<PAGE>
SCHRODER SERIES TRUST II
Schroder All-Asia Fund
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
This Statement of Additional Information (SAI) is not a prospectus and is only
authorized for distribution when accompanied or preceded by a Prospectus for
Schroder All-Asia Fund, as amended or supplemented from time to time. This SAI
relates to the Fund's Class A Shares, which are offered through a Prospectus
dated March 1, 2000. This SAI contains information which may be useful to
investors but which is not included in the Prospectus. Investors may obtain free
copies of the Prospectus by calling the Trust at 800-464-3108.
Certain disclosure has been incorporated by reference into this SAI from the
Fund's annual report. For a free copy of the annual report, please call
800-464-3108.
<PAGE>
TABLE OF CONTENTS
TRUST HISTORY............................................................1
FUND CLASSIFICATION......................................................1
CAPITALIZATION AND SHARE CLASSES.........................................1
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS................1
INVESTMENT RESTRICTIONS.................................................14
TRUSTEES AND OFFICERS...................................................17
SCHRODER AND ITS AFFILIATES.............................................19
INVESTMENT ADVISORY AGREEMENT...........................................19
ADMINISTRATIVE SERVICES.................................................21
DISTRIBUTOR.............................................................23
EXPENSES................................................................24
BROKERAGE ALLOCATION AND OTHER PRACTICES................................24
DETERMINATION OF NET ASSET VALUE........................................26
SALES AT NET ASSET VALUE................................................27
REDEMPTIONS IN KIND.....................................................28
TAXES...................................................................28
PRINCIPAL HOLDERS OF SECURITIES.........................................30
PRINCIPAL HOLDERS OF SECURITIES.........................................30
THE PORTFOLIOS..........................................................31
CUSTODIAN...............................................................32
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT............................32
INDEPENDENT ACCOUNTANTS.................................................33
LEGAL COUNSEL...........................................................33
SHAREHOLDER LIABILITY...................................................33
FINANCIAL STATEMENTS....................................................33
APPENDIX A.............................................................A-1
<PAGE>
SCHRODER SERIES TRUST II
STATEMENT OF ADDITIONAL INFORMATION
TRUST HISTORY
Schroder Series Trust II was organized as a Delaware business trust on
December 5, 1997. The Trust's Trust Instrument, which is governed by Delaware
law, is on file with the Secretary of State of the State of Delaware. Schroder
Investment Management North America Inc. ("Schroder") and its corporate
predecessors have served as investment adviser to the Trust since its inception.
FUND CLASSIFICATION
The Trust currently offers shares of beneficial interest of Schroder
All-Asia Fund (the "Fund"), which are offered pursuant to the Prospectus and
this SAI. The Fund currently seeks to achieve its investment objective by
investing substantially all of its assets in Schroder Asian Growth Fund
Portfolio and Schroder Japan Portfolio (each a "Portfolio"). The Portfolios are
separately managed, non-diversified investment companies advised by Schroder.
The Fund may withdraw some or all of its investments in the Portfolios and
invest directly in equity securities of Asian companies at any time. The Fund is
a "non-diversified" investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), and therefore may invest its assets
in a more limited number of issuers than may diversified investment companies.
To the extent the Fund invests a significant portion of its assets in the
securities of a particular issuer, it will be subject to an increased risk of
loss if the market value of the issuer's securities declines.
CAPITALIZATION AND SHARE CLASSES
The Trust has an unlimited number of shares of beneficial interest that
may, without shareholder approval, be divided into an unlimited number of series
of such shares, which, in turn, may be divided into an unlimited number of
classes of such shares. The Trust currently consists of one series, the Fund.
The Fund currently has one class of shares, Class A Shares. The Fund may suspend
the sale of shares at any time.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally. Shares have noncumulative voting rights. Although the
Trust is not required to hold annual meetings of its shareholders, shareholders
have the right to call a meeting to elect or remove Trustees or to take other
actions as provided in the Trust Instrument. Shares have no preemptive or
subscription rights, and are transferable. Shares are entitled to dividends as
declared by the Trustees, and if the Fund were liquidated, each class of shares
of the Fund (if there were more than one class) would receive the net assets of
the Fund attributable to the class.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal risks
of the Fund described in the Prospectus, the Fund may employ other investment
practices and may be subject to additional risks, which are described below.
Unless a strategy or policy described below is specifically prohibited by the
investment restrictions listed in the Prospectus, under "Investment
Restrictions" in this SAI, or by applicable law, the Fund may engage in each of
the practices described below.
Certain Derivative Instruments
Derivative instruments are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security, index
or currency. As described below, to the extent
<PAGE>
permitted under "Investment Restrictions" below and in the Prospectus, the Fund
may engage in a variety of transactions involving the use of derivative
instruments, including options and futures contracts on securities and
securities indices and options on futures contracts. These transactions may be
used by the Fund for hedging purposes or, to the extent permitted by applicable
law, to increase its current return. The Fund may also engage in derivative
transactions involving foreign currencies. See "Foreign Currency Transactions."
Options
The Fund may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
Covered call options. The Fund may write covered call options on its
portfolio securities to realize a greater current return through the receipt of
premiums than it would realize on its securities alone. Such option transactions
may also be used as a limited form of hedging against a decline in the price of
securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call option,
the Fund gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Fund retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Fund realizes a gain
equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Fund realizes a gain or
loss equal to the difference between the Fund's cost for the underlying security
and the proceeds of the sale (exercise price minus commissions) plus the amount
of the premium.
The Fund may terminate a call option that it has written before it expires
by entering into a closing purchase transaction. The Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
Covered put options. The Fund may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Fund plans to purchase. A put option gives the holder the right to sell, and
obligates the writer to buy, a security at the exercise price at any time before
the expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Fund also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
<PAGE>
The Fund may terminate a put option that it has written before it expires
by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. The Fund may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it sold
the underlying security instead of buying the put option.
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
The Fund may also purchase put and call options to enhance its current
return. The Fund may also buy and sell combinations of put and call options on
the same underlying security to earn additional income.
Options on foreign securities. The Fund may purchase and sell options on
foreign securities if in Schroder's opinion the investment characteristics of
such options, including the risks of investing in such options, are consistent
with the Fund's investment objectives. It is expected that risks related to such
options will not differ materially from risks related to options on U.S.
securities. However, position limits and other rules of foreign exchanges may
differ from those in the U.S. In addition, options markets in some countries,
many of which are relatively new, may be less liquid than comparable markets in
the U.S.
Risks involved in the sale of options. Options transactions involve
certain risks, including the risks that Schroder will not forecast interest rate
or market movements correctly, that the Fund may be unable at times to close out
such positions, or that hedging transactions may not accomplish their purpose
because of imperfect market correlations. The successful use of these strategies
depends on the ability of Schroder to forecast market and interest rate
movements correctly.
An exchange-listed option may be closed out only on an exchange that
provides a secondary market for an option of the same series. Although the Fund
will enter into an option position only if Schroder believes that a liquid
secondary market exists, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option or at any particular time. If
no secondary market were to exist, it would be impossible to enter into a
closing transaction to close out an option position. As a result, the Fund may
be forced to continue to hold, or to purchase at a fixed price, a security on
which it has sold an option at a time when Schroder believes it is inadvisable
to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Fund and other clients
of Schroder may be considered such a group. These position limits may restrict
the Fund's ability to purchase or sell options on particular securities.
<PAGE>
As described below, the Fund generally expects that its options
transactions will be conducted on recognized exchanges. In certain instances,
however, the Fund may purchase and sell options in the over-the-counter markets.
Options which are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out over-the-counter options than exchange-traded
options. Options in the over-the-counter market may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Fund. Furthermore, over-the-counter options are not
subject to the protection afforded purchasers of exchange-traded options by The
Options Clearing Corporation. The Fund will, however, engage in over-the-counter
options transactions only when appropriate exchange-traded options transactions
are unavailable and when, in the opinion of Schroder, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their contractual obligations. The Fund
will treat over-the-counter options (and, in the case of options sold by the
Fund, the underlying securities held by the Fund) as illiquid investments as
required by applicable law.
Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the United States Internal Revenue Code
of 1986, may also restrict the Trust's use of options.
Futures Contracts
In order to hedge against the effects of adverse market changes, the Fund
may buy and sell futures contracts on U.S. Government securities and other debt
securities in which the Fund may invest, and on indices of debt securities. In
addition, the Fund may purchase and sell stock index futures to hedge against
changes in stock market prices. The Fund may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase the Fund's current return. All such futures and related options
will, as may be required by applicable law, be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission (the "CFTC").
Depending upon the change in the value of the underlying security or index when
the Fund enters into or terminates a futures contract, the Fund may realize a
gain or loss.
Futures on Debt Securities and Related Options. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- the Fund
will legally obligate itself to accept the future delivery of the underlying
security and pay the agreed price. By selling futures on debt securities --
assuming a "short" position -- it will legally obligate itself to make the
future delivery of the security against payment of the agreed price. Open
futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons acting
at the direction of the Trustees as to the valuation of the Fund's assets,
reflect the fair value of the contract, in which case the positions will be
valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by the Fund will usually be
liquidated in this manner, the Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the Fund
to do so. A clearing corporation associated with the exchange on which futures
are traded assumes responsibility for such closing transactions and guarantees
that the Fund's sale and purchase obligations under closed-out positions will be
performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. The Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an
<PAGE>
anticipated rise in interest rates that would adversely affect the value of the
Fund's portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities may substantially be offset by
appreciation in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Fund
expects to purchase particular securities when it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase.
