<PAGE>
SCHRODER SERIES TRUST
PROSPECTUS
MARCH 1, 1997
Schroder Series Trust is a no-load, open-end management investment company
offering in this Prospectus shares of beneficial interest in five separate
investment portfolios: Schroder Equity Value Fund, Schroder Small Capitalization
Value Fund, Schroder High Yield Income Fund, Schroder Investment Grade Income
Fund, and Schroder Short-Term Investment Fund. Schroder Capital Management Inc.
("Schroder") serves as investment adviser to each of the Funds.
The Trust provides investors an opportunity to design their own investment
programs through investing in a wide range of mutual funds managed by Schroder.
Each Fund pursues its investment objectives through the investment policies
described in this Prospectus. SCHRODER HIGH YIELD INCOME FUND INVESTS PRIMARILY
IN LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE
ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST
THAN HIGHER-RATED SECURITIES. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH AN INVESTMENT IN THAT FUND.
This Prospectus explains concisely the information about the Trust that a
prospective investor should know before investing in the Funds. Please read it
carefully and keep it for future reference. Investors can find more detailed
information about the Trust in the March 1, 1997 Statement of Additional
Information, as amended from time to time. For a free copy of the Statement of
Additional Information, please call 1-800-464-3108. The Statement of Additional
Information has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
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SCHRODER SERIES TRUST
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Summary of Expenses............................................................................. 4
Financial Highlights............................................................................ 5
Investment objectives and policies.............................................................. 8
Schroder Equity Value Fund.................................................................. 8
Schroder Small Capitalization Value Fund.................................................... 9
Schroder High Yield Income Fund............................................................. 10
Schroder Investment Grade Income Fund....................................................... 13
Schroder Short-Term Investment Fund......................................................... 14
Other investment practices and risk considerations.......................................... 15
Portfolio turnover.......................................................................... 19
How to buy shares............................................................................... 19
How to sell shares.............................................................................. 20
Exchanges....................................................................................... 20
Determination of net asset value................................................................ 20
Distributions................................................................................... 20
Taxes........................................................................................... 21
Management of the Trust......................................................................... 22
Performance information......................................................................... 23
Additional information about the Trust.......................................................... 24
APPENDIX A--Ratings Descriptions................................................................ 25
</TABLE>
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SCHRODER SERIES TRUST
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SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize your maximum transaction costs from investing in the
Funds and expenses incurred by the Funds based on their most recent fiscal year.
The Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in the Funds over specified periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases...................................... None
Maximum Sales Load Imposed on Reinvested Dividends........................... None
Deferred Sales Load.......................................................... None
Redemption Fees.............................................................. None
Exchange Fee................................................................. None
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Schroder Schroder Schroder
Schroder Small Schroder Investment Short-Term
Equity Capitalization High Yield Grade Income Investment
Value Fund Value Fund Income Fund Fund Fund
----------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Management Fees (after expense limitation)......... 0.75 0.95 0.56 0.38 0.40
12b-1 Fees (after expense limitation).............. None None None None None
Other Expenses (after expense limitation).......... 0.51 0.48 0.99 0.74 0.60
Total Fund Operating Expenses (after expense
limitation)....................................... 1.26 1.43 1.55 1.12 1.00
</TABLE>
The tables are provided to help you understand the expenses of investing in each
of the Funds and your share of the operating expenses each of the Funds incurs.
The Management Fees, Other Expenses, and Total Fund Operating Expenses shown in
the table above for the High Yield Income and Investment Grade Income Funds
reflect expense limitations currently in effect. See "Management of the Trust"
below. In the absence of these limitations, Management Fees and Total Fund
Operating Expenses, respectively, of those Funds would have been as follows:
High Yield Income Fund -- 0.90% and 1.89%; Investment Grade Income Fund -- 0.50%
and 1.24%.
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4
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SCHRODER SERIES TRUST
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EXAMPLE
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return and redemption at the end of each period:
<TABLE>
<CAPTION>
FUNDS: 1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Schroder Equity Value Fund................................... $ 13 $ 40 $ 70 $ 153
Schroder Small Capitalization Value Fund..................... $ 15 $ 46 $ 79 $ 172
Schroder High Yield Income Fund.............................. $ 16 $ 49 $ 85 $ 186
Schroder Investment Grade Income Fund........................ $ 11 $ 36 $ 62 $ 137
Schroder Short-Term Investment Fund.......................... $ 10 $ 32 $ 55 $ 123
</TABLE>
The tables and Example do not represent past or future expense levels. Actual
expenses may be greater or less than those shown. Federal regulations require
the Example to assume a 5% annual return, but actual annual return will vary.
FINANCIAL HIGHLIGHTS
The table on the following pages presents per share financial information for
the life of each Fund through October 31, 1996. This information has been
audited by Arthur Andersen LLP, independent auditors. The report of Arthur
Andersen LLP is contained in the Statement of Additional Information.
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5
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SCHRODER SERIES TRUST
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
SMALL CAPITALIZATION
EQUITY VALUE FUND VALUE FUND
----------------------------------------------- ---------------------------------------------
PERIOD ENDED PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
1996 1995 1994 (1) 1996 1995 1994 (1)
------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD................... $ 11.12 $ 9.45 $ 10.00 $ 10.77 $ 9.77 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income (Loss)
(4)....................... 0.11 0.11 0.06 (0.05) (0.03) 0.00
Net Realized and Unrealized
Gain (Loss) on
Investments............... 1.92 1.63 (0.61) 2.34 1.03 (0.23)
------------ ------------ ------- ------------ ------------ ------------
TOTAL FROM INVESTMENT
OPERATIONS................ 2.03 1.74 (0.55) 2.29 1.00 (0.23)
------------ ------------ ------- ------------ ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment
Income.................... (0.13) (0.07) 0.00 0.00 0.00 0.00
In Excess of Net Investment
Income.................... 0.00 0.00 0.00 0.00 0.00 0.00
From Net Realized Capital
Gains..................... (0.84) 0.00 0.00 (0.01) 0.00 0.00
Tax Return of Capital....... 0.00 0.00 0.00 0.00 0.00 0.00
------------ ------------ ------- ------------ ------------ ------------
Total Distributions......... (0.97) (0.07) 0.00 (0.01) 0.00 0.00
------------ ------------ ------- ------------ ------------ ------------
NET ASSET VALUE AT END OF
PERIOD...................... $ 12.18 $ 11.12 $ 9.45 $ 13.05 $ 10.77 $ 9.77
------------ ------------ ------- ------------ ------------ ------------
------------ ------------ ------- ------------ ------------ ------------
TOTAL RETURN.................. 19.30% 18.63% (5.50)%(5) 21.17% 10.27% (2.30)%(5)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period
(000's)................... $42,905 $38,088 $21,309 $48,614 $47,929 $21,193
Ratio of Operating Expenses
to Average Net Assets (4)... 1.26% 1.40% 1.30%(6) 1.43% 1.56% 1.45%(6)
Ratio of Net Investment Income
to Average Net Assets....... 0.94% 1.27% 1.37%(6) (0.34)% (0.29)% 0.17%(6)
Portfolio Turnover Rate....... 56.38% 83.15% 102.56% 81.63% 45.74% 18.53%
Average Commission per Share
(7)......................... $ 0.06 - - $ 0.06 - -
</TABLE>
(1) For the period February 16, 1994 (commencement of investment operations)
through October 31, 1994.
(2) For the period February 22, 1994 (commencement of investment operations)
through October 31, 1994.
(3) For the period January 11, 1994 (commencement of investment operations)
through October 31, 1994.
(4) Net Investment Income is after reimbursement of certain expenses by Schroder
Capital Management Inc. (See Note 3 to the Trust's financial statements.)
Had the Investment Adviser not undertaken to pay or reimburse expenses
related to the Funds, the Net Investment Income per share and Ratio of
Operating Expenses to Average Net Assets would have been as follows:
Schroder Equity Value Fund: 1996 - $0.11
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6
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SCHRODER SERIES TRUST
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FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
HIGH YIELD INVESTMENT GRADE
INCOME FUND INCOME FUND
----------------------------------------------- ---------------------------
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31,
1996 1995 1994 (1) 1996 1995
------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD................................ $ 8.72 $ 8.79 $ 10.00 $ 9.93 $ 9.14
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (4)...... 0.77 0.84 0.48 0.53 0.59
Net Realized and Unrealized Gain
(Loss) on Investments............... 0.07 (0.07) (1.14) (0.11) 0.79
------------ ------------ ------- ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS...... 0.84 0.77 (0.66) 0.42 1.38
------------ ------------ ------- ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment Income............ (0.83) (0.84) (0.47) (0.53) (0.59)
In Excess of Net Investment Income.... 0.00 0.00 (0.01) 0.00 0.00
From Net Realized Capital Gains....... 0.00 0.00 0.00 (0.12) 0.00
Tax Return of Capital................. 0.00 0.00 (0.07) 0.00 0.00
------------ ------------ ------- ------------ ------------
Total Distributions................... (0.83) (0.84) (0.55) (0.65) (0.59)
------------ ------------ ------- ------------ ------------
NET ASSET VALUE AT END OF PERIOD........ $ 8.73 $ 8.72 $ 8.79 $ 9.70 $ 9.93
------------ ------------ ------- ------------ ------------
------------ ------------ ------- ------------ ------------
TOTAL RETURN............................ 9.98% 9.16% (6.60)%(5) 4.38% 15.62%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's)... $15,454 $20,489 $15,956 $23,708 $23,704
Ratio of Operating Expenses to Average
Net Assets (4)........................ 1.55% 1.48% 1.30%(6) 1.12% 1.06%
Ratio of Net Investment Income to
Average Net Assets.................... 8.80% 9.67% 9.67%(6) 5.46% 6.35%
Portfolio Turnover Rate................. 99.45% 149.58% 59.30% 68.76% 113.50%
Average Commission per Share (7)........ - - - - -
<CAPTION>
SHORT-TERM
INVESTMENT FUND
---------------------------------------------
PERIOD ENDED PERIOD ENDED
OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
1994 (2) 1996 1995 1994 (3)
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD................................ $ 10.00 $ 9.88 $ 9.88 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (4)...... 0.34 0.45 0.49 0.30
Net Realized and Unrealized Gain
(Loss) on Investments............... (0.83) 0.00 0.00 (0.12)
------- ------------ ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS...... (0.49) 0.45 0.49 0.18
------- ------------ ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment Income............ (0.34) (0.45) (0.49) (0.30)
In Excess of Net Investment Income.... 0.00 (0.01) 0.00 0.00
From Net Realized Capital Gains....... 0.00 0.00 0.00 0.00
Tax Return of Capital................. (0.03) 0.00 0.00 0.00
------- ------------ ------------ ------------
Total Distributions................... (0.37) (0.46) (0.49) (0.30)
------- ------------ ------------ ------------
NET ASSET VALUE AT END OF PERIOD........ $ 9.14 $ 9.87 $ 9.88 $ 9.88
------- ------------ ------------ ------------
------- ------------ ------------ ------------
TOTAL RETURN............................ (4.90)%(5) 4.63% 5.02% 1.83%(5)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's)... $12,905 $30,527 $33,936 $30,771
Ratio of Operating Expenses to Average
Net Assets (4)........................ 0.87%(6) 1.00% 0.95% 0.78%(6)
Ratio of Net Investment Income to
Average Net Assets.................... 6.39%(6) 4.50% 4.91% 4.48%(6)
Portfolio Turnover Rate................. 115.63% 154.66% 27.86% 71.38%
Average Commission per Share (7)........ - - - -
</TABLE>
and 1.26%, 1995 - $0.11 and 1.45%; 1994 - $0.02 and 2.17%; Schroder Small
Capitalization Value Fund: 1996 - ($0.05) and 1.43%, 1995 - ($0.03) and 1.62%;
1994 - ($0.04) and 3.15%; Schroder High Yield Income Fund: 1996 - $0.74 and
1.89%, 1995 - $0.80 and 1.96%; 1994 - $0.44 and 3.59%, Schroder Investment
Grade Income Fund: 1996 - $0.52 and 1.24%, 1995 - $0.56 and 1.50%; 1994 -
$0.21 and 3.98%; and Schroder Short-Term Investment Fund: 1996 - $0.45 and
1.00%, 1995 - $0.47 and 1.08%; 1994 - $0.24 and 1.66%, respectively.
(5) Not annualized.
(6) Annualized.
(7) For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate does not reflect mark-ups, mark-downs or
spreads on shares traded on a principal basis.
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7
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SCHRODER SERIES TRUST
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund has a different investment objective or objectives which it pursues
through the investment policies described below. Because of the differences in
objectives and policies among the Funds, the Funds will achieve different
investment returns and will be subject to varying degrees of market and
financial risk. The investment objectives and policies of each Fund may, unless
otherwise specifically stated, be changed by the Trustees of the Trust without a
vote of the shareholders. As a matter of policy, the Trustees would not
materially change an investment objective of a Fund without shareholder
approval. There is no assurance that any Fund will achieve its objective or
objectives. Additional Funds may be created from time to time with different
investment objectives and policies.
If the securities rating of a debt security held by a Fund declines below any
minimum rating for securities in which the Fund may invest, the Fund will not be
required to dispose of the security, but Schroder will consider whether
continued investment in the security is consistent with the Fund's investment
objectives. Certain of the Funds may also use a variety of derivative strategies
including, without limitation, options, futures contracts, and forward
contracts, and mortgage-backed securities described below. See "Other investment
practices and risk considerations."
None of the Funds is intended to be a complete investment program, and there is
no assurance that a Fund will achieve its objectives.
SCHRODER EQUITY VALUE FUND
SCHRODER EQUITY VALUE FUND'S INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM GROWTH OF
CAPITAL. The Fund invests in common stocks and other securities that Schroder
believes offer the potential for long-term growth of capital.
The Fund will under normal circumstances invest primarily in equity securities
Schroder believes to be undervalued. In selecting such securities, Schroder will
focus on industries and issuers it believes offer the possibility for growth of
capital from earnings potential and other factors not fully reflected in current
market prices. Such factors may include, for example, a company's probable
future earnings, the ratio of its market value to its book value, and its
dividends, cash flow, financial strength, debt-to-capital ratio, working assets,
and competitive position, as well as other factors Schroder may consider
significant in a particular industry or under varying market conditions. In
identifying undervalued securities, Schroder may make investment judgments
contrary to those of most investors.
The Fund may invest in securities of any kind Schroder believes consistent with
the Fund's objective of long-term growth of capital. The Fund will normally
invest at least 65% of its total assets in equity securities, including common
and preferred stocks and warrants to purchase common or preferred stocks. The
Fund may also invest in debt securities if Schroder believes they would help
achieve the Fund's objective and may hold a portion of its assets in cash or
money market instruments. Debt securities in which the Fund may invest will be
rated, at the time of investment, at least Baa by Moody's Investors Service,
Inc. or BBB by Standard & Poor's Corporation or, if unrated, determined by
Schroder at the time of investment to be of comparable quality. Securities rated
Baa or BBB lack outstanding investment characteristics and have speculative
characteristics and are subject to greater credit and market risks than
higher-rated securities.
At times, Schroder may judge that conditions in the securities markets make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, Schroder may temporarily use
alternative
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SCHRODER SERIES TRUST
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investment strategies primarily designed to reduce fluctuations in the value of
the Fund's assets. In implementing these "defensive" strategies, the Fund would
invest in high-quality debt securities, cash, or money market instruments to any
extent Schroder considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Fund will use these alternative
strategies.
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND'S INVESTMENT OBJECTIVE IS TO SEEK
CAPITAL APPRECIATION. The Fund invests primarily in equity securities of
companies having a relatively small market capitalization (generally less than
$1 billion) that Schroder believes have potential for capital appreciation. In
choosing portfolio investments for the Fund, Schroder attempts to identify
securities whose potential for long-term capital appreciation is not fully
reflected in their market prices. This may be the result, for example, of the
market's undervaluation of a company's potential for earnings growth or of its
financial or business assets or other assets.
The companies in which the Fund invests may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
may involve certain special risks. Such companies may have limited product
lines, markets or financial resources and may be dependent on a limited
management group. While the markets in securities of such companies have grown
rapidly in recent years, such securities may trade less frequently and in
smaller volume than more widely held securities. The values of these securities
may fluctuate more sharply than other securities, and the Fund may experience
some difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available information about
the issuers of these securities or less market interest in such securities than
in the case of larger companies, and it may take a longer period of time for the
prices of such securities to reflect the full value of their issuers' underlying
earnings potential or assets.
The Fund will normally invest at least 65% of its total assets in common and
preferred stocks, and warrants to purchase common or preferred stocks, of
companies having market capitalizations of less than $1 billion. The Fund may
invest the remainder of its assets in equity securities of larger companies and
in debt securities (including convertible bonds) and may hold a portion of its
assets in cash or money market instruments. Debt securities in which the Fund
may invest will be rated, at the time of investment, at least Baa by Moody's or
BBB by Standard & Poor's or, if unrated, determined by Schroder at the time of
investment to be of comparable quality. Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative characteristics and
are subject to greater credit and market risks than higher-rated securities.
At times Schroder may decide that conditions in the securities markets make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, Schroder may temporarily use
alternative investment strategies primarily designed to reduce fluctuations in
the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund would invest any portion of its assets in high-quality debt securities,
or hold any portion of its assets in cash or money market instruments, to the
extent Schroder might consider consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Fund will use these alternative
strategies.
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SCHRODER SERIES TRUST
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SCHRODER HIGH YIELD INCOME FUND
SCHRODER HIGH YIELD INCOME FUND'S PRIMARY INVESTMENT OBJECTIVE IS TO SEEK HIGH
CURRENT INCOME. The Fund seeks capital growth as a secondary objective, to the
extent consistent with its objective of seeking high current income. The Fund
invests primarily in high-risk, high-yield, fixed-income securities constituting
a diversified portfolio which Schroder believes does not involve undue risk to
income or principal. The Fund is designed for investors willing to assume
additional risk in return for high current income.
The Fund seeks its secondary objective of capital growth, to the extent
consistent with its objective of seeking high current income, by investing in
securities of any kind which Schroder believes offer the potential for capital
growth. Such securities may include, for example, debt securities, preferred
stocks, common stocks, or any other securities which Schroder believes offer
such potential.
