File No. 33-_______
As filed with the SEC on September 21, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ___
Post-Effective Amendment No. ___
(Check appropriate box or boxes)
THE BRINSON FUNDS
(Exact Name of Registrant as Specified in Charter)
(312) 220-7100
(Area Code and Telephone Number)
209 South LaSalle Street, Chicago, IL 60604
(Address of Principal Executive Offices --
Number, Street, City, State, Zip Code)
Carolyn M. Burke
209 South LaSalle Street
Chicago, IL 60604-1295
(Name and Address of Agent for Service --
Number, Street, City, State, Zip Code)
Copies to:
Bruce G. Leto, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective
under the Securities Act of 1933.
Title Of Securities Being Registered Brinson Non-U.S. Equity Fund
Class I shares of beneficial interest, $0.001 par value per share,
of the Non-U.S. Equity Fund series
________________________________________________________________________________
No filing fee is due because Registrant is relying on Section 24(f) of the
Investment Company Act of 1940, as amended.
It is proposed that this filing will become effective on October 21, 1998,
pursuant to Rule 488.
THE BRINSON FUNDS
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) under the
Securities Act of 1933)
N-14 Item No. and Caption Location in Prospectus
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PART A
1. Beginning of Registration Statement and Cover Page of Registration Statement; Front
outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Beginning and outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Risk Summary; Risk Factors; Comparisons of Some
Factors Important Features
4. Information About the Transaction Summary; Reasons for the Reorganization;
Information About the Reorganization
5. Information About the Registrant Prospectus Cover Page; Summary; Comparison of
Investment Policies and Risks; Information
About the Brinson Fund
6. Information About the Company Being Prospectus Cover Page; Comparison of
Acquired Investment Policies and Risks; Information
About the UBS Fund
7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Solicitation and
Revocation of Proxies and Voting Information;
Principal Shareholders; Summary-Voting
Information; Voting Information
8. Interest of Certain Persons and Experts None
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
N-14 Item No. and Caption Location in Statement of Additional Information
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PART B
10. Cover Page Cover Page of Statement of Additional Information
11. Table of Contents Not Applicable
12. Additional Information about the Incorporation of Documents by Reference in the
Registrant Statement of Additional Information
13. Additional Information about the Incorporation of Documents by Reference in the
Company being Acquired Statement of Additional Information
14. Financial Statements Incorporation of Documents by Reference in the
Statement of Additional Information
PART C-OTHER INFORMATION
Part C contains the information required by Items 15-17 under the items set
forth in the Form.
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Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Shareholders Meeting
which has been called for December 15, 1998 at _____ a.m., at ________________.
The accompanying Prospectus/Proxy Statement details a proposal being presented
for your consideration and requests your prompt attention and vote via the
enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND RETURN THE ENCLOSED PROXY CARD!
This meeting is critically important as you are being asked to
consider and approve an Agreement and Plan of Reorganization which would result
in an exchange of shares in your fund, the UBS International Equity Fund (the
"UBS Fund") of UBS Private Investor Funds, Inc. (the "Corporation") for the
Brinson Non-U.S. Equity Fund Class I shares ("Class I Shares") of beneficial
interest of the Non-U.S. Equity Fund (the "Brinson Fund"), a comparable fund
managed by Brinson Partners, Inc. ("Brinson" or the "Advisor") that is a series
of The Brinson Funds. On the date of the exchange, you will receive Class I
Shares in the Brinson Fund equal in value to your investment in the UBS Fund of
the Corporation. Thereafter, the value of your investment will fluctuate with
market conditions and the investment performance of the Class I Shares of the
Brinson Fund.
The proposed reorganization is intended to be a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, as further
described in the accompanying Prospectus/Proxy Statement.
This transaction is being proposed because of the recent merger of
Union Bank of Switzerland, the corporate parent of the UBS Fund's investment
adviser and sub-investment adviser, and Swiss Bank Corporation, the corporate
parent of the Brinson Fund's investment adviser, to form UBS A.G. In an effort
to promote more efficient operations, to eliminate duplicate costs and redundant
products, and to enhance the distribution of shares, UBS A.G. and Brinson
proposed that the UBS Fund be reorganized into the Brinson Fund. The Brinson
Fund has similar investment objectives and policies to the UBS Fund. In
addition, the Trust possesses certain operating economies of scale which allow
shareholders to enjoy a relatively low cost investment program while receiving a
high level of service and communications.
Please take the time to review this document and vote now! To ensure
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that your vote is counted, indicate your position on the enclosed proxy card(s).
Sign and return your card(s) promptly. If you determine at a later date that
you wish to attend the meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
Paul J. Jasinski
President
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PRELIMINARY COPY
UBS PRIVATE INVESTOR FUNDS, INC.
UBS INTERNATIONAL EQUITY FUND
200 Clarendon Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on December 15, 1998
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of
the UBS International Equity Fund (the "UBS Fund") of the UBS Private Investor
Funds, Inc. (the "Corporation") will be held at __________________________ on
December 15, 1998, at ______ a.m., Eastern time, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization
between the Corporation, on behalf of the UBS Fund, and The Brinson Funds (the
"Trust"), on behalf of the Non-U.S. Equity Fund (the "Brinson Fund"), that
provides for the acquisition of substantially all of the assets and liabilities
of the UBS Fund in exchange for the Brinson Non-U.S. Equity Fund Class I shares
("Class I Shares") of beneficial interest of the Brinson Fund, the distribution
of such shares to the shareholders of the UBS Fund, and the dissolution of the
UBS Fund.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The attached Prospectus/Proxy Statement provides more information
concerning each of the foregoing matters, including the transaction contemplated
by the Agreement and Plan of Reorganization. A copy of the Agreement and Plan
of Reorganization is attached as Exhibit A.
Shareholders of record as of the close of business on ____________,
1998, are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
By Order of the
Board of Directors,
Susan C. Mosher
Secretary
___________, 1998
IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF
YOU DO NOT EXPECT TO ATTEND THE MEETING, THE BOARD OF DIRECTORS URGES YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. IT IS IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY
PROMPTLY SO THAT A QUORUM MAY BE ENSURED.
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Combined Prospectus and Proxy Statement
TABLE OF CONTENTS
PAGE
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COVER PAGE...........................................................................................Cover
SOLICITATION AND REVOCATION OF PROXIES AND VOTING INFORMATION.............................................
PRINCIPAL SHAREHOLDERS....................................................................................
PROPOSAL 1: TO APPROVE THE AGREEMENT AND PLAN
OF REORGANIZATION................................................................................
SUMMARY...................................................................................................
Proposed Transaction.............................................................................
Voting Information...............................................................................
Federal Income Tax Consequences..................................................................
COMPARISONS OF SOME IMPORTANT FEATURES....................................................................
Investment Objectives and Policies...............................................................
Management of the Corporation and the Trust......................................................
Fees and Expenses................................................................................
Distribution Services............................................................................
Pro Forma Fee Table for the UBS Fund and the Brinson Fund........................................
Purchase Price, Redemption Price, Exchanges, Dividends and Distributions.........................
Special Information Regarding the UBS Fund's Two-Tier Structure..................................
Risk Factors and Comparison of Policies..........................................................
REASONS FOR THE REORGANIZATION............................................................................
The Merger of Union Bank of Switzerland and Swiss Bank Corporation...............................
Reorganization...................................................................................
INFORMATION ABOUT THE REORGANIZATION......................................................................
Method of Carrying Out the Reorganization........................................................
Conditions Precedent to Closing..................................................................
Expenses of the Transaction......................................................................
Federal Income Tax Consequences..................................................................
Description of the Class I Shares of the Brinson Fund............................................
Capitalization...................................................................................
COMPARISON OF INVESTMENT POLICIES AND RISKS...............................................................
The Brinson Fund and the UBS Fund................................................................
Investment Policies..............................................................................
Investment Restrictions..........................................................................
Risk Factors.....................................................................................
INFORMATION ABOUT THE BRINSON FUND........................................................................
INFORMATION ABOUT THE UBS FUND............................................................................
TRANSFER AGENT AND CUSTODIAN..............................................................................
SHAREHOLDER INQUIRIES.....................................................................................
EXHIBIT A - Agreement and Plan of Reorganization.......................................................A-1
EXHIBIT B - The Brinson Funds Prospectus, dated September 15, 1998................................Attached
EXHIBIT C - Annual Report of The Brinson Funds, dated June 30, 1998...............................Attached
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PRELIMINARY COPY
COMBINED PROSPECTUS AND PROXY STATEMENT
Dated_________, 1998
Acquisition of the Assets of the
UBS International Equity Fund of
UBS PRIVATE INVESTOR FUNDS, INC.
By and in exchange for the Brinson Non-U.S. Equity Fund Class I shares of
the Non-U.S. Equity Fund of
THE BRINSON FUNDS
This Prospectus/Proxy Statement is being furnished to you in
connection with the solicitation of proxies by the Board of Directors of the UBS
Private Investor Funds, Inc. (the "Corporation"). The Corporation is a series
investment company with six series of shares. Each such series represents an
interest in a separate investment portfolio, designated as the UBS Bond Fund,
UBS High Yield Bond Fund, UBS Value Equity Fund (formerly UBS U.S. Equity Fund),
UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS International Equity Fund.
This Prospectus/Proxy Statement relates solely to the UBS International Equity
Fund (the "UBS Fund"). The remaining five series of the Corporation, other than
the UBS Fund, are referred to in this Prospectus/Proxy Statement as the "UBS
Series," and the UBS Fund and the UBS Series are collectively referred to as the
"UBS Funds."
Proxies solicited will be voted at a Special Meeting of Shareholders
to approve or disapprove an Agreement and Plan of Reorganization (the "Agreement
and Plan"). The Agreement and Plan provides for the acquisition of
substantially all of the assets and liabilities of the UBS Fund of the
Corporation by the Non-U.S. Equity Fund (the "Brinson Fund") of The Brinson
Funds (the "Trust"), a series of the Trust which is managed by Brinson Partners,
Inc. ("Brinson" or the "Advisor") and which has investment objectives and
policies substantially similar to the UBS Fund, in exchange solely for the
Brinson Non-U.S. Equity Fund Class I shares ("Class I Shares") of beneficial
interest of the Brinson Fund. Concurrently with the transaction proposed with
respect to the UBS Fund, shareholders of each UBS Series will be approving an
agreement and plan of reorganization relating to the sale of each UBS Series'
assets and liabilities to another Trust series managed by Brinson with similar
investment objectives and policies. A separate vote will be conducted for each
of the UBS Funds, and the six reorganizations of the UBS Funds are independent
of each other.
Following such transfer, the Class I Shares of the Brinson Fund will
be distributed to shareholders of the UBS Fund in liquidation of such Fund and
individual shareholders of the UBS Fund will receive that number of the Class I
Shares of the Brinson Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of the UBS Fund.
Thereafter, the Corporation will file an application pursuant to Section 8(f) of
the Investment Company Act of 1940, as amended (the "1940 Act"), for an order
declaring that it has ceased to be an investment company; provided that the
shareholders of each UBS Series also approve the sale of each UBS Series' assets
to a corresponding Trust series.
The Trust consists of thirteen separate investment series: Global
Fund, Global Equity Fund, Global Bond Fund, Emerging Markets Debt Fund, Emerging
Markets Equity Fund, U.S. Balanced Fund, U.S Large Capitalization Equity Fund,
U.S. Equity Fund, U.S. Bond Fund, Non-U.S. Equity Fund, U.S. Large
Capitalization Growth Fund, U.S. Small Capitalization Fund and High Yield Bond
Fund (individually, a "Trust Series" and collectively, the "Trust Series"). Each
Trust Series offers three separate classes of shares, the Class N shares, the
UBS Investment Fund class shares, and the Class I shares.
The Brinson Fund is a diversified series of the Trust, with its
principal offices located at 209 South LaSalle Street, Chicago, Illinois 60604-
1295, (800) 448-2430. The Brinson Fund has an investment objective which is
substantially similar to that of the UBS Fund. The Brinson Fund's investment
objective is to maximize
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total return, consisting of capital appreciation and current income, by
investing primarily in the equity securities of non-U.S. issuers.
The UBS Fund is a diversified series of the Corporation, with its
principal offices located at 200 Clarendon Street, Boston, Massachusetts 02116,
(888) 827-3863. The UBS Fund's investment objective is to provide a high total
return from a portfolio of equity securities of foreign corporations The UBS
Fund seeks to achieve its investment objective by investing all of its
investable assets in the UBS International Equity Portfolio (the "UBS
Portfolio"), a series of UBS Investor Portfolios Trust (the "UBS Trust"), a
registered management investment company. The investment policies and
restrictions and, consequently, the risks of investing in the Brinson Fund are
substantially similar to those of the UBS Fund, but differ in certain respects
as described more fully under "COMPARISON OF INVESTMENT POLICIES" in this
Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Brinson Fund and the
Trust that a prospective investor should know before investing. This
Prospectus/Proxy Statement is accompanied by the prospectus of the Brinson Fund
dated September 15, 1998, and the Annual Report of the Trust relating to the
Brinson Fund dated June 30, 1998, each of which is incorporated by reference
into this Prospectus/Proxy Statement and attached hereto as Exhibits B and C,
respectively. A Statement of Additional Information dated September 15, 1998,
relating to this Prospectus/Proxy Statement, the transaction described herein
and the parties thereto, has been filed with the U.S. Securities and Exchange
Commission ("SEC" or the "Commission") and is incorporated by reference into
this Prospectus/Proxy Statement. A copy of that Statement may be obtained
without charge by writing to the address noted above or by calling (800) 448-
2430.
A prospectus, statement of additional information, and annual report
to shareholders, dated December 31, 1997, relating to the UBS Fund of the
Corporation are also on file with the SEC (File nos. 33-64401; 811-07431), each
of which is incorporated by reference herein and are available without charge
upon request to the Corporation. This Prospectus/Proxy Statement will first be
sent to shareholders on or about ___________, 1998.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT
AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST.
SHARES OF THE UBS FUND AND THE BRINSON FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE UBS FUND
AND THE BRINSON FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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SOLICITATION AND REVOCATION OF PROXIES AND VOTING INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of
Directors of the Corporation in connection with the Special Meeting of
Shareholders of the UBS Fund to be held at __________________, on December 15,
1998 at _____ a.m. Eastern time (the "Meeting"), and at any or all adjournments
thereof. You may revoke your proxy at any time before it is exercised by
delivering a written notice to the Corporation expressly revoking your proxy, by
signing and forwarding to the Corporation a later-dated proxy, or by attending
the Meeting and casting your votes in person.
The Corporation will request broker-dealer firms, custodians, nominees
and fiduciaries to forward proxy material to the beneficial owners of the shares
of record by such persons. Such broker-dealer firms, custodians, nominees and
fiduciaries may be reimbursed for their reasonable expenses incurred in
connection with such proxy solicitation. The cost of soliciting these proxies
will not be borne by the Trust or the Corporation. In addition to solicitations
by mail, some of the officers and employees of UBS A.G., without additional
remuneration, may conduct additional solicitations by telephone, telegraph and
personal interviews.
Shareholders of record of the UBS Fund at the close of business on
[________, 1998] (the "Record Date") will be entitled to vote at the Meeting or
any adjournment thereof. On the Record Date, there were __________ outstanding
shares of the UBS Fund. Each shareholder will be entitled to one vote for each
full share, and a fractional vote for each fractional share, of the UBS Fund
held on the Record Date.
The Board of Directors does not intend to bring any matters before the
Meeting other than the proposal described below and is not aware of any other
matters to be brought before the Meeting by others. If any other matter legally
comes before the Meeting, proxyholders for which discretion has been granted
will vote shares in accordance with the views of management.
In the event that a quorum is present at the Meeting but sufficient
votes to approve the proposal set forth in the Notice of Special Meeting of
Shareholders are not received by the date of the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares represented at the Meeting in person or by proxy.
If a quorum is present, the persons named as proxies will vote those proxies
that they are entitled to vote "FOR" any proposal in favor of adjournment and
will vote those proxies required to be voted "AGAINST" any such proposal against
any adjournment.
For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. Abstentions and broker non-votes would be treated in the same
manner with respect to the Trust.
The proxyholders will vote all proxies received. It is the present
intention that, absent contrary instructions, the enclosed proxy will be voted
for the approval of the Agreement and Plan; and in the discretion of the
proxyholders, upon such other matters not now known or determined as may legally
come before the Meeting.
PRINCIPAL SHAREHOLDERS
As of the Record Date, the following person(s) owned beneficially more
than 5% of the outstanding voting shares of the UBS Fund: ___________ at
[address] owned _______ shares (___%).
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As of the Record Date, the following person(s) owned beneficially more
than 5% of the outstanding voting shares of the Brinson Fund: _________ at
[address] owned ________ shares (________%).
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All of the respective officers and directors of the Corporation and
the officers and trustees of the Trust, as a group, owned less than 1% of the
outstanding voting securities of the UBS Fund and the Brinson Fund, as relevant.
PROPOSAL 1: TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
This summary of certain information contained in this Prospectus/Proxy
Statement is qualified by reference to the more complete information contained
elsewhere in this Prospectus/Proxy Statement, the Prospectuses of the UBS Fund
and the Brinson Fund and the Agreement and Plan of Reorganization (the
"Agreement and Plan") attached to this Prospectus/Proxy Statement as Exhibit A.
PROPOSED TRANSACTION. At meetings of the Board of Directors of the Corporation,
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the directors of the Corporation, including a majority of the directors who are
not "interested persons" of the Corporation, as defined in the 1940 Act (the
"Independent Directors"), considered and subsequently approved the Agreement and
Plan providing for the transfer of substantially all of the assets and
liabilities of the UBS Fund of the Corporation in exchange solely for the Class
I Shares of beneficial interest of the Brinson Fund. (This proposed transaction
is referred to in this Prospectus/Proxy Statement as the "Reorganization.") The
value of Class I Shares issued by the Brinson Fund in connection with the
Reorganization will equal the value of the net assets of the UBS Fund acquired
by the Brinson Fund.
Pursuant to the Agreement and the Plan, the Class I Shares issued by
the Brinson Fund to the UBS Fund will be distributed to the shareholders of the
UBS Fund in liquidation of the UBS Fund. As a result, shareholders of the UBS
Fund will cease to be shareholders of such Fund and will instead be the owners
of that number of full and fractional Class I Shares of the Brinson Fund having
an aggregate net asset value equal to the aggregate net asset value of the
shares of the UBS Fund on the closing date of the Reorganization.
After presentations by representatives of Brinson and UBS A.G., the
investment adviser to the UBS Portfolio of UBS Trust, discussing why, in their
views, the proposal should be approved, the Board of Directors of the
Corporation, including all of the Independent Directors present at the meetings
at which the Reorganization was approved, concluded that the Reorganization is
in the best interests of the shareholders of the UBS Fund and, therefore,
recommended approval of the Agreement and Plan. The Board of Directors of the
Corporation and the Board of Trustees of the Trust, respectively, also concluded
that no dilution would result to the shareholders of the Corporation or the
Trust as a result of the Reorganization.
VOTING INFORMATION. Approval of the Agreement and Plan requires the favorable
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vote of the holders of a majority of the outstanding shares of the UBS Fund
entitled to vote.
Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share, of the UBS Fund held on the Record
Date. IF YOU GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED IN FAVOR OF
THE AGREEMENT AND PLAN.
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the Reorganization is subject
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to the receipt of a tax opinion by counsel to the Trust substantially to the
effect that, among other things, no gain or loss will be recognized by the UBS
Fund or its shareholders for federal income tax purposes as a result of such
Reorganization; the holding period and aggregate tax basis of Class I Shares of
the Brinson Fund received by a shareholder of the UBS Fund will be the same as
the holding period and aggregate tax basis of the shareholder's shares of the
UBS Fund; and the holding period and tax basis of the assets of the UBS Fund in
the hands of the Brinson Fund as a result of the Reorganization generally will
be the holding period and tax basis of those assets in the hands of the UBS Fund
from which they were acquired immediately prior to the Reorganization. It is
anticipated that the Brinson Fund will continue to hold the investable assets of
the UBS Fund with disposition of such assets only in the normal course of
business.
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COMPARISONS OF SOME IMPORTANT FEATURES
INVESTMENT OBJECTIVES AND POLICIES. The Brinson Fund's investment objective is
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to maximize total return, consisting of capital appreciation and current income
by investing primarily in the equity securities of non-U.S. issuers. The
Brinson Fund seeks to achieve its objective by investing primarily in the equity
securities of issuers in at least three countries other than the United States.
In seeking to achieve its investment objective while controlling risk, the
Brinson Fund may invest in a wide range of equity securities.
Similarly, the investment objective of the UBS Fund is to seek to
provide a high total return from a portfolio of equity securities of foreign
corporations. Unlike the Brinson Fund, however, the UBS Fund seeks to achieve
its investment objective by investing all of its investable assets in the
corresponding UBS Portfolio, a series of the UBS Trust, a separate registered
investment company, which UBS Portfolio has the same investment objective and
policies as the UBS Fund.
MANAGEMENT OF THE CORPORATION AND THE TRUST. Similar to the Corporation and its
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Board of Directors, the management of the business and affairs of the Trust is
the responsibility of its Board of Trustees. The Corporation is organized as a
corporation under the laws of the State of Maryland, and the Trust is organized
as a business trust under the laws of the State of Delaware. The Trust was
originally organized as a Maryland corporation on April 14, 1992. On December
1, 1993, the Trust reorganized as a Delaware business trust through a merger of
the Maryland corporation into the Trust.
The Corporation, on behalf of the UBS Fund, has not retained the
services of an investment adviser since the UBS Fund seeks to achieve its
investment objective by investing all of its investable assets in the UBS
Portfolio. UBS A.G., a universal bank organized under the laws of and having its
principal executive offices in Switzerland, through its New York office, located
at 110 East 50th Street, New York, New York 10022 (the "UBS Adviser"), serves
as the investment adviser of the UBS Portfolio pursuant to an investment
advisory agreement. Phillips & Drew International Investment Limited (formerly,
UBS International Investment London Limited), located at Triton Court, 14
Finsbury Square, London EC2A 1PD, United Kingdom (the "UBS Sub-Adviser"), serves
as the sub-investment adviser to the UBS Portfolio.
The Brinson Fund invests its assets directly in portfolio securities
and is advised and managed by Brinson, 209 South LaSalle Street, Chicago,
Illinois 60604-1295. Brinson is a wholly-owned subsidiary of UBS A.G.
FEES AND EXPENSES. Pursuant to the UBS Trust's investment advisory agreement,
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the UBS Portfolio pays the UBS Adviser a fee for its services, calculated daily
and paid monthly, equal on an annual basis to a rate of 0.85% of the UBS
Portfolio's average daily net assets. Pursuant to a sub-advisory agreement
between the UBS Adviser and P&DII, the UBS Adviser pays the UBS Sub-Adviser a
fee, calculated daily and payable monthly, at an annual rate equal to 0.75% of
the UBS Portfolio's first $20 million of average net assets, 0.50% of the next
$30 million of average net assets, and 0.40% of the UBS Portfolio's average net
assets in excess of $50 million. The UBS Adviser has voluntarily agreed to waive
its fees and reimburse the UBS Fund and the UBS Portfolio for any of their
respective operating expenses to the extent that the UBS Fund's total operating
expenses (including its share of the UBS Portfolio's expenses) exceed, on an
annual basis, 1.40% of the UBS Fund's average daily net assets.
Pursuant to its investment advisory agreement with the Advisor, the
Trust, on behalf of the Brinson Fund, is obligated to pay to Brinson a monthly
fee at the annual rate of 0.80% of the Brinson Fund's average daily net assets,
subject to certain fee waivers and expense reimbursements as further described
below.
The UBS Portfolio employs IBT Trust and Custodial Services (Ireland)
LMTD ("IBT Ireland"), a subsidiary of Investors Bank and Trust Company
("Investors Bank"), and the UBS Fund employs Investors Bank, as administrators,
respectively, under administration agreements (collectively, the "UBS
Administration Agreements") to provide certain administrative services to the
UBS Portfolio and the UBS Fund. The services provided by IBT Ireland and
Investors Bank under the UBS Administration Agreements include certain
accounting, clerical, and bookkeeping services, blue sky (for the UBS Fund
only), corporate secretarial services and assistance in the preparation and
filing of tax returns and reports to shareholders and the SEC. For the services
Investors Bank provides under the administration agreement with the UBS Fund,
the UBS Fund pays Investor Bank a fee which is
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calculated daily and paid monthly, equal, on an annual basis, to 0.065% of the
UBS Fund's first $100 million average daily net assets and the 0.025% of the
next $100 million average daily net assets. Investors Bank does not receive a
fee from the UBS Fund on average daily net assets in excess of $200 million. For
the services IBT Ireland provides under the administration agreement with the
UBS Portfolio, the UBS Portfolio pays IBT Ireland a fee which is calculated
daily and paid monthly, equal, on an annual basis, to 0.07% of the UBS
Portfolio's first $100 million average daily net assets and 0.05% of the average
daily net assets in excess of $100 million.
The Brinson Fund receives administrative services pursuant to a
Multiple Series Agreement (the "Services Agreement") entered into by the Trust,
on behalf of each Trust Series, including the Brinson Fund, and Morgan Stanley
Trust Company ("MSTC"), pursuant to which MSTC is required to provide general
administrative, accounting, portfolio evaluation, transfer agency and custodian
services to the Trust Series, including the coordination and monitoring of any
third party series providers. As authorized under the Services Agreement, MSTC
has entered into a Mutual Funds Service Agreement (the "CGFSC Agreement") with
Chase Global Funds Services Company ("CGFSC"), a corporate affiliate of The
Chase Manhattan Bank, under which CGFSC provides administrative, accounting,
portfolio valuation and transfer agency services to each Trust Series.
For its administrative, accounting, transfer agency and custodian
services, MSTC receives the following as compensation from the Trust on an
annual basis: 0.0025% of the average daily U.S. assets of the Trust; 0.0525% of
the average daily non-U.S. assets of the Trust; 0.3250% of the average daily
emerging markets equity assets of the Trust; and 0.019% of the average daily
emerging markets debt assets of the Trust. MSTC receives an additional fee of
0.075% of the average daily net assets of the Trust for administrative duties,
the latter subject to the expense limitation applicable to the Trust. No fee
(asset based or otherwise) is charged on any investments made by any Trust
Series into any other investment company sponsored or managed by the Advisor and
assets of a Trust Series that are invested in another investment company or
series thereof sponsored or managed by the Advisor will not be counted in
determining the 0.075% administrative duties fee or the applicability of the
expense limitation on such fee. The foregoing fees include all out-of-pocket
expenses or transaction charges incurred by MSTC and any third party service
provider in providing such services. Pursuant to the CGFSC Agreement, MSTC pays
CGFSC for services that CGFSC provides to MSTC in fulfilling MSTC's obligations
under the Services Agreement.
The annualized ratio of operating expenses to average net assets for
the UBS Fund for the period of October 14, 1997 (commencement of operations)
through December 31, 1997, and the annualized ratio of operating expenses to
average net assets for the six month period ended June 30, 1998, were 1.26% and
1.40%, respectively, which (i) includes the UBS Fund's share of the UBS
Portfolio's expenses, and (ii) are net of fee waivers and expense
reimbursements. In the absence of fee waivers and expense reimbursements by the
UBS Adviser, the ratios of total operating expenses to average net assets for
the period of October 14, 1997 through December 31, 1997, and the six months
ended June 30, 1998, would have been 2.13% and 2.03%, respectively.
The ratio of operating expenses to average net assets for the Brinson
Fund and the Class I Shares for the fiscal year ended June 30, 1998 were 1.00%.
The Advisor has irrevocably agreed to waive its fees and to reimburse certain
expenses of the Brinson Fund so that the Fund's total operating expenses never
exceed 1.00% of the Brinson Fund's average net assets.
DISTRIBUTION SERVICES. Pursuant to a Distribution Agreement, First Fund
- ---------------------
Distributors, Inc. ("First Fund") serves as the distributor of the UBS Fund's
shares. First Fund does not receive a fee pursuant to the terms of the
distribution agreement, but receives compensation from the Administrator. The
address of First Fund is 4455 East Camelback Road, Phoenix, Arizona 85018.
Pursuant to an underwriting agreement, Funds Distributor, Inc. ("FDI") acts as
underwriter to the Trust to facilitate the filing of notices regarding the sale
of the shares of the Trust. FDI's fees for such services are borne by the
Advisor. The address of FDI is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
11
PRO FORMA FEE TABLE FOR THE UBS FUND AND THE BRINSON FUND
AS OF JUNE 30, 1998
(Unaudited)
Actual Pro Forma
--------------------
UBS Fund/1/ Brinson Fund After Transaction
----------- ------------ -----------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested None None None
Dividends
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as percentage of average net assets
at June 30, 1998):
Management Fees (after fee waivers and
reimbursements).............................. 0.05% 0.80% 0.80%
12b-1 Fees....................................... None None None
Other Expenses (after fee waivers and
reimbursements).............................. 1.21% 0.20% 0.20%
Total Operating Expenses (after fee waivers
and reimbursements).......................... 1.26% 1.00% 1.00%
_____________________
/1/ The UBS Adviser had agreed to waive fees and reimburse the UBS Fund and the
UBS Portfolio for any of their respective operating expenses to the extent that
the UBS Fund's total operating expenses (including its share of the UBS
Portfolio's expenses) exceed, on an annual basis, 1.40% of the UBS Fund's
average daily net assets. If there were no waiver in effect, the UBS Portfolio's
advisory fee would be equal, on an annual basis, to 0.85% of the UBS Portfolio's
average daily net assets, and the total operating expenses of the UBS Fund would
have been 2.13% for the fiscal year ended December 31, 1997.
Example:
Based on the level of expenses listed above after waivers and
reimbursements, an investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
UBS Fund $14 $44 $77 $168
Brinson Fund $10 $32 $55 $122
(After proposed transaction)
__________________________
The foregoing tables are designed to assist the investor in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly. The example should not be considered a representation of
past or future expenses and actual expenses may be greater or lesser than those
shown.
PURCHASE PRICE, REDEMPTION PRICE, EXCHANGES, DIVIDENDS AND DISTRIBUTIONS. Shares
- ------------------------------------------------------------------------
of the UBS Fund and the Class I Shares of the Brinson Fund are sold on a
continuous basis at their respective net asset values per share. The minimum
initial investment in the UBS Fund is $25,000, except that the minimum initial
investment is $10,000 for shareholders of another UBS Series. The minimum
subsequent investment for all investors is $5,000. The minimum initial
investment for employees of UBS A.G. or its affiliates is $5,000, and the
minimum subsequent investment is $1,000. Certain tax deferred retirement plan
programs (including Individual Retirement Accounts ("IRAs")) are subject to a
minimum initial investment of $2,000, and subsequent investments must be $500.
The minimum initial investment for Class I Shares of the Brinson Fund
is $1,000,000. Subsequent investments for Class I Shares will be accepted in
minimum amounts of $2,500. The minimum initial
12
investment pursuant to an automatic investment plan is $1,000,000, with
subsequent minimum investments of $500. The minimum purchase requirement for
IRAs is $2,000. The Brinson Fund has agreed to waive the minimum initial
investment requirement in connection with the Reorganization. The subsequent
minimum investment requirement will be applied to UBS Fund shareholders who make
additional investments after the Reorganization.
Shares of the UBS Fund, the UBS Portfolio and the Brinson Fund may be
redeemed at their respective net asset values per share. With respect to the
Brinson Fund, redemptions in excess of $250,000 or 1% of net assets in any 90-
day period may be subject to certain conditions.
Shares of the UBS Fund may be exchanged for shares of the UBS Series,
subject to certain limitations, as provided in the UBS Fund's prospectus. Class
I Shares of the Brinson Fund may be exchanged for shares of the same class of
any other Trust Series, subject to certain limitations, as provided in the
Brinson Fund's prospectus. While the Corporation has five other series of
shares with which the UBS Fund shareholders may exchange their shares, the Trust
has twelve other series of shares with which the Brinson Fund shareholders may
exchange their shares.
The UBS Fund and the Brinson Fund have policies of distributing
substantially all of their net investment income and net capital gains to their
respective shareholders. The UBS Fund declares and pays dividends annually.
The Brinson Fund distributes its net investment income semi-annually in June and
December, and distributes annually in December substantially all of its net
long-term capital gains and any undistributed net short-term capital gains
realized during the period. Any aggregate net capital gains realized from the
sale of portfolio securities of the UBS Fund and the Brinson Fund are
distributed at least once each year unless they are used to offset capital
losses carried forward from prior years, in which case no capital gains will be
distributed to the extent they offset such capital losses. Dividends and
capital gains distributions are automatically reinvested by the UBS Fund and the
Brinson Fund in additional shares at the then current net asset value, unless
and until the shareholder requests to receive them in cash.
SPECIAL INFORMATION REGARDING THE UBS FUND'S TWO-TIER STRUCTURE. An investment
- ---------------------------------------------------------------
in the UBS Fund is subject to certain special considerations due to the UBS
Fund's two-tier structure, whereby it invests all of its assets in the
corresponding UBS Portfolio of the UBS Trust and the UBS Portfolio invests
directly in securities. The following discussion summarizes the considerations
that are present in a two-tier fund structure. These considerations do not
apply to an investment in the Brinson Fund.
In addition to selling beneficial interests to the UBS Fund, the UBS
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the UBS Portfolio on the same terms
and conditions and will pay a proportionate share of the UBS Portfolio's
expenses. However, the other investors investing in the UBS Portfolio are not
required to sell their shares at the same public offering price as the UBS Fund
due to variations in pricing structures and other operating expenses. These
differences may result in differences in returns experienced by investors in the
different funds that invest in the UBS Portfolio. Such differences in returns,
however, are also present in other mutual fund structures.
Smaller funds investing in the UBS Portfolio may be materially
affected by the actions of larger funds investing in the UBS Portfolio. For
example, if a large fund withdraws from the UBS Portfolio, the remaining funds
may subsequently experience higher pro rata operating expenses, thereby lowering
returns. Additionally, because the UBS Portfolio would become smaller, it may
become less diversified, resulting in potentially increased portfolio risk
(however, those possibilities also exist for traditionally structured funds that
have large or institutional investors who may withdraw from a fund). Also,
funds with a greater pro rata ownership in the UBS Portfolio could have
effective voting control of its operations. Except as permitted by the SEC,
whenever the UBS Fund is requested to vote on matters pertaining to the UBS
Portfolio, the Corporation will hold a meeting of UBS Fund shareholders and will
cast all of its votes proportionately as instructed by the UBS Fund's
shareholders. UBS Fund shareholders who do not vote will not affect the UBS
Fund's votes at the UBS Portfolio meeting. The percentage of the Corporation's
votes representing the UBS Fund shareholders not voting will be voted by the
Corporation in the same proportion as the UBS Fund shareholders who do, in fact,
vote.
Certain changes in the UBS Portfolio's investment objective, policies
or restrictions, or a failure by the UBS Fund's shareholders to approve a change
in the UBS Portfolio's investment objective or restrictions,
13
may require the UBS Fund to withdraw its investments in the UBS Portfolio. Any
such withdrawal could result in an in-kind distribution of portfolio securities
(as opposed to a cash distribution) by the UBS Portfolio to the UBS Fund. In no
event, however, will securities which are not readily marketable exceed 15% of
the total value of such in-kind distribution. Such a distribution may result in
a UBS Fund having a less diversified portfolio of investments or adversely
affect the UBS Fund's liquidity, and the UBS Fund could incur brokerage, tax or
other charges in converting such securities to cash. Notwithstanding the above,
there are other means for meeting shareholder redemption requests, such as
borrowing.
The UBS Fund may withdraw its investment in the UBS Portfolio at any
time if the Board of Directors of the Corporation determines that it is in the
best interests of the UBS Fund to do so. Upon any such withdrawal, the Board of
Directors of the Corporation would consider what action might be taken,
including the investment of all the UBS Fund's assets in another pooled
investment entity having the same investment objective and restrictions as the
UBS Fund or the retaining of an investment adviser to manage the UBS Fund's
assets in accordance with its investment policies.
RISK FACTORS AND COMPARISON OF POLICIES. Because of the similarities of the
- ---------------------------------------
investment objectives and policies of the UBS Fund and the Brinson Fund, the
investment risks associated with an investment in the UBS Fund are generally the
same as those of the Brinson Fund. There are, however, some distinctions in the
investment program of the UBS Fund and the Brinson Fund. For example, (i) the
UBS Fund seeks to achieve its investment objective by investing all of its
investable assets in the UBS Portfolio, while the Brinson Fund invests directly
in portfolio securities; (ii) the UBS Portfolio is authorized to invest in
securities of issuers in developing market countries, which may involve a high
degree of risk and, in certain cases, may be considered speculative, while the
Brinson Fund may not invest in such less developed markets; and (iii) the UBS
Portfolio may purchase securities on a "when-issued" basis, while the Brinson
Fund may not purchase securities in this manner. See "COMPARISON OF INVESTMENT
POLICIES - Risk Factors" below and the accompanying prospectus of the Brinson
Fund.
REASONS FOR THE REORGANIZATION
THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION. On June 29,
- ------------------------------------------------------------------
1998, pursuant to a merger agreement, dated December 5/6, 1997, Union Bank of
Switzerland ("UBS") and Swiss Bank Corporation ("SBC"), each a universal bank
organized under the laws of Switzerland, merged into UBS A.G., a newly-created
entity organized under Swiss law. In conjunction with this transaction, UBS
Brinson Inc., the current sub-investment adviser to certain other UBS
Portfolios, was created by the merger of UBS Asset Management (New York) Inc.
and SBC Brinson Inc. (These transactions are collectively referred to as the
"Merger.") The corporate structure of the UBS Sub-Adviser was unaffected by the
Merger.
As a result of the Merger, and in an effort to promote more efficient
operations, to eliminate duplicate costs and redundant products, and to enhance
the distribution of shares, UBS A.G. and Brinson proposed that the UBS Fund be
reorganized into the Brinson Fund.
The Advisor is an investment management firm managing, as of March 31,
1998, over $ 158 billion, primarily for pension and profit sharing institutional
accounts. The Advisor was organized in 1989 when it acquired the institutional
asset management business of the First National Bank of Chicago and First
Chicago Investment Advisors N.A. On April 25, 1995, SBC purchased all of the
outstanding stock of the Advisor's former corporate parent, Brinson Holdings,
Inc. The Advisor and its predecessor entities have managed domestic and
international assets since 1974 and global assets since 1982.
REORGANIZATION. The Reorganization has been proposed by UBS A.G. and Brinson as
- --------------
a means of combining the UBS Fund with a fund managed by the Advisor with
compatible investment objectives, policies, restrictions and portfolios. The
sale of the assets of the UBS Fund to the Brinson Fund should enable the
combined entity to obtain certain economies of scale with attendant savings in
cost for the UBS Fund as further described below.
At the same time, UBS A.G. presented and recommended for approval to
the Corporation's Board of Directors agreements and plans of reorganization
relating to the sale of assets and liabilities of each of the UBS Series to
another Trust Series with similar investment objectives and policies. Such
agreements and plans are
14
subject to the separate approval by the shareholders of the respective UBS
Series, and each of the six reorganizations is independent of the other.
During the meetings at which the Agreement and Plan was presented to
the Corporation's Board of Directors, the directors questioned the potential
benefits to be gained by shareholders of the UBS Fund as well as any additional
costs to be borne. In determining whether to recommend approval of the
Reorganization to shareholders, the Board of Directors considered, among other
factors: expense ratios of the Brinson Fund, as well as similar funds; the
compatibility of the investment objectives, policies, restrictions and
portfolios of the Brinson Fund with the UBS Fund; and the tax consequences of
the Reorganization. Inquiry was also made as to fund administration and the
availability of high quality shareholder services.
During the course of its deliberations, the Corporation's Board of
Directors also considered the fact that the expenses of the Reorganization will
not be borne by the UBS Fund, the Corporation, the Brinson Fund or the Trust.
In reaching the decision to recommend that shareholders of the UBS
Fund vote to approve the Reorganization, the Board of Directors concluded that
the Reorganization is in the best interests of the shareholders of the UBS Fund.
The Board's conclusion was based on a number of factors, including that, as part
of the Trust, which has higher aggregate net assets than the Corporation,
shareholders should be able to obtain the benefits of economies of scale,
permitting the reduction or elimination of certain duplicate costs and expenses
which may result in lower overall expense ratios through the spreading of both
fixed and variable costs of fund operations over a larger asset base. As a
general rule, economies can be expected to be realized primarily with respect to
fixed expenses. However, expenses that are based on the value of assets or the
number of shareholder accounts, such as custody fees, would be largely
unaffected by the Reorganization.
In its deliberations, the Directors also considered that, as
shareholders of the Trust, the Reorganization would provide shareholders with
exchange privileges with respect to the Class I shares of the other twelve Trust
Series, each with different investment objectives and policies. In addition,
the Directors also determined that it may be detrimental for the UBS Fund to
compete for the same investor assets as the Brinson Fund, each of which is
either managed by UBS A.G. or indirectly managed by a subsidiary of UBS A.G.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR THE AGREEMENT AND PLAN. If the Agreement and Plan is not
approved, the Board of Directors will consider other possible courses of action
with respect to the UBS Fund, including dissolution and liquidation.
INFORMATION ABOUT THE REORGANIZATION
The following summary of the Agreement and Plan of Reorganization does
not purport to be complete, and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement and Plan, a copy
of which is attached hereto as Exhibit A.
METHOD OF CARRYING OUT THE REORGANIZATION. Prior to the Reorganization, the UBS
- -----------------------------------------
Portfolio will make a pro rata in-kind liquidating distribution of all of its
assets to the UBS Fund and to each of its other shareholders.
If the shareholders of the UBS Fund approve the Agreement and Plan,
the reorganization of the UBS Fund will be consummated promptly after the
various conditions to the obligations of each of the parties are satisfied. (See
"Conditions Precedent to Closing.") Consummation of the Reorganization (the
"Closing Date") will be on December 16, 1998, or such other date as is agreed to
by the Corporation and the Trust, provided that the Agreement and Plan may be
terminated by either party if the Closing Date does not occur on or before March
31, 1999.
On the Closing Date, the UBS Fund will transfer substantially all of
its assets and liabilities in exchange for the Class I Shares of the Brinson
Fund having an aggregate net asset value equal to the aggregate value of assets
and liabilities so transferred as of 4:00 p.m. Eastern time on the Closing Date.
The stock transfer
15
books of the Corporation with respect to the UBS Fund will be permanently closed
as of 4:00 p.m. Eastern time on the Closing Date and only requests for
redemption of shares of the UBS Fund received in proper form prior to 4:00 p.m.
Eastern time on the Closing Date will be accepted by the Corporation. Redemption
requests relating to the UBS Fund received by the Corporation thereafter shall
be deemed to be redemption requests for shares of the Brinson Fund to be
distributed to the former shareholders of the UBS Fund.
The UBS Fund will distribute as of the Closing Date such Class I
Shares of the Brinson Fund pro rata to its shareholders of record as of the
close of business on the Closing Date. The number of shares shall be determined
by dividing the aggregate net assets of the UBS Fund to be transferred (computed
in accordance with the policies and procedures set forth in the current
prospectus of the UBS Fund and using market quotations determined by the UBS
Fund) by the net asset value per share of the Class I Shares of the Brinson Fund
as of 4:00 p.m. Eastern time on the Closing Date.
For example, on June 30, 1998, the net asset value of each share of
the UBS Fund was $110.70. The net asset value of the Class I Shares of the
Brinson Fund on that date was $12.15. Each share of the UBS Fund would have
been exchanged for 9.114 shares of the Class I Shares of the Brinson Fund if the
Closing had taken place on June 30, 1998.
In the event that the shareholders of the UBS Fund do not approve the
Agreement and Plan, the assets and liabilities of the UBS Fund will not be
transferred on the Closing Date and the obligations of the Corporation under the
Agreement and Plan shall not be effective. If the Reorganization is not
approved by the UBS Fund shareholders, the Board of Directors of the Corporation
will consider other alternatives, including dissolution and liquidation.
CONDITIONS PRECEDENT TO CLOSING. The obligation of the Corporation to transfer
- -------------------------------
the assets and liabilities of the UBS Fund to the Brinson Fund pursuant to the
Agreement and Plan is subject to the satisfaction of certain conditions
precedent, including performance by the Trust, in all material respects, of its
agreements and undertakings under the Agreement and Plan, the receipt of certain
documents from the Trust, the receipt of an opinion of counsel to the Trust, and
requisite approval of the Agreement and Plan by the shareholders of the UBS
Fund, as described above. The obligations of the Trust to consummate the
Reorganization are subject to the satisfaction of certain conditions precedent,
including the performance by the Corporation of its agreements and undertakings
under the Agreement and Plan, the receipt of certain documents, financial
statements and certificates from the Corporation, and the receipt of an opinion
of counsel to the Corporation.
EXPENSES OF THE TRANSACTION. The expenses incurred in connection with entering
- ---------------------------
into and consummating the transaction contemplated by the Agreement and Plan
will not be borne by the UBS Fund, the Corporation, the Brinson Fund or the
Trust.
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the Reorganization is subject
- -------------------------------
to the receipt of a tax opinion by counsel to the Trust substantially to the
effect that, on the basis of then current law and certain representations and
assumptions, and subject to certain limitations, for federal income tax
purposes:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that the Brinson Fund and the UBS Fund will
each be a party to a reorganization within the meaning of Section
368(b) of the Code;
(ii) no gain or loss will be recognized by the Brinson Fund upon the
receipt of the assets of the UBS Fund solely in exchange for the Class
I Shares of the Brinson Fund and the assumption by the Brinson Fund of
the liabilities of the UBS Fund;
(iii) no gain or loss will be recognized by the UBS Fund upon the
transfer of the UBS Fund's assets to the Brinson Fund in exchange for
the Class I Shares of the Brinson Fund and the assumption by the
Brinson Fund of liabilities of the UBS Fund or upon the distribution
of the Class I Shares of the Brinson Fund to the UBS shareholder;
16
(iv) no gain or loss will be recognized by the shareholders of the
UBS Fund upon the exchange of their shares for Class I Shares of the
Brinson Fund;
(v) the aggregate tax basis of the shares of the Class I Shares of
the Brinson Fund pursuant to the Reorganization will be the same as
the aggregate tax basis of shares of the UBS Fund held by such
shareholder immediately prior to the Reorganization and the holding
period of the Class I Shares of the Brinson Fund to be received by
each shareholder of the UBS Fund will include the period during which
shares of the UBS Fund exchanged therefor were held by such
shareholder (provided shares of the UBS Fund were held as capital
assets on the date of the Reorganization); and
(vi) the tax basis of the UBS Fund assets and liabilities acquired by
the Brinson Fund will be the same as the tax basis of such assets and
liabilities to the UBS Fund immediately prior to the Reorganization,
and the holding period of the assets and liabilities of the UBS Fund
in the hands of the Brinson Fund will include the period during which
those assets were held by the UBS Fund.
Shareholders of the UBS Fund should consult their tax advisers
regarding the effect, if any, of the Reorganization in light of their individual
circumstances. Since the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, shareholders of the UBS Fund
should also consult their tax advisers as to state and local tax consequences,
if any, of the Reorganization.
DESCRIPTION OF THE CLASS I SHARES OF THE BRINSON FUND. The Class I Shares of
- -----------------------------------------------------
the Brinson Fund will be issued to shareholders of the UBS Fund in accordance
with the procedures under the Agreement and Plan as described above. Each share
will be fully paid and nonassessable when issued with no personal liability
attaching to the ownership thereof, will have no pre-emptive or conversion
rights and will be transferable upon the books of the Trust. In accordance with
the Brinson Fund's normal procedures as specified in its prospectus, the Brinson
Fund will not issue certificates for shares of its Class I Shares to former
shareholders of the UBS Fund, unless a letter is sent to the transfer agent of
the Trust requesting a certificate. Ownership of the Brinson Fund shares by
former shareholders of the UBS Fund will be recorded electronically and the
Trust will issue a confirmation to such shareholders relating to those Class I
Shares acquired as a result of the Reorganization. No redemption or repurchase
of any shares of the Brinson Fund issued to former shareholders of the UBS Fund
represented by unsurrendered share certificates shall be permitted until such
certificates have been surrendered for cancellation.
As shareholders of the Brinson Fund, former shareholders of the UBS
Fund will have substantially similar voting rights and rights upon dissolution
with respect to the Brinson Fund as they currently have with respect to the UBS
Fund. Shares of the UBS Fund and of the Brinson Fund do not have cumulative
voting rights. Like the Corporation, the Trust does not routinely hold annual
meetings of shareholders.
Both the Corporation and the Trust are multi-series investment
companies that currently issue shares representing interests in six and thirteen
series, respectively, and shareholders of each of the UBS Funds and Trust Series
currently vote in the aggregate with the shareholders of the other relevant
series on certain matters (for example, the election of directors or trustees,
as applicable, and ratification of independent accountants). Unlike the
Corporation, however, the Trust currently offers three classes of shares of each
of the Trust Series: the UBS Investment Fund class shares, the Class N shares
and the Class I shares. Shares of a class represent an equal proportionate
interest in the assets and liabilities of the applicable Trust Series with each
other share, and each class has the same voting and other rights and preferences
as the other classes of that Series, except that only the holders of Class N
shareholders may vote on matters related to the rule 12b-1 plan associated with
that class, and only the UBS Investment Fund class shareholders may vote on
matters related to the rule 12b-1 plan associated with that class. The Class I
shares are primarily sold to institutional investors and are not subject to
distribution expenses pursuant to a distribution plan under rule 12b-1. The
Class N shares, which are available exclusively to 401(k) participants, and the
UBS Investment Fund class shares, which are sold primarily to retail investors,
do not have a sales load but are subject to annual rule 12b-1 plan expenses.
With respect to the UBS Fund and voting on matters relating to the UBS
Portfolio, see the discussion "Special Information Regarding the UBS Fund's Two-
Tier Structure" under "COMPARISON OF SOME IMPORTANT FEATURES."
17
The UBS Trust is organized as a master trust under the laws of the
State of New York. The UBS Trust's Declaration of Trust provides that the UBS
Fund and other entities investing in the UBS Portfolio (e.g., other investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of the UBS Portfolio. However,
the risk of the UBS Fund incurring financial loss on account of such liability
is limited to circumstances in which both inadequate insurance existed and the
UBS Portfolio itself was unable to meet its obligations. Accordingly, the
Directors of the Corporation believe that neither the UBS Fund nor its
shareholders will be adversely affected by reason of the UBS Fund's investing in
the UBS Portfolio.
CAPITALIZATION. The following table sets forth, as of June 30, 1998, (i) the
- --------------
capitalization of the UBS Fund, (ii) the capitalization of the Brinson Fund, and
(iii) the pro forma capitalization of the Brinson Fund as adjusted to give
effect to the proposed Reorganization. The capitalization of the Brinson Fund
is likely to be different when the Reorganization is consummated.
UBS Private
Investor Funds,
Inc. - UBS The Brinson Funds
International - Non-U.S. Equity Fund Pro Forma After
Equity Fund - Class I Shares Reorganization
----------- ---------------- --------------
Net assets........................................... $31,847,460 $439,328,830 $471,176,290
----------- ------------ ------------
Net asset value per share............................ $110.70 $12.15 $12.15
----------- ------------ ------------
Shares outstanding................................... 287,682 36,163,586 38,784,776
----------- ------------ ------------
__________________________
To the extent permitted by law, the Agreement and Plan may be amended
without shareholder approval by mutual agreement in writing of the Corporation
and the Trust. The Agreement and Plan may be terminated and the Reorganization
abandoned at any time before or, to the extent permitted by law, after the
approval of shareholders of the UBS Fund by mutual consent of the parties to the
Agreement.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
THE BRINSON FUND AND THE UBS FUND. The investment objective of the Brinson
- ----------------------------------
Fund is to maximize total return, consisting of capital appreciation and current
income, by investing primarily in the equity securities of non-U.S. issuers. In
seeking to achieve its investment objective while controlling risk, the Brinson
Fund may invest in a wide range of equity securities. Similarly, the UBS Fund's
investment objective seeks to provide a high total return from a portfolio of
equity securities of foreign corporations.
INVESTMENT POLICIES. In seeking to achieve their respective investment
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objectives, the Brinson Fund and the UBS Fund are guided by substantially
similar policies that should be considered by the shareholders of the UBS Fund.
However, unlike the Brinson Fund, which directly acquires and manages its own
portfolio securities, the Corporation seeks to achieve the UBS Fund's investment
objective by investing all of the UBS Fund's investable assets in the UBS
Portfolio, a series of a separate registered investment company. The UBS
Portfolio has the same investment objective and policies as the UBS Fund.
Unless otherwise specified, the investment policies of each of the
Brinson Fund and the UBS Fund may be changed without shareholder approval.
Policies or restrictions stated as fundamental may not be changed without the
approval of the lesser of (i) a majority of the outstanding shares, or (ii) 67%
or more of the shares represented at a meeting of shareholders at which the
holders of more than 50% of the outstanding shares are represented, whichever is
less ("Majority Vote").
The investment objective of the Brinson Fund is fundamental and may
not be changed without approval of the Brinson Fund's shareholders. The
investment objective of the UBS Fund is also fundamental, and may be changed
only with the approval of the holders of a majority of the outstanding shares of
the UBS Fund.
18
Since the UBS Fund pursues its investment objective by investing all
of its investable assets in the UBS Portfolio, the UBS Fund's and the UBS
Portfolio's investment objective are the same and, therefore, the investment
characteristics of the UBS Fund correspond directly to those of the UBS
Portfolio. Accordingly, the following is a discussion of the various
investments and restrictions of, and techniques employed by, the UBS Portfolio.
The Brinson Fund is diversified series of the Trust, a multi-series
investment company registered under the 1940 Act. The UBS Fund is a diversified
series of the Corporation, a multi-series investment company registered under
the 1940 Act. Both calculate net asset value per share as of the close of
trading (currently 4:00 P.M. Eastern time) on each day that the New York Stock
Exchange is open for business. Such net asset value per share is calculated by
subtracting the aggregate of all liabilities from the gross value of all assets
and dividing the result by the total number of shares outstanding.
With respect to the Class I Shares of the Brinson Fund, such Class
will bear, pro rata, all of the common expenses of the Trust. The net asset
value of the outstanding shares of the Class I Shares of the Brinson Fund will
be computed on a pro rata basis for each outstanding share based on the
proportionate participation in the Brinson Fund represented by the value of
shares of each of the classes of the Fund. All income earned and expenses
incurred by the Brinson Fund will be borne on a pro rata basis by each
outstanding share of a class, based on such class' percentage in the Brinson
Fund represented by the value of the shares of the classes, except that the
Class I Shares of the Brinson Fund will not incur any of the expenses under the
distribution plans adopted by the UBS Investment Funds class of shares and the
Class N shares, respectively.
