Third Quarter 2013 Long Duration Investment-Grade Bond Fund As of September 30, 2013 Quarterly Investment Report *Formerly known as the STW. Schroder Fund Advisors LLC, Member FINRA, SIPC 875 Third Avenue, New York, NY 10022-6225 (800) 730-2932 www.schroderfunds.com
Overview Fund Objective The Fund seeks to outperform the benchmark over a market cycle using our value-driven approach and investing in investment-grade fixed income securities. Fund Valuation Total net assets (all share classes) Fund Value at June 30, 2013 $44,026,085 Fund Value at September 30, 2013 $44,052,130 Source: SEI Performance Periods to September 30, 2013 Total returns (%) 3 months 1 year 3 year 5 years Since Inception* Fund (Investor) 0.98-5.86 n/a n/a 4.93 Barclays US Long Government/ Credit Bond Index -0.83-8.33 n/a n/a 0.00 Relative Performance +1.81 +2.47 n/a n/a +4.93 * Inception Date: October 3, 2011. Performance versus benchmark (%) 10.00 5.00 0.00 0.98 4.93 0.00-5.00-0.83-10.00-5.86-8.33 3m 1 yr Since Inception Fund (Investor) Barclays US Long Government/Credit Bond Index Calendar year performance (%) 2013 YTD 2012 2011 2010 2009 Investor -7.61 16.61 n/a n/a n/a Benchmark -8.74 8.78 n/a n/a n/a Source: SEI, Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Principal value and investment returns will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. For the most recent month-end performance, visit www.schroderfunds.com or call (800) 730-2932. Performance for periods less than one year is not annualized and performance of periods greater than one year is annualized. On June 24, 2013, the Schroder (the Fund ) acquired all of the assets of the STW (the Predecessor Fund ) pursuant to an Agreement and Plan of Reorganization dated May 3, 2013 (the Fund Merger ). Because the Fund had no investment operations prior to the closing of the Fund Merger, and based on the similarity of the Fund to the Predecessor Fund, the Predecessor Fund is treated as the survivor of the Fund Merger for accounting and performance reporting purposes. Accordingly, all performance and other information shown for the Fund for periods prior to the date of the Fund Merger is that of the Predecessor Fund. Page 1
Performance Review Fund Performance & Strategy The Fund outperformed its benchmark in the third quarter net of fees. Long-dated credits performed well relative to Treasuries during the third quarter as spreads versus Treasuries narrowed. Financials again led the way, outperforming other corporate sectors. Despite the strong performance of credit, the real story this quarter was in the municipal world. We substantially increased the Fund s holdings in tax-exempt municipal bonds, funded primarily by the sale of corporates. The traditional tax-exempt municipal sector has been a conspicuous laggard among investment-grade bond funds over the year, driven by significant mutual fund outflows and fears of rising interest rates. Valuations versus taxable bonds have, in our opinion, reached compelling levels especially at longer maturities. In some cases for issuers that issue in both the taxable and tax-exempt market, we have seen comparable yields. Although the portfolios in the composite are not subject to taxes, we see this as a total return opportunity in the best tradition of our value approach and have tried to express that in the portfolios accordingly. The Fund is 71% invested in credits and 21% invested in tax-exempt munis. We continue to emphasize credits based on our belief that, despite meaningful narrowing in recent years, the valuation, fundamentals and supply backdrop still favors further spread compression versus Treasuries. Page 2
Outlook and Policy Instead of constructing portfolios on what may or may not be said by Fed officials or an interpretation of economic data, we continue to build them around relative valuations. This is supplemented by our assessment of supply and demand factors driving flows. Although corporate spreads have moved a long way from the heady days of early 2009 or even mid- 2011, they are generally attractive. Broad measures of credit quality for nonfinancials remain strong although the rate of improvement has slowed noticeably. Certain sectors such as utility and energy have seen an increase in leverage over the last 12 months. We remain biased toward narrower spreads. However, the magnitude of this position has been tempered as spreads have narrowed. Sector and issue selection continues to be of paramount importance. Financials are still our preferred investment within the corporate universe. Credit quality is at decade highs, and we expect ongoing improvement over the next few years as regulatory requirements are implemented. Also, unlike with industrials, event risk within the financial sector is minimal. The move in yields earlier this year led to increased demand for investment-grade credits from pensions and insurance companies. The recent backup in yields and recovery in equity markets could see a resurgence of liability-driven investing. The funded status of defined benefit plans has improved substantially this year, which could cause significant demand for longer-dated credit and bonds generically. Pension plans are significantly under-hedged versus their liabilities, and this could be a much bigger driver of flows than the market currently anticipates. Page 3
Market Review The concept of tapering has entered the vernacular of anybody associated with the investment business over the course of the last six months. It is fair to say it has become something of an obsession. Although the prognostications of Mr. Bernanke will have limited impact on our asset allocation decisions, tapering has been a significant influence on market psychology over the last two quarters. In our opinion, it was Bernanke s allusion to tapering in late May that caused much of the spike in interest rate volatility and widening of spreads that occurred in the second quarter. Equally, his decision in September not to taper and to maintain the program in its entirety defied market expectations and was responsible for the resilience in spreads and stabilization of interest rates. Ten-year Treasury yields ended the quarter at 2.61%, a similar level to where they began. Option Adjusted Spreads of the CitiGroup Broad Investment-Grade Credit Index narrowed by 11 basis points over the quarter to 138 basis points. Bernanke highlighted lingering challenges in the labor market, subdued inflation and anemic growth as reasons for not tapering. This demonstrates the structural headwinds the US economy still faces five years after the inception of the global financial crisis. Page 4