The Fund will generally invest in securities rated, at the time of purchase, at
least Caa by Moody's or CCC by Standard & Poor's, or in unrated securities
Schroder determines to be of comparable quality, and will under normal
circumstances invest at least 65% of its total assets in debt securities rated
Baa or below by Moody's or BBB or below by Standard & Poor's or, if unrated,
determined by Schroder at the time of investment to be of comparable quality.
The Fund may at times invest up to 10% of its assets in securities rated in the
lowest grades (Ca or C in the case of Moody's and CC, C, or D in the case of
Standard & Poor's) or in unrated securities determined by Schroder to be of
comparable quality, if Schroder believes that there are prospects for an upgrade
in a security's rating or a favorable conversion of a security into other
securities. The Fund might also invest in such securities if Schroder were to
believe that, upon completion of any contemplated exchange offer or
reorganization involving a security or its issuer, the Fund would receive
securities or other assets offering significant opportunities for capital
appreciation or future high rates of current income.
Securities rated below Baa by Moody's or BBB by Standard & Poor's are considered
to be of poor standing and predominantly speculative. Securities in the lowest
rating categories may have extremely poor prospects of attaining any real
investment standing and may be in default. The rating services' descriptions of
securities in the lower rating categories, including their speculative
characteristics, are set forth in the Appendix hereto.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' investment analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. Although Schroder considers security
ratings when making investment decisions, it performs its own investment
analysis and does not rely principally on the ratings assigned by the rating
services. Schroder's analysis may include consideration of the issuer's
experience and managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and its responsiveness to changes in
business conditions and interest rates. It also considers relative values based
on anticipated cash flow, interest or dividend coverage, asset coverage, and
earnings prospects. Because of the greater number of investment considerations
involved in investing in lower-rated securities, the achievement of the Fund's
objectives depends more on Schroder's analytical abilities than would be the
case if it were investing primarily in securities in the higher rating
categories.
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The table below shows the average percentages of the Schroder High Yield Income
Fund's assets invested during fiscal 1996 in securities assigned to the various
rating categories by Moody's and Standard & Poor's and in unrated securities
determined by Schroder to be of comparable quality:
<TABLE>
<CAPTION>
Unrated securities of
Rated securities comparable quality,
as percentage of as percentage of
Rating Fund's assets Fund's assets
- ------------- ----------------- ---------------------
<S> <C> <C>
"BBB"/"Baa" 0.00 0.00
"BB"/"Ba" 29.17 0.00
"B"/"B" 59.26 2.27
"CCC"/"Caa" 3.62 1.79
</TABLE>
Securities rated at different levels by Moody's and Standard & Poor's are shown
as having been rated at the lower level.
At times Schroder may judge that conditions in the securities markets make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times Schroder may temporarily use
alternative strategies, primarily designed to reduce fluctuations in the value
of the Fund's assets. In implementing these "defensive" strategies, the Fund may
invest in higher-rated fixed-income securities, money market instruments of all
types, and any other securities which Schroder considers consistent with such
defensive strategies. The yields on these securities would generally be lower
than the yields on lower-rated fixed-income securities. It is impossible to
predict when, or for how long, the Fund will use these alternative strategies.
CERTAIN RISKS ASSOCIATED WITH INVESTMENTS IN LOWER-RATED SECURITIES. Investors
should carefully consider their ability to assume the risks of owning shares of
a mutual fund that invests in lower-rated securities (sometimes referred to as
"junk bonds") before making an investment in the Fund. The lower ratings of
certain securities held by the Fund reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Fund more
volatile and could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities. It is possible
that legislation may be adopted in the future limiting the ability of certain
financial institutions to purchase lower-rated securities; such legislation may
adversely affect the liquidity of such securities. In the absence of a liquid
trading market for securities held by it, the Fund may be unable at times to
establish the fair market value of such securities. The rating assigned to a
security by Moody's or Standard & Poor's does not reflect an assessment of the
volatility of the security's market value or of the liquidity of an investment
in the security. For more information about the rating services' descriptions of
lower-rated securities, see the Appendix to this Prospectus.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Fund's assets. Conversely, during periods of rising interest rates, the value of
the Fund's assets will generally decline. In addition, the values of such
securities are also affected by changes in general economic conditions and
business conditions affecting the specific industries of their issuers. Changes
by recognized rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in
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the value of portfolio securities generally will not affect cash income derived
from such securities, but will affect the Fund's net asset value. The Fund will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although Schroder will monitor the investment to
determine whether continued investment in the security will assist in meeting
the Fund's investment objectives.
Issuers of lower-rated securities are often highly leveraged, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. In addition, such
issuers may not have more traditional methods of financing available to them,
and may be unable to repay debt at maturity by refinancing. The risk of loss due
to default in payment of interest or principal by such issuers is significantly
greater because such securities frequently are unsecured and subordinated to the
prior payment of senior indebtedness. Certain of the lower-rated securities in
which the Fund invests are issued to raise funds in connection with the
acquisition of a company, in so-called "leveraged buy-out" transactions. The
highly leveraged capital structure of such issuers may make them especially
vulnerable to adverse changes in economic conditions.
The Fund may invest in securities which trade infrequently or in more limited
volume than higher-rated securities (including illiquid securities), or in
securities which are restricted as to resale. In addition, a substantial portion
of the Fund's assets may at times be invested in an issue of securities as to
which the Fund, by itself or together with other accounts managed by Schroder
and its affiliates, holds a major portion or all of such securities, which may
limit the liquidity of such securities. The Fund could find it difficult or
impossible to sell illiquid securities when Schroder believes it advisable to do
so or may be able to sell such securities only at prices lower than if such
securities were more widely held. In many cases, such securities may be
purchased in private placements and, accordingly, will be subject to
restrictions on resale as a matter of contract or under securities laws. Under
such circumstances, it may also be more difficult to determine the fair value of
such securities for purposes of computing the Fund's net asset value. In order
to enforce its rights in the event of a default under securities in cases where
the Fund holds a major portion or all of the outstanding issue, the Fund may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Fund's operating expenses
and adversely affect the Fund's net asset value. The Fund may also be limited in
its ability to enforce its rights and may incur greater costs in enforcing its
rights in the event an issuer becomes the subject of bankruptcy proceedings. The
Fund will not invest more than 15% of its assets (determined at the time of
investment) in securities determined by Schroder to be illiquid.
The Fund may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon bonds do not pay current interest, their
value is subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve greater credit
risks than bonds that pay interest currently. Even though such bonds do not pay
current interest in cash, the Fund is nonetheless required for Federal income
tax purposes to accrue interest income on such investments and to distribute
such amounts at least annually to shareholders. Thus, the Fund could be required
at times to liquidate other investments in order to satisfy this distribution
requirement.
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Certain securities held by the Fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by the Fund during a time of declining interest rates, the Fund may not be able
to reinvest the proceeds in securities providing the same investment return as
the securities redeemed.
The Fund may at times invest in securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity. The Fund does not
amortize the premium paid for such securities in calculating its net investment
income. Consequently, if such premium securities are called or sold prior to
maturity, the Fund may recognize a capital loss to the extent the call or sale
price is less than the purchase price. Additionally, the Fund will recognize a
capital loss if its holds such securities to maturity.
Schroder seeks to minimize the risks involved in investing in lower-rated
securities through diversification and careful investment analysis. When the
Fund invests in high yield securities in the lower rating categories,
achievement of the Fund's goals depends more on Schroder's investment analysis
than would be the case if the Fund were investing in securities in the higher
rating categories.
SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER INVESTMENT GRADE INCOME FUND'S INVESTMENT OBJECTIVE IS TO SEEK CURRENT
INCOME CONSISTENT WITH PRESERVATION OF CAPITAL. Growth of capital is a secondary
objective, to the extent consistent with the Fund's principal objective. The
Fund may invest in debt securities, including securities issued or guaranteed as
to principal or interest by the U.S. Government or any of its agencies or
instrumentalities and corporate obligations, preferred stocks, and dividend-
paying common stocks. The Fund will normally invest at least 90% of its total
assets in U.S. Government securities and in debt securities and preferred stocks
rated investment grade (or, if unrated, considered by Schroder to be of
comparable quality). A security will be considered to be of "investment grade"
if, at the time of investment by the Fund, it is rated at least Baa3 by Moody's
or BBB- by Standard & Poor's or, if unrated, determined by Schroder to be of
comparable quality. The Fund will not invest in a security rated below A3 or A-
if as a result more than 25% of the Fund's assets would, at the time of such
investment, be invested in securities rated below those rating categories. The
Fund may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including collateralized
mortgage obligations, some of which may be backed by agencies or
instrumentalities of the U.S. Government. The Fund may hold a portion of its
assets in cash or money market instruments.
Schroder may take full advantage of the entire range of maturities of the
securities in which the Fund may invest and may adjust the average maturity of
the Fund's portfolio from time to time, depending on its assessment of relative
yields on securities of different maturities and expectations of future changes
in interest rates. Thus, at certain times the average maturity of the portfolio
may be relatively short (from under one year to five years, for example) and at
other times may be relatively long (more than 10 years, for example).
Higher-rated securities do not involve the degree of credit risk associated with
investments in lower quality fixed-income securities, although, as a result, the
yields available from higher-rated securities are generally lower than the
yields available from many other fixed-income securities. Like other
fixed-income securities, however, the values of higher-rated securities change
as interest rates fluctuate. Fluctuations in the value of the Fund's securities
generally will not affect interest income on securities already held by the
Fund, but will be reflected in the Fund's net asset value. Because the magnitude
of these fluctuations generally will be greater at times when the Fund's average
maturity is longer, under
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certain market conditions the Fund may invest in short-term investments yielding
lower current income rather than invest in higher yielding longer-term
securities. Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to greater
credit and market risks than higher-rated securities.
At times Schroder may decide that conditions in the securities markets make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, Schroder may temporarily use
alternative investment strategies primarily designed to reduce fluctuations in
the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund would be permitted to hold all or any portion of its assets in cash or
money market instruments. It is impossible to predict when, or for how long, the
Fund will use these alternative strategies.
SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER SHORT-TERM INVESTMENT FUND'S OBJECTIVE IS TO SEEK AS HIGH A RATE OF
INCOME AS SCHRODER BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL AND
MAINTENANCE OF LIQUIDITY. It is designed for investors seeking income with
relative stability of principal. While the Fund intends to declare and pay
dividends daily and invest in short-term securities, it is not a money-market
fund. The values of the securities owned by the Fund, and the Fund's net asset
value, will fluctuate based on changes in interest rates and other factors
affecting the values of securities in which the Fund may invest.
The Fund will invest in a portfolio of high-quality short-term instruments
consisting of any or all of the following:
-PRIME COMMERCIAL PAPER: high-grade, short-term obligations issued by banks,
corporations, and other issuers, rated P-1 by Moody's or A-1 by Standard &
Poor's.
-U.S. GOVERNMENT SECURITIES: securities issued or guaranteed as to principal
or interest by the U.S. Government or by any of its agencies or
instrumentalities.
-CORPORATE OBLIGATIONS: high-grade, short-term corporate obligations other
than prime commercial paper, rated at least Aa by Moody's or AA by Standard
& Poor's.
-BANKERS' ACCEPTANCES: negotiable drafts or bills of exchange that have been
"accepted" by a bank, meaning, in effect, that the bank has unconditionally
agreed to pay the face value of the instrument on maturity.
-BANK CERTIFICATES OF DEPOSIT: certificates issued against funds deposited
in a commercial bank for a definite period of time and earning a specified
return. The Fund may also invest in bank time deposits.
-REPURCHASE AGREEMENTS: with respect to U.S. Government securities or any of
the other debt securities described above.
-OTHER SECURITIES: rated at least Aa or P-1 by Moody's or AA or A-1 by
Standard & Poor's. These may include investments in mortgage-backed
certificates and other securities representing ownership interests in
mortgage pools, including collateralized mortgage obligations, described
below.
In addition, the Fund may invest in corporate obligations and other securities
with a remaining maturity of one year or less and not otherwise meeting the
rating requirements described above if (i) the issuer has outstanding commercial
paper rated A-1 by Standard & Poor's or P-1 by Moody's (or the issuer's
commercial paper program carries such a rating), (ii) Schroder determines that
the credit characteristics and the terms and conditions of the securities to be
purchased are at
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least as favorable to the Fund as those of such outstanding commercial paper,
and (iii) Schroder assigns its own short-term credit rating to the securities,
based on its own credit analysis, equivalent to a rating of A-1 by Standard &
Poor's or P-1 by Moody's.
All of the Fund's investments will normally have remaining maturities, at the
time of investment, of three years or less, and the average maturity of the
Fund's portfolio securities based on their dollar value will not exceed one year
at the time of each investment. When a security is subject to a repurchase
agreement, the amount and maturity of the Fund's investment will be determined
by reference to the amount and term of the repurchase agreement, not by
reference to the underlying security. The Fund will under normal circumstances
invest at least 65% of its assets in obligations with remaining maturities, at
the time of investment, of two years or less.
A portion of the securities held by the Fund may consist of mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Schroder will calculate
the 'maturity' of such an obligation and other similar obligations, for purposes
of determining the Fund's compliance with the requirements set out above, based
on Schroder's estimate of the period of time remaining until all of the
scheduled payments in respect of that obligation will have been made. That
period may be shorter than the stated maturity of the obligation. The estimated
remaining maturity of a mortgage-backed security is highly dependent on
prepayment assumptions. If interest rates were to increase at a time when the
Fund holds such an obligation, the estimated maturity of the obligation might be
increased due to any anticipated reduction in prepayments on the mortgages
underlying the obligation. Some of the mortgage-backed certificates and other
interests in mortgage pools in which the Fund may invest may be backed by
agencies or instrumentalities of the U.S. Government. See "Other investment
practices and risk considerations -- Mortgage-backed securities" below.
Certain obligations purchased by the Fund may be variable or floating rate
instruments, may involve a demand feature, and may include variable amount
master demand notes. Variable or floating rate instruments bear interest at a
rate which varies with changes in market rates. The holder of an instrument with
a demand feature may tender the instrument back to the issuer at par value prior
to maturity.
U.S. Government securities include a variety of securities that differ in their
interest rates, maturities, and dates of issue. Securities issued or guaranteed
by agencies or instrumentalities of the U.S. Government may or may not be
supported by the full faith and credit of the United States or by the right of
the issuer to borrow from the U.S. Treasury.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Funds may also engage in the following investment practices, each of which
involves certain special risks. The Statement of Additional Information contains
more detailed information about these practices (some of which may be considered
"derivative" investments), including limitations designed to reduce these risks.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES. Each of the Funds may engage in a
variety of transactions involving the use of options and futures contracts for
purposes of increasing its investment return or hedging against market changes.
A Fund may seek to increase its current return by writing covered call options
and covered put options on its portfolio securities or other securities in which
it may invest. A Fund receives a premium from writing a call or put option,
which increases the Fund's return if the option expires unexercised or is closed
out at a net profit. A Fund may also buy and sell put and call
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options on such securities for hedging purposes. When a Fund writes a call
option on a portfolio security, it gives up the opportunity to profit from any
increase in the price of the security above the exercise price of the option;
when it writes a put option, a Fund takes the risk that it will be required to
purchase a security from the option holder at a price above the current market
price of the security. A Fund may terminate an option that it has written prior
to its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. A Fund may also
from time to time buy and sell combinations of put and call options on the same
underlying security to earn additional income.
A Fund may buy and sell index futures contracts. An "index future" is a contract
to buy or sell units of a particular index at an agreed price on a specified
future date. Depending on the change in value of the index between the time when
a Fund enters into and terminates an index future transaction, the Fund may
realize a gain or loss. A Fund may also purchase warrants, issued by banks or
other financial institutions, whose values are based on the values from time to
time of one or more securities indices.
A Fund may buy and sell futures contracts on U.S. Government securities or other
debt securities. A futures contract on a debt security is a contract to buy or
sell a certain amount of the debt security at an agreed price on a specified
future date. Depending on the change in the value of the security when the Fund
enters into and terminates a futures contract, the Fund realizes a gain or loss.
A Fund may purchase and sell options on futures contracts or on securities
indices in addition to or as an alternative to purchasing and selling futures
contracts.
A Fund may purchase and sell futures contracts, options on futures contracts,
and options on securities indices for hedging purposes or, to the extent
permitted by applicable law, to increase its current return.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Options and futures
transactions involve costs and may result in losses. The use of options and
futures involves certain special risks, including the risks that a Fund may be
unable at times to close out such positions, that hedging transactions may not
accomplish their purpose because of imperfect market correlations, or that
Schroder may not forecast market movements correctly.
The effective use of options and futures strategies is dependent on, among other
things, a Fund's ability to terminate options and futures positions at times
when Schroder deems it desirable to do so. Although a Fund will enter into an
option or futures contract position only if Schroder believes that a liquid
secondary market exists for that option or futures contract, there is no
assurance that a Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
Each Fund generally expects that its options and futures contract transactions
will be conducted on recognized exchanges. In certain instances, however, a Fund
may purchase and sell options in the over-the-counter markets. A Fund's ability
to terminate options in the over-the-counter markets may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to a Fund. A Fund will, however, engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of pSchroder, the pricing mechanism and liquidity of
the over-the-counter
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markets are satisfactory and the participants are responsible parties likely to
meet their contractual obligations. A Fund will treat over-the-counter options
(and, in the case of options sold by the Fund, the underlying securities held by
the Fund) as illiquid investments as required by applicable law.
The use of options and futures strategies also involves the risk of imperfect
correlation between movements in the prices of options and futures contracts and
movements in the value of the underlying securities or index, or in the prices
of the securities that are the subject of a hedge. The successful use of these
strategies further depends on the ability of Schroder to forecast market
movements correctly.
Because the markets for certain options and futures contracts in which a Fund
will invest (including markets located in foreign countries) are relatively new
and still developing and may be subject to regulatory restraints, a Fund's
ability to engage in transactions using such investments may be limited. A
Fund's ability to engage in hedging transactions may be limited by certain
regulatory and tax considerations. A Fund's hedging transactions may affect the
character or amount of its distributions.