As further described below, the UBS Portfolio invests primarily in
equity securities of non-U.S. issuers. The UBS Portfolio will invest in
companies based in at least five foreign countries. Under normal circumstances,
the UBS Sub-Adviser intends to keep at least 65% of the value of the UBS
Portfolio's total assets in equity securities of foreign issuers, consisting of
common stocks and other securities with equity characteristics, such as
preferred stocks, warrants, rights and convertible securities. In seeking to
achieve its investment objective, the UBS Portfolio will pursue total return
consisting of realized and unrealized capital gains and losses plus net income.
The UBS Portfolio seeks to achieve its objective by investing in companies that
the UBS Sub-Adviser believes are fundamentally sound and that are typically
selling at below market valuations and that the UBS Sub-Adviser believes will
grow at above-market rates. The emphasis on value leads to investments in
companies with relatively low price/earnings and price/book value ratios and
high yields. The UBS Portfolio may also engage in futures, options and currency
transactions.
Under normal conditions, the Brinson Fund will invest at least 65% of
its total assets in the equity securities of issuers in at least three countries
other than the United States. Although the Brinson Fund may invest anywhere in
the world, it is expected that the Brinson Fund's assets will be primarily
invested in the equity markets included in the Morgan Stanley Capital
International Non-U.S. Equity (Free) Index. In addition, it may engage in
futures, options and currency transactions for non-speculative purposes such as
hedging against interest rate and currency risks.
As a fundamental policy, both the Brinson Fund and the UBS Portfolio
do not intend to invest their assets in a particular industry. Both the Brinson
Fund and the UBS Portfolio may not purchase the securities (or other
obligations, in the case of the UBS Portfolio) of issuers conducting their
principal business activity in the same industry, other than obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities, if
immediately after such purchase, the value of the Brinson Fund's or the UBS
Portfolio's investments in such industry would exceed 25% of the value of its
respective total assets. In the case of the Brinson Fund, this restriction is
applied without reference to the countries in which an industry is located. The
UBS Portfolio's restriction also provides that it may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions.
Equity Investments
Both the Brinson Fund and the UBS Portfolio may invest in a wide range
of equity securities of non-U.S. issuers. The Brinson Fund's and the UBS
Portfolio's investments include common stocks and other securities with equity
characteristics, such as preferred stock, debt securities convertible into or
exchangeable for
19
common stock, warrants, rights that are convertible into common stock, and
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). The Brinson Fund may also invest in closed-end
investment companies, and the UBS Portfolio may invest in interests similar to
equity securities, such as trust or limited partnership interests.
The equity markets in which the Brinson Fund invests will typically
include available shares of larger capitalization companies. Capitalization
levels are measured relative to specific markets and thus, large, intermediate
and small capitalization ranges vary country by country. The UBS Portfolio is
not subject to a policy regarding the capitalization levels of issuers in which
it may invest, but the UBS Portfolio's primary equity investments are the common
stock of established companies based in developed countries outside the United
States.
The Brinson Fund and the UBS Portfolio do not intend to invest in U.S.
securities other than under temporary or extraordinary circumstances. Unlike
the Brinson Fund, the UBS Portfolio may invest in securities of issuers located
in developing market countries. Both the Brinson Fund and the UBS Portfolio
will invest in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may
invest in certain restricted or unlisted securities.
Short-Term Debt and Money Market Instruments
Both the Brinson Fund and the UBS Portfolio may invest a portion of
their assets in short-term debt securities (including repurchase agreements) and
money market instruments of corporations (such as commercial paper), and short-
term debt securities of the U.S. government and its agencies and
instrumentalities, and banks and finance companies (in the case of the Brinson
Fund). These instruments, other than U.S. government securities, may be
denominated in any currency. The UBS Portfolio may also invest in short-term
obligations of sovereign foreign governments, their agencies, instrumentalities
and political subdivisions. The Brinson Fund and the UBS Portfolio may invest
in money market mutual funds.
When unusual market conditions warrant, the Brinson Fund may make
substantial temporary defensive investments in cash equivalents up to a maximum
of 100% of its net assets. The UBS Portfolio may invest in money market
instruments without limitation pending other investments or settlements, for
liquidity purposes or in adverse market conditions. When the Brinson Fund or
the UBS Portfolio invests for defensive purposes, this practice may affect the
attainment of the Fund's or the Portfolio's investment objective.
The UBS Portfolio may also invest in master demand obligations, which
are a type of commercial paper that provide for periodic adjustments in the
interest rate paid and permit daily changes in the amount borrowed. Master
demand obligations are governed by agreements between the issuer and the UBS
Sub-Adviser. Master demand obligations are not rated, and the UBS Portfolio is
not subject to a specific percentage limitation on its investments in master
demand obligations. The Brinson Fund has no corresponding investment policy
regarding master demand obligations.
At the time the UBS Portfolio invests in any commercial paper, bank
obligations or repurchase agreements, the issuer must have outstanding debt
rated A or higher by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P"); the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by S&P; or if no
such ratings are available, the investment must be of comparable quality in the
UBS Sub-Adviser's opinion. At the time the UBS Portfolio invests in any short-
term debt securities, they must be rated A or higher by Moody's or S&P or if
unrated, the investment must be of comparable quality in the UBS Sub-Adviser's
opinion. The Brinson Fund is not subject to specific quality requirements for
these investments.
When-Issued or Delayed Delivery Securities
The UBS Portfolio may purchase securities on a when-issued and on a
delayed delivery basis. Delivery of and payment for these securities may take
as long as a month or more after the date of the purchase commitment. The value
of these securities is subject to market fluctuation during this period and no
interest or income accrues to the UBS Portfolio until settlement. At the time
of settlement, a when-issued security may be valued at less than its purchase
price. Between the trade and settlement dates, the UBS Portfolio will maintain
a
20
segregated account consisting of a portfolio of liquid securities with a value
equal to these commitments. It is the current policy of the UBS Portfolio not
to enter into when-issued commitments exceeding in the aggregate 15% of the
market value of such Portfolio's total assets less liabilities (excluding the
obligations created by these commitments). The Brinson Fund does not purchase
securities on a when-issued or delayed delivery basis.
Asset-Backed Securities
The UBS Portfolio may invest in asset-backed securities. Asset-backed
securities represent a participation interest in, or are secured by or payable
from, a stream of payments generated by particular assets such as mortgages,
motor vehicles or credit card receivables. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution unaffiliated with the
entities issuing the securities. The Brinson Fund is not permitted to purchase
asset-backed securities.
Repurchase Agreements
Both the Brinson Fund and the UBS Portfolio are authorized to enter
into repurchase agreements. In a repurchase agreement transaction, the Brinson
Fund or the UBS Portfolio purchases securities from a bank or broker-dealer
which simultaneously agrees to repurchase the securities at a mutually agreed
upon time and price, thereby determining the yield during the term of the
agreement. Repurchase agreements will be fully collateralized and the
collateral will be marked-to-market daily. The Brinson Fund and the UBS
Portfolio may not enter into a repurchase agreement having a maturity of longer
than seven days if, as a result, such agreement, together with any other
illiquid securities held, would exceed 15% of the value of their respective net
assets. At no time will the UBS Portfolio invest in repurchase agreements
maturing in more than thirteen months. The Brinson Fund is not subject to a
similar restriction.
Reverse Repurchase Agreements
The Brinson Fund and the UBS Portfolio may also borrow money by
entering into reverse repurchase agreements. Reverse repurchase agreements
involve sales of portfolio securities to member banks of the Federal Reserve
System or securities dealers believed creditworthy, concurrently with an
agreement to repurchase the same securities at a later date at a fixed price,
which is generally equal to the original sales price plus interest. In a
reverse repurchase agreement transaction, the Brinson Fund and the UBS Portfolio
direct their respective custodian bank to place cash or liquid securities in a
segregated account in an amount equal to the repurchase price. Reverse
repurchase agreements will be considered as borrowings for purposes of the
Brinson Fund's and the UBS Portfolio's limitation on borrowing. In order to
engage in such investments, the Brinson Fund and the UBS Portfolio are required
to maintain asset coverage of at least 300% for such borrowings.
Borrowing Policy
As a fundamental policy, the Brinson Fund may borrow money as a
temporary measure for extraordinary purposes or to facilitate redemptions,
although it will not borrow money in excess of 33 1/3% of the value of its total
assets. Any borrowing will be done from a bank and in accordance with the
requirements of the 1940 Act and relevant SEC positions. The Brinson Fund has
no intention of increasing its net income through borrowing. The Brinson Fund
will not pledge more than 10% of its net assets, or issue senior securities as
defined in the 1940 Act, except that it may purchase notes and enter into
reverse repurchase agreements.
Similarly, the UBS Portfolio has a fundamental policy that it may
borrow money from banks for extraordinary or emergency purposes. The UBS
Portfolio may enter into reverse repurchase agreements and other permitted
borrowings that constitute senior securities under the 1940 Act only in amounts
up to one-third of the market value of its total assets (including the amounts
borrowed), less liabilities (excluding obligations created by such borrowings
and reverse repurchase agreements). The UBS Portfolio's borrowing activities
are done in accordance with the requirements of the 1940 Act and relevant SEC
positions.
Neither the Brinson Fund nor the UBS Portfolio may purchase investment
securities while either has any outstanding borrowings (including repurchase
agreements, in the case of the UBS Portfolio) that exceeds 5% of its respective
net assets. Unlike the Brinson Fund, the UBS Portfolio may increase its interest
in an open-end
21
management investment company with the same investment objective and
restrictions while such borrowings are outstanding.
Securities Lending
The Brinson Fund and the UBS Portfolio may each loan securities held
in their respective portfolios to qualified broker-dealers and financial
institutions provided that such loans are continuously collateralized in amounts
at least equal to the current market value and accrued interest of the
securities loaned. The UBS Portfolio will not make any loans in excess of one
year, while the Brinson Fund is not subject to a comparable restriction.
Rule 144A Securities and Restricted Securities
Both the Brinson Fund and the UBS Portfolio may invest in securities
that are exempt under Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act"), from the registration requirements of the 1933 Act.
Securities purchased under Rule 144A are traded among qualified institutional
investors. The Brinson Fund may invest up to 15% of its total assets in
illiquid securities. Illiquid securities are those securities that are not
readily marketable, including restricted securities and repurchase obligations
that mature in more than seven days. Certain restricted securities that may be
resold to institutional investors pursuant to Rule 144A under the 1933 Act may
be determined to be liquid under guidelines adopted by the Trust's Board of
Trustees. The Brinson Fund may invest up to 15% of its total assets in
securities of issuers which are restricted from selling to the public without
registration under the 1933 Act, excluding restricted securities eligible for
resale pursuant to Rule 144A.
As a matter of non-fundamental policy, the UBS Portfolio may not
invest more than 15% of its net assets (taken at the greater of cost or market
value) in securities that are illiquid or not readily marketable excluding (a)
Rule 144A securities that have been determined to be liquid by the UBS
Portfolio's Board of Trustees and (b) commercial paper that is sold under
Section 4(2) of the 1933 Act which: (i) is not traded flat or in default as to
interest or principal; and (ii) is rated in one of the two highest categories by
at least two nationally recognized statistical rating organizations and the
Corporation's Board of Directors has determined the commercial paper to be
liquid; or (iii) is rated in one of the two highest categories by one nationally
recognized statistical rating organization and the Corporation's Board of
Directors has determined that the commercial paper is of equivalent quality and
is liquid. In addition, the UBS Portfolio will not invest more than 10% of its
total assets (taken at the greater of cost or market value) in securities
(excluding Rule 144A securities) that are restricted as to resale under the 1933
Act.
Investment Company Securities
The UBS Portfolio may purchase securities of other investment
companies to the extent that such purchases are consistent with the UBS
Portfolio's investment objective and restrictions and are permitted under the
1940 Act. Securities of any investment company will not be purchased by the UBS
Portfolio if such purchase would cause: (a) more than 10% of the UBS
Portfolio's total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more than 5% of the UBS
Portfolio's total assets to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer to be held
for the UBS Portfolio. The UBS Portfolio is subject to a non-fundamental
investment restriction that provides that the UBS Portfolio will not purchase
securities issued by any investment company except by purchase in the open
market where no commission or profit to a sponsor or dealer results from such
purchase other than customary broker's commissions, or except when such
purchase, though not made in the open market, is part of a plan of merger or
consolidation. In addition, except in the case of a merger or consolidation,
the UBS Portfolio shall not purchase any securities of any open-end investment
company unless the UBS Sub-Adviser waives its investment advisory fee with
respect to the assets of the UBS Portfolio invested in other open-end investment
companies.
As a matter of fundamental policy, the Brinson Fund may not invest in
securities of any open-end investment company, except that (1) the Brinson Fund
may purchase securities of money market mutual funds, and (2) the Brinson Fund
may purchase shares of an open-end investment company in accordance with any
exemptive order obtained from the SEC which permits investment by the Brinson
Fund in other Trust Series or in other investment companies or series thereof
advised by the Advisor. In addition, the Brinson Fund may acquire
22
securities of other investment companies if the securities are acquired pursuant
to a merger, consolidation, acquisition, plan of reorganization or a SEC
approved offer of exchange.
Under the terms of an exemptive order issued by the SEC, the Brinson
Fund may invest cash (i) held for temporary defensive purposes; (ii) not
invested pending investment in securities; (iii) that is set aside to cover an
obligation or commitment of the Brinson Fund to purchase securities or other
assets at a later date; (iv) to be invested on a strategic management basis (i-
iv herein referred to as "Uninvested Cash"); and (v) collateral that it receives
from the borrowers of its portfolio securities in connection with the Brinson
Fund's securities lending program, in a series of shares of Brinson
Supplementary Trust (the "Supplementary Trust Series"). Brinson Supplementary
Trust is a private investment company which has retained the Advisor to manage
its investments. The Trustees of the Trust also serve as Trustees of the Brinson
Supplementary Trust. The Supplementary Trust Series will invest in U.S. dollar
denominated money market instruments having a dollar-weighted average maturity
of 90 days or less. The Brinson Fund's investment of Uninvested Cash in shares
of the Supplementary Trust Series will not exceed 25% of the Brinson Fund's
total assets. In the event that the Advisor waives 100% of its investment
advisory fee with respect to the Brinson Fund, as calculated monthly, then the
Brinson Fund will be unable to invest in the Supplementary Trust Series until
additional investment advisory fees are owed by the Brinson Fund. The UBS
Portfolio is not subject to a similar order.
As a shareholder of another investment company, the Brinson Fund or
the UBS Portfolio would bear, along with other shareholders, the pro rata
portion of the other investment company's expenses, including any advisory fees.
These expenses would be in addition to the expenses that the Brinson Fund or the
UBS Portfolio would bear in connection with its own operations.
Futures, Options and Other Derivative Instruments
The Brinson Fund and the UBS Portfolio may attempt to reduce the
overall level of investment risk of particular securities and attempt to protect
against adverse market movements by investing in certain derivative instruments
described below. In addition, the UBS Portfolio and the Brinson Fund may invest
in derivatives for hedging purposes. A derivative instrument is a financial
instrument whose performance and value are derived, at least in part, from
another source, such as the performance of an underlying asset, a specific
security or an index of securities. The Brinson Fund and the UBS Portfolio may
invest in a variety of derivative instruments, including futures contracts and
options transactions. The Brinson Fund and the UBS Portfolio will invest in
derivatives only to the extent that the instruments are determined by the
Advisor and the UBS Sub-Adviser to be consistent with the Brinson Fund's or the
UBS Portfolio's investment objective and policies.
Futures and Options
The Brinson Fund and the UBS Portfolio may enter into contracts for
the future purchase or sale of securities, indices of securities and foreign
currencies. A financial futures contract is an agreement between the parties to
buy or sell a specified security at a set price on a future date. An index
futures contract is an agreement to take or make delivery of an amount of cash
based on the difference between the value of the index at the beginning and at
the end of the contract period. A futures contact on a foreign currency is an
agreement to buy or sell a specified amount of a currency for a set price on a
future date. (This latter type of futures contract is described below under
"Foreign Currencies and Forward Currency Transactions.") Both the Brinson Fund
and the UBS Portfolio will enter into futures transactions on domestic exchanges
and, to the extent such transactions have been approved by the Commodity Futures
Trading Commission ("CFTC") for sale to customers in the United States, on
foreign exchanges.
The Brinson Fund and the UBS Portfolio may enter into futures
contracts to the extent that not more than 5% of their respective net assets are
committed as futures contract margin deposits. The Brinson Fund may enter into
these transactions to the extent that obligations relating to such futures
transactions represent not more than 25% of its assets. The Brinson Fund may
affect futures transactions through futures commission merchants who are
affiliated with the Advisor or Trust Series in accordance with procedures
adopted by the Trust's Board of Trustees.
The Brinson Fund and the UBS Portfolio may purchase and sell put and
call options on U.S. and foreign securities and indices and enter into related
closing transactions. In addition, the UBS Portfolio may purchase and sell put
and call options on futures transactions. The Brinson Fund and the UBS
Portfolio may purchase and sell options traded on U.S. exchanges and, to the
extent permitted by law, options traded over-the-counter and on recognized
foreign exchanges. Because the SEC construes over-the-counter options as being
illiquid, the Brinson Fund and the UBS Portfolio may only invest in such options
to the extent consistent with its respective 15% limit on investments in
illiquid securities.
The Brinson Fund and the UBS Portfolio may purchase call options on
securities to the extent that premiums paid by the Brinson Fund or the UBS
Portfolio do not aggregate more than 20% of the Brinson Fund's or the UBS
Portfolio's total assets. In addition, in order to assure that the Brinson Fund
and the UBS Portfolio will not be considered a "commodity pool operator" for
purposes of the rules of the CFTC, the Brinson Fund and the UBS Portfolio will
only enter into transactions in futures contracts and options on futures
contracts if (i) such transactions constitute bona fide hedging transactions, as
defined under CFTC rules, or (ii) no more than 5% of the Brinson Fund's or the
UBS Portfolio's net assets are committed as initial margin or premiums to
positions that do not constitute bona fide hedging transactions.
23
The Brinson Fund may, as a matter of non-fundamental policy, purchase
and sell stock index futures and options on stock index futures. The Brinson
Fund may only purchase put options to the extent that the premiums on all
outstanding put options do not exceed 20% of its total assets. With regard to
the selling of put options, the Brinson Fund will limit the aggregate value of
the obligations underlying such put options to 50% of its total net assets. The
Brinson Fund does not intend to purchase put and call options that are traded on
a national stock exchange in an amount exceeding 5% of its net assets.
As a matter of non-fundamental policy, the UBS Portfolio may purchase
and sell puts and calls on securities, stock index futures or options on stock
index futures, or futures or options on futures according the following
conditions. First, the options or futures are offered through the facilities of
a national securities association or are listed on a national securities or
commodities exchange (except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges). Second,
the aggregate margin requirements required on all such futures or options
thereon do not exceed 5% of the Portfolio's total assets.
Swaps
The UBS Portfolio is authorized to invest in interest rate swaps and
related products, such as equity index swaps, interest rate swaps, currency
swaps, and related caps, collars and floors. Interest rate swaps involve the
exchange by the UBS Portfolio with another party of their respective right to
receive interest payments. The UBS Portfolio expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of the portfolio's duration, to protect against any increase in the
price of securities it anticipates purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. As a matter of
non-fundamental policy, the Brinson Fund may not engage in swaps or invest in
such related derivative instruments.
Foreign Currencies and Forward Currency Transactions
The Brinson Fund and the UBS Portfolio normally maintain a substantial
portion of their assets in foreign securities. Because both the Brinson Fund
and the UBS Portfolio may invest a substantial amount of their respective assets
in foreign securities and such securities may be denominated in various foreign
currencies, their assets are subject to certain risks associated with currency
or exchange rate fluctuations. Exposure to foreign currencies may be adjusted
based on the perception of the most favorable markets and issuers, taking into
consideration the relationship of the foreign currencies to the U.S. dollar.
Neither the Brinson Fund nor the UBS Portfolio has a percentage limitation with
respect to the amount of its assets that may be invested in securities
denominated in foreign currencies. Rather, both the Brinson Fund and the UBS
Portfolio are authorized to allocate their exposure to foreign currencies to
take advantage of or to protect their investments from risk and return
characteristics of foreign currencies and exchange rates.
The Brinson Fund and the UBS Portfolio may alter fixed income or money
market exposures, enter into forward currency exchange contracts, use currency
futures contracts, purchase or sell options thereon or purchase or sell currency
options. Such investment techniques are designed to take advantage of or
protect the Brinson Fund and the UBS Portfolio from currency fluctuations.
The Brinson Fund and the UBS Portfolio may purchase or sell currencies
and forward currency transactions. Both the Brinson Fund and the UBS Portfolio
may conduct their foreign currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market or
through entering into contracts to purchase or sell foreign currencies at a
future date, at an amount set by the parties (i.e., a "forward foreign currency"
contract or "forward" contract). The Brinson Fund and the UBS Portfolio will
convert currency on a spot basis from time to time and investors should be aware
that changes in currency exchange rates and exchange control regulations may
affect the costs of currency conversion.
When the Brinson Fund or the UBS Portfolio enters into a forward
contract to sell an amount of foreign currency, the Brinson Fund or the UBS
Portfolio must establish a segregated account with its custodian and will place
segregated assets in an amount not less than the value of the total assets
committed to the consummation
24
of such forward contracts. The Brinson Fund and the UBS Portfolio may enter into
forward contracts for hedging purposes as well as for non-hedging purposes.
The Brinson Fund and the UBS Portfolio may purchase and sell put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar costs of securities to be acquired. The Brinson Fund may purchase
and sell options on foreign currencies for hedging purposes in a manner similar
to that in which futures contracts on foreign currencies, or forward contracts
will be utilized. The Brinson Fund and the UBS Portfolio may sell covered call
options on foreign currencies, meaning that they will own an equal amount of, or
an offsetting position in, the underlying currency. If the Brinson Fund or the
UBS Portfolio sells put options, it will keep cash or high-quality liquid
securities segregated in a sufficient quantity with its custodian.
INVESTMENT RESTRICTIONS
- -----------------------
The investment restrictions of the Brinson Fund, the UBS Fund and the
UBS Portfolio are similar, but not identical. Each of the investment
restrictions applicable to the Brinson Fund is a fundamental policy that may not
be changed without a Majority Vote of the Brinson Fund's outstanding shares.
The UBS Fund and the UBS Portfolio, however, have adopted investment
restrictions that are fundamental and non-fundamental; to the extent that a
fundamental policy and non-fundamental policy apply to a given investment
activity or strategy, the more restrictive policy shall govern. Each investment
policy of the UBS Fund and the UBS Portfolio discussed below is fundamental,
unless otherwise indicated. These fundamental investment restrictions are in
addition to those discussed previously in the "Investment Policies" section. As
with the Brinson Fund, a fundamental investment restriction may not be changed
without a Majority Vote of the UBS Portfolio's (or the UBS Fund's) outstanding
shares.
The investment restrictions applicable to the UBS Fund have been
adopted by the Corporation's Board of Directors, with respect to the UBS Fund,
and by the UBS Trust's Board of Trustees, with respect to the UBS Portfolio.
The investment restrictions of the UBS Fund and the UBS Portfolio are identical,
unless otherwise specified.
With respect to both the Brinson Fund and the UBS Portfolio, if a
percentage restriction is adhered to at the time of investment, a later increase
or decrease in the percentage which results from a relative change in values or
from a change in the Fund's or Portfolio's total assets will not be considered
a violation.
Neither the Brinson Fund nor the UBS Portfolio may, as to 75% of its
total assets, purchase the securities (or other obligations, in the case of the
UBS Portfolio) of any one issuer, other than securities issued (or guaranteed,
in the case of the UBS Portfolio) by the U.S. government or its agencies or
instrumentalities, if immediately after such purchase more than 5% of the value
of the total assets of the Brinson Fund or the UBS Portfolio would be invested
in securities (or obligations, in the case of the UBS Portfolio) of such issuer.
The UBS Portfolio however, may invest all or part of its investable assets in an
open-end management investment company with the same investment objective and
restrictions.
Neither the Brinson Fund nor the UBS Portfolio may invest in real
estate (or interests in real estate, in the case of the Brinson Fund, but this
will not prevent the Brinson Fund from investing in publicly-held real estate
investment trusts or marketable securities of companies which may represent
indirect interests in real estate), interests in oil, gas and/or mineral
exploration or development programs (including limited partnerships, in the case
of the UBS Portfolio) or leases (in the case of the Brinson Fund only). The UBS
Portfolio's restriction further provides that it may not purchase or sell real
estate mortgage loans. Additionally, the UBS Portfolio may purchase the equity
securities or commercial paper issued by companies that invest in real estate or
interests therein, including real estate investment trusts.
Neither the Brinson Fund nor the UBS Portfolio may purchase or sell
commodities or commodity contracts. The Brinson Fund's restriction provides
that it may enter into futures contracts and options thereon in accordance with
its prospectus. The UBS Portfolio restriction provides that it may not purchase
or sell options on commodities or commodity contracts except for its interest in
certain activities described in its statement of additional information.
25
The Brinson Fund may not make investments in securities for the
purpose of exercising control over or management of the issuer. The UBS
Portfolio has a non-fundamental investment restriction that provides that it
will not invest for the purpose of exercising control or management.
Neither the Brinson Fund nor the UBS Portfolio (with respect to 75% of
its total assets) may purchase the securities of an issuer if, immediately after
such purchase, the Brinson Fund or the UBS Portfolio would own more than 10% of
the outstanding voting securities of such issuer. The UBS Portfolio further
provides that it may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions.
The Brinson Fund may not sell securities short or purchase securities
on margin, except such short-term credits as are necessary for the clearance of
transactions. For this purpose, the deposit or payment by the Brinson Fund for
initial or maintenance margin in connection with futures contracts is not
considered to be the purchase or sale of a security on margin.
The UBS Portfolio is subject to a non-fundamental restriction that
provides that it may not purchase any security or evidence of interest therein
on margin, except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in connection with
the purchase, ownership, holding or sale of futures.
As a matter of non-fundamental policy, the UBS Portfolio may not sell
securities it does not own such that the dollar amount of such short sales at
any one time exceeds 25% of the net equity of the UBS Portfolio, and the value
of securities of any one issuer in which the UBS Portfolio is short exceeds the
lesser of 2.0% of the value of the Portfolio's net assets or 2.0% of the
securities of any class of any U.S. issuer, and provided that short sales may be
made only in those securities which are fully listed on a national securities
exchange or a foreign exchange (this provision does not include the sale of
securities the UBS Portfolio contemporaneously owns or where the UBS Portfolio
has the right to obtain securities equivalent in kind and amount to those sold,
i.e., short sales against the box). The UBS Portfolio has no current intention
to engage in short selling.
In addition to the restrictions on borrowing discussed previously in
the "Investment Policies" section, the UBS Portfolio's investment restriction
also provides that it may not mortgage, pledge, or hypothecate any assets,
except in connection with any permitted borrowing or reverse repurchase
agreements.
Neither the Brinson Fund nor the UBS Portfolio may act as an
underwriter of securities, except that, with respect to the Brinson Fund, in
connection with the disposition of a security, the Brinson Fund may be deemed to
be an "underwriter" as that term is defined in the 1933 Act.
Both the Brinson Fund and the UBS Portfolio (as a matter of non-
fundamental policy) may not invest more than 5% of their total assets in
securities of companies less than three years old. Such three year periods
shall include the operation of any predecessor company or companies.
Additionally, the UBS Portfolio is subject to a non-fundamental investment
restriction that provides that it will not invest more than 15% of the its net
assets (taken at the greater of cost or market value) in securities that are
issued by issuers which (including predecessors) have been in operation less
than three years (other than U.S. government securities).
In addition to the above investment restriction, the UBS Portfolio has
adopted the following non-fundamental investment restrictions. The Brinson Fund
is not subject to comparable restrictions.
The UBS Portfolio may not invest in securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Director of the UBS Fund, or is an officer or director of the UBS Adviser, if
after the purchase of the securities of such issuer for the UBS Portfolio one or
more of such persons own beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
26
The UBS Portfolio may not invest in warrants (other than warrants
acquired by the UBS Portfolio as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at the lower of cost
or market) would exceed 5% of the value of the UBS Portfolio's net assets or if,
as a result, more than 2% of the UBS Portfolio's net assets would be invested in
warrants not listed on a recognized United States or foreign stock exchange, to
the extent permitted by applicable state securities laws.
RISK FACTORS
- ------------
The Brinson Fund and the UBS Portfolio invest primarily in equity
securities of non-U.S. issuers and corporations. Equity securities fluctuate in
value as a result of various factors, which are often unrelated to the value of
the issuer of the securities. These fluctuations may be pronounced.
Fluctuations in the value of equity investments will affect the value of the
shares and thus the Brinson Fund's and the UBS Portfolio's total return to
investors.
Foreign Securities
The Brinson Fund and the UBS Portfolio share certain risks that are
inherent when investing in foreign securities that are not typically associated
with investments in U.S. issuers, including, but not limited to, economic
developments, possible withholding taxes, seizure of foreign deposits, changes
in currency rates or currency exchange controls, higher transactional costs due
to a lack of negotiated commissions, or other governmental restrictions which
might affect the amount and types of foreign investments made or the payment of
principal or interest on securities in the investment portfolios of the Brinson
Fund and the UBS Portfolio. In addition, in some non-U.S. countries there is
the possibility of political or social instability, or diplomatic developments
that could affect U.S. investments in those countries. Also, there may be less
information available about these securities in general, and it may be more
difficult to obtain or enforce a court judgment in the event of a lawsuit. In
the case of Depository Receipts, the issuers of these instruments are not
obligated to disclose material information in the United States.
Developing Market Countries
Unlike the Brinson Fund, the UBS Portfolio may invest in securities of
issuers in developing market countries. Investments in securities of issuers in
developing market countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investing
in securities of foreign issuers, as discussed above, to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging market
issuers and the currently low or non-existent volume of trading, resulting in
limited liquidity and in price volatility; (iii) certain national policies that
may restrict the UBS Portfolio's investment opportunities including restrictions
on investing in issuers or industries deemed sensitive to relevant national
interest; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
Securities of issuers in developing market countries have offered
greater potential for gain, as well as loss, than securities of companies
located in developed countries. Countries such as those in which the UBS
Portfolio may invest have historically experienced and may continue to
experience, high rates of inflation, high interest rates, exchange rate
fluctuations or currency depreciation, large amounts of external debt, balance
of payments and trade difficulties and extreme poverty and unemployment.
Additional factors which may influence the ability or willingness to service
debt include, but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, its
government's policy towards the International Monetary Fund, the World Bank and
other international agencies and the political constraints to which a government
debtor may be subject.
The ability of a foreign government or government-related issuer to
make timely and ultimate payments on its external debt obligations will be
strongly influenced by the issuer's balance of payments, including export
performance, its access to international credits and investments, fluctuations
in interest rates and the extent of its foreign reserves. In consideration of
the foregoing, a governmental issuer may default on its obligations. If such
27
default occurs, the UBS Portfolio may have limited effective legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting country itself, and the ability of the holder of
foreign government and government-related debt securities to obtain recourse may
be subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign government and government-related debt
obligations in the event of default under their commercial bank loan agreements.
Currency and Exchange Rate Fluctuations
The assets of the Brinson Fund and the UBS Portfolio are subject to
certain risks associated with currency or exchange rate fluctuations. The U.S.
dollar market value of the Brinson Fund's and the UBS Portfolio's investments
and dividends and interest earned may be significantly affected by changes in
currency exchange rates. Some currency prices may be volatile, and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets could have adverse affects. Although both the
Brinson Fund and the UBS Portfolio may attempt to manage currency exchange rate
risks, there is no assurance that either will do so at an appropriate time or
that either will be able to predict exchange rates accurately.
If the currency in which a security is denominated appreciates against
the U.S. dollar, the dollar value of the security will increase. Conversely, a
decline in the exchange rate of the currency would adversely affect the value of
the security expressed in dollars.
Although foreign currency transactions are intended to minimize the
risk of loss due to a decline in the value of the hedged currency, these
transactions also limit any potential gain that might be realized should the
value of the hedged currency increase. Additionally, any premiums paid for
currency or futures options increase transaction costs. Forward contracts that
convert one foreign currency into another foreign currency will cause the
Brinson Fund or the UBS Portfolio to assume the risk of fluctuations in the
value of the currency purchased vis-a-vis the hedged currency and the U.S.
dollar. The precise matching of these transactions and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date such a transaction is
entered into and the date it matures. The projection of currency market
increments is extremely difficult and the successful execution of a hedging
strategy is highly uncertain.
On January 1, 1999, the European Monetary Union (the "EMU") plans to
introduce a new single currency, the Euro, which will replace the national
currencies of participating member nations. If the Brinson Fund or the UBS
Portfolio holds investments in nations with currencies replaced by the Euro, its
investment process, including trading, foreign exchange, payments, settlements,
cash accounts, custody and accounting, will be impacted. Although it is not
possible to predict the impact of the Euro on the Brinson Fund or the UBS
Portfolio, the transition and the elimination of currency risk among nations
participating in the EMU may change the economic environment and behavior of
investors, particularly in European markets.
The adoption of the Euro does not reduce the currency risk presented
by fluctuations in value of the U.S. dollar to other currencies, and, in fact,
currency exchange risk may be magnified. Also, increased market volatility may
result. Additional risks that may result include the fact that European issuers
in which the Brinson Fund or the UBS Portfolio invest may face substantial
conversion costs, which may not be accurately anticipated and may impact issuer
profitability and creditworthiness.
The Brinson Fund's and the UBS Portfolio's ability to "pass through"
any foreign taxes paid for tax credit or deduction purposes will be determined
by the composition of their respective portfolios. Special rules govern the
federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar.
Futures, Options and Other Derivative Instruments
The success of the investments by the Brinson Fund and the UBS
Portfolio in options, futures, options on futures (in the case of the UBS
Portfolio), forward contracts and other derivative instruments will depend
28
on the judgment of the Advisor and the UBS Sub-Adviser, respectively, as to
trends relating to prices, interest rates and currency rates. Risks inherent in
the use of futures, options, options in futures, and forward contracts include:
adverse movements in the prices of securities or currencies being hedged; the
possible absence of a liquid secondary market for any particular instrument at
any time; and the possible need to defer closing out certain hedge positions to
avoid adverse tax consequences. Options and futures can be volatile instruments
and may not perform as expected. The Brinson Fund or the UBS Portfolio could
experience a loss if the prices of its options and futures positions are poorly
correlated with its other investments. If a hedge is applied at an inappropriate
time or price trends are judged incorrectly, options and futures strategies may
lower return. Options and futures traded on foreign exchanges generally are not
regulated by U.S. authorities and may offer less liquidity and less protection
in the event of default by the other party to the contract. The loss from
investing in futures transactions is potentially unlimited.
The Brinson Fund's and the UBS Portfolio's purchases of options on
indices will subject them to the following risks. First, because the value of
an index option depends upon movements in the level of the index rather than the
price of a particular security, whether the Brinson Fund or the UBS Portfolio
will realize gain or loss on the purchase of an option on an index depends upon
movements in the level of prices in the market generally or in an industry or
market segment rather than movements in the price of a particular security.
Accordingly, successful use by either the Brinson Fund or the UBS Portfolio of
options on indices is subject to the Advisor's or the UBS Sub-Adviser's ability,
respectively, to predict correctly the direction of movements in the market
generally or in a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual securities.
Second, index prices may be distorted if trading of a substantial
number of securities included in the index is interrupted causing the trading of
options on that index to be halted. If a trading halt occurred, the Brinson
Fund and the UBS Portfolio would not be able to close out options which they had
purchased and the Fund or the Portfolio may incur losses if the underlying index
moved adversely before trading resumed. If a trading halt occurred and
restrictions prohibiting the exercise of options were imposed through the close
of trading on the last day before expiration, exercises on that day would be
settled on the basis of a closing index value that may not reflect current price
information for securities representing a substantial portion of the value of
the index.
Finally, if either the Brinson Fund or the UBS Portfolio holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
"out-of-the-money," the Brinson Fund or the UBS Portfolio will be required to
pay the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although the
Brinson Fund or the UBS Portfolio may be able to minimize this risk by
withholding exercise instructions until just before the daily cutoff time or by
selling rather than exercising the option when the index level is close to the
exercise price, it may not be possible to eliminate this risk entirely because
the cutoff times for index options may be earlier than those fixed for other
types of options and may occur before definitive closing index values are
announced.
Repurchase Agreements
The Brinson Fund and the UBS Portfolio may each invest in repurchase
agreements, which involve risk of loss if a seller defaults on its obligations
under the agreement, and reverse repurchase agreements, which involve risk of
loss if a purchaser defaults in its obligation to return securities to the
Brinson Fund or the UBS Portfolio.
When-Issued and Delayed Delivery Securities
The UBS Portfolio may purchase securities on a when-issued and a
delayed delivery basis. At the time of settlement, a when-issued security may
be valued at less than its purchase price. When entering into a when-issued or
delayed delivery transaction, the UBS Portfolio will rely on the other party to
consummate the transaction; if the other party fails to do so, the UBS Portfolio
may be disadvantaged.
Securities Lending
29
Both the Brinson Fund and the UBS Portfolio may loan portfolio
securities to qualified broker-dealers and other institutions on a
collateralized basis. As with any extension of credit, loans by the Brinson
Fund or the UBS Portfolio may be subject to the risks of delay in recovery and
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities are only made to firms
deemed by either the Brinson Fund or the UBS Portfolio to be of good standing,
and when, in the judgment of either the Brinson Fund or the UBS Portfolio, the
income that can be earned from such loans justifies the attendant risk.
Asset-Backed Securities
Unlike the Brinson Fund, the UBS Portfolio may invest in asset-backed
securities. Risks of asset-backed securities include the prepayment of the
debtor's obligation and the creditor's limited interests in applicable
collateral. Additionally, if the letter of credit guaranteeing payments of
principal or interest for the asset-backed securities is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amount due in underlying sales contracts are not realized.
INFORMATION ABOUT THE BRINSON FUND
Information about the Brinson Fund is included in its current
prospectus, which is attached to this Prospectus/Proxy Statement and
incorporated by reference herein. Additional information about the Brinson Fund
is included in a Statement of Additional Information, of even date with the
prospectus and in the Statement of Additional Information related to this
Prospectus/Proxy Statement, which is dated ___________, 1998 which has been
filed with the Commission and is incorporated by reference herein. Copies of
these Statements of Additional Information may be obtained without charge by
writing to the Trust or calling 1-800-448-2430. The Trust is subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, as applicable, and, in accordance with such requirements, files proxy
materials, reports and other information with the Commission. These materials
can be inspected and copied at the Public Reference Facilities maintained by the
Commission at 450 Fifth Street N.W., Washington, DC 20549, and at the offices of
the Trust at 209 South LaSalle Street, Chicago, IL 60604 and at the Midwest
Regional Office of the Commission at 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services, U.S.
Securities and Exchange Commission, Washington, DC 20549, at prescribed rates.
INFORMATION ABOUT THE UBS FUND
Information about the UBS Fund is incorporated herein by reference
from its current prospectus, dated May 1, 1998, as amended or supplemented from
time to time, Statement of Additional Information of the same date, and annual
report to shareholders, dated December 31, 1997, copies of which may be obtained
without charge by writing or calling the Corporation at the address and
telephone number shown on the cover page of this Prospectus/Proxy Statement.
Reports and other information filed by the Corporation can be inspected and
copied at the Public Reference Facilities maintained by the Commission at 450
Fifth Street N.W., Washington, DC 20549, and copies of such material can be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, U.S. Securities and Exchange Commission, Washington, DC
20549, at prescribed rates.
TRANSFER AGENT AND CUSTODIAN
MSTC, One Pierrepont Plaza, Brooklyn, New York 11201 provides
custodian services for the Trust. CGFSC, 73 Tremont Street, Boston,
Massachusetts 02108-3913 provides transfer agency services to the Trust.
Investors Bank, whose principal offices are located at 200 Clarendon Street,
Boston, Massachusetts 02116, serves as the transfer and dividend disbursing
agent and custodian for the UBS Fund and the UBS Portfolio.
30
SHAREHOLDER INQUIRIES
Shareholder inquiries with respect to the Brinson Fund may be made by
writing the Trust at 209 South LaSalle Street, Chicago, Illinois 60604 or by
calling toll-free (800) 448-2430. Shareholder inquiries with respect to the
Corporation and the UBS Fund may be made by writing to the Corporation at 200
Clarendon Street, Boston, Massachusetts 02116 or by calling toll-free (888) 827-
3863.
31
SPECIAL MEETING OF SHAREHOLDERS OF THE UBS PRIVATE INVESTOR FUNDS, INC.
UBS INTERNATIONAL EQUITY FUND
DECEMBER 15, 1998
The undersigned hereby revokes all previous proxies for his/her shares and
appoints [NAMES], and each of them, proxies of the undersigned with full power
of substitution to vote all shares of the UBS International Equity Fund (the
"UBS Fund") of UBS Private Investor Funds, Inc. (the "Corporation") which the
undersigned is entitled to vote at the Corporation's Special Meeting to be held
at _____________________________ at _____ a.m. Eastern time on the 15th day of
December, 1998, including any adjournment thereof, upon such business as may
properly be brought before the Meeting.
No. 1 To approve an Agreement and Plan of Reorganization between the
Corporation, on behalf of the UBS Fund, and The Brinson Funds, on
behalf of the Non-U.S. Equity Fund series (the "Brinson Fund"), that
provides for the acquisition of substantially all of the assets and
liabilities of the UBS Fund in exchange for the Brinson Non-U.S.
Equity Fund Class I shares of the Brinson Fund, the distribution of
such shares to the shareholders of the UBS Fund, and the dissolution
of the UBS Fund.
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
No. 2 To vote upon any other business which may legally come before the
meeting.
GRANT WITHHOLD
----- --------
[_] [_]
32
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION.
IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE
VOTED IN FAVOR OF PROPOSAL 1, REGARDING THE REORGANIZATION OF THE UBS FUND OF
THE CORPORATION PURSUANT TO THE AGREEMENT AND PLAN OF REORGANIZATION WITH THE
BRINSON FUNDS. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING ABOUT
WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME OF THE SOLICITATION,
AUTHORIZATION IS GIVEN THE PROXYHOLDERS TO VOTE IN ACCORDANCE WITH THE VIEWS OF
MANAGEMENT THEREON. THE MANAGEMENT IS NOT AWARE OF ANY SUCH MATTERS.
Dated:_________________________________
_______________________________________
Signature
_______________________________________
Print Name
_______________________________________
Signature
_______________________________________
Print Name
NOTE: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, title
or capacity should be stated. If shares
are held jointly, each holder must sign.
33
EXHIBITS TO
PROSPECTUS AND PROXY STATEMENT
EXHIBIT
- -------
A Agreement and Plan of Reorganization between UBS Private Investor
Funds, Inc., on behalf of its UBS International Equity Fund, and
The Brinson Funds, on behalf of the Non-U.S. Equity Fund.
B Prospectus dated September 15, 1998 of The Brinson Funds relating
to the Brinson Non-U.S. Equity Fund Class I Shares.
C Annual Report of The Brinson Funds, dated June 30, 1998.
34
EXHIBIT A
---------
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, made as of this ___ day of
_____________ 1998, by and between The Brinson Funds (the "Trust"), a business
trust created under the laws of the State of Delaware, with its principal place
of business at 209 South LaSalle Street, Chicago, Illinois 60604 and UBS Private
Investor Funds, Inc. (the "UBS Funds"), a corporation organized under the laws
of the State of Maryland, with its principal place of business at 200 Clarendon
Street, Boston, Massachusetts 02116.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by the Trust of
substantially all of the property, assets and goodwill of the UBS International
Equity Fund (the "UBS Portfolio") of the UBS Funds in exchange solely for the
Brinson Non-U.S. Equity Fund Class I shares ("Class I shares") of beneficial
interest of the Non-U.S. Equity Fund (the "Brinson Fund"), $0.001 par value, and
the assumption by the Trust of the liabilities of the UBS Portfolio, (ii) the
distribution of such shares of beneficial interest of the Brinson Fund to the
shareholders of the UBS Portfolio according to their respective interests, and
(iii) the dissolution of the UBS Portfolio as soon as practicable after the
closing (as defined in Section 3, hereinafter called the "Closing"), all upon
and subject to the terms and conditions of this Agreement hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration
of the premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as follows:
1. SALE AND TRANSFER OF ASSETS AND LIABILITIES, LIQUIDATION
AND DISSOLUTION OF THE UBS PORTFOLIO
------------------------------------
(a) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of the Trust herein contained,
and in consideration of the delivery by the Trust of the number of its Class I
shares of the Brinson Fund hereinafter provided, the UBS Funds on behalf of the
UBS Portfolio agrees that it will convey, transfer and deliver to the Trust at
the Closing provided for in Section 3 (hereinafter called the "Closing") all of
the then existing liabilities and assets of the UBS Portfolio free and clear of
all liens, encumbrances, and claims whatsoever (other than shareholders' rights
of redemption and such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act"), with respect to privately placed or otherwise
restricted securities that the UBS Portfolio may have acquired in the ordinary
course of business) except for cash, bank deposits, or cash equivalent
securities in an estimated amount necessary (1) to pay its costs and expenses of
carrying out this Agreement (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution contemplated
hereunder), which costs and expenses shall be
A-1
established on the books of the UBS Portfolio as liability reserves, (2) to
discharge all of the UBS Portfolio's liabilities on its books at the closing
date (as defined in Section 3, hereinafter called the "Closing Date"),
including, but not limited to, its income dividends and capital gains
distributions, if any, payable for any period prior to, and through, the Closing
Date, and excluding those liabilities and obligations which would otherwise be
discharged at a later date in the ordinary course of business, and (3) to pay
such contingent liabilities as the directors shall reasonably deem to exist
against the UBS Portfolio, if any, at the Closing Date, for which contingent and
other appropriate liability reserves shall be established on the books of the
UBS Portfolio (hereinafter "Net Assets"). The UBS Portfolio shall also retain
any and all rights which it may have over and against any person which may have
accrued up to and including the close of business on the Closing Date.
(b) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of the Trust herein contained,
and in consideration of such sale, conveyance, transfer, and delivery, the Trust
agrees at the Closing to deliver to the UBS Portfolio the number of Class I
shares of beneficial interest of the Brinson Fund ($0.00l par value) determined
by dividing the aggregate Net Assets of the UBS Portfolio on the Closing Date by
the net asset value per share of the Class I shares of the Brinson Fund on the
Closing Date. All such values shall be determined in the manner and as of the
time set forth in Section 2 hereof.
(c) Immediately following the Closing, the UBS Portfolio shall
dissolve and distribute pro rata to its shareholders of record as of the close
of business on the Closing Date the shares of beneficial interest of the Class I
shares of the Brinson Fund received by the UBS Portfolio pursuant to this
Section 1. Such liquidation and distribution shall be accomplished by the
establishment of accounts on the share records of the Brinson Fund of the type
and in the amounts due such shareholders based on their respective holdings as
of the close of business on the Closing Date. Fractional shares of beneficial
interest of the Class I shares of the Brinson Fund shall be carried to the third
decimal place. As promptly as practicable after the Closing, each holder of any
outstanding certificate or certificates representing shares of common stock of
the UBS Portfolio shall be entitled to surrender the same to the transfer agent
for the Trust and request in exchange therefor a certificate or certificates
representing the number of whole shares of beneficial interest of the Class I
shares of the Brinson Fund into which the shares of common stock of the UBS
Portfolio theretofore represented by the certificate or certificates so
surrendered shall have been converted. Certificates for fractional shares of
beneficial interest of the Class I shares of the Brinson Fund shall not be
issued, but shall continue to be carried by the Brinson Fund for the account of
such shareholder as unissued shares. Until so surrendered, each outstanding
certificate which, prior to the Closing, represented shares of common stock of
the UBS Portfolio shall be deemed for all the Brinson Fund purposes to evidence
ownership of the number of shares of beneficial interest of the Class I shares
of the Brinson Fund into which the shares of common stock of the UBS Portfolio
(which prior to the Closing were represented thereby) have been converted.
A-2
2. VALUATION
---------
(a) The value of the UBS Portfolio's Net Assets to be acquired by the
Brinson Fund hereunder shall be computed as of the close of business (which
shall be deemed to be the close of The New York Stock Exchange, Inc. ("NYSE"))
on the Closing Date using the valuation procedures set forth in the UBS
Portfolio's currently effective prospectus.
(b) The net asset value of a share of beneficial interest of the
Class I shares of the Brinson Fund shall be determined to the nearest full cent
as of the close of business (which shall be deemed to be the close of the NYSE)
on the Closing Date using the valuation procedures set forth in the Brinson
Fund's currently effective prospectus.
(c) The net asset value of a share of common stock of the UBS
Portfolio shall be determined to the nearest full cent as of the close of
business (which shall be deemed to be the close of the NYSE) on the Closing
Date, using the valuation procedures as set forth in the UBS Portfolio's
currently effective prospectus.
3. CLOSING AND CLOSING DATE
------------------------
The Closing Date shall be December 16, 1998, or such later date as the
parties may mutually agree. The Closing shall take place at the principal
office of the Trust, 209 South LaSalle Street, Chicago, Illinois 60604 at 10:00
a.m. Eastern Time on the first business day following the Closing Date. The UBS
Funds shall have provided for delivery as of the Closing of those Net Assets of
the UBS Portfolio to be transferred to the Trust's Custodian, Morgan Stanley
Trust Company, One Pierrepont Plaza, Brooklyn, New York 11201. Also, the UBS
Funds shall deliver at the Closing a list of names and addresses of the
shareholders of record of the UBS Portfolio and the number of shares of common
stock of the UBS Portfolio owned by each such shareholder, indicating thereon
which such shares are represented by outstanding certificates and which by book-
entry accounts, all as of the close of business on the Closing Date, certified
by its transfer agent, or by its President to the best of their knowledge and
belief. The Trust shall issue and deliver a certificate or certificates
evidencing the shares of beneficial interest of the Class I shares of the
Brinson Fund to be delivered to said transfer agent registered in such manner as
the UBS Funds may request, or provide evidence satisfactory to the UBS Portfolio
that such shares of the Brinson Fund have been registered in an account on the
books of the Brinson Fund in such manner as the UBS Funds may request.
4. REPRESENTATIONS AND WARRANTIES BY THE UBS FUNDS
-----------------------------------------------
The UBS Funds represents and warrants to the Trust that:
(a) UBS Funds is a corporation duly organized under the laws of the
State of Maryland on November 16, 1995, and is validly existing and in good
standing under the laws of that state. UBS Funds, of which the UBS Portfolio is
a diversified separate series of shares, is duly registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, management
investment company and all its shares sold have been sold pursuant to an
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effective registration statement filed under the 1933 Act, except for those
shares sold pursuant to the private offering exemption for the purpose of
raising the required initial capital.
(b) The UBS Funds has an authorized capital of 500,000,000 shares of
common stock with $0.001 par value per share, each outstanding share of which is
fully paid, non-assessable, fully transferable and has full voting rights.
(c) The financial statements appearing in the UBS Funds' Annual
Report to Shareholders for the fiscal year ended December 31, 1997, audited by
Price Waterhouse LLP, and the unaudited financial statements appearing in the
UBS Funds' Semi-Annual Report to Shareholders for the period ended June 30,
1998, copies of which have been delivered to the Trust, fairly present the
financial position of the UBS Funds and the UBS Portfolio as of the respective
dates indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) The books and records of the UBS Portfolio made available to the
Trust and/or its counsel are true and correct and contain no material omissions
with respect to the business and operations of the UBS Portfolio.
(e) The UBS Funds has the necessary power and authority to conduct
its business as such business is now being conducted.
(f) The UBS Funds is not a party to or obligated under any provision
of its Articles of Incorporation, By-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which would
be violated by its execution of or performance under this Agreement and Plan of
Reorganization.
(g) The UBS Funds is not under the jurisdiction of a Court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
(h) The UBS Funds does not have any unamortized or unpaid
organizational fees or expenses.
(i) The UBS Portfolio satisfies, will at the Closing satisfy, and
consummation of this Agreement will not cause it to fail to satisfy, for any
period, the requirements of Subchapter M of the Code.
5. REPRESENTATIONS AND WARRANTIES BY THE TRUST
-------------------------------------------
The Trust represents and warrants to the UBS Funds that:
(a) The Trust is a business trust created under the laws of the State
of Delaware on August 9, 1993, and is validly existing and in good standing
under the laws of that state. The Trust, of which the Brinson Fund is a
diversified separate series of shares, is duly
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registered under the 1940 Act, as an open-end, management investment company and
all of its shares sold have been sold pursuant to an effective registration
statement filed under the 1933 Act, except for those shares sold pursuant to the
private offering exemption for the purpose of raising the required initial
capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.001 per share. Each outstanding share is
fully paid, non-assessable, fully transferable, and has full voting rights. The
shares of beneficial interest of the Class I shares of the Brinson Fund to be
issued pursuant to this Agreement and Plan of Reorganization will be fully paid,
non-assessable, freely transferable and have full voting rights.
(c) At the Closing, the shares of beneficial interest of the Class I
shares of the Brinson Fund will be eligible for offering to the public in those
states of the United States and jurisdictions in which the shares of the UBS
Portfolio are presently eligible for offering to the public, and there are a
sufficient number of such shares registered under the 1933 Act, to permit the
transfers contemplated by this Agreement to be consummated.
(d) The financial statements appearing in the Trust's Annual Report
to Shareholders for the fiscal year ended June 30, 1998, audited by Ernst &
Young LLP, copies of which have been delivered to the UBS Funds, fairly present
the financial position of the Brinson Fund as of the date indicated and the
results of its operations for the period indicated in conformity with generally
accepted accounting principles applied on a consistent basis.
(e) The Trust has the necessary power and authority to conduct its
business as such business is now being conducted.
(f) The Trust is not a party to or obligated under any provision of
its Agreement and Declaration of Trust, By-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which would
be violated by its execution of or performance under this Agreement and Plan of
Reorganization.
(g) The Brinson Fund has elected to be treated as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of the Code, has qualified as a RIC for each taxable year since its
inception, and will qualify as a RIC as of the Closing Date.
