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SCHRODER SERIES TRUST
Prospectus
ADVISOR SHARES
Schroder Series Trust is an open-end management investment company offering by
this Prospectus Advisor Shares of three separate investment portfolios:
Schroder Equity Value Fund, Schroder Small Capitalization Value Fund, and
Schroder Investment Grade Income Fund. Schroder Capital Management Inc.
("Schroder") serves as investment adviser to each of the Funds. Each Fund
pursues its investment objectives through the investment policies described in
this Prospectus.
This Prospectus explains concisely the information that a prospective investor
should know before investing in Advisor Shares of the Funds. Please read it
carefully and keep it for future reference. Investors can find more detailed
information about the Trust in the June 17, 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.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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TABLE OF CONTENTS
Page
----
Summary of expenses ................................................... 3
Investment objectives and policies .................................... 5
Schroder Equity Value Fund ............................................ 5
Schroder Small Capitalization Value Fund .............................. 6
Schroder Investment Grade Income Fund ................................. 7
Other investment practices and risk considerations .................... 8
Portfolio turnover .................................................... 11
How to buy shares ..................................................... 11
How to sell shares .................................................... 12
Exchanges ............................................................. 13
Determination of net asset value ...................................... 14
Distributions ......................................................... 14
Taxes ................................................................. 14
Management of the Trust ............................................... 15
Performance information ............................................... 17
Additional information about the Trust ................................ 18
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SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in Advisor
Shares of the Funds. The "Shareholder Transaction Expenses" table below
summarizes the maximum transaction costs you would incur by investing in
Advisor Shares of the Funds. The "Annual Operating Expenses" table and
related Example estimate the expenses of each Fund that an investor in Advisor
Shares would incur based upon the Fund's expenses for the 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
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
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Schroder Schroder Small Schroder
Equity Capitalization Investment Grade
Value Fund Value Fund Income Fund
---------- -------------- ----------------
<S> <C> <C> <C>
Management Fees (after expense limitation) 0.75 0.95 0.38(1)
12b-1 Fees(2) None None None
Other Expenses 0.76 0.73 0.99
Total Fund Operating
Expenses (after expense limitation) 1.51 1.68 1.37(1)
</TABLE>
- ----------------
(1)The Management Fees and Total Fund Operating Expenses for the Investment
Grade Income Fund reflect an expense limitation currently in effect. See
"Management of the Trust" below. In the absence of the limitation, Management
Fees and Total Fund Operating Expenses for Advisor Shares of that Fund would
be 0.50% and 1.49%, respectively.
(2) Each Fund has adopted a separate Distribution Plan under Rule 12b-1 of the
Investment Company Act of 1940, as amended. The Funds presently make no
payments under the Plans. See "How to Buy Shares -- Distribution Plans."
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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>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Schroder Equity Value Fund $15 $48 $83 $181
Schroder Small Capitalization Value Fund $17 $53 $92 $200
Schroder Investment Grade Income Fund $14 $44 $75 $165
</TABLE>
The tables and Example are provided to help you understand the expenses of
investing in Advisor Shares of each of the Funds and your share of the
operating expenses of the Funds attributable to Advisor Shares. 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.
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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 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 such investments 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, have
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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
alternate investment strategies primarily designed to reduce fluctuations in
the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund would invest in high-quality debt securities, cash, or money market
instruments to any extent Schroder considers consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Fund will
use these alternate strategies.
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 longer
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, 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
alternate investment strategies primarily designed to reduce fluctuations in
the value of the Fund's assets. In implementing these "defensive" strategies,
the
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Fund would invest in high-quality debt securities, cash, or money market
instruments to any extent Schroder considers consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Fund will
use these alternate strategies.
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 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.
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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
alternate investment strategies primarily designed to reduce fluctuations in
the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund would hold all or any portion of its assets in cash or money market
instruments, to any extent Schroder considers consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Fund will
use these alternate strategies.
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 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.