Successful use by the Fund of futures contracts on debt securities is
subject to Schroder's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the market prices of debt securities
held by it and the prices of such securities increase instead, the Fund will
lose part or all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash, it may have
to sell securities to meet daily maintenance margin requirements. The Fund may
have to sell securities at a time when it may be disadvantageous to do so.
The Fund may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to options
on securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. The Fund
will be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers'
requirements, and, in addition, net option premiums received will be included as
initial margin deposits. See "Margin Payments" below. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options plus transactions costs. However, there
may be circumstances when the purchase of call or put options on a futures
contract would result in a loss to the Fund when the purchase or sale of the
futures contracts would not, such as when there is no movement in the prices of
debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
Index Futures Contracts and Options. The Fund may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. A stock index futures
contract is a contract to buy or sell units of a stock index at a specified
future date at a price agreed upon when the contract is made. A unit is the
current value of the stock index.
Depending on the change in the value of the index between the time when
the Fund enters into and terminates an index futures transaction, the Fund may
realize a gain or loss. The following example illustrates generally the manner
in which index futures contracts operate. The Standard & Poor's 100 Stock Index
is composed of 100 selected common stocks, most of which are listed on the New
York Stock Exchange. The S&P 100 Index assigns relative weightings to the common
stocks included in the Index, and the Index fluctuates with changes in the
market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no
<PAGE>
delivery of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual level
of the stock index at the expiration of the contract. For example, if the Fund
enters into a futures contract to buy 100 units of the S&P 100 Index at a
specified future date at a contract price of $180 and the S&P 100 Index is at
$184 on that future date, the Fund will gain $400 (100 units x gain of $4). If
the Fund enters into a futures contract to sell 100 units of the stock index at
a specified future date at a contract price of $180 and the S&P 100 Index is at
$182 on that future date, the Fund will lose $200 (100 units x loss of $2).
The Fund may purchase or sell futures contracts with respect to any
securities indices. Positions in index futures may be closed out only on an
exchange or board of trade that provides a secondary market for such futures.
In order to hedge the Fund's investments successfully using futures
contracts and related options, the Fund must invest in futures contracts with
respect to indices or sub-indices the movements of which will, in Schroder's
judgment, have a significant correlation with movements in the prices of the
Fund's portfolio securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, the Fund that may purchase and sell index futures contracts
may purchase and sell call and put options on the underlying indices themselves
to the extent that such options are traded on national securities exchanges.
Index options are similar to options on individual securities in that the
purchaser of an index option acquires the right to buy (in the case of a call)
or sell (in the case of a put), and the writer undertakes the obligation to sell
or buy (as the case may be), units of an index at a stated exercise price during
the term of the option. Instead of giving the right to take or make actual
delivery of securities, the holder of an index option has the right to receive a
cash "exercise settlement amount". This amount is equal to the amount by which
the fixed exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index on the
date of the exercise, multiplied by a fixed "index multiplier".
The Fund may purchase or sell options on stock indices in order to close
out its outstanding positions in options on stock indices that it has purchased.
The Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
The Fund may also purchase warrants, issued by banks and other financial
institutions, whose values are based on the values from time to time of one or
more securities indices.
<PAGE>
Margin Payments. When the Fund purchases or sells a futures contract, it
is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when the Fund sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Fund's position
declines in value. The Fund then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the market price of the securities underlying the futures contract. Conversely,
if the price of the underlying security falls below the delivery price of the
contract, the Fund's futures position increases in value. The broker then must
make a variation margin payment equal to the difference between the delivery
price of the futures contract and the market price of the securities underlying
the futures contract.
When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity Risks. Positions in futures contracts may be closed out only on
an exchange or board of trade that provides a secondary market for such futures.
Although the Fund intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although the Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Fund would have to exercise the options
in order to realize any profit.
Hedging Risks. There are several risks in connection with the use by the
Fund of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or in the prices of the Fund's securities that are the subject of a hedge.
Schroder will, however, attempt to reduce this risk by purchasing and selling,
to the extent possible, futures contracts and related options on securities and
indices the movements of which will, in its judgment, correlate closely with
movements in the prices of the underlying securities or index and the Fund's
portfolio securities sought to be hedged.
<PAGE>
Successful use of futures contracts and options by the Fund for hedging
purposes is also subject to Schroder's ability to predict correctly movements in
the direction of the market. It is possible that, where the Fund has purchased
puts on futures contracts to hedge its portfolio against a decline in the
market, the securities or index on which the puts are purchased may increase in
value and the value of securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the puts and also experience a decline in
value in its portfolio securities. In addition, the prices of futures, for a
number of reasons, may not correlate perfectly with movements in the underlying
securities or index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions that could distort the normal relationship between the underlying
security or index and futures markets. Second, the margin requirements in the
futures markets are less onerous than margin requirements in the securities
markets in general, and as a result the futures markets may attract more
speculators than the securities markets do. Increased participation by
speculators in the futures markets may also cause temporary price distortions.
Due to the possibility of price distortion, even a correct forecast of general
market trends by Schroder may still not result in a successful hedging
transaction over a very short time period.
Lack of Availability. Because the markets for certain options and futures
contracts and other derivative instruments in which the Fund may invest
(including markets located in foreign countries) are relatively new and still
developing and may be subject to regulatory restraints, the Fund's ability to
engage in transactions using such instruments may be limited. Suitable
derivative transactions may not be available in all circumstances and there is
no assurance that the Fund will engage in such transactions at any time or from
time to time. The Fund's ability to engage in hedging transactions may also be
limited by certain regulatory and tax considerations.
Other Risks. The Fund will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures may be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while the Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the portfolio position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss.
Forward Commitments
The Fund may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Fund holds, and maintains until the settlement date in a segregated account,
cash or liquid securities in an amount sufficient to meet the purchase price, or
if the Fund enters into offsetting contracts for the forward sale of other
securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price.
Although the Fund will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the Fund may dispose of a commitment
prior to settlement if Schroder deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward commitments.
Repurchase Agreements
<PAGE>
The Fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). It is the Trust's present
intention to enter into repurchase agreements only with member banks of the
Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust, and only with respect to obligations of the U.S. Government or its
agencies or instrumentalities or other high quality short-term debt obligations.
Repurchase agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to repurchase. Schroder will monitor
such transactions to ensure that the value of the underlying securities will be
at least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if the Fund is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
When-Issued Securities
The Fund may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by the Fund and no interest accrues to the Fund.
To the extent that assets of the Fund are held in cash pending the settlement of
a purchase of securities, the Fund would earn no income. While the Fund may sell
its right to acquire when-issued securities prior to the settlement date, the
Fund intends actually to acquire such securities unless a sale prior to
settlement appears desirable for investment reasons. At the time the Fund makes
the commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the amount due and the value of the security in
determining the Fund's net asset value. The market value of the when-issued
securities may be more or less than the purchase price payable at the settlement
date. The Fund will establish a segregated account in which it will maintain
cash and U.S. Government securities or other liquid securities at least equal in
value to commitments for when-issued securities. Such segregated securities
either will mature or, if necessary, be sold on or before the settlement date.
Loans of Fund Portfolio Securities
The Fund may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Fund may at any time
call the loan and regain the securities loaned; (3) the Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of the Fund's portfolio securities loaned will not at any time
exceed one-third of the total assets of the Fund. In addition, it is anticipated
that the Fund may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan. Before
the Fund enters into a loan, Schroder considers all relevant facts and
circumstances, including the creditworthiness of the borrower. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. Although voting rights or
rights to consent with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund will not lend portfolio securities
to borrowers affiliated with the Fund.
<PAGE>
Foreign Securities
The Fund may invest without limit in securities principally traded in
foreign markets. The Fund may also invest without limit in Eurodollar
certificates of deposit and other certificates of deposit issued by United
States branches of foreign banks and foreign branches of United States banks.
Investments in foreign securities may involve risks and considerations
different from or in addition to investments in domestic securities. There may
be less information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of the Fund's assets held abroad) and expenses not present in the
settlement of domestic investments. Also, because foreign securities are
normally denominated and traded in foreign currencies, the values of the Fund's
assets may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversion between currencies.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, imposition of
currency exchange controls, adoption of foreign governmental restrictions
affecting the payment of principal and interest, imposition of withholding or
confiscatory taxes, political or financial instability, and adverse political,
diplomatic or economic developments which could affect the values of investments
in those countries. In certain countries, legal remedies available to investors
may be more limited than those available with respect to investments in the
United States or other countries and it may be more difficult to obtain and
enforce a judgment against a foreign issuer. Also, the laws of some foreign
countries may limit the Fund's ability to invest in securities of certain
issuers located in those countries. Special tax considerations apply to foreign
securities.
In determining whether to invest in securities of foreign issuers,
Schroder will consider the likely impact of foreign taxes on the net yield
available to the Fund and its shareholders. Income received by the Fund from
sources within foreign countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by the Fund will reduce its net income available for
distribution to shareholders.
