<PAGE>
SCHRODER SERIES TRUST
PROSPECTUS
INVESTOR SHARES
MARCH 1, 1997
AS REVISED SEPTEMBER 12, 1997
Schroder Series Trust is an open-end management investment company offering by
this Prospectus Investor Shares of five separate investment portfolios: Schroder
Large Capitalization Equity Fund, Schroder Small Capitalization Value Fund,
Schroder MidCap Value Fund, Schroder Investment Grade Income Fund, and Schroder
Short-Term Investment Fund. Schroder Capital Management Inc. ("Schroder") serves
as investment adviser to each of the Funds. 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 Investor 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 March 1, 1997 Statement of Additional
Information, as revised September 12, 1997 and further 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 FUNDS 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>
<S> <C>
FUNDS AVAILABLE THROUGH SCHRODER FUND ADVISORS INC.
PLEASE CALL FOR COMPLETE INFORMATION AND TO OBTAIN THE RELEVANT PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.
SCHRODER CAPITAL FUNDS (DELAWARE) (1-800-290-9826) SCHRODER SERIES TRUST
(1-800-464-3108)
SCHRODER INTERNATIONAL FUND SCHRODER LARGE CAPITALIZATION EQUITY
FUND
SCHRODER EMERGING MARKETS FUND SCHRODER SMALL CAPITALIZATION VALUE
FUND
-- INSTITUTIONAL PORTFOLIO SCHRODER MIDCAP VALUE FUND
SCHRODER INTERNATIONAL SMALLER COMPANIES FUND SCHRODER INVESTMENT GRADE INCOME FUND
SCHRODER U.S. SMALLER COMPANIES FUND SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER U.S. EQUITY FUND
</TABLE>
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SCHRODER SERIES TRUST
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Summary of expenses............................................................................. 4
Financial Highlights............................................................................ 5
Investment objectives and policies.............................................................. 8
Schroder Large Capitalization Equity Fund..................................................... 8
Schroder Small Capitalization Value Fund...................................................... 9
Schroder MidCap Value Fund.................................................................... 10
Schroder Investment Grade Income Fund......................................................... 10
Schroder Short-Term Investment Fund........................................................... 11
Other investment practices and risk considerations............................................ 13
Portfolio turnover............................................................................ 16
How to buy shares............................................................................... 16
How to sell shares.............................................................................. 18
Exchanges....................................................................................... 18
Determination of net asset value................................................................ 19
Distributions................................................................................... 19
Taxes........................................................................................... 20
Management of the Trust......................................................................... 20
Performance information......................................................................... 22
Additional information about the Trust.......................................................... 22
</TABLE>
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3
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SCHRODER SERIES TRUST
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SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in Investor
Shares of the Funds. The following tables summarize the expenses incurred by
each Fund and attributable to its Investor Shares, based (for all Funds except
the MidCap Value Fund) on its most recent fiscal year. Information for the
MidCap Value Fund is based on estimated expenses for the Fund's first full year
of operations. The Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in Investor Shares of the Funds over specified
periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases...................................... None
Maximum Sales Load Imposed on Reinvested Dividends........................... None
Deferred Sales Load.......................................................... None
Redemption Fees.............................................................. None
Exchange Fees................................................................ None
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Schroder Schroder Schroder Schroder
Large Small Schroder Investment Short-Term
Capitalization Capitalization MidCap Grade Income Investment
Equity Fund Value Fund Value Fund Fund Fund
------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Management Fees (after expense limitation)..... 0.75 0.95 0.90 0.38(1) 0.40
12b-1 Fees..................................... None None None None None
Other Expenses................................. 0.51 0.48 0.45 0.74 0.60
Total Fund Operating Expenses (after expense
limitation)................................... 1.26 1.43 1.35 1.12(1) 1.00
</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 Investor Shares of that Fund would be
0.50% and 1.24%, respectively.
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4
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SCHRODER SERIES TRUST
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EXAMPLE
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return and redemption at the end of each period:
<TABLE>
<CAPTION>
FUNDS: 1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Schroder Large Capitalization Equity Fund.................... $ 13 $ 40 $ 70 $ 153
Schroder Small Capitalization Value Fund..................... $ 15 $ 46 $ 79 $ 172
Schroder MidCap Value Fund................................... $ 14 $ 43 -- --
Schroder Investment Grade Income Fund........................ $ 11 $ 36 $ 62 $ 137
Schroder Short-Term Investment Fund.......................... $ 10 $ 32 $ 55 $ 123
</TABLE>
The tables and Example are provided to help you understand the expenses of
investing in Investor Shares of each of the Funds and your share of the
operating expenses of each Fund attributable to its Investor 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.
FINANCIAL HIGHLIGHTS
The table on the following pages presents per share financial information for
Investor Shares for the life of each Fund (except the MidCap Value Fund) through
October 31, 1996. This information has been audited by Arthur Andersen LLP,
independent auditors. The report of Arthur Andersen LLP is contained in the
Statement of Additional Information.
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5
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SCHRODER SERIES TRUST
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FINANCIAL HIGHLIGHTS
FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
LARGE CAPITALIZATION
EQUITY FUND (1)
-----------------------------------------------
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31,
1996 1995 1994 (2)
------------ ------------ --------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD................... $ 11.12 $ 9.45 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income (Loss)
(5)....................... 0.11 0.11 0.06
Net Realized and Unrealized
Gain (Loss) on
Investments............... 1.92 1.63 (0.61)
------------ ------------ -------
TOTAL FROM INVESTMENT
OPERATIONS................ 2.03 1.74 (0.55)
------------ ------------ -------
LESS DISTRIBUTIONS:
From Net Investment
Income.................... (0.13) (0.07) 0.00
In Excess of Net Investment
Income.................... 0.00 0.00 0.00
From Net Realized Capital
Gains..................... (0.84) 0.00 0.00
Tax Return of Capital....... 0.00 0.00 0.00
------------ ------------ -------
Total Distributions......... (0.97) (0.07) 0.00
------------ ------------ -------
NET ASSET VALUE AT END OF
PERIOD...................... $ 12.18 $ 11.12 $ 9.45
------------ ------------ -------
------------ ------------ -------
TOTAL RETURN.................. 19.30% 18.63% (5.50)%(6)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period
(000's)..................... $42,905 $38,088 $21,309
Ratio of Operating Expenses to
Average Net Assets (5)...... 1.26% 1.40% 1.30%(7)
Ratio of Net Investment Income
to Average Net Assets....... 0.94% 1.27% 1.37%(7)
Portfolio Turnover Rate....... 56.38% 83.15% 102.56%
Average Commission per Share
(8)......................... $ 0.06 - -
</TABLE>
(1) Prior to September 1997, the Fund was known as "Schroder Equity Value
Fund."