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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 Schroder, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations. A Fund will treat over-the-counter options (and, in the case of
options sold by the Fund, the underlying securities held by the Fund) as
illiquid investments as required by applicable law.
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
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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.
ZERO-COUPON BONDS. Each Fund which may invest in debt securities may invest
in zero-coupon 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. 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 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
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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.
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 Funds' portfolio turnover rates for their most recent fiscal year were as
follows: Schroder Equity Value Fund -- 56.38%; Schroder Small Capitalization
Value Fund -- 81.63%; Schroder Investment Grade Income Fund -- 68.76%.
HOW TO BUY SHARES
You can purchase Advisor Shares of any of the Funds through a Service
Organization such as a bank, trust company, broker-dealer, or other financial
organization having an arrangement with
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Schroder Fund Advisors Inc. Your Service Organization may impose investment
minimums on initial and/or subsequent investments. If you do not have a
Service Organization, Schroder Fund Advisors Inc. can provide you with a list
of available firms. Your Service Organization is responsible for forwarding
all of the necessary documentation to the Trust, and may charge for its
services.
Advisor Shares are sold at their net asset value per share next determined
after the Trust receives your order. In order for you to receive the net
asset value determined on any day, Schroder Fund Advisors Inc. must receive
your order before the close of regular trading on the New York Stock Exchange
on that day.
If Advisor Shares purchased by you will be held in your own name (rather than
in the name of your Service Organization), payment for your shares must be
accompanied by a completed Account Application in proper form. The Trust or
Boston Financial Data Services, Inc., the Trust's transfer agent (the
"Transfer Agent"), may request additional documentation, such as copies of
corporate resolutions and instruments of authority, from corporations,
administrators, executors, personal representatives, directors, or custodians.
You may obtain an Account Application from your Service Organization.
Each Fund reserves the right to reject any purchase, in whole or in part, and
to suspend the offering of its shares for any period of time and to change or
waive any minimum investment amounts.
DISTRIBUTION PLANS. Schroder Fund Advisors Inc. serves as distributor of the
Trust's shares. To compensate Schroder Fund Advisors Inc. for the services it
provides and for the expenses it bears in connection with the distribution of
Advisor Shares, each Fund has adopted a Distribution Plan pursuant to which
the Fund may pay Schroder Fund Advisors Inc. compensation in an amount limited
in any fiscal year to the annual rate of 0.50% of the Fund's average daily net
assets attributable to Advisor Shares. The Funds presently make no payments
under the Distribution Plans, although the Trustees may at any time authorize
payments at an annual rate of up to 0.50% of a Fund's average daily net assets.
HOW TO SELL SHARES
You can sell your Advisor Shares in a Fund to that Fund any day the New York
Stock Exchange is open, either through your Service Organization or directly
to the Fund. If your shares are held in the name of a Service Organization,
you may only sell the shares through that Service Organization. A Fund will
only redeem shares for which it has received payment.
SELLING SHARES THROUGH YOUR SERVICE ORGANIZATION
Your Service Organization and Schroder Fund Advisors Inc. must receive your
request before the close of regular trading on the New York Stock Exchange to
receive that day's net asset value. Your Service Organization will be
responsible for furnishing all necessary documentation to Schroder Fund
Advisors Inc., and may charge you for its services.
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SELLING SHARES DIRECTLY TO A FUND
If your Advisor Shares of a Fund are held in your own name (rather than in the
name of your Service Organization), you may redeem your shares by mailing a
written request for redemption to the Transfer Agent that:
(1) states the number of shares or dollar amount to be redeemed;
(2) identifies your account number; and
(3) is signed by you and all other owners of the account exactly as their
names appear on the account.
If you request that the proceeds from your redemption be sent to you at an
address other than your address of record, or to another party, you must
include a signature guarantee for each such signature by an eligible signature
guarantor, such as a member firm of a national securities exchange or a
commercial bank or trust company located in the United States. If you are a
resident of a foreign country, another type of certification may be required.
Please contact the Transfer Agent for more details at 1-800-464-3108.