(h) Neither the Trust nor the Brinson Fund is under the jurisdiction
of a Court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
6. REPRESENTATIONS AND WARRANTIES BY THE UBS FUNDS AND THE TRUST
-------------------------------------------------------------
The UBS Funds and the Trust each represents and warrants to the other
that:
(a) The statement of assets and liabilities to be furnished by it as
of the close of business on the Closing Date for the purpose of determining the
number of shares of beneficial
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interest of the Class I shares of the Brinson Fund to be issued pursuant to
Section 1 of this Agreement will accurately reflect its Net Assets in the case
of the UBS Portfolio and its net assets in the case of the Brinson Fund, and
outstanding shares of beneficial interest or common stock, as applicable, as of
such date in conformity with generally accepted accounting principles applied on
a consistent basis.
(b) At the Closing, it will have good and marketable title to all of
the securities and other assets shown on the statement of assets and liabilities
referred to in subsection (a) above, free and clear of all liens or encumbrances
of any nature whatever except such restrictions as might arise under the 1933
Act with respect to privately placed or otherwise restricted securities that the
UBS Portfolio may have acquired in the ordinary course of business and such
imperfections of title or encumbrances as do not materially detract from the
value or use of the assets subject thereto, or materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus, there
is no material suit, judicial action, or legal or administrative proceeding
pending or threatened against it.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(e) It has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action of its Board of
Directors or Board of Trustees, as the case may be, and this Agreement
constitutes its valid and binding obligation enforceable in accordance with its
terms.
7. COVENANTS OF THE UBS FUNDS AND THE TRUST
----------------------------------------
(a) The UBS Funds and the Trust each covenant to operate their
respective businesses as presently conducted between the date hereof and the
Closing.
(b) The UBS Funds undertakes that it will not acquire the Brinson
Fund's shares for the purpose of making distributions thereof other than to the
UBS Portfolio's shareholders.
(c) The UBS Funds undertakes that if this Agreement is consummated,
it will file an application pursuant to Section 8(f) of the 1940 Act for an
order declaring that it has ceased to be an investment company.
(d) The UBS Funds and the Trust each agree that by the Closing, all
of its federal and other tax returns and reports required by law to be filed on
or before such date shall have been filed and all federal and other taxes shown
as due on said returns shall have either been paid or adequate liability
reserves shall have been provided for the payment of such taxes.
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(e) The UBS Funds will at the Closing provide the Trust with:
(1) A statement of the respective tax basis of all investments
and liabilities to be transferred by the UBS Portfolio to the Brinson
Fund certified by PricewaterhouseCoopers LLP.
(2) A copy of the shareholder ledger accounts for all the
shareholders of record of the UBS Portfolio as of the close of
business on the Closing Date, who are to become shareholders of the
Brinson Fund as a result of the transfer of assets which is the
subject of this Agreement, certified by its transfer agent or its
President to the best of their knowledge and belief.
(f) UBS Funds agrees to mail to each shareholder of record of the UBS
Portfolio entitled to vote at the meeting of shareholders at which action on
this Agreement is to be considered, in sufficient time to comply with
requirements as to notice thereof, a Combined Proxy Statement and Prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the Securities Exchange Act of 1934, as amended, and Section
20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder.
(g) The Trust will file with the United States Securities and
Exchange Commission (the "Commission") a Registration Statement on Form N-14
under the 1933 Act ("Registration Statement"), relating to the shares of
beneficial interest of the Class I shares of the Brinson Fund issuable
hereunder, and will use its best efforts to provide that the Registration
Statement becomes effective as promptly as practicable. At the time the
Registration Statement becomes effective, it (i) will comply in all material
respects with the applicable provisions of the 1933 Act, and the rules and
regulations promulgated thereunder; and (ii) will not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. At
the time the Registration Statement becomes effective, at the time of the UBS
Portfolio's shareholders' meeting, and at the Closing Date, the prospectus and
statement of additional information included in the Registration Statement will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY THE UBS FUNDS AND THE TRUST
-------------------------------------------------------------------
The obligations of the UBS Funds and the Trust to effectuate this
Agreement and the Plan of Reorganization hereunder shall be subject to the
following respective conditions:
(a) That (1) all the representations and warranties of the other
party contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (2) the other party shall have
performed all obligations required by this Agreement to be performed by it prior
to the Closing; and (3) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent officer
to the foregoing effect.
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(b) That the other party shall have delivered to such party a copy of
the resolutions approving this Agreement adopted by the other party's Board of
Directors or Board of Trustees, as applicable, certified by the Secretary or
equivalent officer.
(c) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted nor threatened to
institute any proceeding seeking to enjoin consummation of the reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of either party or would prohibit the transactions
contemplated hereby.
(d) That the adoption of this Agreement and Plan of Reorganization
contemplated hereby shall have been approved by the holders of at least a
majority of the outstanding shares of the UBS Portfolio at a special meeting to
be held no later than March 22, 1999 or other such date as the parties may
agree.
(e) That each party shall have declared a distribution or
distributions prior to the Closing Date which, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its ordinary income and all of its capital gain net income, if any, for the
period from the close of its last fiscal year to the close of business on the
Closing Date, and (ii) any undistributed ordinary income and capital gain net
income from any prior period. Capital gain net income has the meaning given
such term by Section 1222(9) of the Code.
(f) That prior to or at the Closing, the UBS Funds and the Trust
shall receive an opinion from Messrs. Stradley, Ronon, Stevens & Young LLP,
counsel to the Trust, to the effect that provided the acquisition contemplated
hereby is carried out in accordance with this Agreement and in accordance with
customary representations provided by the UBS Funds and the Trust in
certificates delivered to counsel to the Trust:
(1) The acquisition by the Brinson Fund of substantially all of
the assets and liabilities of the UBS Portfolio in exchange for the
Brinson Fund voting shares followed by the distribution by the UBS
Portfolio of the Brinson Fund voting shares to the shareholders, in
complete liquidation, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code. For these purposes,
"substantially all" means at least 70 percent of the fair market value
of the gross assets and at least 90 percent of the fair market value
of the net assets of the UBS Portfolio. Additionally, the Brinson
Fund and the UBS Portfolio will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the UBS Portfolio upon
the transfer of substantially all of its assets and liabilities to the
Brinson Fund in
A-8
exchange solely for voting shares of the Brinson Fund (Sections 361(a)
and 357(a)). No opinion will be expressed as to whether any accrued
market discount will be required to be recognized as ordinary income
pursuant to Section 1276 of the Code;
(3) No gain or loss will be recognized by the Brinson Fund upon
the receipt of substantially all of the assets and liabilities of the
UBS Portfolio in exchange solely for voting shares of the Brinson Fund
(Section 1032(a) of the Code);
(4) The basis of the assets and liabilities of the UBS Portfolio
received by the Brinson Fund will be the same as the basis of such
assets and liabilities to the UBS Portfolio immediately prior to the
exchange (Section 362(b) of the Code);
(5) The holding period of the assets of the UBS Portfolio
received by the Brinson Fund will include the period during which such
assets were held by the UBS Portfolio (Section 1223(2) of the Code);
(6) No gain or loss will be recognized to the shareholders of
the UBS Portfolio upon the exchange of their shares in the UBS
Portfolio for voting shares of the Brinson Fund (including fractional
shares to which they may be entitled) (Section 354(a) of the Code);
(7) The basis of the Brinson Fund's shares received by the UBS
Portfolio shareholders (including fractional shares to which they may
be entitled) shall be the same as the basis of the shares of the UBS
Portfolio exchanged therefor (Section 358(a)(1) of the Code);
(8) The holding period of the Brinson Fund's shares received by
the UBS Portfolio's shareholders (including fractional shares to which
they may be entitled) will include the holding period of the UBS
Portfolio's shares surrendered in exchange therefor, provided that the
UBS Portfolio shares were held as a capital asset on the date of the
exchange (Section 1223(1) of the Code); and
(9) The Brinson Fund will succeed to and take into account the
items of the UBS Portfolio described in Section 381(c) of the Code,
including the earnings and profits, or deficit earnings and profits,
of the UBS Portfolio as of the date of the transaction (Section 381(a)
and Treasury Regulations 1.381-1(a)). Any deficit in earnings and
profits of the UBS Portfolio will be used only to offset earnings and
profits accumulated after the effective date of the proposed
reorganization. The Brinson Fund will take these items into account
subject to the conditions and limitations specified under Sections
381, 382, 383 and 384 and the Treasury Regulations thereunder.
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(g) That the Trust shall have received an opinion in form and
substance satisfactory to it from Messrs. Willkie Farr & Gallagher, counsel to
the UBS Funds, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) UBS Funds was incorporated under the laws of the State of
Maryland on November 16, 1995, and is validly existing and in good
standing under the laws of the State of Maryland;
(2) UBS Funds has an authorized capital of 500,000,000 shares of
common stock, par value $0.001 per share, and, assuming that the
initial shares of common stock of the UBS Portfolio were issued in
accordance with the 1940 Act, and the Articles of Incorporation and
By-laws of the UBS Funds, and that all other outstanding shares of the
UBS Portfolio were sold, issued and paid for in accordance with the
terms of the UBS Portfolio's prospectus in effect at the time of such
sales, each such outstanding share is fully paid, non-assessable,
fully transferable and has full voting rights;
(3) UBS Funds is an open-end, investment company of the
management type registered as such under the 1940 Act;
(4) Except as disclosed in the UBS Portfolio's currently
effective prospectus, such counsel does not know of any material suit,
action, or legal or administrative proceeding pending or threatened
against the UBS Funds, the unfavorable outcome of which would
materially and adversely affect the UBS Funds or the UBS Portfolio;
(5) All corporate actions required to be taken by the UBS Funds
to authorize this Agreement and to effect the Plan of Reorganization
contemplated hereby have been duly authorized by all necessary
corporate action on the part of the UBS Funds; and
(6) This Agreement is the legal, valid and binding obligation of
the UBS Funds and is enforceable against the UBS Funds in accordance
with its terms.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the UBS Funds with regard to
matters of fact and certain certifications and written statements of
governmental officials with respect to the good standing of the UBS Funds and
the UBS Portfolio.
(h) That the UBS Funds shall have received an opinion in form and
substance satisfactory to it from Messrs. Stradley, Ronon, Stevens & Young LLP,
counsel to Trust, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization,
A-10
moratorium, fraudulent conveyance and other laws now or hereafter affecting
generally the enforcement of creditors' rights:
(1) The Trust was created as a business trust under the laws of
the State of Delaware on August 9, 1993, and is validly existing and
in good standing under the laws of that state;
(2) The Trust is authorized to issue an unlimited number of
shares of beneficial interest, par value $0.001 per share, and,
assuming that the initial shares of beneficial interest of the Class I
shares of the Brinson Fund were issued in accordance with the 1940
Act, and the Trust's Agreement and Declaration of Trust and that all
other such shares were sold, issued and paid for in accordance with
the terms of the Brinson Fund's prospectus in effect at the time of
such sales, each such outstanding share is fully paid, non-assessable,
freely transferable and has full voting rights;
(3) The Trust is an open-end investment company of the
management type registered as such under the 1940 Act;
(4) Except as disclosed in the Brinson Fund's currently
effective prospectus, such counsel does not know of any material suit,
action, or legal or administrative proceeding pending or threatened
against the Trust, the unfavorable outcome of which would materially
and adversely affect the Trust or the Brinson Fund;
(5) The shares of beneficial interest of the Brinson Fund to be
issued pursuant to the terms of this Agreement have been duly
authorized and, when issued and delivered as provided in this
Agreement, will have been validly issued and fully paid and will be
nonassessable by the Trust or the Brinson Fund;
(6) All actions required to be taken by the Trust to authorize
this Agreement and to effect the Plan of Reorganization contemplated
hereby have been duly authorized by all necessary action on the part
of the Trust;
(7) Neither the execution, delivery nor performance of this
Agreement by the Trust violates any provision of its Agreement and
Declaration of Trust, its Bylaws, or the provisions of any agreement
or other instrument, known to such counsel to which the Trust is a
party or by which the Trust is otherwise bound;
(8) This Agreement is the legal, valid and binding obligation of
the Trust and is enforceable against the Trust in accordance with its
terms; and
(9) The registration statement of which the prospectus of the
Brinson Fund relating to the Class I shares is a part, dated
September 15, 1998, (the "Prospectus"), is, at the time of the signing
of this Agreement, effective under the
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1933 Act, and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the registration statement has been
issued, and no proceedings for such purpose have been instituted or
are pending before or threatened by the Commission under the 1933 Act,
and nothing has come to its attention which causes it to believe that
at the time the Prospectus became effective, or at the time of the
signing of this Agreement, such Prospectus (except for the financial
statements and other financial and statistical data included therein,
as to which counsel need express no opinion), contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and such counsel knows of no legal or
government proceedings required to be described in the Prospectus or
of any contract or document of a character required to be described in
the Prospectus that is not described as required.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the Trust with regard to matters
of fact and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust.
(i) That the UBS Funds shall have received a certificate from the
President and Secretary of the Trust to the effect that the statements contained
in the Brinson Fund's Prospectus relating to the Class I shares dated April 28,
1998, at the time the Prospectus became effective, at the date of the signing of
this Agreement, at the Closing, and at all times during this period did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(j) That the Trust's Registration Statement with respect to the Class
I shares of the Brinson Fund to be delivered to the UBS Portfolio's shareholders
in accordance with this Agreement shall have become effective, and no stop order
suspending the effectiveness of the Registration Statement or any amendment or
supplement thereto, shall have been issued prior to the Closing Date or shall be
in effect at Closing, and no proceedings for the issuance of such an order shall
be pending or threatened on that date.
(k) That the Class I shares of the Brinson Fund to be delivered
hereunder shall be eligible for sale by the Trust with each state commission or
agency with which such eligibility is required in order to permit the shares
lawfully to be delivered to each UBS Portfolio shareholder.
(l) That at the Closing, the UBS Funds transfers to the Brinson Fund
aggregate Net Assets of the UBS Portfolio comprising at least 90% in fair market
value of the total net assets and 70% in fair market value of the total gross
assets recorded on the books of the UBS Portfolio on the Closing Date.
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9. BROKERAGE FEES AND EXPENSES; OTHER AGREEMENTS
---------------------------------------------
(a) The UBS Funds and the Trust each represents and warrants to the
other that there are no broker or finders' fees payable by it in connection with
the transactions provided for herein.
(b) The expenses of entering into and carrying out the provisions of
this Agreement, whether or not consummated, shall be borne exclusively by UBS
A.G. or its affiliates and neither UBS Funds nor the Trust will bear any such
expenses.
(c) Any other provision of this Agreement to the contrary
notwithstanding, any liability of the UBS Funds under this Agreement with
respect to any UBS Portfolio, or in connection with the transactions
contemplated herein with respect to any UBS Portfolio, shall be discharged only
out of the assets of that UBS Portfolio, and no other portfolio of the UBS Funds
shall be liable with respect thereto.
10. TERMINATION, WAIVER; ORDER
--------------------------
(a) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Plan of Reorganization
abandoned at any time (whether before or after adoption thereof by the
shareholders of the UBS Portfolio) prior to the Closing as follows:
(1) by mutual consent of the UBS Funds and the Trust;
(2) by the Trust if any condition precedent to its obligations
set forth in Section 8 has not been fulfilled or waived by the Trust;
or
(3) by the UBS Funds if any condition precedent to its
obligations set forth in Section 8 has not been fulfilled or waived by
the UBS Funds.
An election by the UBS Funds or the Trust to terminate this Agreement
and to abandon the Plan of Reorganization shall be exercised respectively by the
Board of Directors of the UBS Funds or the Board of Trustees of the Trust.
(b) If the transactions contemplated by this Agreement have not been
consummated by March 31, 1999, this Agreement shall automatically terminate on
that date, unless a later date is agreed to by both the UBS Funds and the Trust.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either the UBS Funds or the
Trust or persons who are their directors, trustees, officers, agents or
shareholders in respect of this Agreement.
A-13
(d) At any time prior to the Closing, any of the terms or conditions
of this Agreement may be waived by either the UBS Funds or the Trust,
respectively (whichever is entitled to the benefit thereof), by action taken by
the Board of Directors of the UBS Funds or the Board of Trustees of the Trust,
if, in the judgment of the Board of Directors of the UBS Funds or the Board of
Trustees of the Trust (as the case may be), such action or waiver will not have
a material adverse affect on the benefits intended under this Agreement to the
holders of shares of the UBS Portfolio or the Brinson Fund, on behalf of which
such action is taken.
(e) The respective representations and warranties contained in
Sections 4-7 hereof shall expire with, and be terminated by, the Plan of
Reorganization, and neither the UBS Funds nor the Trust nor any of their
officers, trustees or directors, agents or shareholders shall have any liability
with respect to such representations or warranties after the Closing. This
provision shall not protect any officer, trustee or director, agent or
shareholder of the UBS Funds or the Trust against any liability to the entity
for which that officer, trustee or director, agent or shareholder so acts or to
its shareholders to which that officer, trustee or director, agent or
shareholder would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties in the conduct of
such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Closing and shall impose any terms or
conditions which are determined by action of the Board of Directors of the UBS
Funds or the Board Trustees of the Trust to be acceptable, such terms and
conditions shall be binding as if a part of this Agreement without further vote
or approval of the shareholders of the UBS Portfolio, unless such terms and
conditions shall result in a change in the method of computing the number of
Class I shares of the Brinson Fund to be issued to the UBS Portfolio in which
event, unless such terms and conditions shall have been included in the proxy
solicitation material furnished to the shareholders of the UBS Portfolio prior
to the meeting at which the transactions contemplated by this Agreement shall
have been approved, this Agreement shall not be consummated and shall terminate
unless the UBS Funds shall promptly call a special meeting of shareholders of
the UBS Portfolio at which such conditions so imposed shall be submitted for
approval.
11. ENTIRE AGREEMENT AND AMENDMENTS
-------------------------------
This Agreement embodies the entire Agreement between the parties and
there are no agreements, understandings, restrictions, or warranties between the
parties other than those set forth herein or herein provided for. This
Agreement may be amended only by mutual consent of the parties in writing.
Neither this Agreement nor any interest herein may be assigned without the prior
written consent of the other party.
12. COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts together
shall constitute but one instrument.
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13. NOTICES
-------
Any notice, report, or demand required or permitted by any provision
of this Agreement shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to the UBS Funds at
200 Clarendon Street, Boston, MA 02116 ATTENTION: Paul J. Jasinski, President,
or to the Trust at 209 South LaSalle Street, Chicago, Illinois 60604, Attention:
Thomas E. McFarlan, President, as the case may be.
14. GOVERNING LAW
-------------
This Agreement shall be governed by and carried out in accordance with
the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the UBS Funds and the Trust have each caused this
Agreement and Plan of Reorganization to be executed on its behalf by its duly
authorized officers, all as of the day and year first above written.
UBS PRIVATE INVESTOR FUNDS, INC.
Attest:
___________________________________ By:_________________________
Susan C. Mosher, Secretary Paul J. Jasinski, President
THE BRINSON FUNDS
Attest:
___________________________________ By:_________________________
Carolyn M. Burke, Secretary E. Thomas McFarlan, President
A-15
[LOGO OF THE BRINSON FUNDS] THE BRINSON FUNDS
209 South LaSalle Street
Chicago, IL 60604-1295
PROSPECTUS
September 15, 1998
This Prospectus describes the Brinson Fund-Class I shares of the investment
portfolios offered by The Brinson Funds (the "Trust"). The Trust is a no-load,
open-end management investment company advised by Brinson Partners, Inc.
("Brinson Partners" or the "Advisor"), which currently offers eight distinct
investment portfolios: Global Fund, Global Equity Fund, Global Bond Fund, U.S.
Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S.
Bond Fund and Non-U.S. Equity Fund (each a "Series" and collectively, the
"Series"). Each Series offers three separate classes of shares-the Brinson Fund-
Class I, the Brinson Fund-Class N and the UBS Investment Funds class. The
Brinson Fund-Class I shares of the Series are referred to herein as the: Brinson
Global Fund, Brinson Global Equity Fund, Brinson Global Bond Fund, Brinson U.S.
Balanced Fund, Brinson U.S. Equity Fund, Brinson U.S. Large Capitalization
Equity Fund, Brinson U.S. Bond Fund and Brinson Non-U.S. Equity Fund (each a
"Fund" and collectively, the "Brinson Funds" or "Funds"). This Prospectus
pertains only to the Brinson Fund-Class I shares, which are designed primarily
for institutional investors, do not have a sales load and are not subject to
annual 12b-1 plan expenses. The Brinson Fund-Class N shares do not have a sales
load, but are subject to annual Rule 12b-1 plan expenses. Further information
relating to the Brinson Fund-Class N shares may be obtained by calling 1-800-448
2430. The UBS Investment Funds class of shares do not have a sales load, but
have slightly higher Rule 12b-1 fees and a lower minimum investment requirement.
Further information relating to the UBS Investment Funds class shares may be
obtained by calling 1-800-794-7753.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Class I shares of any of the Brinson Funds.
Investors should read and retain this Prospectus for future reference.
Additional information about the Funds and the other classes of shares of the
Trust's investment portfolios is contained in the Statement of Additional
Information dated September 15, 1998, as amended from time to time, which has
been filed with the U.S. Securities and Exchange Commission and is available
upon request and without charge from the Trust at the addresses and telephone
numbers below. The Statement of Additional Information is incorporated by
reference into this Prospectus. The Statement of Additional Information,
material incorporated by reference into this Prospectus, and other information
regarding the Trust and each of the Series is maintained electronically with the
U.S. Securities and Exchange Commission at its Internet Web site
(http://www.sec.gov).
AN INVESTMENT IN ANY OF THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN ANY OF THE FUNDS IS NOT A DEPOSIT OR
OTHER OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. AN INVESTMENT IN
ANY SERIES INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriter: Advisor:
Funds Distributor, Inc. Brinson Partners, Inc.
60 State Street 209 South LaSalle Street
Suite 1300 Chicago, IL 60604-1295
Boston, MA 02109 1-800-448-2430
1-800-448-2430
TABLE OF CONTENTS
PAGE
----
Annual Fund Operating Expenses............................................. 3
Financial Highlights....................................................... 4
Prior Performance of the Advisor........................................... 6
Description of the Funds................................................... 8
Investment Objectives and Policies......................................... 8
Global Fund.............................................................. 8
Global Equity Fund....................................................... 9
Global Bond Fund......................................................... 9
U.S. Balanced Fund....................................................... 10
U.S. Equity Fund......................................................... 10
U.S. Large Capitalization Equity Fund.................................... 10
U.S. Bond Fund........................................................... 11
Non-U.S. Equity Fund..................................................... 11
Investment Considerations and Risks........................................ 12
Management of the Trust.................................................... 15
Portfolio Management....................................................... 16
Administration of the Trust................................................ 16
Purchase of Shares......................................................... 18
Account Options............................................................ 20
Redemption of Shares....................................................... 20
Net Asset Value............................................................ 23
Dividends, Distributions and Taxes......................................... 25
General Information........................................................ 26
Performance Information.................................................... 28
Appendix A................................................................. 30
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE
SUCH AN OFFER OR SOLICITATION. NO SALES REPRESENTATIVE, DEALER, OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
TOTAL FUND
OPERATING EXPENSES
(AFTER FEE WAIVER
BRINSON FUND CLASS I MANAGEMENT FEES OTHER EXPENSES AND/OR EXPENSE
SHARES (AFTER FEE WAIVER)/1/ (AFTER REIMBURSEMENT)/1/ REIMBURSEMENT)/1/
- -------------------- --------------------- ------------------------ ------------------
Global Fund ............ 0.80% 0.14% 0.94%
Global Equity Fund...... 0.78% 0.22% 1.00%
Global Bond Fund........ 0.69% 0.21% 0.90%
U.S. Balanced Fund...... 0.69% 0.11% 0.80%
U.S. Equity Fund........ 0.70% 0.10% 0.80%
U.S. Large Capitaliza-
tion Equity Fund....... 0.00% 0.80% 0.80%
U.S. Bond Fund.......... 0.26% 0.34% 0.60%
Non-U.S. Equity Fund.... 0.80% 0.20% 1.00%
- ----------
/1/Pursuant to the terms of the Investment Advisory Agreements between the
Trust on behalf of each Series and the Advisor, the Advisor is entitled to
receive a monthly fee at the following annual rates for each of the Global
Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity
Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S.
Equity Fund: 0.80%, 0.80%, 0.75%, 0.70%, 0.70%, 0.70%, 0.50%, and 0.80%,
respectively. The Advisor has irrevocably agreed to waive its fees and
reimburse certain expenses so that the total operating expenses of the
Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S.
Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-
U.S. Equity Fund will never exceed 1.10%, 1.00%, 0.90%, 0.80%, 0.80%, 0.80%,
0.60% and 1.00%, respectively. Had the Advisor not irrevocably agreed to
waive fees and reimburse expenses, the total fund operating expenses for the
Brinson Fund Class I shares of the Series for the fiscal year ended June 30,
1998 for the Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S.
Large Capitalization Equity Fund, and U.S. Bond Fund would have been 1.02%,
.96%, .81%, 1.59%, and .84%, respectively. The fees and expenses for the
U.S. Large Capitalization Equity Fund are based on the period from April 6,
1998 (commencement of operations) to June 30, 1998.
EXAMPLE: Based on the level of expenses listed above after fee waiver or
expense reimbursement, the total expenses relating to an investment of $1,000
would be as follows, assuming a 5% annual return and redemption at the end of
each time period.
BRINSON FUND CLASS I SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------- ------ ------- ------- --------
Global Fund..................................... $10 $30 $52 $115
Global Equity Fund.............................. $10 $32 $55 $122
Global Bond Fund................................ $ 9 $29 $50 $111
U.S. Balanced Fund.............................. $ 8 $26 $44 $ 99
U.S. Equity Fund................................ $ 8 $26 $44 $ 99
U.S. Large Capitalization Equity Fund........... $ 8 $26 $44 $ 99
U.S. Bond Fund.................................. $ 6 $19 $33 $ 75
Non-U.S. Equity Fund............................ $10 $32 $55 $122
The foregoing table is designed to assist the investor in understanding the
various costs and expenses that a shareholder will bear directly or
indirectly.
- -------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER,
WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S ACTUAL PERFORMANCE WILL
VARY AND MAY RESULT IN ACTUAL RETURNS GREATER OR LESS THAN 5%.
- -------------------------------------------------------------------------------
3
FINANCIAL HIGHLIGHTS
The selected financial information in the following table has been audited
by the Funds' independent auditors, whose unqualified reports thereon (the
"Reports") appear in the Funds' Annual Report to Shareholders dated June 30,
1998 (the "Annual Report"). Additional performance and financial data and
related notes are contained in the Annual Report, which is available without
charge upon request. The Funds' Financial Statements for the fiscal year ended
June 30, 1998 and the Reports are incorporated by reference into the Statement
of Additional Information.
FINANCIAL HIGHLIGHTS--FISCAL YEARS ENDED JUNE 30
The following table presents financial data relating to a share of
beneficial interest outstanding throughout the periods presented. This
information has been derived from the Funds' financial statements.
INCOME (LOSS) FROM INVESTMENT
OPERATIONS LESS DISTRIBUTIONS
-------------------------------- -----------------------------
DISTRIBU-
TOTAL TIONS DISTRIBU-
INCOME FROM AND TIONS NET NET
NET (LOSS) IN EXCESS FROM AND ASSET ASSETS,
NET ASSET NET REALIZED FROM OF NET IN EXCESS VALUE- TOTAL END OF
VALUE- INVEST- AND INVEST- INVEST- OF NET TOTAL END RETURN PERIOD
BEGINNING MENT UNREALIZED MENT MENT REALIZED DISTRIBU- OF (NON- (IN
YEAR OF PERIOD INCOME GAIN (LOSS) OPERATIONS INCOME GAIN TIONS PERIOD ANNUALIZED) 000S)
- ---- --------- ------- ----------- ---------- --------- --------- --------- ------ ----------- --------
BRINSON GLOBAL FUND-CLASS I (Commencement of Operations August 31, 1992)/2/
1993............ $10.00 0.26 0.81 1.07 (0.20) -- (0.20) $10.87 10.76 % $191,389
1994............ $10.87 0.33 (0.23) 0.10 (0.27) (0.27) (0.54) $10.43 0.77 % $278,859
1995............ $10.43 0.43 0.86 1.29 (0.27) (0.10) (0.37) $11.35 12.57 % $365,678
1996............ $11.35 0.44 1.37 1.81 (0.62) (0.32) (0.94) $12.22 16.38 % $457,933
1997............ $12.22 0.38 1.79 2.17 (0.61) (0.65) (1.26) $13.13 18.79 % $586,667
1998............ $13.13 0.37 0.62 0.99 (0.65) (0.70) (1.35) $12.77 8.28 % $667,745
BRINSON GLOBAL EQUITY FUND-CLASS I (Commencement of Operations January 28, 1994)/2/
1994............ $10.00 0.07 (0.54) (0.47) (0.04) -- (0.04) $ 9.49 (4.70)% $ 20,642
1995............ $ 9.49 0.18 0.39 0.57 (0.04) (0.09) (0.13) $ 9.93 6.06 % $ 20,706
1996............ $ 9.93 0.18 2.29 2.47 (0.14) (0.69) (0.83) $11.57 25.66 % $ 27,126
1997............ $11.57 0.16 2.14 2.30 (0.12) (0.99) (1.11) $12.76 21.26 % $ 48,054
1998............ $12.76 0.22 0.78 1.00 (0.17) (1.05) (1.22) $12.54 8.99 % $ 22,724
BRINSON GLOBAL BOND FUND-CLASS I (Commencement of Operations July 30, 1993)/2/
1994............ $10.00 0.45 (0.52) (0.07) (0.28) (0.10) (0.38) $ 9.55 (0.79)% $ 36,849
1995............ $ 9.55 0.50 0.58 1.08 (0.24) -- (0.24) $10.39 11.34 % $ 51,863
1996............ $10.39 0.84 0.31 1.15 (1.40) (0.10) (1.50) $10.04 11.50 % $ 41,066
997............. $10.04 0.67 0.08 0.75 (0.96) (0.19) (1.15) $ 9.64 7.71 % $ 54,157
1998............ $ 9.64 0.43/3/ (0.18) 0.25 (0.31) (0.17) (0.48) $ 9.41 2.69 % $ 91,274
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------
RATIO OF NET
RATIO OF EXPENSES INVESTMENT INCOME
TO AVERAGE NET TO AVERAGE NET
ASSETS ASSETS
--------------------- ---------------------
AVERAGE
BEFORE AFTER BEFORE AFTER COMMIS-
EXPENSE EXPENSE EXPENSE EXPENSE PORTFOLIO SION
REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER RATE PAID
YEAR MENT MENT MENT MENT RATE PER SHARE
- ---- ---------- ---------- ---------- ---------- --------- ---------
BRINSON GLOBAL FUND-CLASS I (Commencement of Operations August 31, 1992)/2/
1993............ 1.35%/1/ 1.05%/1/ 3.26%/1/ 3.56%/1/ 149% N/A
1994............ 1.14% 1.10% 3.21% 3.25% 231% N/A
1995............ 1.09% N/A 4.27% N/A 238% N/A
1996............ 1.04% N/A 3.69% N/A 142% $0.0291
1997............ 0.99% N/A 3.03% N/A 150% $0.0326
1998............ 0.94% N/A 2.70% N/A 88% $0.0274
BRINSON GLOBAL EQUITY FUND-CLASS I (Commencement of Operations January 28, 1994)/2/
1994............ 2.65%/1/ 1.00%/1/ 0.24%/1/ 1.89%/1/ 21% N/A
1995............ 2.06% 1.00% 0.71% 1.77% 36% N/A
1996............ 1.77% 1.00% 0.57% 1.34% 74% $0.0288
1997............ 1.25% 1.00% 1.35% 1.60% 32% $0.0246
1998............ 1.02% 1.00% 1.29% 1.31% 46% $0.0254
BRINSON GLOBAL BOND FUND-CLASS I (Commencement of Operations July 30, 1993)/2/
1994............ 1.78%/1/ 0.90%/1/ 4.03%/1/ 4.91%/1/ 189% N/A
1995............ 1.43% 0.90% 5.53% 6.06% 199% N/A
1996............ 1.65% 0.90% 4.98% 5.73% 184% N/A
997............. 1.32% 0.90% 4.90% 5.32% 235% N/A
1998............ 0.96% 0.90% 4.47% 4.53% 151% N/A
/1/Annualized
/2/Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund-Class I shares on June 30, 1997
/3/The net investment income per share data was determined by using average
shares outstanding throughout the period
N/A=Not Applicable
4
INCOME (LOSS) FROM INVESTMENT
OPERATIONS LESS DISTRIBUTIONS
------------------------------ -----------------------------
TOTAL DISTRIBU-
INCOME DISTRIBU- TIONS NET NET
NET (LOSS) TIONS FROM AND ASSET ASSETS
NET ASSET NET REALIZED FROM FROM NET IN EXCESS VALUE- TOTAL END OF
VALUE- INVEST- AND INVEST- INVEST- OF NET TOTAL END RETURN PERIOD
BEGINNING MENT UNREALIZED MENT MENT REALIZED DISTRIBU- OF (NON- (IN
YEAR OF PERIOD INCOME GAIN (LOSS) OPERATIONS INCOME GAIN TIONS PERIOD ANNUALIZED) 000S)
- ---- --------- ------- ----------- ---------- --------- --------- --------- ------- ----------- --------
BRINSON U.S. BALANCED FUND-CLASS I (Commencement of Operations December 30, 1994)(2)
1995............ $10.00 0.23 1.16 1.39 (0.16) -- (0.16) $ 11.23 13.91 % $157,724
1996............ $11.23 0.44 1.04 1.48 (0.43) (0.57) (1.00) $ 11.71 13.52 % $227,829
1997............ $11.71 0.47 1.29 1.76 (0.40) (0.54) (0.94) $ 12.53 15.50 % $282,860
1998............ $12.53 0.49/3/ 0.93 1.42 (0.77) (0.94) (1.71) $ 12.24 12.19 % $ 80,556
BRINSON U.S. EQUITY FUND-CLASS I (Commencement of Operations February 22, 1994)(2)
1994............ $10.00 0.05 (0.36) (0.31) (0.04) -- (0.04) $ 9.65 (3.10)% $ 8,200
1995............ $ 9.65 0.16 1.89 2.05 (0.14) (0.03) (0.17) $ 11.53 21.45 % $ 42,573
1996............ $11.53 0.17 3.31 3.48 (0.17) (0.25) (0.42) $ 14.59 30.57 % $126,342
1997............ $14.59 0.15 4.27 4.42 (0.14) (1.23) (1.37) $ 17.64 31.87 % $337,949
1998............ $17.64 0.19 3.39 3.58 (0.18) (1.13) (1.31) $ 19.91 21.48 % $605,768
BRINSON U.S. LARGE CAPITALIZATION EQUITY FUND-CLASS I (Commencement of Operations April 6, 1998)
1998............ $10.00 0.02 (0.20) (0.18) (0.02) -- (0.02) $ 9.80 (1.83)% $ 154
BRINSON U.S. BOND FUND-CLASS I (Commencement of Operations August 31, 1995)(2)
1996............ $10.00 0.50 (0.14) 0.36 (0.40) (0.03) (0.43) $ 9.93 3.60 % $ 9,047
1997............ $ 9.93 0.51/3/ 0.32 0.83 (0.52) -- (0.52) $ 10.24 8.45 % $ 22,421
1998............ $10.24 0.53 0.53 1.06 (0.58) (0.14) (.72) $ 10.58 10.60 % $ 38,874
BRINSON NON-U.S. EQUITY FUND-CLASS I (Commencement of Operations August 31, 1993)(2)(4)
1994............ $10.00 0.10 (0.34) (0.24) (0.07) -- (0.07) $ 9.69 (2.45)% $ 71,544
1995............ $ 9.69 0.15 (0.16) (0.01) -- -- -- $ 9.68 (0.10)% $148,319
1996............ $ 9.68 0.18 2.05 2.23 (0.18) (0.56) (0.74) $ 11.17 23.64 % $212,366
1997............ $11.17 0.18 1.97 2.15 (0.17) (0.56) (0.73) $ 12.59 20.27 % $420,855
1998............ $12.59 0.18 0.30 0.48 (0.18) (0.74) (0.92) $ 12.15 4.78 % $439,329
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------
RATIO OF NET
RATIO OF EXPENSES INVESTMENT INCOME
TO AVERAGE NET TO AVERAGE NET
ASSETS ASSETS
--------------------- ---------------------
AVERAGE
BEFORE AFTER BEFORE AFTER COMMIS-
EXPENSE EXPENSE EXPENSE EXPENSE PORTFOLIO SION
REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER RATE PAID
YEAR MENT MENT MENT MENT RATE PER SHARE
- ---- ---------- ---------- ---------- ---------- --------- ---------
BRINSON U.S. BALANCED FUND-CLASS I (Commencement of Operations December 30, 1994)(2)
1995............ 1.06%/1/ 0.80%/1/ 4.36 %/1/ 4.63%/1/ 196% N/A
1996............ 1.01% 0.80% 3.76 % 3.97% 240% $0.0481
1997............ 0.88% 0.80% 3.78 % 3.86% 329% $0.0441
1998............ 0.81% 0.80% 3.88 % 3.89% 194% $0.0549
BRINSON U.S. EQUITY FUND-CLASS I (Commencement of Operations February 22, 1994)(2)
1994............ 5.40%/1/ 0.80%/1/ (2.82)%/1/ 1.78%/1/ 9% N/A
1995............ 1.70% 0.80% 1.09 % 1.99% 33% N/A
1996............ 1.14% 0.80% 1.13 % 1.47% 36% $0.0457
1997............ 0.89% 0.80% 1.06 % 1.15% 43% $0.0422
1998............ 0.80% N/A 1.12 % N/A 42% $0.0469
BRINSON U.S. LARGE CAPITALIZATION EQUITY FUND-CLASS I (Commencement of Operations April 6, 1998)
1998............ 1.59%/1/ 0.80%/1/ 0.52 %/1/ 1.31%/1/ 12% $0.0350
BRINSON U.S. BOND FUND-CLASS I (Commencement of Operations August 31, 1995)(2)
1996............ 3.63%/1/ 0.60%/1/ 3.00 %/1/ 6.03%/1/ 363% N/A
1997............ 1.65% 0.60% 5.14 % 6.19% 410% N/A
1998............ 0.84% 0.60% 5.61 % 5.85% 198% N/A
BRINSON NON-U.S. EQUITY FUND-CLASS I (Commencement of Operations August 31, 1993)(2)(4)
1994............ 1.60%/1/ 1.00%/1/ 1.28 %/1/ 1.88%/1/ 12% N/A
1995............ 1.23% 1.00% 1.93 % 2.16% 14% N/A
1996............ 1.20% 1.00% 1.67 % 1.87% 20% $0.0219
1997............ 1.00% N/A 1.83 % N/A 25% $0.0245
1998............ 1.00% N/A 1.52 % N/A 49% $0.0221
- -----
/1/Annualized
/2/Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund-Class I shares on June 30, 1997
/3/The net investment income per share data was determined by using average
shares outstanding throughout the period
/4/During the year ended June 30, 1998, the Non-U.S. Equity Fund (the "Fund")
had total borrowings of $32,600,000 outstanding for 1 day (June 29, 1998)
under the Trust's agreement with The Chase Manhattan Bank to provide a 364-day
$100 million committed line of credit. The Fund had 36,449,018.679 shares
outstanding on June 29, 1998, and the amount of debt per share was $12.05. At
June 30, 1998, the Fund had no debt outstanding.
N/A = Not Applicable
5
PRIOR PERFORMANCE OF ADVISOR
The following table sets forth the Advisor's performance data relating to
the historical performance of funds contained within an institutional
collective investment trust ("CIT") (described below) managed by the Advisor.
Such CITs have investment objectives, policies, strategies and risks
substantially similar to those of the various Series of the Trust. The data is
provided to illustrate the past performance of the Advisor in managing
investment portfolios which are substantially similar to each applicable
Series of The Brinson Funds as measured against specified market indices. The
performance data of the Class I shares of each Series of the Trust is also
included in the table.
The Advisor adopted the Performance Presentation Standards of the
Association for Investment Management and Research (AIMR Standards) as of
January 1, 1993. The CIT returns presented in this Prospectus are the
responsibility of the Advisor. They are presented in compliance with the
Performance Presentation Standards of the Association for Investment
Management and Research (AIMR--PPS(TM)). AIMR has not been involved with the
preparation or review of these returns.
Investment results are time-weighted performance calculations representing
total return. Returns are calculated using geometric linking of monthly
returns. Each composite is a single entity composite, consisting of the assets
of each applicable fund of the Brinson Trust Company Collective Investment
Trust for Pension and Profit Sharing Trusts, or its predecessors, which may be
a single client. Clients must be an ERISA or governmental employee benefit
plan in order to qualify to invest in a CIT. Composites are valued monthly,
taking into account cash flows. All realized and unrealized capital gains and
losses, as well as all dividends and interest from investments and cash
balances, are included. Investment transactions are accounted for on a trade
date basis. Total returns for the CIT composites exclude the impact of
administrative expenses and the impact of any income taxes an investor might
have incurred as a result of taxable ordinary income and capital gains
realized by the CIT.
The composite for each CIT is composed of all actual fee-paying,
discretionary client portfolios invested in the CIT. No alterations of
composites as presented here have occurred due to changes in personnel.
Accounts of all sizes invested in each CIT are included in composite
performance and no minimum account relationship size was set for inclusion in
the composites as the individual account size does not impact portfolio
management style. CITs are not subject to certain expenses, investment
limitations, diversification requirements and restrictions to which the Series
are subject and which are imposed by the Investment Company Act of 1940 (the
"Act") and the Internal Revenue Code of 1986, as amended. Had such expenses,
limitations, requirements and restrictions been applicable to the CITs, the
performance results of the CIT composites could have been adversely affected.
The CIT's performance presented does not represent the historical performance
of the Series and should not be interpreted as indicative of future
performance of the Series.
AVERAGE ANNUAL
--------------------------
ONE TWO THREE FIVE TEN
TOTAL RETURNS AS OF JUNE 30, 1998 YEAR YEARS YEARS YEARS YEARS
- --------------------------------- ----- ----- ----- ----- -----
Global Securities Portfolio/1/............... 8.22% 13.58% 14.93% 11.66% 12.40%
Brinson Global Fund Class I/2/............... 8.28 13.41 14.38 11.17 N/A
GSMI Mutual Fund Index....................... 13.76 15.86 15.72 13.56 12.41
Global Equity with Cash Portfolio/1/......... 10.88 16.31 19.47 13.61 12.81
Brinson Global Equity Fund Class I/2/........ 8.99 14.96 18.41 N/A N/A
MSCI World Equity (Free) Index/3/, /4/....... 17.18 19.88 19.56 16.02 11.63
6
AVERAGE ANNUAL
--------------------------
ONE TWO THREE FIVE TEN
YEAR YEARS YEARS YEARS YEARS
----- ----- ----- ----- -----
Global Bond Portfolio/1/................. 3.71% 5.73% 7.89% 6.55% 9.05%
Brinson Global Bond Fund Class I/2/...... 2.69 5.17 7.23 N/A N/A
Salomon World Government Bond Index/3/... 4.32 4.10 2.84 6.33 8.35
U.S. Balanced Portfolio/1/............... 12.87 14.64 14.67 12.04 12.69
Brinson U.S. Balanced Fund Class I/2/.... 12.19 13.83 13.72 N/A N/A
U.S. Balanced Mutual Fund Index/3/....... 22.38 22.05 20.83 16.32 14.57
U.S. Equity Portfolio/1/................. 21.89 27.26 28.66 22.02 19.66
Brinson U.S. Equity Fund Class I/2/...... 21.48 26.57 27.86 N/A N/A
Wilshire 5000 Index/3/................... 28.86 29.09 28.13 21.56 17.61
U.S. Large Capitalization Equity Portfo-
lio/1/, /5/............................. 21.41 28.61 30.56 23.49 20.64
Brinson U.S. Large Capitalization Equity
Fund Class I/2/, /6/ ................... (0.13) N/A N/A N/A N/A
S & P 500/3/............................. 30.21 32.37 30.23 23.05 18.55
U.S. Bond Portfolio/1/................... 10.89 9.89 8.27 7.14 9.40
Brinson U.S. Bond Fund Class I/2/........ 10.60 9.52 N/A N/A N/A
Salomon BIG Index/3/..................... 10.59 9.36 7.88 6.91 9.11
Non-U.S. Equity Portfolio/1/............. 5.88 12.99 16.98 12.22 10.93
Brinson Non-U.S. Equity Fund Class I/2/.. 4.78 12.26 15.91 N/A N/A
MSCI Non-U.S. Equity (Free) Index/3/,
/4/..................................... 6.04 9.77 11.04 10.29 6.98
- ----------
FOOTNOTES:
/1/Performance figures for the Advisor's CITs are net of advisory fees.
Advisory fees are determined by taking the average account size within the
CIT at June 30, 1998 and applying the standard fee schedule. Performance
figures for the Advisor's CITs gross of fees would be:
AVERAGE ANNUAL
--------------------------
ONE TWO THREE FIVE TEN
YEAR YEARS YEARS YEARS YEARS
----- ----- ----- ----- -----
Global Securities Portfolio.............. 8.94% 14.30% 15.65% 12.38% 13.12%
Global Equity with Cash Portfolio........ 11.73 17.16 20.32 14.46 13.66
Global Bond Portfolio.................... 4.28 6.30 8.46 7.12 9.62
U.S. Balanced Portfolio.................. 13.59 15.36 15.39 12.76 13.41
U.S. Equity Portfolio.................... 22.47 27.84 29.24 22.60 20.24
U.S. Large Capitalization Equity Portfo-
lio..................................... 22.02 29.22 31.17 24.10 21.25
U.S. Bond Portfolio...................... 11.20 10.20 8.58 7.45 9.71
Non-U.S. Equity Portfolio................ 6.59 13.70 17.69 12.93 11.64
/2/Total returns include reinvestment of all capital gain and income
distributions. Inception dates and average annual returns since each
Fund's inception date are as follows: Brinson Global Fund Class I,
8/31/92, 11.44%; Brinson Global Equity Fund Class I, 1/31/94, 12.45%;
Brinson Global Bond Fund Class I, 7/31/93, 6.49%; Brinson U.S. Balanced
Fund Class I, 12/31/94, 15.90%; Brinson U.S. Equity Fund Class I, 2/28/94,
23.11%; Brinson U.S. Large Capitalization Equity Fund Class I, 4/30/98,
(0.13)%; Brinson U.S. Bond Fund Class I, 8/31/95, 7.97%; and Brinson Non-
U.S. Equity Fund Class I, 8/31/93, 9.03%.
/3/GSMI Mutual Fund Index, an un-managed index compiled by the Advisor,
currently constructed as follows: 40% Wilshire 5000 Index; 22% MSCI Non-
U.S. Equity (Free) Index; 21% Salomon BIG Bond Index; 9% Salomon Non-U.S.
Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable
Index; and 3% High Yield Bond Index. The composition of the Index has
evolved over time and may change in the future. MSCI World Equity (Free)
Index is an un-managed market driven broad based index which includes U.S.
and non-U.S. equity markets in terms of capitalization and performance.
Salomon World Government Bond Index is an un-managed market driven index
which measures the broad global fixed income markets invested in debt
issues of U.S. and non-U.S. governments, governmental entities and
supranationals. U.S. Balanced Mutual Fund Index, an un-managed index
compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index
and 35% Salomon Brothers Broad Investment Grade (BIG) Bond Index. Wilshire
5000 Index is an un-managed broad weighted index which includes all U.S.
common
7
stocks. S & P 500 Index is an un-managed index containing common stocks of
500 industrial, transportation, utility and financial companies, regarded
as generally representative of the U.S. stock market. Salomon Brothers
Broad Investment Grade (BIG) Bond Index is an un-managed market driven
broad based index which includes U.S. bonds with over one year to maturity.
MSCI Non-U.S. Equity (Free) Index is an un-managed market driven broad
based index which includes non-U.S. equity markets in terms of
capitalization and performance.
/4Beginning/1/31/88 these indices are "free".
/5Prior/to 6/30/97, returns represent the large capitalization holdings of
the audited U.S. Equity Portfolio (inception date as of 12/31/81).
/6Non-annualized/return since performance inception 4/30/98.
DESCRIPTION OF THE FUNDS
The investment objective of each Series is fundamental and may not be
changed without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series, as defined in the Act. Unless
otherwise stated in this Prospectus or the Statement of Additional
Information, each Series' investment policies are not fundamental and may be
changed without shareholder approval. There can be no assurance that a Series
will achieve its investment objective.
None of the Series intends to concentrate its investments in a particular
industry. None of the Series intends to issue senior securities as defined in
the Act, except that each Series may engage in borrowing activities as defined
in Appendix A and in the Statement of Additional Information. Each Series'
investment objective and its policies concerning portfolio lending, borrowing,
the issuance of senior securities and concentration are "fundamental," which
means that they may not be changed without the affirmative vote of the holders
of a majority of the Series' outstanding voting securities (as defined in the
Act).
INVESTMENT OBJECTIVES AND POLICIES
GLOBAL FUND
INVESTMENT OBJECTIVE
The Global Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. As a global
fund, at least 65% of the Series' total assets will be invested in securities
of issuers in at least three countries, one of which may be the United States.
The Series may utilize a wide range of equity, debt and money market
securities in domestic and foreign markets, and the Series may invest in other
open-end investment companies advised by Brinson Partners. The Series may
enter into repurchase agreements and reverse repurchase agreements, and engage
in futures, options and currency transactions for hedging and other
permissible purposes, as more fully described in "Investment Considerations
and Risks" and Appendix A in this Prospectus, and in the Statement of
Additional Information.
The Series is a diversified portfolio that seeks to achieve its objective by
pursuing active asset allocation strategies across global equity and fixed
income markets and active security selection within each market. These
decisions are undertaken relative to the GSMI Mutual Fund Index (the "Global
Benchmark"), which is compiled by Brinson Partners. The Global Benchmark
consists of eight distinct asset classes representing the primary wealth-
holding public securities markets. These asset classes are U.S. equities, non-
U.S. equities, emerging markets equities, U.S. bonds, non-U.S. bonds, emerging
markets bonds, high yield bonds and cash equivalents. Each asset class is
represented in the Global Benchmark by an index compiled by an independent
data provider. In order to compile the Global Benchmark, the Advisor
determines current relative market capitalizations in the world markets (U.S.
equities, non-U.S. equities, emerging markets equities, U.S. bonds, non-U.S.
bonds, emerging markets bonds, high yield bonds and cash) and then weights
each relevant index. Based on this weighting, the Advisor determines the
return of the relative indices, applies the index weighting and then
8
determines the return of the Global Benchmark. From time to time, the Advisor
may substitute an equivalent index within a given asset class when it believes
that such index more accurately reflects the relevant global market.
Although it may invest anywhere in the world, it is expected that the
Series' assets will be primarily invested in equity markets listed in the
Morgan Stanley Capital International ("MSCI") World Equity (Free) Index. The
Series will primarily invest in fixed income markets listed in the Salomon
World Government Bond Index. The Series may invest up to 10% of its net assets
in equity and debt securities of emerging market issuers, or securities with
respect to which the return is derived from the equity or debt securities of
issuers in emerging markets.
GLOBAL EQUITY FUND
INVESTMENT OBJECTIVE
The Global Equity Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. As a global
fund, at least 65% of the Series' total assets will be invested in equity
securities of issuers in at least three countries, one of which may be the
United States. The Series may utilize a wide range of equity securities that
are traded on both domestic and foreign stock exchanges or, in the case of
domestic stocks, in the over-the-counter market. The Series may enter into
repurchase agreements and reverse repurchase agreements, and engage in
futures, options and currency transactions for hedging and other permissible
purposes, as more fully described in "Investment Considerations and Risks" and
Appendix A in this Prospectus, and in the Statement of Additional Information.
The Series is a diversified portfolio that seeks to achieve its objective by
pursuing an active asset allocation strategy across global equity markets,
active management of currency exposures and active security selection within
each market. The benchmark for the Series is the MSCI World Equity (Free)
Index (the "Global Equity Benchmark"). The Global Equity Benchmark is a market
driven broad based index which includes U.S. and non-U.S. equity markets in
terms of capitalization and performance. The Global Equity Benchmark is
designed to provide a representative total return for all major stock
exchanges located inside and outside the United States. Although it may invest
anywhere in the world, it is expected that the Series' assets will primarily
be invested in equity markets listed in the Global Equity Benchmark. From time
to time, the Advisor may substitute securities in an equivalent index when it
believes that such securities in the index more accurately reflect the
relevant global market.
GLOBAL BOND FUND
INVESTMENT OBJECTIVE
The Global Bond Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. As a global
fund, at least 65% of the Series' total assets will be invested in debt
securities with an initial maturity of more than one year of issuers in at
least three countries, one of which may be the United States. The Series seeks
to achieve this objective by investing primarily in debt securities that may
also provide the potential for capital appreciation. The Series may enter into
repurchase agreements and reverse repurchase agreements, and may engage in
futures, options and currency transactions for hedging and other permissible
purposes, as more fully described in "Investment Considerations and Risks" and
Appendix A in this Prospectus, and in the Statement of Additional Information.
The Series is a non-diversified portfolio as described in "Investment
Considerations and Risks-Non-Diversified Status." The benchmark for the Series
is the Salomon World Government Bond Index (the "Global
9
Bond Benchmark"). The Global Bond Benchmark is a market driven index which
measures the broad global fixed income markets invested in debt issues of U.S.
and non-U.S. governments, governmental entities and supranationals. Although
it may invest anywhere in the world, it is expected that the Series' assets
will be
primarily invested in fixed income markets listed in the Global Bond
Benchmark. From time to time, the Advisor may substitute securities in an
equivalent index when it believes that such securities in the index more
accurately reflect the relevant global fixed income securities market.
U.S. BALANCED FUND
INVESTMENT OBJECTIVE
The U.S. Balanced Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. In seeking to achieve
its investment objective, the Series attempts to control risk. Under normal
circumstances, the Series will invest at least 25% of its net assets in fixed
income securities. The Series may utilize a wide range of equity, debt and
money market securities. The Series may also invest in equity securities,
including warrants, preferred stock and securities convertible into equity
securities. The Series may enter into repurchase agreements and reverse
repurchase agreements, and may engage in futures and options for hedging and
other permissible purposes, as more fully described in "Investment
Considerations and Risks" and Appendix A in this Prospectus, and in the
Statement of Additional Information. It is not the policy of the Series to
take unreasonable risks to obtain speculative or aggressively high returns.
The Series is a diversified portfolio that seeks to achieve its objective by
pursuing active asset allocation strategies across U.S. equity and fixed
income markets and active security selection within each market. These
decisions are undertaken relative to the U.S. Balanced Mutual Fund Index (the
"U.S. Balanced Benchmark"), which is compiled by Brinson Partners. The U.S.