(2) For the period February 16, 1994 (commencement of investment operations)
through October 31, 1994.
(3) For the period February 22, 1994 (commencement of investment operations)
through October 31, 1994.
(4) For the period January 11, 1994 (commencement of investment operations)
through October 31, 1994.
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6
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FINANCIAL HIGHLIGHTS (CONTINUED)
FOR AN INVESTOR SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
SMALL CAPITALIZATION INVESTMENT GRADE
VALUE FUND INCOME FUND
----------------------------------------------- ---------------------------
PERIOD ENDED
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED OCTOBER 31,
1996 1995 1994 (2) 1996 1995
------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD................................ $ 10.77 $ 9.77 $ 10.00 $ 9.93 $ 9.14
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (5)...... (0.05) (0.03) 0.00 0.53 0.59
Net Realized and Unrealized Gain
(Loss) on Investments............... 2.34 1.03 (0.23) (0.11) 0.79
------------ ------------ ------- ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS...... 2.29 1.00 (0.23) 0.42 1.38
------------ ------------ ------- ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment Income............ 0.00 0.00 0.00 (0.53) (0.59)
In Excess of Net Investment Income.... 0.00 0.00 0.00 0.00 0.00
From Net Realized Capital Gains....... (0.01) 0.00 0.00 (0.12) 0.00
Tax Return of Capital................. 0.00 0.00 0.00 0.00 0.00
------------ ------------ ------- ------------ ------------
Total Distributions................... (0.01) 0.00 0.00 (0.65) (0.59)
------------ ------------ ------- ------------ ------------
NET ASSET VALUE AT END OF PERIOD........ $ 13.05 $ 10.77 $ 9.77 $ 9.70 $ 9.93
------------ ------------ ------- ------------ ------------
------------ ------------ ------- ------------ ------------
TOTAL RETURN............................ 21.17% 10.27% (2.30)%(6) 4.38% 15.62%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's)..... $48,614 $47,929 $21,193 $23,708 $23,704
Ratio of Operating Expenses to Average
Net Assets (5)........................ 1.43% 1.56% 1.45%(7) 1.12% 1.06%
Ratio of Net Investment Income to
Average Net Assets.................... (0.34)% (0.29)% 0.17%(7) 5.46% 6.35%
Portfolio Turnover Rate................. 81.63% 45.74% 18.53% 68.76% 113.50%
Average Commission per Share (8)........ $ 0.06 - - - -
<CAPTION>
SHORT-TERM
INVESTMENT FUND
---------------------------------------------
PERIOD ENDED PERIOD ENDED
OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
1994 (3) 1996 1995 1994 (4)
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF
PERIOD................................ $ 10.00 $ 9.88 $ 9.88 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (5)...... 0.34 0.45 0.49 0.30
Net Realized and Unrealized Gain
(Loss) on Investments............... (0.83) 0.00 0.00 (0.12)
------- ------------ ------------ ------------
TOTAL FROM INVESTMENT OPERATIONS...... (0.49) 0.45 0.49 0.18
------- ------------ ------------ ------------
LESS DISTRIBUTIONS:
From Net Investment Income............ (0.34) (0.45) (0.49) (0.30)
In Excess of Net Investment Income.... 0.00 (0.01) 0.00 0.00
From Net Realized Capital Gains....... 0.00 0.00 0.00 0.00
Tax Return of Capital................. (0.03) 0.00 0.00 0.00
------- ------------ ------------ ------------
Total Distributions................... (0.37) (0.46) (0.49) (0.30)
------- ------------ ------------ ------------
NET ASSET VALUE AT END OF PERIOD........ $ 9.14 $ 9.87 $ 9.88 $ 9.88
------- ------------ ------------ ------------
------- ------------ ------------ ------------
TOTAL RETURN............................ (4.90)%(6) 4.63% 5.02% 1.83%(6)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's)..... $12,905 $30,527 $33,936 $30,771
Ratio of Operating Expenses to Average
Net Assets (5)........................ 0.87%(7) 1.00% 0.95% 0.78%(7)
Ratio of Net Investment Income to
Average Net Assets.................... 6.39%(7) 4.50% 4.91% 4.48%(7)
Portfolio Turnover Rate................. 115.63% 154.66% 27.86% 71.38%
Average Commission per Share (8)........ - - - -
</TABLE>
(5) Net Investment Income is after reimbursement of certain expenses by Schroder
Capital Management Inc. (See Note 3 to the Trust's financial statements.)
Had the Investment Adviser not undertaken to pay or reimburse expenses
related to the Funds, the Net Investment Income per share and Ratio of
Operating Expenses to Average Net Assets would have been as follows:
Schroder Large Capitalization Equity Fund: 1996 - $0.11 and 1.26%, 1995 -
$0.11 and 1.45%; 1994 - $0.02 and 2.17%; Schroder Small Capitalization Value
Fund: 1996 - ($0.05) and 1.43%, 1995 - ($0.03) and 1.62%; 1994 - ($0.04) and
3.15%; Schroder Investment Grade Income Fund: 1996 - $0.52 and 1.24%, 1995 -
$0.56 and 1.50%; 1994 - $0.21 and 3.98%; and Schroder Short-Term Investment
Fund: 1996 - $0.45 and 1.00%, 1995 - $0.47 and 1.08%; 1994 - $0.24 and
1.66%, respectively.
(6) Not annualized.
(7) Annualized.
(8) For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for trades on which
commissions are charged. This rate does not reflect mark-ups, mark-downs or
spreads on shares traded on a principal basis.
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7
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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 LARGE CAPITALIZATION EQUITY FUND
SCHRODER LARGE CAPITALIZATION EQUITY FUND'S INVESTMENT OBJECTIVE IS TO SEEK
LONG-TERM GROWTH OF CAPITAL. The Fund invests in common stocks and other
securities of companies with large market capitalizations that Schroder believes
offer the potential for long-term growth of capital.
The Fund will under normal circumstances invest primarily in equity securities
Schroder believes to be undervalued. In selecting such securities, Schroder will
focus on industries and issuers it believes offer the possibility for growth of
capital from earnings potential and other factors not fully reflected in current
market prices. Such factors may include, for example, a company's probable
future earnings, the ratio of its market value to its book value, and its
dividends, cash flow, financial strength, debt-to-capital ratio, working assets,
and competitive position, as well as other factors Schroder may consider
significant in a particular industry or under varying market conditions. In
identifying undervalued securities, Schroder may make investment judgments
contrary to those of most investors.
