Issue of Equity

RNS Number:8636W
Schroder UK Mid & Small Cap Fd PLC
23 March 2004


Schroder UK Mid and Small Cap Fund plc
23 March 2004

Recommended proposals for an acquisition of assets through the issue of new
shares and debt in connection with the scheme of reconstruction of Allianz
Dresdner Smaller Companies Investment Trust plc

Background to the Proposals

The Board announced on 2 May 2003 that Schroder Investment Management Limited
had been appointed as the Company's investment manager, with the investment
policy being redirected towards a mid and small cap focus. Since that date, the
Company's share price has experienced a re-rating relative to Net Asset Value
and as at 18 March 2004 the shares were quoted at a middle-market price of 119.5
pence, representing an 11.2 per cent. discount to NAV.

In the light of this re-rating and the Company's strong investment performance
since May 2003 and of Schroders' longer term investment track record as
evidenced by the performance of its UKsmaller companies and UK Mid 250 funds,
Allianz Dresdner Smaller Companies Investment Trust plc approached the Company
with a view to New Shares in the Company being offered to Allianz Dresdner
Smaller Companies' shareholders under a scheme of reconstruction.

Following a successful outcome to the negotiations with Allianz Dresdner Smaller
Companies, the Board is today recommending proposals for an issue of up to 12
million New Shares in the Company to shareholders in Allianz Dresdner Smaller
Companies in consideration for the transfer of certain of Allianz Dresdner
Smaller Companies' assets to the Company and has posted a circular to
Shareholders dated 23 March 2004 (the "Circular"). Under the Proposals, the
Company will also agree to acquire additional assets from Allianz Dresdner
Smaller Companies, funded by a loan facility, in order to provide Shareholders
with geared exposure to the asset class.

The Proposals

Issue of New Shares to shareholders in Allianz Dresdner Smaller Companies

Allianz Dresdner Smaller Companies is an existing investment trust whose
investment objective is to achieve long term capital growth through investment
in small UK companies. As at 18 March 2004 (being the latest practicable date
prior to the date of the Circular), the net assets of Allianz Dresdner Smaller
Companies were #34.0 million (source: as published by RCM (UK) Limited, the
manager of Allianz Dresdner Smaller Companies).

Allianz Dresdner Smaller Companies' board has today announced a recommended
scheme of reconstruction whereby Allianz Dresdner Smaller Companies will be
placed into members' voluntary (solvent) liquidation and its shareholders
offered a combination of cash and New Shares in equal proportions. The
entitlement of Allianz Dresdner Smaller Companies' shareholders to New Shares
and cash will be calculated after taking account of Allianz Dresdner Smaller
Companies' full liabilities on its liquidation (including all costs associated
with redeeming its debt), any costs associated with realising its assets to meet
the cash element of the Scheme, and its professional and incidental costs,
including its management agreement termination costs. Allianz Dresdner Smaller
Companies' shareholders will be able to elect for a greater proportion of cash
or New Shares than would otherwise be received under the Scheme, but such
elections will be satisfied only to the extent that other Allianz Dresdner
Smaller Companies shareholders elect for equal and opposite proportions of cash
and/or New Shares.

As at 29 February 2004, 37.2 per cent. of Allianz Dresdner Smaller Companies'
portfolio was invested in mid cap stocks and 62.8 per cent. in small cap stocks.
Schroders has reviewed Allianz Dresdner Smaller Companies' portfolio and
believes it contains investments which are consistent with Schroder UK Mid and
Small Cap's current investment policy. A list, for information only, of Allianz
Dresdner Smaller Companies' investments with a value greater than 5 per cent. of
Allianz Dresdner Smaller Companies' gross assets and at least the ten largest
investments, as at 29 February 2004, is set out in Part IV of the Prospectus
which has been issued today and sent to Shareholders. Shareholders should note
that the assets to be acquired by Schroder UK Mid and Small Cap under the
Transfer Agreement will be determined by the composition of Allianz Dresdner
Smaller Companies' portfolio as at the Calculation Date and may differ from the
investments comprising the list referred to above.

