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SCHRODER SERIES TRUST
SCHRODER LARGE CAPITALIZATION EQUITY FUND
SCHRODER SMALL CAPITALIZATION VALUE FUND
SCHRODER MIDCAP VALUE FUND
SCHRODER TOTAL RETURN FIXED INCOME FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
AMENDED AS OF AUGUST 17, 2000
This Statement of Additional Information (SAI) is not a prospectus and is only
authorized for distribution when accompanied or preceded by a Prospectus for the
Funds, as amended or supplemented from time to time. This SAI relates to the
Funds' Investor Shares, which are offered through a Prospectus, dated March 1,
2000, as amended or supplemented. This SAI contains information which may be
useful to investors but which is not included in the Prospectus. Investors may
obtain free copies of the Prospectus by calling the Trust at 800-464-3108.
Certain disclosure has been incorporated by reference into this SAI from the
Funds' annual report. For a free copy of the Trust's annual or semi-annual
reports, please call 800-464-3108.
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TABLE OF CONTENTS
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TRUST HISTORY..................................................... -1-
FUND CLASSIFICATION............................................... -1-
CAPITALIZATION AND SHARE CLASSES ................................. -1-
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS ........ -2-
INVESTMENT RESTRICTIONS .......................................... -18-
TRUSTEES AND OFFICERS............................................. -20-
SCHRODER AND ITS AFFILIATES ...................................... -23-
MANAGEMENT CONTRACTS.............................................. -23-
ADMINISTRATIVE SERVICES .......................................... -25-
DISTRIBUTOR....................................................... -25-
BROKERAGE ALLOCATION AND OTHER PRACTICES ......................... -26-
DETERMINATION OF NET ASSET VALUE ................................. -28-
REDEMPTIONS IN KIND............................................... -30-
TAXES ......................................................... -30-
PRINCIPAL HOLDERS OF SECURITIES .................................. -33-
PERFORMANCE INFORMATION .......................................... -36-
CUSTODIAN......................................................... -38-
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT ..................... -38-
INDEPENDENT ACCOUNTANTS .......................................... -38-
LEGAL COUNSEL..................................................... -38-
SHAREHOLDER LIABILITY............................................. -38-
FINANCIAL STATEMENTS.............................................. -38-
APPENDIX A - RATINGS OF CORPORATE DEBT INSTRUMENTS ............... A-1
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SCHRODER SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
TRUST HISTORY
Schroder Series Trust is a Massachusetts business trust organized under the
laws of The Commonwealth of Massachusetts on May 6, 1993. The Trust's Agreement
and Declaration of Trust, which is governed by Massachusetts law, is on file
with the Secretary of State of The Commonwealth of Massachusetts. Prior to March
1997, the name of the Trust was "WSIS Series Trust." Schroder Investment
Management North America Inc. ("Schroder") and its corporate predecessors have
served as investment adviser to the Trust since its inception.
FUND CLASSIFICATION
The Trust currently offers shares of beneficial interest of four series
(the "Funds") with separate investment objectives and policies. Schroder
Short-Term Investment Fund, a former series of the Trust, terminated in May
2000, is sometimes referred to as a "Fund" hereunder with respect to its
operations prior to termination. Each Fund is an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). Each Fund is also a "diversified" investment company under the
Investment Company Act. This means that with respect to 75% of a Fund's total
assets, the Fund may not invest in securities of any issuer if, immediately
after such investment, more than 5% of the total assets of the Fund (taken at
current value) would be invested in the securities of that issuer (this
limitation does not apply to investments in U.S. Government securities). A Fund
is not subject to this limitation with respect to the remaining 25% of its total
assets. To the extent a Fund invests a significant portion of its assets in the
securities of a particular issuer, it will be subject to an increased risk of
loss if the market value of the issuer's securities declines.
CAPITALIZATION AND SHARE CLASSES
The Trust has an unlimited number of shares of beneficial interest that
may, without shareholder approval, be divided into an unlimited number of series
of such shares, which, in turn, may be divided into an unlimited number of
classes of such shares. Each Fund currently offers one class of shares, Investor
Shares. A Fund may suspend the sale of shares at any time.
Prior to June 23, 2000, several of the Funds also offered a second class of
shares, Advisor Shares. Effective June 23, 2000, the Advisor Shares were
recapitalized to Investor Shares, such that no Fund presently has any Advisor
Shares outstanding.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, a separate vote will be taken by each Fund or
class of shares on matters affecting the particular Fund or class, as determined
by the Trustees. For example, a change in a fundamental investment policy for a
Fund would be voted upon only by shareholders of that Fund and a change to a
distribution plan relating to a particular class and requiring shareholder
approval would be voted upon only by shareholders of that class. Shares have
noncumulative voting rights. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders have the right to call a meeting to
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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.
MISCELLANEOUS INVESTMENTS, INVESTMENT PRACTICES AND RISKS
In addition to the principal investment strategies and the principal risks
of the Funds described in the Prospectus, each Fund may employ other investment
practices and may be subject to additional risks which are described below.
Because the following is a combined description of investment strategies and
risks for all the Funds, certain strategies or risks described below may not
apply to your Fund. Unless a strategy or policy described below is specifically
prohibited by the investment restrictions listed in the Prospectus, under
"Investment Restrictions" in this SAI, or by applicable law, a Fund may engage
in each of the practices described below.
CERTAIN DERIVATIVE INSTRUMENTS
Derivative instruments are financial instruments whose value depends upon,
or is derived from, the value of an underlying asset, such as a security, index
or currency. As described below, to the extent permitted under "Investment
Restrictions" below and in the Prospectuses, each Fund may engage in a variety
of transactions involving the use of derivative instruments, including options
and futures contracts on securities and securities indices, options on futures
contracts and short sales. These transactions may be used by a Fund for hedging
purposes or, to the extent permitted by applicable law, to increase its current
return. The Funds may also engage in derivative transactions involving foreign
currencies. See "Foreign Currency Transactions."
OPTIONS
Each Fund may purchase and sell covered put and call options on its
portfolio securities to enhance investment performance and to protect against
changes in market prices.
COVERED CALL OPTIONS. A Fund may write covered call options on its
portfolio securities to realize a greater current return through the receipt of
premiums than it would realize on its securities alone. Such option transactions
may also be used as a limited form of hedging against a decline in the price of
securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call option,
the Fund gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Fund retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Fund realizes a gain
equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the
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Fund realizes a gain or loss equal to the difference between the Fund's cost for
the underlying security and the proceeds of the sale (exercise price minus
commissions) plus the amount of the premium.
A Fund may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. A Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
COVERED PUT OPTIONS. A Fund may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Fund plans to purchase. A put option gives the holder the right to sell, and
obligates the writer to buy, a security at the exercise price at any time before
the expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Fund also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Fund may terminate a put option that it has written before it expires by
a closing purchase transaction. Any loss from this transaction may be partially
or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Fund may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it sold
the underlying security instead of buying the put option.
A Fund may purchase call options to hedge against an increase in the price
of securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
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A Fund may also purchase put and call options to enhance its current
return. A Fund may also buy and sell combinations of put and call options on the
same underlying security to earn additional income.
OPTIONS ON FOREIGN SECURITIES. A Fund may purchase and sell options on
foreign securities if in Schroder's opinion the investment characteristics of
such options, including the risks of investing in such options, are consistent
with the Fund's investment objectives. It is expected that risks related to such
options will not differ materially from risks related to options on U.S.
securities. However, position limits and other rules of foreign exchanges may
differ from those in the U.S. In addition, options markets in some countries,
many of which are relatively new, may be less liquid than comparable markets in
the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve certain
risks, including the risks that Schroder will not forecast interest rate or
market movements correctly, that a Fund may be unable at times to close out such
positions, or that hedging transactions may not accomplish their purpose because
of imperfect market correlations. The successful use of these strategies depends
on the ability of Schroder to forecast market and interest rate movements
correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although a Fund
will enter into an option position only if Schroder believes that a liquid
secondary market exists, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option or at any particular time. If
no secondary market were to exist, it would be impossible to enter into a
closing transaction to close out an option position. As a result, a Fund may be
forced to continue to hold, or to purchase at a fixed price, a security on which
it has sold an option at a time when Schroder believes it is inadvisable to do
so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Funds' use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Funds and other clients
of Schroder may be considered such a group. These position limits may restrict
the Funds' ability to purchase or sell options on particular securities.
