged in business in certain emerging markets. This may limit the Portfolio's ability to effectively hedge its investments in those markets. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also limit the opportunity for gain if the value of the hedged currencies should rise. In addition, it may not be possible for the Portfolio to hedge against a devaluation that is so generally anticipated that the Portfolio is not able to contract to sell the currency at a price above the devaluation level it anticipates. See "Investment Policies - Forward Foreign Currency Exchange Contracts" in the SAI. ILLIQUID AND RESTRICTED SECURITIES. The Portfolio will not purchase or otherwise acquire any security if, as a result, more than 15% of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or because of legal or contractual restrictions on resale ("restricted securities"). There may be undesirable delays in selling illiquid securities at prices representing their fair value. This policy includes over-the-counter options held by the Portfolio and the "in the money" portion of the assets used to cover such options. As stated above, this policy also includes assets which are subject to material legal restrictions on repatriation. The limitation on investing in restricted securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Schroder Core Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Portfolio's liquidity. See "Investment Policies C Illiquid and Restricted Securities" in the SAI for further details. LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend portfolio securities (other than in repurchase transactions) to brokers, dealers and other financial institutions meeting specified credit conditions, if the loan is collateralized in accordance with applicable regulatory requirements and if, after any loan, the value of the securities loaned does not exceed 25% of the value of the Portfolio's total assets. By so doing, the Portfolio attempts to earn income through the receipt of interest on the loan. In the event of the bankruptcy of the other party to a securities loan, the Portfolio could experience delays in recovering the securities it lent. To the extent that, in the meantime, the value of the securities the Portfolio lent has increased, the Portfolio, and thus the Fund, could experience a loss. The Portfolio may lend securities from its portfolio if liquid assets in an amount at least equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Portfolio with respect to the loan is maintained by the Portfolio's custodian bank in a segregated account. Any securities that the Portfolio may receive as collateral will not become a part of its portfolio at the time of the loan, and, in the event of a default by the borrower, the Portfolio will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which the Portfolio is permitted to invest. During the time that the securities are on loan, the borrower will pay the Portfolio any accrued income on those securities, and the Portfolio may invest the cash collateral and earn income or receive an agreed upon fee from a borrower that has delivered cash equivalent collateral. Cash collateral received by the Portfolio will be invested in U.S. Government securities and liquid high grade debt obligations. The value of securities loaned will be marked to market daily. Portfolio securities purchased with cash collateral are subject to possible depreciation. Loans of securities by the Portfolio will be subject to termination at the Portfolio's or the borrower's option. The Portfolio may pay reasonable negotiated fees in connection with loaned securities, so long as such fees are set forth in a written contract and approved by the Schroder Core Board. See "Loans of Portfolio Securities" in the SAI for further information on securities loans. OPTIONS AND FUTURES TRANSACTIONS. Although the Portfolio does not presently intend to do so, it may (a) write covered call options on portfolio securities and the U.S. dollar and emerging market currencies, without limit; (b) write covered put options on portfolio securities and the U.S. dollar and emerging market currencies with the limitation that the aggregate value of the obligations underlying the puts determined as of the date the options are sold will not exceed 50% of the Portfolio's net assets; (c) purchase call and put options in amounts equaling up to 5% of its total assets; and (d)(i) purchase and sell futures contracts that are currently traded, or may in the future be traded, on U.S. and foreign commodity exchanges on underlying portfolio securities, any emerging market currency, U.S. and emerging market fixed-income securities and such indices of U.S. or emerging market equity or fixed-income securities as may exist or come into being and (ii) purchase and write call and put options on such futures contracts, in all cases involving such futures contracts or options on futures contracts for hedging purposes only, and without limit, except that the Portfolio may not enter into futures contracts or purchase related options if, immediately thereafter, the amount committed to margin plus the amount paid for premiums for unexpired options on futures contracts generally exceeds 5% of the value of the Portfolio's total assets. All of the foregoing are referred to as "Hedging Instruments." In general, the Portfolio may use Hedging Instruments: (1) to attempt to protect against declines in the market value of the Portfolio's portfolio securities or stock index futures, and the currencies in which they are denominated and thus protect the Portfolio's net asset value per share against downward market trends, or (2) to establish a position in securities markets as a temporary substitute for purchasing particular equity securities. The Portfolio will not use Hedging Instruments for speculation. The Hedging Instruments which the Portfolio is authorized to use have certain risks associated with them. Principal among such risks are: (a) the possible failure of such instruments as hedging techniques in cases where the price movement of the securities underlying the options or futures do not follow the price movements of the portfolio securities subject to the hedge; (b) potentially unlimited loss associated with futures transactions and the possible lack of a liquid secondary market for closing out a futures position; and (c) possible losses resulting from the inability of the Portfolio's investment adviser to correctly predict the direction of stock prices, interest rates and other economic factors. In addition, currently only a limited market, if any, exists for hedging transactions relating to currencies in many emerging markets or to securities of issuers domiciled or principally engaged in business in emerging markets. This may limit the Portfolio's ability to effectively hedge its investments in such emerging market countries. The Hedging Instruments the Portfolio may use and the risks associated with them are described in greater detail under "Options and Futures Transactions" in the SAI. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. The Portfolio may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. When such transactions are negotiated, the price is fixed at the time of the commitment, but delivery and payment can take place a month or more after the date of the commitment. There is no overall limit on the percentage of the Portfolio's assets which may be committed to the purchase of securities on a when-issued, delayed delivery or forward commitment basis. An increase in the percentage of the Portfolio's assets committed to the purchase of securities on a when-issued, delayed delivery or forward commitment basis may increase the volatility of the Portfolio's net asset value. WHEN, AS AND IF ISSUED SECURITIES. The Portfolio may purchase securities on a "when, as and if issued" basis under which the issuance of the security depends upon the occurrence of a subsequent event, such as approval of a merger, corporate reorganization, leveraged buyout or debt restructuring. If the anticipated event does not occur and the securities are not issued, the Portfolio will have lost an investment opportunity. There is no overall limit on the percentage of the Portfolio's assets which may be committed to the purchase of securities on a "when, as and if issued" basis. An increase in the percentage of the Portfolio's assets committed to the purchase of securities on a "when, as and if issued" basis may increase the volatility of its net asset value. RISK CONSIDERATIONS All investments, domestic and foreign, involve certain risks. Investments in securities of foreign issuers, particularly in countries with smaller, emerging capital markets, involve certain risks not associated with domestic investing, including fluctuations in foreign exchange rates, uncertain political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. POLITICAL AND ECONOMIC RISKS. In any emerging market country, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as economic growth rate, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments positions. Certain foreign investments may also be subject to foreign withholding or other governmental taxes that could reduce the return on these investments. Certain emerging market countries may restrict investment by foreign entities. For example, some of these countries may limit the size of foreign investment in certain issuers, require prior approval of foreign investment by the government, impose additional tax on foreign investors or limit foreign investors to specific classes of securities of an issuer that have less advantageous rights (with regard to convertibility, for example) than classes available to domiciliaries of the country. Substantial limitations may also exist in certain countries with respect to a foreign investor's ability to repatriate investment income, capital or the proceeds of sales of securities. The Portfolio could be adversely affected by delays in, or refusals to grant, any required governmental approvals for repatriation of capital. No more than 15% of the Portfolio's net assets will comprise, in the aggregate, assets which are (i) subject to material legal restrictions on repatriation or (ii) illiquid securities. FINANCIAL INFORMATION AND STANDARDS. Often the regulation of, and available information about, issuers and their securities is less extensive in emerging market countries than in the United States. Foreign companies may not be subject to uniform accounting, auditing and financial reporting standards or to requirements or practices comparable to those applicable to U.S. companies. REGULATION AND LIQUIDITY OF MARKETS. Government supervision and regulation of exchanges and brokers in emerging market countries is frequently less extensive than in the United States. These markets may have different clearance and settlement procedures. In certain cases, settlements have not kept pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could adversely affect or interrupt the Portfolio's intended investment program or result in investment losses due to intervening declines in security values. Securities markets in emerging market countries are substantially smaller than U.S. securities markets and have substantially less trading volume, resulting in diminished liquidity and greater price volatility. Reduced secondary market liquidity may make it more difficult for the Portfolio to determine the value of its portfolio securities or dispose of particular instruments when necessary. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher as well. CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the Portfolio will invest heavily in non-U.S. currency denominated securities, changes in foreign currency exchange rates will affect the value of the Portfolio's investments. A decline in the value of currencies in which the Portfolio's investments are denominated against the dollar will result in a corresponding decline in the dollar value of the Portfolio's assets. This risk tends to be heightened in the case of investing in certain emerging market countries. For example, some currencies of emerging market countries have experienced steady devaluations relative to the U.S. dollar, and major adjustments have been made in certain of such currencies periodically. Some emerging market countries may also have managed currencies which do not freely float against the dollar. INFLATION. Several emerging market countries have experienced substantial, and in some periods extremely high, rates of inflation in recent years. Inflation and rapid fluctuations in inflation rates may have very negative effects on the economies and securities markets of certain emerging market countries. Further, inflation accounting rules in some emerging market countries require, for companies that keep accounting records in the local currency, that certain assets and liabilities be restated on the company's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain emerging market companies. NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging market countries may be limited, the Portfolio, like the Fund, has classified itself as a "non-diversified investment company" under the Act so that it may invest more than 5% of its total assets in the securities of any one issuer. This classification may not be changed without a shareholder vote. However, so that the Portfolio may continue to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), the Portfolio will limit its investments so that at the close of each quarter of the taxable year, (i) not more than 25% of the market value of the Portfolio's total assets will be invested in the securities of a single issuer, and (ii) with respect to 50% of the market value of its total assets not more than 5% will be invested in the securities of a single issuer and the Portfolio will not own more than 10% of the outstanding voting securities of a single issuer. See "Dividends, Distributions and Taxes." To the extent the Portfolio makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. Also, since a relatively high percentage of the Portfolio's assets may be invested in the securities of a limited number of issuers, the Portfolio may be more susceptible to any single economic, political or regulatory occurrence than a diversified investment company. GEOGRAPHIC CONCENTRATION. The Portfolio may invest more than 25% of its total assets in issuers located in any one country. To the extent it invests in issuers located in one country, the Portfolio is susceptible to factors adversely affecting that country. In particular, these factors may include the political and economic developments and foreign exchange rate fluctuations discussed above. As a result of investing substantially in one country, the value of the Portfolio's assets may fluctuate more widely than the value of shares of a comparable Portfolio having a lesser degree of geographic concentration. CERTAIN RISKS OF DEBT SECURITIES. The Portfolio may invest without limitation in emerging market debt securities rated investment grade. The Portfolio may also invest up to 35% of its total assets in unrated debt securities or in debt securities rated below investment grade. Debt securities rated Baa by Moody's Investors Service, Inc. ("Moody's") are considered to have speculative characteristics. Below investment grade securities, i.e. those rated in the medium to lower rating categories of nationally recognized statistical rating organizations such as Standard & Poor's Ratings Services ("S&P") and Moody's and unrated securities of comparable quality ("high yield/high risk securities"), are predominantly speculative with respect to the capacity to pay interest and repay principal, and generally involve a greater volatility of price than securities in higher rating categories. These securities are commonly referred to as "junk" bonds. The risks associated with high yield/high risk securities are generally greater than those associated with higher-rated securities. The Portfolio is not obligated to dispose of securities due to changes by the rating agencies. A description of S&P's and Moody's fixed-income securities ratings is contained in the Appendix to the SAI. In purchasing high yield/high risk securities, the Portfolio will rely on the investment adviser's judgment, analysis and experience in evaluating the creditworthiness of an issuer of such securities. Nonetheless, investors should carefully review the investment objective and policies of the Portfolio and consider their ability to assume the investment risks involved before making an investment. The Portfolio is not authorized to purchase debt securities that are in default, except for sovereign debt (discussed below) in which the Portfolio may invest no more than 5% of its total assets while such sovereign debt securities are in default. The market values of high yield/high risk securities tend to reflect individual issuer developments and to exhibit sensitivity to adverse economic changes to a greater extent than do higher-rated securities, which react primarily to fluctuations in the general level of interest rates. Issuers of high yield/high risk securities may be highly leveraged and may not have available to them more traditional methods of financing. During economic downturns or substantial periods of rising interest rates, issuers of high yield/high risk securities, especially those which are highly leveraged, may be less able to service their principal and interest payment obligations, meet their projected business goals or obtain additional financing. The risk of loss due to default by the issuer is significantly greater for holders of high yield/high risk securities because such securities may be unsecured and may be subordinated to other creditors of the issuer. In addition, the Portfolio may incur additional expenses to the extent it is required to seek recovery upon a default by the issuer of such an obligation or participate in the restructuring of such obligation. Periods of economic uncertainty and change can be expected to result in increased volatility of market prices of high yield/high risk securities and, correspondingly, the Portfolio's net asset value to the extent it invests in such securities. Further, market prices of such securities structured as zero coupon or pay-in-kind securities are affected to a greater extent by interest rate changes and thereby tend to be more volatile than any securities which pay interest periodically and in cash. High yield/high risk securities may have call or redemption features which would permit an issuer to repurchase the securities from the Portfolio. If a call were exercised by the issuer during a period of declining interest rates, the Portfolio likely would have to replace such called securities with lower yielding securities, thus decreasing the net investment income to the Portfolio and dividends to shareholders. While a secondary trading market for high yield/high risk securities does exist, it is generally not as liquid as the secondary market for higher rated securities. In periods of reduced secondary market liquidity, prices of high yield/high risk securities may become volatile and experience sudden and substantial price declines, and the Portfolio may have difficulty in disposing of particular issues when necessary to meet the Portfolio's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain high yield/high risk securities also may make it more difficult for the Portfolio to obtain accurate market quotations for purposes of valuing the Portfolio's investment portfolio. Market quotations are generally available on many high yield/high risk securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Under such conditions, the Portfolio may have to rely more heavily on the judgment of the Board or SCMI under Board-approved guidelines to value such securities accurately. Adverse publicity and investor perceptions, which may not be based on fundamental analysis, also may decrease the value and liquidity of high yield/high risk securities, particularly in a thinly traded market. Factors adversely affecting the market value of high yield/high risk securities are likely to adversely affect the Portfolio's, and thus the Fund's, net asset value. Investment in sovereign debt involves a high degree of risk. Certain emerging market countries such as Argentina, Brazil and Mexico are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and/or interest on outstanding debt. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest when it is due may be affected by many factors such as its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange, the relative size of the debt service burden to the economy as a whole, and political restraints. The Portfolio, as a holder of sovereign debt, may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which defaulted sovereign debt may be collected in whole or in part. The sovereign debt instruments in which the Portfolio may invest involve great risk and are deemed to be the equivalent in terms of quality to high yield/high risk securities discussed above and are subject to many of the same risks as such securities. Similarly, the Portfolio may have difficulty disposing of certain sovereign debt obligations because there may be a thin trading market for such securities. The Portfolio will not invest more than 5% of its total assets in sovereign debt which is in default. PORTFOLIO TURNOVER. The Portfolio may engage in short-term trading but its portfolio turnover rate is not expected to exceed 100%. High portfolio turnover and short-term trading involve correspondingly greater commission expenses and transaction costs. Also, higher portfolio turnover rates can make it more difficult for the Portfolio to qualify as a regulated investment company for federal income tax purposes and may cause shareholders of the Portfolio to recognize gains for federal income tax purposes. See "Taxation" in the SAI. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The business and affairs of the Portfolio are managed under the direction of the Schroder Core Board. The Trustees of both the Trust and Schroder Core are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the respective executive officers of the Trust and Schroder Core may be found in the SAI under the heading "Management C Trustees and Officers." The Board and the Schroder Core Board have separately adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER The Fund currently invests all of its assets in the Portfolio. SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Portfolio and continuously reviews, supervises and administers the Portfolio's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Portfolio's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. For its services with respect to the Portfolio, SCMI receives a monthly advisory fee equal on an annual basis to 0.45% of the Portfolio's average daily net assets, which the Fund indirectly bears through investment in the Portfolio. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly-owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. The investment management team of John A. Troiana, a Vice President of the Trust and Schroder Core, and Laura Luckyn-Malone, a Trustee and President of the Trust and Schroder Core, with the assistance of an SCMI investment committee, is primarily responsible for the day-to-day management of the Portfolio's investment portfolio. Mr. Troiano, who has managed the Fund's portfolio since ________ 19__ and the Portfolio's investments since its inception, has been a Senior Vice President of SCMI since ______ 1991. He has been employed by various Schroder Group companies in the investment research and portfolio management areas since 1988. Ms. Luckyn-Malone, who joined the Portfolio's investment management team in ____________ 1995, has been a Senior Vice President and Director of SCMI since February 1990. The Fund began pursuing its investment objective through investment in the Portfolio on November 1, 1995. The Fund may withdraw its investment from the Portfolio at any time if the Board determines that it is in the best interests of the Fund and its shareholders to do so. See "Other Information -- Fund Structure." Accordingly, the Fund has retained SCMI as its investment adviser to manage the Fund's assets in the event the Fund withdraws its investment. SCMI does not receive an investment advisory fee with respect to the Fund so long as the Fund remains completely invested in the Portfolio or any other investment company. If the Fund resumes directly investing in portfolio securities, the Fund will pay SCMI a monthly advisory fee equal on an annual basis to 1.00% of the Fund's average daily net assets. The investment advisory contract between SCMI and the Trust with respect to the Fund is the same in all material respects as the Portfolio's investment advisory contract except as to the parties, the circumstances under which fees will be paid and the jurisdiction whose laws govern the agreement. For the fiscal year ended October 31, 1995, the Fund paid SCMI an advisory fee equal to 0.10% of its average daily net assets. On behalf of the Fund, the Trust has entered into an administrative services contract with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned subsidiary of SCMI. The Trust and Schroder Advisors have entered into a sub-administration agreement with Forum. Pursuant to these agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. For these services, the Fund pays Schroder Advisors a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. Schroder Advisors and Forum provide similar services to the Portfolio, for which the Portfolio pays Schroder Advisors a monthly fee at the annual rate of 0.15 % of the Portfolio's average daily net assets, a portion of which Schroder Advisors pays Forum for its services with respect to the Portfolio. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN Schroder Advisors acts as distributor of the Fund's shares. Under a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") adopted by the Trust on behalf of the Fund, each month the Trust pays directly or reimburses Schroder Advisors, as distributor, for costs and expenses incurred in connection with the distribution of Investor Shares. Such payment or reimbursement is subject to a limit on an annual basis to 0.50% of the Fund's average daily net assets attributable to Investor Shares. The Fund will make no payment under the Distribution Plan with respect to Investor Shares until the Board further so authorizes. Payment or reimbursement under the Distribution Plan may be for various types of costs, including: (1) advertising expenses, (2) costs of printing prospectuses and other materials to be given or sent to prospective investors, (3) expenses of sales employees or agents of Schroder Advisors, including salary, commissions, travel and related expenses in connection with the distribution of Investor Shares, (4) payments to broker-dealers who advise shareholders regarding the purchase, sale, or retention of Investor Shares, and (5) payments to banks, trust companies, broker-dealers (other than Schroder Advisors) or other financial organizations (collectively, "Service Organizations"). Payments to Service Organizations under the Distribution Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. The Fund will not be liable for distribution expenditures made by Schroder Advisors in any given year in excess of the maximum amount payable under the Distribution Plan in that year. Costs or expenses in excess of the per annum limit may not be carried forward to future years. Salary expenses of salesmen who are responsible for marketing various mutual funds of the Trust may be allocated to those funds, including the Investor Shares class of the Fund, that have adopted a distribution plan similar to that of the Fund on the basis of average daily net assets. Travel expenses may be allocated to, or divided among, the particular funds of the Trust for which they are incurred. The Trust, on behalf of the Fund, has also adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which Schroder Advisors, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. The Trust will make no payments under the Shareholder Service Plan with respect to Investor Shares until the Board further so authorizes. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. EXPENSES SCMI and Schroder Advisors have voluntarily undertaken to assume certain expenses of the Fund and the Portfolio (or waive their respective fees). This undertaking is designed to place a maximum limit on total Fund expenses (excluding taxes, interest, brokerage commissions and other portfolio transaction expenses and extraordinary expenses) of 1.60% of the average daily net assets of the Fund attributable to Investor Shares. This expense limitation cannot be modified or withdrawn except by a majority vote of the Trustees of the Trust who are not affiliated with SCMI or Schroder Advisors . If expense reimbursements are required, they will be made on a monthly basis. SCMI will reimburse the Fund for four-fifths of the amount required and Schroder Advisors will reimburse the Fund for the remaining one-fifth; provided, however, that neither SCMI nor Schroder Advisors will be required to make any reimbursements or waive any fees in excess of the fees payable to them by the Fund and the Portfolio on a monthly basis for their respective advisory and administrative services. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Portfolio's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Portfolio may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Commission rates for brokerage transactions are fixed on many foreign securities exchanges, and this may cause higher brokerage expenses to accrue to the Portfolio than would be the case for comparable transactions effected on U.S. securities exchanges. Subject to the Portfolio's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ Schroder Securities Limited and its affiliates (collectively, "Schroder Securities"), affiliates of SCMI, to effect transactions of the Portfolio on certain foreign securities exchanges. Because of the affiliation between SCMI and Schroder Securities, the Portfolio's payment of commissions to Schroder Securities is subject to procedures adopted by Schroder Core's Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Portfolio's brokerage will be directed to Schroder Securities and in no event will Schroder Securities receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Schroder Core Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Portfolio as a factor in the selection of broker-dealers to execute portfolio transactions for the Portfolio. Although the Portfolio does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Portfolio's portfolio transactions would agree to pay designated expenses of the Portfolio if brokerage commissions generated by the Portfolio reached certain levels, might reduce the Portfolio's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Portfolio. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, Schroder Core, SCMI, Schroder Advisors, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Investor Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information -- Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a Purchase Order (at the address set forth below). The minimum initial investment is $250,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Purchases of Fund shares are subject to a purchase charge of 0.50% of the amount invested. This charge is designed to cover the transaction costs the Fund incurs (either directly or indirectly) as a result of investments in the Fund, including brokerage commissions in acquiring portfolio securities, currency transaction costs and transfer agent costs, and to protect the interests of shareholders. This charge, which is not a sales charge, is paid to the Fund, not to Schroder Advisors or any other entity. The purchase charge is not assessed on the reinvestment of dividends or distributions or shares purchased through a subscription in kind. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder Emerging Markets Fund Institutional Portfolio, to: Schroder Emerging Markets Fund Institutional Portfolio P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder Emerging Markets Fund Institutional Portfolio -- Investor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the class of shares, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the Transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax-qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. Redemptions of Fund shares are subject to a redemption charge of 0.50% of the net asset value of the shares redeemed. This charge is designed to cover the transaction costs the Fund incurs in redeeming Fund shares (either directly or indirectly as a result of its investment in the Portfolio), including brokerage commissions in selling portfolio securities, currency transaction costs and transfer agent costs, and to protect the interests of shareholders. This charge, which is not a sales charge, is paid to the Fund, not to Schroder Advisors or any other entity. The redemption charge is not assessed on shares acquired through the reinvestment of dividends or distributions or on redemptions in kind. For purposes of computing the redemption charge, redemptions by a shareholder are deemed to be made in the following order: (i) from Shares purchased through the reinvestment of dividends and distributions (with respect to which no redemption charge is applied) and (ii) from Shares for which the redemption charge is applicable, on a first purchased, first redeemed basis. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the class of shares, the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information -- Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $_____, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $_____ and be allowed at least 30 days to make an additional investment to increase the account balance to at least $_____. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets (which is principally the value of the Fund's investment in the Portfolio) less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Portfolio that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over-the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Schroder Core Board. Trading by the Portfolio in securities on European and Far Eastern exchanges and over-the-counter markets may not take place on every day that the New York Stock Exchange is open for trading. Furthermore, trading takes place in various foreign markets on days on which the Fund's net asset value is not calculated. As a result, the Fund's net asset value may be significantly affected by such trading on days when an investor has no access to the Fund. If events materially affecting the value of foreign securities occur between the time when their price is determined and the time when net asset value is calculated, such securities will be valued at fair value as determined in good faith by using methods approved by the Schroder Core Board. All assets and liabilities of the Portfolio denominated in foreign currencies are valued in U.S. dollars based on the exchange rate last quoted by a major bank prior to the time when the net asset value of the Fund is calculated. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. THE PORTFOLIO The Portfolio is not required to pay Federal income taxes on its net investment income and capital gain, as it is treated as a partnership for Federal income tax purposes. All interest, dividends and gain and losses of the Portfolio are deemed to have been "passed through" to the Fund in proportion to its holdings of the Portfolio, regardless of whether such interest, dividends or gain have been distributed by the Portfolio or losses have been realized by the Portfolio. Investment income received by the Fund from sources within foreign countries may be subject to foreign income or other taxes, with respect to which shareholders may be entitled to claim a credit or deduction. See "The Fund" immediately above. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Investor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. As of April 30, 1996, The Robert Wood Johnson Foundation may be deemed to control the Fund for purposes of the Act. From time to time, certain shareholders may own a large percentage of the shares of a Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid, and do not reflect the deduction of purchase charges or redemption charges. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's and of the Portfolio's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder Emerging Markets Fund Institutional Portfolio P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. FUND STRUCTURE OTHER CLASSES OF SHARES. The Fund has two classes of shares, Institutional Shares and Advisor Shares. Advisor Shares are offered by a separate prospectus to individual investors, in most cases through Service Organizations. Advisor Shares incur more expenses than Institutional Shares. Except for certain differences, each share of each class represents an undivided, proportionate interest in the Fund. Each share of the Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of the Fund except that, due to the differing expenses borne by the two classes, the amount of dividends and other distribution will differ between the classes. Information about Advisor Shares is available from the Fund by calling Forum Financial Corp. at (207) 879-8903. THE PORTFOLIO. The Fund seeks to achieve its investment objective by investing all of its investable assets in the Portfolio, which has substantially the same investment objective and policies as the Fund. Accordingly, the Portfolio directly acquires its own securities and the Fund acquires an indirect interest in those securities. The Portfolio is a separate series of Schroder Core, a business trust organized under the laws of the State of Delaware in September 1995. Schroder Core is registered under the Act as an open-end management investment company and currently has four separate portfolios. The assets of the Portfolio, a diversified portfolio, belong only to, and the liabilities of the Portfolio are borne solely by, the Portfolio and no other portfolio of Schroder Core. The investment objective and fundamental investment policies of the Fund and the Portfolio can be changed only with shareholder approval. See "Investment Objective and Policies" and "Management of the Fund" for a complete description of the Portfolio's investment objective, policies, restrictions, management, and expenses. The Fund's investment in the Portfolio is in the form of a non-transferable beneficial interest. As of the date of this Prospectus, the Fund is the only institutional investor in the Portfolio. The Portfolio may permit other investment companies or institutional investors to invest in it. All investors in the Portfolio will invest on the same terms and conditions as the Fund and will pay a proportionate share of the Portfolio's expenses. The Portfolio normally will not hold meetings of investors except as required by the Act. Each investor in the Portfolio will be entitled to vote in proportion to its relative beneficial interest in the Portfolio. On most issues subject to a vote of investors, as required by the Act and other applicable law, the Fund will solicit proxies from shareholders of the Fund and will vote its interest in the Portfolio in proportion to the votes cast by its shareholders. If there are other investors in the Portfolio, there can be no assurance that any issue that receives a majority of the votes cast by Fund shareholders will receive a majority of votes cast by all investors in the Portfolio; indeed, if other investors hold a majority interest in the Portfolio, they could hold have voting control of the Portfolio. The Portfolio will not sell its shares directly to members of the general public. Another investor in the Portfolio, such as an investment company, that might sell its shares to members of the general public would not be required to sell its shares at the same public offering price as the Fund, and could have different advisory and other fees and expenses than the Fund. Therefore, Fund shareholders may have different returns than shareholders in another investment company that invests exclusively in the Portfolio. There is currently no such other investment company that offers its shares to members of the general public. Information regarding any such funds in the future will be available from Schroder Core by calling Forum Financial Corp. at (207) 879-8903. Under the Federal securities laws, any person or entity that signs a registration statement may be liable for a misstatement or omission of a material fact in the registration statement. Schroder Core, its Trustees and certain of its officers are required to sign the registration statement of the Trust and the registration statements of certain other publicly-offered investors in the Portfolio. In addition, under the Federal securities laws, Schroder Core could be liable for a misstatements or omissions of a material fact in any proxy soliciting material of a publicly-offered investor in Schroder Core, including the Fund. Under the Trust Instrument for the Schroder Core, each investor in the Portfolio, including the Trust, indemnifies Schroder Core and its Trustees and officers ("Schroder Core Indemnitees") against certain claims. Indemnified claims are those brought against Schroder Core Indemnitees but based on a misstatement or omission of a material fact in the investor's registration statement or proxy materials, except to the extent such claim is based on a misstatement or omission of a material fact relating to information about Schroder Core in the investor's registration statement or proxy materials that was supplied to the investor by Schroder Core. Similarly, Schroder Core indemnifies each investor in the Portfolio, including the Fund, for any claims brought against the investor with respect to the investor's registration statement or proxy materials, to the extent the claim is based on a misstatement or omission of a material fact relating to information about Schroder Core that is supplied to the investor by Schroder Core. In addition, each registered investment company investor in the Portfolio indemnifies 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 Core. The purpose of these cross-indemnity provisions is principally to limit the liability of Schroder Core to information that it knows or should know and can control. With respect to other prospectuses and other offering documents and proxy materials of investors in Schroder Core, Schroder Core's liability is similarly limited to information about and supplied by Schroder Core. CERTAIN RISKS OF INVESTING IN THE PORTFOLIO. The Fund's investment in the Portfolio may be affected by the actions of other large investors in the Portfolio, if any. For example, if the Portfolio had a large investor other than the Fund that redeemed its interest in the Portfolio, the Portfolio's remaining investors (including the Fund) might, as a result, experience higher pro rata operating expenses, thereby producing lower returns. The Fund may withdraw its entire investment from the Portfolio at any time, if the Board determines that it is in the best interests of the Fund and its shareholders to do so. The Fund might withdraw, for example, if there were other investors in the Portfolio with power to, and who did by a vote of the shareholders of all investors (including the Fund), change the investment objective or policies of the Portfolio in a manner not acceptable to the Board. A withdrawal could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the Portfolio. That distribution could result in a less diversified portfolio of investments for the Fund and could affect adversely the liquidity of the Fund's portfolio. If the Fund decided to convert those securities to cash, it usually would incur brokerage fees or other transaction costs. If the Fund withdrew its investment from the Portfolio, the Board would consider what action might be taken, including the management of the Fund's assets in accordance with its investment objective and policies by the SCMI, the Fund's investment adviser and subadviser, respectively, or the investment of all of the Fund's investable assets in another pooled investment entity having substantially the same investment objective as the Fund. The inability of the Fund to find a suitable replacement investment, in the event the Board decided not to permit 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, will be liable for all obligations of the Portfolio, but not any other portfolio of Schroder Core. The risk to an investor in the Portfolio of incurring financial loss on account of such liability, however, would be limited to circumstances in which the Portfolio was unable to meet its obligations. 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. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Global Custody Division Woolgate House, Coleman Street London EC2P 2HD, United Kingdom TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand, L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . Investment Adviser . . . . . . . . . . . . . Administrative Services. . . . . . . . . . . Purchases and Redemptions. . . . . . . . . . Risk Considerations. . . . . . . . . . . . . Fee Table. . . . . . . . . . . . . . . . . . FINANCIAL HIGHLIGHTS . . . . . . . . . . . . INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . Investment Objective and the Portfolio . . . Investment Policies. . . . . . . . . . . . . ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS. . . . . . . . . . . . Investment Restrictions. . . . . . . . . . . Investment Types . . . . . . . . . . . . . . Risk Considerations. . . . . . . . . . . . . MANAGEMENT . . . . . . . . . . . . . . . . . Board of Trustees. . . . . . . . . . . . . . Investment Adviser and Portfolio Manager . . Administrative Services. . . . . . . . . . . Distribution Plan and Shareholder Services Plan Expenses . . . . . . . . . . . . . . . . . . Portfolio Transactions Code of Ethics . . . . . . . . . . . . . . . INVESTMENT IN THE FUND . . . . . . . . . . . Purchase of Shares . . . . . . . . . . . . . Retirement Plans . . . . . . . . . . . . . . Individual Retirement Accounts . . . . . . . Redemption of Shares . . . . . . . . . . . . Net Asset Value. . . . . . . . . . . . . . . DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . The Portfolio. . . . . . . . . . . . . . . . OTHER INFORMATION. . . . . . . . . . . . . . Capitalization and Voting. . . . . . . . . . Reports. . . . . . . . . . . . . . . . . . . Performance Information. . . . . . . . . . . Custodian and Transfer Agent . . . . . . . . Shareholder Inquires . . . . . . . . . . . . Certain Servicing Organizations. . . . . . . Fund Structure . . . . . . . . . . . . . . .