Emerging Market Securities
The Fund invests in securities of companies determined by Schroder to be
"emerging market" issuers. The risks of investing in foreign securities are
particularly high when securities of issuers based in developing or emerging
market countries are involved. Investing in emerging market countries involves
certain risks not typically associated with investing in U.S. securities, and
imposes risks greater than, or in addition to, risks of investing in foreign,
developed countries. These risks include: greater risks of nationalization or
expropriation of assets or confiscatory taxation; currency devaluations and
other currency exchange rate fluctuations; greater social, economic and
political uncertainty and instability (including the risk of war); more
substantial government involvement in the economy; less government supervision
and regulation of the securities markets and participants in those markets;
controls on foreign investment and limitations on repatriation of invested
capital and on the Fund's ability to exchange local currencies for U.S. dollars;
unavailability of currency hedging techniques in certain emerging market
countries; the fact that companies in emerging market countries may be smaller,
less seasoned and newly organized companies; the difference in, or lack of,
auditing and financial reporting standards, which may
<PAGE>
result in unavailability of material information about issuers; the risk that it
may be more difficult to obtain and/or enforce a judgment in a court outside the
United States; and greater price volatility, substantially less liquidity, and
significantly smaller market capitalization of securities markets. Also, any
change in the leadership or politics of emerging market countries, or the
countries that exercise a significant influence over those countries, may halt
the expansion of or reverse the liberalization of foreign investment policies
now occurring and adversely affect existing investment opportunities.
In addition, a number of emerging market countries restrict, to various
degrees, foreign investment in securities. Furthermore, high rates of inflation
and rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
Foreign Currency Transactions
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, the Fund enters into foreign
currency transactions with respect to specific receivables or payables of the
Fund generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, the Fund will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with transaction hedging. The Fund may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes, the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Fund the right to assume a
long position in the futures contract until the expiration of the option. A call
option on currency gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option. The Fund will engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in Schroder's opinion, the pricing mechanism and
liquidity are satisfactory and the participants are responsible parties likely
to meet their contractual obligations.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by the Fund are denominated or are quoted in
their principal trading markets or an increase in the value of currency for
securities which the Fund expects to purchase. In connection with position
hedging, the Fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of
<PAGE>
the portfolio securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the values of those securities between the
dates the currency exchange transactions are entered into and the dates they
mature.
It is impossible to forecast with precision the market value of the Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or securities
of the Fund if the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
To offset some of the costs to the Fund of hedging against fluctuations in
currency exchange rates, the Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency. Also, suitable foreign currency hedging transactions may not be
available in all circumstances and there can be no assurance that the Fund will
utilize hedging transactions at any time or from time to time.
The Fund may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
<PAGE>
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
Foreign Currency Options. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when Schroder
believes that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Warrants to Purchase Securities.
The Fund may invest in warrants to purchase securities. Bonds issued with
warrants attached to purchase equity securities have many characteristics of
convertible bonds and their prices may, to some degree, reflect the performance
of the underlying stock. Bonds also may be issued with warrants attached to
purchase additional fixed income securities at the same coupon rate. A decline
in interest rates would permit the Fund to buy additional bonds at the favorable
rate or to sell the warrants at a profit. If interest rates rise, the warrants
would generally expire with no value
Zero-Coupon Securities
Zero-coupon securities in which the Fund may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations
<PAGE>
of comparable maturities which make current distributions of interest. As a
result, the net asset value of shares of the Fund investing in zero-coupon
securities may fluctuate over a greater range than shares of other mutual funds
investing in securities making current distributions of interest and having
similar maturities. A Fund investing in zero-coupon bonds is required to
distribute the income on these securities as the income accrues, even though the
Fund is not receiving the income in cash on a current basis. Thus, the Fund may
have to sell other investments, including when it may not be advisable to do so,
to make income distributions.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). CATS and TIGRS are not considered U.S. Government
securities. The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, the Fund will be able to have its beneficial ownership of U.S.
Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Temporary Defensive Strategies
As described in the Prospectus, Schroder may at times judge that
conditions in the securities markets make pursuing the Fund's basic investment
strategies inconsistent with the best interests of its shareholders and may
temporarily use alternate investment strategies primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund would invest in high-quality debt securities,
cash, or money market instruments to any extent Schroder considers consistent
with such defensive strategies. It is impossible to predict when, or for how
long, the Fund will use these alternate strategies. One risk of taking such
temporary defensive positions is that the Fund may not achieve its investment
objective.
INVESTMENT RESTRICTIONS
The Trust has adopted the following fundamental and non-fundamental
investment restrictions for the Fund. The Fund's fundamental investment
restrictions may not be changed without the affirmative vote of a "majority of
the outstanding voting securities" of the Fund, which is defined in the
Investment
<PAGE>
Company Act to mean the affirmative vote of the lesser of (1) more than 50% of
the outstanding shares and (2) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy. The non-fundamental investment policies described in the Prospectus
and this SAI are not fundamental and may be changed by the Trustees without
shareholder approval.
The Portfolios in which Schroder All-Asia Fund invests have substantially
the same investment restrictions as the Fund. In reviewing the description of
the Fund's investment restrictions below, you should assume that the investment
restrictions of the Portfolios are the same in all material respects as those of
the Fund.
Fundamental Restrictions
The Fund will not:
1. Industry Concentration
purchase any securities which would cause 25% or more of the value
of its total assets, taken at market value at the time of such
purchase, to be invested in securities of one or more issuers
conducting their principal business activities in the same industry,
provided that there is no limitation with respect to investment in
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. For purposes of this restriction, a
foreign government is deemed to be an "industry."
2. Borrowing and Senior Securities
borrow money except that the Fund may borrow from banks up to 33
1/3% of its total assets (including the amount borrowed) for
temporary or emergency purposes or to meet redemption requests. The
Fund may not issue any class of securities which is senior to the
Fund's shares of beneficial interest; provided, however, that none
of the following shall be deemed to create senior securities: (1)
any borrowing permitted by this restriction or any pledge or
encumbrance to secure such borrowing; (2) any collateral
arrangements with respect to options, futures contracts, options on
futures contracts or other financial instruments; or (3) any
purchase, sale or other permitted transaction in options, forward
contracts, futures contracts, options on futures contracts or other
financial instruments. (The following are not treated as borrowings
to the extent they are fully collateralized: (1) the delayed
delivery of purchased securities (such as the purchase of
when-issued securities); (2) reverse repurchase agreements; (3)
dollar-roll transactions; and (4) the lending of securities.)
3. Real Estate
purchase or sell real estate, real estate mortgage loans or real
estate limited partnership interests (other than securities secured
by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein)
4. Lending
make loans to other parties, except that the Fund may: (a) purchase
and hold debt instruments (including bonds, debentures or other
obligations and certificates of deposit, bankers' acceptances and
fixed time deposits) in accordance with its investment objective and
policies, (b) enter into repurchase agreements with respect to
portfolio securities, and (c) make loans of portfolio securities.
<PAGE>
5. Commodities
purchase or sell commodities or commodity contracts, including
futures contracts and options thereon, except that the Fund may
purchase or sell financial futures contracts and related options,
and futures contracts, forward contracts, and options with respect
to foreign currencies, and may enter into swaps or other financial
transactions.
6. Underwriting
underwrite (as that term is defined in the Securities Act of 1933,
as amended) securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio
securities, it may be deemed to be an underwriter.
7. Exercising Control of Issuers
invest for the purpose of exercising control over the management of
any company.
8. Short Sales and Purchasing on Margin
make short sales of securities or maintain a short position; or
purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions and for hedging purposes and
margin deposits in connection with transactions in futures
contracts, options on futures contracts, options on securities and
securities indices, and currency transactions) and other financial
transactions.
Notwithstanding any other investment policy or restriction to the
contrary, the Fund may seek to achieve its investment objective by investing
some or all of its assets in the securities of one or more investment companies
to the extent permitted by the Investment Company Act or an applicable exemptive
order under such Act; provided that, except to the extent the Fund invests in
other investment companies pursuant to Section 12(d)(1)(A) of the Investment
Company Act, the Fund treats the assets of the investment companies in which it
invests as its own. (The foregoing investment policy is fundamental.)
Nonfundamental Limitations
The Fund will not:
1. Non-Diversification
Under these additional restrictions, the Fund may not invest more
than 25% of its total assets in obligations of any one issuer other
than U.S. Government securities and, with respect to 50% of its
total assets, the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. Government
securities). Thus, the Fund may invest up to 25% of its total assets
in the securities of each of any two issuers.
2. Liquidity
The Fund may not invest more than 15% of its net assets in: (1)
securities that cannot be disposed of within seven days at their
then-current value; (2) repurchase agreements not entitling the
holder to payment of principal within seven days; and (3) securities
subject to restrictions on the sale of the securities to the public
without registration
<PAGE>
under the Securities Act of 1933, as amended ("restricted
securities") that are not readily marketable. The Fund may treat
certain restricted securities as liquid pursuant to guidelines
adopted by the Board.
3. Lending
The Fund may not lend a security if, as a result, the amount of
loaned securities would exceed an amount equal to one third of the
Fund's total assets.
-------------------
All percentage limitations on investments (other than limitations on
borrowing and illiquid securities) will apply at the time of investment and
shall not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
TRUSTEES AND OFFICERS
The Trustees of the Trust are responsible for the general oversight of the
Trust's business. Subject to such policies as the Trustees may determine,
Schroder furnishes a continuing investment program for the Fund and makes
investment decisions on its behalf. Subject to the control of the Trustees,
Schroder also manages the Fund's other affairs and business.
