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SCHRODER CAPITAL FUNDS (DELAWARE)
Schroder International Fund
Schroder Emerging Markets Fund
Schroder International Smaller Companies Fund
Schroder Greater China Fund
Schroder U.S. Diversified Growth Fund
Schroder U.S. Smaller Companies Fund
Schroder Micro Cap 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 the
Funds, as amended or supplemented from time to time. This SAI relates to the
Funds' Investor Shares and Advisor Shares. Investor Shares and Advisor Shares
are offered through separate Prospectuses, each dated March 1, 2000. This SAI
contains information which may be useful to investors but which is not included
in the Prospectuses. Investors may obtain free copies of the Prospectuses by
calling the Trust at 800-464-3108.
Certain disclosure has been incorporated by reference into this SAI from the
Funds' annual report. For a free copy of the annual report, please call
800-464-3108.
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Table of Contents
TRUST HISTORY..................................................................1
FUND CLASSIFICATION............................................................1
CAPITALIZATION AND SHARE CLASSES...............................................1
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND
RISKS.....................................................................2
INVESTMENT RESTRICTIONS.......................................................15
TRUSTEES AND OFFICERS.........................................................23
SCHRODER AND ITS AFFILIATES...................................................26
INVESTMENT ADVISORY AGREEMENTS................................................27
ADMINISTRATIVE SERVICES.......................................................30
DISTRIBUTOR...................................................................32
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................33
DETERMINATION OF NET ASSET VALUE..............................................36
REDEMPTIONS IN KIND...........................................................38
TAXES 38
PRINCIPAL HOLDERS OF SECURITIES...............................................40
PERFORMANCE INFORMATION.......................................................40
CUSTODIAN.....................................................................42
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT..................................42
INDEPENDENT ACCOUNTANTS.......................................................42
LEGAL COUNSEL.................................................................42
SHAREHOLDER LIABILITY.........................................................42
FINANCIAL STATEMENTS..........................................................42
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
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SCHRODER CAPITAL FUNDS (DELAWARE)
STATEMENT OF ADDITIONAL INFORMATION
TRUST HISTORY
Schroder Capital Funds (Delaware) was organized as a Maryland corporation on
July 30, 1969; reorganized on February 29, 1988 as Schroder Capital Funds, Inc.;
and reorganized as a Delaware business trust organized under the laws of the
State of Delaware on January 9, 1996. 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 eight series with
separate investment objectives and policies. Seven funds (the "Funds") are
offered pursuant to the Prospectuses and this SAI. Each Fund is an open-end,
management investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"). Each Fund other than Schroder
Emerging Markets Fund and Schroder Greater China Fund is a "diversified"
investment company under the Investment Company Act. For a diversified
investment company, this means that with respect to 75% of a Fund's total
assets, the Fund may not invest in securities of any issuer if, immediately
after such investment, more than 5% of the total assets of the Fund (taken at
current value) would be invested in the securities of that issuer (this
limitation does not apply to investments in U.S. Government securities). None of
the diversified Funds is subject to this limitation with respect to the
remaining 25% of its total assets. Each of Schroder Emerging Markets Fund and
Schroder Greater China Fund is a "non-diversified" investment company under 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 a
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. Each Fund's shares (except Schroder Micro Cap Fund) are
presently divided into two classes, Investor Shares and Advisor Shares, although
Schroder International Fund does not currently offer Advisor Shares. Each class
is offered through a separate Prospectus. Unlike Investor Shares, Advisor Shares
are currently subject to shareholder service fees, so that the performance of a
Fund's Investor Shares will normally be more favorable than that of the Fund's
Advisor Shares over the same time period. A Fund may suspend the sale of shares
at any time.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, a separate vote will be taken by each Fund or
class of shares on matters affecting the particular Fund or class, as determined
by the Trustees. For example, a change in a fundamental investment policy for a
Fund would be voted upon only by shareholders of that Fund and a change to a
distribution plan relating to a particular class and requiring shareholder
approval would be voted upon only by shareholders of that class. 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 a Fund were liquidated, each class of shares of the Fund would receive the
net assets of the Fund attributable to the class. Because Investor and Advisor
Shares are subject to different expenses, a Fund's dividends and other
distributions
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will normally differ between the two classes.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal risks of
the Funds described in the Prospectuses, each Fund may employ other investment
practices and may be subject to additional risks, which are described below.
Because the following is a combined description of investment strategies and
risks for all the Funds, certain strategies or risks described below may not
apply to your Fund. Unless a strategy or policy described below is specifically
prohibited by the investment restrictions listed in the Prospectuses, under
"Investment Restrictions" in this SAI, or by applicable law, a 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 permitted under "Investment
Restrictions" below and in the Prospectuses, each 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 a Fund for hedging purposes
or, to the extent permitted by applicable law, to increase its current return.
The Funds may also engage in derivative transactions involving foreign
currencies. See "Foreign Currency Transactions."
Options
Each Fund may purchase and sell covered put and call options on its portfolio
securities to enhance investment performance and to protect against changes in
market prices.
Covered call options. A Fund may write covered call options on its 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.
A Fund may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. A Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
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Covered put options. A Fund may write covered put options in order to enhance
its current return. Such options transactions may also be used as a limited form
of hedging against an increase in the price of securities that the Fund plans to
purchase. A put option gives the holder the right to sell, and obligates the
writer to buy, a security at the exercise price at any time before the
expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from terminating
such options in closing purchase transactions, the Fund also receives interest
on the cash and debt securities maintained to cover the exercise price of the
option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss unless the
security later appreciates in value.
A Fund may terminate a put option that it has written before it expires by a
closing purchase transaction. Any loss from this transaction may be partially or
entirely offset by the premium received on the terminated option.
Purchasing put and call options. A Fund may also purchase put options to protect
portfolio holdings against a decline in market value. This protection lasts for
the life of the put option because the Fund, as a holder of the option, may sell
the underlying security at the exercise price regardless of any decline in its
market price. In order for a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs that the Fund must pay. These costs will
reduce any profit the Fund might have realized had it sold the underlying
security instead of buying the put option.
A Fund may purchase call options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
A Fund may also purchase put and call options to enhance its current return. A
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. A 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 a Fund may be unable at times to close out such
positions, or that hedging transactions may not accomplish their purpose because
of imperfect market correlations. The successful use of these strategies depends
on the ability of Schroder to forecast market and interest rate movements
correctly.
An exchange-listed option may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a 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, a Fund may be
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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 Funds' 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 Funds and other clients
of Schroder may be considered such a group. These position limits may restrict
the Funds' ability to purchase or sell options on particular securities.
As described below, each Fund generally expects that its options transactions
will be conducted on recognized exchanges. In certain instances, however, a 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
a Fund. Furthermore, over-the-counter options are not subject to the protection
afforded purchasers of exchange-traded options by The Options Clearing
Corporation. A 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. A Fund
will treat over-the-counter options (and, in the case of options sold by the
Fund, the underlying securities held by the Fund) as illiquid investments as
required by applicable law.
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, each Fund that
may invest in debt securities 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, each Fund that may invest in
equity securities may purchase and sell stock index futures to hedge against
changes in stock market prices. Each Fund may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase the Fund's current return. All such futures and related options
will, as may be required by applicable law, be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission (the "CFTC").
Depending upon the change in the value of the underlying security or index when
a 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 -- a Fund will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed price. By selling futures on debt securities -- assuming a "short"
position -- it will legally obligate itself to make the future delivery of the
security against payment of the agreed price. Open futures positions on debt
securities will be valued at the most recent settlement price, unless that price
does not, in the judgment of persons acting at the direction of the Trustees as
to the valuation of the Fund's assets, reflect the fair value of the contract,
in which case the positions will be valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by a Fund will usually be
liquidated in this manner, a Fund may instead make or take delivery of the
underlying securities
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whenever it appears economically advantageous to the Fund to do so. A clearing
corporation associated with the exchange on which futures are traded assumes
responsibility for such closing transactions and guarantees that a Fund's sale
and purchase obligations under closed-out positions will be performed at the
termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. A Fund may, for example, take a "short" position in the futures
market by selling contracts for the future delivery of debt securities held by
the Fund (or securities having characteristics similar to those held by the
Fund) in order to hedge against an anticipated rise in interest rates that would
adversely affect the value of the Fund's portfolio securities. When hedging of
this character is successful, any depreciation in the value of portfolio
securities may substantially be offset by appreciation in the value of the
futures position.
On other occasions, a Fund may take a "long" position by purchasing futures on
debt securities. This would be done, for example, when the Fund expects to
purchase particular securities when it has the necessary cash, but expects the
rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase.
Successful use by a Fund of futures contracts on debt securities is subject to
Schroder's ability to predict correctly movements in the direction of interest
rates and other factors affecting markets for debt securities. For example, if a
Fund has hedged against the possibility of an increase in interest rates which
would adversely affect the market prices of debt securities held by it and the
prices of such securities increase instead, the Fund will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities to
meet daily maintenance margin requirements. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
A Fund may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. A Fund
will be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers'
requirements, and, in addition, net option premiums received will be included as
initial margin deposits. See "Margin Payments" below. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options plus transactions costs. However, there
may be circumstances when the purchase of call or put options on a futures
contract would result in a loss to a Fund when the purchase or sale of the
futures contracts would not, such as when there is no movement in the prices of
debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
Index Futures Contracts and Options. A 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 a Fund
enters into and
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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 delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and the
actual level of the stock index at the expiration of the contract. For example,
if a Fund enters into a futures contract to buy 100 units of the S&P 100 Index
at a specified future date at a contract price of $180 and the S&P 100 Index is
at $184 on that future date, the Fund will gain $400 (100 units x gain of $4).