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Schroder U.S. Smaller Companies Fund Two Portland Square Portland, Maine 04101 ____________ Advisor Shares -------------------------------------------------------------------------------- GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 FUND LITERATURE (800) 290-9826 -------------------------------------------------------------------------------- SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - DISTRIBUTOR This Prospectus offers Advisor Shares of Schroder U.S. Smaller Companies Fund (the "Fund"), a separately-managed, diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund seeks capital appreciation through investment in a diversified portfolio which under normal conditions will have at least 65% of its total assets invested in equity securities of companies having market capitalizations under $1 billion. Current income will be incidental to the objective of capital appreciation. Investments in smaller capitalization companies involve greater risks than those risks associated with investments in larger capitalization companies. This prospectus sets forth concisely the information a prospective Investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996 PROSPECTUS SUMMARY THE FUND. The Fund is a separately-managed, diversified no-load portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The Fund's primary investment objective is capital appreciation through investment in a diversified portfolio that under normal conditions will have at least 65% of its total assets invested in equity securities of companies having market capitalizations under $1 billion. Current income will be incidental to the objective of capital appreciation. The Fund currently offers two separate classes of shares: Advisor Shares ("Advisor Shares") and Investor Shares ("Investor Shares"). Only Advisor Shares are offered through this Prospectus and are sometimes referred to herein as the "Shares." INVESTMENT ADVISER. The Fund's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. See "Management -- Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors"), formerly Schroder Capital Distributors, Inc., serves as Administrator and Distributor of the Fund, and Forum Financial Services, Inc. ("Forum") serves as the Fund's Sub-Administrator. PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $2,500, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. There can be no assurance that the Fund will achieve its investment objective. The Fund's net asset value and total return will fluctuate based upon changes in the value of its portfolio securities so that, upon redemption, an investment in a Fund may be worth more or less than its original value. The Fund's policy of investing in smaller companies entails certain risks in addition to those normally associated with investments in equity securities. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor in Advisor Shares would incur. There are no transaction expenses associated with purchases or redemptions of Advisor Shares. Annual Fund Operating Expenses (as a percentage of average net assets)(1) Management Fees (2) . . . . . . . . . . . . . . . . . . . . . . . . .0.75% 12b-1 Fees (3). . . . . . . . . . . . . . . . . . . . . . . . . . . .0.25% Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .0.99% Total Fund Operating Expenses . . . . . . . . . . . . . . . . . . . .1.99% (1) The amounts of expenses are based on amounts incurred for the Fund's most recent fiscal year ended October 31, 1995, after restatement to reflect current fees borne by holders of Advisor Shares. (2) Management Fees for the Fund reflect the fees paid by the Fund for investment and administrative services. (3) Long-term holders of Advisor Shares may pay aggregate sales charges totaling more than the economic equivalent of the maximum front-end sales charge permitted by the Rules of Fair Practice of the National Association of Securities Dealers, Inc. EXAMPLE Based on the expenses listed above, you would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: 1 year . . . . . . . . . . . . .$ 20 3 years. . . . . . . . . . . . .$ 62 5 years. . . . . . . . . . . . .$107 10 years. . . . . . . . . . . . .$232 THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share of the Fund for the periods shown. Information presented relates to Investor Shares of the Fund for a share outstanding for the periods shown. The holders of Investor Shares bear expenses that are lower than those borne by the holders of Advisor Shares. Prior to the date of this Prospectus, Advisor Shares had not been offered by the Fund. Acordingly, information has not been presented for Advisor Shares. This information is part of the Fund's financial statements and has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number for Fund Literature on the cover of this Prospectus. [Enlarge/Download Table] Year ended October 31 --------------------- 1995 1994 1993(a) ---- ---- ------- NET ASSET VALUE, BEGINNING OF YEAR 11.81 10.99 10.00 INVESTMENT OPERATIONS Net Investment Income (0.04) (0.07) (0.02) Net Realized Income and Unrealized Gain (Loss) on Investments 3.78 0.97 1.01 Total from Investment Operations 3.74 0.90 0.99 DISTRIBUTIONS from Net Investment Income - -- -- from Realized Capital Gain (0.41) (0.08) -- from Capital Paid-In - -- -- Total Distributions (0.41) (0.08) -- NET ASSET VALUE, END OF YEAR $15.14 $11.81 $10.99 TOTAL RETURN 32.84% 8.26% 9.90% RATIO/SUPPLEMENTARY DATA: Net Assets, End of Year (Thousands) 15,287 13,324 12,489 Ratio of Expenses to Average Net Assets 1.49% 1.45% 2.03%(b) Ratio of Net Investment Income to Average Net Assets (0.30%) (0.58%) (0.99%)(b) Portfolio Turnover Rate 92.68% 70.82% 12.58%(b) (a) The Fund commenced operations on August 6, 1993. (b) Annualized INVESTMENT OBJECTIVES AND POLICIES The Fund is designed for the investment of that portion of an investor's funds which can appropriately bear the special risks associated with investment in smaller market capitalization companies with the aim of capital appreciation. The Fund is not intended for investors whose objective is assured income or preservation of capital. INVESTMENT OBJECTIVE The Fund's investment objective is capital appreciation through investment in a diversified portfolio which under normal conditions will have at least 65% of its total assets invested in equity securities of companies having market capitalizations under $1 billion. Market capitalization means the market value of a company's outstanding stock. Current income will be incidental to the objective of capital appreciation. There can be no assurance that the Fund's objective will be achieved. The Fund's investment objective is fundamental and cannot be changed without shareholder approval. Unless otherwise indicated, all of the investment policies of the Fund described below are also fundamental and cannot be changed without shareholder approval. The Fund in the future may seek to achieve its investment objective by holding, as its only investment securities, the securities of another investment company having identical investment objectives and policies as the Fund in accordance with the provisions of the Act or any orders, rules or regulations thereunder adopted by the Securities and Exchange Commission. INVESTMENT POLICIES In its investment approach, SCMI will attempt to identify securities of companies which it believes can generate above average earnings growth, selling at favorable prices in relation to book values and earnings. As part of the investment decision, SCMI's assessment of the competency of an issuer's management will be an important consideration. These criteria are not rigid, and other investments may be included in the Fund's portfolio if they may help the Fund to attain its objective. These criteria can be changed by the Board of Trustees of the Trust (the "Board"). The Fund will invest principally in equity securities (common stocks, securities convertible into common stocks or, subject to special limitations, rights or warrants to subscribe for or purchase common stocks). The Fund may also invest to a limited degree in non-convertible debt securities and preferred stocks when, in the opinion of SCMI, such investments are warranted to achieve the Fund's investment objective. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. Investments in warrants or rights to subscribe for or purchase common stocks will not be counted in determining the 65% of total assets test set forth above but are subject to the limitations described below in "Additional Investment Policies -- Warrants" in the SAI. The Fund may invest in securities of small, unseasoned companies (which, together with any predecessors, have been in operation for less than three years), as well as in securities of more established companies. In view of the volatility of price movements of the former, as a non-fundamental policy, the Fund currently intends to invest no more than 10% of its total assets in securities of small, unseasoned issuers, while reserving the right to invest up to 20% of its total assets in such issuers. Although there is no minimum rating for debt securities (convertible or non- convertible) in which the Fund may invest, it is the present intention of the Fund to invest no more than 5% of its net assets in debt securities rated below Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services ("S&P"), such securities being commonly known as "high yield/high risk" securities or "junk bonds," and it will not invest in debt securities which are in default. High yield/high risk securities are predominantly speculative with respect to the capacity to pay interest and repay principal and generally involve a greater volatility of price than securities in higher rated categories. In the event the Fund intends in the future to invest more than 5% of its net assets in junk bonds, appropriate disclosures will be made to existing and prospective shareholders. It should be noted that even bonds rated Baa by Moody's or BBB by S&P are described by those rating agencies as having speculative characteristics and that changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers of such bonds to make principal and interest payments than is the case with higher grade bonds. The Fund is not obligated to dispose of securities due to changes by the rating agencies. See the SAI for information about the risks associated with investing in junk bonds. For temporary defensive purposes, the Fund may invest without limitation in (or enter into repurchase agreements maturing in seven days or less with U.S. banks and broker-dealers with respect to) short-term debt securities, including commercial paper, U.S. Treasury bills, other short-term U.S. Government securities, certificates of deposit and bankers' acceptances of U.S. banks. The Fund also may hold cash and time deposits in U.S. banks. See "Investment Policies" in the SAI for further information about all these securities. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and, unless otherwise indicated, all investment policies of the Fund may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. For more information concerning shareholder voting, see "Other Information -- Capitalization and Voting" and "Other Information -- Fund Structure." FUNDAMENTAL POLICIES The following investment restrictions of the Fund are fundamental policies: (1) The Fund cannot invest in securities (except those of the U.S. Government or its agencies or instrumentalities) of any issuer if immediately thereafter (a) more than 5% of the Fund's total assets would be invested in securities of that issuer, or (b) the Fund would then own more than 10% of that issuer's voting securities; (2) The Fund cannot make short sales of securities except "short sales against- the-box"; in such short sales, at all times during which a short position is open, the Fund must own an equal amount of such securities, or by virtue of ownership of securities have the right, without payment of further consideration, to obtain an equal amount of the securities sold short; no more than 15% of the Fund's net assets will be held as collateral for such short sales at any one time; (3) The Fund cannot 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; (4) The Fund cannot pledge, mortgage or hypothecate its assets to any extent greater than 10% of the value of the total assets of the Fund; (5) The Fund cannot deviate from the percentage requirements listed under "Investment Objective and Policies" and "Additional Investment Policies and Risk Considerations "; or (6) The Fund cannot purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase of securities of closed-end investment companies and only if immediately thereafter not more than (i) 3% of the total outstanding voting stock of such company is owned by the Fund, (ii) 5% of the Fund's total assets, taken at market value, would be invested in any one such company, or (iii) 10% of the Fund's total assets, taken at market value, would be invested in such securities. It should be noted that as a shareholder in an investment company, the Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time, the Fund would continue to pay its own management and advisory fees and other expenses. The percentage restrictions described above and in the SAI 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. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES COMMON AND PREFERRED STOCK AND WARRANTS. The Fund may invest in common and preferred stock. Common stockholders are the owners of the company issuing the stock and, accordingly, vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, upon liquidation of the company, are entitled to their pro rata share of the company's assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends and, in the alternative, as to the recovery of investment. A preferred stockholder is a shareholder in the company and not a creditor of the company, as is a holder of the company's fixed income securities. Dividends paid to common and preferred stockholders are distributions of the earnings of the company and not interest payments, which are expenses of the company. Equity securities owned by the Fund may be traded in the over-the counter market or on a securities exchange, but may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by the Fund of a security to meet redemptions by interest holders or otherwise may require the Fund to sell these securities at a discount from market prices, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measure of a company's worth. The Fund may also invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance) and usually during a specified period of time. REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. A repurchase agreement is a means of investing monies for a short period. In a repurchase agreement, a seller - a U.S. bank or recognized broker-dealer - sells securities to the Fund and agrees to repurchase the securities at the Fund's cost plus interest within a specified period (normally one day). In these transactions, the values of the underlying securities purchased by the Fund are monitored at all times by SCMI to insure that the total value of the securities equals or exceeds the value of the repurchase agreement, and the Fund's custodian bank holds the securities until they are repurchased. In the event of default by the seller under the repurchase agreement, the Fund may have difficulties in exercising its rights to the underlying securities and may incur costs and experience time delays in disposing of them. To evaluate potential risks, SCMI reviews the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements. ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, the Fund will not purchase or otherwise acquire any security if, as a result, more than 15% of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or because of legal or contractual restrictions on resale ("restricted securities"). There may be undesirable delays in selling illiquid securities at prices representing their fair value. This policy includes over-the-counter options held by the Fund and the "in the money" portion of the assets used to cover such options. As stated above, this policy also includes assets which are subject to material legal restrictions on repatriation. The limitation on investing in restricted securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Fund's liquidity. See "Investment Policies C Illiquid and Restricted Securities" in the SAI for further details. LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities (other than in repurchase transactions) to brokers, dealers and other financial institutions meeting specified credit conditions, if the loan is collateralized in accordance with applicable regulatory requirements and if, after any loan, the value of the securities loaned does not exceed 25% of the value of the Fund's total assets. By so doing, the Fund attempts to earn income through the receipt of interest on the loan. In the event of the bankruptcy of the other party to a securities loan, the Fund could experience delays in recovering the securities it lent. To the extent that, in the meantime, the value of the securities the Fund lent has increased, the Fund could experience a loss. The Fund may lend securities from its portfolio if liquid assets in an amount at least equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Fund with respect to the loan is maintained as collateral by the Fund in a segregated account. Any securities that the Fund may receive as collateral will not become a part of its portfolio at the time of the loan, and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which the Fund is permitted to invest. During the time that the securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn income or receive an agreed upon fee from a borrower that has delivered cash equivalent collateral. Cash collateral received by the Fund will be invested in U.S. Government securities and liquid high grade debt obligations. The value of securities loaned will be marked to market daily. Portfolio securities purchased with cash collateral are subject to possible depreciation. Loans of securities by the Fund will be subject to termination at the Fund's or the borrower's option. The Fund may pay reasonable negotiated fees in connection with loaned securities, so long as such fees are set forth in a written contract and approved by the Trust's Board of Trustees. OPTIONS AND FUTURES TRANSACTIONS. While the Fund does not presently intend to do so, it may write covered call options and purchase certain put and call options, stock index futures, and options on stock index futures and broadly- based stock indices, all of which are referred to as "Hedging Instruments". In general, the Fund may use Hedging Instruments: (1) to attempt to protect against declines in the market value of the Fund's portfolio securities or stock index futures, and thus protect the Fund's net asset value per share against downward market trends, or (2) to establish a position in the equities markets as a temporary substitute for purchasing particular equity securities. The Fund will not use Hedging Instruments for speculation. The Hedging Instruments which the Fund is authorized to use have certain risks associated with them. Principal among such risks are: (a) the possible failure of such instruments as hedging techniques in cases where the price movements of the securities underlying the options or futures do not follow the price movements of the portfolio securities subject to the hedge; (b) potentially unlimited loss associated with futures transactions and the possible lack of a liquid secondary market for closing out a futures position; and (c) possible losses resulting from the inability of the Fund's investment adviser to correctly predict the direction of stock prices, interests rates and other economic factors. The Hedging Instruments the Fund may use and the risks associated with them are described in greater detail under "Options and Futures Transactions" in the SAI. SHORT SALES AGAINST-THE-BOX. The Fund may not sell securities short except in "short sales against-the-box". For Federal income tax purposes, short sales against-the-box may be made to defer recognition of gain or loss on the sale of securities "in the box" and no income can result and no gain can be realized from securities sold short against-the-box until the short position is closed out. Such short sales are subject to the limits described under "Fundamental Restrictions" above. See "Short Sales Against-the-Box" in the SAI for further details. RISK CONSIDERATIONS All investments involve certain risks. Investments in smaller capitalization companies involve greater risks than those risks associated with investments in larger capitalization companies. Smaller capitalization companies generally experience higher growth rates and higher failure rates than do larger capitalization companies. The trading volume of securities of smaller capitalization companies is normally less than that of larger capitalization companies and, consequently, generally have a disproportionate effect on their market price, tending to make them rise more in response to buying demand and fall more in response to selling pressure than is the case with larger capitalization companies. Investments in small, unseasoned issuers generally involve greater risk than is customarily associated with larger, more seasoned companies. Such issuers often have products and management personnel which have not been thoroughly tested by time or the marketplace and their financial resources may not be as substantial as those of more established companies. Their securities, which the Fund may purchase when they are offered to the public for the first time, may have a limited trading market, which may adversely affect their sale by the Fund and can result in such securities being priced lower than otherwise might be the case. If other institutional investors engage in trading this type of security, the Fund may be forced to dispose of its holdings at prices lower than might otherwise be obtained. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The Trustees of the Trust are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the executive officers of the Trust may be found in the SAI under the heading "Management -- Trustees and Officers." The Board has adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Fund and continuously reviews, supervises and administers the Fund's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Fund's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly- owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. The investment management team of Fariba Talebi, a Vice President of the Trust and a First Vice President of SCMI, and Ira Unschuld, a Vice President of the Trust and of SCMI, with the assistance of an investment committee, is primarily responsible for the day-to-day management of the Fund's investment portfolio, and has so managed the Fund since its inception. Ms. Talebi and Mr. Unschuld have been employed by SCMI in the investment research and portfolio management areas since 1987 and 1990, respectively. For its advisory services with respect to the Fund, SCMI receives a monthly advisory fee equal on an annual basis to 0.50% of the first $100 million of the Fund's average daily net assets; 0.40% of the next $150 million of the Fund's average daily net assets and 0.35% of the Fund's average daily net assets in excess of $250 million. For the fiscal year ended October 31, 1995, the Fund paid SCMI an advisory fee of 0.50% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES On behalf of the Fund, the Trust has entered into an administrative services contract with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned subsidiary of SCMI. The Trust and Schroder Advisors have entered into a sub-administration agreement with Forum. Pursuant to these agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. For its administrative services with respect to the Fund, Schroder Advisors receives a monthly administration fee equal on an annual basis to 0.25% of the first $100 million of the Fund's average daily net assets; 0.20% of the next $150 million of the Fund's average daily net assets and 0.175% of the Fund's average daily net assets in excess of $250 million. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN Schroder Advisors acts as distributor of the Fund's shares. Under a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") adopted by the Trust on behalf of the Fund, each month the Trust pays directly or reimburses Schroder Advisors, as distributor, for costs and expenses incurred in connection with the distribution of Advisor Shares. Such payment or reimbursement is subject to a limit on an annual basis to 0.50% of the Fund's average daily net assets attributable to Advisor Shares. The maximum annual amount payable under the Distribution Plan is currently 0.25%, which amount may only be increased by action of the Board. Payment or reimbursement under the Distribution Plan may be for various types of costs, including: (1) advertising expenses, (2) costs of printing prospectuses and other materials to be given or sent to prospective investors, (3) expenses of sales employees or agents of Schroder Advisors, including salary, commissions, travel and related expenses in connection with the distribution of Advisor Shares, (4) payments to broker-dealers who advise shareholders regarding the purchase, sale, or retention of Advisor Shares, and (5) payments to banks, trust companies, broker-dealers (other than Schroder Advisors) or other financial organizations (collectively, "Service Organizations"). Payments to Service Organizations under the Distribution Plan are calculated by reference to the average daily net assets of Advisor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. The Fund will not be liable for distribution expenditures made by Schroder Advisors in any given year in excess of the maximum amount payable under the Distribution Plan in that year. Costs or expenses in excess of the per annum limit may not be carried forward to future years. Salary expenses of salesmen who are responsible for marketing various mutual funds of the Trust may be allocated to those funds, including the Advisor Shares class of the Fund, that have adopted a distribution plan similar to that of the Fund on the basis of average daily net assets. Travel expenses may be allocated to, or divided among, the particular funds of the Trust for which they are incurred. The Trust, on behalf of the Fund, has also adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which Schroder Advisors, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Advisor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Fund's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Fund may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Subject to the Fund's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ (a) Schroder Wertheim & Company, Incorporated and its affiliates ("Schroder Wertheim"), affiliates of SCMI, to effect transaction of the Fund on the New York Stock Exchange and (b) Schroder Securities Limited and its affiliates ("Schroder Securities"), affiliates of SCMI, to effect transactions of the Fund, if any, on certain foreign securities exchanges. Because of the affiliation between SCMI and Schroder Wertheim and SCMI and Schroder Securities, the Fund's payment of commissions to them is subject to procedures adopted by the Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Fund's brokerage will be directed to Schroder Wertheim or Schroder Securities and in no event will either receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Fund as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. Although the Fund does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Fund's portfolio transactions would agree to pay designated expenses of the Fund if brokerage commissions generated by the Fund reached certain levels, might reduce the Fund's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Fund. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, SCMI, Schroder Advisors, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Advisor Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information -- Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a completed Account Application (at the address set forth below). The minimum initial investment is $2,500, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder U.S. Smaller Companies Fund, to: Schroder U.S. Smaller Companies Fund P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder U.S. Smaller Companies Fund -- Advisor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the class of shares, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the Transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax- qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the class of shares, the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information -- Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $2,000, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $2,000 and be allowed at least 30 days to make an additional investment to increase the account balance to at least $2,000. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Fund that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over- the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Board. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Advisor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. As of April 30, 1996, Schroder Nominees Limited may be deemed to control the Fund for purposes of the Act. From time to time, certain shareholders may own a large percentage of the shares of a Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder U.S. Smaller Companies Fund P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. OTHER CLASSES OF SHARES The Fund has two classes of shares, Advisor Shares and Investor Shares. Investor Shares are offered by a separate prospectus to corporations, institutions, and fiduciaries, including fiduciary, agency, and custodial clients of bank trust departments, trust companies, and their affiliates. Investor Shares incur less expenses than Advisor Shares. Accordingly, the performance of the two classes will differ. Except for certain differences, each share of each class represents an undivided, proportionate interest in the Fund. Each share of the Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of the Fund except that, due to the differing expenses borne by the two classes, the amount of dividends and other distribution will differ between the classes. Information about Investor Shares is available from the Fund by calling Forum Financial Corp. at (207) 879-8903. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Global Custody Division Woolgate House, Coleman Street London EC2P 2HD, United Kingdom TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . Investment Adviser . . . . . . . . . . . .... Administrative Services. . . . . . . . . . . Purchases and Redemptions. . . . . . . . . . Risk Considerations. . . . . . . . . . . . . Fee Table. . . . . . . . . . . . . . . . . . FINANCIAL HIGHLIGHTS . . . . . . . . . . . . INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . Investment Objective . . . . . . . . . . . . Investment Policies. . . . . . . . . . . . . ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS. . . . . . . . . . . . Investment Restrictions. . . . . . . . . . . Investment Types . . . . . . . . . . . . . . Risk Considerations. . . . . . . . . . . . . MANAGEMENT . . . . . . . . . . . . . . . . . Board of Trustees. . . . . . . . . . . . . . Investment Adviser and Portfolio Manager . . Administrative Services. . . . . . . . . . . Distribution Plan and Shareholder Services Plan Portfolio Transactions Code of Ethics . . . . . . . . . . . . . . . INVESTMENT IN THE FUND . . . . . . . . . . . Purchase of Shares . . . . . . . . . . . . . Retirement Plans . . . . . . . . . . . . . . Individual Retirement Accounts . . . . . . . Redemption of Shares . . . . . . . . . . . . Net Asset Value. . . . . . . . . . . . . . . DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . OTHER INFORMATION. . . . . . . . . . . . . . Capitalization and Voting. . . . . . . . . . Reports. . . . . . . . . . . . . . . . . . . Performance Information. . . . . . . . . . . Custodian and Transfer Agent . . . . . . . . Shareholder Inquires . . . . . . . . . . . . Certain Servicing Organizations. . . . . . . Other Classes of Shares . . . . . . . . . .