Balanced Benchmark represents a fixed composite of 65% Wilshire 5000 Index and
35% Salomon Brothers Broad Investment Grade (BIG) Bond Index. From time to
time, the Advisor may substitute an equivalent index within a given asset
class when the Advisor believes that such new index more accurately reflects
the relevant U.S. market.
U.S. EQUITY FUND
INVESTMENT OBJECTIVE
The U.S. Equity Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income, while controlling risk.
Under normal circumstances, at least 65% of the Series' total assets will be
invested in equity securities of U.S. companies. The Series is a diversified
portfolio that seeks to achieve its objective by investing in a wide range of
equity securities of U.S. companies that are traded on major stock exchanges
as well as in the over-the-counter market. The Series may engage in futures
and options for hedging and other permissible purposes, as more fully
described in "Investment Considerations and Risks" and Appendix A in this
Prospectus, and in the Statement of Additional Information. The benchmark for
the Series is the Wilshire 5000 Index (the "U.S. Equity Benchmark"). The U.S.
Equity Benchmark is a broad weighted index which includes all U.S. common
stocks. The U.S. Equity Benchmark is designed to provide a representative
indication of the capitalization and return for the U.S. equity market.
U.S. LARGE CAPITALIZATION EQUITY FUND
INVESTMENT OBJECTIVE
The U.S. Large Capitalization Equity Fund's investment objective is to
maximize total return, consisting of capital appreciation and current income,
while controlling risk. Under normal circumstances, at least 65% of the
Series' total assets will be invested in large capitalization equity
securities of U.S. companies. The Advisor defines large capitalization
companies as those with market capitalizations in the upper 65% of the
Wilshire 5000 Index
10
at the time of the Series' investment. Companies whose capitalization falls
below this level after purchase continue to be considered large capitalization
companies. The Series is a non-diversified portfolio as described in
"Investment Considerations and Risks-Non Diversified Status." The Series seeks
to achieve its objective by investing in a wide range of equity securities of
U.S. companies that are traded on major stock exchanges as well as in the
over-the-counter market. The Series may engage in futures and options for
hedging and other permissible purposes, as more fully described in "Investment
Considerations and Risk" and Appendix A in this Prospectus, and in the
Statement of Additional Information. The benchmark for the Series is the
Standard & Poor's 500 Stock Index (the "U.S. Large Capitalization Equity
Benchmark"). The U.S. Large Capitalization Equity Benchmark is a broad
weighted index which includes primarily U.S. common stock. The U.S. Large
Capitalization Equity Benchmark is designed to provide a representative
indication of the capitalization and return for the large capitalization U.S.
equity market.
U.S. BOND FUND
INVESTMENT OBJECTIVE
The U.S. Bond Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income, while controlling risk.
As a matter of fundamental policy, under normal circumstances, the Series
intends to invest at least 65% of its total assets in U.S. debt securities
with an initial maturity of more than one year. The Series is a diversified
portfolio that seeks to achieve its objective by investing primarily in fixed
income securities, which may also provide the potential for capital
appreciation. The Series may also engage in futures and options transactions
for hedging and other permissible purposes, as more fully described in
"Investment Considerations and Risks" and Appendix A in this Prospectus, and
in the Statement of Additional Information.
The Series may invest in a broad range of fixed income securities, including
debt securities of the U.S. government, together with its agencies and
instrumentalities and the debt securities of U.S. corporations. A majority of
the fixed income securities in which the Series will invest will possess a
minimum rating of BBB- by Standard & Poor's Ratings Group ("S&P") or Baa3 by
Moody's Investors Services, Inc. ("Moody's") or, if unrated, will be
determined to be of comparable quality by Brinson Partners. Such securities
are considered to be investment grade. Other fixed income securities in which
the Series may invest include zero coupon securities, mortgage-backed
securities, asset-backed securities and when-issued securities. The Series may
invest a portion of its assets in short-term debt securities (including
repurchase and reverse repurchase agreements) of corporations, the U.S.
government or its agencies or instrumentalities, and banks and finance
companies.
The benchmark for the Series is the Salomon Brothers Broad Investment Grade
(BIG) Bond Index (the "U.S. Bond Benchmark"). The U.S. Bond Benchmark is a
market driven broad based index which includes U.S. bonds with over one year
to maturity. From time to time, the Advisor may substitute securities in an
equivalent index when it believes that such securities in the index more
accurately reflect the relevant fixed income securities market.
NON-U.S. EQUITY FUND
INVESTMENT OBJECTIVE
The Non-U.S. Equity Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income, by investing primarily
in the equity securities of non-U.S. issuers. Under normal conditions, at
least 65% of the Series' total assets will be invested in equity securities of
issuers in at least three countries other than the United States. In seeking
to achieve its investment objective while controlling risk, the Series may
invest in a wide range of equity securities, including: American, European and
Global Depositary Receipts, common and preferred stock; debt securities
convertible into or exchangeable for common stock; and securities such as
warrants or rights that are convertible into common stock. The Series may
engage in futures,
11
options and currency transactions for hedging and other permissible purposes,
as more fully described in "Investment Considerations and Risks" and Appendix
A in this Prospectus, and in the Statement of Additional Information.
The Series is a diversified portfolio that seeks to achieve its objective by
investing primarily in the equity securities of non-U.S. issuers. The
benchmark for the Series is the MSCI Non-U.S. Equity (Free) Index (the "Non-
U.S. Equity Benchmark"). The Non-U.S. Equity Benchmark is a market driven
broad based index which includes non-U.S. equity markets in terms of
capitalization and performance. From time to time, the Advisor may substitute
securities in an equivalent index when it believes that such securities in the
index more accurately reflect the relevant international market. Although it
may invest anywhere in the world, it is expected that the Series' assets will
be primarily invested in the equity markets included in the MSCI Non-U.S.
Equity (Free) Index.
INVESTMENT CONSIDERATIONS AND RISKS
The following provides information about the types of instruments in which
the Funds may invest, strategies employed by Brinson Partners in its attempt
to attain each Series' investment objective and a summary of related risks.
Shareholders should understand that all investments involve risks and there
can be no guarantee against loss resulting from an investment in the Series,
nor can there be any assurance that the Series will be able to attain their
investment objectives. A complete list of the Series' investment restrictions
and more detailed information about the Series' investments are contained in
Appendix A in this Prospectus, and in the Statement of Additional Information.
EQUITY SECURITIES (GLOBAL FUND, GLOBAL EQUITY FUND, U.S. BALANCED FUND, U.S.
EQUITY FUND, U.S. LARGE CAPITALIZATION EQUITY FUND AND NON-U.S. EQUITY FUND) -
Equity securities fluctuate in value as a result of various factors, which
are often unrelated to the value of the issuer of the securities. These
fluctuations may be pronounced. The Global Fund may invest in small market
capitalization companies and in equity securities that are considered by the
Advisor to be in their post-venture capital stage. These securities may have
limited marketability, and therefore, may be more volatile. Fluctuations in
the value of the Series' equity investments will affect the value of their
shares and thus the Funds' total returns to investors.
FIXED INCOME SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND) - All fixed income securities are subject to two types of
risks: credit risk and interest rate risk. The credit risk relates to the
ability of the issuer to meet interest or principal payments or both as they
come due. The interest rate risk refers to the fluctuations in the net asset
value of any portfolio of fixed income securities resulting from the inverse
relationship between the price and yield of fixed income securities; that is,
when the general level of interest rates rises, the prices of outstanding
fixed income securities decline, and when interest rates fall, prices rise.
FOREIGN SECURITIES AND CURRENCY CONSIDERATIONS (GLOBAL FUND, GLOBAL EQUITY
FUND, GLOBAL BOND FUND AND NON-U.S. EQUITY FUND) - Investments in securities
of foreign issuers may involve greater risks than those of U.S. issuers. There
is generally less information available to the public about non-U.S. companies
and less government regulation and supervision of non-U.S. stock exchanges,
brokers and listed companies. Non-U.S. companies are not subject to uniform
global accounting, auditing and financial reporting standards, practices and
requirements. Securities of some non-U.S. companies are less liquid and their
prices more volatile than securities of comparable U.S. companies. Securities
trading practices abroad may offer less protection to investors. Settlement of
transactions in some non-U.S. markets may be delayed or may be less frequent
than in the United States, which could affect the liquidity of the Series'
portfolios. Additionally, in some non-U.S.
12
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of securities, property or other assets of the
Series, political or social instability, or diplomatic developments which
could affect U.S. investments in those countries. The Series intend to
diversify broadly among countries, but reserve the right to invest a
substantial portion of their assets in one or more countries if economic and
business conditions warrant such investments. Brinson Partners will take these
factors into consideration in managing the Series' investments. Because the
Series will keep their books and records in U.S. dollars, the Series will be
required, for federal income tax purposes, to account for income and losses on
all transactions involving foreign currency under Section 988 of the Internal
Revenue Code of 1986, as amended, and the applicable U.S. Treasury
Regulations, so that generally any component of a gain or loss attributable to
currency fluctuations results in ordinary income or loss and not capital gain
or loss.
The U.S. dollar market value of the Series' investments and of dividends and
interest earned by the Series may be significantly affected by changes in
currency exchange rates. Some currency prices may be volatile, and there is
the possibility of governmental controls on currency exchange or governmental
intervention in currency markets, which could adversely affect the Series.
Although the Series may attempt to manage currency exchange rate risks, there
is no assurance that the Series will do so at an appropriate time or that they
will be able to predict exchange rates accurately. For example, if the Series
increase their exposure to a currency and that currency's price subsequently
falls, such currency management may result in increased losses to the Series.
Similarly, if the Series decrease their exposure to a currency, and the
currency's price rises, the Series will lose the opportunity to participate in
the currency's appreciation. Each Series will manage currency exposures
relative to the normal currency allocation and will consider return and risk
of currency exposures relative to its respective Benchmark. In addition, if
the currency in which a security is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
security expressed in dollars.
On January 1, 1999, the European Monetary Union (the "EMU") plans to
introduce a new single currency, the Euro, which will replace the national
currencies of participating member nations. If the Series hold investments in
nations with currencies replaced by the Euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting, will be impacted. Although it is not possible to
predict the impact of the Euro on the Series, the transition and the
elimination of currency risk among nations participating in the EMU may change
the economic environment and behavior of investors, particularly in European
markets.
The adoption of the Euro does not reduce currency risk presented by
fluctuations in value of the U.S. dollar to other currencies and, in fact,
currency exchange risk may be magnified. Also, increased market volatility may
result. Additional risks that may result include the fact that European
issuers in which the Series invest may face substantial conversion costs,
which may not be accurately anticipated and may impact issuer profitability
and creditworthiness.
Brinson Partners has created an interdepartmental team to handle all Euro-
related changes to enable the Series to process transactions accurately and
completely with minimal disruption to business activities. While there can be
no assurance that the Series will not be adversely affected, Brinson Partners
and the Trust's service providers are taking steps that they believe are
reasonably designed to address the Euro issue.
There are additional risks inherent in investing in less developed countries
which are applicable to the Global Fund. Compared to the United States and
other developed countries, emerging market countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade only a small number of securities and employ settlement
procedures different from those used in the United
13
States. Prices on these exchanges tend to be volatile and, in the past,
securities in these countries have offered greater potential for gain (as well
as loss) than securities of companies located in developed countries. Further,
investments by foreign investors are subject to a variety of restrictions in
many emerging countries.
Emerging markets countries such as those in which the Global Fund may invest
have historically experienced and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations or currency
depreciation, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Additional factors which
may influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international agencies
and the political constraints to which a government debtor may be subject.
FOREIGN CURRENCY TRANSACTIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND
FUND AND NON-U.S. EQUITY FUND) - To manage exposure to currency fluctuations,
the Series may alter fixed income or money market exposures, enter into
forward currency exchange contracts, buy or sell options or futures relating
to foreign currencies and may purchase securities indexed to currency baskets.
The Series will also use these currency exchange techniques in the normal
course of business to hedge against adverse changes in exchange rates in
connection with purchases and sales of securities. Some of these strategies
may require the Series to set aside liquid assets in a segregated custodial
account to cover their obligations.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS (ALL SERIES) - The Series
may attempt to reduce the overall level of investment risk of particular
securities and attempt to protect against adverse market movements by
investing in futures, options and other derivative instruments. A derivative
instrument is commonly defined as a financial instrument whose performance and
value are derived, at least in part, from another source, such as the
performance of an underlying asset, a specific security or an index of
securities. The derivative instruments in which the Series may invest include
the purchase and writing of options on securities (including index options)
and options on foreign currencies, investing in futures contracts for the
purchase or sale of instruments based on financial indices, including interest
rate indices or indices of U.S. or foreign government securities, equity or
fixed income securities ("futures contracts"), forward contracts and swaps and
swap-related products such as equity index swaps, interest rate swaps,
currency swaps, and related caps, collars and floors.
The investment in futures, options, forward contracts, swaps and similar
strategies by the Series will depend on Brinson Partners' judgment as to the
potential risks and rewards of different types of strategies, and it should be
recognized that the use of these instruments exposes the Series to additional
investment risks and transaction costs. If the Advisor incorrectly analyzes
the market conditions or does not employ the appropriate strategy with respect
to these instruments, the Series could be left in a less favorable position.
For example, gains and losses on investments in futures depend on the
Advisor's ability to predict correctly the direction of security prices,
interest rates and other economic factors. Additional risks inherent in the
use of futures, options and forward contracts include: adverse movements in
the prices of securities or currencies being hedged; the possible absence of a
liquid secondary market for any particular instrument at any time; and the
possible need to defer closing out certain hedge positions to avoid adverse
tax consequences. Options and futures can be volatile instruments and may not
perform as expected. A Series could experience losses if the prices of its
options and futures positions are poorly correlated with its other
investments. If a hedge is applied at an inappropriate time or price trends
are judged incorrectly, options and futures strategies may lower a Series'
return (i.e., options and futures may fail as hedging techniques in cases
where the price movements of the securities underlying the options and futures
do not follow the price movements of the portfolio securities subject to the
hedge). Options and futures traded on foreign exchanges generally are not
regulated by U.S. authorities and may offer less liquidity and less protection
to a Series in the event of default by the other party to the contract. The
loss from investing in futures
14
transactions is potentially unlimited. A Series does not intend to purchase
put and call options that are traded on a national stock exchange in an amount
exceeding 5% of its net assets.
Each Series may invest in derivatives for hedging purposes, to maintain
liquidity, or in anticipation of changes in the composition of its portfolio
holdings. No Series will engage in derivative investments purely for
speculative purposes. A Series will invest in one or more derivatives only to
the extent that the instrument under consideration is judged by the Advisor to
be consistent with the Series' overall investment objective and policies. In
making such judgment, the potential benefits and risks will be considered in
relation to the Series' other portfolio investments.
Where not specified, investment limitations with respect to a Series'
derivative instruments will be consistent with that Series' existing
percentage limitations with respect to its overall investment policies and
restrictions. The risks and policies of various types of derivative
instruments permitted for the Series, including options, futures, forward
contracts and applicable interest rate swaps, are described in greater detail
in Appendix A in this Prospectus, and in the Statement of Additional
Information.
NON-DIVERSIFIED STATUS (GLOBAL BOND FUND AND U.S. LARGE CAPITALIZATION
EQUITY FUND ONLY) -- Each Series is classified as a "non-diversified"
investment company under the Act, which means that the proportion of the
Series' assets that may be invested in the securities of a single issuer is
not limited by the Act. Since each Series may invest a larger portion of its
assets in the securities of a single issuer than investment companies that are
classified as diversified funds under the Act, an investment in the Global
Bond Fund or in the U.S. Large Capitalization Equity Fund may be subject to
greater fluctuations in value than an investment in a diversified fund.
MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES
The Trust is a Delaware business trust. Under Delaware law, the Board of
Trustees has overall responsibility for managing the business and affairs of
the Trust. The Trustees elect the officers of the Trust, who are responsible
for administering the day-to-day operations of the Series.
THE ADVISOR
Brinson Partners, a Delaware corporation, is an investment management firm,
managing as of June 30, 1998, over $286 billion, primarily for pension and
profit sharing institutional accounts. Brinson Partners and its predecessor
entities have managed domestic and international investment assets since 1974
and global investment assets since 1982. Brinson Partners has offices in
Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York,
Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich, in addition to its
principal office at 209 South LaSalle Street, Chicago, IL 60604-1295. Brinson
Partners is a part of the UBS Brinson Division of UBS AG. UBS AG, with
headquarters in Basel, Switzerland, is an internationally diversified
organization with operations in many aspects of the financial services
industry. UBS AG was formed by the merger of Union Bank of Switzerland and
Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to nine other
investment companies: Brinson Relationship Funds, which includes seventeen
investment portfolios (series); The Enterprise Group of Funds, Inc. -
International Growth Portfolio; Enterprise Accumulation Trust - International
Growth Portfolio; Fort Dearborn Income Securities, Inc.; The Hirtle Callaghan
International Trust - The International Equity Portfolio; John Hancock
Variable Annuity Series Trust - International Balanced Portfolio; Managed
Accounts Services Portfolio Trust - Pace Large Company Value Equity
Investments; AON Funds - International Equity Fund; and The Republic Funds -
Republic Equity Fund.
15
Pursuant to its investment advisory agreements (the "Agreements") with the
Trust on behalf of each Series, Brinson Partners is entitled to receive a
monthly fee at various annual percentage rates of the Series' average daily
net assets, as described below, for providing investment advisory services.
Brinson Partners is responsible for paying its own expenses. Pursuant to the
Agreements, Brinson Partners is authorized, at its own expense, to obtain
statistical and other factual information and advice regarding economic
factors and trends from its foreign subsidiaries, but it does not generally
receive advice or recommendations regarding the purchase or sale of securities
from such subsidiaries.
For providing investment advisory services during the fiscal year ended June
30, 1998, Brinson Partners was entitled to receive, under the Agreements, a
monthly fee at an annual rate as follows of the average daily net assets of
the Funds:
Global Fund......................................................... 0.80%
Global Equity Fund.................................................. 0.80
Global Bond Fund.................................................... 0.75
U.S. Balanced Fund.................................................. 0.70
U.S. Equity Fund.................................................... 0.70
U.S. Large Capitalization Equity Fund............................... 0.70
U.S. Bond Fund...................................................... 0.50
Non-U.S. Equity Fund................................................ 0.80
The fee payable to Brinson Partners by the Global, Global Equity and Non-
U.S. Equity Funds is higher than the advisory fees paid by most other mutual
funds, but is comparable to those of other mutual funds with similar
investment objectives. The Advisor, however, has irrevocably agreed to waive
its fees and reimburse certain expenses so that the total operating expenses
of the Brinson Global Fund-Class I, Brinson Global Equity Fund-Class I,
Brinson Global Bond Fund-Class I, Brinson U.S. Balanced Fund-Class I, Brinson
U.S. Equity Fund-Class I, Brinson U.S. Large Capitalization Equity Fund-Class
I, Brinson U.S. Bond Fund-Class I and Brinson Non-U.S. Equity Fund-Class I
will never exceed 1.10%, 1.00%, 0.90%, 0.80%, 0.80%, 0.80%, 0.60% and 1.00%,
respectively.
PORTFOLIO MANAGEMENT
Investment decisions for the Series are made by an investment management
team at Brinson Partners. No member of the investment management team is
primarily responsible for making recommendations for portfolio purchases.
ADMINISTRATION OF THE TRUST
THE UNDERWRITER
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, MA
02109, was engaged pursuant to an agreement dated February 5, 1997, for the
limited purpose of acting as underwriter to facilitate the filing of notices
regarding sale of the shares of the Trust under state securities laws and to
assist in the sale of shares. The fee for such service is borne by the
Advisor.
THE ADMINISTRATOR
ADMINISTRATIVE, ACCOUNTING, TRANSFER AGENCY AND CUSTODIAN SERVICES
The Trust, on behalf of each Series, has entered into a Multiple Services
Agreement (the "Services Agreement") with Morgan Stanley Trust Company
("MSTC"), One Pierrepont Plaza, Brooklyn, New York 11201,
16
pursuant to which MSTC is required to provide general administrative,
accounting, portfolio valuation, transfer agency and custodian services to the
Series, including the coordination and monitoring of any third party service
providers.
MSTC provides custodian services for the securities and cash of the Series.
The custody fee schedule is based primarily on the net amount of assets held
during the period for which payment is being made.
As authorized under the Services Agreement, MSTC has entered into a Mutual
Funds Service Agreement (the "CGFSC Agreement") with Chase Global Funds
Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank,
under which CGFSC provides administrative, accounting, portfolio valuation and
transfer agency services to the Series. CGFSC's business address is 73 Tremont
Street, Boston, Massachusetts 02108-3913. Subject to the supervision of the
Board of Trustees of the Trust, MSTC supervises and monitors such services
provided by CGFSC.
Pursuant to the CGFSC Agreement, CGFSC provides:
(1) administrative services, including providing the necessary office
space, equipment and personnel to perform administrative and clerical
services; preparing, filing and distributing proxy materials, periodic
reports to investors, registration statements and other documents; and
responding to investor inquiries;
(2) accounting and portfolio valuation services, including the daily
calculation of each Fund's net asset value and the preparation of certain
financial statements; and
(3) transfer agency services, including the maintenance of each
investor's account records, responding to investors' inquiries concerning
accounts, processing purchases and redemptions of each Fund's shares,
acting as dividend and distribution disbursing agent and performing other
service functions. Shareholder inquiries should be made to the transfer
agent at 1-800-448-2430.
Also as authorized under the Services Agreement, MSTC has entered into a
sub-administration agreement (the "FDI Agreement") with FDI under which FDI
provides administrative assistance to the Series with respect to (i)
regulatory matters, including regulatory developments and examinations, (ii)
all aspects of the Series' day-to-day operations, (iii) office facilities,
clerical and administrative services, and (iv) maintenance of books and
records.
For its administrative, accounting, transfer agency and custodian services,
MSTC receives the following as compensation from the Trust on an annual basis:
0.0025% of the average daily U.S. assets of the Trust; 0.0525% of the average
daily non-U.S. assets of the Trust; 0.3250% of the average daily emerging
markets equity assets of the Trust; and 0.019% of the average daily emerging
markets debt assets of the Trust. MSTC receives an additional fee of 0.075% of
the average daily net assets of the Trust for administrative duties, the
latter subject to the expense limitation applicable to the Trust. No fee
(asset based or otherwise) is charged on any investments made by any fund into
any other fund sponsored or managed by the Advisor and assets of a fund that
are invested in another investment company or series thereof sponsored or
managed by the Advisor will not be counted in determining the 0.075%
administrative duties fee or the applicability of the expense limitation on
such fee. The foregoing fees include all out-of-pocket expenses or transaction
charges incurred by MSTC and any third party service provider in providing
such services. Pursuant to the CGFSC Agreement and the FDI Agreement, MSTC
pays CGFSC and FDI, respectively, for the services that CGFSC and FDI provide
to MSTC in fulfilling MSTC's obligations under the Services Agreement.
INDEPENDENT AUDITORS
Ernst & Young LLP, Chicago, Illinois, are the independent auditors of the
Trust.
17
PURCHASE OF SHARES
Shares of the Funds may be purchased directly from the Trust at the net
asset value next determined after receipt of the order in proper form by the
transfer agent. There is no sales load in connection with the purchase of Fund
shares. The Trust reserves the right to reject any purchase order and to
suspend the offering of shares of the Brinson Fund-Class I shares or any
Series. The Funds will not accept a check endorsed over by a third-party. The
minimum initial investment for Fund shares is $1,000,000. Subsequent
investments for Fund shares will be accepted in minimum amounts of $2,500. The
Trust reserves the right to vary the initial investment minimum and impose
minimums for additional investments in any of the Funds at any time. In
addition, Brinson Partners may waive the minimum initial investment
requirement for any investor.
Purchase orders for shares of the Funds which are received by the transfer
agent in proper form prior to the close of regular trading hours (currently
4:00 p.m. Eastern time) on the New York Stock Exchange (the "NYSE") on any day
that the Funds' net asset values per share are calculated, are priced
according to the net asset value determined on that day. Purchase orders for
shares of the Funds received after the close of the NYSE on a particular day
are priced as of the time the net asset value per share is next determined.
The Funds reserve the right to change the time at which purchases are priced
if the NYSE closes at a time other than 4:00 p.m. Eastern time or if an
emergency exists.
Under certain circumstances, the Trust has entered into one or more
agreements (each, a "Sales Agreement") with brokers, dealers or financial
institutions (each, an "Authorized Dealer") under which the Authorized Dealer
may directly, or through intermediaries that the Authorized Dealer is
authorized to designate under the Sales Agreement (each, a "Sub-designee"),
accept purchase and redemption orders that are in "good form" on behalf of the
Funds. A Fund will be deemed to have received a purchase order when the
Authorized Dealer or Sub-designee accepts the purchase order and such order
will be priced at the Fund's net asset value next computed after such order is
accepted by the Authorized Dealer or Sub-designee.
The Trust may accept telephone orders for Fund shares from broker-dealers or
service organizations which have been previously approved by the Trust. It is
the responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for the same to the Fund. Shares of the
Funds may be purchased through broker-dealers, banks and bank trust
departments which may charge the investor a transaction fee or other fee for
their services at the time of purchase. Such fees would not otherwise be
charged if the shares were purchased directly from the Trust.
Brinson Partners, or its affiliates, from its own resources, may compensate
broker-dealers or other financial intermediaries ("Service Providers") for
marketing, shareholder servicing, recordkeeping and/or other services
performed with respect to a Fund's Class I shares. Payments made for any of
these purposes may be made from its revenues, its profits or any other sources
available to it. When such service arrangements are in effect, they are made
generally available to all qualified Service Providers.
18
PURCHASES MAY BE MADE IN ONE OF THE FOLLOWING WAYS:
INITIAL INVESTMENT SUBSEQUENT INVESTMENTS
------------------------------- -------------------------------
MINIMUM $1,000,000 MINIMUM $2,500
BY MAIL . Complete and sign the Account . Make your check payable
[LOGO] Application accompanying this to "Brinson_________Fund-Class
Prospectus. I."
. Make your check payable to . Enclose the remittance
"Brinson________Fund-Class I." portion of
your account statement and
include the amount of
investment, the account name
and number.
. Mail to the address indicated . Mail to the address indicated
on the Account Application. on your account statement or
enclose in the envelope provided.
BY WIRE . Call 1-800-448-2430 to . Wire federal funds to:
[LOGO] arrange for a wire THE CHASE MANHATTAN BANK
transaction. ABA#021000021
. Wire federal funds within 24 DDA#9102-783504
hours to: FOR: "BRINSON__________FUND-
THE CHASE MANHATTAN BANK CLASS I" AND INCLUDE YOUR NAME
ABA#021000021 AND ACCOUNT NUMBER.
DDA#9102-783504
FOR: "BRINSON_________FUND-
CLASS I" AND INCLUDE YOUR NAME
AND NEW ACCOUNT NUMBER.
. Complete and sign the Account
Application and mail to the
address indicated on the
Account Application immediately
following the initial wire
transaction.
BY TELEPHONE . Call 1-800-448-2430 to . Call 1-800-448-2430 to
[LOGO] arrange for a telephone arrange for a telephone
transaction. transaction.
PURCHASING BY EXCHANGES . You may open a new account . You may purchase additional
[LOGO] for a Series of the Trust by shares of a Series of the
making an exchange from an Trust by making an exchange
existing Brinson Fund-Class I from an existing Brinson Fund-
account of any other Series of Class I account of any other
the Trust. Exchanges may be Series of the Trust. Exchanges
made by mail or telephone. may be made by mail or
Call 1-800-448-2430 for telephone. Call 1-800-448-2430
assistance. for assistance.
AUTOMATICALLY . Please refer to "Automatic . Please refer to "Automatic
Investment Plan" under Investment Plan" under
"Account Options" or call 1- "Account Options" or call 1-
800-448-2430 for assistance. 800-448-2430 for assistance.
19
ACCOUNT OPTIONS
The following account options are available to shareholders. There are no
charges for the programs noted below and an investor may change or terminate
these plans at any time by written notice to the Trust. For information about
participating in these account options, call the transfer agent at 1-800-448-
2430.
ACCOUNT OPTIONS INSTRUCTIONS
------------------------------ -----------------------------------------------
AUTOMATIC INVESTMENT PLAN . You may have money deducted directly
from your checking, savings or bank
money market accounts for investment in
the Funds each month or quarter.
. Complete the Automatic Investment Plan
Application, which is available upon
request by calling 1-800-448-2430, and
mail it to the address indicated.
. The initial account must be opened
first with the initial $1,000,000
minimum investment, with subsequent
minimum investments of $500 pursuant to
the Automatic Investment Plan.
. The account designated will be debited
in the specified amount, on the date
indicated, and Fund shares will be
purchased. The Trust may alter or
terminate the Automatic Investment Plan
at any time.
SYSTEMATIC WITHDRAWAL PLAN . A shareholder with a minimum account of
$1,000,000 may direct the transfer
agent to send the shareholder (or
anyone the shareholder designates)
regular, monthly, quarterly or semi-
annual payments. Each payment under a
Systematic Withdrawal Plan ("SWP") must
be at least $500. Such payments are
drawn from share redemptions.
. Shareholders participating in the SWP
must elect to have their dividends and
distributions automatically reinvested
in additional Fund shares.
. The Trust may terminate any SWP for an
account if the value of the account
falls below $50,000 as a result of
share redemptions or an exchange of
shares of a Fund for Brinson Fund-Class
I shares of another Series of the
Trust.
INDIVIDUAL RETIREMENT ACCOUNTS . An IRA is a tax-deferred retirement
savings account that may be used by an
individual under age 70 1/2 who has
compensation or self-employment income
and his or her unemployed spouse, or an
individual who has received a qualified
distribution from his or her employer's
retirement plan.
. The minimum purchase requirement for
IRAs is $2,000.
REDEMPTION OF SHARES
Shares of the Funds may be redeemed without charge on any business day that
the NYSE is open. Redemptions will be effected at the net asset value per
share next determined after the receipt by the transfer agent of a redemption
request meeting the requirements described below. The Trust normally sends
redemption proceeds on the next business day but, in any event, redemption
proceeds are sent within five business days of receipt of a redemption request
in proper form. Payment also may be made by wire directly to any bank
previously designated by the shareholder in an Account Application. Please
note that the shareholder's bank may impose a fee for wire service. The Trust
will honor redemption requests of shareholders who recently purchased
20
shares by check, but will not mail the proceeds until it is reasonably
satisfied that the purchase check has cleared, which may take up to fifteen
days from the purchase date.
Except as noted below, redemption requests received in proper form by the
transfer agent prior to the close of regular trading hours on the NYSE on any
business day that the Funds' net asset values per share are calculated are
effected that day. The Funds reserve the right to change the time at which
purchases are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
time or if an emergency exists. Redemption requests received in proper form by
the transfer agent after the close of the NYSE are effected as of the time the
net asset value per share is next determined. No redemption will be processed
until the transfer agent has received a completed application with respect to
the account.
Shares of the Funds may be redeemed through certain broker-dealers, banks
and bank trust departments who may charge the investor a transaction fee or
other fee for their services at the time of redemption. Such fees would not
otherwise be charged if the shares were redeemed directly from the Trust.
Under the Sales Agreement, the Authorized Dealer or Sub-designee is
authorized to accept redemption orders on behalf of the Funds. A Fund will be
deemed to have received a redemption order when the Authorized Dealer or Sub-
designee accepts the redemption order and such order will be priced at the
Fund's net asset value next computed after such order is accepted by the
Authorized Dealer or Sub-designee.
The Trust will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of Brinson
Partners or the Board of Trustees, result in the necessity of a Series selling
assets under disadvantageous conditions and to the detriment of the remaining
shareholders of the Series. Pursuant to the Trust's Agreement and Declaration
of Trust, payment for shares redeemed may be made either in cash or in-kind,
or partly in cash and partly in-kind. However, the Trust has elected, pursuant
to Rule 18f-1 under the Act, to redeem its shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of a Series, during any 90-day
period for any one shareholder. Payments in excess of this limit will also be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of the Series. Any portfolio securities paid or distributed in-kind
would be valued as described under "Net Asset Value." In the event that an in-
kind distribution is made, a shareholder may incur additional expenses, such
as the payment of brokerage commissions, on the sale or other disposition of
the securities received from a Series. In-kind payments need not constitute a
cross-section of a Series' portfolio. Where a shareholder has requested
redemption of all or a part of the shareholder's investment and where a Series
computes such redemption in-kind, the Series will not recognize gain or loss
for federal tax purposes on the securities used to compute the redemption, but
the shareholder will recognize gain or loss equal to the difference between
the fair market value of the securities received and the shareholder's basis
in the Fund shares redeemed.
SHARES MAY BE REDEEMED IN ONE OF THE FOLLOWING WAYS:
BY MAIL . Submit a written request for redemption with:
[LOGO] . The Fund's name;
. Your Fund account number;
. The dollar amount or number of shares to be
redeemed; and
. Signatures of all persons required to sign for
transactions, exactly as their names appear on
the Account Application.
. To protect your account from fraud, the Fund and
its agents may require a signature guarantee for
certain redemptions to verify the identity of
the person who has authorized a redemption from
your account. Please contact the Fund for
further information.
21
n Mail to the address indicated on the Account
Application. Questions may be directed to the
transfer agent at 1-800-448-2430.
BY WIRE n This service must be elected either on the
LOGO initial application or subsequently arranged in
writing.
n Shares may be redeemed by instructing the
transfer agent by telephone at 1-800-448-2430.
n Wire redemption requests must be received by the
transfer agent before 4:00 p.m. Eastern time for
money to be wired the next business day.
BY TELEPHONE 1-800-448- n This service must be elected either on the
2430 initial application or subsequently arranged in
= writing.
n Shares may be redeemed by instructing the
transfer agent by telephone at 1-800-448-2430.
n Shares will be sold at the next share price
calculated after the order is received and
accepted. Share price is normally calculated at
4:00 p.m. Eastern time.
AUTOMATICALLY n Please refer to "Systematic Withdrawal Plan"
under "Account Options" or call 1-800-448-2430
for assistance.
- ----------
NOTE: The Trust reserves the right to refuse a wire or telephone redemption if
it is believed advisable to do so. Procedures for redeeming shares of the
Brinson Funds by wire or telephone may be modified or terminated at any
time by the Trust.
TELEPHONE TRANSACTIONS:
Shareholders who wish to initiate purchase, exchange or redemption
transactions by telephone must elect the option, as described above. With
respect to such telephone transactions, the Funds will ensure that reasonable
procedures are used to confirm that instructions communicated by telephone are
genuine (including verification of the shareholder's social security number or
mother's maiden name) and, if they do not, the Funds or the transfer agent may
be liable for any losses due to unauthorized or fraudulent transactions.
Written confirmation will be provided for all purchase, exchange and
redemption transactions initiated by telephone.
EXCHANGE OF SHARES:
Fund shares may be exchanged for Brinson Fund-Class I shares of any other
Series within the Trust. Exchanges will not be permitted between the Brinson
Fund-Class I shares and either the UBS Investment Funds class of shares or the
Brinson Fund-Class N shares of a Series of the Trust.
Fund shares may be exchanged by written request or by telephone if the
shareholder has previously signed a telephone authorization on the Account
Application. The telephone exchange may be difficult to implement during times
of drastic economic or market changes. The Trust reserves the right to
restrict the frequency of, or otherwise modify, condition, terminate or impose
charges upon the exchange and/or telephone transfer privileges upon 60 days'
prior written notice to shareholders.
Exchanges will be made on the basis of the relative net asset value per
share of the Brinson Fund-Class I shares of the Fund from which, and the Fund
into which, the exchange is made. Exchanges may be made only for shares of a
Series and class then offering its shares for sale in your state of residence
and are subject to the
22
minimum initial investment requirement. For federal income tax purposes, an
exchange of shares would be treated as if the shareholder had redeemed shares
of one Series and reinvested in shares of another Series. Gains or losses on
the shares exchanged are realized by the shareholder at the time of the
exchange. Any shareholder wishing to make an exchange should first obtain and
review a prospectus of the other Series. Requests for telephone exchanges must
be received by the transfer agent by the close of regular trading hours
(currently 4:00 p.m. Eastern time) on the NYSE on any day that the NYSE is
open for regular trading. The Funds reserve the right to change the time at
which exchanges are priced if the NYSE closes at a time other than 4:00 p.m.
Eastern time or if an emergency exists.
TRANSFER OF SECURITIES:
At the discretion of the Trust, investors may be permitted to purchase Fund
shares by transferring securities to a Series that meet the Series' investment
objective and policies. Securities transferred to a Series will be valued in
accordance with the same procedures used to determine the Fund's net asset
value at the time of the next determination of net asset value after such
acceptance. Shares issued by a Series in exchange for securities will be
issued at net asset value per share of the Fund determined as of the same
time. All dividends, interest, subscription, or other rights pertaining to
such securities shall become the property of the Series and must be delivered
to the Series by the investor upon receipt from the issuer. Investors who are
permitted to transfer such securities will be required to recognize a gain or
loss on such transfer and pay tax thereon, if applicable, measured by the
difference between the fair market value of the securities and the investors'
basis therein. Securities will not be accepted in exchange for shares of a
Fund unless: (1) such securities are, at the time of the exchange, eligible to
be included in the Series' portfolio and current market quotations are readily
available for such securities; (2) the investor represents and warrants that
all securities offered to be exchanged are not subject to any restrictions
upon their sale by the Series under the Securities Act of 1933, as amended, or
under the laws of the country in which the principal market for such
securities exists, or otherwise; and (3) the value of any such security
(except U.S. government securities) being exchanged, together with other
securities of the same issuer owned by the Series, will not exceed 5% of the
Series' net assets immediately after the transaction.
NET ASSET VALUE
The net asset value per share for each class of shares of the Series is
computed by adding, with respect to each class of shares, the value of a
Series' investments, cash and other assets attributable to that class,
deducting liabilities of the class and dividing the result by the number of
shares of that class outstanding. The public offering price of the shares of
each classes' shares, all of which are sold on a continuous basis, is the net
asset value of that class. The valuation of assets for determining the net
asset value may be summarized as follows:
Securities traded on securities exchanges are valued at the last
available sale price. Securities that are not traded on a particular day or
on an exchange are valued at either (a) the bid price or (b) a valuation
within the range considered best to represent value in the circumstances.
Price information on listed securities is generally taken from the closing
price on the exchange where the security is primarily traded. Valuations of
equity securities may be obtained from a pricing service and/or broker-
dealers when such prices are believed to reflect fair value of such
securities. Use of a pricing service and/or broker-dealers has been
approved by the Board of Trustees. Futures contracts are valued at their
daily quoted settlement price on the exchange on which they are traded.
Forward foreign currency contracts are valued daily using the mean between
the bid and asked forward points added to the current exchange rate and an
unrealized gain or loss is recorded. The Series realizes a gain or loss
upon settlement of the contracts. For valuation purposes, foreign
securities initially expressed in foreign currency values will be converted
into U.S. dollar values using WM/Reuters closing spot rates as of 4:00 p.m.
London time.
23
Securities with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates market value. Fixed income securities
having a remaining maturity of over 60 days are valued at market price.
Debt securities are valued on the basis of prices provided by a pricing
service, or at the bid price where readily available, as long as the bid
price, in the opinion of the Advisor, continues to reflect the value of the
security. Redeemable securities issued by open-end investment companies are
valued using their respective net asset values for purchase orders placed
at the close of the NYSE. Securities (including over-the-counter options)
for which market quotations are not readily available and other assets are
valued at their fair value as determined in good faith by or under the
direction of the Trustees.
Net asset value is determined on each day that the NYSE is open, as of the
close of business of the regular session of the NYSE (currently 4:00 p.m.
Eastern time). Investments and requests to exchange or redeem shares received
by the Series in proper form before such close of business are effective, and
will receive the price determined, on that day. Investment, exchange and
redemption requests received after such close of business are effective, and
will receive the share price determined, on the next business day. The Funds
reserve the right to change the time at which purchases, redemptions and
exchanges are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
time or if an emergency exists.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE and values
of foreign futures and options and foreign securities will be determined as of
the earlier closing of such exchanges and securities markets. However, events
affecting the values of such foreign securities may occasionally occur between
the earlier closings of such exchanges and securities markets and the closing
of the NYSE which will not be reflected in the computation of the net asset
value of a class of a Series. If an event materially affecting the value of
such foreign securities occurs during such period, then such securities will
be valued at fair value as determined in good faith by or under the direction
of the Board of Trustees. Where a foreign securities market remains open at
the time that a Series values its portfolio securities, or closing prices of
securities from that market may not be retrieved because of local time
differences or other difficulties in obtaining such prices at that time, last
sale prices in such market at a point in time most practicable to timely
valuation of the Series may be used.
The Series' portfolio securities from time to time may be listed primarily
on foreign exchanges which trade on days when the NYSE is closed (such as
Saturday). As a result, the net asset value of a class of a Fund may be
significantly affected by such trading on days when shareholders have no
access to the Fund.
All of the Series' classes of shares will bear pro rata all of the expenses
of that Series common to all classes. The net asset value of all outstanding
shares of each class of the Series will be computed on a pro rata basis for
each outstanding share based on the proportionate participation in the Series
represented by the value of shares of that class. All income earned and
expenses incurred by the Series will be borne on a pro rata basis by each
outstanding share of a class, based on each class' proportionate participation
in the Series represented by the value of shares of such class, except that
the Brinson Fund-Class N and UBS Investment Funds class of shares will bear
12b-1 expenses payable under their respective 12b-1 plans.
Due to the specific distribution expenses and other costs that will be
allocable to each class, the dividends paid to each class, and related
performance, of the Series may vary. The per share net asset value of the
Brinson Fund-Class N shares and the UBS Investment Funds class of shares will
generally be lower than that of the Brinson Fund-Class I shares of a Series
because of the higher expenses borne by the UBS Investment Funds class of
shares and the Brinson Fund-Class N shares. It is expected, however, that the
net asset value per share of the two classes will tend to converge immediately
after the payment of dividends, which will differ by approximately the amount
of the service and distribution expenses differential among the classes.
24
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS
The Series will distribute their net investment income semi-annually in June
and December. The Series will distribute annually in December substantially
all of their net long-term capital gains and any undistributed net short-term
capital gains realized during the one year period commencing November 1 (or
date of the creation of the Series, if later) and ending October 31, and, at
the same time, will distribute all of their net investment income earned
through the end of December and not previously distributed as ordinary (not
capital) income.
Dividends and other distributions paid by a Series with respect to its
Brinson Fund-Class N, Brinson Fund-Class I and UBS Investment Funds class of
shares are calculated in the same manner and at the same time. The per share
amount of any income dividends will generally differ among the classes only to
the extent that the Brinson Fund-Class N and UBS Investment Fund class of
shares are subject to separate 12b-1 fees. The per share dividends on UBS
Investment Funds class of shares and Brinson Fund-Class N shares will be lower
than the per share dividends on the Brinson Fund-Class I shares of each Series
as a result of the distribution and service fees applicable with respect to
the UBS Investment Funds class of shares and Brinson Fund-Class N shares.
Income dividends and capital gain distributions are reinvested automatically
in additional Fund shares of the same class of a Series at net asset value,
unless the shareholder has notified the transfer agent, in writing, of the
shareholder's election to receive them in cash. Distribution options may be
changed at any time by requesting a change in writing. Any check in payment of
dividends or other distributions which cannot be delivered by the Post Office
or which remains uncashed for a period of more than one year may be reinvested
in the shareholder's account at the then current net asset value and the
dividend option may be changed from cash to reinvest. Dividends are reinvested
on the ex dividend date (the "ex date") at the net asset value determined at
the close of business on that date. Please note that shares purchased shortly
before the record date for a dividend or distribution may have the effect of
returning capital although such dividends and distributions are subject to
taxes.
TAXES
Each Series has qualified, and intends to continue to qualify, for taxation
as a "regulated investment company" under the Internal Revenue Code of 1986,
as amended ("the Code"). Such qualification relieves a Series of liability for
federal income taxes to the extent the Series' earnings are distributed in
accordance with the Code. Each Series is treated as a separate corporate
entity for federal tax purposes.
Distributions of any net investment income and of any net realized short-
term capital gains are taxable to shareholders as ordinary income. All
distributions may be subject to state and local taxes.
Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable to shareholders as long-term
capital gain regardless of how long a shareholder may have held shares of a
Series. The tax treatment of distributions of ordinary income or capital gains
will be the same whether the shareholder reinvests the distributions or elects
to receive them in cash. A distribution will be treated as paid on December 31
of the current calendar year if it is declared in October, November or
December with a record date in such a month and paid during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Shareholders will be advised annually of the source and tax status of all
distributions for federal income tax purposes. Further information regarding
the tax consequences of investing in the Series is included in the
25
Statement of Additional Information. The above discussion is intended for
general information only. Investors should consult their own tax advisors for
more specific information on the tax consequences of particular types of
distributions.
Redemptions of Series shares, and the exchange of shares between two Series
of the Trust, are taxable events and, accordingly, shareholders may realize
capital gains or losses on these transactions.
Shareholders may be subject to back-up withholding on reportable dividend
and redemption payments ("back-up withholding") if a certified taxpayer
identification number is not on file with the Series, or if, to the Series'
knowledge, an incorrect number has been furnished, or if the Series has been
notified by the Internal Revenue Service that an account is subject to back-up
withholding. An individual's taxpayer identification number is the
individual's social security number.
If more than 50% of a Series' total assets at the close of its taxable year
consists of stock or securities in foreign corporations, the Series may elect
to "pass-through" to shareholders for foreign tax credit purposes the amount
of foreign income taxes paid by the Series with respect to its direct holdings
of securities in foreign corporations. A Series will make such an election
only if it deems such election to be in the best interests of its
shareholders. If this election is made, shareholders of the Series will be
required to include in their gross incomes their pro rata share of foreign
taxes paid by the Series. However, shareholders will be able to treat their
pro rata share of foreign taxes as either a deduction (itemized deduction in
the case of individuals) or a foreign tax credit (but not both) against U.S.
income taxes on their tax returns. A Series which makes investments in the
securities of foreign corporations may make investments in foreign companies
that are "passive foreign investment companies" ("PFICs"). These investments
in PFICs may cause a Series to pay income taxes and interest charges. If
possible, the Series will not invest in PFICs or will adopt other strategies
to avoid these taxes and charges.
GENERAL INFORMATION
ORGANIZATION
The Brinson Funds is a Delaware business trust organized pursuant to an
Agreement and Declaration of Trust, dated December 1, 1993. The Trust was
originally organized as a Maryland corporation on April 14, 1992. On December
1, 1993, the Trust reorganized as a Delaware business trust through a merger
of the Maryland corporation into the Trust. The Trust is registered under the
Act as an open-end management investment company, commonly known as a mutual
fund and consists of eight different Series. The Trustees of the Trust may
establish additional series or classes of shares without the approval of
shareholders. All of the Series, except the Global Bond Fund, are diversified
portfolios. The assets of each Series belong only to that Series, and the
liabilities of each Series are borne solely by that Series and no other.
DESCRIPTION OF SHARES
Each Series is authorized to issue an unlimited number of shares of
beneficial interest with a $0.001 par value per share. The Board of Trustees
has the power to designate one or more series or sub-series/classes of shares
of beneficial interest and to classify or reclassify only unissued shares with
respect to such series. Shares of each series represent equal proportionate
interests in the assets of that series only and have identical voting,
dividend, redemption, liquidation, and other rights, except that only shares
of each Series' Brinson Fund-Class N and UBS Investment Fund classes shall
have voting rights with respect to the Rule 12b-1 plan relating to such
26
classes, respectively, as described below. All shares issued are fully paid
and non-assessable, and shareholders have no preemptive or other right to
subscribe to any additional shares and no conversion rights. Currently, the
Trust offers eight investment portfolios or series-Global Fund, Global Equity
Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large
Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund. Three
classes of shares are currently issued by the Trust for each Series, the
Brinson Fund-Class N, Brinson Fund-Class I and UBS Investment Fund class.
Prior to September 15, 1998, the "UBS Investment Funds class" of shares was
known as the "SwissKey Fund class."
VOTING RIGHTS
Each issued and outstanding full and fractional share of a Series is
entitled to one full and fractional vote in the Series and all shares of each
Series participate equally with regard to dividends, distributions, and
liquidations with respect to that Series. Shareholders do not have cumulative
voting rights. On any matter submitted to a vote of shareholders, shares of
each Series will vote separately except when a vote of shareholders in the
aggregate is required by law, or when the Trustees have determined that the
matter affects the interests of more than one Series, in which case the
shareholders of all such Series shall be entitled to vote thereon. Only the
Brinson Fund-Class N shareholders may vote on matters related to the Rule 12b-
1 plan associated with that class and only the UBS Investment Fund class
shareholders may vote on matters related to the Rule 12b-1 plan associated
with that class.
As of August 18, 1998, Wachovia Bank NA held of record more than 25% of the
outstanding shares of the Global Equity Fund; Wilmington Trust Co. held of
record more than 25% of the outstanding shares of the Global Bond Fund; MAC &
Co. held of record more than 25% of the outstanding shares of the U.S.
Balanced Fund; Norwest MN held of record more than 25% of the outstanding
shares of the U.S. Large Capitalization Equity Fund; Wachovia Bank NA held of
record more than 25% of the outstanding shares of the U.S. Bond Fund; The
Northern Trust Co. held of record more than 25% of the outstanding shares of
the Non-U.S. Equity Fund. A shareholder that holds such a percentage of the
outstanding shares of a class may be deemed a controlling person of that class
under the Act.
SHAREHOLDER MEETINGS
The Trustees of the Trust do not intend to hold annual meetings of
shareholders of the Series. The SEC, however, requires the Trustees to
promptly call a meeting for the purpose of voting upon the question of removal
of any Trustee when requested to do so by not less than 10% of the outstanding
shareholders of the respective Series. In addition, subject to certain
conditions, shareholders of each Series may apply to the Series to communicate
with other shareholders to request a shareholders' meeting to vote upon the
removal of a Trustee or Trustees.
PORTFOLIO TURNOVER (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S.
BOND FUND)
As a result of the investment policies of the Global Fund, Global Bond Fund,
U.S. Balanced Fund and U.S. Bond Fund, their portfolio turnover rates may
exceed 100%. High portfolio turnover (over 100%) may involve correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Series and ultimately by the Series' shareholders. In
addition, high portfolio turnover may result in increased short-term capital
gains, which, when distributed to shareholders, are treated as ordinary income
for tax purposes.
27
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Trust will attempt to obtain the best overall price and most favorable
execution of transactions in portfolio securities. However, subject to
policies established by the Board of Trustees of the Trust, a Series may pay a
broker-dealer a commission for effecting a portfolio transaction for the
Series in excess of the amount of commission another broker-dealer would have
charged if Brinson Partners determines in good faith that the commission paid
was reasonable in relation to the brokerage or research services provided by
such broker-dealer, viewed in terms of that particular transaction or such
firm's overall responsibilities with respect to the clients, including the
Series, as to which it exercises investment discretion. In selecting and
monitoring broker-dealers and negotiating commissions, consideration will be
given to a broker-dealer's reliability, the quality of its execution services
on a continuing basis and its financial condition.
When buying or selling securities, the Series may pay commissions to brokers
who are affiliated with the Advisor or the Series. The Series may purchase
securities in certain underwritten offerings for which an affiliate of the
Series or the Advisor may act as an underwriter. The Series may effect futures
transactions through, and pay commissions to, futures commission merchants who
are affiliated with the Advisor or the Series in accordance with procedures
adopted by the Board of Trustees of the Trust.
SHAREHOLDER REPORTS AND INQUIRIES
Shareholders will receive semi-annual reports showing portfolio investments
and other information as of December 31 and annual reports audited by
independent auditors as of June 30. Shareholders with inquiries should call
The Brinson Funds at 1-800-448-2430 or write to The Brinson Funds, P.O. Box
2798, Boston, MA 02208-2798.
YEAR 2000 ISSUES
Like other investment companies, as well as other financial and business
organizations around the world, the Trust could be adversely affected if the
computer systems used by the Advisor, MSTC, CGFSC and other service providers,
in performing their administrative functions for the Trust, do not properly
process and calculate date-related information and data as of and after
January 1, 2000. This is commonly known as the "Year 2000 Issue." The Year
2000 Issue, and, in particular, foreign service providers' responsiveness to
the issue, could affect portfolio and operational areas including securities
trade processing, interest and dividend payments, securities pricing,
shareholder account services, custody functions and others. The Advisor, MSTC
and CGFSC are taking steps that they believe are reasonably designed to
address the Year 2000 Issue with respect to computer systems that they use and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other service providers. These include identifying those systems that
may not function properly after December 31, 1999, and correcting or replacing
those systems. In addition, steps include testing the processing of Series
data on all systems relied on by the Advisor, MSTC and CGFSC. As of the date
of this Prospectus, however, there can be no assurance that these steps will
be sufficient to avoid any adverse impact to the Series.
PERFORMANCE INFORMATION
From time to time, performance information, such as yield or total return,
may be quoted in advertisements or in communications to present or prospective
shareholders. Performance quotations represent the Funds' past performance and
should not be considered as representative of future results. The current
yield will be calculated by dividing the net investment income earned per
share by a Fund during the period stated in the advertisement (based on the
average daily number of shares entitled to receive dividends outstanding
during the period) by the
28
maximum net asset value per share on the last day of the period and
annualizing the result on a semi-annual compounded basis. The Funds' total
return may be calculated on an annualized and aggregate basis for various
periods (which periods will be stated in the advertisement). Average annual
return reflects the average percentage change per year in value of an
investment in a Fund. Aggregate total return reflects the total percentage
change over the stated period.
To help investors better evaluate how an investment in the Brinson Funds
might satisfy their investment objectives, advertisements regarding the Funds
may discuss yield or total return as reported by various financial
publications. Advertisements may also compare yield or total return to other
investments, indices and averages. The following publications, benchmarks,
indices and averages may be used: Lipper Mutual Fund Performance Analysis;
Lipper Fixed Income Analysis; Lipper Mutual Fund Indices; Morgan Stanley
Indices; Lehman Brothers Treasury Index; Salomon Brothers Indices; Dow Jones
Composite Average or its component indices; Standard & Poor's 500 Stock Index
or its component indices; Wilshire Indices; The New York Stock Exchange
composite or component indices; CDA Mutual Fund Report; Weisenberger-Mutual
Funds Panorama and Investment Companies; Mutual Fund Values and Mutual Fund
Service Book, published by Morningstar, Inc.; comparable portfolios managed by
the Advisor; and financial publications, such as Business Week, Kiplinger's
Personal Finance, Financial World, Forbes, Fortune, Money Magazine, The Wall
Street Journal, Barron's, et al., which rate fund performance over various
time periods.