Corporations, fiduciaries, and other types of shareholders may be required to
supply additional documents which support their authority to effect a
redemption.
WIRE TRANSFER. If your Service Organization receives Federal Reserve wires,
you may instruct that your redemption proceeds be forwarded to your account
with your Service Organization or to you by a wire transfer. Please indicate
your Service Organization's or your own complete wiring instructions. The
Funds will forward proceeds from telephone redemptions only to the bank or
brokerage account that you have authorized in writing.
GENERAL REDEMPTION POLICIES
The redemption price per share is the net asset value per share next
determined after the Transfer Agent receives the request for redemption in
proper form, and each Fund will make payment for redeemed shares within seven
days thereafter. Under unusual circumstances, a Fund may suspend repurchases,
or postpone payment of redemption proceeds for more than seven days, as
permitted by federal securities law. If you purchase shares of a Fund by
check (including certified check) and redeem them shortly thereafter, the Fund
will delay payment of the redemption proceeds for up to fifteen days after the
Fund's receipt of the check or until the check has cleared, whichever occurs
first. If you redeem shares through your Service Organization, your Service
Organization is responsible for ensuring that the Transfer Agent receives your
redemption request in proper form and at the appropriate time.
EXCHANGES
You can exchange your Advisor Shares of any Fund for Advisor Shares of any
other Fund at any time at their respective net asset values. Contact your
Service Organization or the Transfer Agent for details. For federal income
tax purposes, an exchange is treated as a sale of shares and
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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.
DETERMINATION OF NET ASSET VALUE
Each Fund calculates the net asset value of its Advisor Shares by dividing the
total value of its assets attributable to its Advisor Shares, less its
liabilities attributable to those shares, by the number of its Advisor Shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Fund 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 values determined by Schroder. The net asset
value of a Fund's Advisor Shares will generally differ from that of its other
classes of shares due to the variance in daily net income realized by and
dividends paid on each class of shares, and any differences in the expenses of
the different classes.
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 INVESTMENT GRADE INCOME FUND. The Investment Grade Income Fund
distributes 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.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Advisor Shares of your Fund; (2) receive
distributions from net investment income in cash while reinvesting capital
gains distributions in additional Advisor Shares of your Fund; or (3) receive
all distributions in cash. You can change your distribution option by
notifying the Transfer Agent in writing. If you do not select an option when
you open your account, all distributions by a Fund will be reinvested in
Advisor 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.
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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 to maintain a more
stable monthly dividend, the Fund 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 the Fund would be available to stabilize future
dividends. As a result, the dividends paid by the Fund for any particular
period may be more or less than the amount of net investment income actually
earned by the Fund 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, the Fund 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 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
Schroders Incorporated, which engages through its subsidiary firms in the
investment banking, asset management, and securities businesses. Affiliates
of Schroders 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. Schroders Incorporated 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 $150 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.
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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 -- 0.75% of the Fund's average net assets; Schroder Small
Capitalization Value Fund -- 0.95% of the Fund's average net assets; and
Schroder Investment Grade Income Fund -- 0.50% 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, shareholder
service fees, and extraordinary expenses) exceed the following annual rates
(expressed as a percentage of a Fund's average net assets): Schroder Equity
Value Fund -- 0.80%; Schroder Small Capitalization Value Fund -- 0.75%; and
Schroder Investment Grade Income Fund -- 0.62%. The Trust pays all expenses
not assumed by Schroder, including Trustees' fees, auditing, legal, custodial,
and investor servicing and shareholder reporting expenses.
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. 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.
Each of the persons named has had that responsibility since the organization
of the Funds (other than Mr. Morris, who has had that responsibility since
March 1997) 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 and Lewco Securities Corp., affiliates 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.