As described below, each Fund generally expects that its options
transactions will be conducted on recognized exchanges. In certain instances,
however, a Fund may purchase and sell options in the over-the-counter markets.
Options which are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out over-the-counter options than exchange-traded
options. Options in the over-the-counter market may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to a Fund. Furthermore, over-the-counter options are not
subject to the protection afforded purchasers of exchange-traded options by The
Options Clearing Corporation. A Fund will, however, engage in over-the-counter
options transactions only when appropriate exchange-traded options transactions
are unavailable and when, in the opinion of Schroder, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their contractual obligations. A Fund
will treat over-the-counter
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options (and, in the case of options sold by the Fund, the underlying securities
held by the Fund) as illiquid investments as required by applicable law.
Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the United States Internal Revenue Code
of 1986, may also restrict the Trust's use of options.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes, each Fund
that may invest in debt securities may buy and sell futures contracts on U.S.
Government securities and other debt securities in which the Fund may invest,
and on indices of debt securities. In addition, each Fund that may invest in
equity securities may purchase and sell stock index futures to hedge against
changes in stock market prices. Each Fund may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase the Fund's current return. All such futures and related options
will, as may be required by applicable law, be traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission (the "CFTC").
Depending upon the change in the value of the underlying security or index when
a Fund enters into or terminates a futures contract, the Fund may realize a gain
or loss.
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a Fund
will legally obligate itself to accept the future delivery of the underlying
security and pay the agreed price. By selling futures on debt securities --
assuming a "short" position -- it will legally obligate itself to make the
future delivery of the security against payment of the agreed price. Open
futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons acting
at the direction of the Trustees as to the valuation of the Fund's assets,
reflect the fair value of the contract, in which case the positions will be
valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by a Fund will usually be
liquidated in this manner, a Fund may instead make or take delivery of the
underlying securities 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.
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On other occasions, a Fund may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when the Fund expects to
purchase particular securities when it has the necessary cash, but expects the
rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase.
Successful use by a Fund of futures contracts on debt securities is subject
to Schroder's ability to predict correctly movements in the direction of
interest rates and other factors affecting markets for debt securities. For
example, if a Fund has hedged against the possibility of an increase in interest
rates which would adversely affect the market prices of debt securities held by
it and the prices of such securities increase instead, the Fund will lose part
or all of the benefit of the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements. The Fund may have
to sell securities at a time when it may be disadvantageous to do so.
A Fund may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. A Fund
will be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers'
requirements, and, in addition, net option premiums received will be included as
initial margin deposits. See "Margin Payments" below. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options plus transactions costs. However, there
may be circumstances when the purchase of call or put options on a futures
contract would result in a loss to a Fund when the purchase or sale of the
futures contracts would not, such as when there is no movement in the prices of
debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. A Fund may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. A stock index futures
contract is a contract to buy or sell units of a stock index at a specified
future date at a price agreed upon when the contract is made. A unit is the
current value of the stock index.
Depending on the change in the value of the index between the time when a
Fund enters into and terminates an index futures transaction, the Fund may
realize a gain or loss. The following example illustrates generally the manner
in which index futures contracts operate. The Standard & Poor's 100 Stock Index
is composed of 100 selected common stocks, most of which are listed on the
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New York Stock Exchange. The S&P 100 Index assigns relative weightings to the
common stocks included in the Index, and the Index fluctuates with changes in
the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if a Fund enters into a futures contract to buy 100
units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Fund will gain
$400 (100 units x gain of $4). If the Fund enters into a futures contract to
sell 100 units of the stock index at a specified future date at a contract price
of $180 and the S&P 100 Index is at $182 on that future date, the Fund will lose
$200 (100 units x loss of $2).
A Fund may purchase or sell futures contracts with respect to any
securities indices. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Fund's investments successfully using futures contracts
and related options, a Fund must invest in futures contracts with respect to
indices or sub-indices the movements of which will, in Schroder's judgment, have
a significant correlation with movements in the prices of the Fund's portfolio
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Funds that may purchase and sell index futures
contracts may purchase and sell call and put options on the underlying indices
themselves to the extent that such options are traded on national securities
exchanges. Index options are similar to options on individual securities in that
the purchaser of an index option acquires the right to buy (in the case of a
call) or sell (in the case of a put), and the writer undertakes the obligation
to sell or buy (as the case may be), units of an index at a stated exercise
price during the term of the option. Instead of giving the right to take or make
actual delivery of securities, the holder of an index option has the right to
receive a cash "exercise settlement amount". This amount is equal to the amount
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of the exercise, multiplied by a fixed "index multiplier".
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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.
A Fund may also purchase warrants, issued by banks and other financial
institutions, whose values are based on the values from time to time of one or
more securities indices.
MARGIN PAYMENTS. When a Fund purchases or sells a futures contract, it is
required to deposit, with its custodian or with a futures commission merchant,
an amount of cash, U.S. Treasury bills, or other permissible collateral equal to
a small percentage of the amount of the futures contract. This amount is known
as "initial margin". The nature of initial margin is different from that of
margin in security transactions in that it does not involve borrowing money to
finance transactions. Rather, initial margin is similar to a performance bond or
good faith deposit that is returned to a Fund upon termination of the contract,
assuming a Fund satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Fund sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Fund's position
declines in value. The Fund then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the market price of the securities underlying the futures contract. Conversely,
if the price of the underlying security falls below the delivery price of the
contract, the Fund's futures position increases in value. The broker then must
make a variation margin payment equal to the difference between the delivery
price of the futures contract and the market price of the securities underlying
the futures contract.
When a Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although each Fund intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such
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circumstances, an increase in the price of the portfolio securities, if any, may
partially or completely offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Fund would have to exercise the options
in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a Fund
of futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the underlying securities or
index or in the prices of a Fund's securities which are the subject of a hedge.
Schroder will, however, attempt to reduce this risk by purchasing and selling,
to the extent possible, futures contracts and related options on securities and
indices the movements of which will, in its judgment, correlate closely with
movements in the prices of the underlying securities or index and a Fund's
portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Fund for hedging
purposes is also subject to Schroder's ability to predict correctly movements in
the direction of the market. It is possible that, where a Fund has purchased
puts on futures contracts to hedge its portfolio against a decline in the
market, the securities or index on which the puts are purchased may increase in
value and the value of securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the puts and also experience a decline in
value in its portfolio securities. In addition, the prices of futures, for a
number of reasons, may not correlate perfectly with movements in the underlying
securities or index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
security or index and futures markets. Second, the margin requirements in the
futures markets are less onerous than margin requirements in the securities
markets in general, and as a result the futures markets may attract more
speculators than the securities markets do. Increased participation by
speculators in the futures markets may also cause temporary price distortions.
Due to the possibility of price distortion, even a correct forecast of general
market trends by Schroder may still not result in a successful hedging
transaction over a very short time period.
LACK OF AVAILABILITY. Because the markets for certain options and futures
contracts and other derivative instruments in which a Fund may invest (including
markets located in foreign countries) are relatively new and still developing
and may be subject to regulatory restraints, a Fund's ability to engage in
transactions using such instruments may be limited. Suitable derivative
transactions may not be available in all circumstances and there is no assurance
that a Fund will engage in such transactions at any time or from time to time. A
Fund's ability to engage in hedging transactions may also be limited by certain
regulatory and tax considerations.
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OTHER RISKS. Each Fund will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures may be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the portfolio position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss.