The Trustees and executive officers of the Trust and their principal
occupations during the last five years are set forth below. The mailing address
for each of the Officers and Trustees, 787 Seventh Avenue, New York, New York,
10019.
(*) Nancy A. Curtin, Trustee and Chairman of the Trust, 42. Trustee and
Chairman, Schroder Capital Funds, Schroder Capital Funds (Delaware), and
Schroder Series Trust. Director and Managing Director, Schroder. Vice Chairman
and Director, Schroder Fund Advisors Inc. Formerly, Director, Barings Asset
Management.
(*) David M. Salisbury, Vice Chairman and Trustee, 47. Chairman, Schroder.
Director, Schroders plc.
Peter E. Guernsey, Trustee, 78. Trustee, Schroder Capital Funds, Schroder
Capital Funds (Delaware), and Schroder Series Trust. Formerly, Senior Vice
President, Marsh & McLennan, Inc.
John I. Howell, Trustee. 83. Trustee, Schroder Capital Funds, Schroder
Capital Funds II, Schroder Capital Funds (Delaware). Director, American
International Life Assurance Company of New York. Private consultant since 1987.
William L. Means, Trustee. 60. Trustee, Schroder Capital Funds, Schroder
Capital Funds (Delaware), and Schroder Series Trust. Formerly, Chief Investment
Officer, Alaska Permanent Fund Corporation.
Louise Croset, President of the Trust. 43. Senior Vice President and
Director; Schroder.
Heather F. Crighton, Vice President of the Trust. 36. Director and Senior
Vice President, Schroder.
<PAGE>
Donald H.M. Farquharson, Vice President of the Trust. 36. 33 Senior Vice
President, Schroder.
Margaret H. Douglas-Hamilton, Secretary of the Trust. 58. Senior Vice
President and General Counsel, Schroder U.S. Holdings Inc. Director and
Secretary, Schroder.
Alan Mandel, Treasurer, Chief Financial Officer, and Secretary of the
Trust. 42. Secretary or Clerk, Treasurer, and Chief Financial Officer of
Schroder Capital Funds, Schroder Capital Funds (Delaware), and Schroder Series
Trust. First Vice President, Schroder. Formerly, Director of Mutual Fund
Administration for Salomon Brothers Asset Management, and prior thereto, Chief
Financial Officer and Vice President of Hyperion Capital Management.
Catherine A. Mazza, Vice President and Assistant Secretary of the Trust.
40. Director and Senior Vice President, Schroder. Executive Vice President and
Director, Schroder Fund Advisors Inc. Vice President, Schroder Capital Funds,
Schroder Capital Funds (Delaware), and Schroder Series Trust. Formerly, Vice
President, Alliance Capital Management L.P.
Carin Muhlbaum, Assistant Secretary of the Trust. 37. Assistant Secretary,
Schroder Capital Funds, Schroder Capital Funds (Delaware) and Assistant Clerk,
Schroder Series Trust. Vice President, Schroder. Formerly, an investment
management attorney with Seward & Kissel and prior thereto, with Gordon Altman
Butowsky Weitzen Shalov & Wein.
Alexandra Poe, Assistant Secretary of the Trust. 39. First Vice President,
Schroder. Senior Vice President, Secretary and General Counsel, Schroder Fund
Advisors, Inc. President, Schroder Capital Funds, Schroder Capital Funds
(Delaware), and Schroder Series Trust. Formerly, Attorney, Gordon, Altman,
Butowsky, Weitzen, Shalov & Wein and Vice President and Counsel, Citibank, N.A
Nicholas Rossi, Assistant Secretary of the Trust. 36. Assistant Secretary,
Schroder Capital Funds and Schroder Capital Funds (Delaware), Assistant Clerk,
Schroder Series Trust. Associate, Schroder. Assistant Vice President, Schroder
Fund Advisors Inc. Formerly, Mutual Fund Specialist, Wilkie Farr & Gallagher and
Fund Administrator, Furman Selz LLC.
(*) Interested Trustee of the Trust within the meaning of the Investment Company
Act.
Except as otherwise noted, the principal occupations of the Trustees and
officers for the last five years have been with the employers shown above,
although in some cases they have held different positions with such employers or
their affiliates.
Trustee Compensation
The table below sets forth information regarding compensation paid to
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Trust, Schroder, or Schroder Fund Advisors Inc. ("Disinterested
Trustees") for the fiscal year ended October 31, 1999 by the Trust and other
funds in the Schroder "Fund Complex" (as defined below).
Compensation Table
<PAGE>
- ------------------------------------------------------------
(1) (2) (3)
Name of Aggregate Total
Trustee Compensation Compensation from
from Trust Trust and
Fund Complex
Paid to Trustees*
- ------------------------------------------------------------
Peter E. Guernsey $9,500 $26,500
- ------------------------------------------------------------
John I. Howell $9,500 $29,000
- ------------------------------------------------------------
William L. Means $9,500 $26,500
- ------------------------------------------------------------
* The Total Compensation listed in column (3) for each Trustee includes
compensation for services as a Trustee of the Trust, Schroder Capital
Funds ("SCF"), Schroder Capital Funds II ("SCF II"), Schroder Capital
Funds (Delaware) ("SCFD") and Schroder Series Trust II ("SST"). The Trust,
SCF, SCF II, SCFD, and SST are considered part of the same "Fund Complex"
for these purposes. SCF II ceased operations and was substantially
liquidated in July, 1999.
The Trust's Trust Instrument provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, except if it is determined in the manner specified in the Trust
Instrument that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust or that such
indemnification would relieve any officer or Trustee of any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of his or her duties. The Trust, at its
expense, provides liability insurance for the benefit of its Trustees and
officers.
SCHRODER AND ITS AFFILIATES
Schroder (together with its predecessors) has served as the investment
adviser for the Fund and the Portfolios since their inception. Schroder is a
wholly-owned subsidiary of Schroder U.S. Holdings Inc., which engages through
its subsidiary firms in the investment banking, asset management, and securities
businesses. Affiliates of Schroder U.S. Holdings Inc. (or their predecessors)
have been investment managers since 1927. Schroder U.S. Holdings Inc. is an
indirect, wholly-owned U.S. subsidiary of Schroders plc, a publicly owned
holding company organized under the laws of England. Schroders plc and its
affiliates currently engage in the investment banking and asset management
businesses, and as of June 30, 1999, had under management assets of
approximately $208 billion. Schroder's address is 787 Seventh Avenue, New York,
New York 10019.
In January 2000, Schroders plc agreed to sell its worldwide investment
banking business to Salomon Smith Barney. The transaction, which is expected to
be completed by May 2000, is subject to regulatory approvals and satisfaction of
closing conditions. Schroders plc will retain its asset management businesses.
Schroder Fund Advisors Inc., the Trust's principal underwriter, is a
wholly-owned subsidiary of Schroder Investment Management North America, Inc.
INVESTMENT ADVISORY AGREEMENT
Under an Investment Advisory Agreement between the Trust and Schroder (the
"Advisory
<PAGE>
Agreement"), Schroder, at its expense, provides the Fund with investment
advisory services and advises and assists the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of its
Trustees regarding the conduct of business of the Trust and the Fund. As long as
the Fund invests all of its assets in the Portfolios (or another investment
company), Schroder is not entitled to receive any advisory fees pursuant to the
Advisory Agreement, except that Schroder is entitled to a monthly fee for asset
allocation services at an annual rate of 0.20% of the Fund's average daily net
assets invested in the Portfolios. In the event that the Fund did not invest all
of its assets in the Portfolios or another investment company, Schroder would be
entitled to receive advisory fees monthly at the annual rate of 0.90% of the
Fund's average daily net assets managed by Schroder directly at the Fund level.
Under the Advisory Agreement, Schroder is required to regularly provide
the Fund with investment research, advice, and supervision and continuously
furnishes investment programs consistent with the investment objectives and
policies of the Fund, and determines what securities shall be purchased, what
securities shall be held or sold, and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Trust's Trust
Instrument and By-laws, and of the Investment Company Act, and to the Fund's
investment objectives, policies, and restrictions, and subject further to such
policies and instructions as the Trustees may from time to time establish.
Schroder makes available to the Trust, without additional expense to the
Trust, the services of such of its directors, officers, and employees as may
duly be elected Trustees or officers of the Trust, subject to their individual
consent to serve and to any limitations imposed by law. Schroder pays the
compensation and expenses of officers and executive employees of the Trust.
Schroder also provides investment advisory research and statistical facilities
and all clerical services relating to such research, statistical, and investment
work. Schroder pays the Trust's office rent.
Under the Advisory Agreement, the Trust is responsible for all its other
expenses, including clerical salaries not related to investment activities; fees
and expenses incurred in connection with membership in investment company
organizations; brokers' commissions; payment for portfolio pricing services to a
pricing agent, if any; legal expenses; auditing expenses; accounting expenses;
taxes and governmental fees; fees and expenses of the transfer agent and
investor servicing agent of the Trust; the cost of preparing share certificates
or any other expenses, including clerical expenses, incurred in connection with
the issue, sale, underwriting, redemption, or repurchase of shares; the expenses
of and fees for registering or qualifying securities for sale; the fees and
expenses of the Trustees of the Trust who are not affiliated with Schroder; the
cost of preparing and distributing reports and notices to shareholders; public
and investor relations expenses; and fees and disbursements of custodians of the
Fund's assets. The Trust is also responsible for its expenses incurred in
connection with litigation, proceedings, and claims and the legal obligation it
may have to indemnify its officers and Trustees with respect thereto.