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SCHRODER U.S. SMALLER COMPANIES FUND TWO PORTLAND SQUARE PORTLAND, MAINE 04101 ____________ INVESTOR SHARES GENERAL INFORMATION:(207) 879-8903 ACCOUNT INFORMATION:(800) 344-8332 FAX: (207) 879-6206 FUND LITERATURE (800) 290-9826 SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - DISTRIBUTOR This Prospectus offers Investor Shares of Schroder U.S. Smaller Companies Fund (the "Fund"), a separately-managed, diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund seeks capital appreciation through investment in a diversified portfolio which under normal conditions will have at least 65% of its total assets invested in equity securities of companies having market capitalizations under $1 billion. Current income will be incidental to the objective of capital appreciation. Investments in smaller capitalization companies involve greater risks than those risks associated with investments in larger capitalization companies. This prospectus sets forth concisely the information a prospective Investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996 PROSPECTUS SUMMARY THE FUND. The Fund is a separately-managed, diversified no-load portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The Fund's primary investment objective is capital appreciation through investment in a diversified portfolio that under normal conditions will have at least 65% of its total assets invested in equity securities of companies having market capitalizations under $1 billion. Current income will be incidental to the objective of capital appreciation. The Fund currently offers two separate classes of shares: Investor Shares ("Investor Shares") and Advisor Shares ("Advisor Shares"). Only Investor Shares are offered through this Prospectus and are sometimes referred to herein as the "Shares." INVESTMENT ADVISER. The Fund's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. See "Management -- Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. Schroder Fund Advisors Inc. ("Schroder Advisors"), formerly Schroder Capital Distributors, Inc., serves as Administrator and Distributor of the Fund, and Forum Financial Services, Inc. ("Forum") serves as the Fund's Sub-Administrator. PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $10,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund --Purchase of Shares" and "-- Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. There can be no assurance that the Fund will achieve its investment objective. The Fund's net asset value and total return will fluctuate based upon changes in the value of its portfolio securities so that, upon redemption, an investment in a Fund may be worth more or less than its original value. The Fund's policy of investing in smaller companies entails certain risks in addition to those normally associated with investments in equity securities. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor in Investor Shares would incur. There are no transaction expenses associated with purchases or redemptions of Investor Shares. Annual Fund Operating Expenses (as a percentage of average net assets)(1) Management Fees (2) 0.75% 12b-1 Fees 0.00% Other Expenses 0.74% Total Fund Operating Expenses 1.49% (1) Annual Fund Operating Expenses are based on the Fund's most recent fiscal year ended October 31, 1995. (2) Management Fees for the Fund reflect the fees paid by the Fund for investment and administrative services. EXAMPLE Based on the expenses listed above, you would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: 1 year $__ 3 years $__ 5 years $__ 10 years $__ THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share of Investor Shares of the Fund for the periods shown. This information is part of the Fund's financial statements and has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number for Fund Literature on the cover of this Prospectus. Year ended October 31 --------------------- 1995 1994 1993(a) ---- ---- ------- NET ASSET VALUE, BEGINNING OF YEAR 11.81 10.99 10.00 INVESTMENT OPERATIONS Net Investment Income (0.04) (0.07) (0.02) Net Realized Income and Unrealized Gain (Loss) on Investments 3.78 0.97 1.01 Total from Investment Operations 3.74 0.90 0.99 DISTRIBUTIONS from Net Investment Income -- -- -- from Realized Capital Gain (0.41) (0.08) -- from Capital Paid-In -- -- -- Total Distributions (0.41) (0.08) -- NET ASSET VALUE, END OF YEAR $15.14 $11.81 $10.99 TOTAL RETURN 32.84% 8.26% 9.90% RATIO/SUPPLEMENTARY DATA: Net Assets, End of Year (Thousands) 15,287 13,324 12,489 Ratio of Expenses to Average Net Assets 1.49% 1.45% 2.03%(b) Ratio of Net Investment Income to Average Net Assets (0.30%) (0.58%) (0.99%)(b) Portfolio Turnover Rate 92.68% 70.82% 12.58%(b) (a) The Fund commenced operations on August 6, 1993. (b) Annualized INVESTMENT OBJECTIVES AND POLICIES The Fund is designed for the investment of that portion of an investor's funds which can appropriately bear the special risks associated with investment in smaller market capitalization companies with the aim of capital appreciation. The Fund is not intended for investors whose objective is assured income or preservation of capital. INVESTMENT OBJECTIVE The Fund's investment objective is capital appreciation through investment in a diversified portfolio which under normal conditions will have at least 65% of its total assets invested in equity securities of companies having market capitalizations under $1 billion. Market capitalization means the market value of a company's outstanding stock. Current income will be incidental to the objective of capital appreciation. There can be no assurance that the Fund's objective will be achieved. The Fund's investment objective is fundamental and cannot be changed without shareholder approval. Unless otherwise indicated, all of the investment policies of the Fund described below are also fundamental and cannot be changed without shareholder approval. The Fund in the future may seek to achieve its investment objective by holding, as its only investment securities, the securities of another investment company having identical investment objectives and policies as the Fund in accordance with the provisions of the Act or any orders, rules or regulations thereunder adopted by the Securities and Exchange Commission. INVESTMENT POLICIES In its investment approach, SCMI will attempt to identify securities of companies which it believes can generate above average earnings growth, selling at favorable prices in relation to book values and earnings. As part of the investment decision, SCMI's assessment of the competency of an issuer's management will be an important consideration. These criteria are not rigid, and other investments may be included in the Fund's portfolio if they may help the Fund to attain its objective. These criteria can be changed by the Board of Trustees of the Trust (the "Board"). The Fund will invest principally in equity securities (common stocks, securities convertible into common stocks or, subject to special limitations, rights or warrants to subscribe for or purchase common stocks). The Fund may also invest to a limited degree in non-convertible debt securities and preferred stocks when, in the opinion of SCMI, such investments are warranted to achieve the Fund's investment objective. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. Investments in warrants or rights to subscribe for or purchase common stocks will not be counted in determining the 65% of total assets test set forth above but are subject to the limitations described below in "Additional Investment Policies --Warrants" in the SAI. The Fund may invest in securities of small, unseasoned companies (which, together with any predecessors, have been in operation for less than three years), as well as in securities of more established companies. In view of the volatility of price movements of the former, as a non-fundamental policy, the Fund currently intends to invest no more than 10% of its total assets in securities of small, unseasoned issuers, while reserving the right to invest up to 20% of its total assets in such issuers. Although there is no minimum rating for debt securities (convertible or non-convertible) in which the Fund may invest, it is the present intention of the Fund to invest no more than 5% of its net assets in debt securities rated below Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services ("S&P"), such securities being commonly known as "high yield/high risk" securities or "junk bonds," and it will not invest in debt securities which are in default. High yield/high risk securities are predominantly speculative with respect to the capacity to pay interest and repay principal and generally involve a greater volatility of price than securities in higher rated categories. In the event the Fund intends in the future to invest more than 5% of its net assets in junk bonds, appropriate disclosures will be made to existing and prospective shareholders. It should be noted that even bonds rated Baa by Moody's or BBB by S&P are described by those rating agencies as having speculative characteristics and that changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers of such bonds to make principal and interest payments than is the case with higher grade bonds. The Fund is not obligated to dispose of securities due to changes by the rating agencies. See the SAI for information about the risks associated with investing in junk bonds. For temporary defensive purposes, the Fund may invest without limitation in (or enter into repurchase agreements maturing in seven days or less with U.S. banks and broker-dealers with respect to) short-term debt securities, including commercial paper, U.S. Treasury bills, other short-term U.S. Government securities, certificates of deposit and bankers' acceptances of U.S. banks. The Fund also may hold cash and time deposits in U.S. banks. See "Investment Policies" in the SAI for further information about all these securities. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and, unless otherwise indicated, all investment policies of the Fund may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. For more information concerning shareholder voting, see "Other Information --Capitalization and Voting" and "Other Information -- Fund Structure." FUNDAMENTAL POLICIES The following investment restrictions of the Fund are fundamental policies: (1) The Fund cannot invest in securities (except those of the U.S. Government or its agencies or instrumentalities) of any issuer if immediately thereafter (a) more than 5% of the Fund's total assets would be invested in securities of that issuer, or (b) the Fund would then own more than 10% of that issuer's voting securities; (2) The Fund cannot make short sales of securities except "short sales against-the-box"; in such short sales, at all times during which a short position is open, the Fund must own an equal amount of such securities, or by virtue of ownership of securities have the right, without payment of further consideration, to obtain an equal amount of the securities sold short; no more than 15% of the Fund's net assets will be held as collateral for such short sales at any one time; (3) The Fund cannot 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; (4) The Fund cannot pledge, mortgage or hypothecate its assets to any extent greater than 10% of the value of the total assets of the Fund; (5) The Fund cannot deviate from the percentage requirements listed under "Investment Objective and Policies" and "Additional Investment Policies and Risk Considerations "; or (6) The Fund cannot purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase of securities of closed-end investment companies and only if immediately thereafter not more than (i) 3% of the total outstanding voting stock of such company is owned by the Fund, (ii) 5% of the Fund's total assets, taken at market value, would be invested in any one such company, or (iii) 10% of the Fund's total assets, taken at market value, would be invested in such securities. It should be noted that as a shareholder in an investment company, the Fund would bear its ratable share of that investment company's expenses, including its advisory and administration fees. At the same time, the Fund would continue to pay its own management and advisory fees and other expenses. The percentage restrictions described above and in the SAI 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. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES COMMON AND PREFERRED STOCK AND WARRANTS. The Fund may invest in common and preferred stock. Common stockholders are the owners of the company issuing the stock and, accordingly, vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, upon liquidation of the company, are entitled to their pro rata share of the company's assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends and, in the alternative, as to the recovery of investment. A preferred stockholder is a shareholder in the company and not a creditor of the company, as is a holder of the company's fixed income securities. Dividends paid to common and preferred stockholders are distributions of the earnings of the company and not interest payments, which are expenses of the company. Equity securities owned by the Fund may be traded in the over-the counter market or on a securities exchange, but may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by the Fund of a security to meet redemptions by interest holders or otherwise may require the Fund to sell these securities at a discount from market prices, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measure of a company's worth. The Fund may also invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance) and usually during a specified period of time. REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. A repurchase agreement is a means of investing monies for a short period. In a repurchase agreement, a seller - a U.S. bank or recognized broker-dealer - sells securities to the Fund and agrees to repurchase the securities at the Fund's cost plus interest within a specified period (normally one day). In these transactions, the values of the underlying securities purchased by the Fund are monitored at all times by SCMI to insure that the total value of the securities equals or exceeds the value of the repurchase agreement, and the Fund's custodian bank holds the securities until they are repurchased. In the event of default by the seller under the repurchase agreement, the Fund may have difficulties in exercising its rights to the underlying securities and may incur costs and experience time delays in disposing of them. To evaluate potential risks, SCMI reviews the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements. ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, the Fund will not purchase or otherwise acquire any security if, as a result, more than 15% of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or because of legal or contractual restrictions on resale ("restricted securities"). There may be undesirable delays in selling illiquid securities at prices representing their fair value. This policy includes over-the-counter options held by the Fund and the "in the money" portion of the assets used to cover such options. As stated above, this policy also includes assets which are subject to material legal restrictions on repatriation. The limitation on investing in restricted securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Fund's liquidity. See "Investment Policies -- Illiquid and Restricted Securities" in the SAI for further details. LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities (other than in repurchase transactions) to brokers, dealers and other financial institutions meeting specified credit conditions, if the loan is collateralized in accordance with applicable regulatory requirements and if, after any loan, the value of the securities loaned does not exceed 25% of the value of the Fund's total assets. By so doing, the Fund attempts to earn income through the receipt of interest on the loan. In the event of the bankruptcy of the other party to a securities loan, the Fund could experience delays in recovering the securities it lent. To the extent that, in the meantime, the value of the securities the Fund lent has increased, the Fund could experience a loss. The Fund may lend securities from its portfolio if liquid assets in an amount at least equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Fund with respect to the loan is maintained as collateral by the Fund in a segregated account. Any securities that the Fund may receive as collateral will not become a part of its portfolio at the time of the loan, and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which the Fund is permitted to invest. During the time that the securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn income or receive an agreed upon fee from a borrower that has delivered cash equivalent collateral. Cash collateral received by the Fund will be invested in U.S. Government securities and liquid high grade debt obligations. The value of securities loaned will be marked to market daily. Portfolio securities purchased with cash collateral are subject to possible depreciation. Loans of securities by the Fund will be subject to termination at the Fund's or the borrower's option. The Fund may pay reasonable negotiated fees in connection with loaned securities, so long as such fees are set forth in a written contract and approved by the Trust's Board of Trustees. OPTIONS AND FUTURES TRANSACTIONS. While the Fund does not presently intend to do so, it may write covered call options and purchase certain put and call options, stock index futures, and options on stock index futures and broadly-based stock indices, all of which are referred to as "Hedging Instruments". In general, the Fund may use Hedging Instruments: (1) to attempt to protect against declines in the market value of the Fund's portfolio securities or stock index futures, and thus protect the Fund's net asset value per share against downward market trends, or (2) to establish a position in the equities markets as a temporary substitute for purchasing particular equity securities. The Fund will not use Hedging Instruments for speculation. The Hedging Instruments which the Fund is authorized to use have certain risks associated with them. Principal among such risks are: (a) the possible failure of such instruments as hedging techniques in cases where the price movements of the securities underlying the options or futures do not follow the price movements of the portfolio securities subject to the hedge; (b) potentially unlimited loss associated with futures transactions and the possible lack of a liquid secondary market for closing out a futures position; and (c) possible losses resulting from the inability of the Fund's investment adviser to correctly predict the direction of stock prices, interests rates and other economic factors. The Hedging Instruments the Fund may use and the risks associated with them are described in greater detail under "Options and Futures Transactions" in the SAI. SHORT SALES AGAINST-THE-BOX. The Fund may not sell securities short except in "short sales against-the-box". For Federal income tax purposes, short sales against-the-box may be made to defer recognition of gain or loss on the sale of securities "in the box" and no income can result and no gain can be realized from securities sold short against-the-box until the short position is closed out. Such short sales are subject to the limits described under "Fundamental Restrictions" above. See "Short Sales Against-the-Box" in the SAI for further details. RISK CONSIDERATIONS All investments involve certain risks. Investments in smaller capitalization companies involve greater risks than those risks associated with investments in larger capitalization companies. Smaller capitalization companies generally experience higher growth rates and higher failure rates than do larger capitalization companies. The trading volume of securities of smaller capitalization companies is normally less than that of larger capitalization companies and, consequently, generally have a disproportionate effect on their market price, tending to make them rise more in response to buying demand and fall more in response to selling pressure than is the case with larger capitalization companies. Investments in small, unseasoned issuers generally involve greater risk than is customarily associated with larger, more seasoned companies. Such issuers often have products and management personnel which have not been thoroughly tested by time or the marketplace and their financial resources may not be as substantial as those of more established companies. Their securities, which the Fund may purchase when they are offered to the public for the first time, may have a limited trading market, which may adversely affect their sale by the Fund and can result in such securities being priced lower than otherwise might be the case. If other institutional investors engage in trading this type of security, the Fund may be forced to dispose of its holdings at prices lower than might otherwise be obtained. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The Trustees of the Trust are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the executive officers of the Trust may be found in the SAI under the heading "Management C Trustees and Officers." The Board has adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Fund and continuously reviews, supervises and administers the Fund's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Fund's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly-owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. The investment management team of Fariba Talebi, a Vice President of the Trust and a First Vice President of SCMI, and Ira Unschuld, a Vice President of the Trust and of SCMI, with the assistance of an investment committee, is primarily responsible for the day-to-day management of the Fund's investment portfolio, and has so managed the Fund since its inception. Ms. Talebi and Mr. Unschuld have been employed by SCMI in the investment research and portfolio management areas since 1987 and 1990, respectively. For its advisory services with respect to the Fund, SCMI receives a monthly advisory fee equal on an annual basis to 0.50% of the first $100 million of the Fund's average daily net assets; 0.40% of the next $150 million of the Fund's average daily net assets and 0.35% of the Fund's average daily net assets in excess of $250 million. For the fiscal year ended October 31, 1995, the Fund paid SCMI an advisory fee of 0.50% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES On behalf of the Fund, the Trust has entered into an administrative services contract with Schroder Advisors, 787 Seventh Avenue, New York, New York 10019. Schroder Advisors is a wholly-owned subsidiary of SCMI. The Trust and Schroder Advisors have entered into a sub-administration agreement with Forum. Pursuant to these agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. For its administrative services with respect to the Fund, Schroder Advisors receives a monthly administration fee equal on an annual basis to 0.25% of the first $100 million of the Fund's average daily net assets; 0.20% of the next $150 million of the Fund's average daily net assets and 0.175% of the Fund's average daily net assets in excess of $250 million. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN Schroder Advisors acts as distributor of the Fund's shares. Under a distribution plan pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan") adopted by the Trust on behalf of the Fund, each month the Trust pays directly or reimburses Schroder Advisors, as distributor, for costs and expenses incurred in connection with the distribution of Investor Shares. Such payment or reimbursement is subject to a limit on an annual basis to 0.50% of the Fund's average daily net assets attributable to Investor Shares. The Fund will make no payment under the Distribution Plan with respect to Investor Shares until the Board further so authorizes. Payment or reimbursement under the Distribution Plan may be for various types of costs, including: (1) advertising expenses, (2) costs of printing prospectuses and other materials to be given or sent to prospective investors, (3) expenses of sales employees or agents of Schroder Advisors, including salary, commissions, travel and related expenses in connection with the distribution of Investor Shares, (4) payments to broker-dealers who advise shareholders regarding the purchase, sale, or retention of Investor Shares, and (5) payments to banks, trust companies, broker-dealers (other than Schroder Advisors) or other financial organizations (collectively, "Service Organizations"). Payments to Service Organizations under the Distribution Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. The Fund will not be liable for distribution expenditures made by Schroder Advisors in any given year in excess of the maximum amount payable under the Distribution Plan in that year. Costs or expenses in excess of the per annum limit may not be carried forward to future years. Salary expenses of salesmen who are responsible for marketing various mutual funds of the Trust may be allocated to those funds, including the Investor Shares class of the Fund, that have adopted a distribution plan similar to that of the Fund on the basis of average daily net assets. Travel expenses may be allocated to, or divided among, the particular funds of the Trust for which they are incurred. The Trust, on behalf of the Fund, has also adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which Schroder Advisors, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. The Trust will make no payments under the Shareholder Service Plan with respect to Investor Shares until the Board further so authorizes. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Fund's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Fund may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Subject to the Fund's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ (a) Schroder Wertheim & Company, Incorporated and its affiliates ("Schroder Wertheim"), affiliates of SCMI, to effect transaction of the Fund on the New York Stock Exchange and (b) Schroder Securities Limited and its affiliates ("Schroder Securities"), affiliates of SCMI, to effect transactions of the Fund, if any, on certain foreign securities exchanges. Because of the affiliation between SCMI and Schroder Wertheim and SCMI and Schroder Securities, the Fund's payment of commissions to them is subject to procedures adopted by the Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Fund's brokerage will be directed to Schroder Wertheim or Schroder Securities and in no event will either receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Fund as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. Although the Fund does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Fund's portfolio transactions would agree to pay designated expenses of the Fund if brokerage commissions generated by the Fund reached certain levels, might reduce the Fund's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Fund. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, SCMI, Schroder Advisors, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Investor Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information -- Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a completed Account Application (at the address set forth below). The minimum initial investment is $10,000, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder U.S. Smaller Companies Fund, to: Schroder U.S. Smaller Companies Fund P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder U.S. Smaller Companies Fund -- Investor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the class of shares, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the Transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax-qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the class of shares, the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information -- Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $2,000, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $2,000 and be allowed at least 30 days to make an additional investment to increase the account balance to at least $2,000. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Fund that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over-the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Board. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Investor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. As of April 30, 1996, Schroder Nominees Limited may be deemed to control the Fund for purposes of the Act. From time to time, certain shareholders may own a large percentage of the shares of a Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder U.S. Smaller Companies Fund P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. OTHER CLASSES OF SHARES The Fund has two classes of shares, Investor Shares and Advisor Shares. Advisor Shares are offered by a separate prospectus to individual investors, in most cases through Service Organizations. Advisor Shares incur more expenses than Institutional Shares. Except for certain differences, each share of each class represents an undivided, proportionate interest in the Fund. Each share of the Fund is entitled to participate equally in dividends and other distributions and the proceeds of any liquidation of the Fund except that, due to the differing expenses borne by the two classes, the amount of dividends and other distribution will differ between the classes. Information about Advisor Shares is available from the Fund by calling Forum Financial Corp. at (207) 879-8903. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Global Custody Division Woolgate House, Coleman Street London EC2P 2HD, United Kingdom TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . Investment Adviser . . . . . . . . . . . . . Administrative Services. . . . . . . . . . . Purchases and Redemptions. . . . . . . . . . Risk Considerations. . . . . . . . . . . . . Fee Table. . . . . . . . . . . . . . . . . . FINANCIAL HIGHLIGHTS . . . . . . . . . . . . INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . Investment Objective . . . . . . . . . . . . Investment Policies. . . . . . . . . . . . . ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS. . . . . . . . . . . . Investment Restrictions. . . . . . . . . . . Investment Types . . . . . . . . . . . . . . Risk Considerations. . . . . . . . . . . . . MANAGEMENT . . . . . . . . . . . . . . . . . Board of Trustees. . . . . . . . . . . . . . Investment Adviser and Portfolio Manager . . Administrative Services. . . . . . . . . . . Distribution Plan and Shareholder Services Plan Portfolio Transactions Code of Ethics . . . . . . . . . . . . . . . INVESTMENT IN THE FUND . . . . . . . . . . . Purchase of Shares . . . . . . . . . . . . . Retirement Plans . . . . . . . . . . . . . . Individual Retirement Accounts . . . . . . . Redemption of Shares . . . . . . . . . . . . Net Asset Value. . . . . . . . . . . . . . . DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . The Fund . . . . . . . . . . . . . . . . . . OTHER INFORMATION. . . . . . . . . . . . . . Capitalization and Voting. . . . . . . . . . Reports. . . . . . . . . . . . . . . . . . . Performance Information. . . . . . . . . . . Custodian and Transfer Agent . . . . . . . . Shareholder Inquires . . . . . . . . . . . . Certain Servicing Organizations. . . . . . . Other Classes of Shares . . . . . . . . . .