For more information about any of the options or futures portfolio transactions
described above, see the Statement of Additional Information.
MORTGAGE-BACKED SECURITIES. A Fund may invest a portion of its assets in
mortgage-backed certificates and other securities representing ownership
interests in mortgage pools, including collateralized mortgage obligations.
Interest and principal payments on the mortgages underlying mortgage-backed
securities are passed through to the holder of the mortgage-backed securities.
Prepayments of principal and interest on mortgages underlying mortgage-backed
securities may shorten the effective maturity of certain of such obligations.
Generally, prepayment rates increase if interest rates fall and decrease if
interest rates rise. For many types of mortgage-backed securities, this can
result in unfavorable changes in price and yield characteristics in response to
changes in interest rates and other market considerations.
Mortgage-backed securities have yield and maturity characteristics that are
dependent upon the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities may include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective maturities of mortgage-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of prepayments
may significantly lengthen the effective maturities of such securities.
Mortgage-backed securities currently offer yields higher than those available
from many other types of debt securities, but their price volatility and yield
characteristics change based on increases and decreases in prepayment rates, and
they are less effective than other types of securities as a means of "locking
in" attractive long-term interest rates. This is caused by the need to reinvest
prepayments of principal generally and the possibility of significant
unscheduled prepayments resulting from declines in mortgage interest rates.
These prepayments would have to be reinvested at the lower rates. As a result, a
Fund's mortgage-backed securities may have less potential for capital
appreciation during periods of declining interest rates than other debt
securities of comparable maturities, although such obligations may have a
comparable risk of decline in market value during periods of rising interest
rates.
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ZERO-COUPON BONDS. Each Fund which may invest in debt securities may invest in
zero-coupon securities. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. Zero-coupon bonds allow an issuer to avoid the
need to generate cash to meet current interest payments and, as a result, may
involve greater credit risks than bonds that pay interest currently. Additional
information concerning zero-coupon bonds is set out under "Schroder High Yield
Income Fund" above and in the Statement of Additional Information.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. Each Fund may
lend portfolio securities amounting to not more than 25% of its assets to
broker-dealers, and may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to a Fund if the other party should default on its obligation
and the Fund is delayed or prevented from recovering the collateral. A Fund may
also purchase securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date.
FOREIGN INVESTMENTS. Each Fund may invest without limit in securities
principally traded in foreign markets, although it is not currently expected
that any of the Funds will invest in securities of foreign issuers to a
substantial degree. Each Fund may also purchase Eurodollar certificates of
deposit without limitation. 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. 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.
In addition, with respect to certain foreign countries, there is a possibility
of nationalization or expropriation of assets, imposition of currency exchange
controls, confiscatory taxation, political or financial instability, and
diplomatic developments which could affect the value 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. 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.
A Fund may buy or sell foreign currencies, foreign currency forward contracts,
and options on foreign currencies for hedging purposes in connection with its
foreign investments.
LIQUIDITY. A 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 a 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 a Fund's
investment in illiquid securities. There can, however, be no assurance that a
Fund will be able to sell such securities at any time when Schroder deems it
advisable to do so or at prices prevailing for comparable securities that are
more widely held.
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PORTFOLIO TURNOVER
The length of time a Fund has held a particular security is not generally a
consideration in investment decisions. The investment policies of a Fund may
lead to frequent changes in the Fund's investments, particularly in periods of
volatile market movements. A change in the securities held by a Fund is known as
"portfolio turnover." Portfolio turnover generally involves some expense to a
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. Such sales
may result in realization of taxable capital gains. The portfolio turnover rate
for each of the Funds is set forth under "Financial Highlights."
HOW TO BUY SHARES
Shares of each of the Funds are sold at the net asset value per share of the
Fund next determined after Schroder Fund Advisors Inc., the principal
underwriter for the Trust, receives your order. In order for you to receive that
day's net asset value, Schroder Fund Advisors Inc. must receive your order
before the close of regular trading on the New York Stock Exchange.
The minimum initial investment in the Trust is $25,000 (which may be allocated
in any amounts among the various Funds), and the minimum for each subsequent
investment is $1,000. Schroder may, in its sole discretion, accept smaller
initial or subsequent investments so long as the investor is an employee of
Schroder or any of its affiliates or has an investment account with Schroder in
amounts specified by Schroder from time to time. None of the Funds will issue
share certificates unless a shareholder so requests.
Shares of each Fund may be purchased for cash or in exchange for securities held
by the investor, subject to the determination by Schroder that the securities
are acceptable. (For purposes of determining whether securities will be
acceptable, Schroder will consider, among other things, whether they are liquid
securities of a type consistent with the investment objectives and policies of
the Fund in question and having a readily ascertainable value.) If a Fund
receives securities from an investor in exchange for shares of the Fund, the
Fund will under some circumstances have the same tax basis in the securities as
the investor had prior to the exchange (and the Fund's gain for tax purposes
would be calculated with regard to the investor's tax basis). Any gain on the
sale of those securities would be subject to distribution as capital gain to all
of the Fund's shareholders. Schroder reserves the right to reject any particular
investment. Securities accepted by Schroder will be valued in the same manner as
are the Trust's portfolio securities as of the time of the next determination of
the Funds' net asset value. All dividend, subscription, or other rights which
are reflected in the market price of accepted securities at the time of
valuation become the property of the relevant Fund and must be delivered to the
Fund upon receipt by the investor. A gain or loss for federal income tax
purposes may be realized by investors upon the exchange. Investors interested in
purchases through exchange should telephone Schroder at (800) 464-3108.
You can make regular investments of $1,000 or more per month through automatic
deductions from your bank checking account. Application forms are available from
the Trust's transfer agent, Boston Financial Data Services, Inc., Two Heritage
Drive, North Quincy, Massachusetts 02171 ("Boston Financial").
See "Distributions" below for additional information about how to purchase
shares of Schroder Short-Term Investment Fund.
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HOW TO SELL SHARES
Shares of each Fund may be redeemed on any business day by sending a letter of
instruction or stock power form to Boston Financial. The redemption price is the
net asset value per share next determined after receipt of the redemption
request in good order. A redemption request is in good order if it includes the
exact name in which the shares are registered, the investor's account number,
and the number of shares or the dollar amount of shares to be redeemed, and if
it is signed exactly in accordance with the registration form. Signatures must
be guaranteed by a bank, broker/dealer, or certain other financial institutions.
Boston Financial may require additional documentation from shareholders that are
corporations, partnerships, agents, fiduciaries, or surviving joint owners.
Payment on redemption will be made as promptly as possible and in any event
within seven days after the request for redemption is received in writing by
Boston Financial in good order. (The Trust generally sends payment for shares
the business day after a request is received.) Under unusual circumstances, the
Trust may suspend repurchases or postpone payment for more than seven days, as
permitted by law.
EXCHANGES
You can exchange your shares of any Fund for shares of any other Fund at any
time at their respective net asset values. To exchange shares, you should
complete an exchange authorization form available from Boston Financial and mail
it to Boston Financial.
For federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss. The Trust reserves the right to
change or suspend the exchange privilege at any time. Shareholders would be
notified of any such change or suspension. Shares of the Funds are not available
to residents of all states.
DETERMINATION OF NET ASSET VALUE
EACH FUND CALCULATES THE NET ASSET VALUE OF A SHARE BY DIVIDING THE TOTAL VALUE
OF ITS ASSETS, LESS LIABILITIES, BY THE NUMBER OF SHARES OUTSTANDING. Shares are
valued as of the close of regular trading on the New York Stock Exchange each
day the Exchange is open. Portfolio securities for which market quotations are
readily available are stated at market value. Short-term investments that will
mature in 60 days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at their fair value
following procedures approved by the Trustees.
DISTRIBUTIONS
SCHRODER EQUITY VALUE FUND AND SCHRODER SMALL CAPITALIZATION VALUE FUND. The
Equity Value Fund and the Small Capitalization Value Fund distribute any net
investment income and any net realized capital gains at least annually.
Distributions from net investment income, if any, are expected to be small.
Distributions from net capital gains are made after applying any available
capital loss carryovers.
SCHRODER HIGH YIELD INCOME FUND AND SCHRODER INVESTMENT GRADE INCOME FUND. The
High Yield Income Fund and the Investment Grade Income Fund distribute net
investment income monthly and any net realized capital gains at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers.
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SCHRODER SHORT-TERM INVESTMENT FUND. All of the net income of the Short-Term
Investment Fund is declared each day the Fund is open for business as a dividend
to shareholders of record at the time of the declaration. Shareholders begin
earning dividends on the day after the Fund receives Same Day Funds. "Same Day
Funds" are funds credited by the applicable regional Federal Reserve Bank to the
account of the Trust's designated bank. The Fund's net income for Saturdays,
Sundays, and holidays is declared as a dividend on the next business day. Each
month's dividends will be paid on the last day of that month (or, if that day is
not a business day, on the preceding business day). A shareholder who withdraws
the entire balance of an account at any time during the month will be paid all
dividends declared through the date of the withdrawal.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all distributions
in additional Fund shares; (2) receive distributions from net investment income
in cash while reinvesting capital gains distributions in additional shares; or
(3) receive all distributions in cash. You can change your distribution option
by notifying Boston Financial in writing. If you do not select an option when
you open your account, all distributions by a Fund will be reinvested in shares
of that Fund. You will receive a statement confirming reinvestment of
distributions in additional Fund shares promptly following the period in which
the reinvestment occurs.
TAXES
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for it
to be relieved of federal taxes on income and gains it distributes to
shareholders. A Fund will distribute substantially all of its net investment
income and net capital gain income on a current basis.
All Fund distributions will be taxable to you as ordinary income, except that
any distributions of net long-term capital gains will be taxed as such,
regardless of how long you have held the shares. Distributions will be taxable
as described above whether received in cash or in shares through the
reinvestment of distributions.
Early in each year the Trust will notify you of the amount and tax status of
distributions paid to you by each of the Funds for the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in a Fund. You should consult your tax adviser to determine the
precise effect of an investment in a Fund on your particular tax situation.
In order to permit Schroder Investment Grade Income Fund and Schroder High Yield
Income Fund to maintain a more stable monthly dividend, each of those Funds may
from time to time pay out less than the entire amount of net investment income
earned in any particular period. Any such amount retained by those Funds would
be available to stabilize future dividends. As a result, the dividends paid by
these Funds for any particular period may be more or less than the amount of net
investment income actually earned by these Funds during the period. None of the
Funds intends to distribute in respect of any taxable year more than the Fund's
net income for federal income tax purposes for that year, nor does any of the
Funds intend to stabilize its dividends in any year in such a manner as to cause
the Fund to pay federal tax.
In order to avoid dilution of the undistributed net investment income of
Schroder Investment Grade Income Fund and Schroder High Yield Income Fund, each
of those Funds follows an accounting practice known as "equalization." A portion
of the purchase price paid for shares of the Fund (including shares purchased by
reinvestment of Fund
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SCHRODER SERIES TRUST
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distributions) equal to the undistributed net investment income per share of the
Fund at the time of purchase is segregated for accounting purposes and is
available for payment of future dividends. As a result, future dividends may
include a non-taxable return of capital to shareholders.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the conduct
of the Trust's business. The Trust's investment adviser is Schroder Capital
Management Inc. ("Schroder"). Schroder is a wholly owned subsidiary of Schroder
Wertheim Holdings Incorporated, which engages through its subsidiary firms in
the investment banking, asset management, and securities businesses. Affiliates
of Schroder Wertheim Holdings Incorporated (or their predecessors) have been
investment managers since 1927. Schroder itself has been an investment manager
since 1962, and served as investment manager for approximately $4 billion as of
December 31, 1996. Schroder Wertheim Holdings Incorporated is a wholly owned
subsidiary of Schroders Incorporated, which in turn is an indirect, wholly owned
U.S. subsidiary of Schroders plc, a publicly owned holding company organized
under the laws of England. Schroders plc and its affiliates engage in
international merchant banking and investment management businesses, and as of
December 31, 1996, had under management assets of approximately $130 billion.
Schroder Fund Advisors Inc. is a wholly owned subsidiary of Schroder Capital
Management International Inc. Schroder Capital Management International Inc. is
also a wholly owned subsidiary of Schroders Incorporated.
Subject to such policies as the Trustees may determine, Schroder furnishes a
continuing investment program for the Funds and makes investment decisions on
their behalf. Subject to the control of the Trustees, Schroder also manages the
Trust's other affairs and business. The Trust's principal office is located at
787 Seventh Avenue, New York, New York 10019 (which is also the address of
Schroder's principal office), and its telephone number is (212) 641-3900.
Schroder has served as investment adviser to the Trust since its inception.
Prior to March 1997, Schroder was known as "Schroder Wertheim Investment
Services, Inc."
The Funds pay management fees to Schroder monthly at the following annual rates
(based on the assets of each Fund taken separately): Schroder Equity Value Fund
- -- .75% of the Fund's average net assets; Schroder Small Capitalization Value
Fund -- .95% of the Fund's average net assets; Schroder High Yield Income Fund
- -- .90% of the Fund's average net assets; Schroder Investment Grade Income Fund
- -- .50% of the Fund's average net assets; and Schroder Short-Term Investment
Fund -- .40% of the Fund's average net assets. In order to limit the Funds'
expenses, Schroder has voluntarily agreed to reduce its compensation (and, if
necessary, to pay certain expenses of each of the Funds) until October 31, 1997
with respect to each of the Funds to the extent that a Fund's expenses (other
than Schroder's compensation, brokerage, interest, taxes, deferred
organizational expenses, and extraordinary expenses) exceed the following annual
rates: Schroder Equity Value Fund -- .80% of the Fund's average net assets;
Schroder Small Capitalization Value Fund -- .75% of the Fund's average net
assets; Schroder High Yield Income Fund -- .65% of the Fund's average net
assets; Schroder Investment Grade Income Fund -- .62% of the Fund's average net
assets; and Schroder Short-Term Investment Fund -- .63% of the Fund's average
net assets. The management fees paid by Schroder Equity Value Fund, Schroder
Small Capitalization Value Fund, and Schroder High Yield Income Fund are higher
than those paid by most other investment companies. The Trust pays all expenses
not assumed by Schroder, including Trustees' fees, auditing, legal, custodial,
and investor servicing and shareholder reporting expenses.
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SCHRODER SERIES TRUST
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Schroder's investment decisions for each of the Funds are generally made by a
committee of Schroder's investment professionals. Mr. Paul Morris, Director and
Portfolio Manager at Schroder, is primarily responsible for making
recommendations to the committee for Schroder Equity Value Fund. Ms. Nancy B.
Tooke, Director, Senior Vice President and Portfolio Manager at Schroder, is
primarily responsible for making recommendations to the committee for Schroder
Small Capitalization Value Fund. Mr. Michael Lanier, First Vice President and
Portfolio Manager at Schroder, is primarily responsible for making
recommendations to the committee for Schroder High Yield Income Fund. Mr. Gary
S. Zeltzer, Group Vice President and Portfolio Manager at Schroder, is primarily
responsible for making recommendations to the committee for Schroder Investment
Grade Income Fund and Schroder Short-Term Investment Fund. Each of the persons
named has had that responsibility since the organization of the Funds (other
than Mr. Morris, who assumed that responsibility on March 1, 1997, and Mr.
Lanier, who has had that responsibility since November 1995) and has several
years of experience in managing investment portfolios comparable to those for
which each has such responsibility.
Schroder places all orders for purchases and sales of the Funds' securities. In
selecting broker-dealers, Schroder may consider research and brokerage services
furnished to it and its affiliates. Schroder Wertheim & Co. Incorporated, an
affiliate of Schroder, may receive brokerage commissions from the Funds in
accordance with procedures adopted by the Trustees under the Investment Company
Act of 1940 which require periodic review of these transactions. Subject to
seeking the most favorable price and execution available, Schroder may consider
sales of shares of the Funds as a factor in the selection of broker-dealers.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in advertisements
about the Funds. The "yield" of each Fund is calculated by dividing the Fund's
annualized net investment income per share during a recent 30-day period by the
net asset value per share on the last day of that period. "Total return" for the
life of a Fund through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in the Fund during
that period. Total return for any period of one year or less represents the
actual rate of return on such an investment earned during the period.
ALL DATA IS BASED ON A FUND'S PAST INVESTMENT RESULTS AND DOES NOT PREDICT
FUTURE PERFORMANCE. Investment performance, which will vary, is based on many
factors, including market conditions, the composition of each Fund's portfolio,
and each Fund's operating expenses. Investment performance also often reflects
the risks associated with each Fund's investment objectives and policies.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect. These
factors should be considered when comparing a Fund's investment results to those
of other mutual funds and other investment vehicles. Each Fund's performance may
be compared to various indices. See the Statement of Additional Information for
a fuller discussion of performance information.
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SCHRODER SERIES TRUST
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ADDITIONAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust in 1993. The Trust
has an unlimited number of shares of beneficial interest that may, without
shareholder approval, be divided into an unlimited number of series of such
shares, which, in turn, may be divided into an unlimited number of classes of
such shares. The Trust's shares of beneficial interest are presently divided
into five different series, including each of the Funds. Each share has one
vote, with fractional shares voting proportionally. Shares are freely
transferable, are entitled to dividends as declared by the Trustees, and, if a
Fund were liquidated, would receive the net assets of the Fund. A Fund may
suspend the sale of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual meetings of its
shareholders, shareholders have the right to call a meeting to elect or remove
Trustees, or to take other actions as provided in the Declaration of Trust.
Prior to March 1997, the Trust was know as "WSIS Series Trust."
Due to their ownership of shares of each of the Funds, the Schroder Wertheim &
Co. Incorporated Profit-Sharing, Savings Incentive, and Pension Plans and the
Lewco Securities Corp. Profit-Sharing and Thrift Plans may be deemed to control
those Funds. See the Statement of Additional Information.
If you own fewer shares than a minimum amount set by the Trustees (presently 50
shares) of any Fund, the Trust may choose to redeem your shares in that Fund and
pay you for them. You will receive at least 30 days' written notice before the
Trust redeems your shares, and you may purchase additional shares at any time to
avoid a redemption. The Trust may also redeem shares if you own shares of any
Fund above a maximum amount set by the Trustees. There is currently no maximum,
but the Trustees may establish one at any time, which could apply to both
present and future shareholders.