SHAREHOLDER SERVICING PLAN. The Trust has adopted a Shareholder Servicing
Plan (the "Service Plan") for the Advisor Shares of each Fund. Under the
Service Plan, each Fund pays fees to Schroder Fund Advisors Inc. at an annual
rate of up to 0.25% of the average daily net assets of the Fund represented by
Advisor Shares. Schroder Fund Advisors Inc. may enter into shareholder
service agreements with Service Organizations pursuant to which the Service
Organizations
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provide administrative support services to their customers who are Fund
shareholders. In return for providing these support services, a Service
Organization may receive payments from Schroder Fund Advisors Inc. at a rate
not exceeding 0.25% of the average daily net assets of the Advisor Shares of
each Fund for which the Service Organization is the Service Organization of
record. These administrative services may include, but are not limited to,
the following functions: establishing and maintaining accounts and records
relating to clients of the Service Organization; answering shareholder
inquiries regarding the manner in which purchases, exchanges, and redemptions
of Advisor Shares of the Trust may be effected and other matters pertaining to
the Trust's services; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; assisting
shareholders in arranging for processing purchase, exchange, and redemption
transactions; arranging for the wiring of funds; guaranteeing shareholder
signatures in connection with redemption orders and transfers and changes in
shareholder-designated accounts; integrating periodic statements with other
customer transactions; and providing such other related services as the
shareholder may request. Some Service Organizations may impose additional
conditions or fees, such as requiring clients to invest more than the minimum
amounts required by the Trust for initial or subsequent investments or
charging a direct fee for services. Such fees would be in addition to any
amounts which might be paid to the Service Organization by Schroder Fund
Advisors Inc. Please contact your Service Organization for details.
PERFORMANCE INFORMATION
Yield and total return data relating to Advisor Shares of the Funds may from
time to time be included in advertisements about the Funds. The "yield" of a
Fund's Advisor Shares is calculated by dividing the Fund's annualized net
investment income per Advisor Shares during a recent 30-day period by the net
asset value per Advisor Shares on the last day of that period. When a Fund's
total return is advertised with respect to Advisor Shares, it will be
calculated for the past year, the past five years, and the past ten years (or
if a Fund's Advisor Shares have been offered for a period shorter than one,
five, or ten years, that period will be substituted) since the establishment
of the Fund, as more fully described in the Statement of Additional
Information. Advertisements about a Fund may include total return information
for the Fund's Investor Shares for periods prior to the initial offering date
of the Fund's Advisor Shares; that information may be adjusted to reflect the
actual fees and expenses attributable to the Advisor Shares that were not
applicable to the Fund's Investor Shares during the periods presented. Total
return quotations assume that all dividends and distributions are reinvested
when paid.
ALL DATA IS BASED ON PAST INVESTMENT RESULTS AND DOES NOT PREDICT FUTURE
PERFORMANCE. Investment performance of a Fund's Advisor Shares, which will
vary, is based on many factors, including market conditions, the composition
of each Fund's portfolio, and each Fund's operating expenses attributable to
Advisor Shares. 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 the investment results of a Fund's Advisor
Shares to those of various classes of other mutual funds and other investment
vehicles. Performance for each Fund's Advisor Shares may be compared to
various indices. See the Statement of Additional Information for a fuller
discussion of performance information.
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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 Fund is presently divided into two classes of shares, Advisor Shares,
which are offered in this Prospectus, and Investor Shares, which are offered
through a separate prospectus. Unlike Advisor Shares, Investor Shares are not
subject to shareholder service fees or to possible distribution fees, which
will affect performance. To obtain more information about Investor Shares,
contact Schroder Series Trust at (800) 464-3108.
Each share has one vote, with fractional shares voting proportionally.
Shareholders of a class of shares or Fund generally have separate voting
rights with respect to matters that affect only that class or Fund. See
"Organization and Capitalization" in the Statement of Additional Information.