If the Fund enters into a futures contract to sell 100 units of the stock index
at a specified future date at a contract price of $180 and the S&P 100 Index is
at $182 on that future date, the Fund will lose $200 (100 units x loss of $2).
A Fund may purchase or sell futures contracts with respect to any securities
indices. Positions in index futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
In order to hedge a Fund's investments successfully using futures contracts and
related options, a Fund must invest in futures contracts with respect to 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, each of the Funds 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".
A Fund may purchase or sell options on stock indices in order to close out its
outstanding positions in options on stock indices which it has purchased. A Fund
may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
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those risks relating to the purchase or sale of index futures contracts.
A 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.
Margin Payments. When a Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to a Fund upon termination of the contract, assuming a Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market". These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when a Fund sells a futures contract and the price of the underlying
debt security rises above the delivery price, the Fund's position declines in
value. The Fund then pays the broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the market
price of the securities underlying the futures contract. Conversely, if the
price of the underlying security falls below the delivery price of the contract,
the Fund's futures position increases in value. The broker then must make a
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the securities underlying the
futures contract.
When a Fund terminates a position in a futures contract, a final determination
of variation margin is made, additional cash is paid by or to the Fund, and the
Fund realizes a loss or a gain. Such closing transactions involve additional
commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity Risks. Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
Although each Fund intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Fund would have to exercise the options
in order to realize any profit.
Hedging Risks. There are several risks in connection with the use by a Fund of
futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the underlying securities or
index or in the prices of a Fund's securities which 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 a Fund's
portfolio securities sought to be
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hedged.
Successful use of futures contracts and options by a 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 a Fund has purchased puts on
futures contracts to hedge its portfolio against a decline in the market, the
securities or index on which the puts are purchased may increase in value and
the value of securities held in the portfolio may decline. If this occurred, the
Fund would lose money on the puts and also experience a decline in value in its
portfolio securities. In addition, the prices of futures, for a number of
reasons, may not correlate perfectly with movements in the underlying securities
or index due to certain market distortions. First, all participants in the
futures market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying security or index
and futures markets. Second, the margin requirements in the futures markets are
less onerous than margin requirements in the securities markets in general, and
as a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by 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 a Fund may invest (including
markets located in foreign countries) are relatively new and still developing
and may be subject to regulatory restraints, a Fund's ability to engage in
transactions using such instruments may be limited. Suitable derivative
transactions may not be available in all circumstances and there is no assurance
that a Fund will engage in such transactions at any time or from time to time. A
Fund's ability to engage in hedging transactions may also be limited by certain
regulatory and tax considerations.
Other Risks. Each 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 a Fund may benefit from the
use of futures and related options, unanticipated changes in interest rates or
stock price movements may result in a poorer overall performance for the Fund
than if it had not entered into any futures contracts or options transactions.
Moreover, in the event of an imperfect correlation between the futures position
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss.
Forward Commitments
Each Fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments") if the Fund
holds, and maintains until the settlement date in a segregated account, cash or
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 a Fund will generally enter into forward commitments with the intention
of acquiring securities for its portfolio or for delivery pursuant to options
contracts it has entered into, a Fund may dispose of a commitment prior to
settlement if Schroder deems it appropriate to do so. A Fund may realize
short-term profits or losses upon the sale of forward commitments.
Repurchase Agreements
Each Fund (other than Schroder U.S. Diversified Growth Fund) may enter into
repurchase agreements. A
<PAGE>
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, and only with respect
to obligations of the U.S. Government or its agencies or instrumentalities or
other high quality short-term debt obligations. Repurchase agreements may also
be viewed as loans made by a Fund which are collateralized by the securities
subject to repurchase. 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, a Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if a Fund is treated as an
unsecured creditor and required to return the underlying collateral to the
seller's estate.
When-Issued Securities
Each Fund may from time to time purchase securities on a "when-issued" basis.
Debt securities are often issued on this basis. The price of such securities,
which may be expressed in yield terms, is fixed at the time a commitment to
purchase is made, but delivery and payment for the when-issued securities take
place at a later date. Normally, the settlement date occurs within one month of
the purchase. During the period between purchase and settlement, no payment is
made by a Fund and no interest accrues to the Fund. To the extent that assets of
a Fund are held in cash pending the settlement of a purchase of securities, that
Fund would earn no income. While a Fund may sell its right to acquire
when-issued securities prior to the settlement date, a Fund intends actually to
acquire such securities unless a sale prior to settlement appears desirable for
investment reasons. At the time a Fund makes the commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect the
amount due and the value of the security in determining the Fund's net asset
value. The market value of the when-issued securities may be more or less than
the purchase price payable at the settlement date. Each Fund will establish a
segregated account in which it will maintain cash and U.S. Government securities
or other 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
Each Fund (other than Schroder International Fund and Schroder U.S. Diversified
Growth) 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 a
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, a
Fund retains the right to call the loans at any time on reasonable notice, and
it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. A Fund will not lend portfolio securities
to borrowers affiliated with that Fund.
Foreign Securities
<PAGE>
Each Fund may invest in securities principally traded in foreign markets.
Schroder International Fund, Schroder Emerging Markets Fund, Schroder
International Smaller Companies Fund, and Schroder Greater China Fund invest
primarily in foreign securities. Each Fund (other than Schroder Greater China
Fund) may also invest 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 a 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 a Fund's
assets may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations, and a 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 a 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 for a Fund
seeking current income, Schroder will consider the likely impact of foreign
taxes on the net yield available to the Fund and its shareholders. Income
received by a Fund from sources within foreign countries may be reduced by
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known,
and tax laws and their interpretations may change from time to time and may
change without advance notice. Any such taxes paid by a Fund will reduce its net
income available for distribution to shareholders.
Emerging Market Securities
Certain Funds, and particularly Schroder Emerging Markets Fund and Schroder
Greater China Fund, invest 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 a 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 result in unavailability
of material information about issuers; the risk that it may be more difficult to
obtain and/or enforce a
<PAGE>
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
Each Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of that Fund
generally arising in connection with the purchase or sale of its portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, a Fund will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with transaction hedging. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes, a Fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. A put option on a futures contract gives a Fund the right
to assume a short position in the futures contract until expiration of the
option. A put option on currency gives a Fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives a Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives a
Fund the right to purchase a currency at the exercise price until the expiration
of the option. A Fund will engage in over-the-counter transactions only when
appropriate exchange-traded transactions are unavailable and when, in 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, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by a Fund are denominated or are quoted in
their principal trading markets or an increase in the value of currency for
securities which a Fund expects to purchase. In connection with position
hedging, a Fund may purchase put or call options on foreign currency and foreign
currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. A Fund may also purchase or sell foreign currency on
a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase
<PAGE>
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Fund is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Fund if the market value of such security or securities exceeds
the amount of foreign currency a Fund is obligated to deliver.
To offset some of the costs to a Fund of hedging against fluctuations in
currency exchange rates, a Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which a Fund owns or intends to purchase or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in the value of such
currency. Also, suitable foreign currency hedging transactions may not be
available in all circumstances and there can be no assurance that a Fund will
utilize hedging transactions at any time or from time to time.
A 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, a Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of
<PAGE>
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 a Fund at one rate, while
offering a lesser rate of exchange should a Fund desire to resell that currency
to the dealer.
Warrants to Purchase Securities
Certain Funds 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 a Fund may invest are debt obligations which are
generally issued at a discount and payable in full at maturity, and which do not
provide for current payments of interest prior to maturity. Zero-coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a Fund investing in
zero-coupon securities may fluctuate over a greater range than shares of other
Funds of the Trust and other mutual funds investing in securities making current
distributions of interest and having similar maturities. 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
<PAGE>
been separated by their holder, typically a custodian bank or investment
brokerage firm. A number of securities firms and banks have stripped the
interest coupons from the underlying principal (the "corpus") of U.S. Treasury
securities and resold them in custodial receipt programs with a number of
different names, including Treasury Income Growth Receipts ("TIGRS") and
Certificates of Accrual on Treasuries ("CATS"). CATS and TIGRS are not
considered U.S. Government securities. The underlying U.S. Treasury bonds and
notes themselves are held in book-entry form at the Federal Reserve Bank or, in
the case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer or holder thereof), in trust on behalf of the owners
thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program, a
Fund will be able to have its beneficial ownership of U.S. Treasury zero-coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest coupons by
the holder, the stripped coupons are sold separately. The principal or corpus is
sold at a deep discount because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
Short Sales
To the extent permitted under "Investment Restrictions" below and in the
Prospectuses, a Fund may engage in "short sales", whereby a Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. A Fund also may engage in short sales if, at the time of the
short sale, it owns or has the right to obtain, at no additional cost, an equal
amount of the security being sold short. This investment technique is known as a
short sale "against-the-box." In such a short sale, a seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If a Fund engages in a short sale, the
collateral for the short position is maintained by the Fund's custodian or a
qualified sub-custodian. While the short sale is open, a Fund maintains in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Fund's long position. A
Fund does not engage in short sales against-the-box for speculative purposes but
may, however, make a short sale as a hedge, when Schroder believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund (or a security convertible or exchangeable for such security).