SHORT SALES
Each of the Funds may seek to hedge investments or realize additional gains
through short sales. Short sales are transactions in which a Fund sells a
security it does not own, in anticipation of a decline in the market value of
that security. To complete such a transaction, a Fund must borrow the security
to make delivery to the buyer. A Fund then is obligated to replace the security
borrowed by purchasing it at the market price at or prior to the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by a Fund. Until the security is replaced, a Fund is
required to repay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, a Fund also may be required to pay a
premium, which would increase the cost of the security sold. The net proceeds of
the short sale will be retained by the broker (or by the Fund's custodian in a
special custody account), to the extent necessary to meet margin requirements,
until the short position is closed out. A Fund also will incur transaction costs
in effecting short sales.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. A Fund may realize a gain if the security
declines in price between those dates. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of the premium, dividends,
interest or expenses a Fund may be required to pay in connection with a short
sale. A Fund's loss on a short sale could theoretically be unlimited in a case
where the Fund is unable, for whatever reason, to close out its short position.
There can be no assurance that a Fund will be able to close out a short position
at any particular time or at an acceptable price. In addition, short positions
may result in a loss if a portfolio strategy of which the short position is a
part is otherwise unsuccessful.
FORWARD COMMITMENTS
Each Fund may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Fund holds, and maintains until the settlement date in a segregated account,
cash or liquid securities in an amount sufficient to meet the purchase price, or
if the Fund enters into offsetting contracts for the forward sale of other
securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price.
Although a Fund will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, a Fund may
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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.
CERTAIN INVESTMENTS IN FIXED-INCOME SECURITIES
In addition to Schroder Total Return Fixed Income Fund (which invests
primarily in fixed-income securities), each of the remaining Funds may invest a
portion of its assets in fixed-income securities if Schroder believes they would
help achieve the Fund's objective. The general risks associated with investments
in fixed-income securities are described in the Prospectuses. Fixed-income
securities in which these remaining Funds 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 Ratings Services or, if unrated, determined by Schroder at the
time of investment to be of comparable quality. Securities rated Baa or BBB lack
outstanding investment characteristics, have speculative characteristics, and
are subject to greater credit and market risks than higher-rated securities. A
description of the various ratings assigned to fixed-income securities by
Moody's and Standard & Poor's is included in Appendix A to this SAI. These Funds
may also hold a portion of their assets in cash or money market instruments.
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, 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
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Fund makes the commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the amount due and the value of the security
in determining the Fund's net asset value. The market value of the when-issued
securities may be more or less than the purchase price payable at the settlement
date. Each Fund will establish a segregated account in which it will maintain
cash and U.S. Government securities or other liquid securities at least equal in
value to commitments for when-issued securities. Such segregated securities
either will mature or, if necessary, be sold on or before the settlement date.
LOANS OF FUND PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Fund may at any time
call the loan and regain the securities loaned; (3) the Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of the Fund's portfolio securities loaned will not at any time
exceed 25% of the total assets of the Fund. In addition, it is anticipated that
the Fund may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan. Before a
Fund enters into a loan, Schroder considers all relevant facts and
circumstances, including the creditworthiness of the borrower. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. Although voting rights or
rights to consent with respect to the loaned securities pass to the borrower, a
Fund retains the right to call the loans at any time on reasonable notice, and
it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. A Fund will not lend portfolio securities
to borrowers affiliated with that Fund.
FOREIGN SECURITIES
Each Fund may invest without limit in securities principally traded in
foreign markets. It is not currently expected that any of the Funds will invest
in securities of foreign issuers to a substantial degree, except that Schroder
Total Return Fixed Income Fund may invest up to 20% of its assets in debt
securities denominated in currencies other than the U.S. dollar, including up to
10% of its assets in securities of developing countries and of private issuers
in those countries. Each Fund may also invest without limit in Eurodollar
certificates of deposit and other certificates of deposit issued by United
States branches of foreign banks and foreign branches of United States banks.
Investments in foreign securities may involve risks and considerations
different from or in addition to investments in domestic securities. There may
be less information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of a Fund's assets held abroad) and expenses not present in the
settlement of domestic investments. Also, because foreign securities are
normally denominated and traded in foreign currencies, the values of a Fund's
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assets may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations, and a Fund may incur costs in connection with
conversion between currencies.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, imposition of
currency exchange controls, adoption of foreign governmental restrictions
affecting the payment of principal and interest, imposition of withholding or
confiscatory taxes, political or financial instability, and adverse political,
diplomatic or economic developments which could affect the values of investments
in those countries. In certain countries, legal remedies available to investors
may be more limited than those available with respect to investments in the
United States or other countries and it may be more difficult to obtain and
enforce a judgment against a foreign issuer. Also, the laws of some foreign
countries may limit a Fund's ability to invest in securities of certain issuers
located in those countries. Special tax considerations apply to foreign
securities.
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.
FOREIGN CURRENCY TRANSACTIONS
Each Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of that Fund
generally arising in connection with the purchase or sale of its portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging, a Fund will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes, a Fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives a Fund the
right to assume a short position in the futures contract until expiration of the
option. A put option on currency gives a Fund the right to sell a currency at an
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exercise price until the expiration of the option. A call option on a futures
contract gives a Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives a
Fund the right to purchase a currency at the exercise price until the expiration
of the option. A Fund will engage in over-the-counter transactions only when
appropriate exchange-traded transactions are unavailable and when, in Schroder's
opinion, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by a Fund are denominated or are quoted in
their principal trading markets or an increase in the value of currency for
securities which a Fund expects to purchase. In connection with position
hedging, a Fund may purchase put or call options on foreign currency and foreign
currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. A Fund may also purchase or sell foreign currency on
a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of a Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency a Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or securities
of a Fund if the market value of such security or securities exceeds the amount
of foreign currency a Fund is obligated to deliver.
To offset some of the costs to a Fund of hedging against fluctuations in
currency exchange rates, a Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency. Also, suitable foreign currency hedging transactions may not be
available in all circumstances and there can be no assurance that a Fund will
utilize hedging transactions at any time or from time to time.
A Fund may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
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CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund may either accept
or make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, a Fund would continue to be required to make
daily cash payments of 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
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than those that may be involved in the use of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should a Fund desire to resell
that currency to the dealer.
WARRANTS TO PURCHASE SECURITIES
The Funds may purchase warrants to purchase securities. Bonds issued with
warrants attached to purchase equity securities have many characteristics of
convertible bonds and their prices may, to some degree, reflect the performance
of the underlying stock. Bonds may also be issued with warrants attached to
purchase additional fixed income securities at the same coupon rate. A decline
in interest rates would permit the Fund to buy additional bonds at the favorable
rate or to sell the warrants at a profit. If interest rates were to rise, the
warrants would generally expire with no value.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Fund may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of shares of a Fund
investing in zero-coupon securities may fluctuate over a greater range than
shares of other Funds of the Trust and other mutual funds investing in
securities making current distributions of interest and having similar
maturities. A Fund investing in zero-coupon bonds is required to distribute the
income on these securities as the income accrues, even though the Fund is not
receiving the income in cash on a current basis. Thus, the Fund may have to sell
other investments, including when it may not be advisable to do so, to make
income distributions.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have 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
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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.
TEMPORARY DEFENSIVE STRATEGIES
As described in the Prospectuses, Schroder may at times judge that
conditions in the securities markets make pursuing a Fund's basic investment
strategies inconsistent with the best interests of its shareholders and may
temporarily use alternate investment strategies primarily designed to reduce
fluctuations in the value of a Fund's assets. In implementing these "defensive"
strategies, the Fund would invest in high-quality debt securities, cash, or
money market instruments to any extent Schroder considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, a Fund
will use these alternate strategies. One risk of taking such temporary defensive
positions is that the Fund may not achieve its investment objective.
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.
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INVESTMENT RESTRICTIONS
The Funds have adopted the following fundamental 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 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:
1. (a) (FOR ALL FUNDS EXCEPT THE LARGE CAPITALIZATION EQUITY FUND).
Borrow money, except to the extent permitted by applicable law.
(b) (FOR THE LARGE CAPITALIZATION EQUITY FUND ONLY). Borrow money
in excess of 10% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from
banks as a temporary measure (not for leverage) in situations
which might otherwise require the untimely disposition of
portfolio investments or for extraordinary or emergency purposes.
Such borrowings will be repaid before any additional investments
are purchased.