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Schroder U.S. Equity Fund Two Portland Square Portland, Maine 04101 -------------------------------------------------------------------------------- GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 -------------------------------------------------------------------------------- SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - DISTRIBUTOR This Prospectus offers shares of Schroder U.S. Equity Fund (the "Fund"), a separately-managed, diversified portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund seeks growth of capital by investing substantially all of its assets in common stock and securities convertible into common stock. Income, while a factor in portfolio selection, is secondary to the principal objective of growth of capital. This prospectus sets forth concisely the information a prospective Investor should know before investing in the Fund. A Statement of Additional Information (the "SAI") dated May 16, 1996 and as supplemented from time to time containing additional information about the Fund has been filed with the Securities and Exchange Commission ("SEC") and is hereby incorporated by reference into this Prospectus. It is available without charge and may be obtained by writing or calling the Fund at the address and telephone numbers printed above. This prospectus should be read and retained for information about the Fund. THE SHARES OFFERED HEREBY ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM, OR ANY FEDERAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is dated May 16, 1996 PROSPECTUS SUMMARY THE FUND. The Fund is a separately-managed, diversified no-load portfolio of the Trust, a Delaware business trust registered as an open-end management investment company under the Investment Company Act of 1940 (the "Act"). The primary investment objective of the Fund is to seek growth of capital. Income, while a factor in portfolio selection, is secondary to this principal objective. Current income will be incidental to the Fund's objective. INVESTMENT ADVISER. The Fund's Investment Adviser is Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019. See "Management Investment Adviser and Portfolio Manager." ADMINISTRATOR AND DISTRIBUTOR. SCMI is the Administrator of the Fund. The Trust and SCMI have entered into a Sub-Administration Agreement with Forum Financial Services, Inc. ("Forum"). In this capacity, Forum provides certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Funds by SCMI pursuant to its Investment Advisory Contract with the Fund. See "Management of the Funds - Administrative Services." PURCHASES AND REDEMPTIONS OF SHARES. Shares may be purchased or redeemed by mail, by bank-wire and through an investor's broker-dealer or other financial institution. The minimum initial investment is $2,500, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. See "Investment in the Fund -- Purchase of Shares" and "-- Redemption of Shares." DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays as a dividend substantially all of its net investment income annually and distributes any net realized long-term capital gain at least annually. Dividend and capital gain distributions are reinvested automatically in additional shares of the Fund at net asset value unless the shareholder has notified the Fund in an Account Application or otherwise in writing of the shareholder's election to receive dividends or distributions in cash. See "Dividends, Distributions and Taxes." RISK CONSIDERATIONS. There can be no assurance that the Fund will achieve its investment objective. The Fund's net asset value and total return will fluctuate based upon changes in the value of its portfolio securities so that, upon redemption, an investment in a Fund may be worth more or less than its original value. See "Additional Investment Policies and Risk Considerations." FEE TABLE The table below is intended to assist investors in understanding the expenses that an investor would incur. There are no transaction expenses associated with purchases or redemptions of Investor Shares. Annual Fund Operating Expenses (as a percentage of average net assets)(1) Management Fees (2) . . . . . . . . . . . . . . . . . . . . . . . . .0.75% 12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0.00% Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .0.65% Total Fund Operating Expenses . . . . . . . . . . . . . . . . . . . .1.40% (1) Annual Fund Operating Expenses are based on the Fund's most recent fiscal year ended October 31, 1995. (2) Management Fees for the Fund reflect the fees paid by the Fund for investment and administrative services. EXAMPLE Based on the expenses listed above, you would pay the following expenses on a $1,000 investment, assuming (1) a 5% annual return, (2) redemption at the end of each time period, and (3) reinvestment of all dividends and other distributions: 1 year. . . . . . . . . . . . .$14 3 years . . . . . . . . . . . .$44 5 years . . . . . . . . . . . .$77 10 years . . . . . . . . . . . .$168 THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The 5% annual return is not a prediction of the Fund's return, but is required by the SEC. FINANCIAL HIGHLIGHTS The following financial highlights of the Fund are presented to assist investors in evaluating the performance of a share the Fund for the periods shown. This information is part of the Fund's financial statements and has been audited by Coopers & Lybrand L.L.P., independent accountants to the Fund. The Fund's financial statements for the year ended October 31, 1995 and independent accountants' report thereon are contained in the Fund's Annual Report to Shareholders and are incorporated by reference into the SAI. Further information about the performance of the Fund is contained in the Annual Report, which may be obtained without charge by writing or calling the Fund at the address or the telephone number on the cover of this Prospectus. [Enlarge/Download Table] Year ended October 31 1995 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF YEAR 8.52 11.28 10.51 9.56 7.05 8.35 7.49 ------------------------------------------------------------------ INVESTMENT OPERATIONS Net Investment Income 0.07 0.04 0.05 0.02 0.09 0.11 0.17 Net Realized Income and Unrealized Gain (Loss) on Investments 1.33 (0.27) 1.86 1.61 2.57 (0.77) 1.30 ------------------------------------------------------------------ Total from Investment Operations 1.40 (0.23) 1.91 1.63 2.66 (0.66) 1.47 DISTRIBUTIONS from Net Investment Income (0.05) (0.01) (0.04) (0.04) (0.11) (0.11) (0.15) from Realized Capital Gain (0.46) (2.52) (1.10) (0.58) -- (0.53) (0.46) from Capital Paid-In -- -- -- (0.06) (0.04) -- -- ------------------------------------------------------------------ Total Distributions (0.51) (2.53) (1.14) (0.68) (0.15) (0.64) (0.61) NET ASSET VALUE, END OF YEAR $9.41 $8.52 $11.28 $10.51 $9.56 $7.05 $8.35 ------------------------------------------------------------------ ------------------------------------------------------------------ TOTAL RETURN 17.68% (2.01)% 19.49% 17.74% 38.16% (8.78%) 21.05% ------------------------------------------------------------------ ------------------------------------------------------------------ RATIO/SUPPLEMENTARY DATA: Net Assets, End of Year (Thousands) 19,688 18,483 21,865 19,882 20,234 18,290 23,838 Ratio of Expenses to Average Net Assets 1.40% 1.31% 1.18% 1.40% 1.39% 1.34% 1.49% Ratio of Net Investment Income to Average Net Assets 0.78% 0.41% 0.51% 0.42% 1.30% 1.59% 1.99% Portfolio Turnover Rate 57.21% 27.43% 57.78% 31.33% 29.98% 28.31% 40.35% Year ended October 31 1988 1987 1986 1985 ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF YEAR 10.15 12.55 10.86 10.49 INVESTMENT OPERATIONS Net Investment Income 0.18 0.20 0.28 0.28 Net Realized Income and Unrealized Gain (Loss) on Investments 0.28 0.18 2.38 0.75 Total from Investment Operations 0.46 0.38 2.66 1.03 DISTRIBUTIONS from Net Investment Income (0.18) (0.25) (0.24) (0.30) from Realized Capital Gain (2.94) (2.53) (0.73) (0.36) from Capital Paid-In -- -- -- -- ------------------------------------ Total Distributions (3.12) (2.78) (0.97) (0.66) ------------------------------------ ------------------------------------ NET ASSET VALUE, END OF YEAR $7.49 $10.15 $12.55 $10.86 ------------------------------------ ------------------------------------ TOTAL RETURN 7.74% 2.55% 25.43% 10.31% ------------------------------------ ------------------------------------ RATIO/SUPPLEMENTARY DATA: Net Assets, End of Year (Thousands) 25,569 29,749 46,641 51,346 Ratio of Expenses to Average Net Assets 1.60% 1.30% 1.16% 1.16% Ratio of Net Investment Income to Average Net Assets 1.89% 1.60% 2.25% 2.66% Portfolio Turnover Rate 18.42% 43.11% 40.51% 58.53% (a) The Fund commenced operations on August 6, 1993. (b) Annualized INVESTMENT OBJECTIVES AND POLICIES INVESTMENT OBJECTIVE The primary investment objective of the Fund is to seek growth of capital. Income, while a factor in portfolio selection, is secondary to the principal objective. The Fund is not intended for investors whose objective is assured income or preservation of capital. There can be no assurance that the Fund's objective will be achieved. The Fund in the future may seek to achieve its investment objective by holding, as its only investment securities, the securities of another investment company having identical investment objectives and policies as the Fund in accordance with the provisions of the Act or any orders, rules or regulations thereunder adopted by the Securities and Exchange Commission. INVESTMENT POLICIES The Fund will normally invest substantially all of its assets in common stock and securities convertible into common stock. As part of this policy, the Fund may also invest in other securities with common stock purchase warrants attached, in such warrants themselves or in other rights to purchase common stock. The Fund may also invest to a limited degree in non-convertible preferred and debt securities. Such investments might be made when management believes that greater yields could be earned on these types of securities of investment grade than on U.S. Government securities or bank certificates of deposit. As a non- fundamental policy, the Fund will not invest more than 15% of its total assets in non-convertible preferred and debt securities. The Fund will generally purchase securities which are believed to have potential for capital appreciation. However, securities will be disposed of when the Fund believes that such potential is no longer feasible or the risk of decline in market price is too great. For temporary defensive purposes, the Fund may invest all or any portion of its assets in investment grade corporate bonds or debentures (meaning for these purposes bonds or debentures rated "A" or better by Standard & Poor's Corporation or the equivalent thereof), preferred stock, U.S. Government securities or bank certificates of deposit. Management may pursue a temporary defensive strategy when it believes that the market appears relatively fully priced or that uncertain economic conditions indicate the advisability of assuming a temporary defensive position. As an operating, non-fundamental policy, the Fund may also invest temporarily in certain short-term fixed income securities. Such securities may be used to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions or other Fund obligations. These securities may include U.S. Government securities, commercial paper, bank certificates of deposit and bankers' acceptances, and repurchase agreements collateralized by these securities. The Fund will limit its total investment at any time in these securities for this operating purpose to not more than 25% of its total assets. The Fund may from time to time acquire securities which are subject to legal or contractual restrictions on resale. The risk involved in such investments is that a considerable period might elapse between the time a decision is made to sell such securities and the time the Fund might be permitted to sell all or part of such securities publicly under a registration statement or an exemption from registration or privately to a suitable purchaser. The delay might adversely affect the price which the Fund could obtain for the securities and, in a registration, the Fund could be required to pay registration expenses. The Fund is authorized to borrow money from a bank on its promissory note or other evidence of indebtedness. Monies borrowed would be invested and any appreciation thereon, to the extent it exceeded interest paid on the loan, would cause the net asset value of Fund shares to rise faster than it would otherwise. If, however, the investment performance of additional monies failed to cover the Fund's interest charges, the net asset value would decrease faster than would otherwise be the case. This is the speculative feature known as "leverage". The Fund's authority to borrow is subject to limitations. Any borrowing (i) would not exceed one-third of the value of the Fund's total assets after the borrowing, (ii) if at any time it exceeded the one-third limitation, the Fund would within three days thereafter (not including Sundays or holidays) or such longer period as the SEC may prescribe by rules and regulations, reduce its borrowings to the limitation, and (iii) might or might not be secured and, if secured, all or any part of the Fund's assets could be pledged. To comply with these limitations, the Fund might be required to dispose of certain of its assets when it might be disadvantageous to do so. Any borrowings would be subject to Federal Reserve Board regulations. The Fund has not borrowed for investment or any other purpose during the last ten years and, as a non- fundamental policy, will not borrow for investment in the future. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS INVESTMENT RESTRICTIONS The investment objective and, unless otherwise indicated, all investment policies of the Fund may not be changed without approval of the holders of a majority of the outstanding voting securities of the Fund. A majority of outstanding voting securities means the lesser of (i) 67% of the shares present or represented at a shareholder meeting at which the holders of more than 50% of the outstanding shares are present or represented, or (ii) more than 50% of outstanding shares. For more information concerning shareholder voting, see "Other Information Capitalization and Voting" and "Other Information Fund Structure." FUNDAMENTAL POLICIES The Fund has adopted certain investment restrictions designed to reduce its exposure in specific situations. These restrictions are fundamental policies of the Fund. Under some of those restrictions the Fund cannot: (1) Acquire more than 10% of the voting securities of any one issuer; (2) Invest 25% or more of its total assets in any one industry; (3) Invest in companies for the purpose of exercising control or management; (4) Invest more than 10% of its total assets in "restricted securities"; (5) Make loans to other persons except that it may invest up to 10% of its total assets in evidences of indebtedness of a type distributed privately to financial institutions; (6) Invest, in the aggregate, more than 10% of its total assets in securities described in 4 and 5 above; (7) Invest in other investment companies. As a non-fundamental policy, the Fund will not engage in writing, buying or selling of stock index futures, options on stock index futures, financial futures contracts or options thereon. The percentage restrictions described above and in the SAI 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. A supplementary list of investment restrictions is contained in the SAI. INVESTMENT TYPES COMMON AND PREFERRED STOCK AND WARRANTS. The Fund may invest in common and preferred stock. Common stockholders are the owners of the company issuing the stock and, accordingly, vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, upon liquidation of the company, are entitled to their pro rata share of the company's assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends and, in the alternative, as to the recovery of investment. A preferred stockholder is a shareholder in the company and not a creditor of the company, as is a holder of the company's fixed income securities. Dividends paid to common and preferred stockholders are distributions of the earnings of the company and not interest payments, which are expenses of the company. Equity securities owned by the Fund may be traded in the over-the counter market or on a securities exchange, but may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by the Fund of a security to meet redemptions by interest holders or otherwise may require the Fund to sell these securities at a discount from market prices, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measure of a company's worth. The Fund may also invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance) and usually during a specified period of time. REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. A repurchase agreement is a means of investing monies for a short period. In a repurchase agreement, a seller - a U.S. bank or recognized broker-dealer - sells securities to the Fund and agrees to repurchase the securities at the Fund's cost plus interest within a specified period (normally one day). In these transactions, the values of the underlying securities purchased by the Fund are monitored at all times by SCMI to insure that the total value of the securities equals or exceeds the value of the repurchase agreement, and the Fund's custodian bank holds the securities until they are repurchased. In the event of default by the seller under the repurchase agreement, the Fund may have difficulties in exercising its rights to the underlying securities and may incur costs and experience time delays in disposing of them. To evaluate potential risks, SCMI reviews the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements. ILLIQUID AND RESTRICTED SECURITIES. As a non-fundamental policy, the Fund will not purchase or otherwise acquire any security if, as a result, more than 10% of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or because of legal or contractual restrictions on resale ("restricted securities"). There may be undesirable delays in selling illiquid securities at prices representing their fair value. This policy includes over-the-counter options held by the Fund and the "in the money" portion of the assets used to cover such options. As stated above, this policy also includes assets which are subject to material legal restrictions on repatriation. The limitation on investing in restricted securities does not include securities that may not be resold to the general public but may be resold to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933. If SCMI determines that a "Rule 144A security" is liquid pursuant to guidelines adopted by the Board, it will not be deemed illiquid. These guidelines take into account trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, that security may become illiquid, which could affect the Fund's liquidity. See "Investment Policies C Illiquid and Restricted Securities" in the SAI for further details. MANAGEMENT BOARD OF TRUSTEES The business and affairs of the Fund are managed under the direction of the Board. The Trustees of the Trust are Peter E. Guernsey, Ralph E. Hansmann, John I. Howell, Laura E. Luckyn-Malone, Clarence F. Michalis, Hermann C. Schwab and Mark J. Smith. Additional information regarding the Trustees and the executive officers of the Trust may be found in the SAI under the heading "Management C Trustees and Officers." The Board has adopted written procedures reasonably appropriate to deal with potential conflicts of interest. INVESTMENT ADVISER AND PORTFOLIO MANAGER SCMI serves as Investment Adviser to the Portfolio. SCMI manages the investment and reinvestment of the assets the Fund and continuously reviews, supervises and administers the Fund's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Fund's investments and to place purchase and sale orders regarding investments with brokers or dealers selected by it in its discretion. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly- owned U.S. subsidiary of Schroders plc, a publicly owned company organized under the laws of England. Schroders plc is the holding company parent of a large world-wide group of banks and financial services companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in eighteen countries world-wide. The investment management subsidiaries of the Schroder Group had, as of December 31, 1995, assets under management in excess of $100 billion. Fariba Talebi, a Vice President of the Trust and a First Vice President of SCMI, with the assistance of an investment committee, is primarily responsible for the day-to-day management of the Fund's investment portfolio, and has so managed the Fund since its inception. Ms. Talebi has been employed by SCMI in the investment research and portfolio management areas since 1987. For its advisory services with respect to the Fund, SCMI receives a monthly fee at the annual rate of 0.75% of the Fund's average daily net assets of the first $100 million and 0.50% of the Fund's average daily net assets in excess of $100 million. For the fiscal year ended October 31, 1995, the total advisory fees paid by the Fund to SCMI represented an annual effective rate of 0.75% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES Through its investment advisory contract with the Fund, SCMI provides administrative services to the Fund. The Trust and SCMI have entered into a sub- administration agreement with Forum. Pursuant to these agreements, Forum provides certain management and administrative services necessary for the Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI. Payment for Forum's services is made by SCMI and is not a separate expense of the Fund. SHAREHOLDER SERVICES PLAN The Trust, on behalf of the Fund, has adopted a shareholder service plan (the "Shareholder Service Plan"), pursuant to which SCMI, as administrator of the Fund, is authorized to pay Service Organizations a servicing fee. Payments under the Shareholder Service Plan may be for various types of services, including (1) answering customer inquiries regarding the manner in which purchases, exchanges and redemptions of shares of the Fund may be effected and other matters pertaining to the Fund's services, (2) providing necessary personnel and facilities to establish and maintain shareholder accounts and records, (3) assisting shareholders in arranging for processing purchase, exchange and redemption transactions, (4) arranging for the wiring of funds, (5) guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder-designated accounts, (6) integrating periodic statements with other customer transactions and (7) providing such other related services as the shareholder may request. The Trust will make no payments under the Shareholder Service Plan with respect to Investor Shares until the Board further so authorizes. Payments to Service Organizations under the Shareholder Service Plan are calculated by reference to the average daily net assets of Investor Shares held by shareholders who have a brokerage or other service relationship with the Service Organization. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by Schroder Advisors. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. PORTFOLIO TRANSACTIONS SCMI places orders for the purchase and sale of the Fund's investments with brokers and dealers selected by SCMI in its discretion and seeks "best execution" of such portfolio transactions. The Fund may pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. Subject to the Fund's policy of obtaining the best price consistent with quality of execution on transactions, SCMI may employ Schroder Wertheim & Company, Incorporated and its affiliates ("Schroder Wertheim"), affiliates of SCMI, to effect transaction of the Fund on the New York Stock Exchange. Because of the affiliation between SCMI and Schroder Wertheim, the Fund's payment of commissions to Schroder Wertheim is subject to procedures adopted by the Board designed to ensure that such commissions will not exceed the usual and customary brokers' commissions. No specific portion of the Fund's brokerage will be directed to Schroder Wertheim and in no event will Schroder Wertheim receive any brokerage in recognition of research services. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Board may determine, SCMI may consider sales of shares of the Fund or any other entity that invests in the Fund as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. Although the Fund does not currently engage in directed brokerage arrangements to pay expenses, it may do so in the future. These arrangements, whereby brokers executing the Fund's portfolio transactions would agree to pay designated expenses of the Fund if brokerage commissions generated by the Fund reached certain levels, might reduce the Fund's expenses (and, indirectly, the Fund's expenses). As anticipated, these arrangements would not materially increase the brokerage commissions paid by the Fund. Brokerage commissions are not deemed to be Fund expenses. In the Fund's fee table, per share table, and financial highlights, however, directed brokerage arrangements might cause Fund expenses to appear lower than actual expenses incurred. CODE OF ETHICS The Trust, SCMI, and Schroders Incorporated have adopted codes of ethics that contain a policy on personal securities transactions by "access persons," including portfolio managers and investment analysts. That policy complies in all material respects with the recommendations set forth in the Report of the Advisory Group on Personal Investing of the Investment Company Institute, of which the Trust is a member. INVESTMENT IN THE FUND PURCHASE OF SHARES Investors may purchase Shares directly from the Trust. Prospectuses, sales material and Account Applications can be obtained from the Trust or through Forum Financial Corp., the Fund's transfer agent (the "Transfer Agent"). See "Other Information -- Shareholder Inquires." Investments may also be made through Service Organizations that assist their customers in purchasing shares of the Fund. Such Service Organizations may charge their customers a service fee for processing orders to purchase or sell shares of the Fund. Investors wishing to purchase shares through their accounts at a Service Organization should contact that organization directly for appropriate instructions. Shares of the Fund are offered at the net asset value next determined after receipt of a completed Account Application (at the address set forth below). The minimum initial investment is $2,500, except that the minimum initial investment for an Individual Retirement Account is $____. The minimum subsequent investment is $____. All purchase payments are invested in full and fractional shares. The Fund is authorized to reject any purchase order. Initial and subsequent purchases may be made by mailing a check (in U.S. dollars), payable to Schroder U.S. Equity Fund, to: Schroder U.S. Equity Fund P.O. Box 446 Portland, Maine 04112 For initial purchases, the check must be accompanied by a completed Account Application in proper form. Investors and Service Organizations (on behalf of their customers) may transmit purchase payments by Federal Reserve Bank wire directly to the Fund as follows: Chase Manhattan Bank New York, NY ABA No.: 021000021 For Credit To: Forum Financial Corp. Acct. No.: 910-2-718187 Ref.: Schroder U.S. Equity Fund C Investor Shares Account of: (shareholder name) Account Number: (shareholder account number) The wire order must specify the name of the Fund, the account name and number, address, confirmation number, amount to be wired, name of the wiring bank and name and telephone number of the person to be contacted in connection with the order. If the initial investment is by wire, an account number will be assigned and an Account Application must be completed and mailed to the Fund. Wire orders received prior to 4:00 p.m. (New York City Time) on a Fund Business Day will be processed at the net asset value determined as of that day. Wire orders received after 4:00 p.m. will be processed at the net asset value determined as of the next Fund Business Day. See "Net Asset Value" below. For each shareholder of record, the Fund's Transfer Agent, as the shareholder's agent, establishes an open account to which all shares purchased are credited, together with any dividends and capital gain distributions that are reinvested in additional shares. The Transfer Agent will deem an account lost if six months have passed since correspondence to the shareholder's address of record is returned, unless the Transfer Agent determines the shareholder's new address. When an account is deemed lost, dividends and capital gains will be reinvested. In addition, the amount of any outstanding checks for dividends and capital gains that have been returned to the Transfer Agent will be reinvested and such checks will be canceled. Although most shareholders elect not to receive share certificates, certificates for full shares can be obtained by specific written request to the Fund's Transfer Agent. No certificates are issued for fractional shares. RETIREMENT PLANS Shares of the Fund are offered in connection with tax-deferred retirement plans. Applications forms and further information about these plans, including applicable fees, are available upon request. Before investing in the Fund through one of these plans, investors should consult their tax advisors. INDIVIDUAL RETIREMENT ACCOUNTS The Fund may be used as an investment vehicle for an Individual Retirement Account ("IRA"). An IRA plan naming The First National Bank of Boston as custodian is available from the Trust or the Fund's Transfer Agent. The minimum initial investment for an IRA is $____; the minimum subsequent investment is $____. IRAs are available to individuals who receive compensation or earned income, and their spouses, whether or not they are active participants in a tax- qualified or government-approved retirement plan. An IRA contribution by an individual who participates, or whose spouse participates, in a tax-qualified or government-approved retirement plan may not be deductible depending upon the individual's income. Individuals also may establish an IRA to receive a "rollover" contribution of distributions from another IRA or a qualified plan. Tax advice should be obtained before effecting a rollover. REDEMPTION OF SHARES Shares of the Fund are redeemed at their next determined net asset value following receipt by the Fund (at the address set forth above under "Purchase of Shares") of a redemption request in proper form. See "Net Asset Value." Redemption requests may be made between 9:00 a.m. and 6:00 p.m. (New York City Time) on each day that the New York Stock Exchange is open for trading. Redemption requests that are received prior to 4:00 p.m. (New York City Time) will be processed at the net asset value determined as of that day. Redemption requests that are received after 4:00 p.m. will be processed at the net asset value determined the next Fund Business Day. See "Net Asset Value" below. BY TELEPHONE. Redemption requests may be made by telephoning the Transfer Agent at the Account Information telephone number on the cover page of this Prospectus. A shareholder must provide the Transfer Agent with the dollar amount or number of shares to be redeemed, the 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 such instructions are genuine. The Transfer Agent and the Trust will not be liable for any losses due to unauthorized or fraudulent redemption requests, but may be liable if they do not follow these procedures. Shares for which certificates have been issued may not be redeemed by telephone. In times of drastic economic or market changes, it may be difficult to make redemptions by telephone. If a shareholder cannot reach the Transfer Agent by telephone, redemption requests may be mailed or hand-delivered to the Transfer Agent. WRITTEN REQUESTS. Redemptions may be made by letter to the Fund specifying the class of shares, the dollar amount or number of shares to be redeemed and the shareholder account number. The letter must also be signed in exactly the same way the account is registered (if there is more than one owner of the shares, all must sign) and, in certain cases, signatures must be guaranteed by an institution that is acceptable to the Fund's 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, such as copies of 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 redemption request. Questions concerning the need for signature guarantees or documentation of authority should be directed to the Fund at the above address or by calling the Account Information telephone number appearing on the cover of this Prospectus. If shares to be redeemed are held in certificate form, the certificates must be enclosed with the redemption request and the assignment form on the back of the certificates, or an assignment separate from the certificates (but accompanied by the certificates), must be signed by all owners in exactly the same way the owners' names are written on the face of the certificates. Requirements for signature guarantees and/or documentation of authority as described above could also apply. For your protection, the Fund suggests that certificates be sent by registered mail. ADDITIONAL REDEMPTION INFORMATION. Checks for redemption proceeds will normally be mailed within seven days. No redemption will be effected until all checks in payment for the purchase of the shares to be redeemed have been cleared, which may take up to 15 calendar days. Unless other instructions are given in proper form, a check for the proceeds of a redemption will be sent to the shareholder's address of record. The Fund may suspend the right of redemption during any period when (i) trading on the New York Stock Exchange is restricted or that exchange is closed, (ii) the SEC has by order permitted such suspension, or (iii) an emergency, as defined by rules of the SEC, exists making disposal of portfolio investments or determination of the Fund's Net Asset Value not reasonably practicable. If the Board determines that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may redeem shares in whole or in part by a distribution in kind of securities from the portfolio of the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The Fund will, however, redeem shares solely in cash up to the lesser of $250,000 or 1% of net assets during any 90-day period for any one shareholder. In the event that payment for redeemed shares is made wholly or partly in portfolio securities, the shareholder may be subject to additional risks and costs in converting the securities to cash. See "Additional Purchase and Redemption Information Redemption in Kind" in the SAI. The proceeds of a redemption may be more or less than the amount invested and, therefore, a redemption may result in a gain or loss for Federal income tax purposes. Due to the relatively high cost of maintaining smaller accounts, the Fund reserves the right to redeem shares in any account (other than an IRA) if at any time the account does not have a value of at least $400, unless the value of the account fell below that amount solely as a result of market activity. Shareholders will be notified that the value of the account is less than $400 and be allowed at least 30 days to make an additional investment to increase the account balance to at least $400. NET ASSET VALUE The net asset value per share of the Fund is calculated separately for each class of shares of the Fund at 4:00 p.m. (New York City Time), Monday through Friday, each day that the New York Stock Exchange is open for trading (a "Fund Business Day"), which excludes the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share is calculated by dividing the aggregate value of the Fund's assets less all Fund liabilities by the number of shares of the Fund outstanding. Securities held by the Fund that are listed on recognized stock exchanges are valued at the last reported sale price, prior to the time when the securities are valued, on the exchange on which the securities are principally traded. Listed securities traded on recognized stock exchanges where last sale prices are not available are valued at mid-market prices. Securities traded in over- the-counter markets, or listed securities for which no trade is reported on the valuation date, are valued at the most recent reported mid-market price. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith using methods approved by the Board. DIVIDENDS, DISTRIBUTIONS AND TAXES THE FUND The Fund intends to distribute substantially all of its net investment income and its net realized capital gain at least annually and, therefore, intends to continue not to be subject to Federal income tax. The Fund intends to elect, pursuant to Section 853 of the Code if the Fund is eligible to do so, to permit shareholders to take a credit (or a deduction) for foreign income taxes paid by the Fund. An investor should include as gross income in its Federal income tax returns both cash dividends received from the Fund and also the amount that the Fund advises is its pro rata portion of foreign income taxes paid with respect to, or withheld from, dividends and interest paid to the Fund from the Fund's foreign investments. An investor would then be entitled, subject to certain limitations, to take a foreign tax credit against its Federal income tax liability for the amount of such foreign taxes or else to deduct such foreign taxes as an itemized deduction from gross income. The Fund intends to declare and pay as a dividend substantially all of its net investment income annually and to distribute any net realized capital gain at least annually. Dividend and capital gain distributions will be reinvested automatically in additional shares of the Fund at net asset value unless the shareholder elects in writing to receive distributions in cash. Dividend and capital gain distributions are made on a per share basis. After every distribution, the value of a share declines by the amount of the distribution. Purchases made shortly before a distribution include in the purchase price the amount of the distribution, which will be returned to the investor in the form of a taxable dividend or capital gain distribution. For Federal income tax purposes, distributions of the Fund's net taxable income will be taxable to shareholders as ordinary income whether they are invested in additional shares or received in cash. Distributions of any net capital gains designated by the Fund as capital gain dividends will be taxable as long-term capital gain, regardless of how long a shareholder has held the shares and whether they are invested in additional shares or received in cash. Each year the Trust will notify shareholders of the tax status of dividends and distributions. The Fund generally will be required to withhold at a rate of 31% ("backup withholding") of all dividends, capital gain distributions and redemption proceeds paid to shareholders if (i) the payee fails to furnish and to certify the payee's correct taxpayer identification number or social security number, (ii) the IRS notifies the Fund that the payee has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect or (iii) when required to do so, the payee fails to certify that he is not subject to backup withholding. Depending on the residence of the shareholder for tax purposes, distributions may also be subject to state and local taxes, including withholding taxes. Shareholders should consult their own tax advisors as to the tax consequences of ownership of shares of the Fund in their particular circumstances. OTHER INFORMATION CAPITALIZATION AND VOTING The Trust was originally organized as a Maryland corporation on July 30, 1969 and on January 9, 1996 was reorganized as a Delaware business trust. The Trust was formerly known as "Schroder Capital Funds, Inc." The Trust has authority to issue an unlimited number of shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares (such as Investor Shares), and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and nine classes of shares. The Fund currently consists of two classes of shares. Shares are fully paid and non-assessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. Shares have no pre-emptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held) standing in his name on the books of the Trust. On matters requiring shareholder approval, shareholders of the Trust are entitled to vote only with respect to matters that affect the interest of the Fund or class of shares they hold, except as otherwise required by applicable law. There will normally be no meetings of shareholders to elect Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders. However, the holders of not less than a majority of the outstanding shares of the Trust may remove any person serving as a Trustee and the Board will call a special meeting of shareholders to consider removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Each share of the Fund has equal voting rights, except that if a matter affects only the shareholders of a particular class only shareholders of that class shall have a right to vote. As of April 30, 1996, Schroder Nominees Limited may be deemed to control the Fund for purposes of the Act. From time to time, certain shareholders may own a large percentage of the shares of a Fund. Accordingly, those shareholders may be able to greatly affect (if not determine) the outcome of a shareholder vote. REPORTS The Trust sends to each shareholder of the Fund a semi-annual report and an audited annual report. PERFORMANCE INFORMATION The Fund may, from time to time include quotations of its total return in advertisements or reports to shareholders or prospective investors. Total return is calculated separately for each class of the Fund. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a class of shares over a period of 1, 5 and 10 years. Total return quotations assume that all dividends and distributions are reinvested when paid. Performance information for the Fund may be compared to various unmanaged securities indices, groups of mutual funds tracked by mutual fund ratings services, or other general economic indicators. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses. Performance information for the Fund represents only past performance and does not necessarily indicate future results. Performance information should be considered in light of the Fund's investment objective and policies, characteristics and quality of the Fund's investments, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future. For a description of the methods used to determine total return for the Fund, see the SAI. CUSTODIAN AND TRANSFER AGENT The Chase Manhattan Bank, N.A. is Custodian of the Fund's assets. Forum Financial Corp. serves as the Fund's Transfer and Dividend Disbursing Agent. SHAREHOLDER INQUIRIES Inquiries about the Fund, including the Fund's past performance, should be directed to: Schroder U.S. Equity Fund P.O. Box 446 Portland, Maine 04112 Information about specific shareholder accounts may be obtained from the Transfer Agent by calling (800) 344-8332. CERTAIN SERVICE ORGANIZATIONS The Glass-Steagall Act and other applicable laws and regulations provide that banks may not engage in the business of underwriting, selling or distributing securities. There is currently no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either Federal or state regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank Service Organization from continuing to perform all or part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. INVESTMENT ADVISER Schroder Capital Management International Inc. 787 Seventh Avenue New York, New York 10019 ADMINISTRATOR & DISTRIBUTOR Schroder Fund Advisors Inc. 787 Seventh Avenue New York, New York 10019 SUB-ADMINISTRATOR Forum Financial Services, Inc. Two Portland Square Portland, Maine 04101 CUSTODIAN The Chase Manhattan Bank, N.A. Chase MetroTech Center Brooklyn, New York 11245 TRANSFER AND DIVIDEND DISBURSING AGENT Forum Financial Corp. P.O. Box 446 Portland, Maine 04112 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. One Post Office Square Boston, Massachusetts 02109 Table of Contents PROSPECTUS SUMMARY The Fund Investment Adviser ... Administrative Services Purchases and Redemptions Risk Considerations Fee Table FINANCIAL HIGHLIGHTS INVESTMENT OBJECTIVE AND POLICIES Investment Objective Investment Policies ADDITIONAL INVESTMENT POLICIES RISK CONSIDERATIONS Investment Restrictions Investment Types MANAGEMENT Board of Trustees Investment Adviser and Portfolio Manager Administrative Services Shareholder Services Plan Portfolio Transactions Code of Ethics INVESTMENT IN THE FUND Purchase of Shares Retirement Plans Individual Retirement Accounts Redemption of Shares Net Asset Value DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund OTHER INFORMATION Capitalization and Voting Reports Performance Information Custodian and Transfer Agent Shareholder Inquires Certain Servicing Organizations