Schroder's compensation under the Advisory Agreement may be reduced in any
year if the Fund's expenses exceed the limits on investment company expenses
imposed by any statute or regulatory authority of any jurisdiction in which
shares of the Fund are qualified for offer or sale.
The Advisory Agreement provides that Schroder shall not be subject to any
liability for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with rendering services to the Trust in the absence
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
its duties.
The Advisory Agreement may be terminated without penalty by vote of the
Trustees, by the shareholders of the Fund, or by Schroder on 60 days' written
notice. The Advisory Agreement also terminates without payment of any penalty in
the event of its assignment. In addition, the Advisory Agreement may be amended
only by a vote of the shareholders of the Fund, and the Advisory Agreement
provides that it will continue in effect from year to year only so long as such
continuance is approved at least annually with respect to the Fund by vote of
either the Trustees or the shareholders of the Fund, and,
<PAGE>
in either case, by a majority of the Trustees who are not "interested persons"
of Schroder. In each of the foregoing cases, the vote of the shareholders is the
affirmative vote of a "majority of the outstanding voting securities" as defined
in the Investment Company Act .
The Portfolios
The Fund currently invests all of its assets in the Portfolios, which
together have substantially the same investment objective and substantially the
same investment policies as the Fund. The Fund may withdraw its investment from
either Portfolio or both Portfolios at any time if the Trust's Board of Trustees
determines that it is in the best interests of the Fund and its shareholders to
do so. In that event, under the Advisory Agreement, the Fund would pay Schroder
0.90% of the Fund's average daily net assets managed by Schroder directly at the
Fund level.
Schroder is the investment advisor to the Portfolios pursuant to an
investment advisory agreement (the "Portfolio Advisory Agreement") between
Schroder and Schroder Capital Funds, on behalf of the Portfolios. The Portfolio
Advisory Agreement provides that Schroder is entitled to receive monthly
advisory fees at the annual rates of 0.70% and 0.55%, respectively, of Schroder
Asian Growth Fund Portfolio and Schroder Japan Portfolio. The Portfolio Advisory
Agreement is the same in all other material respects as the Investment Advisory
Agreement between the Trust on behalf of the Fund and Schroder. The Fund bears a
proportionate part of the management fees paid by each Portfolio (based on the
percentage of each Portfolio's assets attributable to the Fund).
Recent Investment Advisory Fees. Of the total investment advisory fees
paid by the Portfolios to Schroders, the portion borne indirectly by the Fund
together with the asset allocation fees paid directly to Schroder by the Fund
during the three most recent fiscal years is set forth in the following table.
For periods prior to the Fund's March 20, 1998 conversion from a closed-end
fund, the table lists the fees paid by the Fund's predecessor. The fees listed
in the table reflect reductions pursuant to expense limitations in effect during
such periods.
--------------------------------------------------------------------------
Investment Advisory
Investment Advisory Investment Advisory Fees Paid for Fiscal
Fees Paid for Fiscal Fees Paid for Fiscal Year Ended 10/31/97
Year Ended 10/31/99 Year Ended 10/31/98* (closed-end fund)
--------------------------------------------------------------------------
$235,723 $746,544 $2,301,847
--------------------------------------------------------------------------
*Prior to March 20, 1998, the Fund's predecessor had a similar investment
advisory agreement with Schroder which provided for a monthly fee at the annual
rate of (1) 1.00% of the predecessor's average weekly net assets up to and
including $300 million, and (2) 0.85% of the predecessor's average weekly net
assets in excess of $300 million. The Fund's predecessor paid or accrued fees to
Schroder of $536,538 for the period November 1, 1997 to March 20, 1998, on which
date the Fund was converted from closed-end to open end status.
Whether or not the Fund invests substantially all of its assets in the
Portfolios, the total "management fee," that is, the investment advisory fees
and administration fees payable to Schroder and its affiliates by the Fund
(including fees paid by the Fund indirectly at the Portfolio level), will not
exceed 1.00% per annum of the average daily net assets of the Fund.
Fee Waivers
Schroder voluntarily waived its fees in the following amounts during the
three most recent fiscal years pursuant to voluntary expense limitations and/or
waivers in effect during such periods. The portion of the amounts waived with
respect to the investment advisory fees indirectly borne by the Fund (or paid
<PAGE>
by the Fund's predecessor prior to March 20, 1998) are as follows:
----------------------------------------------------------------
Fees Waived
Fees Waived During Fees Waived During During Fiscal
Fiscal Year Ended Fiscal Year Ended Year Ended
10/31/99 10/31/98 10/31/97
----------------------------------------------------------------
$133,531 $107,720 $0
----------------------------------------------------------------
ADMINISTRATIVE SERVICES
On behalf of the Fund, the Trust has entered into an administration
agreement with Schroder Fund Advisors Inc., under which Schroder Fund Advisors
Inc. provides management and administrative services necessary for the operation
of the Fund, including: (1) preparation of shareholder reports and
communications; (2) regulatory compliance, such as reports to and filings with
the SEC and state securities commissions; and (3) general supervision of the
operation of the Fund, including coordination of the services performed by its
investment adviser, transfer agent, custodian, independent accountants, legal
counsel and others. Schroder Fund Advisors Inc. is a wholly owned subsidiary of
Schroder and is a registered broker-dealer organized to act as administrator and
distributor of mutual funds.
For providing administrative services, Schroder Fund Advisors Inc. is
entitled to receive a monthly fee at the annual rate of 0.05% of the Fund's
average daily net assets. The administration agreement is terminable with
respect to the Fund without penalty, at any time, by the Trustees upon 60 days'
written notice to Schroder Fund Advisors Inc. or by Schroder Fund Advisors Inc.
upon 60 days' written notice to the Trust.
In addition, the Fund has entered into a Sub-Administration Agreement with
State Street Bank and Trust Company ("State Street") and Schroder Fund Advisors
Inc. Under that Agreement, State Street is entitled to receive an annual fee
from the Fund of $25,000. Prior to June 1, 1999, the Fund paid subadministration
fees to Forum Administrative Services, LLC ("FAdS") at the annual rate of 0.05%
of the average daily net assets of the Fund, subject to an annual minimum fee of
$25,000.
Prior to March 20, 1998, the Fund's predecessor retained Princeton
Administrators, L.P. ("Princeton") as administrator. Pursuant to its
administration agreement with the Fund's predecessor, Princeton received a
monthly fee equal to the greater of (a) $150,000 per annum or (b) an annual rate
of (1) 0.25% of the predecessor's average weekly net assets up to and including
$300 million, and (2) 0.22% of the predecessor's average weekly net assets in
excess of $300 million. The Fund's predecessor paid or accrued fees to Princeton
of $134,135 for the period November 1, 1997 through March 20, 1998.
The Fund pays its pro rata portion of each Portfolio's administrative
expenses. Schroder Fund Advisors Inc. is also the administrator of each
Portfolio. For providing administrative services, Schroder Fund Advisors Inc. is
entitled to receive a monthly fee at the annual rate of 0.05% of each
Portfolio's average daily net assets. Effective June 1, 1999, each Portfolio
entered into Sub-Administration Agreement with State Street. Under that
agreement, each Portfolio, together with all mutual funds managed by Schroder
and certain related entities, pay fees to State Street based on the combined
average daily net assets of all the funds in the Schroder complex, according to
the following annual rates: 0.06% of the first $1.7 billion of such assets;
0.04% of the next $1.7 billion of such assets; and 0.02% of such assets in
excess of $3.4 billion, subject to certain minimum charges. Prior to June 1,
1999, each Portfolio paid subadministration fees to FAdS at the annual rate of
0.05% of the average daily net assets of the Portfolio, subject to an annual
minimum fee of $25,000.
Recent Administrative Fees. During the three most recent fiscal years, the
Fund (or the Fund's predecessor) paid the following fees to Schroder Fund
Advisors Inc., Princeton and FAdS pursuant to the
<PAGE>
administration and subadministration agreements in effect during such periods.
The fees listed in the following table reflect reductions pursuant to fee
waivers and expense limitations in effect during such periods.
- --------------------------------------------------------------------------------
Administrative Fees
Administrative Fees Paid for Administrative Fees Paid Paid for Fiscal Year
Fiscal Year Ended 10/31/99 for Fiscal Year Ended Ended 10/31/97
10/31/98* (closed-end fund)
- --------------------------------------------------------------------------------
Schroder Fund Advisors, Princeton $134,135 Princeton $575,461
Inc. $20,005
Schroder Fund Advisors
FAdS $12,388 Inc.
$19,058
FAdS $37,564
- --------------------------------------------------------------------------------
* Reflects fees paid by the Fund's predecessor (a closed-end fund) prior to
March 20, 1998.