2. (FOR THE LARGE CAPITALIZATION EQUITY FUND ONLY). 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(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 THE LARGE CAPITALIZATION EQUITY FUND ONLY). 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 THE LARGE CAPITALIZATION EQUITY FUND ONLY). 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. (a) (FOR ALL FUNDS EXCEPT THE LARGE CAPITALIZATION EQUITY FUND).
As to 75% of its assets, invest in a security if, as a result of
such investment, it would hold more than 10% (taken at the time
of such investment) of the outstanding voting securities of any
one 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 or to
securities of other investment companies.
(b) (FOR THE LARGE CAPITALIZATION EQUITY FUND ONLY). 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 THE LARGE CAPITALIZATION EQUITY FUND ONLY). 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 THE LARGE CAPITALIZATION EQUITY FUND ONLY). 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
-19-
<PAGE>
arrangement with respect to options, futures contracts, options
on futures contracts, or other financial instruments, or with
respect to initial or variation margin; and the purchase or sale
of, or the Fund's otherwise entering into, options, forward
contracts, futures contracts, options on futures contracts, or
other financial instruments.)
In addition, it is contrary to the Trust's present policy, which may be
changed without shareholder approval, for any of the Funds to invest more than
15% of its net assets in securities which are not readily marketable, including
securities restricted as to resale (other than securities restricted as to
resale but determined by the Trustees, or persons designated by the Trustees to
make such determinations, to be readily marketable).
-------------------
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for investment restrictions 1 through 15 listed above, the other investment
policies and the investment objectives described in the Prospectus and this SAI
are not fundamental and may be changed by the Trustees without shareholder
approval. As a matter of policy, except with respect to Schroder Total Return
Fixed Income Fund, 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. Subject to such policies as the Trustees may determine,
Schroder furnishes a continuing investment program for each Fund and makes
investment decisions on its behalf. Subject to the control of the Trustees,
Schroder also manages the Funds' other affairs and business.
The Trustees and executive officers of the Trust and their principal
occupations during the last five years are set forth below. The mailing address
of each of the officers and Trustees is 787 Seventh Avenue, New York, New York
10019.
David N. Dinkins, Trustee. 72. Trustee, Schroder Capital Funds and Schroder
Capital Funds (Delaware). Professor, Columbia University School of International
and Public Affairs. Director, American Stock Exchange, Carver Federal Savings
Bank, Transderm Laboratory Corporation, and The Cosmetics Center, Inc. Formerly,
Mayor, City of New York.
Peter E. Guernsey, Trustee. 78. Trustee, Schroder Capital Funds, Schroder
Capital Funds (Delaware), and Schroder Series Trust II. Formerly, Senior Vice
President, Marsh & McLennan, Inc.
(*) Sharon L. Haugh, Trustee and Chairman of the Trust. 54. Trustee, and
Chairman, Schroder Capital Funds, Schroder Capital Funds (Delaware), and
Schroder Series Trust II. Director and Chairman, Schroder. Director and
Chairman, Schroder Fund Advisors Inc.
John I. Howell, Trustee. 83. Trustee, Schroder Capital Funds, Schroder
Capital Funds (Delaware), and Schroder Series Trust II. Director, American
International Life Assurance Company of New York. Private consultant since 1987.
-20-
<PAGE>
Peter S. Knight, Trustee. 49. Trustee, Schroder Capital Funds and Schroder
Capital Funds (Delaware). Partner, Wunder, Knight, Levine, Thelen & Forscey.
Director, Comsat Corp., Medicis Pharmaceutical Corp., and Whitman Education
Group, Inc. Formerly, Campaign Manager, Clinton/Gore '96.
(*)Catherine A. Mazza, Trustee, Vice Chairman, and Vice President of the
Trust. 40. Director and Senior Vice President, Schroder. Executive Vice
President and Director, Schroder Fund Advisors Inc. Trustee, Vice Chairman, and
Vice President, Schroder Capital Funds, Schroder Capital Funds (Delaware), and
Schroder Series Trust II. Formerly, Vice President, Alliance Capital Management
L.P.
William L. Means, Trustee. 64. Trustee, Schroder Capital Funds, Schroder
Capital Funds (Delaware), and Schroder Series Trust II. Formerly, Chief
Investment Officer, Alaska Permanent Fund Corporation.
Clarence F. Michalis, Trustee. 78. Trustee, Schroder Capital Funds and
Schroder Capital Funds (Delaware). Chairman of the Board of Directors, Josiah
Macy, Jr. Foundation.
Hermann C. Schwab, Trustee. 80. Trustee, Schroder Capital Funds and
Schroder Capital Funds (Delaware). Trustee, St. Luke's/Roosevelt Hospital
Center. Formerly, consultant to Schroder Capital Management International Inc.
Alexandra Poe, President of the Trust. 39. First Vice President, Schroder.
Senior Vice President, Secretary, and General Counsel, Schroder Fund Advisors
Inc. President, Schroder Capital Funds, Schroder Capital Funds (Delaware), and
Schroder Series Trust II. Formerly, Attorney, Gordon, Altman, Butowsky, Weitzen,
Shalov & Wein and Vice President and Counsel, Citibank, N.A.
Jane P. Lucas, Vice President of the Trust. 39. Senior Vice President,
Schroder.
Robert C. Michele, Vice President of the Trust. 40. Director and Managing
Director. Schroder. Formerly, Managing Director and Portfolio Manager, Black
Rock Financial Management and Director, CS First Boston Investment Management.
Alan Mandel, Clerk, Treasurer, and Chief Financial Officer of the Trust.
42. Secretary, Treasurer, and Chief Financial Officer of Schroder Capital Funds,
Schroder Capital Funds (Delaware), and Schroder Series Trust II. First Vice
President, Schroder. Formerly, Director of Mutual Fund Administration for
Salomon Brothers Asset Management, and prior thereto, Chief Financial Officer
and Vice President of Hyperion Capital Management.
Carin Muhlbaum, Assistant Clerk of the Trust. 37. Assistant Secretary,
Schroder Capital Funds and Schroder Capital Funds (Delaware). Vice President,
Schroder. Formerly, an investment management attorney with Seward & Kissel and
prior thereto, with Gordon Altman Butowsky Weitzen Shalov & Wein.
Barbara Gottlieb, Assistant Clerk of the Trust. 46. Assistant Secretary,
Schroder Capital Funds and Schroder Capital Funds (Delaware). Vice President,
Schroder.
Nicholas Rossi, Assistant Clerk of the Trust. 36. Assistant Clerk, Schroder
Capital Funds and Schroder Capital Funds (Delaware). Associate, Schroder.
Assistant Vice President, Schroder Fund Advisors Inc. Formerly, Mutual Fund
Specialist, Willkie Farr & Gallagher and Fund Administrator, Furman Selz LLC.
-21-
<PAGE>
---------------------
(*) Trustee who is an "interested person" (as defined in the Investment
Company Act) of the Trust, Schroder, or Schroder Fund Advisors Inc.
Except as otherwise noted, the principal occupations of the Trustees and
officers for the last five years have been with the employers shown above,
although in some cases they have held different positions with such employers or
their affiliates.
Trustees who are not "interested persons" (as defined in the Investment
Company Act) of the Trust, Schroder, or Schroder Fund Advisors Inc.
("Disinterested Trustees") receive an annual retainer of $11,000 for their
services as Trustees of all open-end investment companies distributed by
Schroder Fund Advisors Inc. with the exception of Schroder Series Trust II, and
$1,250 per meeting attended in person or $500 per meeting attended by telephone.
Members of an Audit Committee for one or more of such investment companies
receive an additional $1,000 per year. Payment of the annual retainer is
allocated among such investment companies based on their relative net assets.
Payments of meeting fees are allocated only among those investment companies to
which the meeting relates.
The table below sets forth information regarding compensation paid for the
fiscal year ended October 31, 1999 to the Disinterested Trustees by the Trust
and other funds in the Schroder "Fund Complex" (as defined below).