Shares are freely transferable and are entitled to dividends and other
distributions as declared by the Trustees. Due to the differing expenses
borne by the two classes, a Fund's dividends and other distributions will
normally differ in amount between the classes. If a Fund were liquidated,
each class of shares would receive the net assets of the Fund attributable to
that class. 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, Thrift and Pension 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 0.08% 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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Schroder Series Trust
P.O. Box 8507
Boston, Mass. 02266
1-800-464-3108
SCHRODERS
Schroder Series Trust
Schroder Equity
Value Fund
Schroder Small
Capitalization Value Fund
Schroder Investment
Grade Income Fund
ADVISOR SHARES
PROSPECTUS
June 17, 1997
<PAGE>
SCHRODER SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
JUNE 17, 1997
This Statement of Additional Information contains information that may be
of interest to investors but which is not included in the Prospectuses of
Schroder Series Trust (the "Trust"). This Statement relates to the Funds'
Investor Shares and Advisor Shares. Investor Shares are offered through a
Prospectus dated March 1, 1997 and Advisor Shares are offered through a
Prospectus dated June 17, 1997. Shares of Schroder High Yield Income Fund are
no longer being offered for sale to investors.
This Statement is not a prospectus and should be read in conjunction with
the Prospectuses, as they may be revised from time to time. Investors may
obtain free copies of the Prospectuses 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 ................................... 26
PERFORMANCE INFORMATION ........................................... 27
ORGANIZATION AND CAPITALIZATION ................................... 28
PRINCIPAL UNDERWRITER ............................................. 28
CUSTODIAN ......................................................... 29
INDEPENDENT AUDITORS .............................................. 29
SHAREHOLDER LIABILITY ............................................. 29
FINANCIAL STATEMENTS .............................................. 31
<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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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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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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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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<PAGE>
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.
15. Issue any class of securities which is senior to the Fund's shares
of beneficial interest. (For the purpose of this restriction, none of
the following is deemed to be, or to create a class of, senior
securities: any borrowing permitted by restriction (1) above; any pledge
or other encumbrance of assets permitted by restriction (2) above; any
collateral arrangement with respect to options, futures contracts,
options on futures contracts, or other financial instruments, or with
respect to initial or variation margin; and the purchase or sale of, or
the Fund's otherwise entering into, options, forward contracts, futures
contracts, options on futures contracts, or other financial instruments.
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 15 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. 36. 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 Investment
Company Act of 1940) 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 April 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 Corp. ("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.
SHAREHOLDER SERVICING PLAN FOR ADVISOR SHARES. The Trust has adopted a
Shareholder Servicing Plan (the "Service Plan") for the Advisor Shares of each
Fund. Under the Service Plan, each Fund pays fees to Schroder Fund Advisors
Inc. at an annual rate of up to 0.25% of the Fund's average daily net assets
represented by Advisor Shares. Schroder Fund Advisors Inc. may enter into
service agreements with Service Organizations, such as banks, trust companies,
broker-dealers, or other financial organizations, pursuant to which the
Service Organizations provide administrative support services to their
customers who are Fund shareholders. In return for providing these support
services, a Service Organization may receive payments from Schroder Fund
Advisors Inc. at a rate not exceeding 0.25% of the average daily net assets of
the Advisor Shares of each Fund for which the Service Organization is the
Service Organization of record. These administrative services may include,
but are not limited to, the following functions: establishing and maintaining
accounts and records relating to clients of the Service Organization;
answering shareholder inquiries regarding the manner in which purchases,
exchanges, and redemptions of Advisor Shares of the Trust may be effected and
other matters pertaining to the Trust's services; providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records; assisting shareholders in arranging for processing purchase,
exchange, and redemption transactions; arranging for the wiring of funds;
guaranteeing shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; integrating periodic
statements with other customer transactions; and providing such other related
services as the shareholder may request. Some Service Organizations may
impose conditions or fees in addition to those incurred by a Fund, such as
requiring clients to invest more than the minimum amounts required by the
Trust for initial or subsequent investments or charging a direct fee for
services. Such fees would be in addition to any amounts which might be paid
to the Service Organization by Schroder Fund Advisors Inc. Please contact
your Service Organization for details.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of shares 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.
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
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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 such
securities occur during such period, then these securities will be valued at
their fair value, in the manner described above.