The Fund 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, of companies with large market capitalizations
(generally more than $5 billion). The Fund may invest the remainder of its
assets in equity securities of smaller companies or in debt securities if
Schroder believes they would help achieve the Fund's objective. Debt securities
in which the Fund may invest will be rated, at the time of investment, at least
Baa by Moody's Investors Service, Inc. or BBB by Standard & Poor's Corporation
or, if unrated, determined by Schroder at the time of investment to be of
comparable quality. Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to greater
credit and market risks than higher-rated securities. The Fund may also hold a
portion of its assets in cash or money market instruments.
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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.
Until September 1997, the Fund was known as "Schroder Equity Value Fund."
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND'S INVESTMENT OBJECTIVE IS TO SEEK
CAPITAL APPRECIATION. The Fund invests primarily in equity securities of
companies having a relatively small market capitalization (generally less than
$1 billion) that Schroder believes have potential for capital appreciation. In
choosing portfolio investments for the Fund, Schroder attempts to identify
securities whose potential for long-term capital appreciation is not fully
reflected in their market prices. This may be the result, for example, of the
market's undervaluation of a company's potential for earnings growth or of its
financial or business assets or other assets.
The companies in which the Fund invests may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
may involve certain special risks. Such companies may have limited product
lines, markets or financial resources and may be dependent on a limited
management group. While the markets in securities of such companies have grown
rapidly in recent years, such securities may trade less frequently and in
smaller volume than more widely held securities. The values of these securities
may fluctuate more sharply than other securities, and the Fund may experience
some difficulty in establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available information about
the issuers of these securities or less market interest in such securities than
in the case of larger companies, and it may take a longer period of time for the
prices of such securities to reflect the full value of their issuers' underlying
earnings potential or assets.
The Fund will normally invest at least 65% of its total assets in common and
preferred stocks, and warrants to purchase common or preferred stocks, of
companies having market capitalizations of less than $1 billion. The Fund may
invest the remainder of its assets in equity securities of larger companies and
in debt securities (including convertible bonds) and may hold a portion of its
assets in cash or money market instruments. Debt securities in which the Fund
may invest will be rated, at the time of investment, at least Baa by Moody's or
BBB by Standard & Poor's or, if unrated, determined by Schroder at the time of
investment to be of comparable quality. Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative characteristics and
are subject to greater credit and market risks than higher-rated securities.
At times Schroder may 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 any portion of its assets in high-quality debt securities, or
hold any portion of its assets in cash or money market instruments, to the
extent Schroder might consider consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Fund will use these alternate
strategies.
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SCHRODER SERIES TRUST
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SCHRODER MIDCAP VALUE FUND
SCHRODER MIDCAP VALUE FUND'S INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM CAPITAL
APPRECIATION. The Fund invests primarily in publicly traded common stocks of
"mid-cap" companies -- companies with market capitalizations of between $750
million and $5 billion. In selecting investments for the Fund, Schroder tries to
identify companies that have good prospects for earnings growth and whose
price-to-earnings ratios are lower than the average price-to-earnings ratios of
comparable companies.
Schroder believes that certain mid-cap companies may be undervalued and may
offer greater opportunities for capital appreciation than larger companies, for
a number of reasons. For example, many mid-cap companies have not attracted
substantial coverage by Wall Street analysts or a substantial institutional
following. As a result, many investors may not have recognized the full values
of such companies or of their potential for earnings growth, or of their
financial or business assets. In addition, a mid-cap company may, because of its
smaller size, be able to adapt more quickly to competitive or economic changes
than larger, longer established companies.
For similar reasons, mid-cap companies may present different investment risks
than do large-cap companies. Such companies may have limited product lines,
markets, or financial resources and may depend on a limited management group.
Their securities may trade less frequently and in smaller volume than more
widely held securities, and their values may fluctuate more sharply than other
securities. 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. Schroder's strategy for the Fund includes investing in
certain stocks before other investors recognize their value. The result could be
a lack of stock price movement in the short term. Investors should therefore
have a long-term investment horizon when investing in the Fund.
Although the Fund will seek to invest principally in common stocks, it may also
invest in preferred stocks, warrants, and securities convertible into common or
preferred stocks if Schroder believes such investments would help achieve the
Fund's objective. Under normal circumstances, the Fund will invest at least 65%
of its total assets in securities of companies determined by Schroder to be
"mid-cap" companies. The Fund may hold a portion of its assets in cash or money
market instruments.
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 any portion of its assets in high-quality debt securities, or
hold any portion of its assets in cash or money market instruments, to the
extent Schroder might consider consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Fund will use these 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-
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10
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SCHRODER SERIES TRUST
- -----------------------------------------------------------------
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.
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 be permitted to hold all or any portion of its assets in cash or
money market instruments. It is impossible to predict when, or for how long, the
Fund will use these alternate strategies.
SCHRODER SHORT-TERM INVESTMENT FUND
SCHRODER SHORT-TERM INVESTMENT FUND'S OBJECTIVE IS TO SEEK AS HIGH A RATE OF
INCOME AS SCHRODER BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL AND
MAINTENANCE OF LIQUIDITY. The Fund is designed for investors seeking income with
relative stability of principal. While the Fund intends to declare and pay
dividends daily and invest in short-term securities, it is not a money-market
fund. The values of the securities owned by the Fund, and the Fund's net asset
value, will fluctuate based on changes in interest rates and other factors
affecting the values of securities in which the Fund may invest.
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The Fund will invest in a portfolio of high-quality short-term instruments
consisting of any or all of the following:
-PRIME COMMERCIAL PAPER: high-grade, short-term obligations issued by banks,
corporations, and other issuers, rated P-1 by Moody's or A-1 by Standard &
Poor's.
-U.S. GOVERNMENT SECURITIES: securities issued or guaranteed as to principal
or interest by the U.S. Government or by any of its agencies or
instrumentalities.
-CORPORATE OBLIGATIONS: high-grade, short-term corporate obligations other
than prime commercial paper, rated at least Aa by Moody's or AA by Standard
& Poor's.
-BANKERS' ACCEPTANCES: negotiable drafts or bills of exchange that have been
"accepted" by a bank, meaning, in effect, that the bank has unconditionally
agreed to pay the face value of the instrument on maturity.
-BANK CERTIFICATES OF DEPOSIT: certificates issued against funds deposited
in a commercial bank for a definite period of time and earning a specified
return. The Fund may also invest in bank time deposits.
-REPURCHASE AGREEMENTS: with respect to U.S. Government securities or any of
the other debt securities described above.