As part of its liquidation, Allianz Dresdner Smaller Companies' remaining assets
will be divided into two pools on the Calculation Date, one of which represents
those Allianz Dresdner Smaller Companies shares whoseholders have elected for
New Shares. The assets comprising this pool will contain only those assets which
Schroders, in conjunction with Allianz Dresdner Smaller Companies and its
advisers, considers acceptable, and which have been approved by the Board,
taking into account Schroder UK Mid and Small Cap's investment objective and
therefore appropriate for transfer to Schroder UK Mid and Small Cap. The
Company's investment objective is to invest in mid and small cap equities with
the aim of providing a total return in excess of the FTSE All-Share, excluding
investment companies, excluding FTSE 100, Total Return Index.

In exchange for the transfer of those assets (as set out above), the Company is
proposing to issue up to 12 million New Shares to Allianz Dresdner Smaller
Companies' Shareholders. The New Shares are proposed to be issued at a price
equal to a formula net asset value ("FNAV"), being the net asset value per Share
after deduction of the Company's related professional and incidental costs and
its liability to stamp duty on the assets to be acquired from Allianz Dresdner
Smaller Companies. In order to limit the dilution to the Net Asset Value per
existing Ordinary Share which would otherwise result from this calculation of
the Issue Price, Allianz Dresdner Smaller Companies has agreed to the transfer
of those assets passing to the Company under the Scheme at such prices as would
give the same economic effect as if the New Shares were being issued at 101 per
cent.of FNAV.

Purchase of additional assets to gear the Company's portfolio

Under the Proposals the Company has agreed, in addition to the transfer of
assets in consideration for the New Shares, to acquire for cash (which the
Company is to borrow) certain additional assets from Allianz Dresdner Smaller
Companies valued at up to #5 million. As with the assets transferred under the
Scheme, the assets to be acquired will be selected by Schroders, in conjunction
with Allianz Dresdner Smaller Companies and its advisers, and approved by the
Board. The assets will be purchased at their respective mid-market prices
prevailing on the Calculation Date.

The acquisition of up to #5 million of assets through debt will result in
increased gearing forthe Company. The Company currently operates with a
short-term overdraft facility.

It is intended that the gearing will be funded by a drawdown from a #10 million
revolving, floating rate bank loan facility. Based on the terms of the Loan
FacilityAgreement and the indicative cost of funding as at 19 March 2004, the
interest rate payable on the borrowings in the first three month interest period
would have been 4.8 per cent. per annum.

Increase of authorised share capital

In order to facilitate the issue of New Shares pursuant to the Proposals and to
provide flexibility in the future to issue further Shares, the Company proposes
to increase its authorised share capital by #3 million to #10.5 million, which
represents an increase of 40 per cent. of the aggregate nominal value of the
authorised share capital.

Authority to allot New Shares

The Board is seeking authority to allot such New Shares as are necessary to
implement the Proposals, up to an aggregate nominal value of #3 million, which
represents approximately 44.2 per cent. of the Company's share capital in issue
as at 22 March 2004. This authority will last until 31 May 2004 unless
previously revoked, varied or extended by the Company in general meeting. This
right is in addition to the rights granted to the Directors at the last Annual
General Meeting of the Company pursuant to which the Directors are entitled to
allot on a non pre-emptive basis up to 5 per cent. of the aggregate nominal
amount of the Company's existing issued share capital at 12 December 2003, or
approximately 3.47 per cent. of the aggregate nominal amount of the Company's
increased issued share capital if the resolution to increase the share capital
is approved and assuming 12 million New Shares are issued to Allianz Dresdner
Smaller Companies shareholders.