During the three most recent fiscal years, the Portfolios paid the
following fees to Schroder Fund Advisors Inc. and FAdS pursuant to the
administration agreements in place during such periods. The fees listed in the
following table reflect reductions pursuant to fee waivers and expense
limitations in effect during such periods.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Administrative Fees Administrative Fees Administrative Fees
Paid for Fiscal Year Paid for Fiscal Year Paid for Fiscal Year
Portfolio Ended 10/31/99 Ended 10/31/98 Ended 10/31/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Schroder Asian Growth Schroder Fund Schroder Fund N/A
Fund Portfolio Advisors Inc. Advisors Inc.
$13,506 $11,385
FAdS $6,977 FAdS $11,385
- -----------------------------------------------------------------------------------------------
Schroder Japan Portfolio Schroder Fund Schroder Fund N/A
Advisors Inc. Advisors Inc.
$8,510 $7,699
FAdS $5,269 FAdS $7,699
- -----------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Schroder Fund
Advisors Inc. (the "Distributor"), 787 Seventh Avenue, New York, New York 10019,
serves as the distributor for the Trust's continually offered shares. The
Distributor pays all of its own expenses in performing its obligations under the
Distribution Agreement. The Distributor is not obligated to sell any specific
amount of shares of the Fund. Please see "Schroder and its Affiliates " for
ownership information regarding the Distributor.
Shareholder Servicing Plan for Class A Shares. The Fund has also adopted a
Shareholder Servicing Plan (the "Service Plan") for its Class A Shares. Under
the Service Plan, the Fund pays fees to the Distributor at an annual rate of up
to 0.25% of the average daily net assets of the Fund attributable to its Class A
Shares. The Distributor may enter into shareholder service agreements with
Service Organizations pursuant to which the Service Organizations provide
administrative support services to their customers who are Fund shareholders.
<PAGE>
In return for providing these support services, a Service Organization may
receive payments from the Distributor at a rate not exceeding 0.25% of the
average daily net assets of the Class A Shares of the Fund for which the Service
Organization is the Service Organization of record. These administrative
services may include, but are not limited to, the following functions:
establishing and maintaining accounts and records relating to clients of the
Service Organization; answering shareholder inquiries regarding the manner in
which purchases, exchanges, and redemptions of Class A Shares of the Trust may
be effected and other matters pertaining to the Trust's services; providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records; assisting shareholders in arranging for processing
purchase, exchange, and redemption transactions; arranging for the wiring of
funds; guaranteeing shareholder signatures in connection with redemption orders
and transfers and changes in shareholder-designated accounts; integrating
periodic statements with other customer transactions; and providing such other
related services as the shareholder may request. Some Service Organizations may
impose additional conditions or fees, such as requiring clients to invest more
than the minimum amounts required by the Trust for initial or subsequent
investments or charging a direct fee for services. Such fees would be in
addition to any amounts which might be paid to the Service Organization by the
Distributor. Please contact your Service Organization for details.
The following table shows the aggregate amounts paid by the Fund under the
Service Plan during the three most recent fiscal years. All of such amounts
were, in turn, repaid by the Distributor to Service Organizations.
-------------------------------------------------------------------------
Fees Paid Pursuant to
Fees Paid Pursuant to Fees Paid Pursuant Service Plan During
Service Plan During to Service Plan Fiscal Year Ended
Fiscal Year Ended During Fiscal Year 10/31/97 (closed-end
10/31/99 Ended 10/31/98 fund)
-------------------------------------------------------------------------
$92,757 $50,048 $0
-------------------------------------------------------------------------
EXPENSES
The Fund bears all costs of its operations other than expenses
specifically assumed by Schroder, and Schroder Fund Advisors Inc. The costs
borne by the Fund include legal and accounting expenses; Trustees' fees and
expenses; insurance premiums; custodian and transfer agent 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; expenses of
maintaining the Trust's and the Fund's legal existence and of shareholders'
meetings; and expenses of preparation and distribution to existing shareholders
of reports, proxies and prospectuses. For assets invested in a Portfolio, the
Fund also bears its ratable share of the Portfolio's expenses, including any
investment advisory fees payable to Schroder and its affiliates. From time to
time, Schroder and Schroder Fund Advisors Inc. may waive voluntarily all or a
portion of its fees.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Schroder may place portfolio transactions with broker-dealers which
furnish, without cost, certain research, statistical, and quotation services of
value to Schroder and its affiliates in advising the Trust and other clients,
provided that it shall always seek best price and execution with respect to
transactions. Certain investments may be appropriate for the Trust and for other
clients advised by Schroder. Investment decisions for the Trust and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash
<PAGE>
for investment, and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients of Schroder on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by Schroder to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Trust. Purchase and sale orders for the Trust may be
combined with those of other clients of Schroder in the interest of achieving
the most favorable net results for the Trust.
Brokerage and Research Services. Transactions on U.S. stock exchanges and
other agency transactions involve the payment by the Trust 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
often involve the payment of fixed brokerage commissions, which are generally
higher than those in the United States, and therefore certain portfolio
transaction costs may be higher than the costs 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 Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
Schroder places all orders for the purchase and sale of portfolio
securities and buys and sells securities through a substantial number of brokers
and dealers. In so doing, it uses its best efforts to obtain the best price and
execution available. In seeking the best price and execution, Schroder considers
all factors it deems relevant, including 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-dealer involved,
and the quality of service rendered by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers
that execute portfolio transactions for the clients of such advisers. Consistent
with this practice, Schroder receives research, statistical, and quotation
services from many broker-dealers with which it places the Trust's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters 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
Schroder and its affiliates in advising various of their clients (including the
Trust or a Portfolio), although not all of these services are necessarily useful
and of value in managing the Fund or a Portfolio. The investment advisory fee
paid by the Fund or the Portfolios is not reduced because Schroder and its
affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, (the "Securities Exchange Act"), and by the Advisory Agreements and the
Portfolio Advisory Agreements, Schroder may cause the Fund or the Portfolios to
pay a broker that provides brokerage and research services to Schroder an amount
of disclosed commission for effecting a securities transaction for the Fund or
the Portfolios in excess of the commission which another broker would have
charged for effecting that transaction. Schroder's authority to cause the Fund
or the Portfolios to pay any such greater commissions is also subject to such
policies as the Trustees (or the Trustees of Schroder Capital Funds, in the case
of the Portfolio) may adopt from time to time.
To the extent permitted by law, the Fund or the Portfolios may engage in
brokerage transactions with Schroder & Co. Inc. ("Schroder & Co."), which is an
affiliate of Schroder, or with unaffiliated brokers who trade or clear through
Schroder & Co., or Lewco Securities Corp. ("Lewco"), another affiliate of
<PAGE>
Schroder, to effect securities transactions on U.S. exchanges only, or Schroder
Securities Limited and its affiliates (collectively, "Schroder Securities"),
affiliates of Schroder, to effect securities transactions on various foreign
securities exchanges on which Schroder Securities has trading privileges.
Consistent with regulations under the Investment Company Act, the Fund and the
Portfolios have adopted procedures which are reasonably designed to provide that
any commissions or other remuneration the Fund or the Portfolios pay to any
affiliated broker do not exceed the usual and customary broker's commission. The
procedures require periodic review of these transactions by the Trustees. The
procedures require periodic review of these transactions by the Trustees. In
addition, the Funds will adhere to the rule, under the Securities Exchange Act,
governing floor trading. This rule permits the Fund and the Portfolios to
effect, but not execute, exchange listed securities transactions with an
affiliated broker that pays a portion of the brokerage commissions it receives
from the Fund or a Portfolios to the brokers executing the transactions. Also,
due to securities law limitations, the Fund or the Portfolios may be required to
limit purchases of securities in a public offering if Schroder & Co., Lewco, or
Schroder Securities or one of their affiliates is a member of the syndicate for
that offering.
Neither the Fund nor either Portfolio has any understanding or arrangement
to direct any specific portion of its brokerage to Schroder & Co., Lewco, or
Schroder Securities, and none will direct brokerage to Schroder & Co., Lewco, or
Schroder Securities in recognition of research services.
The following table shows the aggregate brokerage commissions paid for the
three most recent fiscal years with respect to the Fund. The amounts listed
represent aggregate brokerage commissions paid by the Portfolios.
-----------------------------------------------------------------------
Brokerage
Brokerage Commissions Brokerage Commissions Commissions Paid
Paid During Fiscal Paid During Fiscal During Fiscal Year
Year Ended 10/31/99 Year Ended 10/31/98 Ended 10/31/97
-----------------------------------------------------------------------
$198,248 $356,032 N/A
-----------------------------------------------------------------------
For the fiscal year ended October 31, 1999, the Portfolios paid $4,443
identified for execution on the basis of research and other services provided to
the Fund. The amount represented approximately 9.9% and 1.2% of the total
brokerage commissions paid by the Japan Portfolio and the Asia Growth Portfolio,
respectively.
The Fund and the Portfolios paid no brokerage commissions to Schroder &
Co., Lewco, or Schroder Securities in the three most recent fiscal years.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of Class A shares of the Fund is determined
daily as of the close of trading on the New York Stock Exchange (normally 4:00
p.m., Eastern Time) on each day the Exchange is open for trading..