The principal value of an investment in the Funds will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Any fees charged by banks or other institutional investors
directly to their customer accounts in connection with investments in shares
of the Funds will not be included in the Brinson Funds' calculations of yield
or total return. Further information about the performance of the Funds is
included in the Funds' Annual Report dated June 30, 1998, which may be
obtained without charge by contacting the Trust at 1-800-448-2430.
29
APPENDIX A
INVESTMENT POLICIES AND TECHNIQUES
EQUITY SECURITIES (GLOBAL FUND, GLOBAL EQUITY FUND, U.S. BALANCED FUND, U.S.
EQUITY FUND, U.S. LARGE CAPITALIZATION EQUITY FUND AND NON-U.S. EQUITY FUND):
The Series may invest in a broad range of equity securities of U.S. and non-
U.S. issuers, including common stocks of companies or closed-end investment
companies, preferred stocks, debt securities convertible into or exchangeable
for common stock, securities such as warrants or rights that are convertible
into common stock and sponsored or unsponsored American, European and Global
depositary receipts ("Depositary Receipts"). The issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States. The Series expect their U.S. equity investments to emphasize
large and intermediate capitalization companies, although the Global Fund may
also invest in small capitalization equity markets. The equity markets in the
non-U.S. component of the Series will typically include available shares of
larger capitalization companies. Capitalization levels are measured relative
to specific markets, thus large, intermediate and small capitalization ranges
vary country by country. The Global Fund may invest in equity securities of
companies considered by the Advisor to be in their post-venture capital stage,
or "post-venture capital companies." A post-venture capital company is a
company that has received venture capital financing either (a) during the
early stages of the company's existence or the early stages of the development
of a new product or service, or (b) as part of a restructuring or
recapitalization of the company. The Global Fund also may invest in open-end
investment companies advised by Brinson Partners, in equity securities of
issuers in emerging markets and in securities with respect to which the return
is derived from the equity securities of issuers in emerging markets.
FIXED INCOME SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND): The Series may invest in a broad range of fixed income
securities of U.S. and non-U.S. issuers, including governments and
governmental entities, supranational issuers as well as corporations and other
business organizations. The Series may purchase U.S. dollar denominated
securities that reflect a broad range of investment maturities, qualities and
sectors. A majority of the fixed income securities in which the Series will
invest will possess a minimum rating of BBB- by S&P or Baa3 by Moody's or, if
unrated, will be determined to be of comparable quality by Brinson Partners.
Such securities are considered to be investment grade. While securities rated
BBB- or Baa3 are regarded as having an adequate capacity to pay principal and
interest, such bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics; and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher rated bonds. Securities
rated lower than BBB- by S&P and Baa3 by Moody's are classified as non-
investment grade securities (commonly referred to as "junk bonds"), carry a
higher degree of risk and are considered to be speculative by the major credit
rating agencies. Each Series currently intends to limit its aggregate
investment in non-investment grade debt securities of its U.S. and non-U.S.
dollar denominated fixed income assets to no more than 5% of its net assets.
To the extent that a security held by a Series is downgraded to below
investment grade, the Series will dispose of that or another non-investment
grade security so that no more than 5% of its assets will be invested in below
investment grade securities. Other fixed income securities in which the Series
may invest include zero coupon securities, mortgage-backed securities, asset-
backed securities and when-issued securities.
The non-U.S. fixed income component of the Series will typically be invested
in the securities of non-U.S. governments, governmental agencies and
supranational issues. A supranational entity is an entity established or
financially supported by the national governments of one or more countries to
promote reconstruction or development. Examples of supranational entities
include, among others: the World Bank, the European
30
Economic Community, the European Coal and Steel Community, the European
Investment Bank, the Inter-American Development Bank, the Export-Import Bank
and the Asian Development Bank.
The Global Fund may invest in fixed income securities of emerging market
issuers, including government and government-related entities (including
participation in loans between governments and financial institutions), and of
entities organized to restructure outstanding debt securities of developing
countries' corporate issuers.
CASH AND CASH EQUIVALENTS (ALL SERIES): The Series may invest a portion of
their assets in short-term debt securities (including repurchase agreements
and reverse repurchase agreements) of corporations, the U.S. government and
its agencies and instrumentalities and banks and finance companies, which may
be denominated in any currency. When unusual market conditions warrant, a
Series may make substantial temporary defensive investments in cash
equivalents up to a maximum of 100% of its net assets. Cash equivalent
holdings may be in any currency (although such holdings may not constitute
"cash or cash equivalents" for tax diversification purposes under the Code).
When a Series invests for defensive purposes, it may affect the attainment of
the Series' investment objective.
Under the terms of an exemptive order issued by the SEC, each Series may
invest cash (i) held for temporary defensive purposes; (ii) not invested
pending investment in securities; (iii) that is set aside to cover an
obligation or commitment of the Series to purchase securities or other assets
at a later date; (iv) to be invested on a strategic management basis (i-iv is
herein referred to as "Uninvested Cash"); and (v) collateral that it receives
from the borrowers of its portfolio securities in connection with the Series'
securities lending program, in a series of shares of Brinson Supplementary
Trust (the "Supplementary Trust Series"). Brinson Supplementary Trust is a
private investment company which has retained the Advisor to manage its
investments. The Trustees of the Trust also serve as Trustee of the Brinson
Supplementary Trust. The Supplementary Trust Series will invest in U.S. dollar
denominated money market instruments having a dollar-weighted average maturity
of 90 days or less. A series' investment of Uninvested Cash in shares of the
Supplementary Trust Series will not exceed 25% of the Series' total assets. In
the event that the Advisor waives 100% of its investment advisory fee with
respect to a Series, as calculated monthly, then that series will be unable to
invest in the Supplementary Trust Series until additional investment advisory
fees are owed by the Series.
ZERO COUPON SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND): Zero coupon securities are debt obligations which do not
entitle the holder to any periodic payments of interest prior to maturity or a
specified date when the securities begin paying current interest (the "cash
payment date") and, therefore, are issued and traded at a discount from their
value at maturity or par value. Such bonds carry an additional risk in that,
unlike bonds which pay interest throughout the period to maturity, a Series
investing in zero coupon securities will realize no cash until the cash
payment date and, if the issuer defaults, a Series may obtain no return at all
on its investment. The market price of zero coupon securities generally is
more volatile than the market price of securities that pay interest
periodically and are likely to be more responsive to changes in interest rates
than non-zero coupon securities having similar maturities and credit
qualities. For federal tax purposes, the Series will be required to include in
income daily portions of original issue discount accrued and to distribute the
same to shareholders annually, even if no payment is received before the
distribution date.
MORTGAGE- AND ASSET-BACKED SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S.
BALANCED FUND AND U.S. BOND FUND): Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, pools of
mortgage loans secured by real property, and include single- and multi-class
pass-through securities and collateralized mortgage obligations. These
securities may be issued or guaranteed by agencies or instrumentalities of the
U.S. government. Other mortgage-backed securities are issued by private
31
issuers, generally originators of and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment bankers
and special purpose entities (collectively, "private lenders"). Mortgage-
backed securities issued by private lenders may be supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather, they include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal
and interest on asset-backed securities may be supported by non-governmental
credit enhancements similar to those utilized in connection with mortgage-
backed securities.
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt obligations. Among the principal differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, the rate of return on these
securities may be affected by prepayments of principal on the underlying
loans, which generally increase as interest rates decline. As a result, if a
Series purchases these securities at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Conversely, if a Series purchases these securities at a discount,
a prepayment rate that is faster than expected will increase yield to
maturity, while a prepayment rate that is slower than expected will reduce
yield to maturity. Accelerated prepayments on securities purchased by a Series
at a premium also impose a risk of loss of principal because the premium may
not have been fully amortized at the time the principal is prepaid in full. In
addition, like other debt securities, the values of mortgage-related
securities, including government and government-related mortgage pools,
generally will fluctuate in response to market interest rates. The market for
privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for government sponsored mortgage-backed securities.
WHEN-ISSUED SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND): The Series may purchase securities on a "when-issued"
basis for payment and delivery at a later date. The price is generally fixed
on the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to a Series. At the time of settlement, the
market value of the security may be more or less than the purchase price. The
Series will establish a segregated account consisting of cash, U.S. government
securities, equity securities and/or investment and non-investment grade debt
securities in accordance with SEC positions. The cash, U.S. government
securities, equity securities, investment or non-investment grade debt
securities and other assets held in any segregated account maintained by the
Series with respect to any when-issued securities, options, futures, forward
contracts or other derivative transactions shall be liquid, unencumbered and
marked-to-market daily (the assets held in a segregated account are referred
to in this Prospectus as "Segregated Assets"), and such Segregated Assets
shall be maintained in accordance with pertinent SEC positions.
FOREIGN CURRENCY TRANSACTIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND
FUND AND NON-U.S. EQUITY FUND): The Series may conduct their foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into contracts to
purchase or sell foreign currencies at a future date (i.e., a "forward foreign
currency" contract or "forward" contract). A forward contract involves an
obligation to purchase or sell a specific currency amount at a future date,
which
32
may be any fixed number of days from the date of the contract agreed upon by
the parties at a price set at the time of the contract. The Series will
convert currency on a spot basis from time to time and investors should be
aware that changes in currency exchange rates and exchange control regulations
may affect the costs of currency conversion.
The Series may enter into forward contracts for hedging purposes as well as
non-hedging purposes. For hedging purposes, a Series may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. It may also use contracts in a manner intended
to protect foreign currency-denominated securities from declines in value due
to unfavorable exchange rate movements. A Series may also enter into contracts
with the intent of changing the relative exposure of the Series' portfolio of
securities to different currencies to take advantage of anticipated changes in
exchange rates.
When a Series enters into forward contracts for non-hedging purposes, it
will establish a segregated account with its custodian bank in which it will
maintain Segregated Assets in accordance with SEC positions.
At the maturity of a forward contract, a Series may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Series may realize a gain or loss from currency
transactions.
OPTIONS ON CURRENCIES (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND FUND AND
NON-U.S. EQUITY FUND): The Series also may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchanges or over-
the-counter markets) to manage the respective portfolio's exposure to changes
in currency exchange rates. Call options on foreign currency written by a
Series will be "covered," which means that the Series will own an equal amount
of, or an offsetting position in, the underlying foreign currency. With
respect to put options on foreign currency written by a Series, the Series
will establish a segregated account with its custodian bank consisting of
Segregated Assets equal in accordance with SEC positions.
FUTURES CONTRACTS (ALL SERIES): The Series may enter into contracts for the
future purchase or sale of securities and indices. The Global Funds and the
Non-U.S. Equity Fund also may enter into contracts for the future purchase or
sale of foreign currencies. A financial futures contract is an agreement
between two parties to buy or sell a specified debt security at a set price on
a future date. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period. A futures
contract on a foreign currency is an agreement to buy or sell a specified
amount of a currency for a set price on a future date. A Series may enter into
a futures contract to the extent that not more than 5% of its assets are
required as futures contract margin deposits and its obligations relating to
such futures transactions represent not more than 25% of the Series' assets.
The Series may also effect futures transactions through futures commission
merchants who are affiliated with the Advisor or the Series in accordance with
procedures adopted by the Board of Trustees.
The Global Fund, Global Equity Fund, Global Bond Fund and Non-U.S. Equity
Fund will enter into such futures transactions on domestic exchanges and, to
the extent such transactions have been approved by the Commodity Futures
Trading Commission for sale to customers in the United States, on foreign
exchanges.
OPTIONS (ALL SERIES): The Series may purchase and write put and call options
on foreign or U.S. securities and indices and enter into related closing
transactions. A Series' may use options traded on U.S. exchanges and, to the
extent permitted by law, options traded over-the-counter and recognized
foreign exchanges. It is the
33
position of the U.S. Securities and Exchange Commission that over-the-counter
options are illiquid. Accordingly, a Series will invest in such options only
to the extent consistent with its 15% limit on investment in illiquid
securities.
REPURCHASE AGREEMENTS (ALL SERIES): The Series may enter into repurchase
agreements with banks or broker-dealers. Repurchase agreements are considered
under the Act to be collateralized loans by a Series to the seller secured by
the securities transferred to the Series. Repurchase agreements under the Act
will be fully collateralized by securities which the Series may invest in
directly. Such collateral will be marked-to-market daily. If the seller of the
underlying security under the repurchase agreement should default on its
obligation to repurchase the underlying security, the Series may experience
delay or difficulty in recovering its cash. To the extent that, in the
meantime, the value of the security purchased had decreased, the Series could
experience a loss. No more than 15% of a Series' net assets will be invested
in illiquid securities, including repurchase agreements which have a maturity
of longer than seven days. The Series must treat each repurchase agreement as
a security for tax diversification purposes and not as cash, a cash equivalent
or as a receivable.
BORROWING (ALL SERIES): Each Series is authorized, within specified limits,
to borrow money as a temporary defensive measure for extraordinary purposes
and to pledge its assets in connection with such borrowings.
LOANS OF PORTFOLIO SECURITIES (ALL SERIES): Each Series may loan its
portfolio securities to broker-dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. The major risk to which a Series would be exposed on a loan
transaction is the risk that the borrower would become bankrupt at a time when
the value of the security goes up. Therefore, a Series will only enter into
loan arrangements after a review of all pertinent factors by Brinson Partners,
subject to overall supervision by the Board of Trustees, including the
creditworthiness of the borrowing broker-dealer or institution and then only
if the consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by Brinson Partners.
RULE 144A AND ILLIQUID SECURITIES (ALL SERIES): Each Series may invest up to
15% of its net assets in illiquid securities. Illiquid securities are those
securities that are not readily marketable, including restricted securities
and repurchase obligations that mature in more than seven days. Certain
restricted securities that may be resold to institutional investors pursuant
to Rule 144A under the Securities Act of 1933 may be determined to be liquid
under guidelines adopted by the Trust's Board of Trustees.
INVESTMENT COMPANY SECURITIES (GLOBAL FUND): The Trust has received an
exemptive order (the "Exemptive Order") from the SEC which permits each Series
to invest its assets in certain portfolios of Brinson Relationship Funds,
another registered investment company advised by Brinson Partners. Currently,
only the Global Fund intends to invest in the portfolios of Brinson
Relationship Funds and only to the extent consistent with Brinson Partners'
investment process of allocating assets to specific asset classes. The Global
Fund will invest in the portfolios of Brinson Relationship Funds to obtain
exposure to the following asset classes: (1) equity and fixed income
securities of issuers located in emerging market countries ("Emerging Market
Securities"); (2) equity securities issued by companies with relatively small
overall market capitalizations ("Small Cap Securities"); and (3) high yield
securities ("High Yield Securities"). The Global Fund will invest in
corresponding portfolios of Brinson Relationship Funds only to the extent the
Advisor determines that such investments are a more efficient means for the
Global Fund to gain exposure to the asset classes identified above than by
investing directly in individual securities. Thus, to gain exposure to
Emerging Market Securities, the Global Fund will invest in the Brinson
Emerging Markets Equity Fund and the Brinson Emerging Markets Debt Fund
portfolios of Brinson Relationship Funds. To gain exposure to Small Cap
Securities and High Yield Securities, the Global Fund will
34
invest in the Brinson Post-Venture Fund and the Brinson High Yield Fund
portfolios, respectively, of Brinson Relationship Funds. Each portfolio of
Brinson Relationship Funds in which the Global Fund may invest is permitted to
invest in the same securities of a particular asset class in which the Global
Fund is permitted to invest directly, and with similar risks.
RUSSIAN SECURITIES (GLOBAL FUND): The Series may invest in securities of
Russian companies. The registration, clearing and settlement of securities
transactions in Russia are subject to significant risks not normally
associated with securities transactions in the United States and other more
developed markets. Ownership of shares of Russian companies is evidenced by
entries in a company's share register (except where shares are held through
depositories that meet the requirements of the Act) and the issuance of
extracts from the register or, in certain limited cases, by formal share
certificates. However, Russian share registers are frequently unreliable and
the Series could possibly lose its registration through oversight, negligence
or fraud. Moreover, Russia lacks a centralized registry to record securities
transactions and registrars located throughout Russia or the companies
themselves maintain share registers. Registrars are under no obligation to
provide extracts to potential purchasers in a timely manner or at all and are
not necessarily subject to state supervision. In addition, while registrars
are liable under law for losses resulting from their errors, it may be
difficult for the Series to enforce any rights it may have against the
registrar or issuer of the securities in the event of loss of share
registration. Although Russian companies with more than 1,000 shareholders are
required by law to employ an independent company to maintain share registers,
in practice, such companies have not always followed this law. Because of this
lack of independence of registrars, management of a Russian company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions on the share register. Furthermore, these practices may prevent
the Series from investing in the securities of certain Russian companies
deemed suitable by the Advisor and could cause a delay in the sale of Russian
securities by the Fund if the company deems a purchaser unsuitable, which may
expose the Fund to potential loss on its investment.
In light of the risks described above, the Board of Trustees of the Series
has approved certain procedures concerning the Series' investments in Russian
securities. Among these procedures is a requirement that the Series will not
invest in the securities of a Russian company unless that issuer's registrar
has entered into a contract with the Series' sub-custodian containing certain
protective conditions including, among other things, the sub-custodian's right
to conduct regular share confirmations on behalf of the Series. This
requirement will likely have the effect of precluding investments in certain
Russian companies that the Series would otherwise make.
For more detailed descriptions of these investment policies and techniques,
please refer to the Statement of Additional Information, which is available
without charge upon request by calling 1-800-448-2430
35
----------------------
The Brinson Funds
Brinson Global Fund
Brinson Global Equity Fund
Brinson Global Bond Fund
Brinson U.S. Balanced Fund
Brinson U.S. Equity Fund
Brinson U.S. Large
Capitalization Equity Fund
Brinson U.S. Bond Fund
Brinson Non-U.S. Equity Fund
Prospectus
September 15, 1998
[BRINSON LOGO APPEARS HERE]
Institutional
Asset Management
----------------------
The Brinson Funds
- ----------------------------------------
209 South LaSalle Street . Chicago, Illinois 60604-1295
Tel: 1-800-448-2430
--------------------------------
The Brinson Funds
Brinson Non-U.S. Equity Fund
Annual Report
June 30, 1998
[ART]
Institutional Asset Management
--------------------------------
Trustees and Officers
[ART]
Trustees
Walter E. Auch
Frank K. Reilly, CFA
Edward M. Roob
Officers
Frank K. Reilly, CFA
Chairman of the Board
E. Thomas McFarlan
President
Thomas J. Digenan, CFA, CPA
Vice President
Debra L. Nichols
Vice President
Carolyn M. Burke, CPA
Secretary and Treasurer
Catherine E. Macrae
Assistant Secretary
1
The Fund's Advisor -- Brinson Partners, Inc.
[ART]
The UBS Brinson Division is the institutional asset management division of UBS
AG. UBS Brinson is the name used outside North America while Brinson Partners
continues as the primary name within North America. The UBS Brinson Division
manages over USD 390 billion of institutional assets, including over USD 277
billion of discretionary institutional assets on an active basis and mutual fund
assets for UBS Private Banking which total over USD 113 billion. In addition,
UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory
basis. UBS Brinson manages investment portfolios for corporations, public funds,
endowments, foundations, central banks and other investors located throughout
the world. The UBS Brinson Division employs over 1,500 people in offices in
Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New
York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich.
Investment performance for our clients is maximized within and across major
asset classes through a comprehensive understanding of global investment markets
and their interrelationships. Portfolio structure is focused upon both risk and
return considerations in the context of full investment cycles. Our investment
decisions are based on fundamental research, internally developed valuation
systems and seasoned judgment. Our independent team approach allows for rapid
responses to market changes, while providing each client with the benefit of our
best talent and the flexibility to customize portfolios to meet unique
requirements.
2
Table of Contents
[ART]
Shareholder Letter.......................... 4
Global Economic and Market Highlights....... 5
Non-U.S. Equity Fund........................ 6
Schedule of Investments.....................10
Financial Statements........................15
Financial Highlights........................18
Notes to Financial Statements...............21
Report of Independent Auditors..............24
3
Shareholder Letter
[ART]
August 22, 1998
Dear Shareholder:
We are very pleased to present the June 30, 1998 Annual Report for the Non-U.S.
Equity Fund. Within this Report, we focus on the current global economic outlook
as well as our current strategy and performance update for the Non-U.S. Equity
Fund.
In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced
their intention to merge which included the integration of UBS Asset Management
and SBC Brinson into the UBS Brinson Division. The merger was consummated on
June 29, 1998. UBS Brinson is managed today by the same senior management that
has led the business over the past decades with a consistently applied
investment philosophy and process. The UBS Brinson Division manages over USD 390
billion of institutional assets, including over USD 277 billion of discretionary
institutional assets on an active basis and mutual fund assets for UBS Private
Banking which total over USD 113 billion. The UBS Brinson Division employs over
1,500 people in fifteen different cities throughout the world.
We are excited about the formation of the UBS Brinson Division and the
additional resources we have brought together to further the tradition of
delivering value-added investment performance and the highest level of
professional client service.
Brinson Non-U.S. Equity Fund Class I
Since its inception on August 31, 1993, the Brinson Non-U.S. Equity Fund Class I
has produced an annualized total return of 9.03% versus 8.75% for the Morgan
Stanley Capital International Non-U.S. Equity (Free) Index benchmark. This
return was achieved at an annualized volatility of 10.92%, below the benchmark
volatility of 12.78% and reflecting our cautious strategy at this time toward
investment risk.
We very much appreciate your continued trust and the confidence you have placed
in The Brinson Funds.
Sincerely,
/s/ Gary P. Brinson
Gary P. Brinson, CFA
Chief Investment Officer
Brinson Partners, Inc.
4
Global Economic and Market Highlights
[ART]
The economic situation in Japan remains bleak. With real GDP growth negative in
the last two quarters, the country is officially in a recession. The downturn in
output has brought on the highest unemployment rate recorded in the post-war
period, at just over 4%. In response to the news, the voters have delivered a
severe rebuke to the ruling LDP, although it is not at all certain that this
will result in the implementation of "Solutions" proffered by Western
governments and commentators.
Many of Japan's problems are magnified elsewhere in Asia. Last year's financial
and economic crisis has not diminished to any great extent. With financial
systems straining under large amounts of defunct debts, and the IMF prescribing
high interest rates in the interest of currency support and inflation control,
real economic activity has slowed substantially. While Asia suffers from falling
living standards, the crisis has been a partial benefit to the U.S. and Europe
by keeping commodity and import prices in check, and by not augmenting strong
domestic demand in those economies.
Continental Europe's cyclical recovery is well under way, and is starting to
have some beneficial effects on the high unemployment rate. Previously, output
and profit growth were reasonably strong, but did not carry over into the labor
market. Although unemployment has been reduced, the failure to address
structural problems will almost certainly guarantee that the Continent's poor
overall unemployment picture will persist for several years. The U.K.'s economic
performance has been at odds with most of the rest of Europe. A series of Bank
of England rate hikes has not prevented the headline inflation rate from rising
above 4% this year. Now however, there are signs that these hikes, coupled with
a strong pound, have started to cool the economy.
The U.S. expansion is unabated; more than 7 years have elapsed since the
recession at the start of the decade. However, the Federal Reserve's attempts to
maintain a neutral policy stance, in light of the Asian crisis' effect on demand
and costs, has resulted in substantial growth in the money supply. This could
set the stage for a modest resurgence in inflation. Profit growth, which had
reflected the strength of the domestic economy in prior years, is now showing
signs of the fall-off in Asian demand and the strength of the dollar.
Non-U.S. Equity Environment
6 months 1 year 3 years 8/31/93*
Major Markets ended ended ended to
Total Return in U.S. Dollar Hedged Terms 6/30/98 6/30/98 6/30/98 6/30/98
- ----------------------------------------------------------------------------------------------
MSCI Non-US Equity (Free) Index 18.55% 16.90% 23.41% 12.62%
Japan 6.69 -12.84 9.66 0.27
U.K. 12.94 27.19 22.48 15.91
Germany 38.48 54.41 40.75 25.15
France 40.90 49.97 35.47 18.18
Canada 12.73 19.79 22.70 17.63
Netherlands 24.69 34.80 44.73 29.26
Australia 7.21 4.55 10.55 8.54
- ----------------------------------------------------------------------------------------------
6 months 1 year 3 years 8/31/93*
Major Currencies ended ended ended to
Percent Change Relative to U.S. Dollars 6/30/98 6/30/98 6/30/98 6/30/98
- ----------------------------------------------------------------------------------------------
Yen -6.31% -17.55% -15.11% -5.66%
Pound 1.41 -0.25 1.60 2.40
Deutschemark -0.39 -3.46 -8.47 -1.50
Canadian Dollar -2.69 -6.19 -2.24 -2.20
- ----------------------------------------------------------------------------------------------
*Inception date of the Non-U.S. Equity Fund Class I
All total returns in excess of 1 year are average annualized total returns
5
Non-U.S. Equity Fund
[ART]
The Non-U.S. Equity Fund invests in the common stocks of companies headquartered
outside the U.S. We believe that in a non-U.S. investment program the country
allocation decision is the most important. Country assessments are jointly
developed by the non-U.S. strategy team in our offices worldwide. Currency
strategies are separately developed and coordinated with market allocations. Our
industry strategies and individual security selections are determined by
fundamental research conducted by our analysts worldwide.
Since its inception on August 31, 1993, the Brinson Non-U.S. Equity Fund Class I
has earned an annualized return of 9.03% versus 8.75% for the Morgan Stanley
Capital International Non-U.S. Equity (Free) Index benchmark. This return was
achieved at an annualized volatility of 10.92%, below the benchmark volatility
of 12.78%. For the six months ended June 30, 1998, the Fund returned 13.10%,
compared to the index return of 15.53%.
During the first half of 1998, the aggregate non-U.S. markets outperformed,
rising 17.45% in dollar-hedged terms. The continental European markets continued
to set the pace, with the best performing markets in dollar-hedged terms.
Finland, Belgium and Spain led the pack, followed by France, Germany and Italy,
each growing in excess of 30%. In strong contrast, the Far East ex-Japan region
lost 29%. All three Southeast Asian markets had steep declines, led by Singapore
(-35%), Hong Kong, (-28%) and Malaysia, (-26%). New Zealand was also quite weak,
losing almost 14%. While positive, Japan's 5.7% hedged return was the sixth
weakest as of mid-year. Currency weakness, coupled with debt and banking
problems were behind the first group's weakness, while Japan's very weak
economy, troubled banking system and seeming inability to resolve these problems
has kept the market down.
During the first half of 1998 several strategy changes took place. France was
increased and Germany decreased, bringing the two markets into closer alignment.
In February, Spain was eliminated, with proceeds added to Finland and
Switzerland. In mid-April Malaysia was reduced to neutral and the U.K.
overweight was increased. In early June Italy was reduced, with funds added to
Denmark, Norway and Sweden, as part of an ongoing shift away from overvalued
southern European markets to more attractively priced northern European markets.
One currency strategy change took place. An Australian dollar overweight was
established, paired with the yen, allowing us to take advantage of a strong
positive interest rate differential in favor of the Australian currency.
Market allocation had a significant negative effect on returns, largely due to
strategic cash. Value added from underweighting Japan and Hong Kong and from
overweighting Belgium, Finland and Italy, was more than offset by holding
strategic cash, overweighting New Zealand and Singapore and underweighting
Spain.
Currency management had a negative impact on performance. The value added by the
yen and U.S. dollar strategies was reduced by the overweights of the weak
Australian and New Zealand dollars and the underweight of the rising pound
sterling.
Overall stock selection was positive due to the solid value added by Japan stock
selection, as well as contributions from France, Italy and Hong Kong.
6
Non-U.S. Equity Fund
[ART]
Total Return
6 months 1 year 3 years 8/31/93*
ended ended ended to
6/30/98 6/30/98 6/30/98 6/30/98
- ------------------------------------------------------------------------------
Brinson Non-U.S. Equity Fund Class I 13.10% 4.78% 15.91% 9.03%
MSCI Non-U.S. Equity (Free) Index** 15.53% 6.04% 11.04% 8.75%
- ------------------------------------------------------------------------------
* Inception date of the Brinson Non-U.S. Equity Fund Class I
** Performance is net of withholding taxes on dividends.
Total return includes reinvestment of all capital gain and income distributions.
All total returns in excess of 1 year are average annualized returns.
Illustration of an Assumed Investment of $1,000,000
This chart shows the growth in the value of an investment in the Brinson Non-
U.S. Equity Fund Class I and the MSCI Non-U.S. Equity (Free) Index if you had
invested $1,000,000 on August 31, 1993, and had reinvested all your income
dividends and capital gain distributions through June 30, 1998. No adjustment
has been made for any income taxes payable by shareholders on income dividends
and capital gain distributions. Past performance is no guarantee of future
results. Share price and return will vary with market conditions; investors may
realize a gain or loss upon redemption.
Brinson Non-U.S. Equity Fund Class I
vs. MSCI Non-U.S. Equity (Free) Index
Wealth Value with Dividends Reinvested
[CHART]
Brinson MSCI
12/31/93 $ 965,500 $ 988,754
6/30/94 $ 975,547 $1,068,786
12/31/94 $ 974,540 $1,062,774
6/30/95 $ 974,540 $1,095,525
12/31/95 $1,126,103 $1,187,456
6/30/96 $1,204,891 $1,244,668
12/31/96 $1,269,637 $1,271,887
6/30/97 $1,449,115 $1,414,422
12/31/97 $1,342,509 $1,298,199
6/30/98 $1,518,353 $1,499,791
8/31/93 = $1,000,000 Data through 6/30/98
Fund returns are net of all fees and costs, while the Index returns are based
solely on market returns without deduction for fees or transaction costs for
rebalancing.
7
Non-U.S. Equity Fund
[ART]
Total Return
6 months 6/30/97*
ended to
6/30/98 6/30/98
- ----------------------------------------------------------
Brinson Non-U.S. Equity Fund Class N 12.97% 4.51%
MSCI Non-U.S. Equity (Free) Index** 15.53% 6.04%
- ----------------------------------------------------------
* Inception date of the Brinson Non-U.S. Equity Fund Class N
** Performance is net of withholding taxes on dividends.
Total return includes reinvestment of all capital gain and income
distributions.
Illustration of an Assumed Investment of $1,000,000
This chart shows the growth in the value of an investment in the Brinson Non-
U.S. Equity Fund Class N and the MSCI Non-U.S. Equity (Free) Index if you had
invested $1,000,000 on June 30, 1997, and had reinvested all your income
dividends and capital gain distributions through June 30, 1998. No adjustment
has been made for any income taxes payable by shareholders on income dividends
and capital gain distributions. Past performance is no guarantee of future
results. Share price and return will vary with market conditions; investors may
realize a gain or loss upon redemption.
Brinson Non-U.S. Equity Fund Class N
vs. MSCI Non-U.S. Equity (Free) Index
Wealth Value with Dividends Reinvested
[GRAPH APEARS HERE]
$1,045,088 ========= Brinson Non-U.S. Equity Fund Class N
$1,060,356 --------- MSCI Non-U.S. Equity (Free) Index
[PLOT POINTS]
Brinson MSCI
6/30/97 $1,000,000 $1,000,000
9/30/97 $ 999,206 $ 994,869
12/31/97 $ 925,127 $ 917,830
3/31/98 $1,044,194 $1,052,548
6/30/98 $1,045,088 $1,060,356
6/30/97 = $1,000,000 Data through 6/30/98
Fund returns are net of all fees and costs, while the index returns are based
solely on market returns without deduction for fees or transaction costs for
rebalancing.
Non-U.S. Equity Fund
(ART)
Industry Diversification
As a Percent of Net Assets
As of June 30, 1998
- ---------------------------------------------------
NON-U.S. EQUITIES
Aerospace & Military...................... 0.22%
Airlines.................................. 0.37
Appliances & Household.................... 2.09
Autos/Durables............................ 3.65
Banking................................... 11.51
Beverages & Tobacco....................... 2.39
Broadcasting & Publishing................. 2.47
Building Materials........................ 1.50
Business & Public Service................. 3.41
Chemicals................................. 3.01
Construction.............................. 1.03
Data Processing........................... 0.82
Electric Components....................... 1.24
Electronics............................... 4.14
Energy.................................... 6.52
Financial Services........................ 1.71
Food & House Products..................... 4.53
Forest Products........................... 1.21
Gold Mining............................... 0.06
Health & Personal Care.................... 7.45
Housing/Paper............................. 0.04
Industrial Components..................... 1.57
Insurance................................. 4.99
Investment Companies...................... 0.36
Leisure & Tourism......................... 0.69
Machinery & Engineering................... 0.72
Merchandising............................. 3.88
Metals-Steel.............................. 1.74
Miscellaneous Materials................... 0.04
Multi-Industry............................ 4.76
Non-Ferrous Metals........................ 1.52
Real Estate............................... 0.44
Recreation................................ 0.55
Retail/Apparel............................ 0.24
Shipping.................................. 0.01
Shipping.................................. 0.02
Telecommunications........................ 7.53
Textiles & Apparel........................ 0.28
Transportation............................ 1.08
Utilities................................. 3.07
Wholesale & International Trade........... 0.46
------
Total Non-U.S. Equities.............. 93.32
------
SHORT-TERM INVESTMENTS.................... 7.58
------
TOTAL INVESTMENTS.................... 100.90
LIABILITIES, LESS CASH
AND OTHER ASSETS........................ (0.90)
------
NET ASSETS................................ 100.00%
Market and Currency Strategy
As of June 30, 1998
Fund
---------------------
Market Currency
Strategy Strategy Index
- ---------------------------------------------------
U.S. Dollar 0.0% 2.1% 0.0%
Australia 5.1 6.2 2.2
Austria 0.0 0.4 0.4
Belgium 4.5 1.8 1.8
Canada 2.9 4.6 4.6
Denmark 0.4 0.9 0.9
Finland 2.6 1.0 1.0
France 9.2 9.1 9.2
Germany 10.6 10.9 10.8
Hong Kong 0.2 0.0 1.6
Ireland 0.0 0.5 0.5
Italy 3.5 4.4 4.4
Japan 14.7 15.7 19.7
Malaysia 0.3 0.5 0.5
Netherlands 4.9 5.5 5.6
New Zealand 3.7 3.8 0.2
Norway 0.4 0.5 0.5
Portugal 0.0 0.6 0.6
Singapore 1.3 0.5 0.5
Spain 0.0 3.2 3.2
Sweden 3.3 3.1 3.1
Switzerland 6.8 7.4 7.4
U.K. 25.6 17.3 21.3
Cash Reserves 0.0 0.0 0.0
- ---------------------------------------------------
100.0% 100.0% 100.0%
Top Ten Non-U.S. Equity Holdings
As of June 30, 1998
Percent of
Net Assets
- -----------------------------------------------------------
1. Novartis AG (Reg.) 1.50%
2. Glaxo Wellcome PLC 1.49
3. Nokia Oyj. Class A Preferred 1.28
4. British Petroleum Co. PLC 1.21
5. Royal Dutch Petroleum Co. 1.16
6. CS Holdings AG 1.13
7. British Telecommunications PLC 1.09
8. B.A.T. Industries PLC 1.08
9. Telecom Corp. of New Zealand Ltd. 1.04
10. Roche Holding AG (Gen.) 1.04
- -----------------------------------------------------------
9
NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
------- ------------
Non-U.S. Equities -- 93.32%
AUSTRALIA -- 4.46%
Amcor Ltd................................................. 91,600 $ 401,065
Boral Ltd................................................. 270,300 507,211
Brambles Industries Ltd................................... 43,600 855,675
Broken Hill Proprietary Co., Ltd.......................... 267,270 2,259,347
Coca-Cola Amatil Ltd...................................... 52,100 348,467
CSR Ltd................................................... 166,200 479,642
David Jones Ltd........................................... 579,500 663,935
Lend Lease Corp. Ltd...................................... 39,978 808,359
Mayne Nickless Ltd........................................ 133,100 704,765
National Australia Bank Ltd............................... 189,848 2,504,296
News Corp., Ltd........................................... 335,121 2,735,377
News Corp., Ltd., Preferred............................... 112,061 793,927
Orica Ltd................................................. 61,200 361,955
Pacific Dunlop Ltd........................................ 278,200 449,674
Qantas Airways Ltd........................................ 278,668 419,366
Rio Tinto Ltd............................................. 65,010 773,004
Santos Ltd................................................ 119,900 371,270
Telstra Corp., Ltd........................................ 567,600 1,455,267
Westpac Bank Corp., Ltd................................... 306,251 1,868,159
WMC Ltd................................................... 223,300 672,086
Woolworth's Ltd........................................... 117,200 381,054
------------
19,813,901
------------
BELGIUM -- 4.18%
Delhaize-Le Lion S.A. (b)................................. 20,650 1,442,892
Electrabel S.A............................................ 11,285 3,199,590
Fortis AG (b)............................................. 623 34
Fortis AG Strip (b)....................................... 15,673 4,001,438
Groupe Bruxelles Lambert S.A. (b)......................... 5,860 1,182,709
KBC Bancassurance Holding-Strip (b)....................... 660 53
KBC Bancassurance Holding (b)............................. 27,760 2,484,300
Petrofina S.A............................................. 5,810 2,385,051
Solvay S.A., Class A...................................... 16,860 1,336,657
Tractebel................................................. 13,200 1,933,351
Union Miniere S.A.(b)..................................... 9,990 617,495
------------
18,583,570
------------
CANADA -- 2.83%
Agrium, Inc............................................... 29,500 368,098
Alcan Aluminum Ltd........................................ 22,400 616,891
Bank of Montreal.......................................... 17,100 941,861
Barrick Gold Corp......................................... 13,700 260,846
Canadian National Railway Co.............................. 15,500 824,222
Canadian Pacific Ltd...................................... 51,294 1,444,017
Extendicare Inc. (b)...................................... 38,300 309,921
Hudson's Bay Co........................................... 20,300 465,191
Imasco, Ltd............................................... 26,500 489,239
Imperial Oil Ltd.......................................... 55,300 966,415
Magna International Inc., Class A......................... 6,800 465,633
Moore Corp., Ltd.......................................... 25,200 334,149
Newbridge Networks Corp. (b).............................. 7,000 167,313
Noranda, Inc.............................................. 23,100 398,980
NOVA Corp................................................. 62,800 719,557
Potash Corporation of Saskatchewan, Inc................... 6,800 512,335
Royal Bank of Canada...................................... 20,000 1,203,590
Seagram Co., Ltd.......................................... 9,400 383,197
Shaw Communications Inc., Class B......................... 36,200 704,012
TransCanada Pipelines Ltd................................. 30,500 676,119
Westcoast Energy, Inc..................................... 15,300 340,728
------------
12,592,314
------------
SHARES VALUE
------- ------------
DENMARK -- 0.34%
Den Danske Bank Group..................................... 6,700 $ 803,766
Tele Danmark A/S.......................................... 7,400 710,194
------------
1,513,960
------------
FINLAND -- 2.12%
Cultor Oyj................................................ 7,600 123,285
Merita Ltd., Class A...................................... 161,510 1,065,645
Metsa Serla Oyj, Class B.................................. 31,590 305,162
Nokia Oyj Class A, Preferred (b).......................... 77,260 5,682,021
Outokumpu Oyj, Class A.................................... 29,620 377,909
Sampo Insurance Co., Ltd., Class A........................ 11,360 538,340
UPM-Kymmene Corp.......................................... 36,830 1,013,639
Valmet Oyj................................................ 19,000 327,604
------------
9,433,605
------------
FRANCE -- 8.36%
Air Liquide............................................... 4,483 741,399
Alcatel Alsthom........................................... 8,405 1,711,306
AXA-UAP................................................... 17,402 1,957,221
AXA-UAP Certificate de Valeur Guarantie (b)............... 9,002 3,067
Banque Nationale de Paris................................. 18,610 1,520,566
Carrefour SA.............................................. 2,000 1,265,299
Cie de Saint Gobain....................................... 9,443 1,750,844
Dexia France (b).......................................... 8,840 1,190,169
Elf Aquitaine S.A......................................... 14,214 1,998,329
Eridania Beghin-Say SA.................................... 3,600 794,906
France Telecom S.A........................................ 36,300 2,503,655
Groupe Danone............................................. 5,220 1,439,256
Lafarge S.A............................................... 7,964 823,272
Lagardere S.C.A........................................... 26,760 1,114,041
Michelin, Class B......................................... 17,993 1,038,630
Paribas (b)............................................... 12,643 1,352,964
Pechiney S.A., Class A.................................... 17,685 712,256
Peugeot S.A............................................... 8,160 1,754,548
Pinault-Printemps-Redoute S.A............................. 1,260 1,054,515
Rhone-Poulenc, Class A.................................... 31,130 1,755,761
SEITA..................................................... 31,430 1,424,383
Societe Generale.......................................... 7,913 1,645,161
Suez Lyonnaise des Eaux S.A. (b).......................... 12,942 2,129,886
Thomson CSF............................................... 25,590 973,487
Total S.A., Class B....................................... 11,025 1,433,286
Usinor Sacilor............................................ 25,980 401,345
Vivendi................................................... 12,434 2,655,027
Vivendi Warrants "01" (b)................................. 12,664 24,926
------------
37,169,505
------------
GERMANY -- 9.83%
Allianz AG (b)............................................ 436 142,515
Allianz AG................................................ 13,530 4,460,028
BASF AG................................................... 19,940 944,526
Bayer AG.................................................. 49,400 2,548,000
Bayerische Motoren Werke (BMW) (b)........................ 402 399,773
Bayerische Motoren Werke AG............................... 1,240 1,250,992
Commerzbank AG............................................ 10,830 414,000
Continental AG............................................ 34,500 1,074,183
Daimler-Benz AG........................................... 20,792 2,038,883
Deutsche Bank AG.......................................... 32,917 2,787,459
Deutsche Telekom AG....................................... 137,010 3,696,613
Dresdner Bank AG.......................................... 39,800 2,145,451
Hochtief AG............................................... 11,690 560,213
- --------------------------------------------------------------------------------
10
NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
------- ------------
GERMANY (CONTINUED)
Hoechst AG................................................ 15,610 $ 779,203
M.A.N. AG................................................. 2,500 972,299
Mannesmann AG (b)......................................... 20,470 2,076,486
Metro AG.................................................. 27,353 1,659,365
Metro AG Right (b)........................................ 27,353 1,061
Muenchener Rueckver AG.................................... 6,820 3,381,662
Preussag AG............................................... 3,719 1,326,890
RWE AG.................................................... 24,300 1,440,499
Schering AG............................................... 12,622 1,487,368
Siemens AG................................................ 39,520 2,404,042
Thyssen AG................................................ 4,850 1,227,950
Veba AG................................................... 28,708 1,956,279
Volkswagen AG............................................. 2,621 2,519,355
------------
43,695,095
------------
HONG KONG -- 0.57%
Cheung Kong Holdings Ltd.................................. 95,000 467,117
Citic Pacific Ltd......................................... 49,000 86,635
CLP Holdings Ltd.......................................... 53,500 243,728
Hang Seng Bank Ltd........................................ 38,400 217,061
Hong Kong & China Gas Co., Ltd............................ 258,700 293,803
Hong Kong & China Gas Warrants "99" (b)................... 11,850 811
Hong Kong Telecommunications Ltd.......................... 111,600 209,558
Hutchison Whampoa Ltd..................................... 103,000 543,672
Johnson Electric Holdings Ltd............................. 54,000 200,010
South China Morning Post (Holdings) Ltd................... 100,000 48,073
Sun Hung Kai Properties Ltd............................... 49,000 208,050
------------
2,518,518
------------
ITALY -- 3.67%
Assicurazioni Generali.................................... 54,446 1,770,402
Banca Commercial Italiana................................. 21,000 125,583
Credito Italiano S.p.A.................................... 241,500 1,264,188
Danieli & Co. Savings (Risp).............................. 129,100 599,181
Edison S.p.A.............................................. 6,000 48,151
ENI ADR................................................... 18,500 1,202,500
ENI S.p.A................................................. 369,000 2,418,413
Fiat S.p.A.-Privileged Preferred.......................... 399,220 993,811
INA-Istituto Nazionale delle Assicurazioni................ 33,100 94,037
Instituto Mobiliare Italiano S.p.A........................ 62,000 976,625
Istituto Bancario San Paolo di Torino..................... 56,000 808,079
Italgas S.p.A............................................. 14,000 57,022
La Rinascente S.p.A....................................... 79,140 788,039
Montedison S.p.A.......................................... 833,280 1,033,660
Parmalat Finanziaria S.p.A................................ 295,000 601,601
Telecom Italia Mobile S.p.A............................... 270,000 1,651,093
Telecom Italia Mobile S.p.A. RNC.......................... 121,000 408,427
Telecom Italia S.p.A...................................... 202,666 1,491,876
------------
16,332,688
------------
JAPAN -- 16.02%
Amada Co., Ltd............................................ 150,000 729,546
Bank of Tokyo-Mitsubishi, Ltd............................. 139,000 1,471,276
Canon Sales Co., Inc...................................... 56,000 761,005
Canon, Inc................................................ 115,000 2,610,152
Citizen Watch Co., Ltd.................................... 136,000 1,122,023
Dai Nippon Printing Co., Ltd.............................. 142,000 2,266,311
Daiichi Pharmaceutical Co., Ltd........................... 139,000 1,832,835
Daikin Industries Ltd..................................... 159,000 1,024,217
SHARES VALUE
------- ------------
Daiwa House Industry Co., Ltd............................. 85,000 $ 750,261
Denso Corp................................................ 118,000 1,955,543
Fanuc..................................................... 57,700 1,995,605
Fuji Photo Film........................................... 11,000 382,822
Fujitsu................................................... 89,000 936,268
Hitachi Ltd............................................... 286,000 1,864,971
Honda Motor Co............................................ 61,000 2,171,272
Hoya Corp................................................. 34,000 962,784
Inax...................................................... 121,000 415,874
Ito Yokado Co., Ltd....................................... 56,000 2,634,867
Kaneka Corp............................................... 162,000 852,109
Keio Teito Electric Railway............................... 178,000 647,693
Kinki Nippon Railway...................................... 178,000 833,664
Kirin Brewery Co., Ltd.................................... 168,000 1,585,762
Kokuyo.................................................... 51,000 863,566
Kuraray Co., Ltd.......................................... 181,000 1,537,623
Kyocera Corp.............................................. 18,300 894,001
Marui Co., Ltd............................................ 82,000 1,223,043
Matsushita Electric Industrial Co......................... 166,000 2,667,291
NGK Insulators............................................ 259,000 2,248,766
Nintendo Co., Ltd......................................... 14,500 1,342,544
Nippon Meat Packers, Inc.................................. 99,000 1,211,954
Nippon Steel Co........................................... 142,000 249,652
Okumura Corp.............................................. 157,000 550,917
Omron Corp................................................ 46,000 702,670
Osaka Gas Co.............................................. 285,000 731,059
Sankyo Co., Ltd........................................... 148,000 3,369,817
Secom Co., Ltd............................................ 37,000 2,135,461
Sega Enterprises Ltd...................................... 19,000 327,881
Seino Transportation...................................... 123,000 682,423
Sekisui House Ltd......................................... 141,000 1,092,157
Shin-Etsu Chemical Co., Ltd............................... 12,000 207,515
Sony Corp................................................. 30,500 2,626,184
Sumitomo Bank............................................. 14,000 136,182
Sumitomo Chemical Co...................................... 203,000 626,033
Sumitomo Electric Industries.............................. 125,000 1,263,645
Takeda Chemical Industries................................ 94,000 2,499,262
TDK Corp.................................................. 26,000 1,920,236
Tokio Marine & Fire Insurance Co.......................... 148,000 1,520,683
Tokyo Electric Power...................................... 37,000 725,150
Tonen Corp................................................ 110,000 569,874
Toray Industries, Inc..................................... 385,000 1,997,334
Toshiba Corp.............................................. 387,000 1,581,072
Toyo Suisan Kaisha........................................ 79,000 481,565
Toyota Motor Corp......................................... 103,000 2,664,337
Yamato Transport Co., Ltd................................. 24,000 268,905
Yamazaki Baking Co., Ltd.................................. 56,000 496,307
------------
71,221,969
------------
MALAYSIA -- 0.39%
Berjaya Sports Toto Bhd................................... 71,000 105,280
Kuala Lumpur Kepong Bhd................................... 118,000 190,621
Malayan Banking Bhd A Shares (b).......................... 47,000 46,858
Malayan Banking Bhd....................................... 39,000 39,306
Malaysia International Shipping Bhd (Frgn.)............... 47,000 68,559
Nestle (Malaysia) Bhd..................................... 38,000 172,248
Petronas Gas Bhd.......................................... 73,000 135,527
Public Bank Bhd (Frgn.)................................... 71,000 21,398
Resorts World Bhd......................................... 100,000 109,946
Rothmans of Pall Mall Bhd................................. 37,000 256,480
- --------------------------------------------------------------------------------
11
NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
--------- ------------
MALAYSIA (CONTINUED)
Sime Darby Bhd.......................................... 25,000 $ 17,239
Tanjong PLC............................................. 46,000 63,773
Telekom Malaysia Bhd (b)................................ 104,000 175,527
Tenaga Nasional Bhd..................................... 110,000 132,610
UMW Holdings Bhd........................................ 58,000 26,011
YTL Corp. Bhd........................................... 162,000 121,866
YTL Power International Bhd (b)......................... 64,900 35,364
------------
1,718,613
------------
NETHERLANDS -- 4.55%
ABN AMRO Holdings NV.................................... 69,730 1,631,672
Akzo Nobel NV........................................... 2,230 495,726
Elsevier NV............................................. 74,910 1,130,536
Heineken NV (b)......................................... 32,062 1,259,342
Hoogovens NV............................................ 7,303 315,930
ING Groep NV............................................ 39,998 2,619,081
KLM Royal Dutch Air Lines NV............................ 10,150 412,147
KPN NV.................................................. 36,890 1,419,962
Philips Electronics NV.................................. 21,070 1,771,198
PolyGram NV............................................. 13,400 683,768
Royal Dutch Petroleum Co................................ 92,660 5,138,161
TNT Post Group NV (b)................................... 36,890 943,014
Unilever NV............................................. 30,660 2,432,663
------------
20,253,200
------------
NEW ZEALAND -- 2.28%
Brierley Investments Ltd................................ 2,683,400 1,337,236
Carter Holt Harvey Ltd.................................. 929,700 810,781
Fletcher Challenge Building............................. 307,650 383,283
Fletcher Challenge Energy............................... 339,250 810,082
Fletcher Challenge Forests Ltd.......................... 626,593 351,286
Fletcher Challenge Paper................................ 609,800 677,411
Lion Nathan Ltd......................................... 256,600 570,101
Telecom Corp. of New Zealand Ltd........................ 1,122,800 4,627,796
Telecom Corp. of New Zealand Ltd. ADR................... 17,600 576,400
------------
10,144,376
------------
NORWAY -- 0.21%
Norsk Hydro ASA......................................... 17,000 747,703
Norske Skogindustrier ASA Class A....................... 6,300 194,579
------------
942,282
------------
SINGAPORE -- 1.13%
City Developments Ltd................................... 89,000 248,642
Creative Technology Ltd. (b)............................ 10,000 121,338
DBS Land Ltd............................................ 168,000 139,213
Development Bank of Singapore Ltd....................... 43,200 239,077
Elec & Eltek International Co., Ltd..................... 26,100 88,218
Fraser & Neave Ltd...................................... 35,000 94,051
Keppel Corp., Ltd....................................... 109,750 164,999
Keppel Land Ltd......................................... 105,000 96,330
Oversea-Chinese Banking Corp., Ltd...................... 112,400 382,539
Rothmans Industries Ltd................................. 22,000 97,662
Singapore Airlines Ltd. (Frgn.)......................... 125,000 584,492
Singapore Press Holdings Ltd............................ 99,972 668,650
Singapore Technologies Engineering Ltd. (b). 111,000 78,183
Singapore Telecommunications, Ltd....................... 870,000 1,235,869
United Overseas Bank Ltd. (Frgn.)....................... 241,000 748,890
Venture Manufacturing (Singapore) Ltd. (b).............. 27,000 51,139
------------
5,039,292
------------
SHARES VALUE
--------- ------------
SWEDEN -- 2.97%
ABB AB, A Shares........................................ 64,400 $ 912,513
Astra AB, A Shares...................................... 64,800 1,324,455
Electrolux AB Series B.................................. 29,400 505,060
Ericsson, B Shares...................................... 93,700 2,737,602
Investor AB-B Shares.................................... 27,300 1,593,518
Nordbanken Holding AB................................... 205,700 1,508,915
Skandia Forsakrings AB.................................. 60,800 869,127
Skanska AB, B Shares.................................... 18,600 834,970
Svenska Handelsbanken, A Shares......................... 20,900 969,667
Swedish Match AB........................................ 169,100 561,907
Volvo AB, B Shares...................................... 46,100 1,372,901
------------
13,190,635
------------
SWITZERLAND -- 6.55%
ABB AG (Bearer)......................................... 892 1,317,300
CS Holdings AG (Reg.)................................... 22,671 5,044,477
Holderbank Financiere Glarus, B Shares.................. 840 1,068,829
Julius Baer Holding AG.................................. 377 1,179,368
Nestle S.A. (Reg.)...................................... 1,875 4,012,559
Novartis AG (Reg.)...................................... 4,020 6,689,399
Roche Holding AG (Gen.)................................. 470 4,615,407
Sairgroup............................................... 2,475 814,231
Saurer AG............................................... 845 863,496
Sulzer AG............................................... 886 699,197
Swiss Reinsurance Co. (Reg.)............................ 1,109 2,804,670
------------
29,108,933
------------
UNITED KINGDOM -- 22.86%
Abbey National PLC...................................... 91,400 1,624,137
B.A.T. Industries PLC................................... 477,800 4,783,262
Barclays PLC............................................ 116,900 3,370,427
Bass PLC................................................ 49,407 925,753
Billiton PLC............................................ 554,300 1,123,694
BOC Group PLC........................................... 62,100 846,008
Booker PLC.............................................. 283,200 1,157,673
British Petroleum Co. PLC............................... 368,294 5,370,724
British Sky Broadcasting PLC............................ 164,400 1,180,869
British Steel PLC....................................... 1,060,800 2,331,905
British Telecommunications PLC.......................... 391,600 4,835,052
BTR PLC (b)............................................. 177,306 502,920
Cable & Wireless PLC.................................... 92,200 1,119,925
Cadbury Schweppes PLC................................... 134,200 2,076,793
Charter PLC............................................. 182,218 1,901,715
Coats Viyella PLC....................................... 997,900 1,223,774
Diageo PLC.............................................. 165,135 1,956,249
FKI PLC................................................. 551,925 1,593,136
General Electric Co. PLC................................ 320,400 2,761,147
Glaxo Wellcome PLC...................................... 220,300 6,612,602
Greenalls Group PLC..................................... 177,200 1,534,468
Hanson PLC.............................................. 205,712 1,250,219
Hillsdown Holdings PLC.................................. 489,700 1,331,817
House of Fraser PLC..................................... 517,200 1,501,532
HSBC Holdings PLC....................................... 125,251 3,178,609
Inchcape PLC............................................ 275,100 867,519
Legal & General Group PLC............................... 58,800 627,400
Lloyds TSB Group PLC.................................... 318,285 4,452,931
Marks & Spencer PLC..................................... 453,600 4,128,521
Mirror Group PLC........................................ 489,000 1,835,769
National Westminster Bank PLC........................... 81,600 1,458,164
- --------------------------------------------------------------------------------
12
NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
SHARES VALUE
------- ------------
UNITED KINGDOM (CONTINUED)
Peninsular & Oriental Steam Navigation Co................. 179,260 $ 2,581,196
Prudential Corp. PLC...................................... 65,800 866,772
Reckitt & Colman PLC...................................... 49,646 947,626
Reed International PLC.................................... 210,000 1,899,089
Reuters Group PLC......................................... 46,353 529,780
Rio Tinto PLC............................................. 129,800 1,461,858
RJB Mining PLC............................................ 325,800 668,625
Royal & Sun Alliance Insurance Group PLC.................. 137,714 1,423,463
Scottish Hydro-Electric PLC............................... 145,600 1,292,408
Sears PLC................................................. 702,600 615,452
Sedgwick Group PLC........................................ 412,300 894,300
SmithKline Beecham PLC.................................... 351,200 4,286,428
Smurfit (Jefferson) Group PLC............................. 496,729 1,483,540
Tate & Lyle PLC........................................... 242,000 1,918,953
Tesco PLC................................................. 179,300 1,750,100
Thames Water PLC.......................................... 121,500 2,211,708
Unilever PLC.............................................. 273,600 2,912,484
United News & Media PLC................................... 94,100 1,315,711
Vodafone Group PLC........................................ 148,327 1,882,115
Williams PLC.............................................. 162,000 1,040,645
Willis Corroon Group PLC.................................. 89,100 225,969
------------
101,672,936
------------
Total Non-U.S. Equities
(Cost $354,901,674)...................................... 414,945,392
------------
FACE
AMOUNT VALUE
---------- ------------
Short-Term Investments -- 7.58%
UNITED STATES -- 7.58%
ARCO Chemical Co.