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INTERNATIONAL EQUITY FUND TWO PORTLAND SQUARE PORTLAND, MAINE 04101 ______________________________________________________________________________ GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 ______________________________________________________________________________ SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - ADMINISTRATOR AND DISTRIBUTOR STATEMENT OF ADDITIONAL INFORMATION Schroeder International Fund (the "Fund") is a diversified, separately-managed portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund's investment objective is capital appreciation through investment in securities markets outside the United States. All international investments involve special risks in addition to those risks associated with investments in general, and there can be no assurance that the Fund's objective will be achieved. The Fund currently seeks to achieve its investment objective by holding, as its only investment securities, the securities of International Equity Fund (the "Portfolio"), a separate portfolio of a registered open-end management investment company ("Core Trust"). Investor Shares of the Fund are offered for sale at net asset value with no sales charge as an investment vehicle for individuals, institutions, corporations and fiduciaries. Advisor Shares of the Fund are offered to individual investors, in most cases through Service Organizations (as defined herein). Advisor Shares incur more expenses than Institutional Shares. This Statement of Additional Information ("SAI") is not a prospectus and is only authorized for distribution when preceded or accompanied by the Prospectus for the Fund dated May 16, 1996 (the "Prospectus"). This SAI contains additional and more detailed information than that set forth in the Prospectus and should be read in conjunction with the Prospectus. The Prospectus and SAI for the Fund may be obtained without charge by writing or calling the Fund at the address and information numbers printed above. May 16, 1996
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TABLE OF CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . 3 Depository Receipts. . . . . . . . . . . . . . . . . . . . . . . . . 3 Use of Forward Contracts in Foreign Exchange Transactions. . . . . . . . . . . . . . . . . . . . . . . 4 U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . 4 Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Short-Term Debt Securities . . . . . . . . . . . . . . . . . . . . . 4 Repurchase Agreements. . . . . . . . . . . . . . . . . . . . . . . . 5 INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . 5 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Officers and Trustees. . . . . . . . . . . . . . . . . . . . . . . . 6 Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . 8 Administrative Services. . . . . . . . . . . . . . . . . . . . . . . 9 Distribution of Fund Shares. . . . . . . . . . . . . . . . . . . . .10 Service Organizations. . . . . . . . . . . . . . . . . . . . . . . .11 Portfolio Accounting . . . . . . . . . . . . . . . . . . . . . . . .12 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .12 PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . Investment Decisions . . . . . . . . . . . . . . . . . . . . . . . .13 Brokerage and Research Services. . . . . . . . . . . . . . . . . . .13 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Redemption in Kind . . . . . . . . . . . . . . . . . . . . . . . . .15 TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Capitalization and Voting. . . . . . . . . . . . . . . . . . . . . .17 Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . .18 Custody of Fund Assets . . . . . . . . . . . . . . . . . . . . . . .19 Transfer Agent and Dividend Disbursing Agent . . . . . . . . . . . .19 Performance Information. . . . . . . . . . . . . . . . . . . . . . .19 Independent Accountants. . . . . . . . . . . . . . . . . . . . . . .20 Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Registration Statement . . . . . . . . . . . . . . . . . . . . . . .20 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .20
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INTRODUCTION The Fund was originally organized in 1985 as a separate portfolio of Fund Source ("Fund Source"), a Massachusetts business trust. Pursuant to a reorganization (the "Reorganization") which became effective August 1, 1989, all the assets and liabilities of such portfolio were transferred to the Trust in exchange for shares of common stock of the Trust classified as the "International Equity Fund." Such shares were distributed to the former shareholders of such portfolio of Fund Source and it thereby became a portfolio of the Trust. References in this SAI to the Fund with respect to periods prior to the effective date of the Reorganization mean as it was constituted as a portfolio of Fund Source. INVESTMENT POLICIES INTRODUCTION The following information supplements the discussion found under "Investment Objectives" and "Investment Policies" in the Prospectus. The Fund currently seeks to achieve its investment objective by investing all of its investment assets in the Portfolio, which has the same investment objective and policies. As the Fund has the same investment policies as the Portfolio and currently invests all of its assets in the Portfolio, investment policies are discussed with respect to the Portfolio only. The Portfolio will normally invest at least 65% of its total assets in equity securities of companies domiciled outside the United States, including common and preferred stock, convertible securities, depository receipts, and warrants or rights to purchase such equity securities. Investments also may be made in debt obligations of foreign governments, corporations and international or supranational organizations (and their agencies or instrumentalities). For temporary defensive purposes, to accumulate cash for investments, or to meet anticipated redemptions, the Portfolio may invest in (or enter into repurchase agreements with banks and broker dealers with respect to) short-term debt securities, including Treasury bills and other U.S. Government securities, and certificates of deposit and bankers' acceptances of U.S. banks. The Portfolio may also hold cash and time deposits in foreign banks, denominated in any major foreign currency. In anticipation of foreign exchange requirements and to avoid losses due to adverse movements in foreign currency exchange rates, the Portfolio also may enter into forward contracts to purchase and sell foreign currencies. FOREIGN SECURITIES Investment in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of U.S. issuers. There may be less publicly available information about foreign issuers than is available for U.S. issuers, and foreign auditing, accounting and financial reporting practices may differ from U.S. practices. Foreign securities markets may be less active than U.S. markets, trading may be thin and consequently securities prices may be more volatile. The Portfolio's investment adviser, Schroder Capital Management International, Inc. ("SCMI" or "Adviser") will, in general, invest only in securities of companies and governments of countries which, in its judgment, are both politically and economically stable. Nevertheless, all foreign investments are subject to risks of foreign political and economic instability, adverse movements in foreign exchange rates, the imposition or tightening of exchange controls or other limitations on the repatriation of foreign capital and changes in foreign governmental attitudes toward private investment, possibly leading to nationalization, increased taxation, or confiscation of Portfolio assets. DEPOSITORY RECEIPTS Investments in securities of foreign issuers may on occasion be in the form of sponsored or unsponsored American Depository Receipts ("ADRs") or European Depository Receipts ("EDRs"), or other similar securities convertible into securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are receipts typically issued in the United States by a bank or trust company, evidencing ownership of the underlying securities. EDRs are typically issued in Europe under a
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similar arrangement. Generally, ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. Unsponsored ADRs may be created without the participation of the foreign issuer. Holders of these ADRs generally bear all the costs of the ADR facility, whereas foreign issuers typically bear certain costs in a sponsored ADR. The bank or trust company depository of an unsponsored ADR may be under no obligation to distribute shareholder communications received from the foreign issuer or to pass through voting rights. USE OF FORWARD CONTRACTS IN FOREIGN EXCHANGE TRANSACTIONS To protect or "hedge" against adverse movements in foreign currency exchange rates, the Portfolio may invest in forward contracts to purchase or sell an agreed-upon amount of a specified currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Such contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. Although such contracts tend to minimize the risk of loss due to a decline in the value of the currency which is sold, they expose the Portfolio to the risk that the counterparty is unable to perform and they tend to limit commensurately any potential gain which might result should the value of such currency increase during the contract period. U.S. GOVERNMENT SECURITIES The Portfolio may invest in obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities which have remaining maturates not exceeding one year. Agencies and instrumentalities which issue or guarantee debt securities and which have been established or sponsored by the U.S. Government include the Bank for Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage Association, the Government National Mortgage Association and the Student Loan Marketing Association. Except for obligations issued by the U.S. Treasury and the Government National Mortgage Association, none of the obligations of the other agencies or instrumentalities referred to above are backed by the full faith and credit of the U.S. Government. BANK OBLIGATIONS The Portfolio may invest in obligations of U.S. banks (including certificates of deposit and bankers' acceptances) having total assets at the time of purchase in excess of $1 billion. Such banks must be members of the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. The Portfolio also may invest in certificates of deposit issued by foreign banks, denominated in any major foreign currency. The Portfolio will invest in instruments issued by foreign banks which, in the view of SCMI and the Trustees of Core Trust, are of credit-worthiness and financial stature in their respective countries comparable to U.S. banks used by the Portfolio. A certificate of deposit is an interest-bearing negotiable certificate issued by a bank against funds deposited in the bank. A bankers' acceptance is a short- term draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction. Although the borrower is liable for payment of the draft, the bank unconditionally guarantees to pay the draft at its face value on the maturity date. SHORT-TERM DEBT SECURITIES The Portfolio may invest in commercial paper, that is short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. The commercial paper purchased by the Portfolio for temporary defensive purposes consists of direct obligations of domestic issuers which, at the time of investment, are rated "P-1" by Moody's Investors Service, Inc. ("Moody's") or "A-1" by Standard & Poor's Corporation ("S&P"), or securities which, if not rated, are issued by companies having an outstanding debt issue currently rated
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Aa by Moody's or AAA or AA by S&P. The rating "P-1" is the highest commercial paper rating assigned by Moody's and the rating "A-1" is the highest commercial paper ratings assigned by S&P. REPURCHASE AGREEMENTS The Portfolio may invest in securities subject to repurchase agreements with U.S. banks or broker-dealers maturing in seven days or less. In a typical repurchase agreement the seller of a security commits itself at the time of the sale to repurchase that security from the buyer at a mutually agreed-upon time and price. The repurchase price exceeds the sale price, reflecting an agreed- upon interest rate effective for the period the buyer owns the security subject to repurchase. The agreed-upon rate is unrelated to the interest rate on that security. SCMI will monitor the value of the underlying security at the time the transaction is entered into and at all times during the term of the repurchase agreement to insure that the value of the security always equals or exceeds the repurchase price. In the event of default by the seller under the repurchase agreement, the Portfolio may have difficulties in exercising its rights to the underlying securities and may incur costs and experience time delays in connection with the disposition of such securities. To evaluate potential risks, SCMI reviews the credit-worthiness of those banks and dealers with which the Portfolio enters into repurchase agreements. INVESTMENT RESTRICTIONS The following investment restrictions restate or are in addition to those described under "Investment Restrictions" and "Investment Policies" in the Prospectus. Under the following restrictions, which, unless otherwise indicated (see in particular the discussion below regarding restriction c(i)), may not be changed without the approval of the holders of a majority of the Portfolio's outstanding shares, the Portfolio will not: (a) 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. (b) Purchase more than 10% of the voting securities of any one issuer. Moreover, the Portfolio will not 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 the 1940 Act.) (c) The Portfolio will not invest more than 10% of its assets in "illiquid securities", which are 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, (i) "restricted securities", which are securities that cannot be resold to the public without registration under the Federal securities laws, and (ii) securities of issuers having a record (together with all predecessors) of less than three years of continuous operation. (d) Invest 25% or more of the value of its total assets in any one industry. (e) 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 Portfolio. (f) Pledge, mortgage or hypothecate its assets to an extent greater than 10% of the value of the total assets of the Portfolio. (g) Purchase securities on margin or sell short. (h) Make investments for the purpose of exercising control or management. (i) Purchase or sell real estate, provided that the Portfolio may invest in securities issued by companies which invest in real estate or interests therein.
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(j) 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. (k) Invest in commodities; commodity contracts other than foreign currency forward contracts; or oil, gas and other mineral resource, lease, or arbitrage transactions. (l) Write, purchase or sell options or puts, calls, straddles, spreads, or combinations thereof. (m) 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. (n) Invest in warrants, valued at the lower of cost or market, more than 5% of the value of the Portfolio's net assets (included within that amount, but not to exceed 2% of the value of the Portfolio's net assets, may be warrants which 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.). (o) As a non-fundamental policy, invest in or hold securities of any issuer if officers or Trustees of the Company or SCMI individually owning more than 0.5% of the securities of such issuer together own more than 5% of the securities of such issuer; As a non-fundamental policy, the Portfolio 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 Core Trust Board. 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. MANAGEMENT OFFICERS AND TRUSTEES The following information relates to the principal occupations of each Trustee and executive officer of the Trust during the past five years and shows the nature of any affiliation with SCMI. Each of these individuals currently serves in the same capacity for Core Trust. PETER E. GUERNSEY, Oyster Bay, New York - a Trustee of the Trust - Insurance Consultant since August 1986; prior thereto Senior Vice President, Marsh & McLennan, Inc., insurance brokers. RALPH E. HANSMANN, 40 Wall Street, New York, New York - a Trustee of the Trust - Private investor; Director, First Eagle Fund of America, Inc.; Director, Verde Exploration, Ltd.; Trustee Emeritus, Institute for Advanced Study; Trustee and Treasurer, New York Public Library; Life Trustee, Hamilton College. JOHN I. HOWELL, 7 Riverside Road, Greenwich, Connecticut - a Trustee of the Trust - Private Consultant since February 1987; Director, American International Group, Inc.; Director, American International Life Assurance Company of New York. LAURA E. LUCKYN-MALONE(a) (b) (c), 787 Seventh Avenue, New York, New York - President and a Trustee of the Trust - Managing Director of SCMI since October 1995; Director of SWIS since July 1995; prior thereto, Director and Senior Vice President of SCMI since February 1990; Director and President, Schroder Advisors. CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - a Trustee of the Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation (charitable foundation).
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HERMANN C. SCHWAB, 787 Seventh Avenue, New York, New York - Chairman (Honorary) and a Trustee of the Trust - retired since March, 1988; prior thereto, consultant to SCMI since February 1, 1984. MARK J. SMITH(a) (b), 33 Gutter Lane, London, England - a Vice President and a Trustee of the Trust - First Vice President of SCMI since April 1990; Director and Vice President, Schroder Advisors. ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a Vice-President of the Trust - Director of SCMI and Schroder Capital Management International Ltd. since 1994; First Vice President of SCMI since July, 1992; prior thereto, employed by various affiliates of Schroders plc in various positions in the investment research and portfolio management areas since 1986. RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a Vice President of the Trust; Deputy Chairman of SCMI since October 1995; Director of SCMI since 1979, Director of Schroder Capital Management International Ltd. since 1989, and Executive Vice President of both of these entities. JOHN Y. KEFFER, 2 Portland Square, Portland, Maine - a Vice President of the Trust. President of Forum Financial Services, Inc., the Fund's sub- administrator, and Forum Financial Corp., the Fund's transfer and dividend disbursing agent and fund accountant. JANE P. LUCAS, (c) 787 Seventh Avenue, New York, New York - Vice President of the Trust - Director and Senior Vice President SCMI; Director of SWIS since September 1995; Assistant Director Schroder Investment Management Ltd. since June 1991. CATHERINE A. MAZZA, 787 Seventh Avenue, New York, New York - a Vice President of the Trust - Senior Vice President Schroder Advisors since December 1995; Vice President of SCMI since October 1994; prior thereto, held various marketing positions at Alliance Capital, an investment adviser, since July 1985. FARIBA TALEBI, 787 Seventh Avenue, New York, New York - a Vice President of the Trust - First Vice President of SCMI since April 1993, employed in various positions in the investment research and portfolio management areas since 1987. JOHN A. TROIANO(b), 787 Seventh Avenue, New York, New York - a Vice President of the Trust - Managing Director of SCMI since October 1995; Director of Schroder Advisors since October 1992, Director and Senior Vice President of SCMI since 1991; prior thereto, employed by various affiliates of SCMI in various positions in the investment research and portfolio management areas since 1981. IRA L. UNSCHULD, 787 Seventh Avenue, New York, New York - a Vice President of the Trust - a Vice President of SCMI since April, 1993 and an Associate from July, 1990 to April, 1993; prior to July, 1990, employed by various financial institutions as a securities or financial analyst. ROBERT JACKOWITZ(b) (c), 787 Seventh Avenue, New York, New York - Treasurer of the Trust - Vice President of SWIS since September 1995; Treasurer of SWIS and Schroder Advisers since July 1995; Vice President of SCMI since June 1995; and Assistant Treasurer of Schroders Incorporated since January 1993. MARGARET H. DOUGLAS-HAMILTON(b) (c), 787 Seventh Avenue, New York, New York - Secretary of the Trust - Secretary of SWIS since July 1995; Secretary of Schroder Advisers since April 1990; First Vice President and General Counsel of Schroders Incorporated(b) since May 1987; prior thereto, partner of Sullivan & Worcester, a law firm. DAVID I. GOLDSTEIN, 2 Portland Square, Portland, Maine - Assistant Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. Since 1991; prior thereto, associate at Kirkpatrick & Lockhart, Washington, D.C.
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THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. since 1993; prior thereto, Special Counsel, U.S. Securities and Exchange Commission, Division of Investment Management, Washington, D.C. BARBARA GOTTLIEB(c), 787 Seventh Avenue, New York, New York - Assistant Secretary of the Trust - Assistant Vice President of SWIS since July 1995 prior thereto held various positions with SWIS affiliates. GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant Secretary of the Trust - Associate, SCMI. (a) Interested Trustee of the Trust within the meaning of the 1940 Act. (b) Schroder Fund Advisors, Inc. ("Schroder Advisors") is a wholly-owned subsidiary of SCMI, which is a wholly-owned subsidiary of Schroders Incorporated, which in turn is an indirect, wholly-owned U.S. subsidiary of Schroders plc. (c) Schroder Wertheim Investment Services, Inc. ("SWIS") is a wholly-owned subsidiary of Schroder Wertheim Holdings Incorporated which is a wholly-owned subsidiary of Schroders, Incorporated, which in turn is an indirect wholly-owned U.S. subsidiary of Schroders plc. Officers and Trustees who are interested persons of the Trust receive no salary, fees or compensation from the Fund. Independent Trustees of the Trust receive an annual fee of $1,000 and a fee of $250 for each meeting of the Board attended by them except in the case of Mr. Schwab, who receives an annual fee of $1,500 and a fee of $500 for each meeting attended. The Fund has no bonus, profit sharing, pension or retirement plans. The following table provides the fees paid to each Trustee of the Trust for the fiscal year ended October 31, 1995. [Enlarge/Download Table] Name of Trustee Aggregate Pension or Estimated Annual Total Compensation Retirement Benefits Upon Compensation From Trust Benefits Accrued Retirement From Trust And As Part of Trust Fund Complex Expenses Paid To Trustees --------------------------------------------------------------------------------------- Mr. Guernsey $4,000 $0 $0 $4000 Mr. Hansmann 3,500 0 0 3,500 Mr. Howell 4,000 0 0 4,000 Ms. Luckyn-Malone 0 0 0 0 Mr. Michalis 3,000 0 0 3,000 Mr. Schwab 7,000 0 0 7,000 Mr. Smith 0 0 0 0 As of April 30, 1996 the officers and Trustees of the Trust owned, in the aggregate, less than 1% of the Fund's outstanding shares. Although the Trust is a Delaware business trust, certain of its Trustees or officers are residents of the United Kingdom and substantially all of their assets may be located outside of the U.S. As a result it may be difficult for U.S. investors to effect service upon such persons within the U.S., or to realize judgments of courts of the U.S. predicated upon civil liabilities of such persons under the Federal securities laws of the U.S. The Trust has been advised that there is substantial doubt as to the enforceability in the United Kingdom of such civil remedies and criminal penalties as are afforded by the Federal securities laws of the U.S. Also it is unclear if extradition treaties now in effect between the U.S. and the United Kingdom would subject such persons to effective enforcement of the criminal penalties of such acts.
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INVESTMENT ADVISER SCMI, 787 Seventh Avenue, New York, New York, 10019, serves as Adviser to the Portfolio pursuant to an Investment Advisory Contract dated August 1, 1989. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly- owned U.S. holding company subsidiary of Schroders plc. Schroders plc is the holding company parent of a large worldwide group of banks and financial service companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in seventeen countries worldwide. The Schroder Group specializes in providing investment management services, with Group funds under management currently in excess of $100 billion. Pursuant to the Investment Advisory Contract, SCMI is responsible for managing the investment and reinvestment of the assets included in the Fund and for continuously reviewing, supervising and administering the Fund's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Fund's investments and to place purchase and sale orders regarding such investments with brokers or dealers selected by it in its discretion. SCMI also furnishes to the Board of Trustees, which has overall responsibility for the business and affairs of the Trust, periodic reports on the investment performance of the Fund. Under the terms of the Investment Advisory Contract, SCMI is required to manage the Fund's investment portfolio in accordance with applicable laws and regulations. In making its investment decisions, SCMI does not use material information that may be in its possession or in the possession of its affiliates. The Investment Advisory Contract will continue in effect provided such continuance is approved annually (i) by the holders of a majority of the outstanding voting securities of the Fund or by the Board and (ii) by a majority of the Trustees who are not parties to such Contract or "interested persons" (as defined in the 1940 Act) of any such party. The Investment Advisory Contract may be terminated without penalty by vote of the Trustees or the shareholders of the Fund on 60 days' written notice to the Adviser, or by the Adviser on 60 days' written notice to the Trust and it will terminate automatically if assigned. The Investment Advisory Contract also provides that, with respect to the Fund, neither SCMI nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the performance of its or their duties to the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of the SCMI's or their duties or by reason of reckless disregard of its or their obligations and duties under the Investment Advisory Contract. For its services, the Fund pays SCMI a fee of 0.45% of its average daily net assets for the first $100 million of the Fund's net assets, 0.40% of the next $150 million of average daily assets, and 0.35% of the Fund's average daily net assets in excess of $250 million. For the fiscal years ended October 31, 1993, 1994 and 1995, SCMI received advisory fees of $990,419, $1,665,176 and $893,082, respectively. The Fund currently invests all of its assets in the Portfolio. SCMI will not receive an investment advisory fee with respect to the Fund so long as the Fund remains completely invested in the Portfolio or any other investment company. The Fund may withdraw its investment from the Portfolio at any time if the Board determines that it is in the best interests of the Fund and its shareholders to do so. Accordingly, the Fund retains SCMI as its investment adviser to manage the Fund's assets in the event the Fund so withdraws its investment. The investment advisory contract between Core Trust and SCMI with respect to the Portfolio is the same in all material respects as the Fund's Investment Advisory Contract except as to the parties, the circumstances under which fees will be paid, the jurisdiction whose laws govern the agreement and fees payable thereunder. For its investment advisory services under the Investment Advisory Contract with respect to the Portfolio, SCMI receives an advisory fee of 0.45% of the Portfolio's average daily net assets. ADMINISTRATIVE SERVICES On behalf of the Fund, the Trust has entered into an Administrative Services Contract with Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh Avenue, New York, New York 10019. The Trust and Schroder Advisors have entered into a Sub-Administration Agreement with Forum Financial Services, Inc. ("Forum"). Pursuant to their agreements, Schroder Advisors and Forum provide certain management and administrative services necessary for the
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Fund's operations, other than the investment management and administrative services provided to the Fund by SCMI pursuant to the Investment Advisory Contract, including among other things, (i) preparation of shareholder reports and communications, (ii) regulatory compliance, such as reports to and filings with the Securities and Exchange Commission and state securities commissions, and (iii) general supervision of the operation of the Fund, including coordination of the services performed by the Fund's investment adviser, transfer agent, custodian, independent accountants, legal counsel and others. 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. Effective July 5, 1995, Schroder Advisors changed its name from Schroder Capital Distributors Inc. For these services, Schroder Advisors receives from the Fund a fee, payable monthly, at the annual rate of 0.20% of the Fund's average daily net assets. For the fiscal years ended October 31, 1993, 1994 and 1995, Schroder Advisors received administrative fees of $495,210, $832,588 and $446,541, respectively. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. The Administrative Services Contract and Sub-Administration Agreement are terminable with respect to the Fund without penalty, at any time, by vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Fund's Distribution Plan or in the Administrative Services Contract or Sub- Administration Agreement, upon not more than 60 days' written notice to Schroder Advisors or Forum, as appropriate, or by vote of the holders of a majority of the shares of the Fund, or, upon 60 days' notice, by Schroder Advisors or Forum. The Administrative Services Contract will terminate automatically in the event of its assignment. The Sub-Administration Agreement is terminable with respect to the Fund without penalty, at any time, by the Board, Schroder Advisors and the Adviser upon 60 days' written notice to Forum or by Forum upon 60 days' written notice to the Fund and Schroder Advisors, and the Adviser, as appropriate. Schroder Advisors and Forum provide similar services to the Portfolio pursuant to administrative services agreements between Core Trust and each of these entities, for which Schroder Advisors is separately compensated at an annual rate of 0.15% of the average daily net assets of the Portfolio, a portion of which Forum receives for its services with respect to the Portfolio. The fees paid by the Fund to SCMI and Schroder Advisors therefore may equal up to 0.80% of the Fund's average daily net assets. The administrative services agreements are the same in all material respects as the Fund's respective agreements except as to the parties, the circumstances under which fees will be paid, the fees payable thereunder and the jurisdiction whose laws govern the agreement. DISTRIBUTION OF FUND SHARES Under a Distribution Plan (the "Plan") adopted by the Fund, the Trust will pay directly or will reimburse the Adviser or a broker-dealer registered under the Securities Exchange Act of 1934 (the Adviser or such registered broker-dealer, if so designated, to be a "Distributor" of the Fund shares) monthly (subject to a limit of 0.50% per annum of the Fund's average daily net assets) for the sum of (a) advertising expenses including advertising by radio, television, newspapers, magazines, brochures, sales literature or direct mail, (b) costs of printing prospectuses and other materials to be given or sent to prospective investors, (c) expenses of sales employees or agents of the Distributor, including salary, commissions, travel and related expenses in connection with the distribution of Fund shares, and (d) payments to broker-dealers (other than the Distributor) or other organizations (other than banks) for services rendered in the distribution of the Fund's shares, including payments in amounts based on the average daily value of Fund shares owned by shareholders in respect of which the broker-dealer or organization has a distributing relationship. Until the Board specifically further so authorizes, the Fund will make no payments under the Plan with respect to the Fund's Investor Shares class, and will make no payment in excess of 0.25% in excess of the Fund's average daily net assets attributable to Advisor Shares with respect to the Advisor Shares class. The Fund will not be liable for distribution expenditures made by the Distributor in any given year in excess of the maximum amount (0.50% per annum of the Fund's average daily net assets) payable under the Plan in that year. Salary expense of salesmen who are responsible for marketing shares of the Fund may be allocated to various portfolios of the Trust that have adopted a Plan similar to that of the Fund on the basis of average net assets; travel expense is allocated to, or divided among, the particular portfolios of the Trust for which it is incurred. The Board of Trustees has concluded that there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders.