-OTHER SECURITIES: rated at least Aa or P-1 by Moody's or AA or A-1 by
Standard & Poor's. These may include investments in mortgage-backed
certificates and other securities representing ownership interests in
mortgage pools, including collateralized mortgage obligations, described
below.
In addition, the Fund may invest in corporate obligations and other securities
with a remaining maturity of one year or less and not otherwise meeting the
rating requirements described above if (i) the issuer has outstanding commercial
paper rated A-1 by Standard & Poor's or P-1 by Moody's (or the issuer's
commercial paper program carries such a rating), (ii) Schroder determines that
the credit characteristics and the terms and conditions of the securities to be
purchased are at least as favorable to the Fund as those of such outstanding
commercial paper, and (iii) Schroder assigns its own short-term credit rating to
the securities, based on its own credit analysis, equivalent to a rating of A-1
by Standard & Poor's or P-1 by Moody's.
All of the Fund's investments will normally have remaining maturities, at the
time of investment, of three years or less, and the average maturity of the
Fund's portfolio securities based on their dollar value will not exceed one year
at the time of each investment. When a security is subject to a repurchase
agreement, the amount and maturity of the Fund's investment will be determined
by reference to the amount and term of the repurchase agreement, not by
reference to the underlying security. The Fund will under normal circumstances
invest at least 65% of its assets in obligations with remaining maturities, at
the time of investment, of two years or less.
A portion of the securities held by the Fund may consist of mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Schroder will calculate
the 'maturity' of such an obligation and other similar obligations, for purposes
of determining the Fund's compliance with the requirements set out above, based
on Schroder's estimate of the period of time remaining until all of the
scheduled payments in respect of that obligation will have been made. That
period may be shorter than the stated maturity of the obligation. The estimated
remaining maturity of a mortgage-backed security is highly dependent on
prepayment assumptions. If interest rates were to increase at a time when the
Fund holds such an obligation, the estimated maturity of the obligation might be
increased due to any anticipated reduction in prepayments on the mortgages
underlying the
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obligation. Some of the mortgage-backed certificates and other interests in
mortgage pools in which the Fund may invest may be backed by agencies or
instrumentalities of the U.S. Government. See "Other investment practices and
risk considerations -- Mortgage-backed securities" below.
Certain obligations purchased by the Fund may be variable or floating rate
instruments, may involve a demand feature, and may include variable amount
master demand notes. Variable or floating rate instruments bear interest at a
rate which varies with changes in market rates. The holder of an instrument with
a demand feature may tender the instrument back to the issuer at par value prior
to maturity.
U.S. Government securities include a variety of securities that differ in their
interest rates, maturities, and dates of issue. Securities issued or guaranteed
by agencies or instrumentalities of the U.S. Government may or may not be
supported by the full faith and credit of the United States or by the right of
the issuer to borrow from the U.S. Treasury.
OTHER INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The Funds may also engage in the following investment practices, each of which
involves certain special risks. The Statement of Additional Information contains
more detailed information about these practices (some of which may be considered
"derivative" investments), including limitations designed to reduce these risks.
OPTIONS AND FUTURES PORTFOLIO STRATEGIES. Each of the Funds may engage in a
variety of transactions involving the use of options and futures contracts for
purposes of increasing its investment return or hedging against market changes.
A Fund may seek to increase its current return by writing covered call options
and covered put options on its portfolio securities or other securities in which
it may invest. A Fund receives a premium from writing a call or put option,
which increases the Fund's return if the option expires unexercised or is closed
out at a net profit. A Fund may also buy and sell put and call 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.
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A Fund may purchase and sell options on futures contracts or on securities
indices in addition to or as an alternative to purchasing and selling futures
contracts.
A Fund may purchase and sell futures contracts, options on futures contracts,
and options on securities indices for hedging purposes or, to the extent
permitted by applicable law, to increase its current return.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS. Options and futures
transactions involve costs and may result in losses. The use of options and
futures involves certain special risks, including the risks that a Fund may be
unable at times to close out such positions, that hedging transactions may not
accomplish their purpose because of imperfect market correlations, or that
Schroder may not forecast market movements correctly.
The effective use of options and futures strategies is dependent on, among other
things, a Fund's ability to terminate options and futures positions at times
when Schroder deems it desirable to do so. Although a Fund will enter into an
option or futures contract position only if Schroder believes that a liquid
secondary market exists for that option or futures contract, there is no
assurance that a Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
Each Fund generally expects that its options and futures contract transactions
will be conducted on recognized exchanges. In certain instances, however, a Fund
may purchase and sell options in the over-the-counter markets. A Fund's ability
to terminate options in the over-the-counter markets may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to a Fund. A Fund will, however, engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of 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. The tax consequences of certain
hedging transactions have been modified by the Taxpayer Relief Act of 1997.
For more information about any of the options or futures portfolio transactions
described above, see the Statement of Additional Information.
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MORTGAGE-BACKED SECURITIES. Each Fund may invest a portion of its assets in
mortgage-backed certificates and other securities representing ownership
interests in mortgage pools, including collateralized mortgage obligations.
Interest and principal payments on the mortgages underlying mortgage-backed
securities are passed through to the holder of the mortgage-backed securities.
Prepayments of principal and interest on mortgages underlying mortgage-backed
securities may shorten the effective maturity of certain of such obligations.
Generally, prepayment rates increase if interest rates fall and decrease if
interest rates rise. For many types of mortgage-backed securities, this can
result in unfavorable changes in price and yield characteristics in response to
changes in interest rates and other market considerations.
Mortgage-backed securities have yield and maturity characteristics that are
dependent upon the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities may include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective maturities of mortgage-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of prepayments
may significantly lengthen the effective maturities of such securities.
Mortgage-backed securities currently offer yields higher than those available
from many other types of debt securities, but their price volatility and yield
characteristics change based on increases and decreases in prepayment rates, and
they are less effective than other types of securities as a means of "locking
in" attractive long-term interest rates. This is caused by the need to reinvest
prepayments of principal generally and the possibility of significant
unscheduled prepayments resulting from declines in mortgage interest rates.
These prepayments would have to be reinvested at the lower rates. As a result, a
Fund's mortgage-backed securities may have less potential for capital
appreciation during periods of declining interest rates than other debt
securities of comparable maturities, although such obligations may have a
comparable risk of decline in market value during periods of rising interest
rates.
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.
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. Each Fund
may also purchase securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date.