Schroder Fund Advisors Inc., 787 Seventh Avenue, New York, New York 10019, is
the principal underwriter for the Trust. State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110, is the Trust's administrator
and custodian. The Trust currently pays State Street fees for its services as
administrator at the annual rate of .08% of each Fund's average daily net assets
(subject to certain minimum charges). The Trust's transfer agent and registrar
is Boston Financial Data Services, Inc., Two Heritage Drive, Quincy,
Massachusetts 02171.
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24
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SCHRODER SERIES TRUST
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APPENDIX A
RATINGS DESCRIPTIONS
THE RATING SERVICES' DESCRIPTION OF CORPORATE DEBT SECURITIES ARE AS FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
AAA -- 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 -- 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 securities. They are rated lower than the best 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 -- 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 -- 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 securities lack outstanding
investment characteristics and in fact have speculative characteristics as well.
BA -- 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 thereby not well
safeguarded during either good or bad times over the future. Uncertainty of
position characterizes securities in this class.
B -- 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 -- 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 -- Securities which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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SCHRODER SERIES TRUST
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STANDARD & POOR'S CORPORATION
AAA -- Securities rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Securities rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher-rated issues only in small degree.
A -- 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 securities in higher-rated
categories.
BBB -- Securities rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
securities in this category than in higher-rated categories.
BB-B-CCC-CC OR C -- Bonds rated BB, B, CCC, CC or C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
D -- Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
- liquidity ratios are adequate to meet cash requirements;
- long-term senior debt is rated "A" or better;
- the issuer has access to at least two additional channels of borrowing;
- basic earnings and cash flow have an upward trend with allowance made for
unusual circumstances;
- typically, the issuer's industry is well established and the issuer has a
strong position within the industry; and
- the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
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SCHRODER SERIES TRUST
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The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
- evaluation of the management of the issuer;
- economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas;
- evaluation of the issuer's products in relation to competition and
customer acceptance;
- liquidity;
- amount and quality of long-term debt;
- trend of earnings over a period of ten years;
- financial strength of parent company and the relationships which exist
with the issuer; and
- recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet
such obligations.
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- ---- ----
[LOGO]
SCHRODER SERIES TRUST
Schroder Equity
Value Fund
Schroder Small
Capitalization Value
Fund
Schroder High Yield
Income Fund
Schroder Series Trust
Schroder Investment
Grade Income Fund
P.O. Box 8507
Boston, Mass. 02266
1-800-464-3108
Schroder Short-Term
Investment Fund
0397WS
PROSPECTUS
March 1, 1997
<PAGE>
SCHRODER SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1997
This Statement of Additional Information contains information that may be
of interest to investors but which is not included in the Prospectus of Schroder
Series Trust (the "Trust"). This Statement is not a prospectus and is only
authorized for distribution when accompanied or preceded by the Prospectus of
the Trust dated March 1, 1997. This Statement should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus by calling
Schroder Capital Management Inc., the Trust's investment adviser, at
1-800-464-3108.
<PAGE>
TABLE OF CONTENTS
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
AND RISK CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . .14
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . .17
MANAGEMENT CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . .19
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . .23
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . .25
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .26
ORGANIZATION AND CAPITALIZATION . . . . . . . . . . . . . . . . . . . . .27
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . .28
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . . . . . . . . . . . .28
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . .28
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .29
<PAGE>
SCHRODER SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
The "Trust" -- Schroder Series Trust
"Schroder" -- Schroder Capital Management Inc., the
Trust's investment adviser
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST AND RISK
CONSIDERATIONS
The Trust currently offers shares of beneficial interest of five series
(the "Funds") with separate investment objectives and policies. The investment
objectives and policies of each of the Funds are described in the Prospectus.
This Statement contains additional information concerning certain investment
practices and investment restrictions of the Trust.
Except as described below under "Investment Restrictions", the investment
objectives and policies described in the Prospectus and in this Statement are
not fundamental, and the Trustees may change the investment objectives and
policies of a Fund without an affirmative vote of shareholders of the Fund.
Except as otherwise noted below, the following descriptions of certain
investment policies and techniques are applicable to all of the Funds.
OPTIONS
Each Fund may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
COVERED CALL OPTIONS. A Fund may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may
also be used as a limited form of hedging against a decline in the price of
securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call option,
the Fund gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Fund retains the risk of loss should the price of such
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<PAGE>
securities decline. If the option expires unexercised, the Fund realizes a gain
equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Fund realizes a gain or
loss equal to the difference between the Fund's cost for the underlying security
and the proceeds of sale (exercise price minus commissions) plus the amount of
the premium.
A Fund may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. A Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a
decline in the value of the underlying security. Conversely, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, any loss resulting from a closing
purchase transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Trust.
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
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<PAGE>
to cover the premium and transaction costs. These costs will reduce any profit
the Fund might have realized had it bought the underlying security at the time
it purchased the call option.
A Fund may also purchase put and call options to enhance its current
return.
OPTIONS ON FOREIGN SECURITIES. A Fund may purchase and sell options on
foreign securities if in 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. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Fund may be forced to continue to hold, or
to purchase at a fixed price, a security on which it has sold an option at a
time when 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 Trust's use
of options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of Schroder may be considered such a group. These position limits may restrict
the Trust's ability to purchase or sell options on particular securities.
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 unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes each Fund
that may invest in debt securities may buy and sell futures contracts on debt
securities of the type in which the Fund may invest and on indexes of debt
securities. In addition, each Fund that may invest in equity
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<PAGE>
securities may purchase and sell stock index futures to hedge against changes
in stock market prices. Each Fund may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase the Fund's current return. All such futures and related options
will, as may be required by applicable law, be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission (the "CFTC").
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a Fund
will legally obligate itself to accept the future delivery of the underlying
security and pay the agreed price. By selling futures on debt securities --
assuming a "short" position -- it will legally obligate itself to make the
future delivery of the security against payment of the agreed price. Open
futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons acting
at the direction of the Trustees as to the valuation of the Trust's assets,
reflect the fair value of the contract, in which case the positions will be
valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by a Fund will usually be
liquidated in this manner, a Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the Fund
to do so. A clearing corporation associated with the exchange on which futures
are traded assumes responsibility for such closing transactions and guarantees
that a Fund's sale and purchase obligations under closed-out positions will be
performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities may substantially be offset by appreciation in the value of
the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when the Trust expects to
purchase for the Fund 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
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rates which would adversely affect the market prices of debt securities held by
it and the prices of such securities increase instead, the Fund will lose part
or all of the benefit of the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements. The Fund may
have to sell securities at a time when it may be disadvantageous to do so.
A Fund may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an option of the same
series. There is no guarantee that such closing transactions can be effected.
A Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
included as initial margin deposits. See "Margin Payments" below. Compared to
the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to a Fund because the maximum
amount at risk is the premium paid for the options plus transactions costs.
However, there may be circumstances when the purchase of call or put options on
a futures contract would result in a loss to a Fund when the purchase or sale of
the futures contracts would not, such as when there is no movement in the prices
of debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. Certain Funds may invest in debt
index futures contracts and stock index futures contracts, and in related
options. A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. Debt index futures
in which the Funds are presently expected to invest are not now available,
although such futures contracts are expected to become available in the future.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180,
one contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Fund enters into a futures contract to buy 100 units of the
S&P 100 Index at a specified future date at a contract price of $180 and the S&P
100 Index is at $184 on that future date, the Fund will gain $400 (100 units x
gain of $4). If the Fund enters into a futures contract to sell 100 units of
the stock index at a specified future date at
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a contract price of $180 and the S&P 100 Index is at $182 on that future date,
the Fund will lose $200 (100 units x loss of $2).
A Fund may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Fund's investments successfully using futures contracts
and related options, a Fund must invest in futures contracts with respect to
indexes or sub-indexes the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the Fund's securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Funds which may purchase and sell index futures
contracts may purchase and sell call and put options on the underlying indexes
themselves to the extent that such options are traded on national securities
exchanges. Index options are similar to options on individual securities in
that the purchaser of an index option acquires the right to buy (in the case of
a call) or sell (in the case of a put), and the writer undertakes the obligation
to sell or buy (as the case may be), units of an index at a stated exercise
price during the term of the option. Instead of giving the right to take or
make actual delivery of securities, the holder of an index option has the right
to receive a cash "exercise settlement amount". This amount is equal to the
amount by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of the exercise, multiplied by a fixed "index multiplier".
A Fund may purchase or sell options on stock indices in order to close out
its outstanding positions in options on stock indices which it has purchased. A
Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on an index involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar
to those risks relating to the purchase or sale of index futures contracts.
MARGIN PAYMENTS. When a Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a
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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 the Trust 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
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correlation between movements in the prices of the futures contracts and
options and movements in the underlying securities or index or movements in the
prices of a Fund's securities which are the subject of a hedge. Schroder will,
however, attempt to reduce this risk by purchasing and selling, to the extent
possible, futures contracts and related options on securities and indexes the
movements of which will, in its judgment, correlate closely with movements in
the prices of the underlying securities or index and a Fund's portfolio
securities sought to be hedged.
Successful use of futures contracts and options by a Fund for hedging
purposes is also subject to 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.
OTHER RISKS. Funds will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the portfolio position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss.
FORWARD COMMITMENTS
Each Fund may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Fund holds, and maintains until the settlement date in a segregated account,
cash or high-grade debt obligations in an amount sufficient to meet the purchase
price, or if the Fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Funds rely 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
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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 may enter into repurchase agreements. A repurchase agreement is
a contract under which the Fund acquires a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). It is the Trust's present
intention to enter into repurchase agreements only with member banks of the
Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by 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 high-grade debt obligations at
least equal in value to commitments for when-issued securities. Such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.
LOANS OF FUND SECURITIES
A Fund may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government Securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Fund may at
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any time call the loan and regain the securities loaned; (3) a Fund will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities of any Fund 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 a Fund
if the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. A Fund will not lend portfolio securities
to borrowers affiliated with a Fund.
FOREIGN SECURITIES
Each Fund may invest in foreign securities and in certificates of deposit
issued by United States branches of foreign banks and foreign branches of United
States banks.
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment
against a foreign issuer.
In addition, to the extent that any Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment adviser of a Fund seeking current income will consider the likely
impact of foreign taxes on the net yield available to the Fund and its
shareholders. Income received by a Fund from sources within foreign countries
may be reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of a Fund's assets to be invested in
various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by a Fund will reduce its net income available for distribution to
shareholders.
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FOREIGN CURRENCY TRANSACTIONS
Each Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of a Fund
generally arising in connection with the purchase or sale of its portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security 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.
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It is impossible to forecast with precision the market value of a Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency a Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security or
securities of a Fund if the market value of such security or securities exceeds
the amount of foreign currency a Fund is obligated to deliver.
To offset some of the costs to a Fund of hedging against fluctuations in
currency exchange rates, a Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency.
A Fund may also seek to increase its current return by purchasing and
selling foreign 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.
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Closing transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when 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.
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
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interest prior to maturity. Zero-coupon securities usually trade at a deep
discount from their face or par value and are subject to greater market value
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. As a result, the net
asset value of shares of a Fund investing in zero-coupon securities may
fluctuate over a greater range than shares of other Funds of the Trust and
other mutual funds investing in securities making current distributions of
interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). CATS and TIGRS are not considered U.S. Government
Securities. The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(I.E., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under
the STRIPS program, a Fund will be able to have its beneficial ownership of U.S.
Treasury zero-coupon securities recorded directly in the book-entry record-
keeping system in lieu of having to hold certificates or other evidences of
ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions which 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
of 1940 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. A Fund may not:
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1. Borrow money in excess of 10% of the value (taken at the lower of cost
or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks
as a temporary measure (not for leverage) in situations which might
otherwise require the untimely disposition of portfolio investments or
for extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
2. Pledge, hypothecate, mortgage, or otherwise encumber its assets in
excess of 15% of its total assets (taken at the lower of cost and
current value) and then only in connection with borrowings permitted
by restriction 1 above.
3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities,
and except that it may make margin payments in connection with
transactions in futures contracts, options, and other financial
instruments.
4. Make short sales of securities or maintain a short position for the
account of a Fund unless at all times when a short position is open it
owns an equal amount of such securities or owns securities which,
without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and in equal amount
to, the securities sold short.
5. 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 the federal securities
laws.
6. Purchase or sell real estate or interests in real estate limited
partnerships, although it may purchase securities of issuers which
deal in real estate, securities which are secured by interests in real
estate, and securities representing interests in real estate, and it
may acquire and dispose of real estate or interests in real estate
acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
7. Purchase or sell commodities or commodity contracts, except that it
may purchase or sell financial futures contracts and options and other
financial instruments.
8. Make loans, except by purchase of debt obligations in which a Fund may
invest consistent with its investment policies, by entering into
repurchase agreements with respect to not more than 25% of its total
assets (taken at current value), or through the lending of its
portfolio securities with respect to not more than 25% of its total
assets.
9. Invest in securities of any issuer, if officers and Trustees of the
Trust and officers and directors of Schroder who beneficially own more
than 0.5% of the securities of that issuer together own more than 5%
of such securities.
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10. As to 75% of its assets, invest in securities of any issuer if,
immediately after such investment, more than 5% of the total assets of
a Fund (taken at current value) would be invested in the securities of
such issuer; provided that this limitation does not apply to
securities issued or guaranteed as to principal or interest by the
U.S. Government or its agencies or instrumentalities.
11. Acquire more than 10% of the voting securities of any issuer.
12. Invest more than 25% of the value of its total assets in securities of
issuers in any one industry. (Securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies or
instrumentalities are not considered to represent industries.)
13. Buy or sell oil, gas, or other mineral leases, rights, or royalty
contracts, although it may purchase securities of issuers which deal
in, represent interests in, or are secured by interests in such
leases, rights, or contracts, and it may acquire or dispose of such
leases, rights, or contracts acquired through the exercise of its
rights as a holder of debt obligations secured thereby.
14. Make investments for the purpose of gaining control of a company's
management.
In addition, it is contrary to the Trust's present policy, which may be
changed without shareholder approval, for any of the Funds to invest more than
15% of its net assets in securities which are not readily marketable, including
securities restricted as to resale (other than securities restricted as to
resale but determined by the Trustees, or persons designated by the Trustees to
make such determinations, to be readily marketable).
-------------------
All percentage limitations on investments 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. Except
for investment restrictions 1 through 14 listed above, the other investment
policies described in the Prospectus and this Statement are not fundamental and
may be changed by the Trustees, without shareholder approval. As a matter of
policy, the Trustees would not materially change a Fund's investment objective
without shareholder approval.
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TRUSTEES AND OFFICERS
The Trustees of the Trust are responsible for the general oversight of the
Trust's 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 of each of the officers and Trustees is 787 Seventh Avenue, New
York, New York 10019.
David N. Dinkins, Trustee. 69. Professor, Columbia University School of
International and Public Affairs. Director, American Stock Exchange, Amrep
Corporation, Carver Federal Savings Bank, New World Communications Group,
Incorporated, and Transderm Laboratory Corporation. Formerly, Mayor, City of
New York.
(*) David Gibson, Trustee and Vice President of the Trust. 36. Director,
Schroder Capital Management Inc. and Schroder Investment Management Ltd.
Director and Senior Vice President, Schroder Capital Management International
Inc.
John I. Howell, Trustee. 80. Trustee, Schroder Capital Funds and Schroder
Capital Funds (Delaware). Director, Schroder Asian Growth Fund, Inc. and
American International Life Assurance Company of New York. Private consultant
since 1987.
Peter S. Knight, Trustee. 46. Partner, Wunder, Diefenderfer, Cannon &
Thelen. Previously, Campaign Manager, Clinton/Gore '96.
Madelon DeVoe Talley, Trustee. 65. Vice Chairman, W.P. Carey & Co. Board
Member and Trustee, Smith Barney Equity Funds, Income Funds, and Trak Fund.
Director, Global Asset Management Funds, Inc., Alliance Capital Management L.P.,
Biocraft Laboratories, Schroder Asian Growth Fund, Inc., and Laidlaw Covenant
Fund. Marketing consultant, Three Cities Research. Commissioner, The Port
Authority of New York and New Jersey.
Ashbel C. Williams, Jr., President of the Trust. 42. President, Schroder
Capital Management Inc. Formerly, Executive Director, Florida State Board of
Administration.
Robert Jackowitz, Treasurer of the Trust. 30. Vice President and
Comptroller, Schroder Capital Management International Inc. Vice President and
Treasurer, Schroder Capital Management Inc. Treasurer and Chief Financial
Officer, Schroder Fund Advisors Inc. Treasurer, Schroder Asian Growth Fund,
Inc., Schroder Capital Funds, Schroder Capital Funds II, and Schroder Capital
Funds (Delaware).
Catherine A. Mazza, Vice President of the Trust. 37. First Vice President,
Schroder Capital Management International Inc. and Schroder Capital Management
Inc. President, Schroder Fund Advisors Inc. Vice President, Schroder Asian
Growth Fund, Inc., Schroder Capital Funds, Schroder Capital Funds II, and
Schroder Capital Funds (Delaware). Previously served as Vice President,
Alliance Capital.
Alexandra Poe, Clerk of the Trust. 37. Senior Vice President, Secretary,
and Fund Counsel, Schroder Fund Advisors Inc. Vice President and Secretary,
Schroder Capital Funds, Schroder Capital Funds II, and Schroder Capital Funds
(Delaware). Assistant Secretary, Schroder Asian Growth Fund,
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Inc. Vice President, Schroder Capital Management International Inc. Formerly,
Senior Associate Attorney, Gordon, Altman, Butowsky, Weitzen, Shalov & Wein;
Vice President and Counsel, Citibank, N.A.
Mark J. Smith, Vice President of the Trust. 36. Director, Schroder
Investment Management Ltd. Director and Senior Vice President, Schroder Capital
Management International Inc. and Schroder Capital Management International Ltd.