5.770%, due 07/06/98.................................. $2,894,000 $ 2,891,681
Cincinnati Bell Inc.
6.600%, due 07/01/98.................................. 3,000,000 3,000,000
5.850%, due 07/13/98.................................. 2,000,000 1,996,100
5.900%, due 07/17/98.................................. 3,500,000 3,490,822
Hilton Hotels Corp.
5.720%, due 07/15/98.................................. 1,500,000 1,496,663
NGC Corp.
6.750%, due 07/01/98.................................. 2,304,000 2,304,000
PG & E Gas Transmission
5.670%, due 07/02/98.................................. 2,000,000 1,999,685
Raytheon Co.
7.000%, due 07/01/98.................................. 3,599,000 3,599,000
5.700%, due 07/09/98.................................. 4,000,000 3,994,933
Tenneco Inc.
5.750%, due 07/17/98.................................. 5,000,000 4,987,222
Union Pacific Resources Inc.
5.740%, due 08/31/98.................................. 2,000,000 1,981,090
5.750%, due 08/31/98.................................. 2,000,000 1,981,090
------------
Total Short-Term Investments
(Cost $33,721,297).................................... 33,722,286
------------
Total Investments
(Cost $388,622,971) -- 100.90% (a).................... 448,667,678
------------
Liabilities, less cash and other assets--(0.90%)....... (4,018,530)
------------
Net Assets -- 100%..................................... $444,649,148
============
See accompanying notes to schedule of investments.
- --------------------------------------------------------------------------------
13
NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS
(a) Aggregate cost for federal income tax purposes was $388,622,971; and net
unrealized appreciation consisted of:
Gross unrealized appreciation................................ $94,020,292
Gross unrealized depreciation................................ (33,975,585)
-----------
Net unrealized appreciation................................ $60,044,707
===========
(b) Non-income producing security.
(c) Denominated in U.S. dollars.
FORWARD FOREIGN CURRENCY CONTRACTS
The Non-U.S. Equity Fund had the following open forward foreign currency
contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED
DATE CURRENCY VALUE GAIN/(LOSS)
---------- -------------- ----------- -----------
FORWARD FOREIGN CURRENCY
BUY CONTRACTS
Australian Dollar.......... 8/19/98 10,350,000 $ 6,382,807 $ (510,975)
Canadian Dollar............ 8/19/98 9,200,000 6,262,423 (126,466)
Danish Krone............... 8/19/98 29,900,000 4,357,171 349
French Franc............... 8/19/98 13,000,000 2,156,781 179
German Mark................ 8/19/98 5,800,000 3,223,135 (2,671)
Hong Kong Dollar........... 8/19/98 6,500,000 835,044 962
Italian Lira............... 8/19/98 12,690,000,000 7,144,834 (7,706)
Japanese Yen............... 8/19/98 1,110,000,000 8,057,759 (996,074)
Malaysian Ringgit.......... 8/19/98 11,800,000 2,779,466 (165,013)
Netherlands Guilder........ 8/19/98 7,900,000 3,895,636 (4,058)
Norwegian Krona............ 8/19/98 15,700,000 2,048,360 (40,795)
Spanish Peseta............. 8/19/98 2,270,000,000 14,854,400 19,808
Swedish Krona.............. 8/19/98 24,900,000 3,128,687 38,590
Swiss Franc................ 8/19/98 13,600,000 9,011,815 (498,675)
FORWARD FOREIGN CURRENCY
SALE CONTRACTS
Belgian Franc.............. 8/19/98 455,000,000 12,262,773 (23,501)
British Pound.............. 8/19/98 20,700,000 34,440,876 (649,116)
Finnish Markka............. 8/19/98 29,300,000 5,355,628 56,243
Hong Kong Dollar........... 8/19/98 27,500,000 3,532,879 2,053
Italian Lira............... 8/19/98 3,550,000,000 1,998,752 (18,587)
Malaysian Ringgit.......... 8/19/98 11,800,000 2,779,466 214,318
Singapore Dollar........... 8/19/98 6,300,000 3,716,529 26,786
Swedish Krona.............. 8/19/98 24,900,000 3,128,687 (12,214)
Swiss Franc................ 8/19/98 6,700,000 4,439,644 227,069
-----------
Total.................... $(2,469,494)
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14
NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
ASSETS:
Investments, at value (Cost $388,622,971)....................... $448,667,678
Cash............................................................ 26,932
Receivables:
Investment securities sold..................................... 7,890,263
Dividends...................................................... 1,342,491
Interest....................................................... 32,326
Fund shares sold............................................... 63,095
Other assets.................................................... 475
------------
TOTAL ASSETS................................................. 458,023,260
------------
LIABILITIES:
Payables:
Investment securities purchased................................ 5,994,611
Fund shares sold............................................... 3,978,248
Investment advisory fees....................................... 313,798
Accrued expenses............................................... 617,961
Net unrealized depreciation on forward foreign currency con-
tracts......................................................... 2,469,494
------------
TOTAL LIABILITIES............................................ 13,374,112
------------
NET ASSETS....................................................... $444,649,148
============
NET ASSETS CONSIST OF:
Paid in capital................................................. $385,674,481
Accumulated undistributed net investment income................. 1,437,308
Accumulated net realized loss................................... (65,467)
Net unrealized appreciation..................................... 57,602,826
------------
NET ASSETS................................................... $444,649,148
============
OFFERING PRICE PER SHARE:
Brinson Class I:
Net asset value, offering price and redemption price per share
(Based on net assets of $439,328,830 and 36,163,586 shares is-
sued and outstanding)......................................... $ 12.15
============
Brinson Class N:
Net asset value, offering price and redemption price per share
(Based on net assets of
$10,772 and 887 shares issued and outstanding)................ $ 12.14
============
SwissKey Class:
Net asset value, offering price and redemption price per share
(Based on net assets of $5,309,546 and 440,453 shares issued
and outstanding).............................................. $ 12.05
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15
NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
INVESTMENT INCOME:
Dividends (net of $1,314,183 for foreign taxes withheld)......... $ 9,245,122
Interest (including securities lending income of $82,824)........ 1,703,252
-----------
TOTAL INCOME.................................................. 10,948,374
-----------
EXPENSES:
Advisory......................................................... 3,475,953
Administrative................................................... 305,643
Custodian........................................................ 228,877
Distribution..................................................... 67,597
Other............................................................ 331,206
-----------
TOTAL EXPENSES................................................ 4,409,276
-----------
NET INVESTMENT INCOME ........................................ 6,539,098
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments..................................................... 11,812,215
Futures contracts............................................... (1,031,399)
Foreign currency transactions................................... 1,443,040
-----------
Net realized gain............................................. 12,223,856
-----------
Change in net unrealized appreciation or depreciation on:
Investments and foreign currency ............................... 10,352,717
Translation of other assets and liabilities denominated in for-
eign currency.................................................. (107,626)
Futures contracts .............................................. (3,327,266)
Forward contracts............................................... (42,714)
-----------
Change in net unrealized appreciation or depreciation......... 6,875,111
-----------
Net realized and unrealized gain.................................. 19,098,967
-----------
Net increase in net assets resulting from operations.............. $25,638,065
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16
NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR
YEAR ENDED
ENDED JUNE 30,
JUNE 30, 1998 1997
------------- ------------
OPERATIONS:
Net investment income............................. $ 6,539,098 $ 5,529,755
Net realized gain................................. 12,223,856 24,421,499
Change in net unrealized appreciation or deprecia-
tion ............................................ 6,875,111 35,391,730
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 25,638,065 65,342,984
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income:
Brinson Class I ................................. (6,380,973) (4,371,883)
Brinson Class N.................................. (58) --
SwissKey Class................................... (51,271) (40,369)
Distributions from net realized gain:
Brinson Class I.................................. (25,288,399) (12,209,010)
Brinson Class N.................................. (59) --
SwissKey Class................................... (521,640) (94,152)
------------ ------------
Total distributions to shareholders............... (32,242,400) (16,715,414)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold....................................... 317,039,181 232,045,893
Shares issued on reinvestment of distributions.... 31,189,854 16,204,754
Shares redeemed................................... (325,627,875) (81,854,223)
------------ ------------
Net increase in net assets resulting from capital
share transactions............................... 22,601,160 166,396,424
------------ ------------
TOTAL INCREASE IN NET ASSETS.................... 15,996,825 215,023,994
------------ ------------
NET ASSETS:
Beginning of year................................. 428,652,323 213,628,329
------------ ------------
End of year (including accumulated undistributed
net investment income of $1,437,308 and
$1,777,930, respectively)........................ $444,649,148 $428,652,323
============ ============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17
NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
YEAR ENDED JUNE 30, AUGUST 31, 1993*
---------------------------------------- THROUGH
BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994
- ------------------------------------------------------------------------------------
Net asset value, begin-
ning of period......... $ 12.59 $ 11.17 $ 9.68 $ 9.69 $ 10.00
-------- -------- -------- -------- -------
Income from investment
operations:
Net investment income. 0.18 0.18 0.18 0.15 0.10
Net realized and
unrealized gain
(loss)............... 0.30 1.97 2.05 (0.16) (0.34)
-------- -------- -------- -------- -------
Total income (loss)
from investment
operations......... 0.48 2.15 2.23 (0.01) (0.24)
-------- -------- -------- -------- -------
Less distributions:
Distributions from in-
vestment income...... (0.18) (0.17) (0.18) -- (0.07)
Distributions from net
realized gain........ (0.74) (0.56) (0.56) -- --
-------- -------- -------- -------- -------
Total distributions. (0.92) (0.73) (0.74) -- (0.07)
-------- -------- -------- -------- -------
Net asset value, end of
period................. $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69
======== ======== ======== ======== =======
Total return (non-
annualized)............ 4.78% 20.27% 23.64% (0.10)% (2.45)%
Ratios/Supplemental da-
ta:
Net assets, end of pe-
riod (in 000s)........ $439,329 $420,855 $212,366 $148,319 $71,544
Ratio of expenses to
average net assets:
Before expense reim-
bursement............ 1.00% 1.00% 1.20% 1.23% 1.60%**
After expense reim-
bursement............ N/A N/A 1.00% 1.00% 1.00%**
Ratio of net investment
income to average net
assets:
Before expense reim-
bursement............ 1.52% 1.83% 1.67% 1.93% 1.28%**
After expense reim-
bursement............ N/A N/A 1.87% 2.16% 1.88%**
Portfolio turnover
rate.................. 49% 25% 20% 14% 12%
Average commission rate
paid per share........ $ 0.0221 $ 0.0245 $ 0.0219 N/A N/A
* Commencement of investment operations
** Annualized
N/A = Not applicable
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18
NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout the period presented.
YEAR*
ENDED
BRINSON CLASS N JUNE 30, 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of year $ 12.59
-------
Income from investment operations:
Net investment income........................................... 0.16
Net realized and unrealized gain................................ 0.29
-------
Total income from investment operations....................... 0.45
-------
Less distributions:
Distributions from net investment income........................ (0.16)
Distributions from net realized gain............................ (0.74)
-------
Total distributions........................................... (0.90)
-------
Net asset value, end of year $ 12.14
=======
Total return...................................................... 4.51%
Ratios/Supplemental data:
Net assets, end of year (in 000s)................................ $ 11
Ratio of expenses to average net assets:
Before expense reimbursement.................................... 1.25%
After expense reimbursement..................................... N/A
Ratio of net investment income to average net assets:
Before expense reimbursement.................................... 1.27%
After expense reimbursement..................................... N/A
Portfolio turnover rate.......................................... 49%
Average commission rate paid per share........................... $0.0221
* Commencement of Brinson Class N was June 30, 1997.
N/A = Not applicable
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19
NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
YEAR ENDED JUNE
30, JULY 31, 1995*
----------------- THROUGH
SWISSKEY CLASS 1998 1997 JUNE 30, 1996
- -------------------------------------------------------------------------------
Net asset value, beginning of period........ $ 12.49 $ 11.12 $ 10.26
------- ------- -------
Income from investment operations:
Net investment income..................... 0.08 0.11 0.12
Net realized and unrealized gain.......... 0.30 1.93 1.45
------- ------- -------
Total income from investment operations. 0.38 2.04 1.57
------- ------- -------
Less distributions:
Distributions from net investment income.. (0.08) (0.11) (0.15)
Distributions from net realized gain...... (0.74) (0.56) (0.56)
------- ------- -------
Total distributions..................... (0.82) (0.67) (0.71)
------- ------- -------
Net asset value, end of period.............. $ 12.05 $ 12.49 $ 11.12
======= ======= =======
Total return (non-annualized)............... 3.90% 19.32% 15.78%
Ratios/Supplemental data:
Net assets, end of period (in 000s)........ $ 5,310 $ 7,797 $ 1,262
Ratio of expenses to average net assets:
Before expense reimbursement.............. 1.84% 1.81% 2.04%**
After expense reimbursement............... N/A N/A 1.84%**
Ratio of net investment income to average
net assets:
Before expense reimbursement.............. 0.68% 1.02% 0.83%**
After expense reimbursement............... N/A N/A 1.03%**
Portfolio turnover rate.................... 49% 25% 20%
Average commission rate paid per share..... $0.0221 $0.0245 $0.0219
* Commencement of SwissKey Class
** Annualized
N/A = Not applicable
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20
NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The Brinson Funds (the "Trust") is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended, as a series
company. The Trust currently offers shares of eight series: Global Fund, Global
Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large
Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a
"Fund" and collectively, the "Funds"). Each Fund has three classes of shares
outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an
unlimited number of shares of each class with par value of $0.001 authorized.
Each share represents an identical interest in the investments of the Funds and
has the same rights. The following is a summary of significant accounting
policies consistently followed by the Non-U.S. Equity Fund in the preparation
of its financial statements.
A.INVESTMENT VALUATION:Securities for which market quotations are readily
available are valued at the last available sales price on the exchange or
market on which they are principally traded, or lacking any sales, at the last
available bid price on the exchange or market on which such securities are
principally traded. Securities for which market quotations are not readily
available, including restricted securities which are subject to limitations on
their sale, are valued at fair value as determined in good faith by or under
the direction of the Trust's Board of Trustees. Futures contracts are valued at
the settlement price established each day on the exchange on which they are
traded. Forward foreign currency contracts are valued daily using quoted
forward exchange rates. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost, which approximates market value.
B.FOREIGN CURRENCY TRANSLATION:Investment securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
using WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and
sales of portfolio securities, commitments under forward foreign currency
contracts and income receipts are translated at the prevailing exchange rate on
the date of each transaction. Realized and unrealized foreign exchange gains or
losses on investments are included as a component of net realized and
unrealized gain or loss on investments in the statement of operations.
C.INVESTMENT TRANSACTIONS:Investment transactions are accounted for on a trade
date basis. Gains and losses on securities sold are determined on an identified
cost basis.
D.INVESTMENT INCOME:Interest income, which includes amortization of premiums
and discounts, is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date, except that certain dividends from foreign securities are
recorded as the information becomes available.
E.FEDERAL INCOME TAXES:It is the policy of the Fund to comply with all
requirements of the Internal Revenue Code (the "Code") applicable to regulated
investment companies and to distribute substantially all of its taxable income
to its shareholders. The Fund has met the requirements of the Code applicable
to regulated investment companies for the year ended June 30, 1998, therefore,
no federal income tax provision was required.
F.DISTRIBUTIONS TO SHAREHOLDERS:It is the policy of the Fund to distribute its
net investment income on a semi-annual basis and net capital gains, if any,
annually. Distributions to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing tax treatments for foreign
currency transactions. Differences in dividends per share between the classes
are due to distribution expenses.
G.INCOME AND EXPENSE ALLOCATION:All income earned and expenses incurred by the
Fund will be borne on a pro rata basis by each of the classes, except that the
Brinson Class I will not incur any of the distribution expenses of the Brinson
Class N nor the SwissKey Class.
- --------------------------------------------------------------------------------
21
NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
H.USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates.
2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Brinson Partners, Inc. (the "Advisor"), a registered investment advisor,
provides the Fund with investment management services. As compensation for
these services, the Fund pays the Advisor a monthly fee based on the Fund's
average daily net assets. The Advisor has agreed to waive its fees and
reimburse the Fund to the extent total annualized expenses exceed a specified
percentage of the Fund's average daily net assets. The expense cap is 1.00%,
1.25% and 1.84% of the average daily net assets of the Brinson Class I, Brinson
Class N and SwissKey Class, respectively. Investment advisory fees and other
transactions with affiliates for the year ended June 30, 1998, were as follows:
ADVISORY ADVISORY
FEE FEES
-------- ----------
Non-U.S. Equity Fund........................................ 0.80% $3,475,953
Certain officers of the Fund are also officers of the Advisor. All officers
serve without direct compensation from the Fund. Trustees' fees paid to
unaffiliated trustees for the year ended June 30, 1998 were $5,840.
3.INVESTMENT TRANSACTIONS
Investment transactions for the year ended June 30, 1998, excluding short-term
investments, were as follows:
PROCEEDS
PURCHASES FROM SALES
------------ ------------
Non-U.S. Equity Fund.................................. $196,176,481 $198,897,969
4.FORWARD FOREIGN CURRENCY CONTRACTS
The Fund engages in portfolio hedging with respect to changes in currency
exchange rates by entering into forward foreign currency contracts to purchase
or sell currencies. Forward foreign currency contracts are also used to achieve
currency allocation strategies. A forward foreign currency contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. Risks associated with such contracts include movement
in the value of the foreign currency relative to the U.S. dollar and the
ability of the counterparty to perform. The unrealized gain, if any, represents
the credit risk to the Fund on a forward foreign currency contract.
Fluctuations in the value of forward foreign currency contracts are recorded
daily as net unrealized gains or losses. The Fund realizes a gain or loss upon
settlement of the contracts. The statement of operations reflects net realized
and net unrealized gains and losses on these contracts. The counterparty to all
forward foreign currency contracts, at and for the year ended June 30, 1998,
was the Fund's custodian or an affiliate of the Fund's custodian.
5.FUTURES CONTRACTS
The Fund may purchase or sell exchange-traded futures contracts, which are
contracts that obligate the Fund to make or take delivery of a financial
instrument or the cash value of a securities index at a specified future date
at a specified price. The Fund enters into such contracts to hedge a portion of
its portfolio. Risks of entering into futures contracts include the possibility
that there may be an illiquid market or that a change in the value of the
contract may not correlate with changes in the value of the underlying
securities. Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin). Subsequent payments
(variation margin) are made or received by the Fund, generally on a daily
basis. The variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized gains or losses. The Fund
recognizes a realized gain or loss when the contract is closed or expires. The
statement of operations reflects net realized and net unrealized gains and
losses on these contracts.
- --------------------------------------------------------------------------------
22
NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6.SECURITY LENDING
The Fund loaned securities to certain brokers with the Fund's custodian acting
as the Fund's lending agent. The Fund earned negotiated lenders' fees, which
are included in interest income in the statement of operations. The Fund
receives securities, which are not reflected in the statement of assets and
liabilities, as collateral against the loaned securities. The Fund monitors the
market value of securities loaned on a daily basis and initially requires
collateral against the loaned securities in an amount at least equal to 105% of
the value of non-U.S. securities loaned. The value of loaned securities and
related collateral at June 30, 1998 was $34,770,031 and $39,692,153,
respectively.
7.DISTRIBUTION PLANS
The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, for the Brinson Class N
and the SwissKey Class. Each Plan governs payments made for the expenses
incurred in the promotion and distribution of the Brinson Class N and the
SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed
0.25% of daily net assets of the Brinson Class N. Annual fees under the
SwissKey Plan, which include a 0.25% service fee, shall not exceed 0.84% of the
average daily net assets of the SwissKey Class.
8.LINE OF CREDIT
The Trust has entered into an agreement with Chase Manhattan Bank to provide a
364 day $100 million committed line of credit to the Funds. Borrowings will be
made for temporary purposes. Interest on amounts borrowed are calculated at the
Federal Funds rate plus 0.50% per year. The Funds pay a commitment fee of 0.08%
per year of the average daily unutilized amount of the line of credit. During
the year ended June 30, 1998, the Non-U.S. Equity Fund had total borrowings of
$32,600,000 outstanding for 1 day under the agreement.
9.CAPITAL TRANSACTIONS
Capital stock transactions were as follows:
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------- -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
Sales:
Brinson Class I............... 26,268,807 $312,436,986 19,910,853 $225,344,857
Brinson Class N............... 798 9,817 79 1,000
SwissKey Class................ 387,174 4,592,378 590,377 6,700,036
---------- ------------ ---------- ------------
Total Sales................ 26,656,779 $317,039,181 20,501,309 $232,045,893
========== ============ ========== ============
Dividend Reinvestment:
Brinson Class I............... 2,849,536 $ 30,664,100 1,461,013 $ 16,110,105
Brinson Class N............... 10 117 -- --
SwissKey Class................ 49,433 525,637 8,477 94,649
---------- ------------ ---------- ------------
Total Dividend Reinvest-
ment...................... 2,898,979 $ 31,189,854 1,469,490 $ 16,204,754
========== ============ ========== ============
Redemptions:
Brinson Class I............... 26,391,131 $318,236,785 6,945,571 $ 80,838,515
Brinson Class N............... -- -- -- --
SwissKey Class................ 620,542 7,391,090 87,985 1,015,708
---------- ------------ ---------- ------------
Total Redemptions.......... 27,011,673 $325,627,875 7,033,556 $ 81,854,223
========== ============ ========== ============
- --------------------------------------------------------------------------------
23
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
The Brinson Funds--Non-U.S. Equity Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Brinson Funds--Non-U.S. Equity Fund as of
June 30, 1998, the related statements of operations for the year then ended and
changes in net assets and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brinson Funds--Non-U.S. Equity Fund at June 30, 1998, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for the periods indicated therein in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
August 7, 1998
- --------------------------------------------------------------------------------
24
DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC.
60 STATE STREET
BOSTON, MA 02109
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus which includes
details regarding the Fund's objectives, policies, expenses and other
information.
- --------------------------------------------------------------------------------
[ART]
The Brinson Funds
- --------------------------------------------------------------------------------
Chicago . Bahrain . Basel . Frankfurt . Geneva . Hong Kong . London . Melbourne
New York . Rio de Janiero . Paris . Singapore . Sydney . Tokyo . Zurich
209 South LaSalle Street . Chicago, Illinois 60604-1295 . Tel: (800) 448-2430
STATEMENT OF ADDITIONAL INFORMATION
THE BRINSON FUNDS
RELATING TO THE ACQUISITION OF THE ASSETS OF
UBS INTERNATIONAL EQUITY FUND OF UBS PRIVATE INVESTOR FUNDS, INC.
This Statement of Additional Information relates specifically to the
proposed acquisition of substantially all of the assets of the UBS International
Equity Fund (the "UBS Fund") of UBS Private Investor Funds, Inc. (the
"Corporation") by the Non-U.S. Equity Fund (the "Brinson Fund") of The Brinson
Funds (the "Transaction").
This Statement of Additional Information consists of this Cover Page
and the following documents, which are attached and incorporated by reference:
. The Statement of Additional Information relating to the
prospectus of the Brinson Non-U.S. Equity Fund Class I shares of
the Brinson Fund, dated September 15, 1998, which includes the
audited financial statements for the fiscal year ended June 30,
1998 for the Brinson Fund. Such prospectus is included in the
Prospectus/Proxy Statement dated September 15, 1998.
. The Annual Report to Shareholders of the UBS Fund, containing
audited financial statements for the fiscal period ended December
31, 1997, and including the Annual Report to Shareholders of the
UBS International Equity Portfolio (the "UBS Portfolio") of UBS
Investor Portfolios Trust, containing audited financial
statements for the fiscal year ended December 31, 1997.
. The Semi-Annual Report to Shareholders of the UBS Fund for the
period ended June 30, 1998, and including the Semi-Annual Report
to Shareholders of the UBS Portfolio for the period ended June
30, 1998.
This Statement of Additional Information is not a Prospectus; a
Prospectus/Proxy Statement dated _____ , 1998, relating to the Transaction may
be obtained from the Trust, 209 South LaSalle Street, Chicago, Illinois 60604,
(800) 448-2430. This document should be read in conjunction with such
Prospectus/Proxy Statement. The date of this Statement of Additional Information
is ______ , 1998.
35
THE BRINSON FUNDS
[LOGO OF BRINSON FUNDS]
GLOBAL FUND U.S. EQUITY FUND
GLOBAL EQUITY FUND U.S. LARGE CAPITALIZATION EQUITY FUND
GLOBAL BOND FUND U.S. BOND FUND
U.S. BALANCED FUND NON-U.S. EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
September 15, 1998
The Brinson Funds (the "Trust") currently offers eight separate series, each
with its own investment objective and policies. The Trust also offers three
classes of shares for each series - the Brinson Fund-Class I, the Brinson Fund-
Class N and the UBS Investment Funds class. Information concerning the Brinson
Fund-Class I of each series is included in a separate Prospectus dated September
15, 1998. Information concerning the Brinson Fund-Class N of each series is
included in a separate Prospectus dated September 15, 1998. Information
concerning the UBS Investment Funds class of shares of each series is included
in a separate Prospectus for the UBS Investment Funds dated September 15, 1998.
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the current Prospectuses of the Trust. Much of the
information contained herein expands upon subjects discussed in the
Prospectuses. No investment in shares should be made without first reading the
applicable Prospectus. A copy of each Prospectus may be obtained without charge
from the Trust at the addresses and telephone numbers below.
UNDERWRITER: ADVISOR:
Funds Distributor, Inc. Brinson Partners, Inc.
60 State Street 209 South LaSalle Street
Suite 1300 Chicago, IL 60604-1295
Boston, MA 02109 1-800-448-2430 (Brinson Fund-Class I and
1-800-448-2430 (Brinson Fund-Class I Brinson Fund-Class N)
and Brinson Fund-Class N) 1-800-794-7753 (UBS Investment Funds class)
1-800-794-7753 (UBS Investment Funds class)
TABLE OF CONTENTS
PAGE
----
THE BRINSON FUNDS.................................................................................. 4
INVESTMENT STRATEGIES.............................................................................. 4
INVESTMENTS RELATING TO ALL FUNDS.................................................................. 4
Repurchase Agreements.......................................................................... 4
Reverse Repurchase Agreements.................................................................. 5
Borrowing...................................................................................... 5
Loans of Portfolio Securities.................................................................. 5
Swaps.......................................................................................... 5
Futures........................................................................................ 6
Options........................................................................................ 7
Index Options.................................................................................. 9
Special Risks of Options on Indices............................................................ 9
Rule 144A Securities........................................................................... 10
Other Investments.............................................................................. 10
INVESTMENTS RELATING TO THE GLOBAL FUNDS AND THE NON-U.S. EQUITY FUND.............................. 10
Foreign Securities............................................................................. 10
Forward Foreign Currency Contracts............................................................. 11
Options on Foreign Currencies.................................................................. 11
INVESTMENTS RELATING TO THE GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND... 12
Lower Rated Debt Securities................................................................... 12
Convertible Securities........................................................................ 13
When-Issued Securities........................................................................ 13
Mortgage-Backed Securities and Mortgage Pass-Through Securities............................... 13
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage
Investment Conduits ("REMICs")........................................................... 15
Other Mortgage-Backed Securities.............................................................. 16
Asset-Backed Securities....................................................................... 16
Zero Coupon and Delayed Interest Securities................................................... 17
INVESTMENTS RELATING TO THE GLOBAL FUND............................................................ 18
Emerging Markets Investments.................................................................. 18
Risks of Investing in Emerging Markets........................................................ 19
Investments in Affiliated Investment Companies................................................ 20
INVESTMENT RESTRICTIONS............................................................................ 21
MANAGEMENT OF THE TRUST............................................................................ 23
Trustees and Officers......................................................................... 23
Compensation Table............................................................................ 24
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................................ 25
INVESTMENT ADVISORY AND OTHER SERVICES............................................................. 28
Advisor........................................................................................ 28
Administrator.................................................................................. 30
Underwriter.................................................................................... 32
Distribution Plan.............................................................................. 33
Code of Ethics................................................................................. 33
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................................................... 34
Portfolio Turnover............................................................................. 35
SHARES OF BENEFICIAL INTEREST...................................................................... 35
PURCHASES.......................................................................................... 36
Exchanges of Shares............................................................................ 36
Net Asset Value................................................................................ 36
REDEMPTIONS........................................................................................ 37
Taxation....................................................................................... 38
PERFORMANCE CALCULATIONS..................................................................... 41
Total Return.............................................................................. 41
Yield..................................................................................... 43
FINANCIAL STATEMENTS......................................................................... 43
CORPORATE DEBT RATINGS --- APPENDIX A........................................................ 44
THE BRINSON FUNDS
The Brinson Funds (the "Trust"), 209 South LaSalle Street, Chicago, Illinois
60604-1295, is an open-end management investment company which currently offers
shares of eight series representing separate portfolios of investments: Global
Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity
Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity
Fund (collectively referred to as the "Series" or the "Funds," or individually
as a "Series" or a "Fund"). The Global Fund, Global Equity Fund and Global Bond
Fund are referred to herein collectively as the "Global Funds" or individually
as the "Global Fund" and the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large
Capitalization Fund and U.S. Bond Fund are referred to herein as the "U.S.
Funds." The Trust currently offers three classes of shares for each Series: the
Brinson Fund-Class I, Brinson Fund-Class N and UBS Investment Funds class of
shares. The Brinson Fund-Class I shares of each Series, which are designed
primarily for institutional investors, have no sales charges and are not subject
to annual 12b-1 plan expenses. The Brinson Fund-Class N shares, which are
available exclusively to 401(k) participants, have no sales charges, but are
subject to annual 12b-1 plan expenses of 0.25% of average daily net assets of
the respective Series. The UBS Investment Funds class of shares of each Series
have no sales charges, but are subject to annual 12b-1 expenses of up to a
maximum of 0.90% of average daily net assets of the respective Series.
INVESTMENT STRATEGIES
The following discussion of investment techniques and instruments supplements
and should be read in conjunction with the investment objectives and policies
set forth in the Prospectuses of the Funds. The investment practices described
below, except for the discussion of percentage limitations with respect to
portfolio loan transactions and borrowing, are not fundamental and may be
changed by the Board of Trustees without the approval of the shareholders.
INVESTMENTS RELATING TO ALL FUNDS
The following discussion applies to all Series.
REPURCHASE AGREEMENTS
- ---------------------
When a Series enters into a repurchase agreement, it purchases securities from a
bank or broker-dealer which simultaneously agrees to repurchase the securities
at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement. As a result, a repurchase agreement provides a fixed
rate of return insulated from market fluctuations during the term of the
agreement. The term of a repurchase agreement generally is short, possibly
overnight or for a few days, although it may extend over a number of months (up
to one year) from the date of delivery. Repurchase agreements will be fully
collateralized and the collateral will be marked-to-market daily. A Series may
not enter into a repurchase agreement having more than seven days remaining to
maturity if, as a result, such agreement, together with any other illiquid
securities held by the Series, would exceed 15% of the value of the net assets
of the Series.
In the event of bankruptcy or other default by the seller of the security under
a repurchase agreement, a Series may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral. In such
event, instead of the contractual fixed rate of return, the rate of return to a
Series would be dependent upon intervening fluctuations of the market value of
the underlying security and the accrued interest on the security. Although a
Series would have rights against the seller for breach of contract with respect
to any losses arising from market fluctuations following the failure of the
seller to perform, the ability of a Series to recover damages from a seller in
bankruptcy or otherwise in default would be reduced.
Repurchase agreements are securities for purposes of the tax diversification
requirements that must be met for pass-through treatment under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, each
Series will limit the value of its repurchase agreements on each of the
quarterly testing dates to ensure compliance with Subchapter M of the Code.
4
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
Reverse repurchase agreements involve sales of portfolio securities of a Series
to member banks of the Federal Reserve System or securities dealers believed
creditworthy, concurrently with an agreement by the Series to repurchase the
same securities at a later date at a fixed price which is generally equal to the
original sales price plus interest. A Series retains record ownership and the
right to receive interest and principal payments on the portfolio securities
involved. In connection with each reverse repurchase transaction, a Series will
direct its custodian bank to place cash, U.S. government securities, equity
securities and/or investment and non-investment grade debt securities in a
segregated account of the Series in an amount equal to the repurchase price. Any
assets held in any segregated accounts maintained by a Series with respect to
any reverse repurchase agreements, when-issued securities, options, futures,
forward contracts or other derivative transactions shall be liquid, unencumbered
and marked-to-market daily (any such assets held in a segregated account are
referred to in this Statement of Additional Information as "Segregated Assets"),
and such Segregated Assets shall be maintained in accordance with pertinent
positions of the U.S. Securities and Exchange Commission (the "SEC").
A reverse repurchase agreement involves the risk that the market value of the
securities retained by a Series may decline below the price of the securities
the Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Series' use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Series' obligation to repurchase the
securities. Reverse repurchase agreements are considered borrowings by the
Series and as such, are subject to the same investment limitations.
BORROWING
- ---------
The Series may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. A Series will not borrow money in excess of 33 1/3%
of the value of its total assets. A Series has no intention of increasing its
net income through borrowing. Any borrowing will be done from a bank with the
required asset coverage of at least 300%. In the event that such asset coverage
shall at any time fall below 300%, a Series shall, within three days thereafter
(not including Sundays or holidays), or such longer period as the SEC may
prescribe by rules and regulations, reduce the amount of its borrowings to such
an extent that the asset coverage of such borrowings shall be at least 300%. A
Series will not pledge more than 10% of its net assets, or issue senior
securities as defined in the Investment Company Act of 1940, as amended (the
"Act"), except for notes to banks and reverse repurchase agreements. Investment
securities will not be purchased while a Series has an outstanding borrowing
that exceeds 5% of a Series' net assets.
LOANS OF PORTFOLIO SECURITIES
- -----------------------------
The Series may lend portfolio securities to qualified broker-dealers and
financial institutions provided: (1) the loan is secured continuously by
collateral marked-to-market daily and maintained in an amount at least equal to
the current market value of the securities loaned; (2) a Series may call the
loan at any time and receive the securities loaned; (3) a Series will receive
any interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed 33 1/3% of the
total assets of the Global Fund, Global Equity Fund, Global Bond Fund, U.S.
Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S.
Bond Fund and Non-U.S. Equity Fund, respectively.
Collateral will consist of U.S. and non-U.S. securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, a Series will only enter into portfolio loans
after a review of all pertinent factors by Brinson Partners, Inc. ("Brinson
Partners" or the "Advisor") under the supervision of the Board of Trustees,
including the creditworthiness of the borrower. Creditworthiness will be
monitored on an ongoing basis by the Advisor.
SWAPS
- -----
The Series (except for the Global Equity Fund, U.S. Equity Fund, U.S. Large
Capitalization Equity Fund and Non-U.S. Equity Fund) may engage in swaps,
including but not limited to interest rate, currency and index swaps and the
purchase or sale of related caps, floors, collars and other derivative
instruments. The Series expect to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of the
portfolio's duration, to protect against any increase in the price of securities
the Series anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible.
5
The use of swaps involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If Brinson Partners is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Series will be less favorable than it
would have been if this investment technique was never used. Thus, if the other
party to a swap defaults, a Series' risk of loss consists of the net amount of
interest payments that the Series is contractually entitled to receive. Under
Internal Revenue Service rules, any lump sum payment received or due under the
notional principal contract must be amortized over the life of the contract.
FUTURES
- -------
The Series may enter into contracts for the purchase or sale for future delivery
of securities. The Global Funds and the Non-U.S. Equity Fund may also enter into
contracts for the purchase or sale for future delivery of foreign currencies.
A purchase of a futures contract means the acquisition of a contractual right to
obtain delivery to a Series of the securities or foreign currency called for by
the contract at a specified price during a specified future month. When a
futures contract is sold, a Series incurs a contractual obligation to deliver
the securities or foreign currency underlying the contract at a specified price
on a specified date during a specified future month. A Series may enter into
futures contracts and engage in options transactions related thereto to the
extent that not more than 5% of the Series' assets are required as futures
contract margin deposits and premiums on options, and may engage in such
transactions to the extent that obligations relating to such futures and related
options on futures transactions represent not more than 25% of a Series' assets.
When a Series enters into a futures transaction, it must deliver to the futures
commission merchant selected by a Series an amount referred to as "initial
margin." This amount is maintained by the futures commission merchant in a
segregated account at the custodian bank. Thereafter, a "variation margin" may
be paid by the Series to, or drawn by the Series from, such account in
accordance with controls set for such accounts, depending upon changes in the
price of the underlying securities subject to the futures contract.
The Series will enter into futures transactions on domestic exchanges and, to
the extent such transactions have been approved by the Commodity Futures Trading
Commission for sale to customers in the United States, on foreign exchanges. In
addition, all of the Series except the Global Bond Fund and U.S. Bond Fund may
sell stock index futures in anticipation of or during a market decline to
attempt to offset the decrease in market value of their common stocks that might
otherwise result; and they may purchase such contracts in order to offset
increases in the cost of common stocks that they intend to purchase. Unlike
other futures contracts, a 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.
While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into
offsetting transactions.
The Series may enter into futures contracts to protect against the adverse
affects of fluctuations in security prices, interest or foreign exchange rates
without actually buying or selling the securities or foreign currency. For
example, if interest rates are expected to increase, a Series might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Series. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the futures contracts to the
Series would increase at approximately the same rate, thereby keeping the net
asset value of the Series from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Series could take
advantage of the anticipated rise in value of debt securities without actually
buying them until the market had stabilized. At that time, the futures contracts
could be liquidated and the Series could then buy debt securities on the cash
market.
To the extent that market prices move in an unexpected direction, a Series may
not achieve the anticipated benefits of futures contracts or may realize a loss.
For example, if a Series is hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities held in its
portfolio and interest rates decrease instead, the Series would lose part or all
of the benefit of the increased value which it has because it would have
offsetting losses
6
in its futures position. In addition, in such situations, if the Series had
insufficient cash, it may be required to sell securities from its portfolio to
meet daily variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the rising market. A
Series may be required to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS
- -------
The Series may purchase and write call or put options on securities but will
only engage in option strategies for non-speculative purposes.
The U.S. Funds may invest in options that are listed on U.S. exchanges or traded
over-the-counter and the Global Funds and the Non-U.S. Equity Fund may invest in
options that are either listed on U.S. or recognized foreign exchanges or traded
over-the-counter. Certain over-the-counter options may be illiquid. Thus, it may
not be possible to close options positions and this may have an adverse impact
on a Series' ability to effectively hedge its securities. The Series have been
notified by the SEC that it considers over-the-counter options to be illiquid.
Accordingly, a Series will only invest in such options to the extent consistent
with its 15% limit on investments in illiquid securities.
PURCHASING CALL OPTIONS - The Series may purchase call options on securities to
the extent that premiums paid by a Series do not aggregate more than 20% of the
Series' total assets. When a Series purchases a call option, in return for a
premium paid by the Series to the writer of the option, the Series obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that a Series may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with transactions.
A Series may, following the purchase of a call option, liquidate its position by
effecting a closing sale transaction. This is accomplished by selling an option
of the same series as the option previously purchased. The Series will realize a
profit from a closing sale transaction if the price received on the transaction
is more than the premium paid to purchase the original call option; the Series
will realize a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call option.
Although the Series will generally purchase only those call 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, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that a Series would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by a Series may expire without any value to the Series, in which event
the Series would realize a capital loss which will be short-term unless the
option was held for more than one year.
COVERED CALL WRITING - A Series may write covered call options from time to time
on such portions of its portfolio, without limit, as Brinson Partners determines
is appropriate in seeking to achieve the Series' investment objective. The
advantage to a Series of writing covered calls is that the Series receives a
premium which is additional income. However, if the security rises in value, the
Series may not fully participate in the market appreciation.
During the option period for a covered call option, the writer may be assigned
an exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing purchase transaction. A closing purchase transaction,
in which a Series, as writer of an option, terminates its obligation by
purchasing an option of the same series as the option previously written, cannot
be effected with respect to an option once the option writer has received an
exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Series to write
another
7
call option on the underlying security with either a different exercise price or
expiration date or both. A Series may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the original
premium received on the call option is more or less than the cost of effecting
the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss may
also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, the Series will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Series will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.
The Series will write call options only on a covered basis, which means that a
Series will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Series would be required to continue to hold a security which it might otherwise
wish to sell or deliver a security it would want to hold. The exercise price of
a call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
PURCHASING PUT OPTIONS - The Series may only purchase put options to the extent
that the premiums on all outstanding put options do not exceed 20% of a Series'
total assets. A Series will, at all times during which it holds a put option,
own the security covered by such option. With regard to the writing of put
options, each Series will limit the aggregate value of the obligations
underlying such put options to 50% of its total net assets. The purchase of the
put on substantially identical securities held will constitute a short sale for
tax purposes, the effect of which is to create short-term capital gain on the
sale of the security and to suspend running of its holding period (and treat it
as commencing on the date of the closing of the short sale) or that of a
security acquired to cover the same if, at the time the put was acquired, the
security had not been held for more than one year.
A put option purchased by a Series gives it the right to sell one of its
securities for an agreed price up to an agreed date. The Series intend to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The ability to purchase put options will allow
the Series to protect unrealized gains in an appreciated security in their
portfolios without actually selling the security. If the security does not drop
in value, a Series will lose the value of the premium paid. A Series may sell a
put option which it has previously purchased prior to the sale of the securities
underlying such option. Such sale will result in a net gain or loss depending on
whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold.
The Series may sell a put option purchased on individual portfolio securities.
Additionally, the Series may enter into closing sale transactions. A closing
sale transaction is one in which a Series, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
WRITING PUT OPTIONS - The Series may also write put options on a secured basis
which means that a Series will maintain in a segregated account with its
custodian Segregated Assets in an amount not less than the exercise price of the
option at all times during the option period. The amount of Segregated Assets
held in the segregated account will be adjusted on a daily basis to reflect
changes in the market value of the securities covered by the put option written
by the Series. Secured put options will generally be written in circumstances
where Brinson Partners wishes to purchase the underlying security for a Series'
portfolio at a price lower than the current market price of the security. In
such event, a Series would write a secured put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay.
8
Following the writing of a put option, a Series may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Series may not, however, effect
such a closing transaction after it has been notified of the exercise of the
option.
INDEX OPTIONS
The Series may purchase exchange-listed call options on stock and
fixed income indices depending upon whether a Series is an equity or bond series
and sell such options in closing sale transactions for hedging purposes. A
Series may purchase call options on broad market indices to temporarily achieve
market exposure when the Series is not fully invested. A Series may also
purchase exchange-listed call options on particular market segment indices to
achieve temporary exposure to a specific industry.
In addition, the Series may purchase put options on stock and fixed income
indices and sell such options in closing sale transactions for hedging purposes.
A Series may purchase put options on broad market indices in order to protect
its fully invested portfolio from a general market decline. Put options on
market segments may be bought to protect a Series from a decline in value of
heavily weighted industries in the Series' portfolio. Put options on stock and
fixed income indices may also be used to protect a Series' investments in the
case of a major redemption.
The Series may also write (sell) put and call options on stock and fixed income
indices. While the option is open, a Series will maintain a segregated account
with its custodian in an amount equal to the market value of the option.
Options on indices are similar to regular options except that an option on an
index gives the holder the right, upon exercise, to receive an amount of cash if
the closing level of the index upon which the option is based is greater than
(in the case of a call) or lesser than (in the case of a put) the exercise price
of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The indices on which
options are traded include both U.S. and non-U.S. markets.
SPECIAL RISKS OF OPTIONS ON INDICES
- -----------------------------------
The Series' purchases of options on indices will subject them to the risks
described below.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular security, whether a Series will
realize gain or loss on the purchase of an option on an index depends upon
movements in the level of prices in the market generally or in an industry or
market segment rather than movements in the price of a particular security.
Accordingly, successful use by a Series of options on indices is subject to
Brinson Partners' ability to predict correctly the direction of movements in the
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual securities.
Index prices may be distorted if trading of a substantial number of securities
included in the index is interrupted causing the trading of options on that
index to be halted. If a trading halt occurred, a Series would not be able to
close out options which it had purchased and the Series may incur losses if the
underlying index moved adversely before trading resumed. If a trading halt
occurred and restrictions prohibiting the exercise of options were imposed
through the close of trading on the last day before expiration, exercises on
that day would be settled on the basis of a closing index value that may not
reflect current price information for securities representing a substantial
portion of the value of the index.
If a Series holds an index option and exercises it before final determination of
the closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall "out-of-the-money," the Series will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although a
Series may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising the
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
9
RULE 144A SECURITIES
- --------------------
The Series may invest in securities that are exempt under Rule 144A from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"). Those securities purchased under Rule 144A are traded among qualified
institutional investors.
The Board of Trustees of the Trust has instructed Brinson Partners to consider
the following factors in determining the liquidity of a security purchased under
Rule 144A: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer).
Although having delegated the day-to-day functions, the Board of Trustees will
continue to monitor and periodically review the Advisor's selection of Rule 144A
securities, as well as the Advisor's determinations as to their liquidity.
Investing in securities under Rule 144A could have the effect of increasing the
level of a Series' illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. After the
purchase of a security under Rule 144A, however, the Board of Trustees and
Brinson Partners will continue to monitor the liquidity of that security to
ensure that each Series has no more than 15% of its total assets in illiquid
securities.
The Series will limit investments in securities of issuers which the Series are
restricted from selling to the public without registration under the 1933 Act to
no more than 15% of the Series' total assets, excluding restricted securities
eligible for resale pursuant to Rule 144A that have been determined to be liquid
pursuant a policy and procedures adopted by the Trust's Board of Trustees which
includes continuing oversight by the Board of Trustees.
If Brinson Partners determines that a security purchased in reliance on Rule
144A which was previously determined to be liquid, is no longer liquid and, as a
result, the Series' holdings of illiquid securities exceed the Series' 15% limit
on investment in such securities, Brinson Partners will determine what action
shall be taken to ensure that the Series continue to adhere to such limitation,
including disposing of illiquid assets which may include such Rule 144A
securities.
OTHER INVESTMENTS
- -----------------
The Board of Trustees may, in the future, authorize a Series to invest in
securities other than those listed in this Statement of Additional Information
and in the Prospectuses, provided such investment would be consistent with that
Series' investment objective and that it would not violate any fundamental
investment policies or restrictions applicable to that Series.
INVESTMENTS RELATING TO THE GLOBAL FUNDS AND THE NON-U.S. EQUITY FUND
The following discussion of strategies, techniques and policies applies only to
the Global Fund, Global Equity Fund, Global Bond Fund and the Non-U.S. Equity
Fund.
FOREIGN SECURITIES
- ------------------
Investors should recognize that investing in foreign issuers involves certain
considerations, including those set forth in the Series' Prospectuses, which are
not typically associated with investing in U.S. issuers. Since the stocks of
foreign companies are frequently denominated in foreign currencies, and since
the Series may temporarily hold uninvested reserves in bank deposits in foreign
currencies, the Series will be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies. The investment policies
of the Series permit them to enter into forward foreign currency exchange
contracts, futures, options and interest rate swaps (in the case of the Global
Funds) in order to hedge portfolio holdings and commitments against changes in
the level of future currency rates.
There has been in the past, and there may be again in the future, an interest
equalization tax levied by the United States in connection with the purchase of
foreign securities such as those purchased by the Series. Payment of an interest
equalization tax, if imposed, would reduce the Series' rates of return on
investment. Dividends paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on such investments as
compared to dividends paid to the Series by U.S. corporations. The Series'
ability to "pass through" the foreign taxes paid for tax credit or deduction
purposes will be determined by the composition of the Series' portfolios. More
than 50%
10
of a Series must be invested in stock or securities of foreign corporations for
"pass through" to be possible in the first instance. Special rules govern the
federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules generally include the following: (i) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in the Treasury Regulations, preferred
stock); (ii) the accruing of certain trade receivables and payables; and (iii)
the entering into or acquisition of any forward contract, futures contract and
similar financial instruments other than any "regulated futures contract" or
"non-equity option" which would be marked-to-market under the rules of Section
1256 of the Code if held at the end of the tax year. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign currency-
related regulated futures contracts and non-equity options are generally not
subject to these special currency rules. If subject, they are or would be
treated as sold for their fair market value at year-end under the marked-to-
market rules applicable to other futures contracts, unless an election is made
to have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally a taxable gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. Certain transactions subject to the special
currency rules that are part of a "section 988 hedging transaction" (as defined
in the Code and the Treasury Regulations) will be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
The income tax effects of integrating and treating a transaction as a single
transaction are generally to create a synthetic debt instrument that is subject
to the original discount provisions. It is anticipated that some of the non-U.S.
dollar denominated investments and foreign currency contracts the Series may
make or enter into will be subject to the special currency rules described
above.
FORWARD FOREIGN CURRENCY CONTRACTS
- ----------------------------------
The Series may purchase or sell currencies and/or engage in forward foreign
currency transactions in order to expedite settlement of portfolio transactions
and to manage currency risk.
Forward foreign currency contracts are traded in the inter-bank 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. The Series will account for
forward contracts by marking-to-market each day at current forward contract
values.
A Series will only enter into forward contracts to sell, for a fixed amount of
U.S. dollars or other appropriate currency, an amount of foreign currency, to
the extent that the value of the short forward contract is covered by the
underlying value of securities denominated in the currency being sold.
Alternatively, when a Series enters into a forward contract to sell an amount of
foreign currency, the Series' custodian or sub-custodian will place Segregated
Assets in a segregated account of the Series in an amount not less than the
value of the Series' total assets committed to the consummation of such forward
contracts. If the additional Segregated Assets placed in the segregated account
decline, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Series'
commitments with respect to such contracts.
OPTIONS ON FOREIGN CURRENCIES
- -----------------------------
The Series also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Series' exposure to changes in currency exchange rates. The Series
may purchase and write options on foreign currencies for hedging purposes in a
manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Series may purchase put options on the foreign
currency. If the dollar price of the currency does decline, a Series will have
the right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the dollar price
of such securities, the Series may purchase call options on such currency.
11
The purchase of such options could offset, at least partially, the effects of
the adverse movement in exchange rates. As in the case of other types of
options, however, the benefit to the Series to be derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, a Series could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.
The Series may write options on foreign currencies for the same types of hedging
purposes. For example, where a Series anticipates a decline in the dollar value
of foreign currency denominated securities due to adverse fluctuations in
exchange rates, it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the option will
most likely not be exercised, and the diminution in the value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Series could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Series to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Series
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, a Series also may be required to forego all or a portion
of the benefit which might otherwise have been obtained from favorable movements
in exchange rates.
The Series may write covered call options on foreign currencies. A call option
written on a foreign currency by a Series is "covered" if the Series owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the custodian
bank) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if a Series has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written, or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in Segregated Assets in a
segregated account with its custodian bank.
With respect to writing put options, at the time the put is written, a Series
will establish a segregated account with its custodian bank consisting of
Segregated Assets in an amount equal in value to the amount the Series will be
required to pay upon exercise of the put. The account will be maintained until
the put is exercised, has expired, or the Series has purchased a closing put of
the same series as the one previously written.
INVESTMENTS RELATING TO THE GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND
The following discussion applies to the Global Fund, Global Bond Fund, U.S.
Balanced Fund and U.S. Bond Fund.
LOWER RATED DEBT SECURITIES
- ----------------------------
Fixed income securities rated lower than Baa by Moody's Investors Services, Inc.
or BBB by Standard & Poor's Ratings Group are considered to be of poor standing
and predominantly speculative. Such securities ("lower rated securities") are
commonly referred to as "junk bonds" and are subject to a substantial degree of
credit risk. Lower rated securities may be issued as a consequence of corporate
restructurings, such as leveraged buy-outs, mergers, acquisitions, debt
recapitalizations or similar events. Also, lower rated securities are often
issued by smaller, less creditworthy companies or by highly leveraged (indebted)
firms, which are generally less able than more financially stable firms to make
scheduled payments of interest and principal. The risks posed by securities
issued under such circumstances are substantial.