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The Plan provides that it may not be amended to increase materially the costs which the Fund may bear pursuant to the Plan without shareholder approval and that other material amendments of the Plan must be approved by the Board, and by the Trustees who are neither "interested persons" (as defined in the 1940 Act) of the Trust nor have any direct or indirect financial interest in the operation of the Plan or in any related agreement, by vote cast in person at a meeting called for the purpose of considering such amendments. The selection and nomination of the Trustees of the Trust has been committed to the discretion of the Trustees who are not "interested persons" of the Trust. The Plan has been approved, and is subject to annual approval, by the Board and by the Trustees who are neither "interested persons" nor have any direct or indirect financial interest in the operation of the Plan, by vote cast in person at a meeting called for the purpose of voting on the Plan. The Fund has no intention of implementing the Distribution Plan with respect to institutional investors, and in any event will make no payments under the Distribution Plan until the Board specifically further so authorizes. The Plan is terminable with respect to the Fund at any time by a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or by vote of the holders of a majority of the shares of the Fund. Schroder Advisors acts as Distributor of the Fund's shares. During the fiscal year ended October 31, 1995, the Fund spent, respectively, pursuant to the Plan, the following amounts on: Year Ended 10/31/95 -------- advertising $-0- printing and mailing of prospectuses to other than current shareholders $-0- compensation to underwriters $-0- compensation to dealers $-0- compensation to sales personnel $-0- interest, carrying or other financing charge $-0- SERVICE ORGANIZATIONS The Fund may also contracts with banks, trust companies, broker-dealers or other financial organizations ("Service Organizations") to provide certain administrative services for the Fund. The Fund may pay fees to Service Organizations (which vary depending upon the services provided) in amounts up to an annual rate of 0.25% of the daily net asset value of the Fund's shares owned by shareholders with whom the Service Organization has a servicing relationship. Services provided by Service Organization may include, among other things: providing necessary personnel and facilities to establish and maintain certain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with client orders to purchase or redeem shares; verifying and guaranteeing client signatures in connection with redemption orders, transfers among and changes in client-designated accounts; providing periodic statements showing a client's account balances and, to the extent practicable, integrating such information with other client transactions; furnishing periodic and annual statements and confirmations of all purchases and redemption's of shares in a client's account; transmitting proxy statements, annual reports, and updating prospectuses and other communications from the Fund to clients; and such other services as the Fund or a client reasonably may request, to the extent permitted by applicable statute, rule or regulation. Neither SCMI nor
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Schroder Advisors will be a Service Organization or receive fees for servicing. The Fund will make no such payments to service organizations with respect to the Investor Shares class until the Board specifically further so authorizes. Some Service Organizations may impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum initial or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by the Fund. Each Service Organization has agreed to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations are urged to consult them regarding any such fees or conditions. The Glass-Steagall Act and other applicable laws provide that banks may not engage in the business of underwriting, selling or distributing securities. There currently is no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either federal or state statutes or regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank service organization from continuing to perform all or a part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. In that event, changes in the operation of the Fund might occur and a shareholder serviced by such a bank might no longer be able to avail itself of any services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. PORTFOLIO ACCOUNTING Forum Financial Corp. ("FFC"), an affiliate of Forum, performs portfolio accounting services for the Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund Accounting Agreement will continue in effect only if such continuance is specifically approved at least annually by the Board of Trustees or by a vote of the shareholders of the Trust and in either case by a majority of the Trustees who are not parties to the Fund Accounting Agreement or interested persons of any such party, at a meeting called for the purpose of voting on the Fund Accounting Agreement. Under its agreement, FFC prepares and maintains books and records of the Fund on behalf of the Trust that are required to be maintained under the 1940 Act, calculates the net asset value per share of the Fund and dividends and capital gain distributions and prepares periodic reports to shareholders and the Securities and Exchange Commission. For its services, FFC receives from the Trust with respect to the Fund a fee of $36,000 per year plus, for each class of the Fund above one, $12,000 per year. FFC is paid an additional $24,000 per year with respect to global and international funds. In addition, FFC is paid an additional $12,000 per year with respect to tax-free money market funds and funds with more than 25% of their total assets invested in asset backed securities, that have more than 100 security positions or that have a monthly portfolio turnover rate of 10% or greater. FFC is required to use its best judgment and efforts in rendering fund accounting services and is not be liable to the Trust for any action or inaction in the absence of bad faith, willful misconduct or gross negligence. FFC is not responsible or liable for any failure or delay in performance of its fund accounting obligations arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control and the Trust has agreed to indemnify and hold harmless FFC, its employees, agents, officers and directors against and from any and all claims, demands, actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising out of or in any way related to FFC's actions taken or failures to act with respect to a Fund or based, if applicable, upon information, instructions or requests with respect to a Fund given or made to FFC by an officer of the Trust duly authorized. This indemnification does not apply to FFC's actions taken or failures to act in cases of FFC's own bad faith, willful misconduct or gross negligence. FFC assumed responsibility for fund accounting on August 15, 1994. Previously, these services were performed by SCMI. For the fiscal years ended October 31, 1994 and October 31, 1995, the Fund paid fund accounting fees of $114,325 and $72,000, respectively. FEES AND EXPENSES
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As compensation for the advisory, administrative and management services rendered to the Fund, SCMI and Schroder Advisors each earn (before waivers) monthly fees at the following annual rates: Fee Rate Portion of average daily value Advisory Administrative of the Fund's net assets Fee Fee ------------------------ --- --- 100% 0.45% 0.35% SCMI and Schroder Advisors have voluntarily undertaken to assume certain expenses of the Fund. This undertaking is designed to place a maximum limit on Fund expenses (including all fees to be paid to SCMI and Schroder Advisors but excluding taxes, interest, brokerage commissions and other portfolio transaction expenses and extraordinary expenses) of 0.99% of the Fund's daily net assets attributable to Investor Shares and 1.49% of the Fund's average daily net assets attributable to Advisor Shares. This expense limitation will apply for the Fund's first year of operations, and may be withdrawn by a majority vote of the disinterested Trustees. If expense reimbursements are required, they will be made on a monthly basis. SCMI will reimburse the Fund for four-fifths of the amount required and Schroder Advisors, the remaining one-fifth; provided, however, that neither SCMI nor Schroder Advisors nor will be required to make any reimbursements in excess of the fees paid to them by the Fund on a monthly basis for their respective administrative and advisory services. This undertaking to reimburse expenses supplements any applicable state expense limitation. For the fiscal year ended October 31, 1995, the Fund's expenses were 0.91% of its average net assets. During the early part of fiscal year 1995 there was a significant redemption from the Fund by an institutional Investor that invested the proceeds thereof into other funds advised by SCMI, which increased the Fund's expense ratio. Absent expenses reimbursements and fee waivers, Management Fees, Other Expenses and Total Operating Expenses for the fiscal year ended October 31, 1995 would be 0.80%, 0.30%, and 1.10%, respectively. Certain of the states in which the shares of the Fund are qualified for sale impose limitations on the expenses of the Fund. If, in any fiscal year, the total expenses of the Fund (excluding taxes, interest, expenses under the Plan, brokerage commissions and other portfolio transaction expenses, other expenditures which are capitalized in accordance with generally accepted accounting principles and extraordinary expenses, but including the advisory and administrative fees) exceed the expense limitations applicable to the Fund imposed by the securities regulations of any state, SCMI will reimburse the Fund for four-fifths of the excess, and Schroder Advisors, the remaining one-fifth of the excess. For the years ended October 31, 1993, 1994, and 1995, no payments pursuant to these limitations were required. The Fund bears all costs of its operations other than expenses specifically assumed by Schroder Advisors or SCMI, including those expenses it indirectly bears through its investment in the Portfolio. The costs borne by the Fund include legal and accounting expenses; Trustees' fees and expenses; insurance premiums; custodian and transfer agent fees and expenses; brokerage fees and expenses; expenses of registering and qualifying the Fund's shares for sale with the SEC and with various state securities commissions; expenses of obtaining quotations on portfolio securities and pricing of the Fund's shares; a portion of the expenses of maintaining the Fund's legal existence and of shareholders' meetings; and expenses of preparation and distribution to existing shareholders of reports, proxies and prospectuses. See "Management" in the SAI. Trust expenses directly attributed to the Fund are charged to the Fund; other expenses are allocated proportionately among all the portfolios of the Trust in relation to the net assets of each portfolio. See "Management -- Fees and Expenses" in the SAI. PORTFOLIO TRANSACTIONS INVESTMENT DECISIONS Investment decisions for the Fund and for the other investment advisory clients of SCMI are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as is possible, averaged as to price and allocated between such clients in a manner which in SCMI's opinion is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. BROKERAGE AND RESEARCH SERVICES
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Transactions on U.S. stock exchanges and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign securities generally involve the payment of fixed brokerage commissions, which are generally higher than those in the United States. Since most brokerage transactions for the Fund will be placed with foreign broker-dealers, certain portfolio transaction costs for the Fund may be higher than fees for similar transactions executed on U.S. securities exchanges. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. For the years ended October 31, 1993, 1994, and 1995, the Fund paid a total of $506,672, $653,234 and $584,429, respectively, in brokerage commissions. The Investment Advisory Contract authorizes and directs SCMI to place orders for the purchase and sale of the Fund's investments with brokers or dealers selected by SCMI in its discretion and to seek "best execution" of such portfolio transactions. SCMI places all such orders for the purchase and sale of portfolio securities and buys and sells securities for the Fund through a substantial number of brokers and dealers. In so doing, SCMI uses its best efforts to obtain for the Fund the most favorable price and execution available. The Fund may, however, pay higher than the lowest available commission rates when SCMI believes it is reasonable to do so in light of the value of the brokerage and research services provided by the broker effecting the transaction. In seeking the most favorable price and execution, SCMI, having in mind the Fund's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealers involved and the quality of service rendered by the broker-dealers in other transactions. It has for many years been a common practice in the investment advisory business as conducted in certain countries, including the United States, for advisers of investment companies and other institutional investors to receive research services from broker-dealers which execute portfolio transactions for the clients of such advisers. Consistent with this practice, SCMI may receive research services from broker-dealers with which SCMI places the Fund's portfolio transactions. These services, which in some cases may also be purchased for cash, include such items as general economic and security market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities. Some of these services are of value to SCMI in advising various of its clients (including the Fund), although not all of these services are necessarily useful and of value in managing the Fund. The management fee paid by the Fund is not reduced because SCMI and its affiliates receive such services. As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the "Act"), SCMI may cause the Fund to pay a broker-dealer which provides "brokerage and research services" (as defined in the Act) to SCMI an amount of disclosed commission for effecting a securities transaction for the Fund in excess of the commission which another broker-dealer would have charged for effecting that transaction. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, SCMI may consider sales of shares of the Fund as a factor in the selection of broker- dealers to execute portfolio transactions for the Fund. Subject to the general policies regarding allocation of portfolio brokerage as set forth above, the Board of Trustees of the Trust has authorized SCMI to employ Schroder Securities Limited and its affiliates (collectively, "Schroder Securities"), which are affiliated with SCMI, to effect securities transactions of the Fund on various foreign securities exchanges on which Schroder Securities has trading privileges, provided certain other conditions are satisfied as described below. Payment of brokerage commissions to Schroder Securities for effecting such transactions is subject to Section 17(e) of the 1940 Act, which requires, among other things, that commissions for transactions on securities exchanges paid by a registered investment company to a broker which is an affiliated person of such investment company or an
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affiliated person of another person so affiliated not exceed the usual and customary broker's commissions for such transactions. It is the Fund's policy that commissions paid to Schroder Securities will in the judgment of the officers of SCMI responsible for making portfolio decisions and selecting brokers, be (i) at least as favorable as commissions contemporaneously charged by Schroder Securities on comparable transactions for its most favored unaffiliated customers and (ii) at least as favorable as those which would be charged on comparable transactions by other qualified brokers having comparable execution capability. The Board of Trustees of the Trust, including a majority of the non-interested Trustees, has adopted procedures pursuant to Rule 17e-1 promulgated by the Securities and Exchange Commission under Section 17(e) to ensure that commissions paid to Schroder Securities by the Fund satisfy the foregoing standards. The Board will review all transactions at least quarterly for compliance with these procedures. The Fund has no understanding or arrangement to direct any specific portion of its brokerage to Schroder Securities and will not direct brokerage to Schroder Securities in recognition of research services. The Fund paid no commissions to Schroder Securities in any of the Fund's fiscal years ended October 31, 1993, or 1994. For the fiscal year ended October 31, 1995, the Fund paid $1,829 in brokerage commissions to Schroder, Munchmeyer, Hengst & Co., an affiliate of Schroder Securities Limited, representing 0.003% of the Fund's aggregate brokerage commissions and 0.005% of the Fund's aggregate dollar amount of transactions involving the payment of commissions. The annual portfolio turnover rate of the Fund may exceed 50% but will not ordinarily exceed 100%. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Detailed information pertaining to the purchase of shares of the Fund, redemption of shares and the determination of the net asset value of Fund shares is set forth in the Prospectus under "Investment in the Fund". REDEMPTION IN KIND In the event that payment for redeemed shares is made wholly or partly in portfolio securities, brokerage costs may be incurred by the shareholder in converting the securities to cash. An in kind distribution of portfolio securities will be less liquid than cash. The shareholder may have difficulty in finding a buyer for portfolio securities received in payment for redeemed shares. Portfolio securities may decline in value between the time of receipt by the shareholder and conversion to cash. A redemption in kind of the Fund's portfolio securities could result in a less diversified portfolio of investments for the Fund and could affect adversely the liquidity of the Fund's portfolio. TAXATION The Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated investment company the Fund intends to distribute to shareholders at least 90% of its net investment income (which includes, among other items, dividends, interest and the excess of any net short-term capital gains over net long-term capital losses), and to meet certain diversification of assets, source of income, and other requirements of the Code. By so doing, the Fund will not be subject to Federal income tax on its net investment income and net realized capital gains (the excess of net long-term capital gains over net short-term capital losses) distributed to shareholders. If the Fund does not meet all of these Code requirements, it will be taxed as an ordinary corporation, and its distributions will be taxable to shareholders as ordinary income. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a 4% nondeductible excise tax. To prevent imposition of the excise tax, the Fund must distribute for each calendar year an amount equal to the sum of (1) at least 98% its ordinary income (excluding any capital gains or losses) for the calendar year, (2) at least 98% of the excess of its capital gains over capital losses realized during the one- year period ending October 31, of such year, and (3) all such ordinary income and capital gains for previous years that were not distributed during such years. A distribution will be treated as paid during the calendar year if it is declared by the Fund in October, November or December of the year with a record date in such month and paid by the Fund during January of the following year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
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Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues interest or other receivable or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivable or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition as well as gains or losses from certain foreign currency transactions and options on certain foreign currency transactions, generally are treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of the Fund's net investment income to be distributed to its shareholders as ordinary income. Generally, the hedging transactions undertaken by the Fund may be deemed "straddles" for Federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Fund of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by the Fund which is taxed as ordinary income when distributed to shareholders. The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders and which will be taxed to shareholders as ordinary income or long- term capital gain, may be increased or decreased as compared to a fund that did not engage in such hedging transactions. The requirements applicable to regulated investment companies such as the Fund may limit the extent to which the Fund will be able to engage in transactions in options and forward contracts. Distributions of net investment income (including realized net short-term capital gain) are taxable to shareholders as ordinary income. It is not expected that such distributions will be eligible for the dividends received deduction available to corporations. Distributions of net long-term capital gain are taxable to shareholders as long- term capital gain, regardless of the length of time the Fund shares have been held by a shareholder, and are not eligible for the dividends received deduction. A loss realized by a shareholder on the sale of shares of the Fund with respect to which capital gain dividends have been paid will, to the extent of such capital gain dividends, be treated as long-term capital loss although such shares may have been held by the shareholder for one year or less. Further, a loss realized on a disposition will be disallowed to the extent the shares disposed of are replaced (whether by reinvestment or distributions or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. All distributions are taxable to the shareholder whether reinvested in additional shares or received in cash. Shareholders receiving distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share received equal to the net asset value of a share of the Fund on the reinvestment date. Shareholders will be notified annually as to the Federal tax status of distributions. Distributions by the Fund reduce the net asset value of the Fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution nevertheless would be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implications of buying shares just prior
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to a distribution. The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which will nevertheless be taxable to them. Upon redemption or sale of his shares, a shareholder will realize a taxable gain or loss depending upon his basis in his shares. Such gain or loss generally will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands. Such gain or loss generally will be long-term or short- term depending upon the shareholder's holding period for the shares. The Fund intends to minimize foreign income and withholding taxes by investing in obligations the payments with respect to which will be subject to minimal or no such taxes insofar as this objective is consistent with the Fund's income objective. However, since the Fund may incur foreign taxes, it intends, if it is eligible to do so, to elect under Section 853 of the Code to treat each shareholder as having received an additional distribution from the Fund, in the amount indicated in a notice furnished to him, as his pro rata portion of income taxes paid to or withheld by foreign governments with respect to interest, dividends and gain on the Fund's foreign portfolio investments. The shareholder then may take the amount of such foreign taxes paid or withheld as a credit against his Federal income tax, subject to certain limitations. If the shareholder finds it more to his advantage to do so, he may, in the alternative, deduct the foreign tax withheld as an itemized deduction, in computing his taxable income. Each shareholder is referred to his tax adviser with respect to the availability of the foreign tax credit. The Fund will be required to report to the Internal Revenue Service (the "IRS") all distributions as well as gross proceeds from the redemption of the Fund shares, except in the case of certain exempt shareholders. All such distributions and proceeds generally will be subject to withholding of Federal income tax at a rate of 31% ("backup withholding") in the case of nonexempt shareholders if (1) the shareholder fails to furnish the Fund with and to certify the shareholder's correct taxpayer identification number or social security number, (2) the IRS notifies the Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect, or (3) when required to do so, the shareholder fails to certify that he is not subject to backup withholding. If the withholding provisions are applicable, any such distributions or proceeds, whether reinvested in additional shares or taken in cash, will be reduced by the amount required to be withheld. Any amounts withheld may be credited against the shareholder's Federal income tax liability. Investors may wish to consult their tax advisers about the applicability of the backup withholding provisions. The foregoing discussion relates only to Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates). Distributions by the Fund also may be subject to state and local taxes, and their treatment under state and local income tax laws may differ from the Federal income tax treatment. Shareholders should consult their tax advisors with respect to particular questions of Federal, state and local taxation. Shareholders who are not U.S. persons should consult their tax advisors regarding U.S. and foreign tax consequences of ownership of shares of the Fund including the likelihood that distributions to them would be subject to withholding of U.S. tax at a rate of 30% (or a lower rate under a tax treaty). OTHER INFORMATION ORGANIZATION The Trust was originally organized as a Maryland corporation on July 30, 1969. On February 29, 1988, the Trust was recapitalized to enable the Board to establish a series of separately managed investment portfolios, each having different investment objectives and policies. At the time of the recapitalization, the Trust's name was changed from "The Cheapside Dollar Fund Limited" to "Schroder Capital Funds, Inc." On January 9, 1996, the Trust was reorganized as a Delaware business trust. At that time, the Trust's name was changed from "Schroder Capital Funds, Inc." to its present name. The Trust is registered as an open-end management investment company under the Act. Delaware law provides that shareholders shall be entitled to the same limitations of personal liability extended to stockholders of private corporations for profit. The securities regulators of some states, however, have indicated that they and the courts in their state may decline to apply Delaware law on this point. To guard against this risk, the Trust Instrument contains an express disclaimer of shareholder liability for the debts, liabilities, obligations, and expenses of the Trust. The Trust Instrument provides for indemnification out of each series' property of any
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shareholder or former shareholder held personally liable for the obligations of the series. The Trust Instrument also provides that each series shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the series and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which Delaware law does not apply (or no contractual limitation of liability was in effect) and the portfolio is unable to meet its obligations. Forum believes that, in view of the above, there is no risk of personal liability to shareholders. CAPITALIZATION AND VOTING The Trust has an unlimited number of authorized shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate portfolios or series (such as the Fund) and may divide portfolios or series into classes of shares, and the costs of doing so will be borne by the Trust. The Trust currently consists of five separate portfolios, each of which has separate investment objectives and policies, and five classes, one of which pertains to the Fund. The shares of the Trust are fully paid and nonassessable, and have no preferences as to conversion, exchange, dividends, retirement or other features. The shares have no preemptive rights. They have non-cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees if they choose to do so. A shareholder is entitled to one vote for each full share held (and a fractional vote for each fractional share held), then standing in his name on the books of the Trust. Shares of each class would vote separately to approve investment advisory agreements or changes in investment objectives and other fundamental policies affecting the portfolio to which they pertain, but all classes would vote together in the election of Trustees and ratification of the selection of independent accountants. Shareholders of any particular class would not be entitled to vote on any matters as to which such class were not affected. The Trust will not hold annual meetings of shareholders. The matters considered at an annual meeting typically include the reelection of Trustees, approval of an investment advisory agreement, and the ratification of the selection of independent accountants. These matters will not be submitted to shareholders unless a meeting of shareholders is held for some other reason, such as those indicated below. Each of the Trustees will serve until death, resignation or removal. Vacancies will be filled by the remaining Trustees, subject to the provisions of the 1940 Act requiring a meeting of shareholders for election of Trustees to fill vacancies when less than a majority of Trustees then in office have been elected by shareholders. Similarly, the selection of accountants and renewal of investment advisory agreements for future years will be performed annually by the Board. Future shareholder meetings will be held to elect Trustees if required by the 1940 Act, to obtain shareholder approval of changes in fundamental investment policies, to obtain shareholder approval of material changes in investment advisory agreements, to select new accountants if the employment of the Trust's accountants has been terminated, and to seek any other shareholder approval required under the 1940 Act. The Board has the power to call a meeting of shareholders at any time when it believes it is necessary or appropriate. In addition, Trust Instrument provides that a special meeting of shareholders may be called at any time for any purpose by the holders of at least 10% of the outstanding shares entitled to be voted at such meeting. In addition to the foregoing rights, the Trust Instrument provides that holders of at least two-thirds of the outstanding shares of the Trust may remove any person serving as a Trustee either by declaration in writing or at a meeting called for such purpose. Further, the Board is required to call a shareholders meeting for the purpose of considering the removal of one or more Trustees if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. In addition, the Board is required to provide certain assistance if requested in writing to do so by ten or more shareholders of record (who have been such for at least six months), holding in the aggregate the lesser of shares of the Trust having a total net asset value of at least $25,000 or 1% of the outstanding shares of the Trust, for the purpose of enabling such holders to communicate with other shareholders of the Trust with a view to obtaining the requisite signatures to request a special meeting to consider such removal. PRINCIPAL SHAREHOLDERS As of April 30, 1996, the following persons owned of record or beneficially 5% or more of the Fund's shares:
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SHAREHOLDER SHARE BALANCE PERCENT OF FUND ----------- ------------- --------------- Norwest Bank Denver, N.A. 855,128.602 7.74% Stout & Co. 1740 Broadway Denver, CO 80274 Union College Pooled Investments 655,695.792 5.94% Fiduciary Trust Company International P.O. Box 3199, Church Street Station New York, NY 10008 MAC & CO a/c # 504288 586,294.357 5.31% Mellon Bank, N.A. P.O. Box 320 Pittsburgh, PA 15230 Mac & Co. a/c # 50442 552,849,657 5.00% Mellon Bank NA Mutual Fund Department P.O. Box 320 Pittsburgh, PA 15230 CUSTODY OF FUND ASSETS The Chase Manhattan Bank, N.A., through its Global Custody Division located in London, England, acts as custodian of the Fund's assets, but plays no role in making decisions as to the purchase or sale of portfolio securities for the Fund. Pursuant to rules adopted under the 1940 Act, the Fund may maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Selection of these foreign custodial institutions is made by the Board of Trustees following a consideration of a number of factors, including (but not limited to) the reliability and financial stability of the institution; the ability of the institution to perform capably custodial services for the Fund; the reputation of the institution in its national market; the political and economic stability of the country in which the institution is located; and further risks of potential nationalization or expropriation of Fund assets. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Forum Financial Corp., Portland, Maine, serves as the Fund's Transfer and Dividend Disbursing Agent. PERFORMANCE INFORMATION The Fund may, from time to time, include quotations of its average annual total return in advertisement or reports to shareholders or prospective investors. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in the Fund over periods of 1, 5 and 10 years, calculated pursuant to the following formula: P(1+T)TO THE POWER OF n=ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n= the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). All total return figures will reflect the deduction of Fund expenses (net of certain reimbursed expenses) on an annual basis, and will assume that all dividends and distributions are reinvested when paid. For the one year, five year and nine year, ten month periods ended October 31, 1995, respectively, the average annual total return of the Fund was 2.08%, 8.56% and 12.51%.
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Quotations of total return will reflect only the performance of a hypothetical investment in the Fund during the particular time period shown. Total return for the Fund will vary based on changes in market conditions and the level of the Fund's expenses, and no reported performance which may be expected in the future. In connection with communicating total return to current or prospective investors, the Fund also may compare these figures to the performance of other mutual funds tracked by mutual fund rating services or to other unmanaged indexes which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. Investors who purchase and redeem shares of the Fund through a customer account maintained at a Service Organization may be charged one or more of the following types of fees as agreed upon by the Services Organization and the investor, with respect to the customer services provided by the Service Organization: account fees (a fixed amount per month or per year); transaction fees (a fixed amount per transaction processed); compensating balance requirements (a minimum dollar amount a customer must maintain in order to obtain the services offered); or account maintenance fees (a periodic charge based upon a percentage of the assets in the account or of the dividends paid on these assets). Such fees will have the effect of reducing the average annual total return of the Fund for those investors. COUNSEL Jacobs, Persinger & Parker, 77 Water Street, New York, New York 10005, counsel to the Fund, passes upon certain legal matters in connection with the shares offered by the Fund. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. ("ACCOUNTANT") serves as independent accountants for the Fund. ACCOUNTANT provides audit services and consultation in connection with review of U.S. Securities and Exchange Commission filings. ACCOUNTANT'S address is One Post Office Square, Boston, Massachusetts 02109. REGISTRATION STATEMENT This SAI and the Prospectus do not contain all the information included in the Fund's registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the securities offered hereby, certain portions of which have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The registration statement, including the exhibits filed therewith, may be examined at the office of the Securities and Exchange Commission in Washington, D.C. Statements contained herein and in the Prospectus as to the contents of any contract or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other documents filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. FINANCIAL STATEMENTS The audited Statement of Assets and Liabilities, Statement of Operations, Statements of Changes in Net Assets, Statement of Investments, notes thereto, and Financial Highlights of the Fund for the fiscal year ended October 31, 1995 and the Report of Independent Accountants thereon (included in the Annual Report to shareholders), which are delivered along with this SAI, are incorporated herein by reference.
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SCHRODER EMERGING MARKETS FUND INSTITUTIONAL PORTFOLIO TWO PORTLAND SQUARE PORTLAND, MAINE 04101 -------------------------------------------------------------------------------- GENERAL INFORMATION: (207) 879-8903 ACCOUNT INFORMATION: (800) 344-8332 FAX: (207) 879-6206 -------------------------------------------------------------------------------- SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC. - INVESTMENT ADVISER SCHRODER FUND ADVISORS INC. - ADMINISTRATOR AND DISTRIBUTOR STATEMENT OF ADDITIONAL INFORMATION Schroder Emerging Markets Fund Institutional Portfolio (the "Fund") is a non- diversified, separately-managed portfolio of Schroder Capital Funds (Delaware) (the "Trust"), an open-end management investment company currently consisting of five separate portfolios, each of which has different investment objectives and policies. The Fund's investment objective is to achieve long-term capital appreciation through direct or indirect investment in equity and debt securities of issuers domiciled or doing business in emerging market countries in regions such as Southeast Asia, Latin America, and Eastern and Southern Europe. There is no assurance that the Fund will achieve this objective. Furthermore, investing in securities of emerging market issuers involves special risks in addition to those associated with investments in securities of U.S. issuers. See "The Fund - Special Risk Considerations." The Fund currently seeks to achieve its investment objective by holding, as its only investment securities, the securities of Schroder Emerging Markets Fund Institutional Portfolio (the "Portfolio"), a separate portfolio of a registered open-end management investment company ("Core Trust"). Investor Shares of the Fund are offered for sale at net asset value with no sales charge as an investment vehicle for individuals, institutions, corporations and fiduciaries. Advisor Shares of the Fund are offered to individual investors, in most cases through Service Organizations (as defined herein). Advisor Shares incur more expenses than Institutional Shares. This Statement of Additional Information ("SAI") is not a prospectus and is only authorized for distribution when preceded or accompanied by the Prospectus for the Fund dated May 16, 1996 (the "Prospectus"). This SAI contains additional and more detailed information than that set forth in the Prospectus and should be read in conjunction with the Prospectus. The Prospectus and SAI for the Fund may be obtained without charge by writing or calling the Fund at the address and information numbers printed above.