FOREIGN INVESTMENTS. Each Fund may invest without limit in securities
principally traded in foreign markets, although it is not currently expected
that any of the Funds will invest in securities of foreign issuers to a
substantial degree. Each Fund may also purchase Eurodollar certificates of
deposit without limitation. Because foreign securities are normally denominated
and traded in foreign currencies, the values of a Fund's assets may be affected
favorably or unfavorably by currency exchange rates and exchange control
regulations. There may be less information publicly available about a foreign
company than about a U.S. company, and foreign companies are not generally
subject to accounting, auditing, and
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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 net 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 portfolio turnover rate
for each of the Funds (except for the MidCap Value Fund) is set forth under
"Financial Highlights." The MidCap Value Fund's annual portfolio turnover rate
is expected to be less than 100%.
HOW TO BUY SHARES
Investor Shares of each of the Funds are sold at the net asset value per share
of the Fund next determined after Schroder Fund Advisors Inc., the principal
underwriter for the Trust, receives your order. In order for you to receive that
day's net asset value, Schroder Fund Advisors Inc. must receive your order
before the close of regular trading on the New York Stock Exchange.
The minimum initial investment in Investor Shares of the Trust is $25,000 (which
may be allocated in any amounts among the various Funds). Schroder Fund Advisors
Inc. may, in its sole discretion, accept smaller initial or subsequent
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investments so long as the investor is an employee of Schroder or any of its
affiliates or has an investment account with Schroder in amounts specified by
Schroder from time to time. None of the Funds will issue share certificates
unless a shareholder so requests.
Investors may purchase Investor Shares of the Funds directly from the Trust by
completing an Account Application and sending payment to the Trust by check or
wire as described below. An Account Application may be obtained from Schroder
Fund Advisors Inc. or the Trust's transfer agent, Boston Financial Data
Services, Inc., Two Heritage Drive, North Quincy, Massachusetts 02171 ("Boston
Financial").
Purchases may be made by mailing a check (in U.S. dollars), payable to (i)
Schroder Series Trust if you are purchasing shares of two or more Funds or (ii)
the name of the Fund to be purchased (e.g., Schroder Small Capitalization Value
Fund) if you are purchasing shares of a single Fund. Third-party checks will not
be accepted.
For initial purchases, the check must be accompanied by a completed Account
Application in proper form. Further documentation may be requested to evidence
the authority of the person or entity making the subscription request.
Complete and sign the Account Application and mail it with your check to:
Schroder Series Trust
P.O. Box 8507
Boston, MA 02266
Investors may also transmit purchase payments by Federal Reserve Bank wire
directly to the Trust as follows:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101
<TABLE>
<S> <C>
ABA: 011000028
Attn: Schroder Series Trust
DDA: 9904-650-0
FBO: Account Registration
A/C: Account Number Assigned By Boston Financial -
Name of Fund(s).
</TABLE>
If your initial investment is by wire, an account number will be assigned and an
Account Application must be completed and mailed to the Trust before any account
will become active. Wire orders received prior to 4:00 p.m. (Eastern Time) on
each day the New York Stock Exchange is open for trading will be processed at
the net asset value determined as of that day. Wire orders received after 4:00
p.m. (Eastern Time) will be processed at the net asset value next determined
thereafter.
Investor Shares of each Fund may be purchased for cash or in exchange for
securities held by the investor, subject to the determination by Schroder that
the securities are acceptable. (For purposes of determining whether securities
will be
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acceptable, Schroder will consider, among other things, whether they are liquid
securities of a type consistent with the investment objectives and policies of
the Fund in question and having a readily ascertainable value.) If a Fund
receives securities from an investor in exchange for shares of the Fund, the
Fund will under some circumstances have the same tax basis in the securities as
the investor had prior to the exchange (and the Fund's gain for tax purposes
would be calculated with regard to the investor's tax basis). Any gain on the
sale of those securities would be subject to distribution as capital gain to all
of the Fund's shareholders. Schroder reserves the right to reject any particular
investment. Securities accepted by Schroder will be valued in the same manner as
are the Trust's portfolio securities as of the time of the next determination of
the Funds' net asset value. All dividend, subscription, or other rights which
are reflected in the market price of accepted securities at the time of
valuation become the property of the relevant Fund and must be delivered to the
Fund upon receipt by the investor. A gain or loss for federal income tax
purposes may be realized by investors upon the exchange. Investors interested in
purchases through exchange should telephone Schroder at (800) 464-3108.
You can make regular investments of $100 or more per month in Investor Shares of
the Funds through automatic deductions from your bank checking account.
Application forms are available from Boston Financial.
Schroder Fund Advisors Inc., Schroder, or their affiliates may, at their own
expense and out of their own assets, provide compensation to dealers or other
financial intermediaries in connection with sales of Trust shares or shareholder
servicing. In some instances, this compensation may be made available only to
certain dealers or other financial intermediaries who have sold or are expected
to sell significant amounts of shares of the Trust.
See "Distributions" below for additional information about how to purchase
shares of Schroder Short-Term Investment Fund.
HOW TO SELL SHARES
Investor Shares of each Fund may be redeemed on any business day by sending a
letter of instruction or stock power form to Boston Financial. The redemption
price is the net asset value per share next determined after receipt of the
redemption request in good order. A redemption request is in good order if it
includes the exact name in which the shares are registered, the investor's
account number, and the number of shares or the dollar amount of shares to be
redeemed, and if it is signed exactly in accordance with the registration form.
Signatures must be guaranteed by a bank, broker/dealer, or certain other
financial institutions. Boston Financial may require additional documentation
from shareholders that are corporations, partnerships, agents, fiduciaries, or
surviving joint owners.
Payment on redemption will be made as promptly as possible and in any event
within seven days after the request for redemption is received in writing by
Boston Financial in good order. (The Trust generally sends payment for shares
the business day after a request is received.) Under unusual circumstances, the
Trust may suspend redemptions or postpone payment for more than seven days, as
permitted by law.
EXCHANGES
You can exchange your Investor Shares of any Fund for Investor Shares of any
other Fund at any time at their respective net asset values. To exchange shares,
you should complete an exchange authorization form available from Boston
Financial and mail it to Boston Financial.
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For federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss. The Trust reserves the right to
change or suspend the exchange privilege at any time. Shareholders would be
notified of any such change or suspension.