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3)
NAME OF AGGREGATE TOTAL COMPENSATION
TRUSTEE COMPENSATION FROM TRUST AND
FROM TRUST FUND COMPLEX PAID TO
TRUSTEES*
<S> <C> <C>
David N. Dinkins $3,691 $16,250
Peter E. Guernsey $3,847 $26,500
John I. Howell $4,557 $29,000
Peter S. Knight $3,847 $17,000
William L. Means** $3,847 $26,500
Clarence F. Michalis $3,847 $17,000
Hermann C. Schwab $3,847 $17,000
------------------------------------------------------------------------
</TABLE>
* The Total Compensation listed in column (3) for each Trustee includes
compensation for services as a Trustee of the Trust, Schroder Capital Funds
("SCF"), Schroder Capital Funds II ("SCF II"), Schroder Capital Funds (Delaware)
("SCFD"), and Schroder Series Trust II ("SST II"). The Trust, SCF, SCF II, SCFD,
and SST II are considered part of the same
-22-
<PAGE>
"Fund Complex" for these purposes. SCF II ceased operations and was
substantially liquidated in July 1999.
** Mr. Means was elected Trustee of the Trust on December 15, 1998.
The 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.
SCHRODER AND ITS AFFILIATES
Schroder (together with its predecessors) has served as the investment
adviser for each of the Funds since its inception. Schroder is a wholly owned
subsidiary of Schroder U.S. Holdings Inc., which engages through its subsidiary
firms in the asset management businesses. Affiliates of Schroder U.S. Holdings
Inc. (or their predecessors) have been investment managers since 1927. Schroder
U.S. Holdings Inc. is an indirect, wholly owned U.S. subsidiary of Schroders
plc, a publicly owned holding company organized under the laws of England.
Schroders plc and its affiliates currently engage in asset management
businesses, and as of June 30, 1999, had under management assets of
approximately $208 billion. Schroder's address is 787 Seventh Avenue, New York,
New York 10019.
In May 2000, Schroders plc sold its worldwide investment banking business
to Salomon Smith Barney. Schroders plc retained its asset management businesses.
Schroder Fund Advisors Inc., the Trust's principal underwriter, is a wholly
owned subsidiary of Schroder.
MANAGEMENT CONTRACTS
Under Amended and Restated 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 of its Trustees regarding the conduct of business of the Trust and
each Fund.
Under the Management Contracts, Schroder is required to regularly provide
the Funds with investment research, advice, and supervision, and continuously
furnishes 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, 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.
-23-
<PAGE>
Schroder makes available to the Trust, without additional expense to the
Trust, the services of such of its directors, officers, and employees as may
duly be elected Trustees or officers of the Trust, subject to their individual
consent to serve and to any limitations imposed by law. Schroder pays the
compensation and expenses of officers and executive employees of the Trust.
Schroder also provides investment advisory research and statistical facilities
and all clerical services relating to such research, statistical, and investment
work. Schroder pays the Trust's office rent.
Under the 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.
The Management Contracts provide that Schroder shall not be subject to any
liability for any error of judgment or mistake of law or for any loss suffered
by the Trust in connection with rendering services to the Trust in the absence
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
its duties.
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 Management 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.
RECENT INVESTMENT ADVISORY FEES. For its fiscal years ended October 31,
1999, 1998, and 1997, respectively, pursuant to the relevant Management
Contract, each Fund paid fees to Schroder as follows (reflecting reductions in
such fees pursuant to expense limitations and/or waivers in effect during such
periods): Schroder Large Capitalization Equity Fund - $320,688, $336,444, and
$386,774; Schroder Small Capitalization Value Fund - $602,520, $849,196, and
$738,419; Schroder Total Return Fixed Income Fund (formerly Schroder Investment
Grade Income Fund) - $0, $56,085, and $68,842;
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<PAGE>
Schroder Short-Term Investment Fund - $66,578, $88,011, and $115,947; and
Schroder MidCap Value Fund $0, $0, and $0.
Schroder waived its fees in the following amounts during the fiscal years
ended October 31, 1999, 1998, and 1997, respectively, pursuant to expense
limitations and/or waivers in effect during such periods: Schroder Large
Capitalization Equity Fund - $197,751, $92,467, and $0; Schroder Small
Capitalization Value Fund - $25,571, $13,941, and $0; Schroder Total Return
Fixed Income Fund - $135,703, $98,978, and $51,045; Schroder Short-Term
Investment Fund - $45,235, $26,333, and $8,528; and Schroder MidCap Value Fund
$125,949, $104,762, and $14,908. Schroder paid an additional $21,954 in fiscal
1999, $25,506 in fiscal 1998, and $34,610 in fiscal 1997 in other Fund expenses
with respect to Schroder MidCap Value Fund in order to effect the expense
limitation for that Fund.
ADMINISTRATIVE SERVICES
On behalf of each Fund, the Trust has entered into an administration
agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street provides administrative services necessary for the operation
of the Funds, including recordkeeping, preparation of shareholder
communications, assistance with regulatory compliance (such as reports to and
filings with the Securities and Exchange Commission and state securities
commissions), preparation and filing of tax returns, preparation of the Trust's
periodic financial reports, and certain other fund accounting services.
Under the administration agreement, the Trust and other funds managed by
Schroder pay complex-wide fees according to the following annual rates based on
the combined average daily net assets of such funds: 0.06% of the first $1.7
billion of such assets, 0.04% of the next $1.7 billion of such assets, and 0.02%
of such assets in excess of $3.4 billion, subject to certain minimum
requirements. Prior to June 1, 1999, the Trust paid compensation to State Street
under the agreement at the following annual rates based on the average daily net
assets of each Fund taken separately: 0.08% of the first $125 million of such
assets, 0.06% of the next $125 million of such assets, and 0.04% of such assets
in excess of $250 million, subject to certain minimum requirements.
For the fiscal years ended October 31, 1999, 1998, and 1997, respectively,
each Fund paid the following fees to State Street under the administration
agreement: Schroder Large Capitalization Equity Fund - $81,894, $76,431, and
$72,691; Schroder Small Capitalization Value Fund - $78,559, $115,327, and
$105,979; Schroder Total Return Fixed Income Fund - $34,405, $39,562, and
$37,328; Schroder Short-Term Investment Fund - $36,320, $41,377, and $46,312;
and Schroder MidCap Value Fund $16,530, $17,015, and $6,938.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Schroder Fund Advisors
Inc. (the "Distributor"), 787 Seventh Avenue, New York, New York 10019, serves
as the distributor for the Trust's continually offered shares. The Distributor
pays all of its own expenses in performing its obligations under the
Distribution Agreement. The Distributor is not obligated to sell any specific
amount of shares of any Fund. Please see "Schroder and its Affiliates" for
ownership information regarding the Distributor.
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<PAGE>
SHAREHOLDER SERVICING PLAN FOR ADVISOR SHARES. Each Fund had previously
adopted a Shareholder Servicing Plan (the "Service Plan") for the Advisor Shares
of the Fund. Effective June 23, 2000, the Advisor Shares of each Fund were
recapitalized to Investor Shares, such that no Fund presently has any Advisor
shares outstanding.