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May 16, 1996
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TABLE OF CONTENTS INVESTMENT POLICIES Introduction Convertible Securities Debt-to-Equity Conversions U.S. Government Securities Bank Obligations Short-Term Debt Securities Repurchase Agreements Illiquid and Restricted Securities Loans of Portfolio Securities Forward Foreign Currency Exchange Contracts Options and Hedging Warrants and Stock Rights INVESTMENT RESTRICTIONS MANAGEMENT Officers and Trustees Investment Adviser Administrative Services Distribution of Fund Shares Service Organizations Fees and Expenses PORTFOLIO TRANSACTIONS Investment Decisions Brokerage and Research Services ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Determination of Net Asset Value Per Share Redemption in Kind TAXATION OTHER INFORMATION Organization Capitalization and Voting Custodian Transfer Agent and Dividend Disbursing Agent Performance Information Legal Counsel Independent Accountant APPENDIX - Ratings of Corporate Debt Instruments and Countries Excluded from
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Emerging Markets Category A-1
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INVESTMENT POLICIES INTRODUCTION The Fund's investment objective and policies authorize it to invest in certain types of securities and to engage in certain investment techniques as identified in "Investment Objective," "Investment Policies" and "Additional Investment Policies" in the Prospectus. The following supplements the discussion found in those sections by providing additional information or elaborating upon the discussion with respect to certain of those securities and techniques. The Fund currently seeks to achieve its investment objective by investing all of its investment assets in the Portfolio, which has the same investment objective and policies. As the Fund has the same investment policies as the Portfolio and currently invests all of its assets in the Portfolio, investment policies are discussed with respect to the Portfolio only. CONVERTIBLE SECURITIES The Portfolio may invest in convertible preferred stocks and convertible debt securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. Convertible securities rank senior to common stocks in a corporation's capital structure and, therefore, entail less risk than the corporation's common stock. The value of a convertible security is a function of its "investment value" (its value as if it did not have a conversion privilege), and its "conversion value" (the security's worth if it were to be exchanged for the underlying security, at market value, pursuant to its conversion privilege). DEBT-TO-EQUITY CONVERSIONS The Portfolio may participate in up to 5% of its net assets in debt-to-equity conversions. Debt-to-equity conversion programs are sponsored in varying degrees by certain emerging market countries, particularly in Latin America, and permit investors to use external debt of a country to make equity investments in local companies. Many conversion programs relate primarily to investments in transportation, communication, utilities and similar infrastructure related areas. The terms of the programs vary from country to country, but include significant restrictions on the application of the proceeds received in the conversion and on the repatriation of investment profits and capital. In inviting conversion applications by holders of eligible debt, a government will usually specify a minimum discount from par value that it will accept for conversion. The Adviser believes that debt-to-equity conversion programs may offer investors opportunities to invest in otherwise restricted equity securities with a potential for significant capital appreciation and, to a limited extent, intends to invest assets of the Portfolio in such programs in appropriate circumstances. There can be no assurance that debt-to-equity conversion programs will continue or be successful or that the Portfolio will be able to convert all or any of its emerging market debt portfolio into equity investments. U.S. GOVERNMENT SECURITIES The Portfolio may invest in obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities which have remaining maturities not exceeding one year. Agencies and instrumentalities which issue or guarantee debt securities and which have been established or sponsored by the U.S. Government include the Bank for Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage Association, the Government National Mortgage Association and the Student Loan Marketing Association. Except
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for obligations issued by the U.S. Treasury and the Government National Mortgage Association, none of the obligations of the other agencies or instrumentalities referred to above are backed by the full faith and credit of the U.S. Government. BANK OBLIGATIONS The Portfolio may invest in obligations of U.S. banks (including certificates of deposit and bankers' acceptances) having total assets at the time of purchase in excess of $1 billion. Such banks must be members of the Federal Deposit Insurance Corporation. A certificate of deposit is an interest-bearing negotiable certificate issued by a bank against Portfolios deposited in the bank. A bankers' acceptance is a short-term draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction. Although the borrower is liable for payment of the draft, the bank unconditionally guarantees to pay the draft at its face value on the maturity date. SHORT-TERM DEBT SECURITIES The Portfolio may invest in commercial paper, that is short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. The commercial paper purchased by the Portfolio for temporary defensive purposes consists of direct obligations of domestic issuers which, at the time of investment, are rated "P-1" by Moody's Investors Service, Inc. ("Moody's") or "A-1" by Standard & Poor's Corporation ("S&P"), or securities which, if not rated, are issued by companies having an outstanding debt issue currently rated Aaa or Aa by Moody's or AAA or AA by S&P. The rating "P-1" is the highest commercial paper rating assigned by Moody's and the rating "A-1" is the highest commercial paper rating assigned by S&P. REPURCHASE AGREEMENTS The Portfolio may invest in securities subject to repurchase agreements with U.S. banks or broker-dealers maturing in seven days or less. In a typical repurchase agreement the seller of a security commits itself at the time of the sale to repurchase that security from the buyer at a mutually agreed-upon time and price. The repurchase price exceeds the sale price, reflecting an agreed- upon interest rate effective for the period the buyer owns the security subject to repurchase. The agreed-upon rate is unrelated to the interest rate on that security. SCMI will monitor the value of the underlying security at the time the transaction is entered into and at all times during the term of the repurchase agreement to insure that the value of the security always equals or exceeds the repurchase price. In the event of default by the seller under the repurchase agreement, the Portfolio may have difficulties in exercising its rights to the underlying securities and may incur costs and experience time delays in connection with the disposition of such securities. To evaluate potential risks, SCMI reviews the credit-worthiness of those banks and dealers with which the Portfolio enters into repurchase agreements. ILLIQUID AND RESTRICTED SECURITIES "Illiquid and Restricted Securities" under "Additional Investment Policies" in the Prospectus sets forth the circumstances in which the Portfolio may invest in "restricted securities." In connection with the Portfolio's original purchase of restricted securities it may negotiate rights with the issuer to have such securities registered for sale at a later time. Further, the expenses of registration of restricted securities that are illiquid may also be negotiated by the Portfolio with the issuer at the time such securities are purchased by the Portfolio. When registration is required, however, a considerable period may lapse
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between a decision to sell the securities and the time the Portfolio would be permitted to sell such securities. A similar delay might be experienced in attempting to sell such securities pursuant to an exemption from registration. Thus, the Portfolio may not be able to obtain as favorable a price as that prevailing at the time of the decision to sell. LOANS OF PORTFOLIO SECURITIES The Portfolio may lend its portfolio securities subject to the restrictions stated in the Prospectus. Under applicable regulatory requirements (which are subject to change), the loan collateral must, on each business day, at least equal the market value of the loaned securities and must consist of cash, bank letters of credit, U.S. Government securities, or other cash equivalents in which the Portfolio is permitted to invest. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Portfolio if the demand meets the terms of the letter. Such terms and the issuing bank must be satisfactory to the Portfolio. In a portfolio securities lending transaction, the Portfolio receives from the borrower an amount equal to the interest paid or the dividends declared on the loaned securities during the term of the loan as well as the interest on the collateral securities, less any finders' or administrative fees the Portfolio pays in arranging the loan. The Portfolio may share the interest it receives on the collateral securities with the borrower as long as it realizes at least a minimum amount of interest required by the lending guidelines established by the Trust's Board of Trustees (the "Board"). The Portfolio will not lend its portfolio securities to any officer, director, employee or affiliate of the Portfolio or SCMI. The terms of the Portfolio's loans must meet certain tests under the Internal Revenue Code and permit the Portfolio to reacquire loaned securities on five business days' notice or in time to vote on any important matter. Portfolio securities purchased with cash collateral are subject to possible depreciation. Loans of securities by the Portfolio will be subject to termination at the Portfolio's or the borrower's option. The Portfolio may pay reasonable negotiated fees in connection with loaned securities, so long as such fees are set forth in a written contract and approved by Core Trust's Board of Trustees. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS To hedge against adverse price movements in the securities held in its portfolio and the currencies in which they are denominated (as well as in the securities it might wish to purchase and their denominated currencies) the Portfolio may engage in transactions in forward foreign currency contracts. A forward foreign currency exchange contract ("forward contract") involves an obligation to purchase or sell a currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. The Portfolio may enter into forward contracts as a hedge against fluctuations in future foreign exchange rates. Currently, only a limited market, if any, exists for hedging transactions relating to currencies in many emerging market countries or to securities of issuers domiciled or principally engaged in business in emerging market countries. This may limit the Portfolio's ability to effectively hedge its investments in those emerging markets. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also limit the opportunity for gain if the value of the hedged currencies should rise. In addition, it may not be possible for the Portfolio to hedge against a devaluation that is so generally anticipated that the Portfolio is not able to contract to sell the currency at a price above the devaluation level it anticipates.
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The Portfolio will enter into forward contracts under certain instances. When the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may, for example, wish to secure the price of the security in U.S. dollars or some other foreign currency which the Portfolio is temporarily holding in its portfolio. By entering into a forward contract for the purchase or sale, for a fixed amount of dollars or other currency, of the amount of foreign currency involved in the underlying security transactions, the Portfolio will be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar or other currency which is being used for the security purchase and the foreign currency in which the security is denominated during the period between the date on which the security is purchased or sold and the date on which payment is made or received. In addition, when the Portfolio anticipates purchasing securities at some future date, and wishes to secure the current exchange rate of the currency in which those securities are denominated against the U.S. dollar or some other foreign currency, it may enter into a forward contract to purchase an amount of currency equal to part or all of the value of the anticipated purchase, for a fixed amount of U.S. dollars or other currency. In all of the above instances, if the currency in which the Portfolio's portfolio securities (or anticipated portfolio securities) are denominated rises in value with respect to the currency which is being purchased, then the Portfolio will have realized fewer gains than if the Portfolio had not entered into the forward contracts. Furthermore, the precise matching of the forward contract amounts and the value of the securities involved 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 value of those securities between the date the forward contract is entered into and the date it matures. To the extent that the Portfolio enters into forward foreign currency contracts to hedge against a decline in the value of portfolio holdings denominated in a particular foreign currency resulting from currency fluctuations, there is a risk that the Portfolio may nevertheless realize a gain or loss as a result of currency fluctuations after such portfolio holdings are sold should the Portfolio be unable to enter into an "offsetting" forward foreign currency contract with the same party or another party. The Portfolio may be limited in its ability to enter into hedging transactions involving forward contracts by the Internal Revenue Code requirements relating to qualifications as a regulated investment company (see "Taxation"). The Portfolio is not required to enter into such transactions with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by the Adviser. Generally, the Portfolio will not enter into a forward contract with a term of greater than one year. OPTIONS AND HEDGING As discussed in the Prospectus, the Portfolio may write covered call options against securities held in its portfolio and covered put options on eligible portfolio securities and purchase options of the same series to effect closing transactions, and may hedge against potential changes in the market value of its investments (or anticipated investments) by purchasing put and call options on portfolio (or eligible portfolio) securities (and the currencies in which they are denominated) and engaging in transactions involving futures contracts and options on such contracts. Call and put options on U.S. Treasury notes, bonds and bills and on various foreign currencies are listed on several U.S. and foreign securities exchanges and are written in over-the-counter transactions ("OTC Options"). Listed options are issued or guaranteed by the exchange on which they trade or by a clearing
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corporation such as the Options Clearing Corporation ("OCC"). Ownership of a listed call option gives the Portfolio the right to buy from the OCC (in the U.S.) or other clearing corporation or exchange, the underlying security or currency covered by the option at the stated exercise price (the price per unit of the underlying security or currency) by filing an exercise notice prior to the expiration date of the option. The writer (seller) of the option would then have the obligation to sell, to the OCC (in the U.S.) or other clearing corporation or exchange, the underlying security or currency at that exercise price prior to the expiration date of the option, regardless of its then current market price. Ownership of a listed put option would give the Portfolio the right to sell the underlying security or currency to the OCC (in the U.S.) or other clearing corporation or exchange at the stated exercise price. Upon notice of exercise of the put option, the writer of the option would have the obligation to purchase the underlying security or currency from the OCC (in the U.S.) or other clearing corporation or exchange at the exercise price. The OCC or other clearing corporation or exchange which issues listed options assures that all transactions in such options are properly executed. OTC options are purchased from or sold (written) to dealers or financial institutions which have entered into direct agreements with the Portfolio. With OTC options, such variables as expiration date, exercise price and premium will be agreed between the Portfolio and the transacting dealer. If the transacting dealer fails to make or take delivery of the securities or amount of foreign currency underlying an option it has written, the Portfolio would lose the premium paid for the option as well as any anticipated benefit of the transaction. The Portfolio will engage in OTC option transactions only with member banks of the Federal Reserve System or primary dealers in U.S. Government securities or with affiliates of such banks or dealers which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write options on foreign currencies for purposes similar to those involved with investing in forward foreign currency exchange contracts. For example, in order to protect against declines in the dollar value of portfolio securities which are denominated in a foreign currency, the Portfolio may purchase put options on an amount of such foreign currency equivalent to the current value of the portfolio securities involved. As a result, the Portfolio would be able to sell the foreign currency for a fixed amount of U.S. dollars, thereby securing the dollar value of the portfolio securities (less the amount of the premiums paid for the options). Conversely, the Portfolio may purchase call options on foreign currencies in which securities it anticipates purchasing are denominated to secure a set U.S. dollar price for such securities and protect against a decline in the value of the U.S. dollar against such foreign currency. The Portfolio may also purchase call and put options to close out written option positions. The Portfolio may also write covered call options on foreign currency to protect against potential declines in its portfolio securities which are denominated in foreign currencies. If the U.S. dollar value of the portfolio securities falls as a result of a decline in the exchange rate between the foreign currency in which it is denominated and the U.S. dollar, then a loss to the Portfolio occasioned by such value decline would be ameliorated by receipt of the premium on the option sold. At the same time, however, the Portfolio gives up the benefit of any rise in value of the relevant portfolio securities above the exercise price of the option and, in fact, only receives a benefit from the writing of the option to the extent that the value of the portfolio securities falls below the price of the premium received. The Portfolio may also write options to close out long call option positions. A covered put option on a foreign currency would be written by the Portfolio for the same reason it would purchase a call option, namely, to hedge against an increase in the U.S. dollar value of a foreign security which the Portfolio anticipates purchasing. Here, the receipt of the premium would offset, to the extent of the size of the premium, any increased cost to the Portfolio resulting from an increase in the U.S. dollar value of the foreign security. However, the Portfolio could not benefit from any decline in the cost of the foreign
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security which is greater than the price of the premium received. The Portfolio may also write options to close out long put option positions. The markets in foreign currency options are relatively new and the Portfolio's ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. Although the Portfolio will not purchase or write such options unless and until, in the opinion of the Adviser, the market for them has developed sufficiently to ensure that the risks in connection with such options are not greater than the risks in connection with the underlying currency, there can be no assurance that a liquid secondary market will exist for a particular option at any specific time. In addition, options on foreign currencies are affected by all of those factors which influence foreign exchange rates and investments generally. The value of a foreign currency option depends upon the value of the underlying currency relative to the U.S. dollar. As a result, the price of the option position may vary with changes in the value of either or both currencies and have no relationship to the investment merits of a foreign security, including foreign securities held in a "hedged" investment portfolio. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information available is generally representative of very large transactions in the interbank market and thus may not reflect relatively smaller transactions (i.e., less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that the U.S. options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that are not reflected in the options market. COVERED CALL WRITING. The Portfolio is permitted to write covered call options on portfolio securities and on the U.S. dollar and foreign currencies in which they are denominated, without limit. Generally, a call option is "covered" if the Portfolio owns, or has the right to acquire, without additional cash consideration (or for additional cash consideration held for the Portfolio by its Custodian in a segregated account) the underlying security (currency) subject to the option except that in the case of call options on U.S. Treasury Bills, the Portfolio might own U.S. Treasury Bills of a different series from those underlying the call option, but with a principal amount and value corresponding to the exercise price and a maturity date no later than that of the security (currency) deliverable under the call option. A call option is also covered if the Portfolio holds a call on the same security as the underlying security (currency) of the written option, where the exercise price of the call used for coverage is equal to or less than the exercise price of the call or greater than the exercise price of the call written if the mark to market difference is maintained by the Portfolio in cash, U.S. Government securities or other high grade debt obligations which the Portfolio holds in a segregated account maintained with its custodian. The Portfolio will receive from the purchaser, in return for a call it has written, a premium. Receipt of such premiums may enable the Portfolio to earn a higher level of current income than it would earn from holding the underlying securities (currencies) alone. Moreover, the premium received will offset a portion of the potential loss incurred by the Portfolio if the securities (currencies) underlying the option are ultimately sold (exchanged) by the Portfolio at a loss. Furthermore, a premium received on a call
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written on a foreign currency will ameliorate any potential loss of value on the portfolio security due to a decline in the value of the currency. However, during the option period, the covered call writer has, in return for the premium, given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security (or the exchange rate of the currency in which it is denominated) increase, but has retained the risk of loss should the price of the underlying security (or the exchange rate of the currency in which it is denominated) decline. The premium received will fluctuate with varying economic market conditions. If the market value of the portfolio securities (or the currencies in which they are denominated) upon which call options have been written increases, the Portfolio may receive a lower total return from the portion of its portfolio upon which calls have been written than it would have had such calls not been written. With respect to listed options and certain OTC options, during the option period, the Portfolio may be required, at any time, to deliver the underlying security (currency) against payment of the exercise price on any calls it has written (exercise of certain listed and OTC options may be limited to specific expiration dates). This obligation is terminated upon the expiration of the option period or at such earlier time when the writer effects a closing purchase transaction. A closing purchase transaction is accomplished by purchasing an option of the same series as the option previously written. However, once the Portfolio has been assigned an exercise notice, the Portfolio will be unable to effect a closing purchase transaction. Closing purchase transactions are ordinarily effected to realize a profit on an outstanding call option, to prevent an underlying security (currency) from being called, to permit the sale of an underlying security (or the exchange of the underlying currency) or to enable the Portfolio to write another call option on the underlying security (currency) with either a different exercise price or expiration date or both. The Portfolio may realize a net gain or loss from a closing purchase transaction depending upon whether the amount of the premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be wholly or partially offset by unrealized appreciation in the market value of the underlying security (currency). Conversely, a gain resulting from a closing purchase transaction could be offset in whole or in part or exceeded by a decline in the market value of the underlying security (currency). If a call option expires unexercised, the Portfolio realizes a gain in the amount of the premium on the option less the commission paid. Such a gain, however, may be offset by depreciation in the market value of the underlying security (currency) during the option period. If a call option is exercised, the Portfolio realizes a gain or loss from the sale of the underlying security (currency) equal to the difference between the purchase price of the underlying security (currency) and the proceeds of the sale of the security (currency) plus the premium received on the option less the commission paid. Options written by the Portfolio will normally have expiration dates of up to eighteen months from the date written. The exercised price of a call option may be below, equal to or above the current market value of the underlying security at the time the option is written. COVERED PUT WRITING. As a writer of a covered put option, the Portfolio would incur an obligation to buy the security underlying the option from the purchaser of the put, at the option's exercise price at any time during the option period, at the purchaser's election (certain listed and OTC put options written by the Portfolio will be exercisable by the purchaser only on a specific date). A put is "covered" if, at all times, the Portfolio maintains with its custodian, in a segregated account, cash, U.S. Government securities or other high grade obligations in an amount equal to at least the exercise price of the option, at all times during the option period. Similarly, a short put position could be covered by the Portfolio by its
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purchase of a put option on the same security (currency) as the underlying security of the written option, where the exercise price of the purchased option is equal to or more than the exercise price of the put written or less than the exercise price of the put written if the marked to market difference is maintained by the Portfolio in cash, U.S. Government securities or other high grade debt obligations which the Portfolio holds in a segregated account maintained at its custodian. In writing puts, the Portfolio assumes the risk of loss should the market value of the underlying security (currency) decline below the exercise price of the option (any loss being decreased by the receipt of the premium on the option written). In the case of listed options, during the option period, the Portfolio may be required, at any time, to make payment of the exercise price against delivery of the underlying security (currency). The operation of and limitations on covered put options in other respects are substantially identical to those of call options. The Portfolio will write put options for three purposes: (1) to receive the income derived from the premiums paid by purchasers; (2) when the Adviser wishes to purchase the security (or a security denominated in the currency underlying the option) underlying the option at a price lower than its current market price, in which case it will write the covered put at an exercise price reflecting the lower purchase price sought; and (3) to close out a long put option position. The potential gain on a covered put option is limited to the premium received on the option (less the commissions paid on the transaction) while the potential loss equals the differences between the exercise price of the option and the current market price of the underlying securities (currencies) when the put is exercised, offset by the premium received (less the commissions paid on the transaction). PURCHASING CALL AND PUT OPTIONS. The Portfolio may purchase listed and OTC call and put options in amounts equaling up to 5% of its total assets. The Portfolio may purchase a call option in order to close out a covered call position (see "Covered Call Writing" above), to protect against an increase in price of a security it anticipates purchasing or, in the case of a call option on foreign currency, to hedge against an adverse exchange rate move of the currency in which the security it anticipates purchasing is denominated vis-a-vis the currency in which the exercise price is denominated. The purchase of the call option to effect a closing transaction on a call written over-the-counter may be a listed or an OTC option. In either case, the call purchased is likely to be on the same securities (currencies) and have the same terms as the written option. If purchased over-the-counter, the option would generally be acquired from the dealer or financial institution which purchased the call written by the Portfolio. The Portfolio may purchase put options on securities (currencies) which it holds in its portfolio to protect itself against a decline in the value of the security and to close out written put option positions. If the value of the underlying security (currency) were to fall below the exercise price of the put purchased in an amount greater then the premium paid for the option, the Portfolio would incur no additional loss. In addition, the Portfolio may sell a put option which it has previously purchased prior to the sale of the securities (currencies) underlying such option. Such a sale would result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option which is sold. Any such gain or loss could be offset in whole or in part by a change in the market value of the underlying security (currency). If a put option purchased by the Portfolio expired without being sold or exercised, the premium would be lost. RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity for capital appreciation above the exercise price should the market price of the underlying security (or the value of its denominated currency) increase, but has retained the risk of loss should the price of the underlying security (or the value of its denominated currency) decline. The writer has no control over the time when it may be required to fulfill its
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obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver or receive the underlying securities at the exercise price. Prior to exercise or expiration, an option position can only be terminated by entering into a closing purchase or sale transaction. If a covered call option writer is unable to effect a closing purchase transaction or to purchase an offsetting OTC option, it cannot sell the underlying security until the option expires or the option is exercised. Accordingly, a covered call option writer may not be able to sell an underlying security at a time when it might otherwise be advantageous to do so. A covered put option writer who is unable to effect a closing purchase transaction or to purchase an offsetting OTC option would continue to bear the risk of decline in the market price of the underlying security until the option expires or is exercised. In addition, a covered put writer would be unable to utilize the amount held in cash or U.S. Government or other high grade short-term obligations as security for the put option for other investment purposes until the exercise or expiration of the option. The Portfolio's ability to close out its position as a writer of an option is dependent upon the existence of a liquid secondary market on option exchanges. There is no assurance that such a market will exist, particularly in the case of OTC options, as such options will generally only be closed out by entering into a closing purchase transaction with the purchasing dealer. However, the Portfolio may be able to purchase an offsetting option which does not close out its position as a writer but constitutes an asset of equal value to the obligation under the option written. If the Portfolio is not able to either enter into a closing purchase transaction or purchase an offsetting position, it will be required to maintain the securities subject to the call, or the collateral underlying the put, even though it might not be advantageous to do so, until a closing transaction can be entered into (or the option is exercised or expires). Among the possible reasons for the absence of a liquid secondary market on an exchange are: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities; (iv) interruption of the normal operations on an exchange; (v) inadequacy of the facilities of an exchange or the OCC to handle current trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist. In the event of the bankruptcy of a broker through which the Portfolio engages in transactions in options, the Portfolio could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss of all or part of its margin deposits with the broker. Similarly, in the event of the bankruptcy of the writer of an OTC option purchased by the Portfolio, the Portfolio could experience a loss of all or part of the value of the option. Transactions will be entered into by the Portfolio only with brokers or financial institutions deemed creditworthy by the Adviser. Exchanges have established limitations governing the maximum number of options on the same underlying security or futures contract (whether or not covered) which may be written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). An exchange may order the liquidation of positions found to be in violation of these limits and it may impose other sanctions or restrictions. These position limits may restrict the number of listed options which the Portfolio may write.
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The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the option markets. The extent to which the Portfolio may enter into transactions involving options may be limited by the Internal Revenue Code's requirements for qualification as a regulated investment company and the Portfolio's intention to qualify as such (see "Taxation"). FUTURES CONTRACTS. The Portfolio may purchase and sell interest rate, currency, and index futures contracts ("futures contracts") that are traded on U.S. and foreign commodity exchanges, on such underlying securities as U.S. Treasury bonds, notes and bills, and/or any foreign government fixed-income security ("interest rate" futures), on various currencies ("currency futures") and on such indices of U.S. and foreign securities as may exist or come into being ("index futures"). The Portfolio will purchase or sell interest rate futures contracts for the purpose of hedging some or all of the value of its portfolio securities (or anticipated portfolio securities) against changes in prevailing interest rates. If the Adviser anticipates that interest rates may rise and, concomitantly, the price of certain of its portfolio securities fall, the Portfolio may sell an interest rate futures contract. If declining interest rates are anticipated, the Portfolio may purchase an interest rate futures contract to protect against a potential increase in the price of securities the Portfolio intends to purchase. Subsequently, appropriate securities may be purchased by the Portfolio in an orderly fashion; as securities are purchased, corresponding futures positions would be terminated by offsetting sales of contracts. The Portfolio will purchase or sell index futures contracts for the purpose of hedging some or all of its portfolio (or anticipated portfolio) securities against changes in their prices. If the Adviser anticipates that the prices of securities held by the Portfolio may fall, the Portfolio may sell an index futures contract. Conversely, if the Portfolio wishes to hedge against anticipated price rises in those securities which the Portfolio intends to purchase, the Portfolio may purchase an index futures contract. The Portfolio will purchase or sell currency futures on currencies in which its portfolio securities (or anticipated portfolio securities) are denominated for the purposes of hedging against anticipated changes in currency exchange rates. The Portfolio will enter into currency futures contracts for the same reasons as set forth above for entering into forward foreign currency exchange contracts; namely, to secure the value of a security purchased or sold in a given currency vis-a-vis a different currency or to hedge against an adverse currency exchange rate movement of a portfolio security's (or anticipated portfolio security's) denominated currency vis-a-vis a different currency. In addition to the above, interest rate, index and currency futures will be bought or sold in order to close out short or long positions maintained by the Portfolio in corresponding futures contracts. Although most interest rate futures contracts call for actual delivery or acceptance of securities, the contracts usually are closed out before the settlement date without making or taking delivery. A futures contract sale is closed out by effecting a futures contract purchase for the same aggregate amount of the specific type of security (currency) and the same delivery date. If the sale price exceeds the offsetting purchase price, the seller would be paid the difference and would realize a gain. If the offsetting purchase price exceeds the sale price, the seller would pay the difference and would realize a loss. Similarly, a futures contract purchase is closed out by effecting a futures contract sale for the same aggregate amount of the specific type of security (currency) and the same delivery date. If the offsetting
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sale price exceeds the purchase price, the purchaser would realize a gain, whereas if the purchase price exceeds the offsetting sale price, the purchaser would realize a loss. There is no assurance that the Portfolio will be able to enter into a closing transaction. INTEREST RATE FUTURES CONTRACTS. When the Portfolio enters into an interest rate futures contract, it is initially required to deposit with the Portfolio's custodian, in a segregated account in the name of the broker performing the transaction, an "initial margin" of cash or U.S. Government securities or other high grade short-term obligations equal to approximately 2% of the contract amount. Initial margin requirements are established by the exchanges on which futures contracts trade and may, from time to time, change. In addition, brokers may establish margin deposit requirements in excess of those required by the exchanges. Initial margin in futures transactions is different from margin in securities transactions in that initial margin does not involve the borrowing of Portfolios by a brokers' client but is, rather, a good faith deposit on the futures contract which will be returned to the Portfolio upon the proper termination of the futures contract. The margin deposits made are marked to market daily and the Portfolio may be required to make subsequent deposits of cash or U.S. Government securities called "variation margin," with the Portfolio's futures contract clearing broker, which are reflective of price fluctuations in the futures contract. CURRENCY FUTURES. Generally, foreign currency futures provide for the delivery of a specified amount of a given currency, on the exercise date, for a set exercise price denominated in U.S. dollars or other currency. Foreign currency futures contracts would be entered into for the same reason and under the same circumstances as forward foreign currency exchange contracts. The Adviser will assess such factors as cost spreads, liquidity and transaction costs in determining whether to utilize futures contracts or forward contracts in its foreign currency transactions and hedging strategy. Purchasers and sellers of foreign currency futures contracts are subject to the same risks that apply to the buying and selling of futures generally. In addition, there are risks associated with foreign currency futures contracts and their use as a hedging device similar to those associated with options on foreign currencies described above. Further, settlement of a foreign currency futures contract must occur within the country issuing the underlying currency. Thus, the Portfolio must accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign restrictions or regulations regarding the maintenance of foreign banking arrangements by U.S. residents and may be required to pay any fees, taxes or charges associated with such delivery which are assessed in the issuing country. INDEX FUTURES CONTRACTS. The Portfolio may invest in index futures contracts. An index futures contract sale creates an obligation by the Portfolio, as seller, to deliver cash at a specified future time. An index futures contract purchase would create an obligation by the Portfolio, as purchaser, to take delivery of cash at a specified future time. Futures contracts on indices do not require the physical delivery of securities, but provide for a final cash settlement on the expiration date which reflects accumulated profits and losses credited or debited to each party's account. The Portfolio is required to maintain margin deposits with brokerage firms through which it effects index futures contracts in a manner similar to that described above for interest rate futures contracts. In addition, due to current industry practice, daily variations in gains and losses on open contracts are required to be reflected in cash in the form of variation margin payments. The Portfolio may be required to make additional margin payments during the term of the contract.
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At any time prior to expiration of the futures contract, the Portfolio may elect to close the position by taking an opposite position which will operate to terminate the Portfolio's position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Portfolio and the Portfolio realizes a loss or gain. OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write call and put options on futures contracts which are traded on an exchange and enter into closing transactions with respect to such options to terminate an existing position. An option on a futures contract gives the purchaser the right (in return for the premium paid) to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the term of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option is accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract at the time of exercise exceeds, in case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The Portfolio will purchase and write options on futures contracts for identical purposes to those set forth above for the purchase of a futures contract (purchase of a call option or sale of a put option) and the sale of a futures contract (purchase of a put option or sale of a call option), or to close out a long or short position in futures contracts. If, for example, the Adviser wished to protect against an increase in interest rates and the resulting negative impact on the value of a portion of its fixed-income portfolio, it might write a call option on an interest rate futures contract, the underlying security of which correlates with the portion of the portfolio the Adviser seeks to hedge. Any premiums received in the writing of options on futures contracts may provide a further hedge against losses resulting from price declines in portions of the Portfolio's investment portfolio. Options on foreign currency futures contracts may involve certain additional risks. Trading options on foreign currency futures contracts is relatively new. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. To reduce this risk, the Portfolio will not purchase or write options on foreign currency futures contracts unless and until, in the Adviser's option, the market for such option has developed sufficiently that the risks in connection with such options are not greater than the risks in connection with transactions in the underlying foreign currency futures contracts. LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Portfolio may not enter into futures contracts or purchase related options thereon if, immediately thereafter, the amount committed to margin plus the amount paid for premiums for unexpired options on futures contracts exceeds 5% of the value of the Portfolio's total assets, after taking into account unrealized gains and unrealized losses on such contracts it has entered into, provided, however, that in the case of an option that is in-the-money (the exercise price of the call (put) option is less (more) than the market price of the underlying security) at the time of purchase, the in-the-money amount may be excluded in calculating the 5%. However, there is no overall limitation on the percentage of the Portfolio's assets which may be subject to a hedge position. In addition, in accordance with the regulations of the Commodity Futures Trading Commission ("CFTC") under which the Portfolio is exempted from registration as a commodity pool operator, the Portfolio may only enter into futures contracts and options on futures contracts transactions for purposes of hedging a part or all of its portfolio. Except as described above, there are no other limitations on the use of futures and options thereon by the Portfolio.