In the past, the high yields from lower rated securities have more than
compensated for the higher default rates on such securities. However, there can
be no assurance that diversification will protect the Series from widespread
bond defaults
12
brought about by a sustained economic downturn, or that yields will continue to
offset default rates on lower rated securities in the future. Issuers of these
securities are often highly leveraged, so that their ability to service their
debt obligations during an economic downturn or during sustained periods of
rising interest rates may be impaired. In addition, such issuers may not have
more traditional methods of financing available to them and may be unable to
repay debt at maturity by refinancing. Further, an economic recession may result
in default levels with respect to such securities in excess of historic
averages.
The value of lower-rated securities will be influenced not only by changing
interest rates, but also by the bond market's perception of credit quality and
the outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated securities may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates.
Especially at such times, trading in the secondary market for lower rated
securities may become thin and market liquidity may be significantly reduced.
Even under normal conditions, the market for lower rated securities may be less
liquid than the market for investment grade corporate bonds. There are fewer
securities dealers in the high yield market and purchasers of lower rated
securities are concentrated among a smaller group of securities dealers and
institutional investors. In periods of reduced market liquidity, lower rated
securities prices may become more volatile.
Besides credit and liquidity concerns, prices for lower rated securities may be
affected by legislative and regulatory developments. For example, from time to
time, Congress has considered legislation to restrict or eliminate the corporate
tax deduction for interest payments or to regulate corporate restructurings such
as takeovers or mergers. Such legislation may significantly depress the prices
of outstanding lower rated securities. A description of various corporate debt
ratings appears in Appendix A to this Statement of Additional Information.
CONVERTIBLE SECURITIES
- ----------------------
The Series may invest in convertible securities which generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality. The value of convertible securities may reflect changes in the value of
the underlying common stock. Convertible securities entail less credit risk than
the issuer's common stock because they rank senior to common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time and to receive interest or dividends until the
holder elects to convert. The provisions of any convertible security determine
its ranking in a company's capital structure. In the case of subordinated
convertible debentures, the holder's claims on assets and earnings are
subordinated to the claims of other creditors and are senior to the claims of
preferred and common shareholders. In the case of preferred stock and
convertible preferred stock, the holder's claim on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.
WHEN-ISSUED SECURITIES
- ----------------------
The Series may purchase securities offered on a "when-issued" or "forward
delivery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued or forward delivery securities take
place at a later date. During the period between purchase and settlement, no
payment is made by the purchaser to the issuer and no interest on the when-
issued or forward delivery security accrues to the purchaser. While when-issued
or forward delivery securities may be sold prior to the settlement date, it is
intended that a Series will purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time a Series makes the commitment to purchase a security on a when-
issued or forward delivery basis, it will record the transaction and reflect the
value of the security in determining its net asset value. The market value of
when-issued or forward delivery securities may be more or less than the purchase
price. The Advisor does not believe that a Series' net asset value or income
will be adversely affected by its purchase of securities on a when-issued or
forward delivery basis. The Series will establish a segregated account in which
it will maintain Segregated Assets equal in value to commitments for when-issued
or forward delivery securities.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
- ---------------------------------------------------------------
The Series may also invest in mortgage-backed securities, which are interests in
pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of
13
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations as further described
below. The Series may also invest in debt securities which are secured with
collateral consisting of mortgage-backed securities (see "Collateralized
Mortgage Obligations") and in other types of mortgage-related securities.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. government. These
guarantees, however, do not apply to the market value of Series shares. Also,
securities issued by GNMA and other mortgage-backed securities may be purchased
at a premium over the maturity value of the underlying mortgages. This premium
is not guaranteed and would be lost if prepayment occurs. Mortgage-backed
securities issued by U.S. government agencies or instrumentalities other than
GNMA are not "full faith and credit" obligations. Certain obligations, such as
those issued by the Federal Home Loan Bank are supported by the issuer's right
to borrow from the U.S. Treasury, while others such as those issued by the
Federal National Mortgage Association ("FNMA"), are supported only by the credit
of the issuer. Unscheduled or early payments on the underlying mortgages may
shorten the securities' effective maturities and reduce returns. The Series may
agree to purchase or sell these securities with payment and delivery taking
place at a future date. A decline in interest rates may lead to a faster rate of
repayment of the underlying mortgages and expose the Series to a lower rate of
return upon reinvestment. To the extent that such mortgage-backed securities are
held by a Series, the prepayment right of mortgagors may limit the increase in
net asset value of the Series because the value of the mortgage-backed
securities held by the Series may not appreciate as rapidly as the price of
noncallable debt securities.
A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages and expose a Series to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by a
Series, the prepayment right will tend to limit to some degree the increase in
net asset value of the Series because the value of the mortgage-backed
securities held by the Series may not appreciate as rapidly as the price of
noncallable debt securities.
For federal tax purposes other than diversification under Subchapter M, mortgage
backed securities are not considered to be separate securities but rather
"grantor trusts" conveying to the holder an individual interest in each of the
mortgages constituting the pool.
Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-backed securities (such as securities issued by the
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payments dates regardless of whether or
not the mortgagor actually makes the payment.
Any discount enjoyed on the purchases of a pass-through type mortgage-backed
security will likely constitute market discount. As a Series receives principal
payments, it will be required to treat as ordinary income an amount equal to the
lesser of the amount of the payment or the "accrued market discount." Market
discount is to be accrued either under a constant rate method or a proportional
method. Pass-through type mortgage-backed securities purchased at a premium to
face will be subject to a similar rule requiring recognition of an offset to
ordinary interest income, an amount of premium attributable to the receipt of
principal. The amount of premium recovered is to be determined using a method
similar to that in place for market discount. A Series may elect to accrue
market discount or amortize premium notwithstanding the amount of principal
received but such election will apply to all bonds held and thereafter acquired
unless permission is granted by the Commissioner of the Internal Revenue Service
to change such method.
The principal governmental guarantor of mortgage-related securities is GNMA,
which is a wholly-owned U. S. government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers)
14
and backed by pools of mortgages which are insured by the Federal Housing
Authority or guaranteed by the Veterans Administration. These guarantees,
however, do not apply to the market value or yield of mortgage-backed securities
or to the value of Series shares. Also, GNMA securities often are purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and should be viewed as an economic offset to interest to be earned.
If prepayments occur, less interest will be earned and the value of the premium
paid will be lost.
Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. government) include FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation of the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) mortgages from a list of approved
seller/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. government.
FHLMC is a corporate instrumentality of the U.S. government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional mortgage loans. Such issuers may, in addition, be
the originators and/or servicers of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of interest than government
and government-related pools because there are no direct or indirect government
or agency guarantees of payments. However, timely payment of interest and
principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance guarantees are issued by governmental entities,
private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets a Series' investment quality
standards. There can be no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee or guarantees,
even if through an examination of the loan experience and practices of the
originators/servicers and poolers, the Advisor determines that the securities
meet the Series' quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE INVESTMENT
- --------------------------------------------------------------------------------
CONDUITS ("REMICS")
- -------------------
A CMO is a debt security on which interest and prepaid principal are paid, in
most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA and their income streams.
Privately-issued CMOs tend to be more sensitive to interest rates than
Government-issued CMOs.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payments of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series (e.g., A, B,
C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase
mortgages or mortgage pass-through certificates ("Collateral"). The Collateral
is pledged to a third party trustee as security for the Bonds. Principal and
interest payments from the Collateral are used to pay principal on the Bonds in
the order A, B, C, Z. The Series A, B and C Bonds all bear current interest.
Interest
15
on the Series Z Bond is accrued and added to principal and a like amount is paid
as principal on the Series A, B, or C Bond currently being paid off. When the
Series A, B and C Bonds are paid in full, interest and principal on the Series
Z Bond begins to be paid currently. With some CMOs, the issuer serves as a
conduit to allow loan originators (primarily builders or savings and loan
associations) to borrow against their loan portfolios. REMICs are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
Most if not all newly-issued debt securities backed by pools of real estate
mortgages will be issued as regular and residual interests in REMICs because, as
of January 1, 1992, new CMOs which do not make REMIC elections will be treated
as "taxable mortgage pools," a wholly undesirable tax result. Under certain
transition rules, CMOs in existence on December 31, 1991 are unaffected by this
change. The Series will purchase only regular interests in REMICs. REMIC
regular interests are treated as debt of the REMIC and income/discount thereon
must be accounted for on the "catch-up method," using a reasonable prepayment
assumption under the original issue discount rules of the Code.
CMOs and REMICs issued by private entities are not government securities and are
not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. Yields on privately-issued CMOs,
as described above, have been historically higher than yields on CMOs issued or
guaranteed by U.S. government agencies. However, the risk of loss due to default
on such instruments is higher since they are not guaranteed by the U.S.
government. Such instruments also tend to be more sensitive to interest rates
than U.S. government-issued CMOs. The Series will not invest in subordinated
privately-issued CMOs. For federal income tax purposes, the Series will be
required to accrue income on CMOs and REMIC regular interests using the "catch-
up" method, with an aggregate prepayment assumption.
OTHER MORTGAGE-BACKED SECURITIES
- --------------------------------
The Advisor expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may differ from
customary long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Advisor will, consistent
with a Series' investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities. The
Advisor will not purchase any such other mortgage-backed securities until the
Series' Prospectuses and this Statement of Additional Information have been
supplemented.
ASSET-BACKED SECURITIES
- -----------------------
The Series may invest a portion of its assets in debt obligations known as
"asset-backed securities." Asset-backed securities are securities that represent
a participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool or pools of similar assets
(e.g., receivables on home equity and credit loans and receivables regarding
automobile, credit card, mobile home and recreational vehicle loans, wholesale
dealer floor plans and leases).
Such receivables are securitized in either a pass-through or a pay-through
structure. Pass-through securities provide investors with an income stream
consisting of both principal and interest payments in respect of the receivables
in the underlying pool. Pay-through asset-backed securities are debt
obligations issued usually by a special purpose entity, which are collateralized
by the various receivables and in which the payments on the underlying
receivables provide that the Series pay the debt service on the debt obligations
issued. The Series may invest in these and other types of asset-backed
securities that may be developed in the future.
The credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support and/or enhancement provided.
Such asset-backed securities are subject to the same prepayment risks as
mortgage-backed securities. For federal income tax purposes, the Series will be
required to accrue income on pay-through asset-backed securities using the
"catch-up" method, with an aggregate prepayment assumption.
16
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of the originator or any
other affiliated entities, and the amount and quality of any credit support
provided to the securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets which in turn may be affected by a variety of economic and
other factors. As a result, the yield on any asset-backed security is difficult
to predict with precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. Asset-backed securities may be classified as
"pass-through certificates" or "collateralized obligations."
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payment, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection; and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments due on the underlying pool is
timely. Protection against losses resulting from ultimate default enhances the
likelihood of payments of the obligations on at least some of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Series will not pay any additional fees for such credit
support, although the existence of credit support may increase the price of a
security.
Due to the shorter maturity of the collateral backing such securities, there is
less of a risk of substantial prepayment than with mortgage-backed securities.
Such asset-backed securities do, however, involve certain risks not associated
with mortgage-backed securities, including the risk that security interests
cannot be adequately, or in many cases, ever, established. In addition, with
respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payments of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in such issue.
ZERO COUPON AND DELAYED INTEREST SECURITIES
- -------------------------------------------
The Series may invest in zero coupon or delayed interest securities which pay no
cash income until maturity or a specified date when the securities begin paying
current interest (the "cash payment date") and are sold at substantial discounts
from their value at maturity. When held to maturity or cash payment date, the
entire income of such securities, which consists of accretion of discount, comes
from the difference between the purchase price and their value at maturity or
cash payment date. The discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The discount, in the
absence of financial difficulties of the issuer, decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon and delayed interest securities are generally more volatile and more
likely to respond to changes in interest rates than the market prices of
securities having similar maturities and credit qualities that pay interest
periodically. Current federal income tax law requires that a holder of a zero
coupon security report as income each year the portion of the original issue
discount on such security (other than tax-exempt original issue discount from a
zero coupon security) that accrues that year, even though the holder receives no
cash payments of interest during the year. The Series will be required to
distribute such income to shareholders to comply with Subchapter M of the Code
and avoid excise taxes, even though the Series have not received any cash from
the issue.
17
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon convertible
securities offer the opportunity for capital appreciation as increases (or
decreases) in market value of such securities closely follow the movements in
the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks as they usually are issued with short maturities (15 years or less) and
are issued with options and/or redemption features exercisable by the holder of
the obligation entitling the holder to redeem the obligation and receive a
defined cash payment.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries ("CATS").
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. Counsel to the underwriters
of these certificates or other evidences of ownership of the U.S. Treasury
securities has stated that for federal tax and securities purposes, in its
opinion, purchasers of such certificates, such as the Series, most likely will
be deemed the beneficial holder of the underlying U.S. government securities.
The Series understand that the staff of the SEC no longer considers such
privately stripped obligations to be U.S. government securities, as defined in
the Act; therefore, the Series intends to adhere to this staff position and
will not treat such privately stripped obligations to be U.S. government
securities for the purpose of determining if the Series is "diversified," or for
any other purpose, under the Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the U.S. Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, a Series will be able to have its beneficial ownership of 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 U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, 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 interest (cash)
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 that the U.S. Treasury
sells itself. These stripped securities are also treated as zero coupon
securities with original issue discount for tax purposes.
INVESTMENTS RELATING TO THE GLOBAL FUND
EMERGING MARKETS INVESTMENTS (Global Fund only).
- ----------------------------
The Series may invest up to 10% of its assets in equity and debt securities of
emerging market issuers, or securities with respect to which the return is
derived from the equity or debt securities of issuers in emerging markets. The
Series may invest in equity securities of issuers in emerging markets, or
securities with respect to which the return is derived from the equity
securities of issuers in emerging markets. The Series also may invest in fixed
income securities of emerging market issuers, including government and
government-related entities (including participation in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. The Series also may invest in
debt securities of corporate issuers in developing countries.
The Series' investments in emerging market government and government-related
securities may consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging countries (including participation in
loans between governments and financial
18
institutions), (ii) debt securities or obligations issued by government owned,
controlled or sponsored entities located in emerging countries and (iii)
interests in issuers organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the entities
described above.
The Series' investments in the fixed income securities of emerging market
issuers may include investments in Brady Bonds, Structured Securities, Loan
Participation and Assignments (as such capitalized terms are defined below), and
certain non-publicly traded securities.
Brady Bonds are securities created through the exchange of existing commercial
bank loans to public and private entities in certain emerging markets for new
bonds in connection with debt restructurings under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds may be collateralized or uncollateralized, are issued
in various currencies (but primarily the U.S. dollar), and are actively traded
in over-the-counter secondary markets. Dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds.
Structured Securities are issued by entities organized and operated solely for
the purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with, or purchase
by, an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments.
The Series may invest in fixed rate and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions ("Lenders"). The Series' investments in
Loans are expected in most instances to be in the form of a participation in
loans ("Participation") and assignments of all or a portion of Loans
("Assignments") from third parties. The Series will have the right to receive
payments of principal, interest and any fees to which they are entitled only
from the Lender selling the Participation and only upon receipt by the Lender of
the payments from the borrower. In the event of the insolvency of the Lender
selling a Participation, the Series may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Series purchases Assignments from Lenders, it will acquire direct rights
against the borrower on the Loan. However, because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Series as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
The Series also may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities and
limited partnerships. Investing in such unlisted emerging market equity
securities, including investments in new and early stage companies, may involve
a high degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities.
The Series' investments in emerging market securities will at all times be
limited by the Series' prohibition on investing more than 15% of its net assets
in illiquid securities.
RISKS OF INVESTING IN EMERGING MARKETS
- --------------------------------------
Compared to the United States and other developed countries, emerging countries
may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade only a small number of securities
and employ settlement procedures different from those used in the United States.
Prices on these exchanges tend to be volatile and, in the past, securities in
these countries have offered greater potential for gain (as well as loss) than
securities of companies located in developed countries. Further, investments by
foreign investors are subject to a variety of restrictions in many emerging
countries. Countries such as those in which the Series may invest have
historically experienced and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations or currency
depreciation, large amounts of external debt, balance of payments and trade
difficulties and
19
extreme poverty and unemployment. Additional factors which may influence the
ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt service burden to
the economy as a whole, its government's policy towards the International
Monetary Fund, the World Bank and other international agencies and the political
constraints to which a government debtor may be subject.
The ability of a foreign government or government-related issuer to make timely
and ultimate payments on its external debt obligations will be strongly
influenced by the issuer's balance of payments, including export performance,
its access to international credits and investments, fluctuations in interest
rates and the extent of its foreign reserves. A country whose exports are
concentrated in a few commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these
commodities or imports. To the extent that a country receives payment for its
exports in currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign government or
government-related issuer cannot generate sufficient earnings from foreign trade
to service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks, and multilateral organizations, and
inflows of foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such disbursements
may be conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the issuer's ability or willingness to
service its debts in a timely manner. The cost of servicing external debt will
also generally be adversely affected by rising international interest rates,
because many external debt obligations bear interest at rates which are adjusted
based upon international interest rates. The ability to service external debt
will also depend on the level of the relevant government's international
currency reserves and its access to foreign exchange. Currency devaluations may
affect the ability of a governmental issuer to obtain sufficient foreign
exchange to service its external debt.
As a result of the foregoing, a governmental issuer may default on its
obligations. If such a default occurs, the Series may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting country itself, and the
ability of the holder of foreign government and government-related debt
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government and government-related debt obligations in the event of default under
their commercial bank loan agreements.
The issuers of the government and government-related debt securities in which
the Series expects to invest have in the past experienced substantial
difficulties in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds, and obtaining new credit to finance interest payments. Holders of
certain foreign government and government-related debt securities may be
requested to participate in the restructuring of such obligations and to extend
further loans to their issuers. There can be no assurance that the Brady Bonds
and other foreign government and government-related debt securities in which the
Series may invest will not be subject to similar defaults or restructuring
arrangements which may adversely affect the value of such investments.
Furthermore, certain participants in the secondary market for such debt may be
directly involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market participants.
Payments to holders of the high yield, high risk, foreign debt securities in
which the Series may invest may be subject to foreign withholding and other
taxes. Although the holders of foreign government and government-related debt
securities may be entitled to tax gross-up payments from the issuers of such
instruments, there is no assurance that such payments will be made.
INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES
- ----------------------------------------------
The Series may invest in securities issued by other registered investment
companies advised by Brinson Partners
20
pursuant to exemptive relief granted by the SEC. Currently, the Global Fund is
the only Series of the Trust that intends to invest in portfolios of Brinson
Relationship Funds, another investment company which is advised by Brinson
Partners, and only to the extent consistent with the Advisor's investment
process of allocating assets to specific asset classes. The Global Fund will
invest in corresponding portfolios of Brinson Relationship Funds only to the
extent that the Advisor determines that such investments are a more efficient
means for the Global Fund to gain exposure to the asset classes referred to
below than by investing directly in individual securities.
To gain exposure to equity and fixed income securities of issuers located in
emerging market countries, the Global Fund may invest that portion of its
assets allocated to emerging markets investments in the Brinson Emerging Markets
Equity Fund portfolio and the Brinson Emerging Markets Debt Fund portfolio of
Brinson Relationship Funds. The investment objective of the Brinson Emerging
Markets Equity Fund and the Brinson Emerging Markets Debt Fund is to maximize
total U.S. dollar return, consisting of capital appreciation and current income,
while controlling risk. Under normal circumstances, at least 65% of the total
assets of the Brinson Emerging Markets Equity Fund is invested in the equity
securities of issuers in emerging markets or securities with respect to which
the return is derived from the equity securities of issuers in emerging markets.
At least 65% of the total assets of the Brinson Emerging Markets Debt Fund is
invested in the debt securities issued by governments, government-related
entities (including participations in loans between governments and financial
institutions), corporations and entities organized to restructure outstanding
debt of issuers in emerging markets, or debt securities the return on which is
derived primarily from other emerging markets instruments. The Brinson Emerging
Markets Equity Fund and Brinson Emerging Markets Debt Fund are permitted to
invest in the same types of securities as the Global Fund may invest in
directly.
In lieu of investing directly in certain high yield, higher risk securities, the
Global Fund may invest a portion of its assets in the Brinson High Yield Fund
portfolio (the "High Yield Fund") of Brinson Relationship Funds. The investment
objective of the High Yield Fund is to maximize total U.S. dollar return,
consisting of capital appreciation and current income, while controlling risk.
The High Yield Fund maintains a high yield portfolio and as such, at least 65%
of its assets are invested in high yield securities. The Global Fund currently
intends to limit its investment in non-investment grade debt securities to no
more than 5% of its net assets. Any investment in the High Yield Fund will be
considered within this limitation.
In lieu of investing directly in equity securities issued by companies with
relatively small overall market capitalizations, the Global Fund may invest a
portion of its assets in the Brinson Post-Venture Fund portfolio (the "Post-
Venture Fund") of Brinson Relationship Funds. The investment objective of the
Post-Venture Fund is to maximize total U.S. dollar return, consisting of capital
appreciation and current income, while controlling risk. The Post-Venture Fund
invests primarily in publicly- traded companies representing the lower 5% of the
Wilshire 5000 Index, and, as such, at least 65% of its assets are invested in
small capitalization equity securities.
Each portfolio of Brinson Relationship Funds in which the Global Fund may invest
is permitted to invest in the same securities of a particular asset class in
which the Global Fund is permitted to invest directly, and with similar risks.
Pursuant to undertakings with the SEC, the Global Fund will not be subject to
the imposition of double management or administration fees with respect to its
investments in Brinson Relationship Funds.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may not
be changed as to a Series, without the approval of a majority of the outstanding
voting securities (as defined in the Act) of the Series. Unless otherwise
indicated, all percentage limitations listed below apply to the Series only at
the time of the transaction. Accordingly, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in the
percentage which results from a relative change in values or from a change in a
Series' total assets will not be considered a violation.
Except as set forth under "Investment Objectives and Policies" and "Investment
Considerations and Risks" in each Prospectus, or "Investment Strategies" in
this Statement of Additional Information, each Series may not:
(i) As to 75% of the total assets of each Series, purchase the
securities of any one issuer, other than securities issued by the
U.S. government or its agencies or instrumentalities, if
21
immediately after such purchase more than 5% of the value of the
total assets of a Series would be invested in securities of such
issuer (this does not apply to the Global Bond Fund or the U.S.
Large Capitalization Equity Fund);
(ii) Invest in real estate or interests in real estate (this will not
prevent a Series from investing in publicly-held real estate
investment trusts or marketable securities of companies which may
represent indirect interests in real estate), interests in oil, gas
and/or mineral exploration or development programs or leases;
(iii) Purchase or sell commodities or commodity contracts, but may enter
into futures contracts and options thereon in accordance with its
Prospectus. Additionally, each Series may engage in forward foreign
currency contracts for hedging and non-hedging purposes;
(iv) Make investments in securities for the purpose of exercising
control over or management of the issuer;
(v) Purchase the securities of any one issuer if, immediately after such
purchase, a Series would own more than 10% of the outstanding voting
securities of such issuer;
(vi) Sell securities short or purchase securities on margin, except such
short-term credits as are necessary for the clearance of
transactions. For this purpose, the deposit or payment by a Series
for initial or maintenance margin in connection with futures
contracts is not considered to be the purchase or sale of a security
on margin;
(vii) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly
distributed or privately placed debt securities, (b) the lending of
portfolio securities, or (c) entry into repurchase agreements with
banks or broker-dealers;
(viii) Borrow money in excess of 33 1/3% of the value of its assets except
as a temporary measure for extraordinary or emergency purposes to
facilitate redemptions or issue senior securities. All borrowings
will be done from a bank and to the extent that such borrowing
exceeds 5% of the value of a Series' assets, asset coverage of at
least 300% is required. A Series will not purchase securities when
borrowings exceed 5% of that Series' total assets;
(ix) Purchase the securities of issuers conducting their principal
business activities in the same industry, other than obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, if immediately after such purchase, the value of
a Series' investments in such industry would exceed 25% of the value
of the total assets of the Series across several countries;
(x) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Series may be deemed to be an
"underwriter" as that term is defined in the 1933 Act;
(xi) Invest in securities of any open-end investment company, except that
(i) a Series may purchase securities of money market mutual funds,
(ii) the Global Fund and Global Equity Fund may each invest in the
securities of closed-end investment companies at customary brokerage
commission rates in accordance with the limitations imposed by the
Act and the rules thereunder, and (iii) in accordance with any
exemptive order obtained from the SEC which permits investment by a
Series in other Series or other investment companies or series
thereof advised by the Advisor. In addition, each Series may acquire
securities of other investment companies if the securities are
acquired pursuant to a merger, consolidation, acquisition, plan of
reorganization or a SEC approved offer of exchange;
(xii) Invest in puts, calls, straddles or combinations thereof except to
the extent disclosed in a Series' Prospectus; and
22
(xiii) Invest more than 5% of its total assets in securities of companies
less than three years old. Such three year periods shall include the
operation of any predecessor company or companies.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
POSITION
WITH
NAME AND ADDRESS AGE THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------- --- --------- -------------------------------------------
Walter E. Auch 77 Trustee Retired; formerly Chairman and CEO of Chicago Board of
6001 N. 62nd Place Options Exchange (1979-1986); Trustee of the Trust since
Paradise Valley, AZ May, 1994; Trustee, Brinson Relationship Funds since
85253 December, 1994; Director, Thomsen Asset Management
Corp. since 1987; Director, Fort Dearborn Income
Securities, Inc. 1987 to 1995; Director, Geotek Industries,
Inc. since 1989; Director, Smith Barney VIP Fund since
1991; Director, SB Advisers since 1992; Director, SB
Trak since 1992; Director, Banyan Realty Trust since 1987;
Director, Banyan Land Fund II since 1988; Director,
Banyan Mortgage Investment Fund since 1989; and
Director, Express America Holdings Corp. since 1992, and
Nicholas/Applegate, Legend Properties, Inc.
Frank K. Reilly 62 Chairman and Professor, University of Notre Dame since 1982; Trustee
College of Business Trustee of the Trust since December, 1993; Trustee, Brinson
Administration Relationship Funds since September, 1994; Director of The
University of Brinson Funds, Inc. 1992-1993; Trustee, Brinson Trust
Notre Dame Company, 1992-July, 1993; Director, Fort Dearborn
Notre Dame, IN 46556-0399 Income Securities, Inc. since 1993; Director, First Interstate
Bank of Wisconsin from January, 1989 through March,
1990; Director, Greenwood Trust Company since 1993; and
Director, Dean Witter Trust, FSB, since 1996.
Edward M. Roob 63 Trustee Retired; prior thereto, Senior Vice President, Daiwa
841 Woodbine Lane Securities America Inc. (1986-1993); Trustee of the Trust
Northbrook, IL 60002 since January, 1995; Trustee, Brinson Relationship Funds
since January 1995; Director, Fort Dearborn Income
Securities, Inc. since 1993; Director, Brinson Trust
Company since 1993; Committee Member, Chicago Stock
Exchange since 1993; Member of Board of Governors,
Midwest Stock Exchange (1987-1991).
23
OTHER OFFICERS
POSITION
WITH THE OFFICER
NAME AGE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---- --- -------- ------- -----------------------------------------------------
E. Thomas McFarlan 54 President 1992 Managing Director, Brinson Partners, Inc. since 1991; Treasurer and Principal
Accounting Officer, The Brinson Funds 1995-1997; President and Director of The
Brinson Funds, Inc. 1992-1993; Trustee, Brinson Trust Company since 1991; prior
thereto, Executive Vice President of Washington Mutual Savings Bank.
Thomas J. Digenan 34 Vice 1993 Director, Brinson Partners, Inc. since 1993; Assistant Treasurer, The Brinson
President Funds 1995-1997; Assistant Secretary, The Brinson Funds, 1993-1995; Assistant
Secretary, The Brinson Funds, Inc. 1993; prior thereto, Senior Manager, KPMG Peat
Marwick.
Debra L. Nichols 32 Vice 1992 Director, Brinson Partners, Inc. since 1995; Associate, Brinson Partners, Inc.
President from 1991 to 1995; Vice President, The Brinson Funds since 1997; Secretary, The
Brinson Funds 1997; Assistant Secretary, The Brinson Funds 1993-1997; Assistant
Secretary, The Brinson Funds, Inc. 1992-1993; prior thereto, private investor.
Carolyn M. Burke 31 Secretary, 1995 Director, Brinson Partners, Inc., since January 1997; Associate, Brinson Partners,
Treasurer Inc. from 1995 to 1997; Secretary, Treasurer and Principal Accounting Officer,
and Principal The Brinson Funds since 1997; Assistant Secretary, The Brinson Funds 1995-1997;
Accounting prior thereto, Financial Analyst, Van Kampen American Capital Investment Advisory
Officer Corp. 1992-1995; Senior Accountant, KPMG Peat Marwick 1989-1992.
Catherine E. Macrae 41 Assistant 1995 Associate Director, Brinson Partners, Inc. since January 1996; Associate,
Secretary Brinson Partners, Inc., from 1992 to 1996; prior thereto, Economic Analyst,
Chicago Mercantile Exchange.
COMPENSATION TABLE
TRUSTEES AND OFFICERS
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
FROM TRUST FOR FISCAL YEAR TRUST AND FUND COMPLEX
NAME AND POSITION HELD ENDED JUNE 30, 1998 PAID TO TRUSTEES/1/
- ---------------------- -------------------------- -----------------------
Walter E. Auch, Trustee $12,300 $24,900
6001 N. 62nd Place
Paradise Valley, AZ 85253
Frank K. Reilly, Trustee $14,400 $42,450
College of Business Administration
University of Notre Dame
Notre Dame, IN 46556-0399
Edward M. Roob, Trustee $14,400 $42,450
841 Woodbine Lane
Northbrook, IL 60002
/1/ This amount represents the aggregate amount of compensation paid to the
Trustees for (a) service on the Board of Trustees for the Trust's most
recently completed fiscal year; and (b) service on the Board of Directors
of two other investment companies managed by Brinson Partners for the
calendar year ending June 30, 1998.
24
No officer or Trustee of the Trust who is also an officer or employee of Brinson
Partners receives any compensation from the Trust for services to the Trust. The
Trust pays each Trustee who is not affiliated with Brinson Partners a fee of
$6,000 per year, plus $300 per Series per meeting, and reimburses each Trustee
and officer for out-of-pocket expenses in connection with travel and attendance
at Board meetings.
The Board of Trustees has an Audit Committee which has the responsibility, among
other things, to (i) recommend the selection of the Trust's independent
auditors, (ii) review and approve the scope of the independent auditors' audit
activity, (iii) review the audited financial statements, and (iv) review with
such independent auditors the adequacy of the Series' basic accounting system
and the effectiveness of the Series' internal controls. The Audit Committee met
once during the fiscal year ended June 30, 1998. There is no separate nominating
or investment committee. Items pertaining to these committees are submitted to
the full Board of Trustees.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of August 18, 1998, the officers and Trustees as a group owned less than 1%
of the outstanding equity securities of the Trust and of each class of equity
securities of the Trust.
As of August 18, 1998, the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the Brinson Fund-Class I,
Brinson Fund-Class N, UBS Investment Funds class of shares or the Series, as
applicable:
GLOBAL FUND
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
BRINSON FUND-CLASS I
- --------------------
First Alabama Bank 11.57% 11.02%
Mobile, AL
Suntrust Bank 7.68% 7.32%
Atlanta, GA
American Express 6.36% 6.06%
Minneapolis, MN
BRINSON FUND-CLASS N
- --------------------
Emjayco 88.76%* N/A
Milwaukee, WI
Merrill Lynch Trust Co. 10.66% N/A
Somerset, NJ
UBS INVESTMENT FUNDS CLASS
- --------------------------
UBS AG 74.50%* N/A
New York, NY
25
GLOBAL EQUITY FUND
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
BRINSON FUND-CLASS I
- ---------------------
Wachovia Bank NA
Winston Salem, NC 42.06%* 12.51%
Charles Schwab & Co. Inc. 18.39% 5.47%
San Francisco, CA
Wilmington Trust Co. 6.29% N/A
Wilmington, DE
National Financial Services Corp. 5.31% N/A
New York, NY
BRINSON FUND-CLASS N
- --------------------
Brinson Partners, Inc. 100%* N/A
Chicago, IL
UBS INVESTMENT FUNDS CLASS
- --------------------------
UBS 38.10%* 26.77%+
New York, NY
UBS SA 22.83% 16.04%
Zurich, Switzerland
UBS SA 11.67% 8.20%
Zurich, Switzerland
GLOBAL BOND FUND
BRINSON FUND-CLASS I
- ---------------------
Wilmington Trust Co. 27.78%* 26.83%+
Wilmington, DE
Baptist Health Systems, Inc. 16.93% 16.35%
Birmingham, AL
Charles Schwab & Co. 14.38% 13.89%
San Francisco, CA
Wilmington Trust Co. Trustee 11.40% 11.01%
Wilmington, DE
Munson Williams Proctor Institute 11.11% 10.73%
Utica, NY
BRINSON FUND-CLASS N
- --------------------
Emjayco 89.38%* N/A
Milwaukee, WI
Brinson Partners, Inc. 10.62% N/A
Chicago, IL
UBS INVESTMENT FUNDS CLASS
- --------------------------
UBS 58.54%* N/A
New York, NY
UBS 13.98% N/A
New York, NY
UBS SA 7.47% N/A
Zurich Switzerland
U.S. BALANCED FUND
BRINSON FUND-CLASS I
- --------------------
MAC & Co. 46.94%* 45.87%+
Pittsburgh, PA
Wachovia Bank of NA 18.09% 17.68%
Winston Salem, NC
Mitra & Co. 17.19% 16.80%
Milwaukee, WI
American Express 8.98% 8.77%
Minneapolis, MN
Lasalle National Bank 5.86% 5.72%
Chicago, IL
BRINSON FUND-CLASS N
- --------------------
Brinson Partners, Inc. 100%* N/A
Chicago, IL
UBS INVESTMENT FUNDS CLASS
- --------------------------
UBS 60.13%* N/A
New York, NY
UBS SA 15.39% N/A
Zurich, Switzerland
26
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
UBS INVESTMENT FUNDS CLASS (CON'T)
- --------------------------
UBS SA 15.17% N/A
Zurich, Switzerland
U.S. EQUITY FUND
BRINSON FUND-CLASS I
- --------------------
Wachovia Bank Trust NA 14.89% 13.25%
Winston Salem, NC
Charles Schwab & Co. Inc. 11.69% 10.40%
San Francisco, CA
The Northern Trust Company Trustee 5.26% N/A
Chicago, IL
BRINSON FUND-CLASS N
- --------------------
Merrill Lynch Trust Co. 78.96%* N/A
Somerset, NJ
Emjayco 20.17% N/A
Milwaukee, WI
Cowen Co. 7.73% N/A
New York, NY
UBS INVESTMENT FUNDS CLASS
- --------------------------
UBS SA 55.74%* 6.04%
Zurich, Switzerland
UBS SA 34.41%* N/A
Zurich, Switzerland
UBS 8.52% N/A
New York, NY
U.S. LARGE CAPITALIZATION EQUITY FUND
BRINSON FUND-CLASS I
- --------------------
Norwest MN 58.12%* N/A
Minneapolis, MN
Jay M. and Rebekah A. Enoch 21.27% N/A
Moraga, CA
National Financial Svcs Corp 10.60% N/A
New York, NY
Donaldson Lufkin & Jenrette 8.23% N/A
Jersey City, NJ
BRINSON FUND-CLASS N
- --------------------
National Financial Services Corp. 99.99%* 97.50%+
New York, NY
UBS INVESTMENT FUNDS CLASS
- --------------------------
Thomas J. Digenan 100%* N/A
Chicago, IL.
U.S. BOND FUND
BRINSON FUND-CLASS I
- --------------------
Wachovia Bank NA 26.87%* 25.21%+
Winston Salem, NC
Charles Schwab & Co. Inc. 18.07% 16.96%
San Francisco, CA
Lafayette College Endowment 16.17% 15.17%
Easton, PA
Firstcinco Rein 11.71% 10.99%
Cincinnati, OH
Lafayette College Endowment 7.29% 6.84%
Easton, PA
Resources Trust Company 6.06% 5.68%
Englewood, CO
Sealaska Corporation 5.58% 5.23%
Juneau, AK
BRINSON FUND-CLASS N
- --------------------
Brinson Partners, Inc. 100%* N/A
Chicago, IL
27
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
UBS INVESTMENT FUNDS CLASS
--------------------------
UBS SA 29.66%* N/A
Zurich, Switzerland
UBS SA 22.20% N/A
Zurich, Switzerland
ICM Investments LTD 15.44% N/A
Newport Beach, CA
UBS 12.30% N/A
New York, NY
UBS 8.12% N/A
New York, NY
NON-U.S. EQUITY FUND
BRINSON FUND-CLASS I
--------------------
Northern Trust Company 25.76%* 25.46%+
Chicago, IL
Charles Schwab & Co. Inc. 5.69% 5.62%
San Francisco, CA
Key Trust Company 5.28% 5.22%
Cleveland, OH
BRINSON FUND-CLASS N
--------------------
Emjayco 90.53%* N/A
Milwaukee, WI
Brinson Partners Inc 9.47% N/A
Chicago, IL
UBS INVESTMENT FUNDS CLASS
--------------------------
UBS 39.38%* N/A
New York, NY
UBS SA 36.93%* N/A
Zurich, Switzerland
UBS SA 12.95% N/A
Zurich, Switzerland
* Person deemed to control the class within the meaning of the Act. Note that
such persons possess the ability to control the outcome of matters submitted
for the vote of shareholders of that class.
+ Person deemed to control the Series within the meaning of the Act. Note that
such persons possess the ability to control the outcome of matters submitted
for the vote of shareholders of that Series.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISOR
- -------
Brinson Partners, a Delaware corporation, is an investment management firm,
managing as of June 30, 1998, over $286 billion, primarily for institutional
pension and profit sharing funds. Brinson Partners was organized in 1989 when it
acquired the institutional asset management business of The First National Bank
of Chicago and First
28
Chicago Investment Advisors, N.A. Brinson Partners and its predecessor entities
have managed domestic and international investment assets since 1974 and global
investment assets since 1982. Brinson Partners has offices in Bahrain, Basel,
Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de
Janeiro, Singapore, Sydney, Tokyo and Zurich in addition to its principal office
at 209 South LaSalle Street, Chicago, IL 60604-1295. Brinson Partners is a part
of the UBS Brinson Division of UBS AG. UBS AG, with headquarters in Basel,
Switzerland, is an internationally diversified organization with operations in
many aspects of the financial services industry. UBS AG was formed by the merger
of Union Bank of Switzerland and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to nine other investment
companies: Brinson Relationship Funds, which includes seventeen investment
portfolios (series); The Enterprise Group of Funds, Inc. - International Growth
Portfolio; Enterprise Accumulation Trust - the International Growth Portfolio;
Fort Dearborn Income Securities, Inc.; The Hirtle Callaghan International
Trust - International Equity Portfolio; John Hancock Variable Annuity Series
Trust I -International Balanced Portfolio; Managed Accounts Services Portfolio
Trust -Pace Large Company Value Equity Investments; AON Funds - International
Equity Fund; and The Republic Funds - Republic Equity Fund.
Pursuant to its investment advisory agreements (the "Agreements") with the
Trust, on behalf of each Series, Brinson Partners receives from each Series a
monthly fee at an annual rate (as described in each Series' Prospectus and
below) multiplied by the average daily net assets of that Series for providing
investment advisory services. Brinson Partners is responsible for paying its
expenses. Under the Agreements, each Series pays the following expenses: (1) the
fees and expenses of the Trust's disinterested Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
Brinson Partners; (3) interest expenses; (4) taxes and governmental fees; (5)
brokerage commissions and other expenses incurred in acquiring or disposing of
portfolio securities; (6) the expenses of registering and qualifying shares for
sale with the SEC and with various state securities commissions; (7) auditing
and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's
custodian, administrative and transfer agent and any related services; (10)
expenses of obtaining quotations of the Series' portfolio securities and of
pricing the Series' shares; (11) expenses of maintaining the Trust's legal
existence and of shareholders' meetings; (12) expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses; and
(13) fees and expenses of membership in industry organizations.
Under the Agreements, the Advisor is entitled to a monthly fee of the respective
Series' average daily net assets as follows: annual rates of 0.80% for the
Global Fund, Global Equity Fund and Non-U.S. Equity Fund; 0.75% for the Global
Bond Fund; 0.70% for the U.S. Balanced Fund, U.S. Equity Fund and U.S. Large
Capitalization Equity Fund; and 0.50% for the U.S. Bond Fund. The Advisor has
agreed irrevocably to waive its fees and reimburse expenses to the extent that
total operating expenses exceed the following rates of the respective Series'
average daily net assets as follows, without regard to 12b-1 Plan expenses for
the UBS Investment Funds class of shares or the Brinson - Class N of each
Series: 1.10% for the Global Fund; 1.00% for the Global Equity Fund and Non-
U.S. Equity Fund; 0.90% for the Global Bond Fund; 0.80% for the U.S. Balanced
Fund, the U.S. Equity Fund and the U.S. Large Capitalization Equity Fund; and
0.60% for the U.S. Bond Fund.
Advisory fees accrued to Brinson Partners were as follows:
29
A. FISCAL YEAR ENDED JUNE 30, 1996
- -------------------------------------------------------------------------------------------
SERIES* GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID
EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR
- -------------------------------------------------------------------------------------------
GLOBAL FUND $3,415,057 $3,415,057 $ 0.00
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 390,824 $ 12,198 $378,626
- -------------------------------------------------------------------------------------------
GLOBAL BOND FUND $ 310,066 $ 158 $309,908
- -------------------------------------------------------------------------------------------
U.S. BALANCED FUND $1,465,283 $1,015,531 $449,752
- -------------------------------------------------------------------------------------------
U.S. EQUITY FUND $ 638,063 $ 326,322 $311,741
- -------------------------------------------------------------------------------------------
U.S. BOND FUND $ 37,868 $ 0.00 $230,216
- -------------------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $1,403,109 $1,050,199 $352,910
- -------------------------------------------------------------------------------------------
B. FISCAL YEAR ENDED JUNE 30, 1997
- -------------------------------------------------------------------------------------------
SERIES* GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID
EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR
- -------------------------------------------------------------------------------------------
GLOBAL FUND $4,294,925 $4,294,925 $ 0.00
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 641,075 $ 445,564 $195,511
- -------------------------------------------------------------------------------------------
GLOBAL BOND FUND $ 344,152 $ 149,228 $194,924
- -------------------------------------------------------------------------------------------
U.S. BALANCED FUND $1,775,454 $1,559,981 $215,473
- -------------------------------------------------------------------------------------------
U.S. EQUITY FUND $1,423,666 $1,234,361 $189,305
- -------------------------------------------------------------------------------------------
U.S. BOND FUND $ 67,835 $ 0.00 $142,178
- -------------------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $2,420,667 $2,420,667 $ 0.00
- -------------------------------------------------------------------------------------------
* The U.S. Large Capitalization Equity Fund had not commenced operations as of
the time periods indicated.
C. FISCAL YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------------------
SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID
EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR
- -------------------------------------------------------------------------------------------
GLOBAL FUND $5,378,141 $5,378,141 $ 0.00
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 719,439 $ 697,541 $21,898
- -------------------------------------------------------------------------------------------
GLOBAL BOND FUND $ 500,982 $ 457,480 $43,502
- -------------------------------------------------------------------------------------------
U.S. BALANCED FUND $1,674,661 $1,655,564 $19,097
- -------------------------------------------------------------------------------------------
U.S. EQUITY FUND $3,792,120 $3,792,120 $ 0.00
- -------------------------------------------------------------------------------------------
U.S. LARGE CAPITALIZATION
EQUITY FUND $ 21,230 $ 0.00 $23,989
- -------------------------------------------------------------------------------------------
U.S. BOND FUND $ 142,474 $ 74,626 $67,848
- -------------------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $3,475,953 $3,475,953 $ 0.00
- -------------------------------------------------------------------------------------------
General expenses of the Trust (such as costs of maintaining corporate existence,
legal fees, insurances, etc.) will be allocated among the Series in proportion
to their relative net assets. Expenses which relate exclusively to a particular
Series, such as certain registration fees, brokerage commissions and other
portfolio expenses, will be borne directly by that Series.
ADMINISTRATOR
- -------------
Administrative, Accounting, Transfer Agency and Custodian Services
Effective May 10, 1997, the Trust, on behalf of each Fund, entered into a
Multiple Services Agreement (the "Services Agreement") with Morgan Stanley Trust
Company, One Pierrepont Plaza, Brooklyn, New York 11201 ("MSTC"), pursuant to
which MSTC is required to provide general administrative, accounting, portfolio
valuation, transfer agency and custodian services to the Funds, including the
coordination and monitoring of any third party service providers.
30
Custody Services. MSTC provides custodian services for the securities and cash
of the Fund. The custody fee schedule is based primarily on the net amount of
assets held during the period for which payment is being made plus a per
transaction fee for transactions during the period and out-of-pocket expenses.
As authorized under the Services Agreement, MSTC has entered into a Mutual Funds
Service Agreement (the "CGFSC Agreement") with Chase Global Funds Services
Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank, under
which CGFSC provides administrative, accounting, portfolio valuation and
transfer agency services to the Fund. CGFSC's business address is 73 Tremont
Street, Boston, Massachusetts 02108-3913.
Pursuant to the CGFSC Agreement, CGFSC provides:
(1) administrative services, including providing the necessary office space,
equipment and personnel to perform administrative and clerical services;
preparing, filing and distributing proxy materials, periodic reports to
investors, registration statements and other documents; and responding to
investor inquiries;
(2) accounting and portfolio valuation services, including the daily calculation
of each Fund's net asset value and the preparation of certain financial
statements; and
(3) transfer agency services, including the maintenance of each investor's
account records, responding to investors' inquiries concerning accounts,
processing purchases and redemptions of each Fund's shares, acting as dividend
and distribution disbursing agent and performing other service functions.
Shareholder inquiries should be made to the transfer agent at 1-800-448-2430
(for the Brinson Fund-Class N and Brinson Fund-Class I) or 1-800-794-7753 (for
the UBS Investment Funds).
Also as authorized under the Services Agreement, MSTC has entered into a
sub-administration agreement (the "FDI Agreement") with Funds Distributor, Inc.
("FDI") under which FDI provides administrative assistance to the Funds with
respect to (i) regulatory matters, including regulatory developments and
examinations, (ii) all aspects of each Fund's day-to-day operations, (iii)
office facilities, clerical and administrative services, and (iv) maintenance of
books and records. FDI's business address is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Pursuant to the CGFSC Agreement and the FDI Agreement, MSTC pays CGFSC and FDI,
respectively, for the services that CGFSC and FDI provide to MSTC in fulfilling
MSTC's obligations under the Services Agreement.
For the fiscal years ended June 30, 1997 and June 30, 1998, aggregate fees
paid to MSTC for administration, accounting, portfolio valuation and transfer
agency services under the Services Agreement were as follows:
MAY 10, 1997
THROUGH FISCAL FISCAL YEAR ENDED
SERIES YEAR END JUNE 30, 1997 JUNE 30, 1998
- ------ ---------------------- -----------------
GLOBAL FUND $69,572 $464,398
GLOBAL EQUITY FUND $ 7,799 $ 9,809
GLOBAL BOND FUND $ 3,707 $ 0.00
U.S. BALANCED FUND $10,324 $ 79,503
U S.EQUITY FUND $12,495 $247,167
U.S. LARGE CAPITALIZATION EQUITY FUND $ 0.00 $ 0.00
U.S. BOND FUND $ 0.00 $ 0.00
NON-U.S. EQUITY FUND $17,159 $305,643
Until May 9, 1997, FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA
19406-0903 ("FPS"), provided certain administrative services to the Trust
pursuant to an administration agreement (the "Administration Agreement").
31
As compensation for services performed under the Administration Agreement, FPS
received a fee payable monthly at an annual rate multiplied by the average daily
net assets of the Trust.
Administration fees paid to FPS were as follows:
- ---------------------------------------------------------------
SERIES* FISCAL YEAR ENDED JULY 1 1996
JUNE 30, 1996 THROUGH MAY 9, 1997
- ---------------------------------------------------------------
GLOBAL FUND $293,601 $271,364
- ---------------------------------------------------------------
GLOBAL EQUITY FUND $ 32,468 $ 38,047
- ---------------------------------------------------------------
GLOBAL BOND FUND $ 29,216 $ 25,412
- ---------------------------------------------------------------
U.S. BALANCED FUND $140,841 $121,580
- ---------------------------------------------------------------
U.S. EQUITY FUND $ 58,286 $ 76,534
- ---------------------------------------------------------------
U.S. BOND FUND $ 58,286 $ 6,542
- ---------------------------------------------------------------
NON-U.S. EQUITY FUND $119,433 $122,780
- ---------------------------------------------------------------
* The U.S. Large Capitalization Equity Fund had not commenced operations as of
the time periods indicated.
UNDERWRITER
- -----------
FDI, 60 State Street, Suite 1300, Boston, MA 02109, acts as an underwriter of
the Series' continuous offer of shares for the purpose of facilitating the
filing of notices regarding sale of the shares of the Series under state
securities laws and to assist in sales of shares pursuant to an underwriting
agreement (the "Underwriting Agreement") approved by the Board of Trustees. In
this regard, FDI has agreed at its own expense to qualify as a broker-dealer
under all applicable federal or state laws in those states which the Trust shall
from time to time identify to FDI as states in which it wishes to offer the
Series' shares for sale, in order that state filings may be maintained for the
Series. FDI does not receive any compensation under the Underwriting Agreement.
FDI is a broker-dealer registered with the SEC and a member in good standing of
the National Association of Securities Dealers, Inc.
The Trust does not impose any sales loads or redemption fees. Each Series shall
continue to bear the expense of all filing fees incurred in connection with the
filing of notices regarding sale of shares under state securities laws.
The Underwriting Agreement may be terminated by either party upon sixty (60)
days' prior written notice to the other party, and if so terminated, the pro
rata portion of the unearned fee will be returned to the Trust.
32
DISTRIBUTION PLAN
- -----------------
The Board of Trustees of the Trust has adopted a distribution plan (the "UBS
Investment Plan") pursuant to Rule 12b-1 under the Act, for each Series' UBS
Investment Funds class of shares and a separate distribution plan (the "Class N
Plan") pursuant to Rule 12b-1 under the Act for each Series' Brinson Fund-Class
N shares (the UBS Investment Plan and the Class N Plan together, the "Plans").
The Plans permit each Series to reimburse FDI, Brinson Partners and others from
the assets of the UBS Investment Funds class and Brinson Fund-Class N shares
with a quarterly fee for services and expenses incurred in distributing and
promoting sales of UBS Investment Funds class of shares and Brinson Fund-Class N
shares, respectively. The aggregate fees paid by the UBS Investment Funds class
and Brinson Fund-Class N shares to FDI, and others under the Plan for each Class
may not exceed 0.90% of a UBS Investment Fund classes' average daily net assets
and 0.25% of a Brinson Fund-Class N's average daily net assets, respectively, in
any year. The UBS Investment Plan does not apply to the Brinson Fund-Class I or
the Brinson Fund-Class N shares of each Series and those shares are not included
in calculating the UBS Investment Plan's fees. The Class N Plan does not apply
to the Brinson Fund-Class I or the UBS Investment Funds class of shares of each
Series and those shares are not included in calculating the Class N Plan's fees.
Amounts spent on behalf of each UBS Investment Funds class of shares pursuant to
the UBS Investment Plan during the fiscal year ended June 30, 1998 are set forth
below.
============================================================================================================
COMPENSATION COMPENSATION COMPENSATION TO
OF OF SWISS BANK SALES
PRINTING UNDERWRITERS DEALERS PERSONNEL ADVERTISING OTHER
FUND
============================================================================================================
UBS Investment Fund- $3,741.36 $0.00 $0.00 $215,695.93 $0.00 $ 64,708.62
Global
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $8,392.57 $0.00 $0.00 $483,844.59 $0.00 $145,153.37
Global Equity
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $1,000.00 $0.00 $0.00 $ 34,008.30 $0.00 $ 10,202.99
Global Bond
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $1,000.00 $0.00 $0.00 $ 61,691.74 $0.00 $ 20,307.52
U.S. Balanced
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $5,825.06 $0.00 $0.00 $335,823.55 $0.00 $100,747.06
U.S. Equity
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $ 0.00 $0.00 $0.00 $ 0.00 $0.00 $ 0.00
U.S. Large
Capitalization Equity
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $1,000.00 $0.00 $0.00 $ 11,891.51 $0.00 $ 3,567.95
U.S. Bond
- ------------------------------------------------------------------------------------------------------------
UBS Investment Fund- $1,000.00 $0.00 $0.00 $ 14,053.50 $0.00 $ 4,216.05
Non-U.S. Equity
============================================================================================================
Amounts spent on behalf of each Brinson Fund - Class N class pursuant to the
Class N Plan during the fiscal year ended June 30, 1998 are set forth below.
============================================================================================================
COMPENSATION COMPENSATION COMPENSATION TO
OF OF SWISS BANK SALES
PRINTING UNDERWRITERS DEALERS PERSONNEL ADVERTISING OTHER
FUND
============================================================================================================
Global Fund $0.00 $0.00 $ 670.71 $0.00 $0.00 $0.00
- Class N
- ------------------------------------------------------------------------------------------------------------
Global Equity Fund $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
- Class N
- ------------------------------------------------------------------------------------------------------------
Global Bond Fund $0.00 $0.00 $ 4.13 $0.00 $0.00 $0.00
- Class N
- ------------------------------------------------------------------------------------------------------------
U.S. Balanced Fund $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
- Class N
- ------------------------------------------------------------------------------------------------------------
U.S. Equity Fund $0.00 $0.00 $ 148.66 $0.00 $0.00 $0.00
- Class N
- ------------------------------------------------------------------------------------------------------------
U.S. Large $0.00 $0.00 $7,577.29 $0.00 $0.00 $0.00
Capitalization
Equity Fund -
Class N
- ------------------------------------------------------------------------------------------------------------
U.S. Bond Fund - $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
Class N
- ------------------------------------------------------------------------------------------------------------
Non-U.S. Equity $0.00 $0.00 $ 5.40 $0.00 $0.00 $0.00
Fund - Class N
- ------------------------------------------------------------------------------------------------------------
CODE OF ETHICS
- --------------
The Trust has adopted a Code of Ethics which establishes standards by which
certain access persons of the Trust, which include officers of the Advisor and
officers and Trustees of the Trust, must abide relating to personal securities
trading conduct.