In the fiscal years ended October 31, 1999, 1998 and 1997, respectively,
the Funds paid the following amounts to the Distributor under the Service Plan,
all of which was, in turn, paid by the Distributor to service organizations:
Schroder Large Capitalization Equity Fund - $82, $0, and $0; Schroder Small
Capitalization Value Fund - $298, $56, and $10; Schroder Total Return Fixed
Income Fund - $0, $0, and $0; and Schroder MidCap Value Fund $35, $0, and $0.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Schroder may place portfolio transactions with broker-dealers which
furnish, without cost, certain research, statistical, and quotation services of
value to Schroder and its affiliates in advising the Trust and other clients,
provided that it shall always seek best price and execution with respect to
transactions. Certain investments may be appropriate for the Trust and for other
clients advised by Schroder. Investment decisions for the Trust and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment, and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients of Schroder on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by Schroder to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Trust. Purchase and sale orders for the Trust may be
combined with those of other clients of Schroder in the interest of achieving
the most favorable net results for the Trust.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges and
other agency transactions involve the payment by the Trust of negotiated
brokerage commissions. Such commissions vary among different brokers. Also, a
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in foreign securities
often involve the payment of fixed brokerage commissions, which are generally
higher than those in the United States, and therefore certain portfolio
transaction costs may be higher than the costs for similar transactions executed
on U.S. securities exchanges. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price paid by
the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
Schroder places all orders for the purchase and sale of portfolio
securities and buys and sells securities through a substantial number of brokers
and dealers. In so doing, it uses its best efforts to obtain the best price and
execution available. In seeking the best price and execution, Schroder considers
all factors it deems relevant, including price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction (taking into
-26-
<PAGE>
account market prices and trends), the reputation, experience, and financial
stability of the broker-dealer involved, and the quality of service rendered
by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers
that execute portfolio transactions for the clients of such advisers. Consistent
with this practice, Schroder receives research, statistical, and quotation
services from many broker-dealers with which it places the Trust's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services are of value to
Schroder and its affiliates in advising various of their clients (including the
Trust), although not all of these services are necessarily useful and of value
in managing a Fund. The investment advisory fee paid by a Fund is not reduced
because Schroder and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "Securities Exchange Act"), and by the Management Contracts,
Schroder may cause a Fund to pay a broker that provides brokerage and research
services to Schroder an amount of disclosed commission for effecting a
securities transaction for a Fund in excess of the commission which another
broker would have charged for effecting that transaction. Schroder's authority
to cause a Fund to pay any such greater commissions is also subject to such
policies as the Trustees may adopt from time to time.
To the extent permitted by law, the Funds may engage in brokerage
transactions with brokers that are affiliates of Schroder. Consistent with
regulations under the Investment Company Act, the Funds have adopted procedures
which are reasonably designed to provide that any commissions or other
remuneration the Funds pay to any affiliated broker do not exceed the usual and
customary broker's commission. The procedures require periodic review of these
transactions by the Trustees. In addition, the Funds will adhere to the rule,
under the Securities Exchange Act, governing floor trading. This rule permits
the Funds to effect, but not execute, exchange listed securities transactions
with an affiliated broker who pays a portion of the brokerage commissions it
receives from a Fund to the brokers executing the transactions.
The following table shows the aggregate brokerage commissions paid by each
Fund during the three most recent fiscal years.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
BROKERAGE BROKERAGE BROKERAGE
COMMISSIONS PAID COMMISSIONS PAID COMMISSIONS PAID
DURING FISCAL DURING FISCAL DURING FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FUND 10/31/99 10/31/98 10/31/97
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Schroder Large Capitalization Equity Fund $115,789 $94,703 $70,042
-----------------------------------------------------------------------------------------------------------------------------
Schroder Small Capitalization Value Fund $296,970 $316,011 $206,472
-----------------------------------------------------------------------------------------------------------------------------
Schroder MidCap Value Fund $68,666 $71,042 $17,043
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-27-
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Schroder Total Return Fixed Income Fund $0 $0 $0
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table shows information regarding Fund transactions placed
with brokers and dealers during the fiscal year ended October 31, 1999
identified as having been executed on the basis of research and other services
provided by the broker or dealer.
<TABLE>
<CAPTION>
Total Dollar Value of Commissions Paid with
Fund Such Transactions Respect to Such Transactions
---- ----------------- ----------------------------
<S> <C> <C>
Schroder Large $26,391,264 $29,920 (which amount represents approximately
Capitalization Equity 23.45% of the total brokerage commissions
Fund paid by the Fund)
Schroder Small $6,052,837 $16,929 (which amount represents approximately 3.84%
Capitalization Value of the total brokerage commissions paid by the
Fund Fund)
Schroder MidCap $714,249 $1,086 (which amount represents approximately 1.26%
Value Fund of the total brokerage commissions paid by the
Fund)
</TABLE>
Funds that are not listed in the table did not pay any commissions
related to brokerage or research services for the stated periods, although,
during the fiscal year ended October 31, 1999, Schroder Total Return Fixed
Income Fund received related credits in the amount of $1,169 derived from
selling concessions on purchases of new corporate debt issues in transactions
totaling $3,271,495.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of shares of each Fund is
determined daily as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern Time) on each day the Exchange is open for trading.
The Trustees have established procedures for the valuation of a Fund's
securities, which are summarized as follows:
Equities listed or traded on a domestic or foreign stock exchange
(including the National Association of Securities Dealers' Automated Quotation
System ("NASDAQ")) for which last sales information is regularly reported are
valued at their last reported sales prices on such exchange on that day or, in
the absence of sales that day, such securities are valued at the mean of the
closing bid and ask prices ("mid-market price") or, if none, the last sales
price on the preceding trading day. (Where the securities are traded on more
than one exchange, they are valued on the exchange on which the security is
primarily traded.) Securities purchased in an initial public offering and which
have not commenced trading in a secondary market are valued at cost. Unlisted
securities for which over-the- counter market quotations are readily available
generally are valued at the most recently reported mid- market prices. Fixed
income securities with remaining maturities of more than 60 days are valued on
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<PAGE>
the basis of valuations provided by pricing services that determine valuations
for normal institutional size trading units of fixed income securities, or
through obtaining independent quotes from market makers. Short-term fixed income
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value, unless Schroder believes another
valuation is more appropriate. Securities for which current market quotations
are not readily available are valued at fair value pursuant to procedures
established by the Trustees.
All assets and liabilities of a Fund denominated in foreign currencies are
translated into U.S. Dollars based on the mid-market price of such currencies
against the U.S. Dollar at the time when last quoted.
Long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, and certain foreign securities may be stated at fair value on the
basis of valuations furnished by pricing services, which determine valuations
for normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities.
If any securities held by a Fund are restricted as to resale, Schroder will
obtain a valuation based on the current bid for the restricted security from one
or more independent dealers or other parties reasonably familiar with the facts
and circumstances of the security. If Schroder is unable to obtain a fair
valuation for a restricted security from an independent dealer or other
independent party, a pricing committee (comprised of certain directors and
officers at Schroder) shall determine the bid value of such security. The
valuation procedures applied in any specific instance are likely to vary from
case to case. However, consideration is generally given to the financial
position of the issuer and other fundamental analytical data relating to the
investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the Trust
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities, and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Trust's shares are computed as of such times. Also, because
of the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds and U.S. Government securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of the Trust's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value, in the manner described
above.
The proceeds received by each Fund for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Fund, and constitute
the underlying assets of that Fund. The underlying assets of each Fund will be
segregated on the Trust's books of account, and will be charged with the
liabilities
-29-
<PAGE>
in respect of such Fund and with a share of the general liabilities of the
Trust. Each Fund's assets will be further allocated among its constituent
classes of shares on the Trust's books of account. Expenses with respect to any
two or more Funds or classes may be allocated in proportion to the net asset
values of the respective Funds or classes except where allocations of direct
expenses can otherwise be fairly made to a specific Fund or class.
REDEMPTIONS IN KIND
The Trust had agreed to redeem shares of each Fund solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust may pay any redemption proceeds exceeding this amount in
whole or in part by a distribution in kind of securities held by a Fund in lieu
of cash. The Trust does not expect to redeem shares in kind under normal
circumstances. If your shares are redeemed in kind, you should expect to incur
transaction costs upon the disposition of the securities received in the
distribution.
TAXES
Each Fund intends to qualify each year and elect to be taxed as a regulated
investment company under Subchapter M of the United States Internal Revenue Code
of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Fund will not be subject to federal income tax
on any of its net investment income or net realized capital gains that are
distributed to shareholders.
In order to qualify as a "regulated investment company," a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies,
and (b) diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any issuer (other than U.S. Government securities).
If a Fund fails to distribute in a calendar year substantially all of its
ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if a Fund is
permitted so to elect and so elects), plus any retained amount from the prior
year, that Fund will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by a Fund in January of a year generally is
deemed to have been paid by that Fund on December 31 of the preceding year, if
the dividend was declared and payable to shareholders of record on a date in
October, November, or December of that preceding year. Each Fund intends
generally to make distributions sufficient to avoid imposition of the 4% excise
tax. In order to receive the favorable tax treatment accorded regulated
investment companies and their shareholders, moreover, a Fund must in general
distribute with respect to each taxable year at least 90% of the sum
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<PAGE>
of its taxable net investment income, its net tax-exempt income, and, the
excess, if any, of net short-term capital gains over net long-term capital
losses for such year.