There are certain additional transaction costs associated with short sales
against-the-box, but Schroder endeavors to offset these costs with the income
from the investment of the cash proceeds of short sales. Under the Taxpayer
Relief Act of 1997, activities by a Fund which lock-in gain on an appreciated
financial instrument generally will be treated as a "constructive sale" of such
instrument which will trigger gain (but not loss) for federal income tax
purposes. Such activities may create taxable income in excess of the cash they
generate.
Temporary Defensive Strategies
As described in the Prospectuses, Schroder may at times judge that conditions in
the securities markets make pursuing a 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 a 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
<PAGE>
with such defensive strategies. It is impossible to predict when, or for how
long, a 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 each Fund. Each Fund's fundamental investment restrictions may
not be changed without the affirmative vote of a "majority of the outstanding
voting securities" of the affected Fund, which is defined in the Investment
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
Prospectuses and this SAI may be changed by the Trustees without shareholder
approval.
Schroder International Fund
Schroder International Fund will not:
Fundamental Policies:
1. Invest more than 5% of its assets in the securities of any single issuer.
This restriction does not apply to securities issued by the U.S.
Government, its agencies or instrumentalities.
2. Purchase more than 10% of the voting securities of any one issuer.
3. Invest more than 10% of its assets in "illiquid securities" (securities
that cannot be disposed of within seven days at their then-current value).
For purposes of this limitation, "illiquid securities" includes, except in
those circumstances described below: (1) "restricted securities", which
are securities than cannot be resold to the public without registration
under federal securities law; and (2) securities of issuers (together with
all predecessors) having a record of less than three years of continuous
operation.
4. Invest 25% or more of the value of its total assets in any one industry.
5. Borrow money, except from banks for temporary emergency purposes, and then
only in an amount not exceeding 5% of the value of the total assets of the
Fund.
6. Pledge, mortgage or hypothecate its assets to an extent greater than 10%
of the value of its total assets.
7. Purchase securities on margin or sell short.
8. Make investments for the purpose of exercising control or management.
9. Purchase or sell real estate (provided that the Fund may invest in
securities issued by companies that invest in real estate or interests
therein).
10. Make loans to other persons (provided that for purposes of this
restriction, entering into repurchase agreements, acquiring corporate debt
securities and investing in U.S. Government obligations, short-term
commercial paper, certificates of deposit and bankers' acceptances shall
not be deemed to be the making of a loan).
11. Invest in commodities, commodity contracts other than foreign currency
forward contracts, or oil,
<PAGE>
gas and other mineral resource, lease, or arbitrage transactions.
12. Write, purchase or sell options, puts, calls, straddles, spreads, or
combinations thereof.
13. Underwrite securities issued by other persons (except to the extent that,
in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under U.S. securities laws).
14. Invest in warrants, valued at the lower of cost or market, to more than 5%
of the value of the Fund's net assets. Included within that amount, but
not to exceed 2% of the value of the Fund's net assets, may be warrants
that are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to
be without value.
15. Purchase more than 3% of the outstanding securities of any closed-end
investment company. Any such purchase of securities issued by a closed-end
investment company will otherwise be made in full compliance with Sections
12(d)(1)(a)(i), (ii) and (iii) of the Investment Company Act.
Non-Fundamental Policy:
Schroder International Fund will not invest in restricted securities. This
policy does not include restricted securities eligible for resale to qualified
institutional purchasers pursuant to Rule 144A under the Securities Act of 1933,
as amended, that are determined to be liquid by Schroder pursuant to guidelines
adopted by the Board of Trustees of Schroder Capital Funds. Such guidelines take
into account trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of trading
interest in particular Rule 144A securities, these securities may be illiquid.
Schroder Emerging Markets Fund
Schroder Emerging Markets Fund will not:
Fundamental Policies:
1. Purchase a security if, as a result, more than 25% of the Fund's total
assets would be invested in securities of issuers conducting their
principal business activities in the same industry. For purposes of this
limitation, there is no limit on: (1) investments in U.S. Government
securities, in repurchase agreements covering U.S. Government securities,
in securities issued by the states, territories or possessions of the
United States or in foreign government securities; or (2) investment in
issuers domiciled in a single jurisdiction. Notwithstanding anything to
the contrary, to the extent permitted by the Investment Company Act, the
Fund may invest in one or more investment companies; provided that, except
to the extent that it invests in other investment companies pursuant to
Section 12(d)(1)(A) of the Investment Company Act, the Fund treats the
assets of the investment companies in which it invests as its own for
purposes of this policy.
2. Borrow money if, as a result, outstanding borrowings would exceed an
amount equal to one-third of the Fund's total assets.
3. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
4. Make loans to other parties. For purposes of this limitation, entering
into repurchase agreements, lending securities and acquiring any debt
security are not deemed to be the making of loans.
5. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or
<PAGE>
other instruments (but this shall not prevent the Fund from purchasing or
selling options and futures contracts or from investing in securities or
other instruments backed by physical commodities).
6. Underwrite (as that term is defined in the Securities Act of 1933, as
amended) securities issued by other persons except, to the extent that in
connection with the disposition of its assets, the Fund may be deemed to
be an underwriter.
7. Issue any class of senior securities except to the extent consistent with
the Investment Company Act.
Nonfundamental Policies:
1. The Fund is "non-diversified" as that term is defined in the Investment
Company Act. To the extent required to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, the Fund may
not purchase a security (other than a U.S. Government security or a
security of an investment company) if, as a result: (1) with respect to
50% of its assets, more than 5% of the Fund's total assets would be
invested in the securities of any single issuer; (2) with respect to 50%
of its assets, the Fund would own more than 10% of the outstanding
securities of any single issuer; or (3) more than 25% of the Fund's total
assets would be invested in the securities of any single issuer.
2. For purposes of the limitation on borrowing, the following are not treated
as borrowings to the extent they are fully collateralized: (1) the delayed
delivery of purchase securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements; (3) dollar-roll
transactions; and (4) the lending of securities.
3. Invest more than 15% of its net assets in "illiquid securities", which
include: (1) securities that cannot be disposed of within seven days at
their then-current value; (2) repurchase agreements not entitling the
holder to payment of principal within seven days; and (3) securities
subject to restrictions on the sale of the securities to the public
without registration under the 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 of Trustees of the Trust or the Board of Schroder
Capital Funds, as the case may be.
4. Make investments for the purpose of exercising control of an issuer.
Investments by the Fund in entities created under the laws of foreign
countries solely to facilitate investment in securities in that country
will not be deemed the making of investments for the purpose of exercising
control.
5. Invest in securities of another investment company, except to the extent
permitted by the Investment Company Act.
6. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against-the-box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
7. Purchase securities on margin, except that the Fund may use short-term
credit for the clearance of its portfolio's transactions, and provided
that initial and variation margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin.
8. 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.
<PAGE>
Schroder International Smaller Companies Fund
Schroder International Smaller Companies Fund will not:
Fundamental Policies:
1. With respect to 75% of it assets, purchase a security other than a
security issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or a security of an investment company if, as a result,
more than 5% of the Fund's total assets would be invested in the
securities of a single issuer or the Fund would own more than 10% of the
outstanding voting securities of any single issuer.
2. Concentrate investments in any particular industry; therefore, the Fund
will not purchase the securities of companies in any one industry if,
thereafter, 25% or more of the Fund's total assets would consist of
securities of companies in that industry. This restriction does not apply
to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. An investment of more than 25% of the Fund's assets
in the securities of issuers located in one country does not contravene
this policy.
3. Borrow money in excess of 33 1/3% of its total assets taken at market
value (including the amount borrowed) and then only from a bank as a
temporary measure for extraordinary or emergency purposes, including to
meet redemptions or to settle securities transactions that may otherwise
require untimely dispositions of portfolio securities.
4. Purchase or sell real estate, provided that the Fund may invest in
securities issued by companies which invest in real estate or interests
therein.
5. Make loans to other persons, provided that for purposes of this
restriction, entering into repurchase agreements or acquiring any
otherwise permissible debt securities or engaging in securities loans
shall not be deemed to be the making of a loan.
6. Invest in commodities or commodity contracts other than forward foreign
currency exchange contracts.
7. Underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under U.S. securities laws.
8. Issue senior securities except to the extent permitted by the Investment
Company Act.
Non-Fundamental Policy:
1. As a non-fundamental policy, the Fund will not invest more than 15% of its
assets in securities determined by Schroder to be illiquid. Certain
securities that are restricted as to resale may nonetheless be resold by
the Fund in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Schroder to be liquid for
purposes of compliance with the limitation on the Fund's investment in
illiquid securities.
Schroder Greater China Fund
Schroder Greater China Fund will not:
Fundamental Policies:
(1) Purchase any security (other than U.S. Government securities) if as a
result more than 25% of the Fund's
<PAGE>
total assets would be invested in a single industry.
(2) Acquire more than 10% of the voting securities of any issuer.
(3) Act as underwriter of securities of other issuers except to the extent
that, in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under certain federal securities laws.
(4) Issue any class of securities which is senior to the Fund's shares of
beneficial interest, except as contemplated by restriction 6 below.
(5) Purchase or sell real estate or interests in real estate, including real
estate mortgage loans, although it may purchase and sell securities which
are secured by real estate and securities of companies that invest or deal
in real estate limited partnership interests (for purposes of this
restriction, investments by the Fund in mortgage-backed securities and
other securities representing interests in mortgage pools shall not
constitute the purchase or sale of real estate or interests in real estate
or real estate mortgage loans.)