Director and Vice President, Schroder Fund Advisors Inc. Trustee and President,
Schroder Capital Funds and Schroder Capital Funds (Delaware). President,
Schroder Capital Funds II. Director, Schroder Investment Management (Guernsey)
Ltd. and Schroder Japanese Warrant Fund Ltd.
Jane E. Lucas, Vice President of the Trust. 35. Director and Senior Vice
President, Schroder Capital Management International Inc. Director, Schroder
Capital Management Inc. Assistant Director, Schroder Investment Management Ltd.
Director, Schroder Fund Advisors Inc. Vice President, Schroder Capital Funds,
Schroder Capital Funds II, and Schroder Capital Funds (Delaware).
________________________
(*) Trustee who is an "interested person" (as defined in the 1940 Act) of
the Trust, Schroder, or Schroder Fund Advisors Inc.
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.
Each Trustee of the Trust who is not an interested person of the Trust,
Schroder, or Schroder Fund Advisors Inc. receives an annual fee of $5,000 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Schroder and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings and for
special services rendered in that connection. The Trust paid Trustees' fees
aggregating $33,000 for the fiscal year ended October 31, 1996. The following
table sets forth information regarding compensation paid for the fiscal year
ended October 31, 1996 to those Trustees who are not interested persons of the
Trust.
COMPENSATION TABLE
(1) (2) (3)
NAME OF AGGREGATE TOTAL COMPENSATION
TRUSTEE COMPENSATION FROM TRUST AND
FROM TRUST FUND COMPLEX PAID
TO TRUSTEES
David N. Dinkins $11,000 $11,000
John I. Howell* 2,750 21,500
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Peter S. Knight 11,000 11,000
Michael R. Steed** 5,500 5,500
Madelon DeVoe Talley*** 2,750 15,250
* Mr. Howell was elected a Trustee on June 25, 1996. The
Total Compensation listed in column (3) for Mr. Howell
includes compensation for his services as a Trustee of
Schroder Capital Funds ("SCF") and Schroder Capital Funds
(Delaware) ("SCFD") and as a Director of Schroder Asian
Growth Fund, Inc. ("SAGF"). The Trust, SCF, SCFD, and
SAGF are considered part of the same "Fund Complex" for
these purposes.
** Mr. Steed resigned from the Board of Trustees as of
May 15, 1996.
*** Ms. DeVoe Talley was elected a Trustee on June 25,
1996. The Total Compensation listed in column (3) for
Ms. DeVoe Talley includes compensation for her services
as a Director of SAGF.
As of January 1, 1997, the Trustees of the Trust as a group owned less than
1% of the outstanding shares of each Fund.
The Agreement and Declaration of Trust of the Trust 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 Agreement and Declaration of Trust 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.
MANAGEMENT CONTRACT
Under a Management Contract between the Trust and Schroder (the "Management
Contract"), 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. The fees
to be paid under the Contract are set forth in the Trust's prospectus.
In providing investment advisory services to the various Funds of the
Trust, Schroder regularly provides 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 Agreement and Declaration of
Trust and By-laws, and of the Investment Company Act of 1940, 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.
Schroder makes available to the Trust, without 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
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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 Management Contract, 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 Management Contract 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.
State Street Bank and Trust Company ("State Street") provides certain
accounting, transfer agency, and other services to the Trust. The Trust
reimburses State Street on a basis approved by the Trustees.
The Management Contract provides that Schroder shall not be subject to any
liability for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with rendering services to the Trust in the absence
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
its duties.
The Management Contract 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. The Management Contract also terminates without payment
of any penalty in the event of its assignment. In addition, the Management
Contract may be amended only by a vote of the shareholders of the affected
Fund(s), and the Contract 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 of 1940.
RECENT MANAGEMENT FEES. For its fiscal years ended October 31, 1996, 1995,
and 1994, respectively, pursuant to the Management Contract, each Fund paid fees
to Schroder as follows (reflecting reductions in such fees pursuant to expense
limitations in effect during such periods): Schroder Equity Value Fund -
$318,145, $252,615, and $72,738; Schroder Small Capitalization
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Value Fund - $471,712, $349,672, and $58,538; Schroder High Yield Income Fund -
$99,827, $176,520, and $43,688; Schroder Investment Grade Income Fund -
$97,566, $98,478, and $17,751; and Schroder Short-Term Investment Fund -
$133,208, $131,121, and $46,643. Schroder voluntarily waived its fees in the
following amounts during the fiscal years ended October 31, 1996, 1995, and
1994, respectively, pursuant to expense limitations in effect during such
periods: Schroder Equity Value Fund - $0, $16,285, and $84,725; Schroder Small
Capitalization Value Fund - $0, $22,164, and $104,661; Schroder High Yield
Income Fund - $59,514, $93,036, and $110,694; Schroder Investment Grade Income
Fund - $29,635, $88,653, and $109,927; and Schroder Short-Term Investment Fund
- - $0, $42,642, and $103,477.
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 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. 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 for the Trust and buys and sells securities for the Trust through a
substantial number of brokers and dealers. In so doing, it uses its best
efforts to obtain for the Trust the best price and execution available. In
seeking the best price and execution, Schroder, having in mind the Trust's best
interests, considers all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience, and financial
stability of the broker-dealer involved, and the quality of service rendered by
the broker-dealer in other transactions.
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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
which 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 the Trust. The management fee paid
by the Trust is not reduced because Schroder and its affiliates receive such
services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, and
by the Management Contract, Schroder may cause a Fund to pay a broker which
provides brokerage and research services to Schroder an amount of disclosed
commission for effecting a securities transaction for the 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 in 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 Wertheim & Co. Incorporated ("Wertheim") or Lewco
Securities, Inc. ("Lewco"), each of which is an affiliate of Schroder, or with
unaffiliated brokers who trade or clear through Wertheim or Lewco. (The
Investment Company Act of 1940 generally prohibits the Funds from engaging in
securities transactions with Wertheim and Lewco or their affiliates, as
principal, unless pursuant to an exemptive order from the Securities and
Exchange Commission.) Consistent with regulations under the Investment Company
Act of 1940, the Funds have adopted procedures which are reasonably designed to
provide that any commissions or other remuneration they pay to Wertheim and
Lewco do not exceed the usual and customary broker's commission. In addition,
the Funds will adhere to the rule, under the Securities Exchange Act of 1934,
governing floor trading. This rule permits the Funds to effect, but not
execute, exchange listed securities transactions with Wertheim and Lewco. Also,
due to securities law limitations, the Funds will limit purchases of securities
in a public offering if Wertheim or Lewco or one of their affiliates is a member
of the syndicate for that offering.
In the fiscal years ended October 31, 1996, 1995, and 1994, respectively,
the Funds paid brokerage commissions in the following amounts: Schroder Equity
Value Fund - $56,986, $78,776, and $51,642; Schroder Small Capitalization Value
Fund - $151,845, $125,945, and $43,183; Schroder High Yield Income Fund - $17,
$2,166, and $843; and Schroder Investment Grade Income Fund - $0, $30, and $3.
Schroder Short-Term Investment Fund paid no brokerage commissions in the fiscal
years ended October 31, 1996, 1995, and 1994.
In the fiscal year ended October 31, 1996, Schroder, on behalf of the
Trust, placed agency and underwritten transactions having an approximate
aggregate dollar value of $94,676,425 (99.61% of the Trust's aggregate agency
and underwritten transactions, on which approximately $208,128 of commissions
were paid) with brokers and dealers (other than Wertheim and Lewco) whose
research, statistical, and quotation services Schroder considered to be
particularly useful to it and its affiliates. However, many of such
transactions were placed with such brokers and dealers without regard to the
furnishing of such services.
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In the fiscal years ended October 31, 1996, 1995, and 1994, respectively,
the Trust paid brokerage commissions to Wertheim and Lewco in the following
amounts: Wertheim - $0, $120, and $1,194; Lewco - $720, $7,612, and $23,160.
During the fiscal year ended October 31, 1996, commissions paid to Lewco
constituted 0.01% of all of the Trust's brokerage commissions paid during such
fiscal year and transactions with respect to which those commissions were paid
constituted 0.39% of all the transactions on which the Trust paid brokerage
commissions during such fiscal year.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is determined daily as of 4:00
p.m. New York time on each day the New York Stock Exchange is open for trading.
The New York Stock Exchange is normally closed on the following national
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
The net asset value of the shares of each of the Funds is determined by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. Securities traded on a national securities exchange or
quoted on the NASDAQ National Market System are valued at their last-reported
sale price on the principal exchange or reported by NASDAQ or, if there is no
reported sale, and in the case of over-the-counter securities not included in
the NASDAQ National Market System, at a bid price estimated by a broker or
dealer. Debt securities, including zero-coupon securities, and certain foreign
securities will be valued by a pricing service. Other foreign securities will
be valued by the Trust's custodian based on outside pricing sources. Securities
for which current market quotations are not readily available and all other
assets are valued at fair value as determined by Schroder in good faith in
accordance with procedures approved by the Trustees.
If any securities held by a Fund are restricted as to resale, their fair
value is generally determined as the amount which the Trust could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. 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
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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. Expenses with respect to any two or more Funds may be allocated
in proportion to the net asset values of the respective Funds except where
allocations of direct expenses can otherwise be fairly made.
TAXES
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 the separate accounts of the Participating Insurance Companies
which hold its shares. As a Massachusetts business trust, a Fund under present
law will not be subject to any excise or income taxes in Massachusetts.
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;
(b) derive less than 30% of its gross income from the sale or other disposition
of certain assets (including stock and securities) held less than three months;
(c) 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). In order to receive the
favorable tax treatment accorded regulated investment companies and their
shareholders, moreover, a Fund must in general distribute at least 90% of its
interest, dividends, net short-term capital gain, and certain other income each
year.
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.
-24-
<PAGE>
A Fund's ability to use options, futures, and forward contracts and other
hedging techniques, and to engage in certain other transactions, may be limited
by tax considerations. A Fund's transactions in foreign-currency-denominated
debt instruments and its hedging activities will likely produce a difference
between its book income and its taxable income. This difference may cause a
portion of the Fund's distributions of book income to constitute returns of
capital for tax purposes or require the Fund to make distributions exceeding
book income in order to permit the Trust to continue to qualify, and be taxed
under Subchapter M of the Code, as a regulated investment company.
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.
It is the policy of each of the Funds to meet the requirements of the Code
to qualify as a regulated investment company that is taxed pursuant to
Subchapter M of the Code. One of these requirements is that less than 30% of a
Fund's gross income must be derived from gains from sale or other disposition of
securities held for less than three months (with special rules applying to so-
called designated hedges). Accordingly, a Fund will be restricted in selling
securities held or considered under Code rules to have been held less than three
months, and in engaging in hedging or other activities (including entering into
options, futures, or short-sale transactions) which may cause the Trust's
holding period in certain of its assets to be less than three months.
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 Statement
of Additional Information.
PRINCIPAL HOLDERS OF SECURITIES
The following table shows the percentage of the outstanding shares of each
Fund owned as of February 14, 1997 by the Schroder Wertheim & Co. Incorporated
Profit-Sharing, Savings Incentive, and Pension Plans (the "Schroder Wertheim
Plans") (all located at 787 Seventh Avenue, New York, NY 10019), and the Lewco
Securities Corp. Profit Sharing and Thrift Plans (the "Lewco Plans") (located at
Lewco Securities Corp., 34 Exchange Place, Jersey City, NJ 07311). Certain of
the directors and officers of Schroder and Schroder Wertheim & Co. Incorporated,
and certain of the officers of the Trust, are participants in one or more of the
Schroder Wertheim Plans. Schroder Wertheim & Co. Incorporated owns 80.0% of the
outstanding voting securities of Lewco Securities Corp.
% OF FUND SHARES
OWNED BY
SCHRODER WERTHEIM AND LEWCO PLANS
---------------------------------
Schroder Equity Value Fund 65%
Schroder Small Capitalization Value Fund 30%
Schroder Investment Grade Income Fund 74%
-25-
<PAGE>
Schroder High Yield Income Fund 62%
Schroder Short-Term Investment Fund 92%
___________________
To the knowledge of the Trust, as of February 14, 1997, no other person
owned of record or beneficially more than 5% of the outstanding shares of any
Fund, except that Northern Trust Bank of Texas, custodian for the Bernard and
Andre Rapoport Foundation, 2701 Kirby Drive, Houston, TX 77098-1218 owned 9.47%
of the outstanding shares of Schroder Equity Value Fund and 9.76% of the
outstanding shares of Schroder Small Capitalization Value Fund; The Hillman
Foundation, Inc., 2000 Grant Building, Pittsburgh, PA 15219 owned 5.21% of the
outstanding shares of Schroder Small Capitalization Value Fund; Saxon & Co., FBO
W.S. Dietrich Schroder, P.O. Box 7780-1888, Philadelphia, PA 19182-0001, owned
11.55% of Schroder Small Capitalization Value Fund; and the Stitzel Family
Partnership, 102 Mountain View Avenue, San Rafael, CA 94901-1348 owned 6.74% of
the outstanding shares of Schroder High Yield Income Fund.
PERFORMANCE INFORMATION
The yield of a Fund is presented for a specified 30-day period (the "base
period"). Yield is based on the amount determined by (i) calculating the
aggregate of dividends and interest earned by a Fund during the base period less
expenses accrued for that period, and (ii) dividing that amount by the product
of (A) the average daily number of shares of the Fund outstanding during the
base period and entitled to receive dividends and (B) the net asset value per
share of the Fund on the last day of the base period. The result is annualized
on a compounding basis to determine the Fund's yield. For this calculation,
interest earned on debt obligations held by a Fund is generally calculated using
the yield to maturity (or first expected call date) of such obligations based on
their market values (or, in the case of receivables-backed securities such as
Ginnie Maes, based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates.
Total return of a Fund for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Fund made at the beginning of each period, then calculating the average
annual compounded rate of return which would produce the same investment return
on the $1,000 investment over the same period. Total return for a period of one
year or less is equal to the actual investment return on a $1,000 investment in
the Fund during that period. Total return calculations assume that all Fund
distributions are reinvested at net asset value on their respective reinvestment
dates.
The total return of each of the Funds for the one-year period ending
October 31, 1996 and for the period from the commencement of its investment
operations until October 31, 1996 is set forth below. The yield of each of
Schroder Investment Grade Income Fund, Schroder High Yield Income Fund, and
Schroder Short-Term Investment Fund for the thirty-day period ended October 31,
1996 is also set forth below.
-26-
<PAGE>
TOTAL RETURN
TOTAL RETURN (LIFE OF
(ONE-YEAR) FUND) YIELD
---------- ----- -----
Schroder Equity Value Fund (commencement of
operations: February 16, 1994) 19.30% 11.35% --
Schroder High Yield Income Fund (commencement
of operations: February 16, 1994) 9.98% 4.33% 8.14%
Schroder Investment Grade Income Fund
(commencement of operations: February 22, 1994) 4.38% 5.25% 5.49%
Schroder Short-Term Investment Fund
(commencement of operations: January 11, 1994) 4.63% 4.09% 4.44%
Schroder Small Capitalization Value Fund
(commencement of operations: February 16, 1994) 21.17% 10.36% --
From time to time, Schroder may reduce its compensation or assume expenses
of a Fund in order to reduce the Fund's expenses, as described in the Trust's
current prospectus. Any such waiver or assumption would increase a Fund's yield
and total return during the period of the waiver or assumption.
ORGANIZATION AND CAPITALIZATION
The Trust is an open-end investment company established under the laws of
The Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
May 6, 1993.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, separate vote will be taken by each Fund on
matters affecting an individual Fund. For example, a change in a fundamental
investment policy for a Fund would be voted upon only by shareholders of that
Fund. Additionally, approval of the Management Contract is a matter to be
determined separately by each Fund. Approval by the shareholders of one Fund is
effective as to that Fund. 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 Declaration of Trust. 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, the shares
of that Fund would receive the net assets of that Fund. The Trust may suspend
the sale of shares at any time and may refuse any order to purchase shares.
Additional Funds may be created from time to time with different investment
objectives. In addition, the Trustees have the right, subject to any necessary
regulatory approvals, to create more than one class of shares in a Fund, with
the classes being subject to different charges and expenses and having such
other different rights as the Trustees may prescribe and to terminate any Fund
of the Trust.
-27-
<PAGE>
PRINCIPAL UNDERWRITER
Schroder Fund Advisors Inc. is the principal underwriter of the continually
offered shares of each of the Funds. Schroder Fund Advisors Inc. is not
obligated to sell any specific amount of shares of any Fund and will purchase
shares of a Fund for resale only against orders for shares.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 is the custodian of the Trust's assets. The custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Trust's investments. The custodian does not
determine the investment policies of the Trust or decide which securities the
Trust will buy or sell. Boston Financial Data Services, Inc., Two Heritage
Drive, Quincy, Massachusetts 02171, serves as registrar and transfer agent for
the Trust.
INDEPENDENT AUDITORS
Arthur Andersen LLP, are the Trust's independent accountants, providing
audit services, tax return preparation services, and assistance and consultation
in connection with review of various Securities and Exchange Commission filings.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust 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 Agreement and Declaration of Trust 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 the Fund would be unable to meet its
obligations.