DETERMINATION OF NET ASSET VALUE
EACH FUND CALCULATES THE NET ASSET VALUE OF ITS INVESTOR SHARES BY DIVIDING THE
TOTAL VALUE OF ITS ASSETS ATTRIBUTABLE TO ITS INVESTOR SHARES, LESS ITS
LIABILITIES ATTRIBUTABLE TO THOSE SHARES, BY THE NUMBER OF ITS INVESTOR SHARES
OUTSTANDING. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value. Short-
term investments that will mature in 60 days or less are stated at amortized
cost, which approximates market value. All other securities and assets are
valued at their fair values determined by Schroder. The net asset value of a
Fund's Investor 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 LARGE CAPITALIZATION EQUITY FUND, SCHRODER SMALL CAPITALIZATION VALUE
FUND, AND SCHRODER MIDCAP VALUE FUND. The Large Capitalization Equity Fund, the
Small Capitalization Value Fund, and the MidCap 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.
SCHRODER SHORT-TERM INVESTMENT FUND. All of the net income of the Short-Term
Investment Fund is declared each day the Fund is open for business as a dividend
to shareholders of record at the time of the declaration. Shareholders begin
earning dividends on the day after the Fund receives Same Day Funds. "Same Day
Funds" are funds credited by the applicable regional Federal Reserve Bank to the
account of the Trust's designated bank. The Fund's net income for Saturdays,
Sundays, and holidays is declared as a dividend on the next business day. Each
month's dividends will be paid on the last day of that month (or, if that day is
not a business day, on the preceding business day). A shareholder who withdraws
the entire balance of an account at any time during the month will be paid all
dividends declared through the date of the withdrawal.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all distributions
in additional Investor Shares of your Fund; (2) receive distributions from net
investment income in cash while reinvesting capital gains distributions in
additional Investor Shares; or (3) receive all distributions in cash. You can
change your distribution option by notifying Boston Financial in writing. If you
do not select an option when you open your account, all distributions by a Fund
will be reinvested in Investor 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.
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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.
A Fund's distributions will be taxable to you as ordinary income to the extent
derived from the Fund's investment income and net short-term gains (that is, net
gains from capital assets held for not more than a year). Distributions
designated by a Fund as deriving from net gains on capital assets held for more
than 1 year but not more than 18 months and from net gains on capital assets
held for more than 18 months will be taxable to you 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, that 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, that 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 $4.4 billion as of June 30, 1997. 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
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international merchant banking and investment management businesses, and as of
June 30, 1997, 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.
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.
The Funds pay management fees to Schroder monthly at the following annual rates
(based on the assets of each Fund taken separately): Schroder Large
Capitalization Equity Fund -- 0.75% of the Fund's average net assets; Schroder
Small Capitalization Value Fund -- 0.95% of the Fund's average net assets;
Schroder MidCap Value Fund -- 0.90% of the Fund's average net assets; Schroder
Investment Grade Income Fund -- 0.50% of the Fund's average net assets; and
Schroder Short-Term Investment Fund -- 0.40% of the Fund's average net assets.
In order to limit the Funds' expenses, Schroder has voluntarily agreed to reduce
its compensation (and, if necessary, to pay certain expenses of each of the
Funds) until October 31, 1997 (October 31, 1998 for the MidCap Value Fund) with
respect to each of the Funds to the extent that a Fund's expenses (other than
Schroder's compensation, brokerage, interest, taxes, deferred organizational
expenses, and extraordinary expenses) exceed the following annual rates:
Schroder Large Capitalization Equity Fund -- 0.80% of the Fund's average net
assets; Schroder Small Capitalization Value Fund -- 0.75% of the Fund's average
net assets; Schroder MidCap Value Fund -- 0.45% of the Fund's average net
assets; Schroder Investment Grade Income Fund -- 0.62% of the Fund's average net
assets; and Schroder Short-Term Investment Fund -- 0.63% of the Fund's average
net assets. 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 Large Capitalization Equity 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. Ms. Tooke and Locke W. Ogens,
First Vice President and Portfolio Manager at Schroder, are primarily
responsible for making recommendations to the committee for Schroder MidCap
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 and Schroder Short-Term Investment
Fund. Each of the persons named has had that responsibility since the
organization of the Funds (other than Mr. Morris, who 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 & Co. Inc. and Lewco Securities
Corp., affiliates of Schroder, may receive brokerage commissions from the Funds
in accordance with procedures adopted by the
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SCHRODER SERIES TRUST
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Trustees under the Investment Company Act of 1940 which require periodic review
of these transactions. Subject to seeking the most favorable price and execution
available, Schroder may consider sales of shares of the Funds as a factor in the
selection of broker-dealers.
PERFORMANCE INFORMATION
Yield and total return data relating to Investor Shares of the Funds may from
time to time be included in advertisements about the Funds. The "yield" of a
Fund's Investor Shares is calculated by dividing the Fund's annualized net
investment income per Investor Shares during a recent 30-day period by the net
asset value per Investor Shares on the last day of that period. When a Fund's
"total return" is advertised with respect to Investor Shares, it will be
calculated for the past year, the past five years, and the past ten years (or if
a Fund's Investor Shares have been offered for a period shorter than one, five,
or ten years, that period will be substituted) through the most recent calendar
quarter, as more fully described in the Statement of Additional Information.
Total return for any period of one year or less represents the actual rate of
return on such an investment earned during the period, although annualized
figures may also be shown in advertisements. 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 Investor Shares, which will
vary, is based on many factors, including market conditions, the composition of
the Fund's portfolio, and the Fund's operating expenses attributable to its
Investor Shares. Investment performance also often reflects the risks associated
with a Fund's investment objectives and policies. Quotations of yield or total
return for any period when an expense limitation is in effect will be greater
than if the limitation had not been in effect. These factors should be
considered when comparing the investment results of a Fund's Investor Shares to
those of various classes of other mutual funds and other investment vehicles.
Performance for each Fund's Investor Shares may be compared to various indices.
See the Statement of Additional Information for more information.
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. Each Fund's shares (except the Short-Term Investment
Fund) are presently divided into two classes, Investor Shares, which are offered
through this Prospectus, and Advisor Shares, which are offered through a
separate prospectus. Unlike Investor Shares, Advisor Shares are subject to
shareholder service fees and distribution fees, which will affect their
performance relative to Investor Shares. To obtain more information about
Advisor 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 series generally have separate voting
rights with respect to matters that affect only that class or series. 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. Dividends and other distributions
paid by the Funds on their two classes of shares will normally differ in amount
due to the differing expenses borne by the two 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
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SCHRODER SERIES TRUST
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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.
Due to their ownership of shares of certain of the Funds, the Schroder & Co.