(6) Borrow more than 33-1/3% of the value of its total assets less all
liabilities and indebtedness (other than such borrowings).
(7) Purchase and sell commodities or commodity contracts, except that the Fund
may purchase or sell financial futures contracts, options on futures
contracts, and futures contracts, forward contracts and options with
respect to foreign currencies, and may enter into swap transactions.
(8) Make loans, except by purchase of debt obligations in which the Fund may
invest consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
Non-Fundamental Policies:
1. As a non-fundamental policy, the Fund will not invest in (i) securities
which at the time of such investment are not readily marketable; (ii)
securities restricted as to resale (excluding securities determined by
Trustees of the Trust, or the person designated by the Trustees to make
such determinations, to be readily marketable), and (iii) repurchase
agreements maturing in more than seven days, if, as a result, more than
15% of the Fund's net assets (taken at current value) would then be
invested in securities described in (i), (ii), and (iii).
Schroder U.S. Diversified Growth Fund
Schroder U.S. Diversified Growth Fund will not:
Fundamental Policies:
1. Issue senior securities except that: (1) it may borrow money from a bank
on its promissory note or other evidence of indebtedness (any such
borrowing may not exceed one-third of the Fund's total assets after the
borrowing); (2) if at any time such borrowing exceeds such one-third
limitation, the Fund would within three days thereafter (not including
Sundays or holidays) or such longer period as the Securities and Exchange
Commission may prescribe by rules and regulations, reduce its borrowings
to the limitation; and (3) might or might not be secured and, if secured,
all or any part of the Fund's assets could be pledged. To comply with such
limitations, the Fund might be required to dispose of certain assets when
it might be disadvantageous to do so. Any such borrowings would be subject
to Federal Reserve Board regulations. (As a non-fundamental policy, the
Fund does not borrow for investment purposes.)
2. Effect short sales, purchase any security on margin or write or purchase
put and call options.
<PAGE>
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest 25% or more of the value of its total assets in any one industry.
5. Engage in the purchase and sale of illiquid interests in real estate,
including illiquid interests in real estate investment trusts.
6. Engage in the purchase and sale of commodities or commodity contracts.
7. Invest in companies for the purpose of exercising control or management.
8. Underwrite securities of other issuers, except that the Fund may acquire
portfolio securities, not in excess of 10% of the value of its total
assets, under circumstances where if sold it might be deemed to be an
underwriter for the purposes of the Securities Act of 1933, as amended.
9. Make loans to other persons except that it may purchase evidences of
indebtedness of a type distributed privately to financial institutions but
not in excess of 10% of the value of its total assets.
10. Acquire securities described in the two immediately preceding fundamental
policies which in the aggregate exceed 10% of the value of the Fund's
total assets.
11. Invest in other investment companies.
Non-Fundamental Policies:
1. Invest more than 10% of its total assets in illiquid securities, including
securities described in items 8 and 9 above and repurchase agreements
maturing more than seven days after they are entered into.
2. Engage in writing, buying or selling of stock index futures, options on
stock index futures, financial futures contracts or options thereon.
Schroder U.S. Smaller Companies Fund
Schroder U.S. Smaller Companies Fund will not:
Fundamental Policies:
1. Borrow money, except that the Fund may borrow from banks or by entering
into reverse repurchase agreements, provided that such borrowings do not
exceed 33 1/3% of the value of the Portfolio's total assets (computed
immediately after the borrowing).
2. Underwrite securities of other companies (except insofar as the Fund might
be deemed to be an underwriter in the resale of any securities held in its
portfolio).
3. Invest in commodities or commodity contracts (other than covered call
options, put and call options, stock index futures, and options on stock
index futures and broadly-based stock indices, all of which are referred
to as Hedging Instruments, which it may use as permitted by any of its
other fundamental policies, whether or not any such Hedging Instrument is
considered to be a commodity or a commodity contract).
4. Purchase securities on margin; however, the Fund may make margin deposits
in connection with any Hedging Instruments, which it may use as permitted
by any of its other fundamental policies.
<PAGE>
5. Purchase or write puts or calls except as permitted by any of its other
fundamental policies.
6. Lend money except in connection with the acquisition of that portion of
publicly-distributed debt securities which the Fund's investment policies
and restrictions permit it to purchase; the Fund may also make loans of
portfolio securities and enter into repurchase agreements.
7. Pledge, mortgage or hypothecate its assets to an extent greater than 10%
of the value of the total assets of the Fund; however, this does not
prohibit the escrow arrangements contemplated by the put and call
activities of the Fund or other collateral or margin arrangements in
connection with any of the Hedging Instruments, which it may use as
permitted by any of its other fundamental policies.
8. Invest in companies for the purpose of acquiring control or management
thereof.
9. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable securities of
companies which operate, invest in, or sponsor such programs).
10. Invest in real estate or in interests in real estate, but may purchase
readily marketable securities of companies holding real estate or
interests therein.
Non-Fundamental Policy:
1. As a non-fundamental policy, the Fund will not invest more than 15% of its
assets in securities determined by Schroder to be illiquid. Certain
securities that are restricted as to resale may nonetheless be resold by
the Fund in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Schroder to be liquid for
purposes of compliance with the limitation on the Fund's investment in
illiquid securities.
Schroder Micro Cap Fund
Schroder Micro Cap Fund will not:
Fundamental Policies:
1. Underwrite securities of other companies (except insofar as the Fund might
be deemed to be an underwriter in the resale of any securities held in its
portfolio).
2. Invest in commodities or commodity contracts (other than Hedging
Instruments, which it may use as permitted by any of its other fundamental
policies, whether or not any such Hedging Instrument is considered to be a
commodity or a commodity contract).
3. Purchase securities on margin; however, the Fund may make margin deposits
in connection with any Hedging Instruments, which it may use as permitted
by any of its other fundamental policies.
4. Purchase or write puts or calls except as permitted by any of its other
fundamental policies.
5. Lend money except in connection with the acquisition of that portion of
publicly-distributed debt securities that the Fund's investment policies
and restrictions permit it to purchase; the Fund may also make loans of
portfolio securities and enter into repurchase agreements.
6. Pledge, mortgage or hypothecate its assets to an extent greater than 10%
of the value of the total assets of the Fund; however, this does not
prohibit the escrow arrangements contemplated by the put and call
activities of the Fund or other collateral or margin arrangements in
connection with any of the Hedging Instruments, which it may use as
permitted by any of its other fundamental
<PAGE>
policies.
7. Invest in companies for the purpose of acquiring control or management
thereof, except that the Fund may invest in other investment companies to
the extent permitted under the Investment Company Act or by rule or
exemption thereunder.
8. Invest in interests in oil, gas or other mineral exploration or
development programs (but may purchase readily marketable securities of
companies that operate, invest in, or sponsor such programs).
9. Invest in real estate or in interests in real estate, but may purchase
readily marketable securities of companies holding real estate or
interests therein.
Non-Fundamental Policy:
1. As a non-fundamental policy, the Fund will not invest more than 15% of its
assets in securities determined by Schroder to be illiquid. Certain
securities that are restricted as to resale may nonetheless be resold by
the Fund in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Schroder to be liquid for
purposes of compliance with the limitation on the Fund's investment in
illiquid securities.
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 Investment Management North America Inc. ("Schroder") furnishes a
continuing investment program for each Fund and makes investment decisions on
its behalf. Subject to the control of the Trustees, Schroder also manages the
Funds' 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 is 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 Series Trust, and Schroder Series
Trust II. Director and Managing Director, Schroder. Vice Chairman and Director,
Schroder Fund Advisors Inc. Formerly, Director, Barings Asset Management.
David N. Dinkins, Trustee. 72. Trustee, Schroder Capital Funds, and
Schroder Series Trust. Professor, Columbia University School of International
and Public Affairs. Director, American Stock Exchange, Carver Federal Savings
Bank, Transderm Laboratory Corporation, and The Cosmetics Center, Inc. Formerly,
Mayor, City of New York.
John I. Howell, Trustee. 83. Trustee, Schroder Capital Funds, Schroder
Series Trust, and Schroder Series Trust II. Director, American International
Life Assurance Company of New York. Private consultant since 1987.
- --------
(*) Trustee who is an "interested person" (as defined in the Investment Company
Act) of the Trust, Schroder, or Schroder Fund Advisors Inc. (*) Trustee who is
an "interested person" (as defined in the Investment Company Act) of the Trust,
Schroder, or Schroder Fund Advisors Inc.
1
<PAGE>
Peter S. Knight, Trustee. 49. Trustee, Schroder Capital Funds, and
Schroder Series Trust. Partner, Wunder, Knight, Levine, Thelen & Forscey.
Director, Comsat Corp., Medicis Pharmaceutical Corp., and Whitman Education
Group, Inc. Formerly, Campaign Manager, Clinton/Gore '96.
Peter E. Guernsey, Trustee. 78. Trustee, Schroder Capital Funds, Schroder
Series Trust, and Schroder Series Trust II. Formerly, Senior Vice President,
Marsh & McLennan, Inc.
(*)Sharon L. Haugh, Trustee. 53. Trustee, Schroder Capital Funds, and
Schroder Series Trust. Director and Chairman, Schroder. Director and Chairman,
Schroder Fund Advisors Inc.