----------------
The proceeds received by each Fund for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Fund, and
constitute the underlying assets of that Fund. The underlying assets of each
Fund will be segregated on the Trust's books of account, and will be charged
with the liabilities in respect of such Fund and with a share of the general
liabilities of the Trust. Each Fund's assets will be further allocated among
its constituent classes of shares on the Trust's books of account. Expenses
with respect to any two or more Funds or classes may be allocated in
proportion to the net asset values of the respective Funds or classes except
where allocations of direct expenses can otherwise be fairly made to a
specific Fund or class.
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").
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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.
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
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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 March 31, 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 68%
Schroder Small Capitalization Value Fund 31%
Schroder Investment Grade Income Fund 75%
Schroder High Yield Income Fund 59%
Schroder Short-Term Investment Fund 94%
- ---------------
* Reflects ownership of Investor Shares of the Funds. Advisor Shares were not
offered prior to the date of this Statement.
To the knowledge of the Trust, as of March 31, 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
9.48% of the outstanding shares of Schroder Equity Value Fund and 9.43% of the
outstanding shares of Schroder Small Capitalization Value Fund; The Hillman
Foundation, Inc., 2000 Grant Building, Pittsburgh, PA 15219 owned 5.04% 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 12.02% of the outstanding shares of Schroder Small Capitalization Value
Fund; The Bank of New York, trustee FBO Tri Valley Growers, P.O. Box 11010,
New York, NY 10286-1010 owned 5.08% of the outstanding shares of Schroder
Small Capitalization Value Fund; the Stitzel Family Partnership, 102 Mountain
View Avenue, San Rafael, CA 94901-1348 owned 6.45% of the outstanding shares
of Schroder High Yield Income Fund; and Alumax Grantor Trust, FBO Allen Born,
Alumax Inc., 5655 Peachtree Parkway, Norcross, GA 30092-2812 owned 7.57% of
the outstanding shares of Schroder High Yield Income Fund.
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<PAGE>
PERFORMANCE INFORMATION
Certain Funds may advertise the yield of each class of its shares. Yield
is presented for a specified 30-day period (the "base period"). Yield for a
class of shares of a Fund is based on the amount determined by (i) calculating
the aggregate of dividends and interest earned by the Fund and attributable to
the class during the base period less the Fund's expenses attributable to the
class and accrued for that period, and (ii) dividing that amount by the
product of (A) the average daily number of shares of the class of the Fund
outstanding during the base period and entitled to receive dividends and (B)
the net asset value per share of the class of the Fund on the last day of the
base period. The result is annualized on a compounding basis to determine the
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. The yield of Investor Shares 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 was 8.14%, 5.49% and 4.44%,
respectively. (No Advisor Shares were outstanding during such period).
Average annual total return of a class of shares of a Fund for one-,
five-, and ten-year periods (or for such shorter periods as shares of that
class of shares of the Fund have been offered) is determined by calculating
the actual dollar amount of investment return on a $1,000 investment in that
class of shares at the beginning of the period, and then calculating the
annual compounded rate of return which would produce that amount. Total
return for a period of one year or less is equal to the actual return of that
class of shares during that period. Total return calculations assume
reinvestment of all Fund distributions at net asset value on their respective
reinvestment dates. Total return may be presented for other periods.
The total return of Investor Shares of each Fund for the one-year period
ending October 31, 1996 and for the period from the commencement of the Fund's
operations until October 31, 1996 is set forth below. (No Advisor Shares were
outstanding during those periods).