The Trustees have established procedures for the valuation of a Fund's
securities, which are summarized as follows:
Equities listed or traded on a domestic or foreign stock exchange
(including the National Association of Securities Dealers' Automated Quotation
System ("NASDAQ")) for which last sales information is regularly reported, are
valued at their last reported sales prices on such exchange on that day. In the
absence of sales that day, such securities are valued at the mean of the closing
bid and ask prices (the "mid-market" price) or, if none, the last sales price on
the preceding trading day. (Where the
<PAGE>
securities are traded on more than one exchange, they are valued on the exchange
on which the security is primarily traded, Securities purchased in an initial
public offering and which have not commenced trading in a secondary market are
valued at cost. Unlisted securities for which over-the-counter market quotations
are readily available generally are valued at the most recently reported
mid-market prices. Fixed income securities with remaining maturities of more
than 60 days are valued on the basis of valuations provided by pricing services
that determine valuations for normal institutional size trading units of fixed
income securities, or through obtaining independent quotes from market makers.
Short-term fixed income securities with remaining maturities of 60 days or less
are valued at amortized cost, which approximates market value, unless Schroder
believes another valuation is more appropriate. Securities for which current
market quotations are not readily available are valued at fair value pursuant to
procedures established by the Trustees.
All assets and liabilities of the Fund denominated in foreign currencies
are translated into U.S. dollars based on the mid-market price of such
currencies against the U.S. dollar at the time when last quoted.
Long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities may be stated at fair value on the
basis of valuations furnished by pricing services, which determine valuations
for normal, institutional-size trading unites of such securities using methods
based on market transactions for comparable securities.
If any securities held by a Fund are restricted as to resale, Schroder
will obtain a valuation based on the current bid for the restricted security
from one or more independent dealers or other parties reasonably familiar with
the facts and circumstances of the security. If Schroder is unable to obtain a
fair valuation for a restricted security from an independent dealer or other
independent party, a pricing committee (comprised of certain directors and
officers at Schroder) shall determine the bid value of such security. The
valuation procedures applied in any specific instance are likely to vary from
case to case. However, consideration is generally given to the financial
position of the issuer and other fundamental analytical data relating to the
investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the Trust
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities, and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Trust's shares are computed as of such times. Also, because
of the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds and U.S. Government securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of the Trust's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value, in the manner described
above.
The proceeds received by the Fund for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to the Fund, and constitute
the underlying assets of the Fund. The underlying assets of the Fund will be
segregated on the Trust's books of account, and will be charged with the
liabilities in respect of the Fund and with a share of the general liabilities
of the Trust. The Fund's assets will be further allocated among its constituent
classes of shares on the Trust's books of account.
<PAGE>
SALES AT NET ASSET VALUE
As noted in the Prospectus, certain investors may purchase Class A Shares
at net asset value without imposition of sales charges. The following classes of
investors are currently qualified to do so: (1) trustees or other fiduciaries
purchasing shares for employee benefit plans which are sponsored by
organizations with at least 100 employees; (2) current or retired Trustees,
directors, and officers of the investment companies for which Schroder serves as
investment adviser; employees or retired employees of Schroder or its
affiliates; the spouses, children, siblings, and parents of the persons listed
in this clause (2) and trusts primarily for the benefit of such persons; (3)
registered representatives or full-time employees of broker-dealers that have
entered into dealer or shareholder servicing agreements with Schroder Fund
Advisors Inc., and the spouses, children, siblings, and parents of such persons;
and full-time employees of financial institutions that directly, or indirectly
through their affiliates, have entered into dealer agreements with Schroder Fund
Advisors Inc. (or that otherwise have an arrangement with respect to sales of
Fund shares with a broker-dealer that has entered into a dealer agreement with
Schroder Fund Advisors Inc.) and the spouses, children, siblings, and parents of
such employees; (4) companies exchanging shares with or selling assets to the
Fund pursuant to a merger, acquisition, or exchange offer (or similar
transaction); (5) registered investment advisers and bank trust departments
exercising discretionary investment authority with respect to the assets
invested in the Fund; (6) persons participating in a "wrap account" or similar
fee-based program sponsored and maintained by a registered broker-dealer which
has entered into an agreement with Schroder Fund Advisors Inc.; (7) clients of
administrators of tax-qualified employee benefit plans which have entered into
agreements with Schroder Fund Advisors Inc.; and (8) retirement plan
participants who borrow from their retirement accounts by redeeming shares of
the Fund and subsequently repay such loans by purchasing Fund shares.
REDEMPTIONS IN KIND
The Trust has agreed to redeem shares of the Fund solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust may pay any redemption proceeds exceeding this amount in
whole or in part by a distribution in kind of securities held by the Fund in
lieu of cash. The Trust does not expect to redeem shares in kind under normal
circumstances. If your shares are redeemed in kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
distribution.
TAXES
The Fund intends to qualify each year and elect to be taxed as a regulated
investment company under Subchapter M of the United States Internal Revenue Code
of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders.
In order to qualify as a "regulated investment company," the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies,
and (b) diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any issuer (other
<PAGE>
than U.S. Government securities).
If the Fund fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if the Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, that Fund will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year generally is
deemed to have been paid by the Fund on December 31 of the preceding year, if
the dividend was declared and payable to shareholders of record on a date in
October, November, or December of that preceding year. The Fund intends
generally to make distributions sufficient to avoid imposition of the 4% excise
tax. In order to receive the favorable tax treatment accorded regulated
investment companies and their shareholders, moreover, the Fund must in general
distribute with respect to each taxable year at least 90% of the sum of its
taxable net investment income, its net tax-exempt income, and, the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year.
The Fund's distributions will be taxable to you as ordinary income to the
extent derived from the Fund's investment income and net short-term gains (that
is, net gains from capital assets held for no more than one year). Distributions
designated by the Fund as deriving from net gains on capital assets held for
more than one year will be taxable to you as long-term capital gains (generally
subject to a 20% tax rate), regardless of how long you have held the shares.
Distributions will be taxable to you as described above whether received in cash
or in shares through the reinvestment of distributions. Early in each year the
Trust will notify each shareholder of the amount and tax status of distributions
paid to the shareholder by the Fund for the preceding year. Dividends and
distributions on the Fund's shares are generally subject to federal income tax
as described herein to the extent they do not exceed the Fund's realized income
and gains, even though such dividends and distributions may economically
represent a return of a particular shareholder's investment. Such distributions
are likely to occur in respect of shares purchased at a time when the Fund's net
asset value reflects gains that are either unrealized, or realized but not
distributed. Such realized gains may be required to be distributed even when the
Fund's net asset value also reflects unrealized losses.
Upon the disposition of shares of the Fund (whether by sale, exchange, or
redemption), a shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Long-term capital gains will
generally be taxed at a federal income tax rate of 20%. Any loss realized by a
shareholder on a disposition of shares held by the shareholder for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares. In general, any loss realized upon a taxable disposition of
shares will be treated as long-term capital loss if the shares have been held
for more than one year, and otherwise as short-term capital loss. In addition,
any loss realized on a sale or exchange of shares will be disallowed to the
extent that you replace the disposed of shares with shares of the same or
another fund within a period of 61 days beginning 30 days before and ending 30
days after the date of disposition.
With respect to investment income and gains received by the Fund from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which the Fund will be subject depends on the specific countries in
which its assets will be invested and the extent of the assets invested in each
such country and, therefore, cannot be determined in advance. In addition, the
Fund's investments in foreign securities or foreign currencies may increase or
accelerate the Fund's recognition of ordinary income and may affect the timing
or amount of the Fund's distributions.
If a Fund is liable for foreign taxes, and if more than 50% of the value
of the Fund's total assets
<PAGE>
at the close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may make an election to permit its shareholders to claim
a credit or deduction on their income tax returns for their pro rata portion of
qualified taxes paid by the Fund to foreign countries. In such a case,
shareholders would include in gross income from foreign sources their pro rata
share of such taxes. Shareholders then may take a foreign tax credit against
their U.S. federal income tax liability for the amount of such foreign taxes or
else deduct such foreign taxes as an itemized deduction from gross income,
subject to certain limitations (including, with respect to a foreign tax credit,
a holding period requirement).
If the Fund engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. The Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
Fund
Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which the Fund has invested and
their face value ("original issue discount") is considered to be income to the
Fund each year, even though the Fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the net investment income of the Fund which must be
distributed to shareholders in order to maintain the qualification of the Fund
as a regulated investment company and to avoid federal income tax at the level
of the Fund. The Fund may be required to withhold 31% of certain of your
dividends if you have not provided the Fund with your correct taxpayer
identification number (normally your Social Security number), or if you are
otherwise subject to back-up withholding.
This discussion of the federal income tax and state tax treatment of the
Trust and its shareholders is based on the law as of the date of this SAI. The
foregoing is primarily a summary of certain federal tax consequences of
investing in the Fund. You should consult your tax advisor for more information
about your own tax situation, including possible state and local taxes.
PRINCIPAL HOLDERS OF SECURITIES
To the knowledge of the Trust, as of February 18, 2000, the Trustees of
the Trust and the officers of the Trust, as a group, owned less than 1% of the
outstanding shares of the Fund.
To the knowledge of the Trust, as of February 18, 2000, no other person
owned or record or beneficially more than 5% of the outstanding class A shares
of the Fund other than as set forth below. Because these shareholders hold a
substantial number of shares, they may be able to require that the Trust hold
special shareholder meetings and may be able to determine the outcome of any
shareholder vote.
- ---------------------------------------------------------------------
% of Outstanding Class A
Record or Beneficial Owner Shares Owned
- ---------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith*
101 Hudson Street
Jersey City, New Jersey 07302-3915 32.56%
- ---------------------------------------------------------------------
* Shares are believed to be held only as nominee.