William L. Means, Trustee. 64. Trustee, Schroder Capital Funds, Schroder
Series Trust, and Schroder Series Trust II. Formerly, Chief Investment Officer,
Alaska Permanent Fund Corporation.
Clarence F. Michalis, Trustee. 78. Trustee, Schroder Capital Funds, and
Schroder Series Trust. Chairman of the Board of Directors, Josiah Macy, Jr.
Foundation.
Hermann C. Schwab, Trustee. 80. Trustee, Schroder Capital Funds, and
Schroder Series Trust. Trustee, St. Luke's/Roosevelt Hospital Center. Formerly,
consultant to Schroder Capital Management International Inc.
Alexandra Poe, President of the Trust. 39. First Vice President, Schroder.
Senior Vice President, Secretary and General Counsel, Schroder Fund Advisors,
Inc. President, Schroder Capital Funds and Schroder Series Trust. Assistant
Secretary, Schroder Series Trust II. Formerly, Attorney, Gordon , Altman,
Butowsky, Weitzen, Shalov & Wein and Vice President and Counsel, Citibank, N.A.
Mark J. Astley, Vice President of the Trust. 36. First Vice President,
Schroder. Formerly, employed by various affiliates of Schroder in various
positions in the investment research and portfolio management areas.
Robert G. Davy, Vice President of the Trust. 38. Director and Executive
Vice President, Schroder. Director, Schroder Investment Management North America
Limited. Formerly, employed by various affiliates of Schroder in various
positions in the investment research and portfolio management areas.
Margaret H. Douglas-Hamilton, Vice President of the Trust. 58. Senior Vice
President and General Counsel, Schroder U.S. Holdings, Inc. Director, Senior
Vice President and Secretary, Schroder.
Richard R. Foulkes, Vice President of the Trust. 54. Director and Deputy
Chairman, Schroder. Director and Executive Vice President of Schroder Investment
Management North America Limited.
Michael Perelstein, Vice President of the Trust. 44. Director and Senior
Investment Officer, Schroder. Formerly, Managing Director of MacKay - Shields
Financial Corp.
Catherine A. Mazza, Vice President of the Trust. 40. Director and Senior
Vice President, Schroder. Executive Vice President and Director, Schroder Fund
Advisors Inc. Vice President, Schroder Capital Funds, and Schroder Series Trust.
Formerly, Vice President, Alliance Capital Management L.P.
Jane P. Lucas, Vice President of the Trust. 38. Senior Vice President,
Schroder.
- --------
(*) Trustee who is an "interested person" (as defined in the Investment Company
Act) of the Trust, Schroder, or Schroder Fund Advisors Inc. (*) Trustee who is
an "interested person" (as defined in the Investment Company Act) of the Trust,
Schroder, or Schroder Fund Advisors Inc.
2
<PAGE>
Alan Mandel, Treasurer, Chief Financial Officer and Secretary of the
Trust. 42. Secretary or Clerk, Treasurer and Chief Financial Officer, Schroder
Capital Funds, Schroder Series Trust and Schroder Series Trust II. 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.
John A. Troiano, Vice President of the Trust. 41 Director and Chief
Executive, Schroder. Formerly, employed by affiliates of Schroder in various
positions in the investment research and portfolio management areas.
Ira L. Unschuld, Vice President of the Trust. 34. Director and Senior Vice
President, Schroder.
Carin Muhlbaum, Assistant Secretary of the Trust. 37. Assistant Secretary,
Schroder Capital Funds 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.
Nicholas Rossi, Assistant Secretary of the Trust. 36. Assistant Secretary,
Schroder Capital Funds and 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.
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
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Trust, Schroder, or Schroder Fund Advisors Inc. ("Disinterested
Trustees") receive an annual retainer of $11,000 for their services as Trustees
of all open-end investment companies distributed by Schroder Fund Advisors Inc.
with the exception of Schroder Series Trust II, and $1,250 per meeting attended
in person or $500 per meeting attended by telephone. Members of an Audit
Committee for one or more of such investment companies receive an additional
$1,000 per year. Payment of the annual retainer is allocated among such
investment companies based on their relative net assets. Payments of meeting
fees are allocated only among those investment companies to which the meeting
relates.
The table below sets forth information regarding compensation paid for the
fiscal year ended October 31, 1999 to the Disinterested Trustees by the Trust
and other funds in the Schroder "Fund Complex" (as defined below).
Compensation Table
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(1) (2) (3)
Aggregate Total Compensation from
Name of Compensation Trust and Fund Complex
Trustee from Trust Paid to Trustees*
- ----------------------------------------------------------------------------------------
<S> <C> <C>
David N. Dinkins $7,267 $16,250
- ----------------------------------------------------------------------------------------
Peter E. Guernsey $7,570 $26,500
- ----------------------------------------------------------------------------------------
John I. Howell $9,426 $29,000
- ----------------------------------------------------------------------------------------
Peter S. Knight $7,570 $17,000
- ----------------------------------------------------------------------------------------
William L. Means** $7,570 $26,500
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Clarence F. Michalis $7,570 $17,000
- ----------------------------------------------------------------------------------------
Hermann C. Schwab $7,570 $17,000
- ----------------------------------------------------------------------------------------
</TABLE>
* The Total Compensation listed in column (3) for each Trustee
includes compensation for services as Trustee of the Trust, Schroder
Capital Funds ("SCF"), Schroder Capital Funds II ("SCF II"),
Schroder Series Trust ("SST"), and Schroder Series Trust II
(formerly Schroder Asian Growth Fund, Inc., "SST II"). The Trust,
SCF, SCF II, SST, and SST II are considered part of the same "Fund
Complex" for these purposes. SCF II ceased operations and was
substantially liquidated in July 1999.
** Mr. Means was elected Trustee of the Trust on December 15, 1998.
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 each of the Funds since their inception. Schroder is a wholly owned
subsidiary of Schroder U.S. Holdings Inc., which currently 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 AGREEMENTS
Under Amended and Restated Investment Advisory Agreements (the "Advisory
Agreements") between the Trust and Schroder, Schroder, at its expense, provides
the Funds 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
each Fund.
Under the Advisory Agreements, Schroder is required to regularly provide the
Funds with investment research, advice, and supervision and furnishes
continuously investment programs consistent with the investment objectives and
policies of the various Funds, and determines, for the various Funds, what
securities shall be purchased, what securities shall be held or sold, and what
portion of a 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 a Fund's investment objectives, policies, and restrictions,
and subject further to such policies and instructions as the Trustees may from
time to time establish.
<PAGE>
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 Agreements, 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
Funds' 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 Agreements may be reduced in any year
if a 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 Agreements provide 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 service to the Trust in the absence of
willful misfeasance, bad faith, gross negligence, or reckless disregard of its
duties.
The Advisory Agreements may be terminated without penalty by vote of the
Trustees as to any Fund, by the shareholders of that Fund, or by Schroder on 60
days' written notice. Each Advisory Agreement also terminates without payment of
any penalty in the event of its assignment. In addition, each Advisory Agreement
may be amended only by a vote of the shareholders of the affected Fund(s), and
each 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 a Fund by vote of either the Trustees or the shareholders of the Fund, and,
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.
Subject to the discretion and control of Schroder, Schroder Investment
Management International Limited ("SIMIL"), an affiliate of Schroder, serves as
subadviser to Schroder International Smaller Companies Fund pursuant to an
Investment Subadvisory Agreement among Schroder, SIMIL, and the Fund.
The Former Related Portfolios. Prior to June 1, 1999 (or September 20, 1999 with
respect to Schroder Emerging Markets Fund), each Fund (other than Schroder U.S.
Diversified Growth Fund, Schroder Greater China Fund, and Schroder Micro Cap
Fund) invested all of its assets in a related portfolio (each, a "Former Related
Portfolio" and collectively the "Former Related Portfolios") having the same
investment objectives and substantially the same investment policies as the
relevant Fund. As long as a Fund remained completely invested in a portfolio (or
any other investment company), Schroder was not entitled to receive any
investment advisory fee from the Fund.
Schroder was the investment advisor to each of the Former Related Portfolios
pursuant to investment advisory agreements (each a "Portfolio Advisory
Agreement") between Schroder and Schroder Capital Funds, on behalf of the Former
Related Portfolio. Schroder received an investment advisory fee with respect to
each Former Related Portfolio. Each Portfolio Advisory Agreement was the same in
all material respects as the Advisory Agreements, except that the annual
advisory fee payable to Schroder by the
<PAGE>
Former Related Portfolio of Schroder International Fund was 0.45% of the
Portfolio's average daily net assets and the annual advisory fee payable to
Schroder by Schroder International Fund under its Advisory Agreement is 0.50% up
to $100 million, 0.40% of the next $150 million, and 0.35% in excess of $250
million, with respect to the Fund's average daily net assets. Schroder has
contractually agreed that the annual advisory fee paid to it by Schroder
International Fund through October 31, 2000 will be limited to 0.45% of the
Fund's average daily net assets. Each of the Funds that invested in a Former
Related Portfolio bore a proportionate part of the investment advisory fees paid
by such portfolio (based on the percentage of that portfolio's assets
attributable to the Fund).