-28-
<PAGE>
FINANCIAL STATEMENTS
-29-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM EQUITY VALUE FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Shares Value $
--------- -----------
<C> <S> <C>
COMMON STOCKS
BASIC INDUSTRY - (5.6%)
18,300 Ferro Corporation 494,100
31,800 James River Corporation of Virginia 1,001,700
16,500 Reynolds Metals Company 928,125
-----------
2,423,925
CAPITAL GOODS - (15.7%)
26,100 Allied Signal, Incorporated 1,709,550
17,400 General Electric Company 1,683,450
16,600 McDonnell Douglas Corporation 904,700
15,500 Rockwell International Corporation 852,500
17,700 Textron, Incorporated 1,570,875
-----------
6,721,075
CONSUMER CYCLICAL - (8.2%)
28,800 Time Warner, Incorporated 1,072,800
31,900 Viacom, Incorporated (1) 1,040,738
53,100 Wal Mart Stores, Incorporated 1,413,787
-----------
3,527,325
CONSUMER STAPLES - (19.6%)
26,300 Albertson's, Incorporated 904,063
18,700 Colgate Palmolive Company 1,720,400
15,500 CPC International, Incorporated 1,222,562
36,800 Heinz H J Company 1,306,400
10,700 Kimberly Clark Corporation 997,775
34,300 Pharmacia & Upjohn, Incorporated 1,234,800
29,600 Rite Aid Corporation 1,006,400
-----------
8,392,400
ENERGY - (12.0%)
17,500 Amerada Hess Corporation 969,063
18,700 Amoco Corporation 1,416,525
18,400 Chevron Corporation 1,209,800
<CAPTION>
Shares Value $
--------- -----------
<C> <S> <C>
ENERGY - (CONTINUED)
13,500 Mobil Corporation 1,576,125
-----------
5,171,513
FINANCE - (12.6%)
13,900 Allstate Corporation 780,137
17,200 American International Group,
Incorporated 1,868,350
18,100 BankAmerica Corporation 1,656,150
7,500 General Reinsurance Corporation 1,104,375
-----------
5,409,012
TECHNOLOGY - (13.3%)
38,700 Autodesk, Incorporated 885,263
10,900 Intel Corporation 1,197,637
12,100 International Business Machines 1,560,900
12,400 Linear Technology Corporation 415,400
25,000 LSI Logic Corporation (1) 662,500
14,500 Seagate Technology (1) 967,875
-----------
5,689,575
TELECOMMUNICATIONS - (2.4%)
21,000 AT&T Corporation 732,375
6,805 Lucent Technologies, Incorporated 319,835
-----------
1,052,210
TRANSPORTATION - (2.2%)
31,600 Ryder Systems, Incorporated 940,100
-----------
UTILITIES - (4.9%)
19,300 FPL Group, Incorporated 887,800
28,800 GTE Corporation 1,213,200
-----------
2,101,000
-----------
TOTAL COMMON STOCKS
(Cost $34,191,102) - 96.5% 41,428,135
-----------
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-30-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM EQUITY VALUE FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT - (5.9%)
2,520,000 State Street Bank and Trust Company
4.750% 11/01/1996 (2)
(Cost $2,520,000) 2,520,000
-----------
TOTAL INVESTMENTS
(Cost $36,711,102) - 102.4% 43,948,135
LIABILITIES IN EXCESS OF OTHER ASSETS -
(2.4)% (1,042,876)
-----------
NET ASSETS - 100.0% $42,905,259
-----------
-----------
</TABLE>
(1) Non-income producing security.
(2) The repurchase agreement, dated 10/31/96, with a repurchase price of
$2,520,333, is collateralized by a $2,470,000 United States Treasury Note,
6.50%, 5/31/01.
See notes to financial statements.
- --------------------------------------------------------------------------------
-31-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM SMALL CAPITALIZATION VALUE FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Shares Value $
--------- -----------
<C> <S> <C>
COMMON STOCKS
AEROSPACE - (2.9%)
63,000 Wyman Gordon Company (1) 1,386,000
-----------
BANKS - (4.5%)
23,000 Bank United Corporation (1) 612,375
70,000 Hibernia Corporation 778,750
7,354 Peoples Heritage Financial Group,
Incorporated 169,142
54,500 Sovereign Bancorp, Incorporated 640,375
-----------
2,200,642
BUSINESS SERVICES - (7.9%)
67,000 Jacobs Engineering Group, Incorporated
(1) 1,482,375
22,000 Keane, Incorporated (1) 1,020,250
21,800 Policy Management Systems Corporation
(1) 784,800
26,000 Right Management Consultants (1) 572,000
-----------
3,859,425
CHEMICALS - (7.1%)
21,000 Cambrex Corporation 656,250
24,500 Minerals Technologies, Incorporated 961,625
45,000 OM Group, Incorporated 1,845,000
-----------
3,462,875
COMPUTERS & BUSINESS
EQUIPMENT - (6.9%)
128,000 Data General Corporation (1) 1,904,000
65,000 Stratus Computer, Incorporated (1) 1,454,375
-----------
3,358,375
CONSUMER ELECTRONICS - (3.6%)
34,000 Harman International Industries,
Incorporated 1,746,750
-----------
<CAPTION>
Shares Value $
--------- -----------
<C> <S> <C>
DRUGS & HEALTH CARE - (4.7%)
17,900 Genesis Health Ventures, Incorporated
(1) 409,463
40,000 R. P. Scherer Corporation (1) 1,855,000
-----------
2,264,463
ELECTRONICS - (3.4%)
77,000 Burr-Brown Corporation (1) 1,636,250
-----------
FINANCIAL SERVICES - (2.5%)
8,500 Eaton Vance Corporation 371,875
12,800 Liberty Financial Companies,
Incorporated 449,600
6,500 United States Trust Corporation 404,625
-----------
1,226,100
GAS EXPLORATION - (7.1%)
68,000 Parker & Parsley Petroleum Company 1,955,000
99,000 Snyder Oil Corporation 1,509,750
-----------
3,464,750
HOTELS & RESTAURANTS - (1.0%)
29,000 RFS Hotel Investors, Incorporated 471,250
-----------
HOUSEHOLD PRODUCTS - (2.8%)
100,000 Dial Corporation New 1,375,000
-----------
INDUSTRIAL MACHINERY - (2.6%)
92,500 Gerber Scientific, Incorporated 1,248,750
-----------
INSURANCE - (11.9%)
37,000 Horace Mann Educators Corporation 1,267,250
48,000 Protective Life Corporation 1,656,000
55,000 Vesta Insurance Group, Incorporated 1,409,375
80,000 Western National Corporation 1,440,000
-----------
5,772,625
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-32-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM SMALL CAPITALIZATION VALUE FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Shares Value $
--------- -----------
<C> <S> <C>
COMMON STOCKS
MANUFACTURING - (5.1%)
33,000 Aptargroup, Incorporated 1,064,250
46,000 Waters Corporation (1) 1,426,000
-----------
2,490,250
PETROLEUM SERVICES - (9.0%)
36,000 Energy Ventures, Incorporated (1) 1,584,000
34,000 Input/Output, Incorporated (1) 1,011,500
115,000 Tuboscope Vetco International
Corporation (1) 1,753,750
-----------
4,349,250
PUBLISHING - (3.7%)
58,000 Harland John H. Company 1,805,250
-----------
REAL ESTATE - (2.1%)
34,000 Beacon Properties Corporation 998,750
-----------
RETAIL TRADE - (1.8%)
22,000 TJX Companies, Incorporated 880,000
-----------
SOFTWARE - (3.0%)
136,000 Symantec Corporation (1) 1,479,000
-----------
<CAPTION>
Shares Value $
--------- -----------
<C> <S> <C>
TRANSPORTATION - (3.5%)
47,800 Wisconsin Central Transportation
Corporation (1) 1,720,800
-----------
TOTAL COMMON STOCKS
(Cost $38,228,921) - 97.1% 47,196,555
-----------
<CAPTION>
Principal
Amount $
---------
<C> <S> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT - (6.2%)
3,025,000 State Street Bank and Trust Company
4.750% 11/01/1996 (2)
(Cost $3,025,000) 3,025,000
-----------
TOTAL INVESTMENTS
(Cost $41,253,921) - 103.3% 50,221,555
LIABILITIES IN EXCESS OF OTHER ASSETS -
(3.3)% (1,607,371)
-----------
NET ASSETS - 100.0% $48,614,184
-----------
-----------
</TABLE>
(1) Non-income producing security.
(2) The repurchase agreement, dated 10/31/96, with a repurchase price of
$3,025,399, is collateralized by a $2,965,000 United States Treasury Note,
6.50%, 5/31/01.
See notes to financial statements.
- --------------------------------------------------------------------------------
-33-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM HIGH YIELD INCOME FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
CORPORATE BONDS
BASIC INDUSTRY - (6.3%)
450,000 Carbide/Graphite Group, Incorporated
11.500% 09/01/2003 489,375
550,000 Forecast Group 11.375% 12/15/2000 484,000
-----------
973,375
CABLE AND MEDIA - (13.8%)
275,000 CAI Wireless Systems, Incorporated
12.250% 09/15/2002 268,125
450,000 Comcast Corporation 9.500% 01/15/2008 447,750
200,000 Echostar Communications Corporation
11.364% 06/01/2004 (1) 159,000
425,000 Heartland Wireless Commerce,
Incorporated 13.000% 04/15/2003 456,875
435,000 Videotron Group Limited 10.625%
02/15/2005 476,325
350,000 Young Broadcasting, Incorporated 9.000%
01/15/2006 320,250
-----------
2,128,325
CASINOS - (6.0%)
500,000 Grand Casinos, Incorporated 10.125%
12/01/2003 491,875
225,000 Pioneer Finance Corporation 13.500%
12/01/1998 200,250
325,000 Santa Fe Hotel, Incorporated 11.000%
12/15/2000 230,750
-----------
922,875
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
CHEMICALS - (2.8%)
425,000 Freeport McMoran Resource, LP 8.750%
02/15/2004 433,500
-----------
CONSUMER/NON-
DURABLES - (10.3%)
300,000 CompUSA, Incorporated 9.500% 06/15/2000 308,250
275,000 Coty, Incorporated 10.250% 05/01/2005 293,563
325,000 Federated Department Stores,
Incorporated 8.500% 06/15/2003 338,813
300,000 Kash N' Karry Food Stores, Incorporated
11.500% 02/01/2003 300,750
325,000 Stater Brothers Holdings, Incorporated
11.000% 03/01/2001 345,312
-----------
1,586,688
ENERGY - (12.1%)
500,000 Energy Ventures, Incorporated
10.250% 03/15/2004 536,250
Flores & Rucks, Incorporated
75,000 9.750% 10/01/2006 77,062
350,000 13.500% 12/01/2004 412,125
100,000 Noble Drilling Corporation 9.125%
07/01/2006 105,750
400,000 Plains Resources, Incorporated
10.250% 03/15/2006 418,000
325,000 Veritas DGC, Incorporated 9.750%
10/15/2003 328,250
-----------
1,877,437
FINANCE - (2.4%)
365,000 Presidential Life Corporation 9.500%
12/15/2000 375,950
-----------
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-34-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM HIGH YIELD INCOME FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
CORPORATE BONDS
MANUFACTURING - (6.4%)
450,000 Guess, Incorporated 9.500% 08/15/2003 459,000
475,000 Schuller International Group,
Incorporated 10.875% 12/15/2004 524,875
-----------
983,875
PUBLISHING - (2.5%)
K-III Communications Corporation
275,000 10.250% 06/01/2004 286,000
100,000 10.625% 05/01/2002 105,000
-----------
391,000
SERVICES - (9.5%)
275,000 Abbey Healthcare Group, Incorporated
9.500% 11/01/2002 285,313
275,000 Healthsouth Corporation 9.500%
04/01/2001 292,875
500,000 Host Marriott Travel Plazas,
Incorporated 9.500% 05/15/2005 505,000
375,000 Universal Health Services, Incorporated
8.750% 08/15/2005 380,625
-----------
1,463,813
TRANSPORTATION - (11.6%)
300,000 CHC Helicopter Corporation 11.500%
07/15/2002 300,000
500,000 Northwest Airlines Trust 13.875%
06/21/2008 585,000
475,000 Sabreliner Corporation 12.500%
04/15/2003 447,687
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
TRANSPORTATION - (CONTINUED)
425,000 Sea Containers Limited Series B 12.500%
12/01/2004 463,250
-----------
1,795,937
UTILITIES - (11.8%)
475,000 Intermedia Communications of Florida,
Incorporated 13.500% 06/01/2005 542,687
275,000 Mobile Telecommunication Tech
Corporation 13.500% 12/15/2002 279,813
475,000 Paging Network, Incorporated
8.875% 02/01/2006 441,750
PanAmSat Corporation
150,000 7.935% 08/01/2003 (1) 137,250
300,000 9.750% 08/01/2000 317,250
100,000 Texas New Mexico Power Company 10.750%
09/15/2003 108,500
-----------
1,827,250
-----------
TOTAL CORPORATE BONDS
(Cost $14,481,245) - 95.5% 14,760,025
-----------
<CAPTION>
Shares
---------
<C> <S> <C>
WARRANT
TRANSPORTATION - (0.0%)
340 Sabreliner Corporation (2)
(Cost $2,289) - 0.0% 1,360
-----------
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-35-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM HIGH YIELD INCOME FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT - (3.2%)
490,000 State Street Bank and Trust Company
4.750% 11/01/1996 (3)
(Cost $490,000) - 3.2% 490,000
-----------
TOTAL INVESTMENTS
(Cost $14,973,534) - 98.7% 15,251,385
OTHER ASSETS LESS LIABILITIES - 1.3% 202,872
-----------
NET ASSETS - 100.0% $15,454,257
-----------
-----------
</TABLE>
(1) Zero coupon bond. Coupon amount represents the yield to maturity.
(2) Pursuant to Rule 144A of the Securities Act of 1933, this security may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At October 31, 1996, this security aggregated $1,360,
or 0% of the net assets of the Fund.
(3) The repurchase agreement, dated 10/31/96, with a repurchase price of
$490,065, is collateralized by a $480,000 United States Treasury Note,
6.50%, 5/31/01.
See notes to financial statements.
- --------------------------------------------------------------------------------
-36-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM INVESTMENT GRADE INCOME FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
GOVERNMENT AND
AGENCY SECURITIES
FEDERAL AGENCIES - (2.9%)
700,000 Federal Home Loan Bank Consolidated
Discount Notes
6.225% 10/24/2005 683,333
-----------
FEDERALLY CHARTERED - (9.1%)
Federal National Mortgage Association
650,000 6.250% 08/12/2003 634,530
500,000 6.320% 12/23/2003 488,190
330,000 6.360% 08/16/2000 332,274
725,000 6.400% 09/27/2005 716,249
-----------
2,171,243
U. S. GOVERNMENT
SECURITIES - (31.5%)
500,000 United States Treasury Bond 7.125%
02/15/2023 523,485
United States Treasury Notes
200,000 6.000% 08/31/1997 200,784
2,000,000 6.125% 05/15/1998 2,014,040
1,250,000 6.500% 08/15/2005 1,264,000
225,000 6.625% 06/30/2001 229,889
1,250,000 7.250% 08/15/2004 1,323,625
900,000 7.375% 11/15/1997 916,236
950,000 7.500% 10/31/1999 990,176
-----------
7,462,235
-----------
TOTAL GOVERNMENT
AND AGENCY SECURITIES
(Cost $10,138,522) - 43.5% 10,316,811
-----------
MORTGAGE BACKED
SECURITIES
COLLATERALIZED MORTGAGE
OBLIGATION - (1.1%)
250,000 Federal Home Loan Mortgage Corporation
6.000% 05/15/2008 244,168
-----------
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
MORTGAGE PASS-THROUGH
SECURITIES - (13.5%)
605,618 Federal Home Loan Mortgage Corporation
8.000% 01/01/2026 619,432
Federal National Mortgage Association
616,583 7.000% 12/01/2010 617,353
677,055 7.000% 05/01/2024 664,787
681,340 7.000% 05/01/2026 668,994
643,441 Government National Mortgage Association
6.500% 05/15/2009 636,402
-----------
3,206,968
-----------
TOTAL MORTGAGE BACKED SECURITIES
(Cost $3,402,972) - 14.6% 3,451,136
-----------
CORPORATE BONDS
CHEMICALS - (0.9%)
225,000 Mallinckrodt Group, Incorporated 6.500%
11/15/2007 217,283
-----------
FINANCE & BANKING - (21.1%)
350,000 Associates Corporation North America
6.400% 10/20/2002 348,107
400,000 Chrysler Financial Corporation 7.310%
03/24/1998 407,576
500,000 Citicorp
7.125% 09/01/2005 508,260
500,000 Dean Witter Discover & Company 6.875%
03/01/2003 506,690
Ford Motor Credit Company
700,000 6.250% 12/08/2005 667,324
200,000 9.250% 06/15/1998 210,130
500,000 General Electric Capital Corporation
7.875% 12/01/2006 541,730
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-37-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM INVESTMENT GRADE INCOME FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
CORPORATE BONDS
FINANCE & BANKING -
(CONTINUED)
General Motors Acceptance Corporation
300,000 6.750% 07/18/2003 300,918
250,000 6.750% 10/06/2003 250,800
100,000 NCNB Corporation 10.200% 07/15/2015 127,127
575,000 Pitney Bowes Credit Corporation 6.625%
06/01/2002 580,675
550,000 Sears Roebuck Acceptance Corporation
6.500% 10/04/2000 552,398
-----------
5,001,735
INDUSTRIALS - (2.7%)
650,000 Nabisco, Incorporated 7.050% 07/15/2007 639,866
-----------
INSURANCE - (1.7%)
400,000 Western National Corporation 7.125%
02/15/2004 403,884
-----------
LEISURE TIME - (2.6%)
575,000 Royal Caribbean Cruises Limited 8.250%
04/01/2005 613,260
-----------
OIL - (1.2%)
265,000 Chevron Corporation 8.110% 12/01/2004 285,760
-----------
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
TECHNOLOGY - (3.0%)
700,000 Lucent Technologies, Incorporated 6.900%
07/15/2001 712,775
-----------
TRANSPORTATION - (2.0%)
500,000 Burlington Northern Santa Fe
6.875% 02/15/2016 467,370
-----------
TOTAL CORPORATE BONDS
(Cost $8,226,229) - 35.2% 8,341,933
-----------
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT - (5.4%)
1,287,000 State Street Bank and Trust Company
4.750% 11/01/1996 (1)
(Cost $1,287,000) - 5.4% 1,287,000
-----------
TOTAL INVESTMENTS
(Cost $23,054,723) - 98.7% 23,396,880
OTHER ASSETS LESS LIABILITIES - 1.3% 310,719
-----------
NET ASSETS - 100.0% $23,707,599
-----------
-----------
</TABLE>
(1) The repurchase agreement, dated 10/31/96, with a repurchase price of
$1,287,170, is collateralized by a $1,260,000 United States Treasury Note,
6.50%, 5/31/01.
See notes to financial statements.