Inc. 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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[LOGO]
SCHRODER SERIES TRUST
Schroder Large
Capitalization Equity
Fund
Schroder Small
Capitalization Value
Fund
Schroder MidCap
Value Fund
Schroder Investment
Grade Income Fund
Schroder Short-Term
Investment Fund
Schroder Series Trust
P.O. Box 8507
Investor Shares
Boston, Mass. 02266
1-800-464-3108
0997WS
PROSPECTUS
March 1, 1997
AS REVISED SEPTEMBER 12,
1997
<PAGE>
SCHRODER SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1997
AS REVISED SEPTEMBER 12, 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, as revised September 12, 1997, and Advisor
Shares are offered, for the Schroder Large Capitalization Equity Fund, Schroder
Small Capitalization Value Fund, and Schroder Investment Grade Income Fund,
through a Prospectus dated June 17, 1997, and for the Schroder MidCap Value
Fund, through a Prospectus dated July 28, 1997.
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 CONTRACTS.........................................................19
DETERMINATION OF NET ASSET VALUE.............................................23
TAXES........................................................................24
PRINCIPAL HOLDERS OF SECURITIES..............................................26
PERFORMANCE INFORMATION......................................................27
ORGANIZATION AND CAPITALIZATION..............................................28
PRINCIPAL UNDERWRITER........................................................29
CUSTODIAN....................................................................29
INDEPENDENT AUDITORS.........................................................30
SHAREHOLDER LIABILITY........................................................30
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 the Funds are described in the
Prospectuses. 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
<PAGE>
securities decline. If the option expires unexercised, the Fund realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Fund realizes a gain or
loss equal to the difference between the Fund's cost for the underlying
security and the proceeds of sale (exercise price minus commissions) plus the
amount of the premium.
A Fund may terminate a call option that it has written before it expires
by entering into a closing purchase transaction. A Fund may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in
part by unrealized appreciation of the underlying security owned by the Trust.
COVERED PUT OPTIONS. A Fund may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that
the Fund plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer
segregates cash and high-grade short-term debt obligations or other
permissible collateral equal to the price to be paid if the option is
exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Fund also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a
potential capital loss unless the security later appreciates in value.
A Fund may terminate a put option that it has written before it expires by
a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Fund may also purchase put options to
protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Fund, as a holder
of the option, may sell the underlying security at the exercise price
regardless of any decline in its market price. In order for a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs that the Fund must pay. These costs will reduce any profit the Fund
might have realized had it sold the underlying security instead of buying the
put option.
A Fund may purchase call options to hedge against an increase in the price
of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of
the call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In
order for a call option to be profitable, the market price of the underlying
security must rise sufficiently above the exercise price
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<PAGE>
to cover the premium and transaction costs. These costs will reduce any
profit the Fund might have realized had it bought the underlying security at
the time it purchased the call option.
A Fund may also purchase put and call options to enhance its current
return.
OPTIONS ON FOREIGN SECURITIES. A Fund may purchase and sell options on
foreign securities if in Schroder's opinion the investment characteristics of
such options, including the risks of investing in such options, are
consistent with the Fund's investment objectives. It is expected that risks
related to such options will not differ materially from risks related to
options on U.S. securities. However, position limits and other rules of
foreign exchanges may differ from those in the U.S. In addition, options
markets in some countries, many of which are relatively new, may be less
liquid than comparable markets in the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that Schroder will not forecast interest
rate or market movements correctly, that a Fund may be unable at times to
close out such positions, or that hedging transactions may not accomplish
their purpose because of imperfect market correlations. The successful use
of these strategies depends on the ability of Schroder to forecast market and
interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close
out an option position. As a result, a Fund may be forced to continue to
hold, or to purchase at a fixed price, a security on which it has sold an
option at a time when Schroder believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Trust's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by
an investor or group of investors acting in concert. It is possible that the
Trust and other clients of Schroder may be considered such a group. These
position limits may restrict the Trust's ability to purchase or sell options
on particular securities.
Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that
reason, it may be more difficult to close out unlisted options than listed
options. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes each Fund
that may invest in debt securities may buy and sell futures contracts on debt
securities of the type in which the Fund may invest and on indexes of debt
securities. In addition, each Fund that may invest in equity
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<PAGE>
securities may purchase and sell stock index futures to hedge against changes
in stock market prices. Each Fund may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures
contracts to increase the Fund's current return. All such futures and
related options will, as may be required by applicable law, be traded on
exchanges that are licensed and regulated by the Commodity Futures Trading
Commission (the "CFTC").
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a Fund
will legally obligate itself to accept the future delivery of the underlying
security and pay the agreed price. By selling futures on debt securities --
assuming a "short" position -- it will legally obligate itself to make the
future delivery of the security against payment of the agreed price. Open
futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons
acting at the direction of the Trustees as to the valuation of the Trust's
assets, reflect the fair value of the contract, in which case the positions
will be valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions that may result in
a profit or a loss. While futures positions taken by a Fund will usually be
liquidated in this manner, a Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the
Fund to do so. A clearing corporation associated with the exchange on which
futures are traded assumes responsibility for such closing transactions and
guarantees that a Fund's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Fund may, for example, take a "short" position in
the futures market by selling contracts for the future delivery of debt
securities held by the Fund (or securities having characteristics similar to
those held by the Fund) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Fund's portfolio
securities. When hedging of this character is successful, any depreciation
in the value of portfolio securities may substantially be offset by
appreciation in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Trust
expects to purchase for the Fund particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in
the futures markets. If the anticipated rise in the price of the securities
should occur (with its concomitant reduction in yield), the increased cost to
the Fund of purchasing the securities may be offset, at least to some extent,
by the rise in the value of the futures position taken in anticipation of the
subsequent securities purchase.
Successful use by a Fund of futures contracts on debt securities is
subject to Schroder's ability to predict correctly movements in the direction
of interest rates and other factors affecting markets for debt securities.
For example, if a Fund has hedged against the possibility of an increase in
interest
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<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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<PAGE>
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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<PAGE>
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. (a) (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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.
(b) (FOR THE MIDCAP VALUE FUND ONLY). Borrow money in excess of 10% of
the 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. (a) (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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(a) above.
(b) (FOR THE MIDCAP VALUE FUND ONLY). Pledge, hypothecate, mortgage, or
otherwise encumber its assets in excess of 15% of its total assets and
then only in connection with borrowings permitted by restriction 1(b)
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. (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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.
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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. (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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.
10. (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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. (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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. (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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. (FOR ALL FUNDS EXCEPT THE MIDCAP VALUE FUND). 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
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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 Prospectuses 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.
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, Knight, Levine, Thelen &
Forcey. Previously, Campaign Manager, Clinton/Gore '96.
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
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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, 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.
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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
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.