A Fund's distributions will be taxable to you as ordinary income to the
extent derived from the Fund's investment income and net short-term gains (that
is, net gains from capital assets held for no more than one year). Distributions
designated by a Fund as deriving from net gains on capital assets held for more
than one year will be taxable to you as long-term capital gains (generally
subject to a 20% tax rate), regardless of how long you have held the shares.
Distributions will be taxable to you as described above whether received in cash
or in shares through the reinvestment of distributions. Early in each year the
Trust will notify each shareholder of the amount and tax status of distributions
paid to the shareholder by each of the Funds for the preceding year. Dividends
and distributions on a Fund's shares are generally subject to federal income tax
as described herein to the extent they do not exceed the Fund's realized income
and gains, even though such dividends and distributions may economically
represent a return of a particular shareholder's investment. Such distributions
are likely to occur in respect of shares purchased at a time when a Fund's net
asset value reflects gains that are either unrealized, or realized but not
distributed. Such realized gains may be required to be distributed even when a
Fund's net asset value also reflects unrealized losses.
Upon the disposition of shares of a Fund (whether by sale, exchange, or
redemption), a shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Long-term capital gains will
generally be taxed at a federal income tax rate of 20%. Any loss realized by a
shareholder on a disposition of shares held by the shareholder for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares. In general, any loss realized upon a taxable disposition of
shares will be treated as long-term capital loss if the shares have been held
for more than one year, and otherwise as short-term capital loss. In addition,
any loss realized on a sale or exchange of shares will be disallowed to the
extent that you replace the disposed of shares with shares of the same or
another Fund within a period of 61 days beginning 30 days before and ending 30
days after the date of disposition.
With respect to investment income and gains received by a Fund from sources
outside the United States, such income and gains may be subject to foreign taxes
which are withheld at the source. The effective rate of foreign taxes in which a
Fund will be subject depends on the specific countries in which its assets will
be invested and the extent of the assets invested in each such country and,
therefore, cannot be determined in advance. In addition, a Fund's investments in
foreign securities or foreign currencies may increase or accelerate the Fund's
recognition of ordinary income and may affect the timing or amount of the Fund's
distributions.
If a Fund is liable for foreign taxes, and if more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of stocks or
securities of foreign corporations, the Fund may make an election to permit its
shareholders to claim a credit or deduction on their income tax returns for
their pro rata portion of qualified taxes paid by the Fund to foreign countries.
In such a case, shareholders would include in gross income from foreign sources
their pro rata share of such taxes. Shareholders then may take a foreign tax
credit against their U.S. Federal income tax liability for the amount of such
foreign taxes or else deduct such foreign taxes as an itemized deduction from
gross
-31-
<PAGE>
income, subject to certain limitations (including, with respect to a foreign tax
credit, a holding period requirement).
If a Fund engages in hedging transactions, including hedging transactions
in options, futures contracts, and straddles, or other similar transactions, it
will be subject to special tax rules (including constructive sale,
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. Each Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
Fund.
Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which a Fund has invested and their
face value ("original issue discount") is considered to be income to the Fund
each year, even though the Fund will not receive cash interest payments from
these securities. This original issue discount (imputed income) will comprise a
part of the net investment income of the Fund which must be distributed to
shareholders in order to maintain the qualification of the Fund as a regulated
investment company and to avoid federal income tax at the level of the Fund.
A Fund may be required to withhold 31% of certain of your dividends if you
have not provided the Fund with your correct taxpayer identification number
(normally your Social Security number), or if you are otherwise subject to
back-up withholding.
In order to permit Schroder Total Return Fixed 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 Total Return Fixed 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.
This discussion of the federal income tax and state tax treatment of the
Trust and its shareholders is based on the law as of the date of this SAI. The
foregoing is primarily a summary of certain federal tax consequences of
investing in a Fund. You should consult your tax advisor for more information
about your own tax situation, including possible state and local taxes.
-32-
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
To the knowledge of the Trust, as of February 18, 2000, the Trustees of the
Trust and, except as noted below, the officers of the Trust, as a group owned
less than 1% of the outstanding shares of either class of each Fund.
The following table shows the percentage of the outstanding shares of each
Fund owned as of February 18, 2000 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. Owned 80.0% of the outstanding voting securities of Lewco Securities
Corp as of February 18, 2000.
<TABLE>
<CAPTION>
% of Fund Shares
Owned by
Schroder & Co. and Lewco Plans
-------------------------------
<S> <C>
Schroder Large Capitalization Equity Fund 59.23%
Schroder Small Capitalization Value Fund 26.01%
Schroder Total Return Fixed Income Fund 85.71%
(formerly, Schroder Investment Grade Fixed Income Fund)
Schroder MidCap Value Fund 55.13%
</TABLE>
Due to their ownership of shares of each Fund, the Schroder & Co. Plans and
the Lewco Plans may have been deemed to control each Fund as of February 18,
2000. The Trust has been notified that in August, 2000, a substantial portion of
those assets will be redeemed.
To the knowledge of the Trust, as of February 18, 2000, no other person
owned of record or beneficially more than 5% of the outstanding Investor or
Advisor Shares of any Fund, except as set forth below.
<TABLE>
<CAPTION>
Percentage of
Outstanding
Shares of the
Record or Beneficial Owner Fund Class Class Owned
-------------------------- ---- ----- ------------
<S> <C> <C> <C>
New York Life Trust Company Large Capitalization Investor 30.26%
William V. Zaleski, President and CEO Equity Fund
51 Madison Avenue, # 117A
New York, NY 10010-1603
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Fidelity Investments Institutional Large Capitalization Investor 25.32%
Operations Co. Equity Fund
FBO Certain Employee Benefit Plans
Robert Hunter, Vice President
100 Magellan Way #KWIC
Covington, KY 4105-1987
Jupiter & Company Large Capitalization Investor 18.31%
C/O Investors Bank & Trust Equity Fund
P.O. Box 9130
PPG 90
Boston, MA 02117-9130
State Street Bank & Trust Company Large Capitalization Investor 5.25%
Trustee of the Lewco Equity Fund
Securities Pension Plans
T26501 Attn: Paul Chwaliszewski
PO Box 351
Boston, MA 02102-0351
Bank of New York for Various Plans Large Capitalization Investor 5.14%
Lewco Securities Corp. DTD 10/1/98 Equity Fund
The Centre at Purchase
3 Manhattanville Road
Purchase, NY 10577-2166
National Investor Services Corp. Large Capitalization Advisor 79.38%
FBO Our Customers Equity Fund
55 Water Street
New York, NY 10041-3299
Lewco Securities Corp. Large Capitalization Advisor 20.62%
FBO A/C # W44-402703-1-01 Equity Fund
34 Exchange Place, 4th Floor
Jersey City, NJ 07302-3885
The Henry L. Hillman Foundation, Inc. Small Capitalization Investor 5.39%
Ronald W. Wertz, Secretary Value Fund
2000 Grant Buidling
Pittsburgh, PA 15219
Automobile Club of Michigan Small Capitalization Investor 7.16%
Paula F. Downey, Vice President Value Fund
Attn: Investment Dept.