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The writer of an option on a futures contract is required to deposit initial and variation margin pursuant to requirements similar to those applicable to futures contracts. Premiums received from the writing of an option on a futures contract are included in initial margin deposits. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolio may sell a futures contract to protect against the decline in the value of securities (or the currency in which they are denominated) held by the Portfolio. However, it is possible that the futures market may advance and the value of securities (or the currency in which they are denominated) held in the portfolio of the Portfolio may decline. If this occurred, the Portfolio would lose money on the futures contract and also experience a decline in value of its portfolio securities. While this might occur for only a very brief period or to a very small degree, over time the value of a diversified portfolio will tend to move in the same direction as the futures contracts. If the Portfolio purchases a futures contract to hedge against the increase in value of securities it intends to buy (or the currency in which they are denominated), and the value of such securities (currencies) decreases, then the Portfolio may determine not to invest in the securities as planned and will realize a loss on the futures contract that is not offset by a reduction in the price of the securities. If the Portfolio has sold a call option on a futures contract, it will cover this position by holding in a segregated account maintained at its Custodian, cash, U.S. Government Securities or other high grade debt obligations equal in value (when added to any initial or variation margin on deposit) to the market value of the securities (currencies) underlying the futures contract or the exercise price of the option. Such a position may also be covered by owning the securities (currencies) underlying the futures contract, or by holding a call option permitting the Portfolio to purchase the same contract at a price no higher than the price at which the short position was established. In addition, if the Portfolio holds a long position in a futures contract it will hold cash, U.S. Government Securities or other high grade debt obligations equal to the purchase price of the contract (less the amount of initial or variation margin on deposit) in a segregated account maintained for the Portfolio by its Custodian. Alternatively, the Portfolio could cover its long position by purchasing a put option on the same futures contract with an exercise price as high or higher than the price of the contract held by the Portfolio. Exchanges limit the amount by which the price of a futures contract may move on any day. If the price moves equal the daily limit on successive days, then it may prove impossible to liquidate a futures position until the daily limit moves have creased. In the event of adverse price movements, the Portfolio would continue to be required to make daily cash payments of variation margin on open futures positions. In such situations, if the Portfolio has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. In addition, the Portfolio may be required to take or make delivery of the instruments underlying interest rate futures contracts it holds at a time when it is disadvantageous to do so. The inability to close out options and futures positions could also have an adverse impact on the Portfolio's ability to effectively hedge its portfolio. Futures contracts and options thereon which are purchased or sold on foreign commodities exchanges may have greater price volatility than their U.S. counterparts. Furthermore, foreign commodities exchanges may be less regulated and under less governmental scrutiny than U.S. exchanges. Brokerage commissions, clearing costs and other transaction costs may be higher on foreign exchanges. Greater margin requirements may limit the Portfolio's ability to enter into certain commodity transactions on
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foreign exchanges. Moreover, differences in clearance and delivery requirements on foreign exchanges may occasion delays in the settlement of the Portfolio's transactions effected on foreign exchanges. In the event of the bankruptcy of a broker through which the Portfolio engages in transactions in futures or options thereon, the Portfolio could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur a loss of all or part of its margin deposits with the broker. Similarly in the event of the bankruptcy of the writer of an OTC option purchased by the Portfolio, the Portfolio could experience a loss of all or part of the value of the option. Transactions are entered into by the Portfolio only with brokers or financial institutions deemed creditworthy by the Adviser. While the futures contracts and options transactions to be engaged in by the Portfolio for the purpose of hedging the Portfolio's portfolio securities are not speculative in nature, there are risks inherent in the use of such instruments. One such risk which may arise in employing futures contracts to protect against the price volatility of portfolio securities (and the currencies in which they are denominated) is that the prices of securities and indices subject to futures contracts (and thereby the futures contract prices) may correlate imperfectly with the behavior of the cash prices of the Portfolio's portfolio securities (and the currencies in which they are denominated). Another such risk is that prices of interest rate futures contracts may not move in tandem with the changes in prevailing interest rates against which the Portfolio seeks a hedge. A correlation may also be distorted by the fact that the futures market is dominated by short-term traders seeking to profit from the difference between a contract or security price objective and their cost of borrowed funds. Such distortions are generally minor and would diminish as the contract approached maturity. There may exist an imperfect correlation between the price movements of futures contracts purchased by the Portfolio and the movements in the prices of the securities (currencies) which are the subject of the hedge. If participants in the futures market elect to close out their contracts through offsetting transactions rather than meet margin deposit requirements, distortions in the normal relationship between the debt securities or currency markets and futures markets could result. Price distortions could also result if investors in futures contracts choose to make or take delivery of underlying securities rather than engage in closing transactions due to the resultant reduction in the liquidity of the futures market. In addition, because the deposit requirements in the futures markets are less onerous than margin requirements in the cash market, increased participation by speculators in the futures market can be anticipated with the resulting speculation causing temporary price distortions. Due to the possibility of price distortions in the futures market and because of the imperfect correlation between movements in the prices of securities and movements in the prices of futures contracts, a correct forecast of interest rate trends may still not result in a successful hedging transaction. There is no assurance that a liquid secondary market will exist for futures contracts and related options in which the Portfolio may invest. In the event a liquid market does not exist, it may not be possible to close out a futures position, and in the event of adverse price movements, the Portfolio would continue to be required to make daily cash payments of variation margin. In addition, limitations imposed by an exchange or board of trade on which futures contracts are traded may compel or prevent the Portfolio from closing out a contract which may result in reduced gain or increased loss to the Portfolio. The absence of a liquid market in futures contracts might cause the Portfolio to make or take delivery of the underlying securities (currencies) at a time when it may be disadvantageous to do so. The extent to which the Portfolio may enter into transactions involving futures contracts and options thereon may be limited by the Internal Revenue Code's requirements for qualification as a regulated investment company and the Portfolio's intention to qualify as such (see "Taxation").
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WARRANTS AND STOCK RIGHTS. The Portfolio may invest in warrants, which are options to purchase an equity security at a specified price (usually representing a premium over the applicable market value of the underlying equity security at the time of the warrant's issuance). The Portfolio may not invest more than 5% of its net assets (at the time of investment) in warrants (other than those that have been acquired in units or attached to other securities). No more than 2% of the Portfolio's net assets (at the time of investment) may be invested in warrants that are not listed on the New York or American Stock Exchanges. Investments in warrants involve certain risks, including the possible lack of a liquid market for the resale of the warrants, potential price fluctuations as a result of speculation or other factors and failure of the price of the underlying security to reach a level at which the warrant can be prudently exercised (in which case the warrant may expire without being exercised, resulting in the loss of the Portfolio's entire investment therein). The prices of warrants do not necessarily move parallel to the prices of the underlying securities. Warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. In addition, the Portfolio may invest up to 5% of its assets (at the time of investment) in stock rights. A stock right is an option given to a shareholder to buy additional shares at a predetermined price during a specified time period. INVESTMENT RESTRICTIONS The Portfolio's significant investment restrictions are described in the Prospectus. The following investment restrictions, except where stated to be non-fundamental policies, are also fundamental policies of the Portfolio and, together with the fundamental policies and investment objective described in the Prospectus, cannot be changed without the vote of a "majority" of the Portfolio's outstanding shares. Under the Investment Company Act of 1940 (the "1940 Act"), such a "majority" vote is defined as the vote of the holders of the lesser of : (i) 67% of more of the shares present or represented by proxy at a meeting of shareholders, if the holders of more than 50% of the outstanding shares are present, or (ii) more than 50% of the outstanding shares. Under these additional restrictions, the Portfolio cannot: (a) Underwrite securities of other companies except insofar as the Portfolio might be deemed to be an underwriter in the resale of any securities held in its portfolio. (b) 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. (c) Purchase securities on margin; however, the Portfolio may make margin deposits in connection with any Hedging Instruments which it may use as permitted by any of its other fundamental policies. (d) Purchase or write puts or calls except as permitted by any of its other fundamental policies. (e) Lend money except in connection with the acquisition of debt securities which the Portfolio's investment policies and restrictions permit it to purchase (see "Investment Objective and Policies" in the Prospectus); the Portfolio may also make loans of portfolio securities (see "Loans of Portfolio Securities") and enter into repurchase agreements (see "Repurchase Agreements").
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(f) As a non-fundamental policy, invest in or hold securities of any issuer if officers or Trustees of the Trust or SCMI individually owning more than 0.5% of the securities of such issuer together own more than 5% of the securities of such issuer. (g) As a non-fundamental policy, invest more than 5% of the value of its total assets in securities of issuers having a record, together with predecessors, of less than three years of continuous operation. (h) Make short sales of securities. (i) 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. (j) 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 of each Trustee and executive officer of the Trust during the past five years and shows the nature of any affiliation with SCMI. Each of these individuals currently serves in the same capacity for Core Trust. PETER E. GUERNSEY, Oyster Bay, New York - a Trustee of the Trust - Insurance Consultant since August 1986; prior thereto Senior Vice President, Marsh & McLennan, Inc., insurance brokers. RALPH E. HANSMANN, 40 Wall Street, New York, New York - a Trustee of the Trust - Private investor; Director, First Eagle Fund of America, Inc.; Director, Verde Exploration, Ltd.; Trustee Emeritus, Institute for Advanced Study; Trustee and Treasurer, New York Public Library; Life Trustee, Hamilton College. JOHN I. HOWELL, 7 Riverside Road, Greenwich, Connecticut - a Trustee of the Trust - Private Consultant since February 1987; Director, American International Group, Inc.; Director, American International Life Assurance Company of New York. LAURA E. LUCKYN-MALONE(a) (b) (c), 787 Seventh Avenue, New York, New York - President and a Trustee of the Trust - Managing Director of SCMI since October 1995; Director of SWIS since July 1995; prior thereto, Director and Senior Vice President of SCMI since February 1990; Director and President, Schroder Advisors. CLARENCE F. MICHALIS, 44 East 64th Street, New York, New York - a Trustee of the Trust - Chairman of the Board of Directors, Josiah Macy, Jr. Foundation (charitable foundation). HERMANN C. SCHWAB, 787 Seventh Avenue, New York, New York - Chairman (Honorary) and a Trustee of the Trust - retired since March, 1988; prior thereto, consultant to SCMI since February 1, 1984.
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MARK J. SMITH(a) (b), 33 Gutter Lane, London, England - a Vice President and a Trustee of the Trust - First Vice President of SCMI since April 1990; Director and Vice President, Schroder Advisors. ROBERT G. DAVY, 787 Seventh Avenue, New York, New York - a Vice-President of the Trust - Director of SCMI and Schroder Capital Management International Ltd. since 1994; First Vice President of SCMI since July, 1992; prior thereto, employed by various affiliates of Schroders plc in various positions in the investment research and portfolio management areas since 1986. RICHARD R. FOULKES, 787 Seventh Avenue, New York, New York - a Vice President of the Trust; Deputy Chairman of SCMI since October 1995; Director of SCMI since 1979, Director of Schroder Capital Management International Ltd. since 1989, and Executive Vice President of both of these entities. JOHN Y. KEFFER, 2 Portland Square, Portland, Maine - a Vice President of the Trust. President of Forum Financial Services, Inc., the Fund's sub- administrator, and Forum Financial Corp., the Fund's transfer and dividend disbursing agent and fund accountant. JANE P. LUCAS, (c) 787 Seventh Avenue, New York, New York - Vice President of the Trust - Director and Senior Vice President SCMI; Director of SWIS since September 1995; Assistant Director Schroder Investment Management Ltd. since June 1991. CATHERINE A. MAZZA, 787 Seventh Avenue, New York, New York - a Vice President of the Trust - Senior Vice President Schroder Advisors since December 1995; Vice President of SCMI since October 1994; prior thereto, held various marketing positions at Alliance Capital, an investment adviser, since July 1985. FARIBA TALEBI, 787 Seventh Avenue, New York, New York - a Vice President of the Trust - First Vice President of SCMI since April 1993, employed in various positions in the investment research and portfolio management areas since 1987. JOHN A. TROIANO(b), 787 Seventh Avenue, New York, New York - a Vice President of the Trust - Managing Director of SCMI since October 1995; Director of Schroder Advisors since October 1992, Director and Senior Vice President of SCMI since 1991; prior thereto, employed by various affiliates of SCMI in various positions in the investment research and portfolio management areas since 1981. IRA L. UNSCHULD, 787 Seventh Avenue, New York, New York - a Vice President of the Trust - a Vice President of SCMI since April, 1993 and an Associate from July, 1990 to April, 1993; prior to July, 1990, employed by various financial institutions as a securities or financial analyst. ROBERT JACKOWITZ(b) (c), 787 Seventh Avenue, New York, New York - Treasurer of the Trust - Vice President of SWIS since September 1995; Treasurer of SWIS and Schroder Advisers since July 1995; Vice President of SCMI since June 1995; and Assistant Treasurer of Schroders Incorporated since January 1993. MARGARET H. DOUGLAS-HAMILTON(b) (c), 787 Seventh Avenue, New York, New York - Secretary of the Trust - Secretary of SWIS since July 1995; Secretary of Schroder Advisers since April 1990; First Vice President and General Counsel of Schroders Incorporated(b) since May 1987; prior thereto, partner of Sullivan & Worcester, a law firm.
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DAVID I. GOLDSTEIN, 2 Portland Square, Portland, Maine - Assistant Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. Since 1991; prior thereto, associate at Kirkpatrick & Lockhart, Washington, D.C. THOMAS G. SHEEHAN, 2 Portland Square, Portland, Maine - Assistant Treasurer and Assistant Secretary of the Trust - Counsel, Forum Financial Services, Inc. since 1993; prior thereto, Special Counsel, U.S. Securities and Exchange Commission, Division of Investment Management, Washington, D.C. BARBARA GOTTLIEB(c), 787 Seventh Avenue, New York, New York - Assistant Secretary of the Trust - Assistant Vice President of SWIS since July 1995 prior thereto held various positions with SWIS affiliates. GERARDO MACHADO, 787 Seventh Avenue, New York, New York - Assistant Secretary of the Trust - Associate, SCMI. (a) Interested Trustee of the Trust within the meaning of the 1940 Act. (b) Schroder Fund Advisors, Inc. ("Schroder Advisors") is a wholly-owned subsidiary of SCMI, which is a wholly-owned subsidiary of Schroders Incorporated, which in turn is an indirect, wholly-owned U.S. subsidiary of Schroders plc. (c) Schroder Wertheim Investment Services, Inc. ("SWIS") is a wholly-owned subsidiary of Schroder Wertheim Holdings Incorporated which is a wholly-owned subsidiary of Schroders, Incorporated, which in turn is an indirect wholly-owned U.S. subsidiary of Schroders plc. Officers and Trustees who are interested persons of the Trust receive no salary, fees or compensation from the Fund. Independent Trustees of the Trust receive an annual fee of $1,000 and a fee of $250 for each meeting of the Board attended by them except in the case of Mr. Schwab, who receives an annual fee of $1,500 and a fee of $500 for each meeting attended. The Fund has no bonus, profit sharing, pension or retirement plans. The following table provides the fees paid to each Trustee of the Trust for the fiscal year ended October 31, 1995. [Enlarge/Download Table] Name of Trustee Aggregate Pension or Estimated Total Compensation Retirement Annual Benefits Compensation From Trust Benefits Accrued Upon Retirement From Trust And As Part of Trust Fund Complex Expenses Paid to Trustees ----------------------------------------------------------------------------------------- Mr. Guernsey $4,000 $0 $0 $4000 Mr. Hansmann 3,500 0 0 3,500 Mr. Howell 4,000 0 0 4,000 Ms. Luckyn-Malone 0 0 0 0 Mr. Michalis 3,000 0 0 3,000 Mr. Schwab 7,000 0 0 7,000 Mr. Smith 0 0 0 0
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As of April 30, 1996, the officers and Trustees of the Trust owned, in the aggregate, less than 1% of the Fund's outstanding shares. Although the Trust is a Delaware business trust, certain of its Trustees or officers are residents of the United Kingdom and substantially all of their assets may be located outside of the U.S. As a result it may be difficult for U.S. investors to effect service upon such persons within the U.S., or to realize judgments of courts of the U.S. predicated upon civil liabilities of such persons under the Federal securities laws of the U.S. The Trust has been advised that there is substantial doubt as to the enforceability in the United Kingdom of such civil remedies and criminal penalties as are afforded by the Federal securities laws of the U.S. Also it is unclear if extradition treaties now in effect between the U.S. and the United Kingdom would subject such persons to effective enforcement of the criminal penalties of such acts. INVESTMENT ADVISER Schroder Capital Management International Inc. ("SCMI"), 787 Seventh Avenue, New York, New York 10019, serves as Investment Adviser to the Fund pursuant to an Investment Advisory Contract between the Trust and SCMI. SCMI is a wholly-owned U.S. subsidiary of Schroders Incorporated, the wholly-owned U.S. holding company subsidiary of Schroders plc. Schroders plc is the holding company parent of a large worldwide group of banks and financial service companies (referred to as the "Schroder Group"), with associated companies and branch and representative offices located in seventeen countries worldwide. The Schroder Group specializes in providing investment management services, with Group funds under management currently in excess of $100 billion. Pursuant to the Investment Advisory Contract, SCMI is responsible for managing the investment and reinvestment of the assets included in the Fund's portfolio and continuously reviews, supervises and administers the Fund's investments. In this regard, it is the responsibility of SCMI to make decisions relating to the Fund's investments and to place purchase and sale orders regarding such investments with brokers or dealers selected by it in its discretion. SCMI also furnishes to the Board of Trustees periodic reports on the investment performance of the Fund. Under the terms of the Investment Advisory Contract, SCMI is required to manage the Portfolio's investment portfolio in accordance with applicable laws and regulations. In making its investment decisions, SCMI does not use material inside information that may be in its possession or in the possession of its affiliates. The Investment Advisory Contract will continue in effect provided such continuance is approved annually (i) by the holders of a majority of the outstanding voting securities of the Fund or by the Board and (ii) by a majority of the Trustees who are not parties to such Contract or "interested persons" (as defined in the 1940 Act) of any such party. The Investment Advisory Contract may be terminated without penalty by vote of the Trustees or the shareholders of the Fund on 60 days' written notice to the Adviser, or by the Adviser on 60 days' written notice to the Trust and it will terminate automatically if assigned. The Investment Advisory Contract also provides that, with respect to the Fund, neither SCMI nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the performance of its or their duties to the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of the SCMI's or their duties or by reason of reckless disregard of its or their obligations and duties under the Investment Advisory Contract. Under the terms of the Investment Advisory Contract, SCMI receives a monthly fee equal on an annual basis to 1.00% of its average daily net assets. From commencement of operations through October 31, 1995, SCMI received an advisory fee of $19,326.
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The Fund currently invests all of its assets in the Portfolio. SCMI will not receive an investment advisory fee with respect to the Fund so long as the Fund remains completely invested in the Portfolio or any other investment company. The Fund may withdraw its investment from the Portfolio at any time if the Board determines that it is in the best interests of the Fund and its shareholders to do so. Accordingly, the Fund retains SCMI as its investment adviser to manage the Fund's assets in the event the Fund so withdraws its investment. The investment advisory contract between Core Trust and SCMI with respect to the Portfolio is the same in all material respects as the Fund's Investment Advisory Contract except as to the parties, the circumstances under which fees will be paid and the jurisdiction whose laws govern the agreement. ADMINISTRATIVE SERVICES The Trust has entered into an Administrative Services Contract with Schroder Fund Advisors Inc. ("Schroder Advisors"), 787 Seventh Avenue, New York, New York 10019, pursuant to which Schroder Advisors provides management and administrative services necessary for the operation of the Fund, other than any management services provided to the Fund by SCMI pursuant to the Investment Advisory Contract, including among other things, (i) preparation of shareholder reports and communications, (ii) regulatory compliance, such as reports to and filings with the Securities and Exchange Commission and state securities commissions, and (iii) general supervision of the operation of the Fund, including coordination of the services performed by the Fund's investment adviser, transfer agent, custodian, independent accountants, legal counsel and others. 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. Effective July 5, 1995, Schroder Advisors changed its name from Schroder Capital Distributors Inc. For these services, Schroder Advisors will receive from the Fund a fee, payable monthly, at the annual rate of 0.10% of the Fund's average daily net assets. From commencement of operations through October 31, 1995, Schroder Advisors received an administrative fee of $19,591. The Administrative Services Contract is terminable with respect to the Fund without penalty, at any time, by vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Fund's Distribution Plan or in the Administrative Services Contract, upon not more than 60 days' written notice to Schroder Advisors or by vote of the holders of a majority of the shares of the Fund, or, upon 60 days' notice, by Schroder Advisors. The Administrative Services Contract will terminate automatically in the event of its assignment. The Trust and Schroder Advisors have entered into a Sub-Administration Agreement with Forum Financial Services, Inc. ("Forum"). Pursuant to the Sub- Administration Agreement, Forum assists Schroder Advisors with certain of its responsibilities under the Administrative Services Agreement, including shareholder reporting and regulatory compliance. Payment for Forum's services is made by Schroder Advisors and is not a separate expense of the Fund. The Sub-Administration Agreement is terminable with respect to the Fund without penalty, at any time, by the Board, Schroder Advisors and the Adviser upon 60 days' written notice to Forum or by Forum upon 60 days' written notice to the Fund and Schroder Advisors, and the Adviser, as appropriate. Schroder Advisors and Forum provide similar services to the Portfolio pursuant to administrative services agreements between Core Trust and each of these entities, for which Schroder Advisors is separately compensated at an annual rate of 0.15% of the average daily net assets of the Portfolio, a
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portion of which Forum receives for its services with respect to the Portfolio. The administrative services agreements are the same in all material respects as the Fund's respective agreements except as to the parties, the circumstances under which fees will be paid, the fees payable thereunder and the jurisdiction whose laws govern the agreements. The fees paid by the Fund to SCMI and Schroder Advisors may equal up to 1.25% of the Fund's average daily net assets. Such fees as a whole are higher than advisory and management fees charged to mutual funds which invest primarily in U.S. securities but not necessarily higher than those charged to funds with investment objectives similar to that of the Fund. DISTRIBUTION OF FUND SHARES Under a Distribution Plan (the "Plan") adopted by the Fund, 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, to be a "Distributor" of the Fund's shares) monthly (subject to a limit of 0.50% per annum of the Fund's average daily net assets) for the sum of (a) advertising expenses including advertising by radio, television, newspapers, magazines, brochures, sales literature or direct mail, (b) costs of printing prospectuses and other materials to be given or sent to prospective investors, (c) expenses of sales employees or agents of the Distributor, including salary, commissions, travel and related expenses in connection with the distribution of Fund shares, and (d) payments to broker-dealers (other than the Distributor) or other organizations (other than banks) for services rendered in the distribution of the Fund's shares, including payments in amounts based on the average daily value of Fund shares owned by shareholders in respect of which the broker-dealer or organization has a distributing relationship. Until the Board specifically further so authorizes, the Fund will make no payments under the Plan with respect to the Fund's Investor Shares Class, and will make no payment in excess of 0.25% in excess of the Fund's average daily net assets attributable to Advisor Shares with respect to the Advisor Shares class. The Fund will not be liable for distribution expenditures made by the Distributor in any given year in excess of the maximum amount (0.50% per annum of the Fund's average daily net assets) payable under the Plan in that year. Salary expense of salesmen who are responsible for marketing shares of the Fund may be allocated to various portfolios of the Trust that have adopted a Plan similar to that of the Fund on the basis of average net assets; travel expense is allocated to, or divided among, the particular portfolios of the Trust for which it is incurred. The Board has concluded that there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders. The Plan provides that it may not be amended to increase materially the costs which the Fund may bear pursuant to the Plan without shareholder approval and that other material amendments of the Plan must be approved by the Board, and by the Trustees who are neither "interested persons" (as defined in the 1940 Act) of the Trust nor have any direct or indirect financial interest in the operation of the Plan or in any related agreement, by vote cast in person at a meeting called for the purpose of considering such amendments. The selection and nomination of the Trustees of the Trust has been committed to the discretion of the Trustees who are not "interested persons" of the Trust. The Plan has been approved, and is subject to annual approval, by the Board and by the Trustees who are neither "interested persons" nor have any direct or indirect financial interest in the operation of the Plan, by vote cast in person at a meeting called for the purpose of voting on the Plan. The Fund has no intention of implementing the Distribution Plan with respect to institutional investors, and in any event will make no payments under the Distribution Plan until the Board specifically further so authorizes. The Plan is terminable with respect to the Fund at any time by a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or by vote of the holders of a majority of the shares of the Fund. Schroder Advisors acts as Distributor of the Fund's shares.
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SERVICE ORGANIZATIONS The Fund may also contract with banks, trust companies, broker-dealers or other financial organizations ("Service Organizations") to provide certain administrative services for the Fund. The Fund could pay fees to Service Organizations (which vary depending upon the services provided) in amounts up to an annual rate of 0.25% of the daily net asset value of the Fund's shares owned by shareholders with whom the Service Organization had a servicing relationship. Services provided by Service Organizations may include, among other things: providing necessary personnel and facilities to establish and maintain certain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with client orders to purchase or redeem shares; verifying and guaranteeing client signatures in connection with redemption orders, transfers among and changes in client-designated accounts; providing periodic statements showing a client's account balances and, to the extent practicable, integrating such information with other client transactions; furnishing periodic and annual statements and confirmations of all purchases and redemptions of shares in a client's account; transmitting proxy statements, annual reports, and updating prospectuses and other communications from the Fund to clients; and such other services as the Fund or a client reasonably may request, to the extent permitted by applicable statute, rule or regulation. Neither SCMI nor Schroder Advisors will be a Service Organization or receive fees for servicing. The Fund has no intention of making any such payments to Service Organizations with respect to Investor Shares until the Board specifically further so authorizes. Some Service Organizations could impose additional or different conditions on their clients, such as requiring their clients to invest more than the minimum initial or subsequent investments specified by the Fund or charging a direct fee for servicing. If imposed, these fees would be in addition to any amounts which might be paid to the Service Organization by the Fund. Each Service Organization would agree to transmit to its clients a schedule of any such fees. Shareholders using Service Organizations would be urged to consult them regarding any such fees or conditions. The Glass-Steagall Act and other applicable laws provide that banks may not engage in the business of underwriting, selling or distributing securities. There currently is no precedent prohibiting banks from performing administrative and shareholder servicing functions as Service Organizations. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either federal or state statutes or regulations relating to the permissible activities of banks and their subsidiaries or affiliates, could prevent a bank service organization from continuing to perform all or a part of its servicing activities. If a bank were prohibited from so acting, its shareholder clients would be permitted to remain shareholders of the Fund and alternative means for continuing the servicing of such shareholders would be sought. In that event, changes in the operation of the Fund might occur and a shareholder serviced by such a bank might no longer be able to avail itself of any services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. PORTFOLIO ACCOUNTING Forum Financial Corp. ("FFC"), an affiliate of Forum, performs portfolio accounting services for the Fund pursuant to a Fund Accounting Agreement with the Trust. The Fund Accounting Agreement will continue in effect only if such continuance is specifically approved at least annually by the Board of Trustees or by a vote of the shareholders of the Trust and in either case by a majority of the Trustees who
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are not parties to the Fund Accounting Agreement or interested persons of any such party, at a meeting called for the purpose of voting on the Fund Accounting Agreement. Under its agreement, FFC prepares and maintains books and records of the Fund on behalf of the Trust that are required to be maintained under the 1940 Act, calculates the net asset value per share of the Fund and dividends and capital gain distributions and prepares periodic reports to shareholders and the Securities and Exchange Commission. For its services, FFC receives from the Trust with respect to the Fund a fee of $36,000 per year plus, for each class of the Fund above one, $12,000 per year. FFC is paid an additional $24,000 per year with respect to global and international funds. In addition, FFC is paid an additional $12,000 per year with respect to tax-free money market funds and funds with more than 25% of their total assets invested in asset backed securities, that have more than 100 security positions or that have a monthly portfolio turnover rate of 10% or greater. FFC is required to use its best judgment and efforts in rendering fund accounting services and is not be liable to the Trust for any action or inaction in the absence of bad faith, willful misconduct or gross negligence. FFC is not responsible or liable for any failure or delay in performance of its fund accounting obligations arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control and the Trust has agreed to indemnify and hold harmless FFC, its employees, agents, officers and directors against and from any and all claims, demands, actions, suits, judgments, liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising out of or in any way related to FFC's actions taken or failures to act with respect to a Fund or based, if applicable, upon information, instructions or requests with respect to a Fund given or made to FFC by an officer of the Trust duly authorized. This indemnification does not apply to FFC's actions taken or failures to act in cases of FFC's own bad faith, willful misconduct or gross negligence. For the fiscal year ended October 31, 1995, the Fund paid fund accounting fees of $35,667. FEES AND EXPENSES As compensation for the advisory, administrative and management services rendered to the Fund, SCMI and Schroder Advisors will each earn monthly fees at the following annual rates: Fee Rate Portion of average daily value Advisory