*** The compensation listed for Ms. DeVoe Talley was for her service as Trustee
from June 25, 1996 through October 31, 1996. The Total Compensation listed
in column (3) for Ms. DeVoe Talley includes compensation for her services
as a Director of SAGF.
As of July 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 CONTRACTS
Under Management Contracts between the Trust and Schroder (the "Management
Contracts"), 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
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of its Trustees regarding the conduct of business of the Trust and each Fund.
The fees to be paid under the Management Contracts are set forth in the
Prospectuses.
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 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 Contracts, 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 Contracts 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
compensates State Street on a basis approved by the Trustees.
The Management Contracts 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.
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The Management Contracts may be terminated without penalty by vote of the
Trustees as to any Fund by the shareholders of that Fund, or by Schroder on
60 days' written notice. Each Management Contract also terminates without
payment of any penalty in the event of its assignment. In addition, each
Management Contract may be amended only by a vote of the shareholders of the
affected Fund(s), and each 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 relevant Management Contract,
each Fund (except the MidCap Value Fund) paid fees to Schroder as follows
(reflecting reductions in such fees pursuant to expense limitations in effect
during such periods): Schroder Large Capitalization Equity Fund - $318,145,
$252,615, and $72,738; Schroder Small Capitalization Value Fund - $471,712,
$349,672, and $58,538; Schroder High Yield Income Fund (which ceased
operations and liquidated in June 1997) - $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 Large
Capitalization Equity 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
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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.
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 Contracts, 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 & Co. Inc. ("Schroder & Co.") or Lewco Securities
Corp. ("Lewco"), each of which is an affiliate of Schroder, or with
unaffiliated brokers who trade or clear through Schroder & Co. or Lewco.
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 the Funds pay to Schroder & Co. 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 Schroder & Co.
and Lewco. Also, due to securities law limitations, the Funds will limit
purchases of securities in a public offering if Schroder & Co. or Lewco or
one of their affiliates is a member of the syndicate for that offering.
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In the fiscal years ended October 31, 1996, 1995, and 1994, respectively,
the Funds (except for the Schroder MidCap Value Fund) paid brokerage
commissions in the following amounts: Schroder Large Capitalization Equity
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 Schroder & Co. 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.
In the fiscal years ended October 31, 1996, 1995, and 1994, respectively,
the Trust paid brokerage commissions to Schroder & Co. and Lewco in the
following amounts: Schroder & Co. - $0, $120, and $1,194; Lewco - $720,
$7,612, and $23,160. During the fiscal year ended October 31, 1996,
commissions paid to Lewco constituted 0.01% of all of the Trust's brokerage
commissions paid during such fiscal year and transactions with respect to
which those commissions were paid constituted 0.39% of all the transactions
on which the Trust paid brokerage commissions during such fiscal year.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each 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
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
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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").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that
are distributed to shareholders. 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, and (b) diversify its holdings so that,
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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 addition, until the start
of the Fund's first tax year beginning after August 5, 1997, a Fund must
derive less than 30% of its gross income from the sale or other disposition
of certain assets (including stock or securities and certain options, futures
contracts, forward contracts and foreign currencies) held for less than three
months in order to qualify as a regulated investment company. In order to
receive the favorable tax treatment accorded regulated investment companies
and their shareholders, moreover, a Fund must in general distribute with
respect to each taxable year at least 90% of the sum of its taxable net
investment income, its net tax-exempt income, and, the excess, if any, of net
short-term capital gains over net long-term capital losses for such year.
The sale, exchange, or redemption of Fund shares may give rise to a gain
or loss. Pursuant to the Taxpayer Relief Act of 1997, two different tax
rates apply to net capital gains (that is, the excess of net gains from
capital assets held for more than one year over net losses from capital
assets held for not more than one year). In general, any gain realized upon
a taxable disposition of shares will be treated as mid-term capital gain
(generally taxed at a 28% rate) if the shares have been held for more than 12
months but not more than 18 months, and as adjusted net capital gain
(generally taxed at a 20% rate) if the shares have been held for more than 18
months. Otherwise the gain on the sale, exchange, or redemption of Fund
shares will be treated as short-term capital gain. In general, any loss
realized upon a taxable disposition of shares will be treated as long-term
loss if the shares have been held for more than 12 months, and otherwise as
short-term capital loss. 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. The tax consequences of certain hedging
transactions have been modified by the Taxpayer Relief Act of 1997.
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.
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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, until the start
of a Fund's first tax year beginning after August 5, 1997, less than 30% of a
Fund's gross income must be derived from gains from sale or other disposition
of securities held for less than three months (with special rules applying to
so-called designated hedges). Accordingly, until such time as the 30%
limitation no longer applies, 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 & Co. Inc. Profit-Sharing,
Savings Incentive, and Pension Plans (the "Schroder & Co. 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 & Co. Inc., and certain of
the officers of the Trust, are participants in one or more of the Schroder &
Co. Plans. Schroder & Co. Inc. owns 80.0% of the outstanding voting
securities of Lewco Securities Corp.
% of Fund Shares*
Owned by
Schroder & Co. and Lewco Plans
------------------------------
Schroder Large Capitalization Equity 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.
** The Schroder High Yield Income Fund ceased operations and liquidated in June
1997.
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 Large Capitalization Equity 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
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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.
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 and Schroder Short-Term Investment Fund
for the thirty-day period ended October 31, 1996 was 8.14% 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 (except for the MidCap
Value 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).
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<PAGE>
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 Large Capitalization Equity Fund
(commencement of operations: February 16, 1994) 19.30% 11.35% --
Schroder Investment Grade Income Fund
(commencement of operations: February 22, 1994) 4.38% 5.25% 5.49%
Schroder Short-Term Investment Fund
(commencement of operations: January 11, 1994) 4.63% 4.09% 4.44%
Schroder Small Capitalization Value Fund
(commencement of operations:February 16, 1994) 21.17% 10.36% --
</TABLE>
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, a separate vote will be taken by each Fund or
class of shares on matters affecting the particular Fund or class, as
determined by the Trustees. For example, a change in a fundamental
investment policy for a Fund would be voted upon only by shareholders of that
Fund and a change to a distribution plan relating to a particular class and
requiring shareholder approval would be voted upon only by shareholders of
that class. Additionally, approval of the Management Contracts 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.
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<PAGE>
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. Each Fund (except for the
Short-Term Investment 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 attributable to Advisor Shares. The Distribution Plans also
relate to payments made pursuant to the Trust's Shareholder Servicing Plans
for Advisor Shares, to the extent such payments may be deemed to be primarily
intended to result in the sale of a Fund's Advisor Shares.
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
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<PAGE>
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 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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