Recent Investment Advisory Fees. In June of 1999, Schroder Emerging Markets
Fund, Schroder U.S. Smaller Companies Fund, and Schroder Micro Cap Fund changed
their fiscal year end from May 31 to October 31. The following table sets forth
the investment advisory fees paid by each of these Funds during three most
recent fiscal years ended May 31, and for the period June 1, 1999 through
October 31, 1999. In the case of Schroder Emerging Markets Fund and Schroder
U.S. Smaller Companies Fund, these fees include fees paid indirectly through the
Former Related Portfolios (for periods through September 20, 1999 and May 31,
1999, respectively) and directly to Schroder (since September 20, 1999 and June
1, 1999, respectively). The fees listed in the following table reflect
reductions pursuant to expense limitations and/or fee waivers in effect during
such periods.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Investment
Advisory
Fees Paid Investment Investment Investment
for the Advisory Advisory Advisory
Period Fees Paid Fees Paid Fees Paid
6/1/99 for Fiscal for Fiscal for Fiscal
through Year Ended Year Ended Year Ended
Fund 10/31/99 5/31/99 5/31/98 5/31/97
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Schroder Emerging $0 $0 $2 N/A
Markets Fund
- -------------------------------------------------------------------------------------
Schroder U.S. Smaller $76,803 $350,140 $254,728 $49,878
Companies Fund
- -------------------------------------------------------------------------------------
Schroder Micro Cap Fund $49,655 $30,004 $0 N/A
- -------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the investment advisory fees paid by each of the
remaining Funds during the three most recent fiscal years, including fees paid
indirectly through the Former Related Portfolios (for periods through May 31,
1999) and directly to Schroder (since June 1, 1999). The fees listed in the
following table reflect reductions pursuant to expense limitations and/or fee
waivers in effect during such periods.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Investment Investment Investment
Advisory Advisory Advisory
Fees Paid Fees Paid Fees Paid
for Fiscal for Fiscal for Fiscal
Year Ended Year Ended Year Ended
Fund 10/31/99 10/31/98 10/31/97
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Schroder International $565,892 $718,360 $844,215
Fund
- ----------------------------------------------------------------------
Schroder International $0 $0 $0
Smaller Companies Fund
- ----------------------------------------------------------------------
Schroder U.S. $42,491 $60,203 $90,466
Diversified Growth Fund
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Schroder Greater China $0 N/A N/A
Fund
- ----------------------------------------------------------------------
</TABLE>
Waived Fees. For the periods shown above, a portion of the advisory fees payable
to Schroder (including fees payable by the Former Related Portfolio) were waived
in the following amounts pursuant to expense limitations and/or fee waivers
observed by Schroder for the noted Fund during such periods.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Fees Waived
During the Fees Waived
Period Fees Waived Fees Waived During
6/1/99 During During Fiscal Year
through Fiscal Year Fiscal Year Ended
Fund 10/31/99 Ended 5/31/99 Ended 5/31/98 5/31/97
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Schroder Emerging $65,719 $10,953 $20 N/A
Markets Fund
- -----------------------------------------------------------------------------------
Schroder U.S. Smaller $29,847 $0 $0 $10,038
Companies Fund
- -----------------------------------------------------------------------------------
Schroder Micro Cap Fund $37,550 $72,211 $26,896 N/A
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Fees Waived Fees Waived Fees Waived
During During During
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Fund 10/31/99 10/31/98 10/31/97
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Schroder International $73,657 $38,224 $47,444
Fund
- ----------------------------------------------------------------------
Schroder International $71,451 $51,558 $60,033
Smaller Companies Fund
- ----------------------------------------------------------------------
Schroder U.S. $60,451 $40,931 $28,422
Diversified Growth Fund
- ----------------------------------------------------------------------
Schroder Greater China $102,172 N/A N/A
Fund
- ----------------------------------------------------------------------
</TABLE>
ADMINISTRATIVE SERVICES
On behalf of each Fund (except Schroder U.S. Diversified Growth 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 Funds, 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 Funds, 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
<PAGE>
the following annual rates (based upon each Fund's average daily net assets):
0.225% with respect to Schroder International Fund; and 0.25% with respect to
Schroder Emerging Markets Fund, Schroder International Smaller Companies Fund,
Schroder U.S. Smaller Companies Fund, Schroder Greater China Fund and Schroder
Micro Cap Fund. The administration agreement is terminable with respect to the
Funds 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.
Effective June 1, 1999, the Trust entered into a subadministration agreement
with State Street Bank and Trust Company ("State Street"). Under that agreement,
the Trust, 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% on the first $1.7 billion of such assets; 0.04% on 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. Each Fund pays its pro rata portion of such
expenses. The subadministration agreement is terminable with respect to the Fund
without penalty, at any time, by the Trust upon 60 days' written notice to State
Street or by State Street upon 60 days' written notice to the Trust. Prior to
June 1, 1999, Forum Administrative Services, LLC ("FAdS") provided certain
administrative services to the Funds according to a different fee schedule than
the schedule currently payable to Schroder Fund Advisors Inc. and State Street.
State Street also provides certain accounting services to the Trust. The Trust
compensates State Street on a basis approved by the Trustees.
Recent Administrative Fees. Prior to June 1, 1999, FAdS provided certain
administrative services to the Funds. During the three most recent fiscal years
(and the additional period listed for Schroder Emerging Markets Fund, Schroder
U.S. Smaller Companies Fund, and Schroder Micro Cap Fund, each of which changed
their fiscal year end from May 31 to October 31 in June of 1999) the Funds 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>
- ------------------------------------------------------------------------------------
Administration
Fees Paid for Administration Administration Administration
the Period Fees Paid for Fees Paid for Fees Paid
6/1/99 Fiscal Year Fiscal Year for Fiscal
through Ended 5/31/99 Ended 5/31/98 Year Ended
Fund 10/31/99 5/31/97
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Schroder Emerging Schroder Fund Schroder Fund Schroder Fund N/A
Markets Fund Advisors Advisors Advisors
Inc. $0 Inc. $0 Inc. $2
FAdS $847 FAdS $4
- ------------------------------------------------------------------------------------
Schroder U.S. Schroder Fund Schroder Fund Schroder Fund Schroder
Smaller Companies Advisors Advisors Advisors Inc. Fund
Fund Inc. $53,348 Inc. $139,898 $106,075 Advisors
Inc. $25,060
FAdS $41,969 FAdS $63,663 FAdS $15,007
- ------------------------------------------------------------------------------------
Schroder Micro Cap Schroder Fund Schroder Fund Schroder Fund N/A
Fund Advisors Inc. Advisors Advisors
$17,441 Inc. $20,443 Inc. N/A
FAdS $8,177 FAdS $2,152
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Administration
Fees Paid for Administration Administration
Fiscal Year Fees Paid for Fees Paid for
Ended Fiscal Year Fiscal Year
Fund 10/31/99 Ended 10/31/98 Ended 10/31/97
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Schroder Schroder Fund Schroder Fund Schroder Fund
International Fund Advisors Inc. Advisors Inc. Advisors Inc.
$199,346 $280,443 $348,301
FAdS $38,815 FAdS $210,164 FAdS $247,591
- -----------------------------------------------------------------------------
Schroder Schroder Fund Schroder Fund Schroder Fund
International Advisors Inc. Advisors Inc. $0 Advisors Inc. $0
Smaller Companies $0
Fund
FAdS $2,349 FAdS $9,085 FAdS $10,595
- -----------------------------------------------------------------------------
Schroder U.S. Schroder Fund Schroder Fund Schroder Fund
Diversified Growth Advisors Inc. Advisors Inc. $0 Advisors Inc. $0
Fund $0
FAdS $13,485 FAdS $15,853
FAdS $7,845
- -----------------------------------------------------------------------------
Schroder Greater Schroder Fund N/A N/A
China Fund Advisors Inc.
$0
FAdS $402
- -----------------------------------------------------------------------------
</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 any Fund. Please see "Schroder and its Affiliates" for ownership
information regarding the Distributor.
Distribution Plan for Advisor Shares. Each Fund has adopted a Distribution Plan
under Rule 12b-1 of the Investment Company Act pursuant to which the Fund may
pay the Distributor compensation in an amount limited in any fiscal year to the
annual rate of 0.50% (or, with respect to Schroder Greater China Fund, 0.25%) of
the Fund's average daily net assets attributable to Advisor Shares. The Trustees
have not authorized any payments under the Distribution Plans, although they may
at any time authorize payments at an annual rate of up to 0.50% (or, with
respect to Greater China Fund, 0.25%) of a Fund's average daily net assets
attributable to Advisor Shares. The Distribution Plans also relate to payments
made pursuant to the Trust's Shareholder Servicing Plan for Advisor Shares
(which will not exceed the annual rate of 0.25% of a Fund's average daily net
assets attributable to the Advisor Shares), to the extent such payments may be
deemed to be primarily intended to result in the sale of a Fund's Advisor
Shares. See "Shareholder Servicing Plan for Advisor Shares" below.
The various costs and expenses that may be paid or reimbursed under the
Distribution Plans include advertising expenses, costs of printing prospectuses
and other materials to be given or sent to prospective investors, expenses of
sales employees or agents of the Distributor, including salary, commissions,
travel and related expenses in connection with the distribution of Advisor
Shares, payments to broker-dealers who advise shareholders regarding the
purchase, sale, or retention of Advisor Shares, and payments to banks, trust
companies, broker-dealers (other than the Distributor) or other financial
organizations.