- --------------------------------------------------------------------------------
-38-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM SHORT-TERM INVESTMENT FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
ASSET BACKED SECURITIES
AUTO LOAN - (5.3%)
1,500,000 Ford Credit Auto Loan Master Trust
6.875% 01/15/1999 1,504,080
124,865 General Motors Acceptance Corporation
Grantor Trust 4.150% 03/16/1998 124,944
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $1,627,981) - 5.3% 1,629,024
-----------
GOVERNMENT AND
AGENCY SECURITIES
COLLATERALIZED MORTGAGE
OBLIGATION - (3.0%)
901,359 Federal Home Loan Mortgage PC Guaranteed
5.000% 04/15/2002 897,988
-----------
FEDERAL AGENCIES - (27.7%)
Federal Home Loan Bank Consolidated
Discount Notes
1,000,000 5.240% 11/08/1996 998,981
1,500,000 5.290% 12/06/1996 1,492,285
1,500,000 5.310% 01/17/1997 1,483,926
1,500,000 5.480% 01/30/1997 1,480,988
1,520,000 5.500% 03/03/1997 1,493,884
1,500,000 Student Loan Marketing Association
Medium Term Note
6.000% 10/21/1997 1,503,030
-----------
8,453,094
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
FEDERALLY CHARTERED - (24.1%)
Federal National Mortgage Association
Discount Notes
1,500,000 5.260% 04/16/1997 1,464,933
1,500,000 5.270% 04/07/1997 1,466,834
1,500,000 5.480% 03/07/1997 1,473,382
1,500,000 5.520% 01/02/1997 1,487,057
1,500,000 International Bank For Reconstruction &
Development Discount Note
5.490% 02/18/1997 1,476,974
-----------
7,369,180
U. S. GOVERNMENT
SECURITY - (4.9%)
1,500,000 United States Treasury Note 5.125%
02/28/1998 1,490,325
-----------
TOTAL GOVERNMENT AND AGENCY SECURITIES
(Cost $18,195,956) - 59.7% 18,210,587
-----------
CORPORATE BOND
OIL - (4.9%)
1,500,000 Mobil Corporation 6.500% 02/15/1997
(Cost $1,506,321) - 4.9% 1,503,975
-----------
COMMERCIAL PAPER
FINANCIAL SERVICES - (29.2%)
1,500,000 duPont E I de Nemours & Company 5.280%
12/18/1996 1,489,660
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-39-
<PAGE>
- --------------------------------------------------------------------------------
WERTHEIM SHORT-TERM INVESTMENT FUND
- -----------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
COMMERCIAL PAPER
FINANCIAL SERVICES - (CONTINUED)
1,500,000 Ford Motor Credit Company 5.600%
01/21/1997 1,482,112
1,500,000 General Electric Capital Corporation
5.320% 11/20/1996 1,495,788
1,500,000 General Motors Acceptance Corporation
5.650% 02/03/1997 1,479,242
1,500,000 John Deere Capital Corporation 5.300%
11/05/1996 1,499,117
1,500,000 Sears Roebuck Acceptance Corporation
5.600% 03/24/1997 1,468,421
-----------
TOTAL COMMERCIAL PAPER
(Cost $8,910,169) - 29.2% 8,914,340
-----------
<CAPTION>
Principal
Amount $ Value $
--------- -----------
<C> <S> <C>
OTHER SHORT TERM
INVESTMENT
REPURCHASE AGREEMENT - (0.9%)
271,000 State Street Bank and Trust Company
4.750% 11/01/1996 (1)
(Cost $271,000) - 0.9% 271,000
-----------
TOTAL INVESTMENTS
(Cost $30,511,427) - 100.0% 30,528,926
LIABILITIES IN EXCESS OF OTHER ASSETS -
0.0% (2,358)
-----------
NET ASSETS - 100.0% $30,526,568
-----------
-----------
</TABLE>
(1) The repurchase agreement, dated 10/31/96, with a repurchase price of
$271,036, is collateralized by a $270,000 United States Treasury Note,
6.50%, 5/31/01.
See notes to financial statements.
- --------------------------------------------------------------------------------
-40-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SMALL INVESTMENT
EQUITY CAPITALIZATION HIGH YIELD GRADE SHORT-TERM
VALUE VALUE INCOME INCOME INVESTMENT
FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value - Note
2........................................ $43,948,135 $50,221,555 $15,251,385 $23,396,880 $30,528,926
Cash....................................... 903 640 714 326 761
Dividends receivable....................... 27,795 5,965 4,250 0 0
Interest receivable........................ 333 399 433,923 354,185 70,636
Receivable for trust shares sold........... 74,807 24,041 9,615 422 0
Deferred organizational costs.............. 25,433 25,433 25,433 25,773 23,339
Prepaid expenses........................... 6,609 7,749 5,854 5,897 6,581
Due from Schroder Wertheim Investment
Services, Inc. - Note 3.................. 0 0 6,488 5,036 0
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS........................... 44,084,015 50,285,782 15,737,662 23,788,519 30,630,243
LIABILITIES
Payable for securities purchased........... 1,091,948 1,568,960 109,624 0 0
Payable for trust shares redeemed.......... 0 0 103,093 15,097 35,795
Advisory fee payable - Note 3.............. 27,786 40,129 11,924 9,991 11,030
Accounts payable and accrued expenses...... 58,967 62,477 53,886 53,592 56,797
Dividends payable.......................... 55 32 4,878 2,240 53
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES...................... 1,178,756 1,671,598 283,405 80,920 103,675
----------- ----------- ----------- ----------- -----------
NET ASSETS............................. $42,905,259 $48,614,184 $15,454,257 $23,707,599 $30,526,568
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NET ASSETS
Capital paid-in............................ $33,121,798 $34,285,846 $16,393,321 $23,127,187 $30,613,531
Undistributed (distributions in excess of)
net investment income.................... 297,494 0 113,006 (8,068 ) (53)
Accumulated net realized gain (loss) on
investments.............................. 2,248,934 5,360,704 (1,329,921) 246,323 (104,409)
Net unrealized appreciation of
investments.............................. 7,237,033 8,967,634 277,851 342,157 17,499
----------- ----------- ----------- ----------- -----------
NET ASSETS............................. $42,905,259 $48,614,184 $15,454,257 $23,707,599 $30,526,568
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net asset value, offering and redemption
price per share.......................... $ 12.18 $ 13.05 $ 8.73 $ 9.70 $ 9.87
Total shares outstanding at end of year.... 3,523,397 3,724,100 1,769,543 2,443,666 3,093,871
Cost of securities......................... $36,711,102 $41,253,921 $14,973,534 $23,054,723 $30,511,427
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-41-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
SMALL
EQUITY CAPITALIZATION HIGH YIELD INVESTMENT SHORT-TERM
VALUE VALUE INCOME GRADE INCOME INVESTMENT
FUND FUND FUND FUND FUND
---------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income............................ $ 857,246 $ 406,079 $ 0 $ 0 $ 0
Interest income............................ 80,920 135,203 1,846,374 1,697,447 1,813,861
---------- -------------- ---------- ------------ -----------
TOTAL INCOME........................... 938,166 541,282 1,846,374 1,697,447 1,813,861
EXPENSES
Investment advisory fees - Note 3.......... 318,145 471,712 159,341 127,201 133,208
Administrative fees........................ 63,514 73,797 32,148 43,082 51,401
Custodian fees............................. 42,442 45,516 41,154 40,806 36,718
Audit fees................................. 16,028 16,028 16,028 16,028 16,028
Legal fees................................. 12,000 12,000 12,000 12,000 12,000
Printing expenses.......................... 6,056 6,056 6,056 6,056 5,944
Trustees fees.............................. 7,600 7,600 7,600 7,600 7,600
Transfer agent fees........................ 39,707 39,707 34,846 32,902 39,707
Organizational expenses.................... 9,647 9,647 9,647 9,647 9,647
Registration fees.......................... 14,706 18,997 12,412 13,996 11,910
Insurance.................................. 6,232 6,810 2,436 3,712 4,310
Other...................................... 1,723 3,268 1,395 4,148 2,199
Expenses borne by Schroder Wertheim
Investment Services, Inc. - Note 3....... 0 0 (59,514) (29,635) 0
---------- -------------- ---------- ------------ -----------
TOTAL EXPENSES......................... 537,800 711,138 275,549 287,543 330,672
---------- -------------- ---------- ------------ -----------
NET INVESTMENT INCOME (LOSS)........... 400,366 (169,856) 1,570,825 1,409,904 1,483,189
---------- -------------- ---------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments.... 2,347,661 5,532,400 381,591 246,670 (1,966)
Change in net unrealized appreciation
(depreciation) of investments............ 4,535,784 4,106,542 (233,227) (654,055) 3,256
---------- -------------- ---------- ------------ -----------
NET GAIN (LOSS)............................ 6,883,445 9,638,942 148,364 (407,385) 1,290
---------- -------------- ---------- ------------ -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................. $7,283,811 $9,469,086 $1,719,189 $1,002,519 $ 1,484,479
---------- -------------- ---------- ------------ -----------
---------- -------------- ---------- ------------ -----------
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-42-
<PAGE>
(This page has been left blank intentionally)
- --------------------------------------------------------------------------------
-43-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
SMALL CAPITALIZATION
EQUITY VALUE FUND VALUE FUND
-------------------------- --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
10/31/96 10/31/95 10/31/96 10/31/95
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
From operations:
Net investment income
(loss).................. $ 400,366 $ 422,381 $ (169,856) $ (105,500)
Net realized gain (loss)
on investments.......... 2,347,661 2,987,577 5,532,400 226,635
Change in net unrealized
appreciation
(depreciation) of
investments............. 4,535,784 2,957,170 4,106,542 4,156,231
----------- ------------ ----------- ------------
Net increase in net assets
resulting from
operations.............. 7,283,811 6,367,128 9,469,086 4,277,366
Net equalization (debits)
credits................... 0 0 0 0
Dividends and distributions
to Shareholders:
From net investment
income.................. (443,762) (217,293) 0 (11,130)
In excess of net
investment income....... 0 0 0 0
From net realized capital
gains................... (2,980,634) 0 (28,662) 0
Net increase (decrease)
from trust share
transactions............ 957,494 10,629,016 (8,755,194) 22,469,797
----------- ------------ ----------- ------------
TOTAL INCREASE
(DECREASE).............. 4,816,909 16,778,851 685,230 26,736,033
Net Assets
Beginning of year......... 38,088,350 21,309,499 47,928,954 21,192,921
----------- ------------ ----------- ------------
End of year (a)........... $42,905,259 $ 38,088,350 $48,614,184 $ 47,928,954
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
(a) Including undistributed
(distributions in excess of)
net investment income....... $ 297,494 $ 339,842 $ 0 $ 0
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-44-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
HIGH YIELD INVESTMENT GRADE SHORT-TERM
INCOME FUND INCOME FUND INVESTMENT FUND
-------------------------- -------------------------- --------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
10/31/96 10/31/95 10/31/96 10/31/95 10/31/96 10/31/95
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income (loss)........ $ 1,570,825 $ 1,882,506 $ 1,409,904 $ 1,221,525 $ 1,483,189 $ 1,616,439
Net realized gain (loss) on
investments....................... 381,591 (1,236,881) 246,670 396,597 (1,966) (76,414)
Change in net unrealized
appreciation (depreciation) of
investments....................... (233,227) 1,163,750 (654,055) 1,226,836 3,256 104,005
----------- ------------ ----------- ------------ ----------- ------------
Net increase in net assets resulting
from operations................... 1,719,189 1,809,375 1,002,519 2,844,958 1,484,479 1,644,030
Net equalization (debits) credits..... (6,424) 7,770 (7,265) 17,649 0 0
Dividends and distributions to
Shareholders:
From net investment income.......... (1,659,875) (1,875,254) (1,404,178) (1,238,821) (1,506,838) (1,617,411)
In excess of net investment
income............................ 0 0 0 0 (30,276) 0
From net realized capital gains..... 0 0 (306,566) 0 0 0
Net increase (decrease) from trust
share transactions................ (5,087,578) 4,591,461 719,126 9,174,957 (3,356,675) 3,137,885
----------- ------------ ----------- ------------ ----------- ------------
TOTAL INCREASE (DECREASE)........... (5,034,688) 4,533,352 3,636 10,798,743 (3,409,310) 3,164,504
Net Assets
Beginning of year................... 20,488,945 15,955,593 23,703,963 12,905,220 33,935,878 30,771,374
----------- ------------ ----------- ------------ ----------- ------------
End of year (a)..................... $15,454,257 $ 20,488,945 $23,707,599 $ 23,703,963 $30,526,568 $ 33,935,878
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
(a) Including undistributed
(distributions in excess of) net
investment income..................... $ 113,006 $ (429) $ (8,068) $ (4,600) $ (53) $ 89,297
</TABLE>
See notes to financial statements.
- --------------------------------------------------------------------------------
-45-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
SMALL CAPITALIZATION
EQUITY VALUE FUND VALUE FUND
----------------------------------------------- ---------------------------------------------
PERIOD ENDED PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
1996 1995 1994 (1) 1996 1995 1994 (1)
------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD................... $ 11.12 $ 9.45 $ 10.00 $ 10.77 $ 9.77 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income (Loss)
(4)....................... 0.11 0.11 0.06 (0.05) (0.03) 0.00
Net Realized and Unrealized
Gain (Loss) on
Investments............... 1.92 1.63 (0.61) 2.34 1.03 (0.23)
------------ ------------ ------- ------------ ------------ ------------
TOTAL FROM INVESTMENT
OPERATIONS................ 2.03 1.74 (0.55) 2.29 1.00 (0.23)
------------ ------------ ------- ------------ ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment
Income.................... (0.13) (0.07) 0.00 0.00 0.00 0.00
In Excess of Net Investment
Income.................... 0.00 0.00 0.00 0.00 0.00 0.00
From Net Realized Capital
Gains..................... (0.84) 0.00 0.00 (0.01) 0.00 0.00
Tax Return of Capital....... 0.00 0.00 0.00 0.00 0.00 0.00
------------ ------------ ------- ------------ ------------ ------------
Total Distributions......... (0.97) (0.07) 0.00 (0.01) 0.00 0.00
------------ ------------ ------- ------------ ------------ ------------
NET ASSET VALUE AT END OF
PERIOD...................... $ 12.18 $ 11.12 $ 9.45 $ 13.05 $ 10.77 $ 9.77
------------ ------------ ------- ------------ ------------ ------------
------------ ------------ ------- ------------ ------------ ------------
TOTAL RETURN.................. 19.30% 18.63% (5.50)%(5) 21.17% 10.27% (2.30)%(5)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period
(000's)................... $42,905 $38,088 $21,309 $48,614 $47,929 $21,193
Ratio of Operating Expenses
to Average Net Assets (4)... 1.26% 1.40% 1.30%(6) 1.43% 1.56% 1.45%(6)
Ratio of Net Investment Income
to Average Net Assets....... 0.94% 1.27% 1.37%(6) (0.34)% (0.29)% 0.17%(6)
Portfolio Turnover Rate....... 56.38% 83.15% 102.56% 81.63% 45.74% 18.53%
Average Commission per Share
(7)......................... $ 0.06 - - $ 0.06 - -
</TABLE>
(1) For the period February 16, 1994 (commencement of investment operations)
through October 31, 1994.
(2) For the period February 22, 1994 (commencement of investment operations)
through October 31, 1994.
(3) For the period January 11, 1994 (commencement of investment operations)
through October 31, 1994.
(4) Net Investment Income is after reimbursement of certain expenses by Schroder
Wertheim Investment Services, Inc. (See Note 3 to the Trust's financial
statements.) Had the Investment Adviser not undertaken to pay or reimburse
expenses related to the Funds, the Net Investment Income per share and Ratio
of Operating Expenses to Average Net Assets would have been as follows:
Wertheim
Notes to Financial Highlights continued on page 39.
See notes to financial statements.
- --------------------------------------------------------------------------------
-46-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
HIGH YIELD INVESTMENT GRADE
INCOME FUND INCOME FUND
----------------------------------------------- ---------------------------
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31,
1996 1995 1994 (1) 1996 1995
------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD................................ $ 8.72 $ 8.79 $ 10.00 $ 9.93 $ 9.14
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (4)...... 0.77 0.84 0.48 0.53 0.59
Net Realized and Unrealized Gain
(Loss) on Investments............... 0.07 (0.07) (1.14) (0.11) 0.79
------------ ------------ ------- ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS...... 0.84 0.77 (0.66) 0.42 1.38
------------ ------------ ------- ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment Income............ (0.83) (0.84) (0.47) (0.53) (0.59)
In Excess of Net Investment Income.... 0.00 0.00 (0.01) 0.00 0.00
From Net Realized Capital Gains....... 0.00 0.00 0.00 (0.12) 0.00
Tax Return of Capital................. 0.00 0.00 (0.07) 0.00 0.00
------------ ------------ ------- ------------ ------------
Total Distributions................... (0.83) (0.84) (0.55) (0.65) (0.59)
------------ ------------ ------- ------------ ------------
NET ASSET VALUE AT END OF PERIOD........ $ 8.73 $ 8.72 $ 8.79 $ 9.70 $ 9.93
------------ ------------ ------- ------------ ------------
------------ ------------ ------- ------------ ------------
TOTAL RETURN............................ 9.98% 9.16% (6.60)%(5) 4.38% 15.62%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's)... $15,454 $20,489 $15,956 $23,708 $23,704
Ratio of Operating Expenses to Average
Net Assets (4)........................ 1.55% 1.48% 1.30%(6) 1.12% 1.06%
Ratio of Net Investment Income to
Average Net Assets.................... 8.80% 9.67% 9.67%(6) 5.46% 6.35%
Portfolio Turnover Rate................. 99.45% 149.58% 59.30% 68.76% 113.50%
Average Commission per Share (7)........ - - - - -
<CAPTION>
SHORT-TERM
INVESTMENT FUND
---------------------------------------------
PERIOD ENDED PERIOD ENDED
OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
1994 (2) 1996 1995 1994 (3)
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD................................ $ 10.00 $ 9.88 $ 9.88 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (4)...... 0.34 0.45 0.49 0.30
Net Realized and Unrealized Gain
(Loss) on Investments............... (0.83) 0.00 0.00 (0.12)
------- ------------ ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS...... (0.49) 0.45 0.49 0.18
------- ------------ ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment Income............ (0.34) (0.45) (0.49) (0.30)
In Excess of Net Investment Income.... 0.00 (0.01) 0.00 0.00
From Net Realized Capital Gains....... 0.00 0.00 0.00 0.00
Tax Return of Capital................. (0.03) 0.00 0.00 0.00
------- ------------ ------------ ------------
Total Distributions................... (0.37) (0.46) (0.49) (0.30)
------- ------------ ------------ ------------
NET ASSET VALUE AT END OF PERIOD........ $ 9.14 $ 9.87 $ 9.88 $ 9.88
------- ------------ ------------ ------------
------- ------------ ------------ ------------
TOTAL RETURN............................ (4.90)%(5) 4.63% 5.02% 1.83%(5)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's)... $12,905 $30,527 $33,936 $30,771
Ratio of Operating Expenses to Average
Net Assets (4)........................ 0.87%(6) 1.00% 0.95% 0.78%(6)
Ratio of Net Investment Income to
Average Net Assets.................... 6.39%(6) 4.50% 4.91% 4.48%(6)
Portfolio Turnover Rate................. 115.63% 154.66% 27.86% 71.38%
Average Commission per Share (7)........ - - - -
</TABLE>
Equity Value Fund: 1996 - $0.11 and 1.26%, 1995 - $0.11 and 1.45%; 1994 -
$0.02 and 2.17%; Wertheim Small Capitalization Value Fund: 1996 - ($0.05) and
1.43%, 1995 - ($0.03) and 1.62%; 1994 - ($0.04) and 3.15%; Wertheim High Yield
Income Fund: 1996 - $0.74 and 1.89%, 1995 - $0.80 and 1.96%; 1994 - $0.44 and
3.59%, Wertheim Investment Grade Income Fund: 1996 - $0.52 and 1.24%, 1995 -
$0.56 and 1.50%; 1994 - $0.21 and 3.98%; and Wertheim Short-Term Investment
Fund: 1996 - $0.45 and 1.00%, 1995 - $0.47 and 1.08%; 1994 - $0.24 and 1.66%,
respectively.