Credit Profile* The data is shown as a percentage of market value. *May not add to 100% due to rounding. Sector Profile* The data is shown as a percentage of market value. Government Related includes agency, sovereign, and supranational bonds. *May not add to 100% due to rounding. Sectors are shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Top 10 Holdings Securities are shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Source: SEI The holdings may vary in calculation methodology from reconciled portfolio holdings information contained in the Fund s annual and semiannual shareholder reports or first and third quarter reports filed with the Securities and Exchange Commission on Form N-Q. Additionally, this data may vary from any holdings information found on the firm s other marketing materials. Holdings are shown as percent of total net assets. Page 5
Fund Statistics Source:, SEI Page 6
Investment Report Second Quarter 2013 Schroder STW Important Information Fees and Expenses (%) as of June 24, 2013 Investor Shares Gross: 0.97 Net: 0.46 In order to limit the expenses of the Fund, the Fund s adviser has contractually agreed to reduce fees and reimburse expenses to the extent necessary to keep total annual fund operating expenses (other than acquired fund fees and expenses, interest, taxes, and extraordinary expenses) for the Fund from exceeding 0.46% of the Fund s average daily net assets until November 29, 2014. Please consider a fund s investment objectives, risks, charges and expenses carefully before investing. For a free prospectus, which contains this and other information on any Fund, visit www.schroderfunds.com, call your financial advisor or call (800) 730-2932. Read the prospectus carefully before investing. Definitions: The Barclays US Long Government / Credit Bond Index is a widely used measure of debt returns. It is not managed. Investors may not invest directly in an index. 2 Effective duration measures the security s price sensitivity to changes in interest rates. Additionally, we believe tax-exempt municipal bond prices are less sensitive to changes in the general level of interest rates than taxable securities, if any tax-exempt municipal bonds are held in the fund or benchmark, we adjust their duration by multiplying by a factor of 0.7. The 0.7 is a proprietary adjustment to the duration of municipal bonds. 3 SEC 30 day yield reflects the dividends and interest earned during the most recent 30-day period, after the deduction of the fund s expenses. 4 30-Day unsubsidized yield does not reflect waivers. 5 Yield to worst is the lowest potential yield that can be received on a bond without the Fund issuer actually defaulting. receives credit quality ratings on underlying securities of the fund from the three major reporting agencies - S&P, Moody's and Fitch. When calculating the credit quality breakdown, uses the average rating of the agencies. Securities that are not rated by all three agencies are reflected as such. The ratings exclude cash and cash equivalents. converts all ratings to the equivalent S&P major rating category for purposes of the category shown. The views and opinions contained herein are those of the Investment-Grade Value Management team, and do not necessarily represent Schroder Investment Management North America Inc. s house view. These views and opinions are subject to change. All investments involve risks including the risk of possible loss of principal. The market value of a fund s portfolio may decline as a result of a number of factors, including interest rate risk, credit risk, inflation/deflation risk, mortgage and asset-backed securities risk, US Government securities risk, foreign investment risk, currency risk, derivatives risk, leverage risk and liquidity risk. Frequent trading of the fund s portfolio may result in relatively high transaction costs and may result in taxable capital gains. This document does not constitute an offer to sell or any solicitation of any offer to buy securities or any other instrument described in this document. The information and opinions contained in this document have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of facts obtained from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. The opinions stated in document include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee that any forecasts or opinions will be realized. Sectors/securities illustrate examples of types of sectors/securities in which the fund invested and may not be representative of the fund's current or future investments. Portfolio sectors/securities and allocations are subject to change at any time and should not be viewed as a recommendation to buy/sell. Countries mentioned are shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Past performance is not a guide to future performance. The value of investments can go down as well as up and is not guaranteed. Schroder Investment Management North America Inc. ( SIMNA, Inc. ) is an investment advisor registered with the U.S. SEC. It provides asset management products and services to clients in the U.S. and Canada including Schroder Capital Funds (Delaware), Schroder Series Trust and Schroder Global Series Trust, investment companies registered with the SEC (the Schroder Funds ). Shares of the Schroder Funds are distributed by Schroder Fund Advisors LLC, a member of the FINRA. SIMNA, Inc. and Schroder Fund Advisors LLC are indirect, wholly-owned subsidiaries of plc, a UK public company with shares listed on the London Stock Exchange. Schroder Investment Management Ltd. is the UK based investment subsidiary of plc. Schroder Fund Advisors LLC, Member FINRA, SIPC 875 Third Avenue, New York, NY 10022-6225 (800) 730-2932 www.schroderfunds.com