1 Auto Club Drive
Dearborn, MI 48126-4213
Jupiter & Company Small Capitalization Investor 5.79%
C/O Investors Bank & Trust Value Fund
P.O. Box 9130
PPG 90
Boston, MA 02117-9130
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
FP VII Kinship Corporation Small Capitalization Investor 5.95%
Eric Schreiner, Vice President Value Fund
400 Skokie Blvd. South 300
Northbrook, IL 60062-7903
New York Life Trust Company Small Capitalization Investor 13.77%
William V. Zaleski, President and CEO Value Fund
51 Madison Avenue, # 117A
New York, NY 10010-1603
Fidelity Investments Institutional Small Capitalization Advisor 100%
Operations Co. Value Fund
FBO Certain Employee Benefit Plans
Robert Hunter, Vice President
100 Magellan Way #KWIC
Covington, KY 4105-1987
New York Life Trust Company MidCap Value Fund Investor 10.84%
William V. Zaleski, President and CEO
51 Madison Avenue, # 117A
New York, NY 10010-1603
Jupiter & Company MidCap Value Fund Investor 34.44%
C/O Investors Bank & Trust
P.O. Box 9130
PPG 90
Boston, MA 02117-9130
State Street Bank & Trust Company MidCap Value Fund Investor 10.05%
Trustee of the Lewco
Securities Pension Plans
T26501 Attn: Paul Chwaliszewski
PO Box 351
Boston, MA 02102-0351
Lewco Securities Corp. MidCap Value Fund Investor 5.48%
FBO A/C # W10-178249-8-01
34 Exchange Place, 4th Floor
Jersey City, NJ
07302-3885
Lewco Securities Corp. MidCap Value Fund Investor 8.15%
FBO A/C # W10-513091-8-01
34 Exchange Place, 4th Floor
Jersey City, NJ
07302-3885
Schroder Investment Management MidCap Value Fund Investor 5.14%
North America Inc.
Attn: Fergal Cassidy
787 Seventh Avenue, 34th Floor
New York, NY 10019-6081
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
FTC & Co. MidCap Value Fund Advisor 100%
Attn: Data Lynx #225
P.O. Box 173736
Denver, CO 80217-3736
New York Life Trust Company Total Return Fixed Investor 19.41%
William V. Zaleski, President and CEO Income Fund*
51 Madison Avenue, # 117A
New York, NY 10010-1603
Jupiter & Company Total Return Fixed Investor 50.47%
C/O Investors Bank & Trust Income Fund*
P.O. Box 9130
PPG 90
Boston, MA 02117-9130
State Street Bank & Trust Company Total Return Fixed Investor 12.16%
Trustee of the Lewco Income Fund*
Securities Pension Plans
T26501 Attn: Paul Chwaliszewski
PO Box 351
Boston, MA 02102-0351
Lewco Securities Corp. Total Return Fixed Investor 5.08%
FBO A/C # W10-494358-4-04 Income Fund*
34 Exchange Place, 4th Floor
Jersey City, NJ 07302-3885
* Formerly, Schroder Investment Grade
Income Fund
</TABLE>
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 Total Return Fixed Income Fund (formerly, Schroder Investment Grade
Income Fund) for the thirty-day period ended October 31, 1999 was 6.91%.
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
-36-
<PAGE>
return which would produce that amount. Total return for a period of one year or
less is equal to the actual return during that period. Total return calculations
assume reinvestment of all Fund distributions at net asset value on their
respective reinvestment dates. Total return may be presented for other periods.
ALL PERFORMANCE DATA IS BASED ON PAST INVESTMENT RESULTS AND DOES NOT
PREDICT FUTURE PERFORMANCE. Investment performance of a particular class of a
Fund's shares, which will vary, is based on many factors, including market
conditions, the composition of the Fund's portfolio, and the Fund's operating
expenses attributable to that class of shares. Investment performance also often
reflects the risks associated with a Fund's investment objectives and policies.
Quotations of yield or total return for any period when an expense limitation is
in effect will be greater than if the limitation had not been in effect. These
factors should be considered when comparing the investment results of a Fund's
shares to those of various classes of other mutual funds and other investment
vehicles. Performance for each Fund's shares may be compared to various indices.
The table below sets forth the average annual total return of Investor
Shares of the Funds for the one-year and five-year (if applicable) periods ended
October 31, 1999, and for the period from the commencement of a Fund's
operations until October 31, 1999.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
SINCE
INCEPTION INCEPTION
FUND CLASS 1 YEAR 5 YEARS OF FUND DATE OF YIELD (2)
(ANNUALIZED) FUND
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Schroder Large Investor Shares 23.35% 22.25% 18.07% 2/16/94 N/A
Capitalization
Equity Fund
---------------------------------------------------------------------------------------------------------------------------
Schroder Total Investor Shares -0.78% 6.87% 5.08% 2/22/94 6.91%
Return Fixed (1)
Income Fund
---------------------------------------------------------------------------------------------------------------------------
Schroder Small Investor Shares 3.40% 12.21% 10.17% 2/16/94 N/A
Capitalization
Value Fund
---------------------------------------------------------------------------------------------------------------------------
Schroder Investor Shares 11.98% N/A 3.84% 8/1/97 N/A
MidCap Value
Fund
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Formerly, Schroder Investment Grade Income Fund. Effective August 11, 2000,
that Fund changed its investment objective and policies as described in a
supplement to the Prospectus dated August 11, 2000. The performance results
shown above for the Fund would not necessarily have been achieved under the
Fund's new investment objective and policies.
(2) For the 30-day period ended October 31, 1999.
From time to time, Schroder and its affiliates may reduce their
compensation or assume expenses of a Fund in order to reduce the Fund's
expenses, as described in the Trust's current Prospectus. 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.
-37-
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 is the custodian of the assets of each Fund. The custodian's
responsibilities include safeguarding and controlling a Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on a Fund's investments. The custodian does not determine
the investment policies of a Fund or decide which securities a Fund will buy or
sell.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Boston Financial Data Services, Inc., 66 Brooks Drive, Braintree,
Massachusetts 02184, is the Trust's registrar, transfer agent, and dividend
disbursing agent.
INDEPENDENT ACCOUNTANTS
Pricewaterhouse Coopers LLP, the Trust's independent accountants, provide
audit services and tax return preparation services. Their address is One Post
Office Square, Boston, Massachusetts 02109.
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624,
serves as counsel to the Trust.
SHAREHOLDER LIABILITY
Under 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 a Fund would be unable to meet its
obligations.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights, and financial
statements in respect of each Fund are included in the Trust's Annual Report for
the fiscal year ended October 31, 1999 on Form N-30D under the Investment
Company Act, filed electronically with the Securities and Exchange Commission on
December 30, 1999 (File No. 811-7840; Accession No. 0000912057-99-011019). That
information was audited by Arthur Andersen LLP, the former independent
accountants to the Trust, and is incorporated by reference into this Statement
of Additional Information. Arthur Andersen LLP's consent to the use of such
information in this Registration Statement is filed as an exhibit to the
Registration Statement.
-38-
<PAGE>
APPENDIX A
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
"Aaa" Fixed-income securities which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" Fixed-income securities which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise what are
generally known as high grade fixed-income securities. They are rated lower than
the best fixed-income securities because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" Fixed-income securities which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
"Baa" Fixed-income securities which are rated "Baa" are considered as medium
grade obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed-income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated "Aaa", "Aa", "A" and "Baa" are considered
investment grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate, and
therefore not well safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest rated class of
fixed-income securities, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
A-1
<PAGE>
Rating Refinements: Moody's may apply numerical modifiers, "1", "2", and
"3" in each generic rating classification from "Aa" through "B" in its municipal
fixed-income security rating system. The modifier "1" indicates that the
security ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and a modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: "Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of
short-term promissory obligations. Issuers rated "Prime-2" have a strong
capacity for repayment of short-term promissory obligations; and Issuers rated
"Prime-3" have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS SERVICES ("STANDARD & POOR'S")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. The ratings are
based, in varying degrees, on the following considerations: (1) likelihood of
default-capacity and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms of the
obligation; (2) nature of and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity to pay
interest and repay principal and differs from the highest-rated issues only in
small degree.
"A" Fixed-income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed-income
securities in higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
A-2
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Fixed-income securities rated "AAA", "AA", "A" and "BBB" are considered
investment grade.
"BB" Fixed-income securities rated "BB" have less near-term vulnerability to
default than other speculative grade fixed-income securities. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity or willingness to
pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability to default
but presently have the capacity to meet interest payments and principal
repayments. Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon favorable business,
financial and economic conditions to meet timely payments of interest and
repayments of principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt which is assigned an actual or implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities subordinated
to senior debt which is assigned an actual or implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on which no
interest is being paid.
"NR" Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest degree of speculation. While such fixed-income securities will
likely have some quality and protective characteristics, these are out-weighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
"1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is very
strong.
"A-2" Indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3
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"A-3" Indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
A-4