(5) Not annualized.
(6) Annualized.
(7) For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate does not reflect mark-ups, mark-downs or
spreads on shares traded on a principal basis.
See notes to financial statements.
- --------------------------------------------------------------------------------
-47-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 1 -- ORGANIZATION
WSIS Series Trust (the "Trust") is a diversified open-end series management
investment company registered under the Investment Company Act of 1940, as
amended. The Trust was organized as a business trust under the laws of The
Commonwealth of Massachusetts on May 6, 1993. The Trust has an unlimited number
of authorized shares, which are divided into five separate investment portfolios
- -- Wertheim Equity Value Fund, Wertheim Small Capitalization Value Fund,
Wertheim High Yield Income Fund, Wertheim Investment Grade Income Fund and
Wertheim Short-Term Investment Fund (collectively, the "Funds").
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Funds which are in conformity with generally accepted accounting principles.
VALUATION OF INVESTMENTS: Equity securities traded on a national securities
exchange are valued at their last reported sale price on the principal exchange,
or, if traded in the over-the-counter market or on a national securities
exchange for which no sales took place on the day of valuation, at the last
available bid price. Debt securities are valued on the basis of valuations
provided by pricing services that determine valuations for normal institutional
size trading units of debt securities, or through obtaining independent quotes
from market makers. Short-term debt instruments with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market value.
Securities for which current market quotations are not readily available are
valued at fair value as determined by procedures approved by the Trustees.
REPURCHASE AGREEMENTS: Funds enter into repurchase agreements with approved
institutions and are collateralized by U.S. Government securities. The Trust's
custodian takes possession of the underlying securities, the market value of
which at the time of purchase at least equals the resale price, principal amount
plus interest, of the repurchase transaction. To the extent that any repurchase
transaction exceeds one business day, the value of the underlying securities is
marked-to-market on a daily basis to ensure the adequacy of the underlying
securities. Schroder Wertheim Investment Services, Inc. ("Schroder"), investment
adviser to the Trust, is responsible for determining that the value of the
underlying securities is at all times at least equal to the resale price. In the
event of default by the seller to repurchase the securities, a Fund could
realize a loss on the sale of the underlying securities to the extent that the
proceeds of sale, including accrued
- --------------------------------------------------------------------------------
-48-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
interest, is less than the resale price of the repurchase agreement. If the
seller should be involved in bankruptcy or insolvency proceedings, realization
and/or retention of the underlying securities, or proceeds may be subject to
legal proceedings.
INVESTMENT TRANSACTIONS: Investment security transactions are recorded as of
trade date. Realized gains and losses on sales of investments are determined on
the basis of identified cost.
INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
EXPENSES: Expenses are recorded on an accrual basis. Most of the expenses of
the Trust can be directly attributed to a specific Fund. Expenses not directly
attributed to a specific Fund are allocated among the Funds in such a manner as
deemed equitable by the Trustees.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders from net
investment income are declared and distributed at least annually for Wertheim
Equity Value Fund and Wertheim Small Capitalization Value Fund; declared and
distributed monthly for Wertheim High Yield Income Fund and Wertheim Investment
Grade Income Fund; and declared daily and distributed monthly for Wertheim
Short-Term Investment Fund. Distributions from net realized capital gains, if
any, are declared and distributed at least annually. Distributions are recorded
on the ex-dividend date.
DEFERRED ORGANIZATION COSTS: Costs and expenses of the Trust paid by Schroder
and its affiliates in connection with the organization of the Trust and the
initial public offering of its shares have been deferred by the Trust and are
being amortized on a straight-line basis from the date operations commenced over
a period that it is expected a benefit will be realized, not to exceed five
years.
Schroder has agreed with respect to each of the Funds that, if any of the
initial shares of a Fund are redeemed during such amortization period by any
holder thereof, the redemption proceeds will be reduced for any unamortized
organization expenses in the same ratio as the number of shares redeemed bears
to the number of initial shares held at the time of redemption.
EQUALIZATION: Wertheim High Yield Income Fund and Wertheim Investment Grade
Income Fund follow an accounting practice known as equalization by which a
portion of the proceeds from sales and costs of redemptions of Fund shares
equivalent, on a per share basis, to the amount of undistributed net investment
income on the date of the transaction is credited or charged to undistributed
net investment income. As a result, undistributed net investment income per
share is unaffected by sales and redemptions of the above listed Funds' shares.
FEDERAL INCOME TAXES: Each Fund intends to qualify as a "regulated investment
company" by complying with the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended. By so qualifying, the Funds will not be
subject to federal income taxes to the extent that, among other things, they
distribute substantially all of their
- --------------------------------------------------------------------------------
-49-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
taxable income, including realized capital gains, for the fiscal year. In
addition, by distributing during each calendar year substantially all of their
net investment income, capital gains and certain other amounts, if any, the
Funds will not be subject to a federal excise tax.
As of October 31, 1996, realized capital loss carryforwards, for Federal income
tax purposes, available to be used to offset future realized capital gains are
as follows: Wertheim High Yield Income Fund has $1,328,390; and Wertheim Short-
Term Investment Fund has $104,408. The carryforwards expire on October 31, 2004.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for market discount,
losses deferred due to wash sales and excise tax regulations.
At October 31, 1996, the Trust reclassified the following amounts between paid
in capital, accumulated undistributed net realized gain (loss) and undistributed
net investment income:
<TABLE>
<CAPTION>
INCREASE/(DECREASE)
INCREASE/(DECREASE) ACCUMULATED
INCREASE/(DECREASE) UNDISTRIBUTED NET REALIZED
PAID-IN CAPITAL INVESTMENT INCOME GAIN/(LOSS)
----------------- ----------------- ------------------
<S> <C> <C> <C>
Wertheim Equity Value Fund......... $ (1,048) $ 1,048 $ 0
Wertheim Small Capitalization Value
Fund.............................. (3,936) 169,856 (165,920)
Wertheim High Yield Income Fund.... (79,839) 208,909 (129,070)
Wertheim Investment Grade Income
Fund.............................. (4,963) (1,929) 6,892
Wertheim Short-Term Investment
Fund.............................. 11,131 (35,425) 24,294
</TABLE>
These reclassifications had no impact on the net asset value of the Funds and
are designated to present each Fund's capital accounts on a tax basis.
NOTE 3 -- INVESTMENT ADVISORY FEES AND ADMINISTRATION AGREEMENT
The Trust has entered into an investment advisory agreement with Schroder. Under
the agreement, Schroder provides investment management services, and receives
for its services compensation monthly at the following annual rates based on the
average daily net assets of each Fund taken separately: 0.75% for Wertheim
Equity Value Fund; 0.95% for Wertheim Small Capitalization Value Fund; 0.90% for
Wertheim High Yield Income Fund; 0.50% for Wertheim Investment Grade Income
Fund; and 0.40% for Wertheim Short-Term Investment Fund.
The Trust has also entered into an Administration Agreement with State Street
Bank and Trust Company ("State Street"). Under the Administration Agreement, the
Trust pays compensation to State Street at the following annual rates based on
- --------------------------------------------------------------------------------
-50-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
the average daily net assets of each Fund taken separately: 0.08% of the first
$125 million of each Fund's average daily net assets, 0.06% of the next $125
million of each Fund's average daily net assets and 0.04% of each Fund's average
daily net assets in excess of $250 million, subject to certain minimum
requirements.
Schroder has voluntarily agreed to reduce its compensation and, if necessary, to
pay certain expenses of each of the Funds until October 31, 1997, to the extent
that a Fund's expenses (other than Schroder's compensation, brokerage, interest,
taxes, deferred organizational expenses, and extraordinary expenses) exceed the
following annual rates: 0.80% of average daily net assets of Wertheim Equity
Value Fund; 0.75% of average daily net assets of Wertheim Small Capitalization
Value Fund; 0.65% of average daily net assets of Wertheim High Yield Income
Fund; 0.62% of average daily net assets of Wertheim Investment Grade Income
Fund; and 0.63% of average daily net assets of Wertheim Short-Term Investment
Fund. The Trust pays all expenses not assumed by Schroder, including Trustees'
fees, auditing, legal, custodial, and investor servicing and shareholder
reporting expenses.
NOTE 4 -- TRANSACTIONS WITH AFFILIATES
BROKERAGE COMMISSIONS: Brokerage commissions received by affiliates of
Schroder, from portfolio transactions conducted with the Funds during the year
ended October 31, 1996, amounted to $720.
TRUSTEES' FEES: The Trust pays no compensation to Trustees who are employees of
Schroder. Trustees who are not Schroder employees receive an annual fee of
$5,000 and an additional fee of $1,500 for each Trustees' meeting attended.
NOTE 5 -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities for each Fund, for the year ended October 31, 1996 were as
follows:
<TABLE>
<CAPTION>
NON- NON-
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES PURCHASES SALES SALES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Wertheim Equity Value Fund........................ $22,952,688 $ 0 $23,221,473 $ 0
Wertheim Small Capitalization Value Fund.......... 38,325,826 0 46,497,662 0
Wertheim High Yield Income Fund................... 16,592,832 0 20,917,841 0
Wertheim Investment Grade Income Fund............. 3,427,181 13,801,885 6,572,202 9,689,915
Wertheim Short-Term Investment Fund............... 4,534,394 6,384,925 3,000,000 3,167,814
</TABLE>
- --------------------------------------------------------------------------------
-51-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
The identified cost for federal income tax purposes of investments owned by each
Fund and their respective gross unrealized appreciation and depreciation at
October 31, 1996 were as follows:
<TABLE>
<CAPTION>
NET
IDENTIFIED GROSS UNREALIZED UNREALIZED
COST APPRECIATION (DEPRECIATION) APPRECIATION
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Wertheim Equity Value Fund.............. $36,756,697 $ 8,221,775 $(1,030,337) $7,191,438
Wertheim Small Capitalization Value
Fund................................... 41,260,631 10,052,434 (1,082,834) 8,969,600
Wertheim High Yield Income Fund......... 14,991,465 394,317 (134,397) 259,920
Wertheim Investment Grade Income Fund... 23,062,086 500,186 (165,392) 334,794
Wertheim Short-Term Investment Fund..... 30,511,427 22,940 (5,441) 17,499
</TABLE>
NOTE 6 -- SHAREHOLDERS' TRANSACTIONS
Following is a summary of shareholder transactions for each Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
SHARES DOLLARS SHARES DOLLARS
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
WERTHEIM EQUITY VALUE FUND
Shares sold..................................... 810,872 $ 9,343,159 2,234,169 $ 21,323,054
Shares issued to shareholders in reinvestment... 314,407 3,383,017 23,861 216,153
Shares redeemed................................. (1,027,306) (11,768,682) (1,087,443) (10,910,191)
------------ ------------- ------------ -------------
Net increase.................................... 97,973 $ 957,494 1,170,587 $ 10,629,016
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
WERTHEIM SMALL CAPITALIZATION VALUE FUND
Shares sold..................................... 992,874 $ 12,163,446 3,098,020 $ 30,759,624
Shares issued to shareholders in reinvestment... 2,425 28,367 1,129 10,971
Shares redeemed................................. (1,719,678) (20,947,007) (820,811) (8,300,798)
------------ ------------- ------------ -------------
Net increase (decrease)......................... (724,379) $ (8,755,194) 2,278,338 $ 22,469,797
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
WERTHEIM HIGH YIELD INCOME FUND
Shares sold..................................... 371,174 $ 3,273,455 1,003,992 $ 8,719,371
Shares issued to shareholders in reinvestment... 182,836 1,596,001 201,685 1,754,861
Shares redeemed................................. (1,134,160) (9,963,458) (671,847) (5,875,001)
Income equalization (received) paid............. 0 6,424 0 (7,770)
------------ ------------- ------------ -------------
Net increase (decrease)......................... (580,150) $ (5,087,578) 533,830 $ 4,591,461
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
-52-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
SHARES DOLLARS SHARES DOLLARS
------------ ------------- ------------ -------------
WERTHEIM INVESTMENT GRADE INCOME FUND
<S> <C> <C> <C> <C>
Shares sold..................................... 790,360 $ 7,818,847 1,636,204 $ 15,312,312
Shares issued to shareholders in reinvestment... 169,595 1,652,197 124,830 1,193,295
Shares redeemed................................. (904,441) (8,759,183) (785,028) (7,313,001)
Income equalization (received) paid............. 0 7,265 0 (17,649)
------------ ------------- ------------ -------------
Net increase.................................... 55,514 $ 719,126 976,006 $ 9,174,957
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
WERTHEIM SHORT-TERM INVESTMENT FUND
Shares sold..................................... 946,514 $ 9,335,247 2,016,637 $ 19,914,676
Shares issued to shareholders in reinvestment... 154,582 1,524,331 162,019 1,599,931
Shares redeemed................................. (1,440,993) (14,216,253) (1,860,847) (18,376,722)
------------ ------------- ------------ -------------
Net increase (decrease)......................... (339,897) $ (3,356,675) 317,809 $ 3,137,885
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
NOTE 7 -- BENEFICIAL INTEREST
The following schedule shows the number of shareholders each owning 5% or more
of a Fund and the total percentage of the Fund held by such shareholders.
<TABLE>
<CAPTION>
5% OR GREATER SHAREHOLDERS
NUMBER % OF FUND HELD
--------------- -----------------
<S> <C> <C>
Wertheim Equity Value Fund........................................ 2 27.42%
Wertheim Small Capitalization Value Fund.......................... 3 28.80%
Wertheim High Yield Income Fund................................... 4 45.70%
Wertheim Investment Grade Income Fund............................. 2 14.64%
</TABLE>
- --------------------------------------------------------------------------------
-53-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
NOTE 8 -- SHAREHOLDER MEETING
A meeting of Shareholders of WSIS Series Trust was held on Tuesday, June 25,
1996 at the offices of Schroder Wertheim Investment Services, Inc., 787 Seventh
Avenue, New York, New York. The matter voted upon by Shareholders and the
resulting votes are presented below:
1. Election of Trustees
<TABLE>
<CAPTION>
Number of Votes
Trustee For Withheld
- ------------------------------------------------------------------ ------------- ---------
<S> <C> <C>
Peter S. Knight................................................... 11,652,204.198 43,480.472
David N. Dinkins.................................................. 11,666,191.741 29,492.929
Madelon DeVoe Talley.............................................. 11,695,684.670 0.000
John I. Howell.................................................... 11,695,684.670 0.000
Laura E. Luckyn-Malone............................................ 11,695,684.670 0.000
</TABLE>
Mr. E. William Smethurst, Jr. resigned as Trustee of the Trust on June 21, 1996
and, although previously nominated, did not stand for election at the meeting of
shareholders. Ms. Luckyn-Malone, President of the Trust, replaced Mr. Smethurst
as nominee for election to the office of Trustee.
NOTE 9 -- TAX INFORMATION NOTICE
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Trust for its fiscal year ended October 31,
1996:
Wertheim Equity Value Fund and Wertheim Small Capitalization Value Fund have
99.86% and 99.67%, respectively, of 1996 dividends distributed during the fiscal
year qualify for corporate dividends received deduction.
Wertheim Equity Value Fund, Wertheim Small Capitalization Value Fund and
Wertheim Investment Grade Income Fund designates $641,790, $28,662 and $51,397,
respectively, as capital gains dividends for the purpose of the dividend paid
deduction.
- --------------------------------------------------------------------------------
-54-
<PAGE>
- --------------------------------------------------------------------------------
WSIS SERIES TRUST
- -----------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Trustees of WSIS Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of WSIS Series Trust (a Massachusetts business
trust comprising, respectively, the Wertheim Equity Value Fund, Wertheim Small
Capitalization Value Fund, Wertheim High Yield Income Fund, Wertheim Investment
Grade Income Fund and Wertheim Short-Term Investment Fund) as of October 31,
1996, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the two years in the period then
ended, and for the period ended October 31, 1994. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the WSIS Series Trust as of October 31,
1996, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended and
financial highlights for each of the two years in the period then ended, and for
the period ended October 31, 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
December 12, 1996
- --------------------------------------------------------------------------------
-55-