TOTAL RETURN OF INVESTOR SHARES FOR THE PERIODS LISTED
<TABLE>
<CAPTION>
Total Return
Total Return (Life of
(One-Year) Fund) Yield
------------ ------------- -----
<S> <C> <C> <C>
Schroder Equity Value Fund (commencement of 19.30% 11.35% --
operations: February 16, 1994)
Schroder High Yield Income Fund (commencement 9.98% 4.33% 8.14%
of operations: February 16, 1994)
Schroder Investment Grade Income Fund 4.38% 5.25% 5.49%
(commencement of operations: February 22, 1994)
Schroder Short-Term Investment Fund 4.63% 4.09% 4.44%
(commencement of operations: January 11, 1994)
</TABLE>
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<PAGE>
Schroder Small Capitalization Value Fund 21.17% 10.36% --
(commencement of operations: February 16, 1994)
Average annual total return of a Fund's Investor Shares may at times be
presented in advertisements for the Fund's Advisor Shares restated to reflect
the actual fees and expenses attributable to the Advisor Shares that were not
applicable to the Fund's Investor Shares during the periods presented.
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 Prospectuses. Any such waiver or assumption would increase a
Fund's yield and total return for each class of shares 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 or class of shares on matters affecting the particular Fund or class, as
determined by the Trustees. For example, a change in a fundamental investment
policy for a Fund would be voted upon only by shareholders of that Fund and a
material change to a distribution plan relating to a particular class would be
voted upon only by that class. Additionally, approval of the Management
Contract is a matter to be determined separately by each 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, each class of shares of the Fund
would receive the net assets of the Fund attributable to the class. Because
Investor and Advisor Shares are subject to different expenses, a Fund's
dividends and other distributions will normally differ between the two
classes. The Trust may suspend the sale of shares at any time and may refuse
any order to purchase shares.
The Trust may create additional Funds from time to time with different
investment objectives and policies. Each Fund may offer additional classes of
shares subject to different expenses and other features.
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.
DISTRIBUTION PLAN FOR ADVISOR SHARES. To compensate Schroder Fund
Advisors Inc. for the services it provides and for the expenses it bears in
connection with the distribution of Advisor Shares, each Fund has adopted a
Distribution Plan pursuant to which the Fund may pay Schroder Fund Advisors
Inc. compensation in an amount limited in any fiscal year to the annual rate
of 0.50%
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<PAGE>
of the Fund's average daily net assets attributable to Advisor Shares. The
Funds presently make no payments under the Distribution Plans, although the
Trustees may at any time authorize payments at an annual rate of up to 0.50%
of a Fund's average daily net assets attributable to its Advisor Shares.
The various costs and expenses that may be paid or reimbursed under the
Distribution Plans include advertising expenses, costs of printing
prospectuses and other materials to be given or sent to prospective investors,
expenses of sales employees or agents of Schroder Fund Advisors Inc.,
including salary, commissions, travel and related expenses in connection with
the distribution of Advisor Shares, payments to broker-dealers who advise
shareholders regarding the purchase, sale, or retention of Advisor Shares, and
payments to banks, trust companies, broker-dealers (other than Schroder Fund
Advisors Inc.) or other financial organizations.
A Distribution Plan may not be amended to increase materially the amount
of distribution expenses permitted thereunder without the approval of a
majority of the outstanding Advisor Shares of the relevant Fund. Any other
material amendment to a Distribution Plan must be approved both by a majority
of the Trustees and a majority of those Trustees ("Qualified Trustees") who
are not "interested persons" (as defined in the Investment Company Act of
1940) of the Trust, and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any related agreement, by vote
cast in person at a meeting called for the purpose. Each Distribution Plan
will continue in effect for successive one-year periods provided each such
continuance is approved by a majority of the Trustees and the Qualified
Trustees by vote cast in person at a meeting called for the purpose. Each
Distribution Plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by vote of a majority of the Fund's outstanding Advisor
Shares.
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, the Trust's independent accountants, provide audit
services, tax return preparation services, and assistance and consultation in
connection with the Trust's 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
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<PAGE>
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.
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<PAGE>
FINANCIAL STATEMENTS
The Financial Statements required by Part B and the related Report of
Independent Public Accountants are incorporated herein by reference to
Post-Effective Amendment No. 4 to the Trust's Registration Statement filed
electronically with the Securities and Exchange Commission on February 28,
1997 (Accession Number: 0000912057-97-00730).
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