<PAGE>
A Distribution Plan may not be amended to increase materially the amount of
distribution expenses permitted thereunder without the approval of a majority of
the outstanding Advisor Shares of the relevant Fund. Any other material
amendment to a Distribution Plan must be approved both by a majority of the
Trustees and a majority of those Trustees ("Qualified Trustees") who are not
"interested persons" (as defined in the Investment Company Act) of the Trust,
and who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any related agreement, by vote cast in person at a
meeting called for the purpose. Each Distribution Plan will continue in effect
for successive one-year periods provided each such continuance is approved by a
majority of the Trustees and the Qualified Trustees by vote cast in person at a
meeting called for the purpose. Each Distribution Plan may be terminated at any
time by vote of a majority of the Qualified Trustees or by vote of a majority of
the Fund's outstanding Advisor Shares.
Shareholder Servicing Plan for Advisor Shares. Each Fund has also adopted a
Shareholder Servicing Plan (the "Service Plan") for its Advisor Shares (except
for Schroder Micro Cap Fund which does not offer Advisor Shares). Under the
Service Plan, each 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 Advisor
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.
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 Advisor Shares of each Fund for which the
Service Organization is the Service Organization of record. These administrative
services may include, but are not limited to, the following functions:
establishing and maintaining accounts and records relating to clients of the
Service Organization; answering shareholder inquiries regarding the manner in
which purchases, exchanges, and redemptions of Advisor Shares of the Trust may
be effected and other matters pertaining to the Trust's services; providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records; assisting shareholders in arranging for processing
purchase, exchange, and redemption transactions; arranging for the wiring of
funds; guaranteeing shareholder signatures in connection with redemption orders
and transfers and changes in shareholder-designated accounts; integrating
periodic statements with other customer transactions; and providing such other
related services as the shareholder may request. 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.
Schroder U.S. Smaller Companies Fund is the only Fund that has made payments
under the Service Plan to date. In June 1999, that Fund changed its fiscal year
end from May 31 to October 31. For the period June 1, 1999 through October 31,
1999, and for the fiscal years ended May 31, 1999, 1998, and 1997, the Fund paid
$5,209, $11,960, $4,871, and $70, respectively, to the Distributor under the
Service Plan. All such payments were, in turn, repaid by the Distributor to
Service Organizations.
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
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
<PAGE>
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), although not all of these services are necessarily useful and of value
in managing a Fund. The investment advisory fee paid by a Fund 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, Schroder may
cause a Fund to pay a broker that provides brokerage and research services to
Schroder an amount of disclosed commission for effecting a securities
transaction for a Fund in excess of the commission which another broker would
have charged for effecting that transaction. Schroder's authority to cause a
Fund to pay any such greater commissions is also subject to such policies as the
Trustees may adopt from time to time.
To the extent permitted by law, the Funds 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 Schroder, to effect securities
transactions on U.S. exchanges, 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 Funds have adopted procedures which are
reasonably designed to provide that any commissions or other remuneration the
Funds 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. In addition, the Funds will adhere to the rule,
under the Securities Exchange Act, governing floor trading. This rule permits
the Funds to effect, but not execute, exchange listed securities transactions
with an affiliated broker that pays a portion of the brokerage commissions it
receives from a Fund to the brokers executing the transactions. Also, due to
securities law limitations, the Funds may be required to limit purchases of
securities in a public
<PAGE>
offering if Schroder & Co., Lewco, or Schroder Securities or one of their
affiliates is a member of the syndicate for that offering.
None of the Funds 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 tables show the aggregate brokerage commissions paid for the three
most recent fiscal years (and the other periods shown) with respect to each Fund
that incurred brokerage costs. For each Fund that invested in a Former Related
Portfolio, the amounts listed represent aggregate brokerage commissions paid by
such Portfolio.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Brokerage
Commissions Brokerage Brokerage Brokerage
Paid During the Commissions Commissions Commissions Paid
Period 6/1/99 Paid During Paid During During Fiscal
through Fiscal Year Fiscal Year Year Ended
Fund 10/31/99(a) Ended 5/31/99 Ended 5/31/98 5/31/97
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Schroder Emerging $73,524 $149,918 $92,986 N/A
Markets Fund
- --------------------------------------------------------------------------------------------
Schroder U.S. $81,772 $1,069,409 $491,278 $167,043
Smaller Companies
Fund
- --------------------------------------------------------------------------------------------
Schroder Micro $44,541 $49,558 $11,185 $2,966(b)
Cap Fund
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Effective October 31, 1999, each of these Funds changed its fiscal year
from May 31 to October 31.
(b) Period Ended November 30, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Brokerage Brokerage Brokerage
Commissions Commissions Paid Commissions Paid
Paid During During Fiscal During Fiscal
Fiscal Year Year Ended Year Ended
Fund Ended 10/31/99 10/31/98 10/31/97
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Schroder International Fund $424,870 $430,627 $421,129
- --------------------------------------------------------------------------------------
Schroder International $28,729 $25,266 $37,223
Smaller Companies Fund
- --------------------------------------------------------------------------------------
Schroder U.S. Diversified $18,215 $40,509 $20,510
Growth Fund
- --------------------------------------------------------------------------------------
Schroder Greater China Fund $11,898 N/A N/A
- --------------------------------------------------------------------------------------
</TABLE>
During their most recent fiscal years (and the other periods shown), the
total brokerage commissions paid by the Funds to brokers and dealers in
transactions identified for execution on the basis of research and other
services provided to the Funds are summarized below.
<PAGE>
(which amount represented
the following approximate %
Fund Commissions of the total brokerage
- ----- ----------- commissions paid by the
Fund during the period)
Schroder Emerging Markets Fund
(period 6/1/99 - 10/31/99)* $0 0%
(fiscal year ended 5/31/99) $0 0%
Schroder U.S. Smaller Companies Fund
(period 6/1/99 - 10/31/99)* $4,393.86 2.97%
(fiscal year ended 5/31/99) $148,179.50 7.26%
Schroder Micro Cap Fund
(period 6/1/99 - 10/31/99)* $0 0%
(fiscal year ended 5/31/99) $750 0.32%
Schroder International Fund $95,274.66 22.40%
Schroder International Smaller $94.03 0.30%
Companies Fund
Schroder U.S. Diversified Growth $0 0%
Fund
Schroder Greater China Fund $88.30 0.90%
* Effective October 31, 1999, each of these Funds changed its fiscal year
from May 31 to October 31.
The Funds 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 each class of shares of each 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 or, in the absence
of sales that day, such securities are valued at the mean of closing bid and ask
prices ("mid-market price") or, if none, the last sales price on the preceding
trading day. (Where the 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.
<PAGE>
All assets and liabilities of a 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 and certain foreign securities may be stated at fair value on the
basis of valuations furnished by pricing services approved by the Trustees,
which determine valuations for normal, institutional-size trading units 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 each 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 such Fund, and constitute the
underlying assets of that Fund. The underlying assets of each Fund will be
segregated on the Trust's books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general liabilities
of the Trust. Each Fund's assets will be further allocated among its constituent
classes of shares on the Trust's books of account. Expenses with respect to any
two or more Funds or classes may be allocated in proportion to the net asset
values of the respective Funds or classes except where allocations of direct
expenses can otherwise be fairly made to a specific Fund or class.
REDEMPTIONS IN KIND
The Trust had agreed to redeem shares of each 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 a 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
<PAGE>
Each 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, a 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," a 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 than U.S. Government securities).
If a 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 a 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 a Fund in January of a year generally is
deemed to have been paid by that 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. Each 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, a 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.
A 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 a 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 each of the Funds for the preceding year. Dividends
and distributions on a 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 a 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 a
Fund's net asset value also reflects unrealized losses.
Upon the disposition of shares of a 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.
<PAGE>
With respect to investment income and gains received by a 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 a
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, a 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 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 a Fund engages in hedging transactions, including hedging transactions in
options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. Each Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
Fund.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a 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.
A 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, no other person owned
beneficially more than 25% of the outstanding voting securities of any Fund,
except as indicated on Appendix A hereto. These persons may be deemed to control
the noted Funds. The Trust is not aware of any other person that may control a
Fund.
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 either class of each Fund, except that the Trustees and
officers as a group owned approximately 17.60% of the outstanding shares of
Schroder Micro Cap 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 Investor or Advisor
Shares of a Fund other than as set forth on Appendix A to this Statement.
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
<PAGE>
shareholder vote.
PERFORMANCE INFORMATION
Average annual total return of a class of shares of a Fund for one-, five-, and
ten-year periods (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. Investment performance of a particular class of a Fund's
shares, which will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, and the Fund's operating expenses
attributable to that class of shares. Investment performance also often reflects
the risks associated with a Fund's investment objectives and policies.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect. These
factors should be considered when comparing the investment results of a Fund's
shares to those of various classes of other mutual funds and other investment
vehicles. Performance for each Fund's shares may be compared to various indices.
The table on the next page sets forth the average annual total return of
Investor Shares of the Funds for the one-, five-, and ten-year periods (or for
such periods as a Fund has been in operation) ended October 31, 1999. The table
also sets forth average annual total return information for a Fund's Advisor
Shares, which includes estimated pro forma information based on the performance
of the Fund's Investor Shares for periods prior to the inception date of Advisor
Shares. Such prior performance has been recalculated to reflect the actual fees
and expenses attributable to Advisor Shares. BECAUSE THE EXPENSES ATTRIBUTABLE
TO A FUND'S ADVISOR SHARES ARE HIGHER THAN THOSE ATTRIBUTABLE TO ITS INVESTOR
SHARES, THE PERFORMANCE OF THE FUND'S ADVISOR SHARES WILL NORMALLY BE LESS THAN
THE PERFORMANCE OF ITS INVESTOR SHARES OVER THE SAME PERIOD.