PRINCIPAL HOLDERS OF SECURITIES
Average annual total return of a class of shares of the Fund for one-,
five-, and ten-year periods
<PAGE>
(or for such shorter periods as shares of that class of shares of the Fund have
been offered) is determined by calculating the actual dollar amount of
investment return on a $1,000 investment in that class of shares at the
beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount. Total return for a period of one year or
less is equal to the actual return during that period. Total return calculations
assume reinvestment of all Fund distributions at net asset value on their
respective reinvestment dates. Total return may be presented for other periods.
All performance data is based on past investment results and does not
predict future performance. The Fund is the successor to Schroder Asian Growth
Fund, Inc., a closed-end management investment company that commenced operations
on December 23, 1993. Total return data relating to the Fund includes data
relating to Schroder Asian Growth Fund, Inc. for periods prior to the
commencement of the Fund's operations. The Fund's investment performance will be
affected by a number of factors, including its investment objective and
policies, fees, expenses, applicable sales charges, the size of the Fund, cash
flows into and out of the Fund, and market conditions. Investment performance
for a mutual fund also often reflects the risks associated with the fund's
investment objectives and policies. Quotations of total return for any period
when an expense limitation is in effect will be greater than if the limitation
had not been in effect. These factors should be considered when comparing the
investment results of the Fund's Class A shares to those of various classes of
other mutual funds and other investment vehicles. The Fund's performance may be
compared to various indices.
Although the investment objectives and policies of Schroder Asian Growth
Fund Inc. were substantially the same of those of the Fund, there can be no
assurance that the investment performance of Schroder Asian Growth Fund, Inc. is
indicative of the investment performance the Fund will achieve, and differences
among the factors outlined above and other factors will affect the performance
of the Fund relative to the historical performance of Schroder Asian Growth
Fund, Inc. For example:
As an open-end investment company, the Fund must invest most of its assets
in liquid securities in order to meet possible shareholder redemption requests.
Schroder's investment decisions for the Fund may at times be affected by the
cash flows, or anticipated cash flows, into or out of the Fund. As a closed-end
company, Schroder Asian Growth Fund, Inc. was not subject to this factor.
The performance data listed in the table below reflects the deduction at
the beginning of each period of an initial sales load of 5.25%, the maximum
sales load applicable to the Fund, and does not reflect the underwriting
discount applicable to the initial offering of shares by Schroder Asian Growth
Fund, Inc.
The operating expenses incurred by Schroder Asian Growth Fund, Inc. for
the period prior to its reorganization into the Fund were less than those the
Fund expects to incur during its current fiscal year. For example, total fund
operating expenses of Schroder Asian Growth Fund, Inc. for its fiscal year ended
October 31, 1997 were 1.78%; the Fund's net operating expenses for the current
fiscal year are expected to be 1.95% (or, in the absence of applicable fee
waivers and expense limitations, are currently expected to be 2.27%). The
performance information of Schroder Asian Growth Fund, Inc. has not been
restated to reflect differences in the operating expenses incurred by it and
those expected to be incurred by the Fund. If Schroder Asian Growth Fund, Inc.
had incurred operating expenses at the same rate as the Fund is expected to
incur expenses during the current fiscal year, the total returns shown below,
would be lower for periods including performance of Schroder Asian Growth Fund,
Inc.
For the periods shown, the table below sets forth the total return of
Class A Shares of the Fund since March 23, 1998, the inception date of the Fund,
Schroder Asian Growth Fund, Inc. for periods prior to March 23, 1998 (and since
the commencement of the Schroder Asian Growth Fund, Inc.'s operations until
October 31, 1999). The table also sets forth total return information for the
Fund's Class A Shares since inception of the Fund.
<PAGE>
Average Annual Total Return for Periods Ended October 31, 1999
- --------------------------------------------------------------------------------
Since Inception
of Schroder Asian
Growth Fund, Inc. Inception
(12/23/93) Inception Date of
Class 1 Year 5 Years (Annualized) Date of Fund Class
- --------------------------------------------------------------------------------
Class A Shares 46.69% -5.92% -5.29% 12/30/93 3/23/98
- --------------------------------------------------------------------------------
From time to time, Schroder, or any of its affiliates that provide
services to the Fund may reduce their compensation or assume expenses of the
Fund in order to reduce the Fund's expenses, as described in the Trust's current
Prospectus. Any such waiver or assumption would increase the Fund's total return
during the period of the waiver or assumption.
THE PORTFOLIOS
Each of the Portfolios is a separate series of Schroder Capital Funds, an
open-end management investment company. Schroder Capital Funds is a business
trust organized under the laws of the State of Delaware.
The Fund's investment in the Portfolios is in the form of a
non-transferable beneficial interest. The Portfolios may have other investors,
each of whom will invest on the same conditions as the related Fund and will pay
a proportionate share of the Portfolio's expenses.
The Portfolios normally will not hold meetings of investors except as
required by the Investment Company Act. Each investor in a Portfolio is entitled
to vote in proportion to its relative beneficial interest in the Portfolio. If
the Portfolio has investors other than the Fund, 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 Portfolio shareholders. If other
investors hold a majority interest of a Portfolio, they could have voting
control of the Portfolio.
The Portfolios do not sell their shares directly to the public. Another
investor (such as an investment company) in a Portfolio that might sell its
shares to the public would not be required to sell its shares at the same
offering price as the Fund, and could have different fees and expenses than the
Fund. Therefore, the Fund's shareholders may have different returns than
shareholders of another investment company that invests in the Portfolio.
The investors in each Portfolio, including the related Fund, have agreed
to indemnify Schroder Capital Funds, and such trust's trustees and officers,
against certain claims.
Certain Risks of Investing in the Portfolios. The Fund's investment in the
Portfolios may be affected by the actions of other large investors in the
Portfolios, if any. For example, if a Portfolio has a large investor other than
the Fund and that investor redeems its interests in the Portfolio, the
Portfolio's remaining investors (including the Fund) might bear a larger portion
of the Portfolio's operating expenses. This would result in lower returns for
the Fund.
The Fund may withdraw its entire investment from the Portfolios at any
time, if the Trustees determine that it is in the best interests of the Fund and
its shareholders to do so. Such a withdrawal may result in a distribution in
kind of portfolio securities by a Portfolio, which could adversely affect the
liquidity of the Fund's assets. If the Fund converted those securities to cash,
it would likely incur
<PAGE>
brokerage fees or other transaction costs. In the event that the Fund withdraws
its entire investment from a Portfolio, the Fund's inability to find a suitable
replacement investment could have a significant negative impact on the Fund's
shareholders.
Each investor in a Portfolio, including the Fund, may be liable for all
obligations of the Portfolio. The risk that this would cause an investor
financial loss, however, is limited to circumstances in which the Portfolio
would be unable to meet its obligations. Schroder considers this risk to be
remote. Upon liquidation of the Portfolio, investors in the Portfolio (including
the Fund) would be entitled to share pro rata in the Portfolio's net assets
available for distribution to investors.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of the assets of the Fund. The custodian's
responsibilities include safeguarding and controlling the Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Fund's investments. The custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Boston Financial Data Services, Inc., 66 Brooks Drive, Braintree,
Massachusetts 02184, is the Trust's registrar, transfer agent and dividend
disbursing agent.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, the Trust's independent accountants, provide
audit services and tax return preparation services. Their address is One Post
Office Square, Boston, Massachusetts 02109.
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624,
serves as counsel to the Trust.
SHAREHOLDER LIABILITY
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Trust Instrument disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees.
The Trust's Trust Instrument provides for indemnification out of the Fund's
property for all loss and expense of any shareholder held personally liable for
the obligations of the Fund. Thus the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund would be unable to meet its obligations.
FINANCIAL STATEMENTS
The fiscal year end of the Fund is October 31. The Report of Independent
Accountants, financial highlights, and financial statements in respect of the
Fund and each Portfolio in which the Fund invests are included in the Trust's
Annual Report for the fiscal year ended October 31, 1999 on Form N-30D under the
Investment Company Act filed electronically with the Securities and Exchange
Commission on December 30, 1999 (Accession Number: 0000912057-99-011025). That
information is incorporated by reference into this Statement of Additional
Information.
<PAGE>
APPENDIX A
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise what are
generally known as high grade fixed-income securities. They are rated lower than
the best fixed-income securities because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as medium
grade obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are considered
investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate, and
therefore not well safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest rated class of
fixed-income securities, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
<PAGE>
Rating Refinements: Moody's may apply numerical modifiers, "1", "2", and
"3" in each generic rating classification from "Aa" through "B" in its municipal
fixed-income security rating system. The modifier "1" indicates that the
security ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and a modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: "Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of
short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATING SERVICES ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity to pay
interest and repay principal and differs from the highest-rated issues only in
small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
<PAGE>
and repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are considered
investment grade.
"BB" Fixed-income securities rated "BB" have less near-term vulnerability to
default than other speculative grade fixed-income securities. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to
pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability to default
but presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities subordinated
to senior debt which is assigned an actual or implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
"NR" Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded
as having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest degree of speculation. While such fixed-income securities
will likely have some quality and protective characteristics, these are
out-weighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by
the addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation "1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is very
strong.
<PAGE>
"A-2" Indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