Benefits of the Proposals

The Directors believe that the Proposals provide Shareholders with the following
principal benefits:

Improved liquidity and marketability

As at 18 March 2004, the net assets of Schroder UK Mid and Small Cap and Allianz
Dresdner Smaller Companies were respectively #36.5 million and #34.0 million.
Under the Proposals, Schroder UK Mid and Small Cap's net assets will increase by
an amount equal to approximately 50 per cent. of Allianz Dresdner Smaller
Companies' net assets after taking account of Allianz Dresdner Smaller
Companies' full liabilities on its liquidation (including all costs associated
with redeeming its debt), any costs associated with realising its assets to meet
the cash element of the Scheme, and its professional and incidental costs,
including its management agreement termination costs. This increase in net
assets should improve both the liquidity of the Shares for existing Shareholders
wishing to trade in the secondary market and the attractiveness of the Shares to
new investors, which should assist in maintaining the relatively narrow discount
to Net Asset Value which has been established following the change of investment
manager and policy in 2003.

Reduction in Total Expense Ratio

The increased size of the Company following implementation of the Proposals will
result in the Company's fixed costs being spread over a larger shareholder base
reducing the cost burden on existing Shareholders and, as a result, the
Company's Total Expense Ratio.

Attractive acquisition price of assets selected from Allianz Dresdner Smaller
Companies' portfolio

As described above, the Company has agreed to acquire assets from Allianz
Dresdner Smaller Companies, both in consideration for the issue of New Shares to
Allianz Dresdner Smaller Companies' shareholders and for cash. The aggregate
acquisition of assets from Allianz Dresdner Smaller Companies will be at an
aggregate cost below the respective middle-market valuation which represents an
opportunity for the Company to increase its exposure to specific shares in the
UK mid and small cap sectors at a price which the Directors consider to be
attractive and which represents fair value for the Company and therefore the
Directors consider that the value to the Company justifies the price to be paid.

Schroders will select for acquisition, in conjunction with Allianz Dresdner
Smaller Companies and its advisers, and the Board will approve, those assets of
Allianz Dresdner Smaller Companies' which it believes are appropriate for
inclusion in the Company's portfolio and are consistent with the Company's
investment objective and policy.

Costs and expenses

The net costs and expenses relating to the Proposals to be borne by the existing
Shareholders are estimated to be #160,000. This figure is stated after having
been reduced by a contribution to costs from Schroders and the effect of such
costs on the Net Asset Value will be further reduced by the acquisition of
assets under the Scheme at prices below the middle-market valuations as
explained above.

Investment outlook

The Directors believe that the Company's financial prospects for the current
financial year are positive and would be enhanced by the Proposals.

Extraordinary General Meeting

The Proposals require the approval of Shareholders. Accordingly an Extraordinary
General Meeting has been convened for 1.00p.m. on 16 April 2004 at 31 Gresham
Street, London EC2V 7QA at which approval to the resolutions contained in the
Notice of Meeting set out at the end of the Circular shall be sought.

Conditions to implementation

The Proposals are conditional upon:

 1.  the approval of the Proposals by the Shareholders at the Extraordinary
     General Meeting;
 2.  the approval of the Scheme by Allianz Dresdner Smaller Companies'
     shareholders at two extraordinary general meetings scheduled to be held on
     15 April 2004 and 23 April 2004 respectively;
 3.  the execution of the Transfer Agreement by each of the parties thereto;
     and
 4.  the admission of the New Shares to the Official List becoming effective.


Dealings and Settlement

Dealings in the Ordinary Shares will not be required to be suspended during
implementation of the Proposals.

Application has been made for the admission of up to 12 million New Shares to
the Official List and to trading on the London Stock Exchange. It is expected
that listing will become effective and dealings in the New Shares will commence
on 26 April 2004.

The New Shares will be in registered form and may be issued either in
certificated or uncertificated form.

The New Shares will rank pari passu with the existing Ordinary Shares, including
for dividends.

The definitions set out on pages 12 and 13 of the Circular shall, unless the
context otherwise requires, bear the same meanings in this document.



Enquiries:

Peter Timms         Chairman, Schroder UK Mid and Small Cap Fund plc
                    020 7658 3206

John Spedding       Schroder Investment Management Limited
                    020 7658 3206

David Benda         Close Brothers Securities
    020 7621 5562




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