<PAGE>
Average Annual Total Return for Annual Periods Ended October 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Since
Inception Inception Inception
of Fund Date of Date of
Fund Class 1 Year 5 Year 10 Year (Annualized) Fund Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Schroder Investor 66.05% N/A N/A 10.58% 10/31/97 10/31/97
Emerging Markets Shares
Fund
Advisor N/A N/A N/A N/A N/A
Shares
- -----------------------------------------------------------------------------------------------
Schroder U.S. Investor 8.91% % N/A 15.67% 8/06/93 8/06/93
Smaller Shares
Companies Fund
Advisor 8.69% 15.70% N/A 15.51% 12/23/96
Shares (1)
- -----------------------------------------------------------------------------------------------
Schroder Micro Investor 90.89% N/A N/A 68.70% 10/15/97 10/15/97
Cap Fund Shares
- -----------------------------------------------------------------------------------------------
Schroder Investor 21.82% 8.90% 8.50% 11.98% 12/19/85 12/19/85
International Shares
Fund
Advisor N/A N/A N/A N/A 1/21/98
Shares
- -----------------------------------------------------------------------------------------------
Schroder Investor 65.27% N/A N/A 18.10% 11/4/96 11/4/96
International Shares
Smaller
Companies Fund Advisor N/A N/A N/A N/A N/A
Shares
- -----------------------------------------------------------------------------------------------
Schroder U.S. Investor 30.95% 20.46% 16.02% 11.83% 10/31/70 10/31/70
Diversified Shares
Growth
Fund Advisor N/A N/A N/A N/A N/A
Shares
- -----------------------------------------------------------------------------------------------
Schroder Greater Investor N/A N/A N/A 27.20% 1/4/99 1/4/99
China Fund Shares
Adviser N/A N/A N/A N/A N/A
Shares
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Total return for Advisor Shares of Schroder U.S. Smaller Companies Fund
reflects pro forma information (based on Investor Share performance)
through December 22, 1996, and actual total return from December 23, 1996
(the inception date of Advisor Shares of the Fund) through October 31,
1999. The actual annualized total return of Advisor Shares of the Fund
from December 23, 1996 through October 31, 1999 was 5.70%.
<PAGE>
From time to time, Schroder, State Street or any of their affiliates that
provide services to the Fund may reduce their compensation or assume expenses of
a Fund in order to reduce the Fund's expenses, as described in the Trust's
current Prospectuses. Any such waiver or assumption would increase a Fund's
total return for each class of shares during the period of the waiver or
assumption.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, is the custodian of the assets of each Fund. The custodian's
responsibilities include safeguarding and controlling a Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on a Fund's investments. The custodian does not determine
the investment policies of a Fund or decide which securities a 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 a Fund's
property for all loss and expense of any shareholder held personally liable for
the obligations of a Fund. Thus the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund would be unable to meet its obligations.
FINANCIAL STATEMENTS
The Reports of Independent Accountants, financial highlights, and financial
statements in respect of each Fund are included in the Trust's Annual Report to
Shareholders 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, (File No. 811-1911; Accession No.
0000912057-99-011065). That information is incorporated by reference into this
Statement of Additional Information.
<PAGE>
APPENDIX A
HOLDERS OF OUTSTANDING SHARES
To the knowledge of the Trust, as of February 18, 2000, no other person owned of
record or beneficially 5% or more of the outstanding Investor or Advisor Shares
of any Fund, except as set forth below.
- --------------------------------------------------------------------------------
Class Percentage of Outstanding
----- Shares of Class Owned
Record or Beneficial Owner --------------
- --------------------------
- --------------------------------------------------------------------------------
Schroder U.S. Smaller Companies Fund
- --------------------------------------------------------------------------------
BALSA & Co. Investor 9.50%
C/o Chase Manhattan Bank
PO Box 1768
Grand Central Station
New York NY 10163-1768
- --------------------------------------------------------------------------------
Charles Schwab & Co Inc. Investor 7.15%
Special Cust AC BOC
Attn: Mutual Funds
101 Montgomery Street
San Francisco CA 94104
- --------------------------------------------------------------------------------
First American Trust Co. Investor 56.38%
The FBO Managed Omnibus
Reinvest
421 N. Main Street
Santa Ana, CA 92701-4699
- --------------------------------------------------------------------------------
National Investors Services Advisor 6.10
Corp
For the Exclusive Benefit of
our Customers
55 Water Street
New York, NY 10041-0001
- --------------------------------------------------------------------------------
American Express Trust Co. Advisor 92.16
for the Benefit of American
Express Trust Retired
Service Plan
P.O. Box 534
Minneapolis MN 55440
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Schroder International Fund
- --------------------------------------------------------------------------------
SeaAlaska Corporation Investor 17.44%
Permanent Fund
Attn: Barbara A.
Searls/Patrick Duke
1 SeaAlaska Plaza, Suite 400
Juneau, AK 99801-1245
- --------------------------------------------------------------------------------
Mac & Co. Investor 16.30%
Mutual Fund Operations
PO Box 3198
Pittsburgh PA 15230-3198
- --------------------------------------------------------------------------------
A-
<PAGE>
- --------------------------------------------------------------------------------
State Street Bank Custodian Investor 14.34%
for Union College
C/O Specialized Trust
Services
200 Newport Avenue
North Quincy, MA 02171-2145
- --------------------------------------------------------------------------------
Norwest Bank Minnesota NA Investor 9.49%
FBO Norwest Foundation NIM
P.O. Box 1533
Minneapolis, MN 55480-1533
- --------------------------------------------------------------------------------
Northern Trust Company, Investor 15.23%
Trustee
FBO Paine Webber
P.O. Box 92956
Chicago, IL 60675-2956
- --------------------------------------------------------------------------------
Schroder International Smaller Companies Fund
- --------------------------------------------------------------------------------
Schroder Investment Investor 35.82%
Management
Client Account
33 Gutter Lane
London EC2V 8AS
United Kingdom
- --------------------------------------------------------------------------------
Charles Schwab & Co Inc. Investor 39.27%
Special Customer Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
- --------------------------------------------------------------------------------
Hudson-Webber Foundation Investor 13.82%
333 West Fort Street, Suite 1310
Detroit, MI 48226-3149
- --------------------------------------------------------------------------------
National Investors Services Corp. Investor 5.52%
55 Water Street
New York, NY 10041-0098
- --------------------------------------------------------------------------------
Schroder U.S. Diversified Growth Fund
- --------------------------------------------------------------------------------
Wendel & Co. A/C 178075 Investor 11.78%
c/o The Bank of New York
Mutual Fund/Reorg. Dept.
PO Box 1066
Wall Street Station
New York NY 10268
- --------------------------------------------------------------------------------
Security Nominees Inc. Investor 8.80%
1 State Street
New York NY 10004-1417
- --------------------------------------------------------------------------------
Fox & Co. Investor 6.35%
PO Box 976
New York NY 10268-0976
- --------------------------------------------------------------------------------
Wendel & Co. A/C 056391 Investor 5.78%
c/o The Bank of New York
Mutual Fund/Reorg. Dept.
PO Box 1066
Wall Street Station
New York NY 10268
- --------------------------------------------------------------------------------
Schroder Emerging Markets Fund
A-
<PAGE>
- --------------------------------------------------------------------------------
State Street Bank Successor Investor 25.46
Trustee
Attn: Yvonne Lee
Defined Contribution Services
105 Rosemont Road, # Wesin
Westwood, MA 02090-2318
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. Investor 15.10
Special Cust Account FBO
Attn: Mutual Funds
101 Montgomery Street
San Francisco CA 94104-4122
- --------------------------------------------------------------------------------
State Street Bank & Trust Investor 56.18
Co. Trustee
The Hallmark Cards Master Trust
105 Rosemont Avenue
Westwood, MA 02090-2318
- --------------------------------------------------------------------------------
Schroder Micro Cap Fund
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. Investor 38.61%
Special Cust AC for the
Benefit of Customer
ATTN Mutual Funds
101 Montgomery Street
San Francisco CA 94104
- --------------------------------------------------------------------------------
Schroder Capital Management Investor 5.43
International Inc.
(Acct. No. 295779-5)
ATTN: Fergal Cassidy
787 7th Avenue, 34th Floor
New York NY 10019
- --------------------------------------------------------------------------------
Schroder Capital Management Investor 8.54
International Inc.
(Acct. No. 362506-8)
ATTN: Fergal Cassidy
787 7th Avenue, 34th Floor
New York NY 10019
- --------------------------------------------------------------------------------
Wexford Clearing Services Investor 9.47
Corp. FBO
Tom Juda Nancy Juda Co-Ttees
410 S. Lucerne Blvd.
Los Angeles, CA 90020-4749
- --------------------------------------------------------------------------------
Ira Unshold* Investor 17.52%
150 East 56th Street
New York, NY 10022
- --------------------------------------------------------------------------------
Schroder Greater China Fund
- --------------------------------------------------------------------------------
Schroder U.S. Holdings Inc. Investor 98.69
ATTN: Sharlene Louie
1633 Broadway, Floor 9
New York NY 10019-6708
- --------------------------------------------------------------------------------
*beneficial owner
A-
<PAGE>
APPENDIX B
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.
B-
<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 and
repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
B-
<PAGE>
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.
"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".
B-
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"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.