Under the Code of Ethics, access persons are prohibited from engaging in certain
conduct, including, but not limited to: 1) investing in companies in which the
Series invest unless the securities have a broad public market and are
registered on a national securities exchange or are traded in the over-the-
counter markets; 2) making or maintaining an investment in any corporation or
business with which the Series have business relationships if the investment
might create, or give the appearance of creating, a conflict of interest; 3)
participating in an initial public offering; 4) entering into a securities
transaction when the access person knows or should know that such activity will
anticipate, parallel or counter any securities transaction of a Series; 5)
entering into any securities transaction, without prior approval, in connection
with any security which has been designated as restricted; 6) entering into a
net short position with respect to any security held by a Series; 7) entering
into any derivative transaction when a direct transaction in the underlying
security would be a violation; and 8) engaging in self-dealing or other
transactions benefiting the access person at the expense of the Series or its
shareholders.
In addition, access persons are required to receive advance approval prior to
purchasing or selling a restricted security, and may not buy or sell certain
prohibited securities. The Advisor will identify for access persons prohibited
securities, which include securities that are being considered for purchase or
sale by any account or fund managed by the Advisor,
33
and provide a list of such securities to all access persons. Access persons are
required to file quarterly reports of security investment transactions. Trustees
or officers who are not "interested persons" of the Trust, as defined in the
1940 Act, need only report a transaction in a security if such Trustee or
officer, at the time of the transaction, knew or should have known, in the
ordinary course of fulfilling his or her official duties as a Trustee or
officer, that, during the 15-day period immediately preceding or after the date
of the transaction by the Trustee or officer, such security was purchased or
sold by a Series, or was being considered for purchase by a Series.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brinson Partners is responsible for decisions to buy and sell securities for the
Series and for the placement of the Series' portfolio business and the
negotiation of commissions, if any, paid on such transactions. Fixed income
securities in which the Series invest are traded in the over-the-counter market.
These securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the
bid/ask spread quoted on securities includes an implicit profit to the dealers.
In over-the-counter transactions, orders are placed directly with a principal
market-maker unless a better price and execution can be obtained by using a
broker. Brokerage commissions are paid on transactions in listed securities,
futures contracts and options thereon. Brinson Partners is responsible for
effecting portfolio transactions and will do so in a manner deemed fair and
reasonable to the Series. Under its advisory agreements with the Global Funds
and the Non-U.S. Equity Fund, Brinson Partners is authorized to utilize the
trading desk of its foreign subsidiaries to execute foreign securities
transactions, but monitors the selection by such subsidiaries of brokers and
dealers used to execute transactions for those Series. The primary consideration
in all portfolio transactions will be prompt execution of orders in an efficient
manner at the most favorable price. In selecting and monitoring broker-dealers
and negotiating commissions, Brinson Partners considers the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria,
preference may be given to brokers who provide research or statistical material
or other services to the Series or to Brinson Partners. Such services include
advice, both directly and in writing, as to the value of the securities; the
advisability of investing in, purchasing or selling securities; and the
availability of securities, or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts. This allows
Brinson Partners to supplement its own investment research activities and obtain
the views and information of others prior to making investment decisions.
Brinson Partners is of the opinion that, because this material must be analyzed
and reviewed by its staff, its receipt and use does not tend to reduce expenses
but may benefit the Series by supplementing the Advisor's research.
Brinson Partners effects portfolio transactions for other investment companies
and advisory accounts. Research services furnished by dealers through whom the
Series effect its securities transactions may be used by Brinson Partners in
servicing all of its accounts; not all such services may be used in connection
with the Series. In the opinion of Brinson Partners, it is not possible to
measure separately the benefits from research services to each of the accounts
(including the Series). Brinson Partners will attempt to equitably allocate
portfolio transactions among the Series and others whenever concurrent decisions
are made to purchase or sell securities by the Series and another. In making
such allocations between the Series and others, the main factors to be
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for recommending investments to the Series
and the others. In some cases, this procedure could have an adverse effect on
the Series. In the opinion of Brinson Partners, however, the results of such
procedures will, on the whole, be in the best interest of each of the clients.
The Series incurred brokerage commissions as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
SERIES JUNE 30, 1996* JUNE 30, 1997* JUNE 30, 1998
- ------ ----------------- ----------------- -----------------
GLOBAL FUND $327,191 $385,571 $442,603
GLOBAL EQUITY FUND $123,467 $142,922 $166,103
GLOBAL BOND FUND $ 0.00 $ 0.00 $ 0.00
U.S. BALANCED FUND $ 99,554 $139,165 $ 85,784
U.S. EQUITY FUND $105,887 $290,526 $560,721
U.S. LARGE CAPITALIZATION
EQUITY FUND N/A N/A $ 9,714
U.S. BOND FUND $ 0.00 $ 0.00 $ 0.00
NON-U.S. EQUITY FUND $322,915 $833,293 $942,115
* The U.S. Large Capitalization Equity Fund had not commenced operations as of
the time periods indicated.
For the fiscal year ended June 30, 1998, the Brinson Global Fund, Brinson U.S.
Balanced Fund, Brinson U.S. Equity Fund and Brinson U.S. Large Capitalization
Equity Fund paid brokerage commissions to Warburg Dillon Read ("Warburg"), an
affiliated broker-dealer, as follows:
Aggregate
Dollar Amount of % of Aggregate % of Aggregate Dollar
Commissions Paid to Commissions Amount Paid to
Fund Warburg Paid to Warburg Warburg
- ---- ------------------- --------------- ----------------------
Global Fund $ 6,078 1.37% 0.78%
U.S. Balanced Fund $ 2,190 2.55% 0.27%
U.S. Equity Fund $93,356 16.65% 21.43%
U.S. Large
Capitalization
Equity Fund $ 453 4.66% 5.16%
34
For the fiscal year ended June 30, 1998 the Trust and the Advisor had no
agreements or understandings with a broker or otherwise causing brokerage
transactions or commissions for research services.
PORTFOLIO TURNOVER
- ------------------
The Series are free to dispose of their portfolio securities at any time,
subject to complying with the Code and the Act, when changes in circumstances or
conditions make such a move desirable in light of the respective investment
objective. The Series will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving that Series'
investment objective.
The Series do not intend to use short-term trading as a primary means of
achieving their investment objectives. The rate of portfolio turnover shall be
calculated by dividing (a) the lesser of purchases and sales of portfolio
securities for the particular fiscal year by (b) the monthly average of the
value of the portfolio securities owned by that Series during the particular
fiscal year. Such monthly average shall be calculated by totaling the values of
the portfolio securities as of the beginning and end of the first month of the
particular fiscal year and as of the end of each of the succeeding eleven months
and dividing the sum by 13.
Under normal circumstances, the portfolio turnover rate for the Global Equity
Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and Non-U.S.
Equity Fund is not expected to exceed 100%. The portfolio turnover rates for the
Global Fund and Global Bond Fund may exceed 100% and in some years, 200% and for
the U.S. Balanced Fund and U.S. Bond Fund, may exceed 100% and in some years,
300%. High portfolio turnover rates (over 100%) may involve correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Series and ultimately by that Series' shareholders. In addition,
high portfolio turnover may result in increased short-term capital gains, which,
when distributed to shareholders, are treated as ordinary income.
With respect to the Global Fund, for the fiscal years ended June 30, 1997 and
June 30, 1998, the portfolio turnover rate of the Series was 150% and 88%,
respectively. With respect to the Global Bond Fund, for the fiscal years ended
June 30, 1997 and June 30, 1998 the portfolio turnover rate of the Series was
235% and 151%, respectively. With respect to the Global Equity Fund, for the
fiscal years ended June 30, 1997 and June 30, 1998 the portfolio turnover rate
of the Series was 32% and 46%, respectively. With respect to the Non-U.S. Equity
Fund, for the fiscal years ended June 30, 1997 and June 30, 1998 the portfolio
turnover rate of the Series was 25% and 49%, respectively. With respect to the
U.S. Balanced Fund, for the fiscal years ended June 30, 1997, and June 30, 1998
the portfolio turnover rate of the Series was 329% and 194%, respectively. With
respect to the U.S. Equity Fund, for the fiscal years ended June 30, 1997 and
June 30, 1998 the portfolio turnover rate of the Series was 43% and 42%,
respectively. With respect to the U.S. Large Capitalization Equity Fund, for the
period April 6, 1998 (commencement of operations) to June 30, 1998 the portfolio
turnover rate of the Series was 12%. With respect to the U.S. Bond Fund, for the
fiscal years ended June 30, 1997 and June 30, 1998, the portfolio turnover rate
of the Series was 410% and 198% respectively. The significant variation in
portfolio turnover rates over such periods was due to an increase in the assets
of the Series which caused the Series, to reposition their portfolio holdings in
order to meet their investment objectives and policies.
SHARES OF BENEFICIAL INTEREST
The Trust presently offers eight Series of shares of beneficial interest, each
of which offers three classes of shares. Each share of beneficial interest
represents an equal proportionate interest in the assets and liabilities of the
applicable Series and has the same voting and other rights and preferences as
the other class of that Series, except that only shares of the UBS Investment
Funds class may vote on any matter affecting only the UBS Investment Plan under
Rule 12b-1. Similarly, only shares of the Brinson Fund-Class N may vote on
matters that affect only the Class N Plan. No class may vote on matters that
affect only another class. Under Delaware law, the Trust does not normally hold
annual meetings of shareholders. Shareholders' meetings may be held from time to
time to consider certain matters including changes to a Series' fundamental
investment objective and fundamental investment policies, changes to the Trust's
investment advisory agreement and the election of Trustees when required by the
Act. When matters are submitted to shareholders for a vote, shareholders are
entitled to one vote per share with proportionate voting
35
for fractional shares. The shares of the Series do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have authority
from time to time to divide or combine the shares of the Series into a greater
or lesser number of shares so affected. In the case of a liquidation of a
Series, each shareholder of the Series will be entitled to share, based upon the
shareholder's percentage share ownership, in the distribution out of assets, net
of liabilities, of the Series. No shareholder is liable for further calls or
assessment by the Series.
On any matters affecting only one Series or class, only the shareholders of that
Series or class are entitled to vote. On matters relating to the Trust but
affecting the Series differently, separate votes by the Series or class are
required. With respect to the submission to shareholder vote of a matter
requiring separate voting by a Series or class, the matter shall have been
effectively acted upon with respect to any Series or class if a majority of the
outstanding voting securities of that Series or class votes for the approval of
the matter, notwithstanding that: (1) the matter has not been approved by a
majority of the outstanding voting securities of any other Series or class; and
(2) the matter has not been approved by a majority of the outstanding voting
securities of the Trust.
PURCHASES
Shares of each class of each Series are sold at the net asset value next
determined after the receipt of a purchase application in proper form by the
transfer agent. The minimum for initial investments with respect to the Brinson
Fund-Class I for each Series is $1,000,000; subsequent investment minimums are
$2,500. The minimum for initial investments with respect to the UBS Investment
Funds class of shares for each Series is $1,000; subsequent investment minimums
are $50. The minimum for initial investment with respect to the Brinson Fund-
Class N for each Series is $1,000,000. A more detailed description of methods of
purchase is included in the Prospectuses.
Certificates representing shares purchased are not issued. However, such
purchases are confirmed to the investor and credited to the shareholder's
account on the books maintained by the Trust's transfer agent. The investor will
have the same rights of ownership with respect to such shares as if certificates
had been issued.
EXCHANGES OF SHARES
- -------------------
Shares of one class of a Series may only be exchanged for the same class of
another Series of the Trust. Exchanges will not be permitted between the
different classes.
Each qualifying exchange will be made on the basis of the relative net asset
values per share of both the Series from which, and the Series into which, the
exchange is made, that is next computed following receipt of the exchange order
in proper form by the Trust's transfer agent. Exchanges may be made by telephone
if the shareholder's Account Application Form includes specific authorization
for telephone exchanges. The telephone exchange privilege may be difficult to
implement during times of drastic economic or market changes.
The transactions described above will result in a taxable gain or loss for
federal income tax purposes. Generally, any such taxable gain or loss will be a
capital gain or loss (long-term or short-term, depending on the holding period
of the shares) in the amount of the difference between the net asset value of
the shares surrendered and the shareholder's tax basis for those shares. Each
investor should consult his or her tax adviser regarding the tax consequences of
an exchange transaction.
Any shareholder who wishes to make an exchange should first obtain and review
the Prospectus of the Series to be acquired in the exchange. Requests for
telephone exchanges must be received prior to the close of regular trading on
the New York Stock Exchange ("NYSE") on any day on which the NYSE is open for
regular trading.
At the discretion of the Trust, this exchange privilege may be terminated or
modified at any time for any of the participating Series upon 60 days' prior
written notice to shareholders. Contact the transfer agent for details about a
particular exchange.
NET ASSET VALUE
- ---------------
The net asset value per share is calculated separately for each class of each
Series. The net asset value per share of a Series is computed by dividing the
value of the assets of the Series, less its liabilities, by the number of shares
of the Series outstanding.
36
Each class of a Series will bear pro rata all of the common expenses of that
Series. The net asset values of all outstanding shares of each class of a Series
will be computed on a pro rata basis for each outstanding share based on the
proportionate participation in the Series represented by the value of shares of
that Series. All income earned and expenses incurred by a Series will be borne
on a pro rata basis by each outstanding share of a class, based on each class'
percentage in the Series represented by the value of such shares of such
classes, except that none of the shares of a class will incur any of the
expenses under the 12b-1 plan of another class.
Portfolio securities are valued and net asset value per share is determined as
of the close of regular trading on the NYSE which currently is 4:00 p.m. Eastern
time on each day the NYSE is open for trading. The Series of the Trust reserve
the right to change the time at which purchases, redemptions or exchanges are
priced if the NYSE closes at a time other than 4:00 p.m. Eastern time or if an
emergency exists. The NYSE is open for trading on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day (day observed), Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and on the preceding Friday
or subsequent Monday when any of these holidays falls on a Saturday or Sunday,
respectively.
Portfolio securities listed on a national or foreign securities exchange are
valued on the basis of the last sale on the date the valuation is made.
Securities that are not traded on a particular day or an exchange, are valued at
either (a) the bid price or (b) a valuation within the range considered best to
represent value in the circumstances. Price information on listed securities is
generally taken from the closing price on the exchange where the security is
primarily traded. Other portfolio securities which are traded in the over-the-
counter market are valued at the bid price as long as the bid price, in the
opinion of the Advisor, continues to reflect the value of the security.
Valuations of fixed income and equity securities may be obtained from a pricing
service and/or broker-dealers when such prices are believed to reflect the fair
value of such securities. Use of a pricing service and/or broker-dealers has
been approved by the Board of Trustees.
Futures contracts are valued at their daily quoted settlement price on the
exchange on which they are traded. Forward foreign currency contracts are
valued daily using the mean between the bid and asked forward points added to
the current exchange rate and an unrealized gain or loss is recorded. A Series
realizes a gain or loss upon settlement of the contracts. Swaps will be priced
at fair value based on (1) swap prices provided by broker-dealers; (2) values,
or estimates of values, of the applicable equity indices and foreign rates
underlying the contracts; and (3) consideration of other relevant factors. A
Series' obligation under a swap agreement will be accrued daily (offset by any
amounts owing to the portfolio) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of Segregated Assets. For valuation purposes, foreign securities
initially expressed in foreign currency values will be converted into U.S.
dollar values using WM/Reuters closing spot rates as of 4:00 p.m. London time.
Securities with a remaining maturity of 60 days or less are valued at amortized
cost, which approximates market value. Fixed income securities having a
remaining maturity of over 60 days are valued at market price. Debt securities
are valued on the basis of prices provided by a pricing service, or at the bid
price where readily available, as long as the bid price, in the opinion of the
Advisor, continues to reflect the value of the security. Redeemable securities
issued by open-end investment companies are valued using their respective net
asset values for purchase orders placed at the close of the NYSE. Securities
(including over-the-counter options) for which market quotations are not readily
available and other assets are valued at their fair value as determined in good
faith by or under the direction of the Trustees.
Because of time zone differences, foreign exchanges and securities markets will
usually be closed prior to the time of the closing of the NYSE and values of
foreign futures and options and foreign securities will be determined as of the
earlier closing of such exchanges and securities markets. However, events
affecting the values of such foreign securities may occasionally occur between
the earlier closings of such exchanges and securities markets and the closing of
the NYSE which will not be reflected in the computation of the net asset value
of a Series. If an event materially affecting the value of such foreign
securities occurs during such period, then such securities will be valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees. Where a foreign securities market remains open at the time that a
Series values its portfolio securities, or closing prices of securities from
that market may not be retrieved because of local time differences or other
difficulties in obtaining such prices at that time, last sale prices in such
market at a point in time most practicable to timely valuation of the Series may
be used.
REDEMPTIONS
Under normal circumstances shareholders may redeem their shares at any time
without a fee. The redemption price will be based upon the net asset value per
share next determined after receipt of the redemption request, provided it has
been submitted in the manner described below. The redemption price may be more
or less than the original cost, depending upon the net asset value per share at
the time of redemption.
Payment for shares tendered for redemption is made by check within five business
days after tender in proper form, except that the Trust reserves the right to
suspend the right of redemption, or to postpone the date of payment upon
redemption beyond five business days, (i) for any period during which the NYSE
is closed (other than customary weekend and holiday closings) or during which
trading on the NYSE is restricted, (ii) for any period during which an
emergency exists as determined by the SEC as a result of which disposal of
securities owned by a Series is not reasonably practicable or it is not
reasonably practicable for the Series fairly to determine the value of its net
assets, or
37
(iii) for such other periods as the SEC may by order permit for the protection
of shareholders of the Series.
Under unusual circumstances, when the Board of Trustees deems it in the best
interest of the Series' shareholders, the Trust may make payment for shares
repurchased or redeemed in whole or in part in securities of the Series taken at
current values. With respect to such redemptions in kind, the Trust has made an
election pursuant to Rule 18f-1 under the Act. This will require the Trust to
redeem in cash at a shareholder's election in any case where the redemption
involves less than $250,000 (or 1% of the Series' net asset value at the
beginning of each 90 day period during which such redemptions are in effect, if
that amount is less than $250,000), during any 90-day period for any one
shareholder. Should payment be made in securities, the redeeming shareholder may
incur brokerage costs in converting such securities to cash.
TAXATION
- --------
Each of the Series has qualified, and intends to continue to qualify each year,
as a regulated investment company under Subchapter M of the Code. In order to so
qualify, a mutual fund must, among other things, (i) derive at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities or foreign currencies, or
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (ii) distribute at least 90% of its dividend,
interest and certain other taxable income each year; and (iii) at the end of
each fiscal quarter maintain at least 50% of the value of its total assets in
cash, government securities, securities of other regulated investment companies
and other securities of issuers which represent, with respect to each issuer, no
more than 5% of the value of a fund's total assets and 10% of the outstanding
voting securities of such issuer, and with no more than 25% of its assets
invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the fund controls and which are engaged in the same, similar or related
trades and businesses.
To the extent each of the Series qualifies for treatment as a regulated
investment company, it will not be subject to federal income tax on income and
net capital gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Series' "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a Series' ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The Series intend to make distributions sufficient to avoid imposition of
the excise tax. Distributions declared by the Series during October, November or
December to shareholders of record during such month and paid by January 31 of
the following year will be taxable to shareholders in the calendar year in which
they are declared, rather than the calendar year in which they are received.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Series accrues interest or other receivables or accrues
expenses or liabilities denominated in a foreign currency and the time the
Series actually collects such receivables, or pays such liabilities, are
generally treated as ordinary income or loss. Similarly, a portion of the gains
or losses realized on disposition of debt securities denominated in a foreign
currency may also be treated as ordinary gain or loss. These gains, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Series' investment company taxable income to be distributed to its
shareholders, rather than increasing or decreasing the amount of the Series'
capital gains or losses.
When a Series writes a call, or purchases a put option, an amount equal to the
premium received or paid by it is included in the Series' assets and liabilities
as an asset and as an equivalent liability.
In writing a call, the amount of the liability is subsequently "marked-to-
market" to reflect the current market value of the option written. The current
market value of a written option is the last sale price on the principal
Exchange on which such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a Series has written
expires on its stipulated expiration date, the Series recognizes a short-term
capital gain. If a Series enters into a closing purchase transaction with
respect to an option which the Series has written, the Series realizes a short-
term gain (or loss if the cost of the closing transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a call option which a Series has written is exercised, the
Series realizes a capital gain or loss from the
38
sale of the underlying security and the proceeds from such sale are increased by
the premium originally received.
The premium paid by a Series for the purchase of a put option is recorded in the
Series' assets and liabilities as an investment and subsequently adjusted daily
to the current market value of the option. For example, if the current market
value of the option exceeds the premium paid, the excess would be unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess would be unrealized depreciation. The current market value of a
purchased option is the last sale price on the principal Exchange on which such
option is traded or, in the absence of a sale, the mean between the last bid and
asked prices. If an option which a Series has purchased expires on the
stipulated expiration date, the Series realizes a short-term or long-term
capital loss for Federal income tax purposes in the amount of the cost of the
option. If a Series exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale which will be decreased by the premium originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Series at the end of each fiscal year on a
broad-based stock index will be required to be "marked-to-market" for Federal
income tax purposes. Sixty percent of any net gain or loss recognized on such
deemed sales or on any actual sales will be treated as long-term capital gain or
loss and the remainder will be treated as short-term capital gain or loss.
Certain options, futures contracts and options on futures contracts utilized by
the Series are "Section 1256 contracts." Any gains or losses on Section 1256
contracts held by a Series at the end of each taxable year (and on October 31 of
each year for purposes of the 4% excise tax) are "marked-to-market" with the
result that unrealized gains or losses are treated as though they were realized
and the resulting gain or loss is treated as a 60/40 gain or loss.
If there is a constructive sale for federal income tax purposes (e.g., short
sale against the box) of an appreciated financial position, a taxpayer must
recognize gain as if such position were sold, assigned, or otherwise terminated
at its fair market value as of the date of the constructive sale and immediately
repurchased. Shareholders will be subject to federal income taxes on
distributions made by the Series whether received in cash or additional shares
of the Series. Distributions of net investment income and net short-term capital
gains, if any, will be taxable to shareholders as ordinary income. Distributions
of net long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains, without regard to how long a shareholder has held shares of
the Series. A loss on the sale of shares held for six months or less will be
treated as a long-term capital loss to the extent of any long-term capital gain
dividend paid to the shareholder with respect to such shares. Dividends eligible
for designation under the dividends received deduction and paid by a Series may
qualify in part for the 70% dividends received deduction for corporations
provided, however, in respect of any dividend, that those shares have been held
for at least 46 days during the 90-day period that begins 45 days before the
stock becomes ex-dividend with respect to such dividend. The Series will notify
shareholders each year of the amount of dividends and distributions, including
the amount of any distribution of long-term capital gains and the portion of its
dividends which may qualify for the 70% deduction.
Each class of shares of a Series will share proportionately in the investment
income and expenses of that Series, except that the respective UBS Investments
Funds class and Brinson Fund-Class N for each Series will incur distribution
fees under their respective 12b-1 plans.
It is expected that certain dividends and interest received by the Global Funds
and the Non-U.S. Equity Fund will be subject to foreign withholding taxes. If
more than 50% in value of the total assets of a fund at the close of any taxable
year consists of stocks or securities of foreign corporations, such fund may
elect to treat any foreign taxes paid by it as if paid by its shareholders.
These Series will notify shareholders in writing each year whether it has made
the election and the amount of foreign taxes it has elected to have treated as
paid by the shareholders. If a Series makes the election, its shareholders will
be required to include in gross income their proportionate share of the amount
of foreign taxes paid by the Series and will be entitled to claim either a
credit or deduction for their share of the taxes in computing their U.S. federal
income tax subject to certain limitations. No deduction for foreign taxes may be
claimed by shareholders who do not itemize deductions.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, the source of each Series' income flows
through to its shareholders. Gains from the sale of securities will be treated
as derived from U.S. sources and certain currency fluctuation gains, including
39
fluctuation gains from foreign currency denominated debt securities, receivables
and payables, will be treated income derived from U.S. sources. The limitation
on the foreign tax credit is applied separately to foreign source passive income
(as defined for purposes of foreign tax credit), such as foreign source passive
income received from the respective Series. Because of changes made by the Code,
shareholders may be unable to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Series. Beginning in 1998,
an individual with $300 or less ($600 or less for joint filers) of foreign tax
credits is generally exempt from the foreign tax credit limitation and likely
will not have to file Form 1116 in order to claim a foreign tax credit.
40
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
Regulations. The Code and Regulations are subject to change by legislative or
administrative action at any time and retroactively.
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local taxes as well as the application of the
foreign tax credit.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the Series, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
PERFORMANCE CALCULATIONS
Performance information for the UBS Investment Funds class of shares, Brinson
Fund-Class N and Brinson Fund-Class I shares of each Series will vary due to the
effect of expense ratios on the performance calculations.
TOTAL RETURN
- ------------
Current yield and total return quotations used by the Series (and classes
of shares) are based on standardized methods of computing performance mandated
by rules adopted by the SEC. As the following formula indicates, the average
annual total return is determined by multiplying a hypothetical initial purchase
order of $1,000 by the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes that all dividends and
distributions are reinvested at the net asset value on the reinvestment dates
during the period. The quotation assumes the account was completely redeemed at
the end of each period and deduction of all applicable charges and fees.
According to the SEC formula:
P(1+T)/n/=ERV
where:
P = a hypothetical initial payment of $1,000,
T = average annual total return,
n = number of years,
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).
Based upon the foregoing calculations, the average annual total return for the
Brinson Fund-Class I (previously Brinson Fund Class) shares of:
(i) the Global Fund, for the one- and three-year periods ended June 30,
1998 and the periods August 31, 1992 (commencement of operations)
through June 30, 1998 was 8.28%, 14.38% and 11.44%, respectively;
(ii) the Global Equity Fund, for the one- and three-year periods ended
June 30, 1998 and the period January 28, 1994 (commencement of
operations) through June 30, 1998 was 8.99%, 18.41%, and 12.45%,
respectively;
(iii) the Global Bond Fund, for the one- and three-year periods ended June
30, 1998 and the period July 30, 1993 (commencement of operations)
through June 30, 1998 was 2.69%, 7.23% and 6.49%, respectively;
(iv) the U.S. Balanced Fund, for the one-year period ended June 30, 1998
and the period December 30, 1994 (commencement of operations) through
June 30, 1998 was 12.19%, 13.72%, and 15.90%, respectively;
(v) the U.S. Equity Fund, for the one- and three-year periods ended June
30, 1998 and the period February 22, 1994 (commencement of
operations) through June 30, 1998 was 21.48%, 27.86% and 23.11%,
respectively;
(vi) the U.S. Large Capitalization Equity Fund, for the period April 6,
1998 (commencement of operations) through June 30, 1998 was (1.83)%.
(vii) the U.S. Bond Fund, for the one-year period ended June 30, 1998 and
the period August 31, 1995 (commencement of operations)
through June 30, 1998 was 10.60% and 7.99%, respectively; and
(viii) the Non-U.S. Equity Fund, for the one- and three-year periods ended
June 30, 1998 and the period August 31, 1993 (commencement of
operations) through June 30, 1998 was 4.78%, 15.91% and 9.03%,
respectively.
Based upon the foregoing calculations, the average annual total return for the
UBS Investment Funds class of shares of:
(i) the Global Fund, for the one-year period ended June 30,
1998 and the period July 31, 1995 (commencement of operations)
through June 30, 1998 was 7.60% and 13.30%, respectively;
(ii) the Global Equity Fund, for the one-year period ended June 30,
1998 and the period July 31, 1995 (commencement of operations)
through June 30, 1998 was 8.15% and 16.26%, respectively;
(iii) the Global Bond Fund, for the one-year period ended June 30,
1998 and the period July 31, 1995 (commencement of operations)
through June 30, 1998 was 2.28% and 6.36%, respectively;
41
(iv) the U.S. Balanced Fund, for the one-year period ended June 30, 1998
and the period July 31, 1995 (commencement of operations) through
June 30, 1998 was 11.79% and 13.15%, respectively;
(v) the U.S. Equity Fund, for the one-year period ended June
30, 1998 and the period July 31, 1995 (commencement of operations)
through June 30, 1998 was 20.80% and 26.66%, respectively;
(vi) the U.S. Large Capitalization Equity Fund, for the period April 6,
1998 (commencement of operations) through June 30, 1998 was (2.06)%;
(vii) the U.S. Bond Fund, for the one-year period ended June 30, 1998 and
the period August 31, 1995 (commencement of operations) through June
30, 1998 was 9.97% and 7.43%, respectively; and
(viii) the Non-U.S. Equity Fund, for the one-year period ended June 30,
1998 and the period July 31, 1995 (commencement of operations)
through June 30, 1998 was 3.90% and 13.19%, respectively.
Based on the foregoing calculations, the average annual total return for the
Brinson Fund-Class N shares of:
(i) the Global Fund, for the period June 30, 1997 (commencement of
operations) through June 30, 1998 was 7.90%;
(ii) the Global Equity Fund, for the period June 30, 1997 (commencement
of operations) through June 30, 1998 was 8.60%;
(iii) the Global Bond Fund, for the period June 30, 1997 (commencement of
operations) through June 30, 1998 was 2.37%;
(iv) the U.S. Balanced Fund, for the period June 30, 1997 (commencement
of operations) through June 30, 1998 was 12.15%;
(v) the U.S. Equity Fund, for the period June 30, 1997 (commencement of
operations) through June 30, 1998 was 21.10%;
(vi) the U.S. Large Capitalization Equity Fund, for the period April 6,
1998 (commencement of operations) through June 30, 1998 was (2.02)%;
(vii) the U.S. Bond Fund, for the period June 30, 1997 (commencement of
operations) through June 30, 1998 was 10.30%; and
(viii) the Non-U.S. Equity Fund, for the period June 30, 1997
(commencement of operations) through June 30, 1998 was 4.51%.
YIELD
- -----
As indicated below, current yield is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses accrued
for the period include any fees charged to all shareholders during the 30-day
base periods. According to the SEC formula:
Yield = 2[(a-b + 1)/6/ - 1]
-------------------
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yield of a Series may be calculated by dividing the net investment income
per share earned by the particular Series during a 30-day (or one month) period
by the net asset value per share on the last day of the period and annualizing
the result on a semi-annual basis. A Series' net investment income per share
earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements.
FINANCIAL STATEMENTS
The Series' Financial Statements for the fiscal year ended June 30, 1998 and the
Reports of Independent Auditors thereon, which are contained in the Series'
Annual Reports dated June 30, 1998, are incorporated herein by reference.
43
CORPORATE DEBT RATINGS APPENDIX A
Moody's Investors Service, Inc. describes classifications of corporate bonds as
follows:
Aaa - Bonds 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-edged". 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 - Bonds 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. They are rated lower than the best bonds 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 - Bonds 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 - Bonds 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 bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds 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 - Bonds 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 - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's also supplies numerical indicators 1, 2, and 3 to rating categories. The
modifier 1 indicates the security is in the higher end of its rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
ranking toward the lower end of the category.
Standard & Poor's Ratings Group describes classifications of corporate bonds as
follows:
AAA - This is the highest rating assigned by Standard & Poor's Ratings
Group to a debt obligation and indicates an extremely strong capacity to
pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and in the majority of
instances they differ from the AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lend to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but presently has
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 - Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest or repay principal.
CC - The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in default, or is expected to default upon maturity or
payment date.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
44
- --------------------------------------------------------------------------------
UBS
INTERNATIONAL
EQUITY
FUND
-----------
UBS
PRIVATE INVESTOR
FUNDS, INC.
ANNUAL REPORT
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
UBS Private Investor Funds, Inc.
Chairman's Letter
- --------------------------------------------------------------------------------
Dear Shareholder,
Thank you for your investment in the UBS International Equity Fund, which is
part of the UBS Private Investor Funds.
We are pleased to provide you with the Fund's annual report for the year ended
December 31, 1997. This report contains a letter from the portfolio manager
discussing the performance of the Fund for the year ended December 31, 1997
including a market overview. In addition, it includes a complete set of audited
financial statements as well as a schedule of investments.
The UBS Private Investor Funds are an integral part of the asset allocation
service provided by The Private Bank* of Union Bank of Switzerland, the largest
bank in Switzerland. The Funds provide investment opportunities in U.S. and
international securities markets to enhance investment performance, diversify
risk and preserve capital within your investment objectives.
The UBS Private Investor Funds bring you:
The expertise of The Private Bank's professional money managers
Global investment perspective and knowledge
A high priority on financial stability and preservation of wealth
As you are aware, in December, 1997, Union Bank of Switzerland and Swiss Bank
Corporation ('SBC') announced their intention to merge. Early in February, 1998,
the shareholders of UBS and SBC overwhelmingly approved the proposed merger.
Completion of the merger is still subject to regulatory approvals which are
expected to be received soon.
This merger will create a top-tier global financial services group which will
concentrate on clearly defined core businesses. As private banking and asset
management are core businesses of the banks, shareholders of the UBS Private
Investor Funds will continue to see a commitment to growing and building the
mutual fund business.
We will continue to keep you informed of any new developments as they occur.
To learn more about the other UBS Private Investor Funds, please call (888)
UBS-FUND. You will be provided with a copy of the prospectus which contains more
complete information including charges and expenses. Please read it carefully
before investing.
We appreciate your continued confidence in the UBS Private Investor Funds.
Sincerely,
/s/ HansPeter Lochmeier
Dr. HansPeter Lochmeier
Chairman of the Board
UBS Private Investor Funds, Inc.
- ------------
* 'The Private Bank', as used in this document, refers to Union Bank of
Switzerland, New York Branch.
This annual report must be accompanied or preceded by the Fund's prospectus.
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The UBS International Equity Fund achieved a total return of - 3.70% in 1997
compared to a +2.03% rise in the MSCI EAFE Index. 65% of the underperformance of
5.73% to benchmark came from stock selection while 35% came from country/asset
allocation.
(A) STOCK SELECTION
Positive returns in France where a number of the companies we held have
restructured was more than offset by disappointing performance in Australia,
Germany, Japan and the UK.
1997 has again been a poor year for value investors. Companies with either a
stable or perceived to be stable earnings stream have been pushed to ever higher
multiples. Consequently pharmaceuticals, utilities and banks (in the latter
category) have all tended to do well. At the same time cyclical companies
operating in industries such as paper, chemicals or building and construction
where the outlook is less certain have continued to underperform.
There has also been a large cap effect. This could be due to a desire for safety
or perhaps just the rise of cross border investing and the increasing popularity
of index funds.
We do not think either of these trends are sustainable and have positioned the
portfolio away from both classes of stocks.
(B) COUNTRY/ASSET ALLOCATION
The benefits that have accrued from being underweight in Japan (for most of the
year), Hong Kong and Malaysia have been more than offset by being underweight in
some highly performing European markets such as Italy and Switzerland as well as
our exposure to non-index Asian markets. Holding cash has proved modestly
beneficial. We believe the euphoria in Italy and Switzerland has been overdone
and to a certain extent is due to the type of companies quoted in each country
which fit into the stable earnings categorization. Consequently, we remain
underweight in both markets.
Conversely, the loss of confidence experienced in many Asian markets,
particularly in the last quarter, should be temporary. With many stock markets
some 80 - 90% from their peak, in US$ terms, we think there are many good
opportunities.
This chart provides a comparison of the Fund's performance to that of the MSCI
EAFE Index. This chart compares total returns (which includes changes in share
price and reinvestment of all income dividends and capital gains distributions)
of a hypothetical $10,000 investment made on April 2, 1996 (commencement of
operations) and held through December 31, 1997.
[PERFORMANCE GRAPH]
UBS INTERNATIONAL MSCI EAFE
DATE EQUITY FUND INDEX
---- ----------------- ---------
4/2/96 10,000 10,000
4/30/96 10,205 10,310.1
5/31/96 10,061 10,120.4
6/30/96 10,132 10,177.1
7/31/96 9,898 9,879.93
8/31/96 10,008 9,901.67
9/30/96 10,122 10,165
10/31/96 10,126 10,061.4
11/30/96 10,500 10,461.8
12/31/96 10,464.8 10,326.9
1/31/97 10,280.6 9,967.48
2/28/97 10,434.3 10,131
3/31/97 10,617.1 10,170.5
4/30/97 10,550.8 10,226.4
5/31/97 11,076.5 10,894.2
6/30/97 11,725.7 11,497.7
7/31/97 11,706.3 11,686.3
8/31/97 11,076.5 10,815.6
9/30/97 11,447 11,423.5
10/31/97 10,764.1 10,548.5
11/30/97 10,432.4 10,443
12/31/97 10,077.2 10,537
2
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
Average Annual Total Return
UBS
INTERNATIONAL MSCI EAFE
EQUITY FUND INDEX
------------- ---------
For the year ended December 31, 1997.................................. - 3.70% 2.03%
For the period April 2, 1996 (commencement of operations) through
December 31, 1997................................................... 0.44% 3.03%
MARKET BACKGROUND
The year was characterized by a vast disparity in both economic and stock market
performance between Europe and Asia.
European economic growth recovered on stronger consumer confidence as progress
was seen to be made towards meeting the Maastricht guidelines. Falling interest
rates and buoyant exports also helped. Superimposed on this benign background,
corporate restructuring and take-over/merger activity acted to boost financial
markets. Potentially negative events such as the election of socialist
governments in both France and the UK, the loss of tax credits for domestic
pension funds in the UK and the continuing inability of the region to reduce
unemployment were ignored.
The area returned 24.2% in US$ in aggregate with particularly good performance
from the smaller markets as interest rates declined more sharply. Most notable
were Switzerland +44.8%, Italy +36.4% and Denmark +35.0%.
In Japan, the rise in consumption tax in April in order to raise 'Y'7 trillion
proved too much for the fragile economic recovery. New car sales and housing
starts fell by some 20% year on year through the rest of the year and GDP was
- 0.8% for the six months to end September. Several high profile financial
collapses, most notably Yamaichi Securities and Hokkaido Takushoku Bank in
November, seem to be galvanizing the authorities into action. A 'Y'2.85 trillion
tax rebate was announced in December and a potential 'Y'30 trillion public fund
bailout for the banking system are a move in the right direction.
The Japanese stock market was down 23.5% in 1997. Again there was a large
disparity of performance with small cap and domestically orientated companies
significantly underperforming the exporters.
The rest of Asia came to grief during the year as foreign investors lost
confidence in the 'economic miracle'. Deteriorating terms of trade with
currencies linked to the US$ and falling product prices served to produce large
current account deficits. As foreign investors pulled out, currencies collapsed
exposing large unhedged corporate lending. The ensuing panic and rise in
interest rates has put severe pressure on asset prices such as property and
reduced the profitability of many industrial investments. Given this background
it was not surprising that the Pacific Basin returned - 30.8%, in US$ terms,
with non-index markets such as Korea and Thailand down as much as 70%, in US$
terms.
Australasia suffered collateral damage as expectations for regional growth and
what that meant for the resource sector in particular hit home with the market
down 9.5%.
Growth and large capitalization stocks did well in all markets.
MARKET OUTLOOK
The key issue for 1998 will be the extent to which the slowdown in Asia spreads
to economies elsewhere in the world.
3
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
Economists have estimated that the result of the Asian crisis will be to
subtract 0.5% to 1.0% from world growth, but this can only be a guesstimate.
It is clear that the medium-term outlook for Asia will be tough. For a region
accustomed to rapid economic growth there will be a shakeout as companies try to
adjust for much more modest growth. Many companies with undifferentiated
products and high levels of debt, especially if this debt is denominated in a
strong currency such as the US dollar, will fail.
Consensus profit forecasts, especially in the US, are almost certainly too high.
Multinationals have treated Asian expansion as the cornerstone of their growth
strategies, but it will be several years before Asia again provides high and
growing profitability. Exports from the rest of the world into Asia will
inevitably slow while the region uses its new competitiveness stemming from
currency devaluations to intensify its export drive at the expense of
manufacturers elsewhere.
From a stock market perspective, the challenges within Asia are also
opportunities. We believe in the long-term growth of the region though we have,
in the past, been unwilling to commit heavily to Asia because the risk/reward
equation looked wrong. The valuations on many Asian companies are now
sufficiently compelling for us to raise our exposure to the region despite the
risk.
These purchases will be funded by sales of European holdings where the benefits
of corporate restructuring have been reflected in booming stock markets.
Across all markets we expect smaller companies as well as 'value' stocks to do
much better in 1998.
Robin Apps
Portfolio Manager
- ------------------------
The Fund is not insured by the FDIC and is not a deposit with, an obligation of,
or guaranteed by Union Bank of Switzerland. The Fund is subject to investment
risks, including possible loss of principal amount invested.
Shares of the Fund are distributed by First Fund Distributors, Inc. which is not
affiliated with Union Bank of Switzerland.
Unlike other mutual funds, the Fund seeks to achieve its investment objective by
investing all of its investable assets in UBS Investor Portfolios Trust -- UBS
International Equity Portfolio (the 'Portfolio') which is a separate fund with
an identical investment objective. The Portfolio concentrates its investments in
securities of foreign issuers. A variety of factors such as changes in the
economic/political conditions and currency fluctuations in the international
markets may affect the value of your investment in the fund.
Union Bank of Switzerland is voluntarily waiving all shareholder servicing fees
for the Fund and reimbursing a portion of the Fund's expenses. Union Bank of
Switzerland is also waiving a portion of its advisory fees for the Portfolio. If
Union Bank of Switzerland had not waived fees and reimbursed expenses, total
return would have been lower. Past performance is not a guarantee of future
results. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.
The MSCI EAFE Index (Morgan Stanley Capital International -- Europe, Australia,
Far East Index) is an unmanaged index used to portray the pattern of common
stock price movement in Europe, Australia and the Far East.
4
UBS International Equity Fund
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS:
Investment in UBS Investor Portfolios Trust -- UBS International
Equity Portfolio, at value........................................................ $23,124,610
Tax reclaims receivable............................................................. 41,307
Receivable from sale of capital stock............................................... 12,000
Receivable from funds services agent................................................ 5,903
Deferred organization expenses and other assets..................................... 89,638
-----------
Total Assets.............................................................. 23,273,458
-----------
LIABILITIES:
Administrative services fees payable................................................ 3,105
Other accrued expenses.............................................................. 22,965
-----------
Total Liabilities......................................................... 26,070
-----------
NET ASSETS.......................................................................... $23,247,388
-----------
-----------
SHARES OUTSTANDING ($0.001 par value, 10 million shares authorized)................. 243,761
-----------
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE...................... $95.37
-----------
-----------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par...................................................... $ 244
Additional paid-in capital.......................................................... 25,972,711
Net unrealized depreciation of investments, foreign currency contracts and foreign
currency translations............................................................. (3,102,319)
Accumulated undistributed net investment income..................................... 19,032
Accumulated undistributed net realized gains on securities and foreign currency
translations...................................................................... 357,720
-----------
Net Assets................................................................ $23,247,388
-----------
-----------
- ------------------------
See notes to financial statements.
5
UBS International Equity Fund
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Investment Income and Expenses allocated from UBS Investor Portfolios
Trust -- UBS International Equity Portfolio
Dividends (net of foreign withholding tax of $42,351)........... $ 500,589
Interest........................................................ 173,033
-----------
Investment income.......................................... 673,622
Total expenses.................................................. $ 346,918
Less: Fee waiver................................................ (92,337)
---------
Net expenses.................................................... 254,581
-----------
Net Investment Income from UBS Investor Portfolios Trust --
UBS International Equity Portfolio................................. 419,041
EXPENSES:
Shareholder service fees............................................. 66,267
Administrative services fees......................................... 16,199
Registration fees.................................................... 26,907
Reports to shareholders expense...................................... 25,692
Amortization of organization expenses................................ 21,369
Legal fees........................................................... 18,587
Transfer agent fees.................................................. 10,487
Audit fees........................................................... 10,341
Fund accounting fees................................................. 7,744
Directors' fees...................................................... 5,357
Miscellaneous expenses............................................... 8,632
---------
Total expenses.................................................. 217,582
Less: Fee waiver and expense reimbursements..................... (137,212)
---------
Net expenses.................................................... 80,370
-----------
Net investment income................................................ 338,671
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM UBS
INVESTOR PORTFOLIOS TRUST -- UBS INTERNATIONAL EQUITY PORTFOLIO
Net realized gain on securities transactions......................... 946,441
Net realized loss on foreign currency transactions................... (25,116)
Net change in unrealized depreciation of investments................. (3,438,179)
Net change in unrealized depreciation of foreign currency contracts
and translations................................................... (4,748)
-----------
Net realized and unrealized loss on investments from UBS Investor
Portfolios Trust -- UBS International Equity Portfolio............. (2,521,602)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $(2,182,931)
-----------
-----------
- ------------------------
See notes to financial statements.
6
UBS International Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
FOR THE APRIL 2, 1996*
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income..................................................... $ 338,671 $ 146,877
Net realized gain on securities and foreign currency transactions......... 921,325 135,557
Net change in unrealized (depreciation) appreciation of investments,
foreign currency contracts and foreign currency translations............ (3,442,927) 340,608
----------------- -----------------
Net (decrease) increase in net assets resulting from operations........... (2,182,931) 623,042
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................... (323,895) (136,578)
Net realized gains........................................................ (626,539) (94,755)
----------------- -----------------
Total dividends and distributions to shareholders......................... (950,434) (231,333)
----------------- -----------------
TRANSACTIONS IN SHARES OF COMMON STOCK:
Net proceeds from sale of shares.......................................... 20,167,259 30,851,057
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions............................................. 879,502 229,580
Cost of shares redeemed................................................... (21,289,737) (4,873,617)
----------------- -----------------
Net (decrease) increase in net assets from transactions in shares of
common stock............................................................ (242,976) 26,207,020
----------------- -----------------
NET (DECREASE) INCREASE IN NET ASSETS..................................... (3,376,341) 26,598,729
NET ASSETS:
Beginning of period....................................................... 26,623,729 25,000
----------------- -----------------
End of period (including undistributed net investment income of $19,032
and $18,022, respectively).............................................. $ 23,247,388 $26,623,729
----------------- -----------------
----------------- -----------------
- ------------------------
* Commencement of operations.
See notes to financial statements.
7
UBS International Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
FOR THE APRIL 2. 1996*
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
FOR A SHARE OUTSTANDING FOR THE PERIOD
Net asset value, beginning of period....................................... $102.84 $100.00
-------- --------
Income from investment operations:
Net investment income................................................. 1.27 1.08
Net realized and unrealized (loss) gain on investments................ (5.01) 3.54
-------- --------
Total (loss) income from investment operations........................ (3.74) 4.62
-------- --------
Less dividends and distributions to shareholders:
Dividends from net investment income.................................. (1.26) (1.05)
Distributions from net realized gains................................. (2.47) (0.73)
-------- --------
Total dividends and distributions..................................... (3.73) (1.78)
-------- --------
Net asset value, end of period............................................. $ 95.37 $102.84
-------- --------
-------- --------
Total return............................................................... (3.70%) 4.65%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted).............................. $23,247 $26,624
Ratio of expenses to average net assets(2)............................ 1.26% 1.39%(3)
Ratio of net investment income to average net assets(2)............... 1.28% 1.78%(3)
- ------------------------
* Commencement of operations.
(1) Not annualized.
(2) Includes the Fund's share of UBS Investor Portfolios Trust -- UBS
International Equity Portfolio expenses and net of fee waivers and expense
reimbursements. Such fee waivers and expense reimbursements had the effect
of reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.87% and 1.66%
(annualized) for the respective periods.
(3) Annualized.
See notes to financial statements.
8
UBS International Equity Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. GENERAL
UBS International Equity Fund (the 'Fund') is a diversified, no-load mutual fund
registered under the Investment Company Act of 1940. The Fund is one of several
series of UBS Private Investor Funds, Inc. (the 'Company'), an open-end
management investment company organized as a corporation under Maryland law. At
December 31, 1997, the Company included six other funds, UBS Bond Fund, UBS
Value Equity Fund, UBS Institutional International Equity Fund, UBS High Yield
Bond Fund, UBS Small Cap Fund and UBS Large Cap Growth Fund. These financial
statements relate only to the Fund.
The Fund seeks to achieve its investment objective by investing substantially
all of its investable assets in the UBS International Equity Portfolio of UBS
Investor Portfolios Trust (the 'Portfolio'), an open-end management investment
company that has the same investment objective as that of the Fund. At December
31, 1997, certain shares of the Fund were held by UBS or its affiliates on
behalf of its clients.
Investors Bank & Trust Company ('IBT') serves as the Fund's administrator and
First Fund Distributors, Inc. ('FFDI') serves as the Fund's distributor. Union
Bank of Switzerland, New York Branch ('UBS') serves as the funds services agent
to the Fund.
The financial statements of the Portfolio, including its Schedule of
Investments, are included elsewhere within this report and should be read in
conjunction with the Fund's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. Significant accounting policies
followed by the Fund are as follows:
A. INVESTMENT VALUATION -- The value of the Fund's investment in the Portfolio
included in the accompanying Statement of Assets and Liabilities reflects the
Fund's proportionate beneficial interest in the net assets of the Portfolio
(44.5% at December 31, 1997). Valuation of securities by the Portfolio is
discussed in Note 2A of the Portfolio's Notes to Financial Statements.
B. INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND
LOSSES -- The Fund records its share of the investment income, expenses and
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expenses and realized and unrealized gains and
losses are allocated daily to investors of the Portfolio based upon the amount
of their investment in the Portfolio. The amount of foreign withholding taxes
deducted from the dividend income allocated to the Fund from the Portfolio is
net of amounts the Fund expects to recover from foreign tax authorities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the requirement to distribute substantially all of its taxable income, including
any net realized capital gains on investment transactions, to its shareholders.
Accordingly, no provision for federal income or excise taxes is necessary.
D. DIVIDENDS AND DISTRIBUTIONS -- The Fund declares dividends from net
investment income to shareholders of record on the day of declaration. Such
dividends are declared and paid annually. Net realized gains, if any, will be
distributed at least annually. However, to the extent that net realized gains of
the Fund can be reduced by capital loss carryovers, such gains will not be
distributed. Dividends and distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These 'book/tax'
differences are either considered temporary or permanent in
9
UBS International Equity Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based upon their federal
tax-basis treatment; temporary differences do not require reclassification. For
the fiscal year ended December 31, 1997, the Fund decreased accumulated
undistributed net investment income by $13,766, increased accumulated
undistributed net realized gains by $25,116 and decreased paid-in-capital by
$11,350. Net investment income, net realized gains and net assets were not
affected by this change.
E. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in connection
with its organization in the amount of approximately $107,500 have been deferred
and are being amortized on a straight line basis over five years from the Fund's
commencement of operations (April 2, 1996).
F. OTHER -- The Fund bears all costs of its operations other than expenses
specifically assumed by IBT, FFDI and UBS. Expenses incurred by the Company on
behalf of any two or more funds are allocated in proportion to the net assets of
each fund, except when allocations of direct expenses to each fund can otherwise
by made fairly. Expenses directly attributable to the Fund are charged directly
to the Fund.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Company, effective March 13, 1997, IBT provides overall administrative
services and general office facilities. As compensation for such services, the
Company has agreed to pay IBT a fee, accrued daily and payable monthly, at an
annual rate of 0.065% of the Fund's first $100 million average daily net assets
and 0.025% of the next $100 million average daily net assets. IBT does not
receive a fee on average daily net assets in excess of $200 million. Prior to
March 13, 1997, Signature Broker-Dealer Services, Inc. ('Signature') provided
overall administrative services and general office facilities. As compensation
for such services, the Company had agreed to pay Signature a fee, accrued daily
and paid monthly, at an annual rate of 0.05% of the Fund's first $100 million
average daily net assets and 0.025% of the next $100 million average daily net
assets. Signature did not receive a fee on average daily net assets in excess of
$200 million. For the year ended December 31, 1997, the administrative services
fee amounted to $16,199.
B. DISTRIBUTION AGREEMENT -- Under the terms of a Distribution Agreement
effective March 13, 1997, FFDI serves as the distributor of Fund shares. FFDI
does not receive any fees from the Fund for services provided pursuant to this
agreement. Prior to March 13, 1997, Signature served as the distributor of Fund
shares. Signature did not receive any additional fees for services provided as
the distributor.
C. SHAREHOLDER SERVICING AGREEMENT -- The Fund has entered into a Shareholder
Servicing Agreement with UBS pursuant to which UBS provides certain services to
shareholders of the Fund. The Fund has agreed to pay UBS a fee for these
services, accrued daily and payable monthly, at an annual rate of 0.25% of the
average daily net assets of the Fund. For the year ended December 31, 1997, the
shareholder service fee amounted to $66,267, all of which was waived.
D. FUNDS SERVICES AGREEMENT -- Under the terms of a Funds Services Agreement
with the Company, UBS has agreed to provide certain administrative services to
the Fund. UBS is not entitled to any additional compensation pursuant to this
agreement.
E. EXPENSE REIMBURSEMENT -- UBS has voluntarily agreed to limit the total
operating expenses of the Fund, including its share of the Portfolio's expenses
and excluding extraordinary expenses. For the period from January 1, 1997
through April 14, 1997, the Fund's total operating expenses were limited to an
annual rate of 0.95% of the Fund's average daily net assets. Effective April 15,
1997, this expense limitation was increased to an annual rate of 1.40% of the
Fund's average daily net assets. For the year
10
UBS International Equity Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
ended December 31, 1997, UBS reimbursed the Fund for expenses totaling $70,945
in connection with this voluntary limitation. UBS may modify or discontinue this
voluntary expense limitation at any time with 30 days' advance notice to the
Fund.
4. CAPITAL SHARE TRANSACTIONS
At December 31, 1997 there were 500 million shares of the Company's common stock
authorized, of which 10 million shares were classified as common stock of the
Fund. Transactions in shares of the Fund were as follows:
PERIOD FROM APRIL 2, 1996
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
DECEMBER 31, 1997 THROUGH DECEMBER 31, 1996
----------------- ----------------------------
Shares subscribed............................... 187,382 304,954
Shares issued to shareholders in reinvestment of
dividends and distributions................... 9,044 2,281
Shares redeemed................................. (211,542) (48,608)
----------------- ----------
Net (decrease) increase in shares outstanding... (15,116) 258,627
----------------- ----------
----------------- ----------
11
UBS International Equity Fund
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
UBS Private Investor Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the UBS International Equity Fund (the 'Fund') (one of the funds constituting
UBS Private Investor Funds, Inc.) at December 31, 1997, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for the year then ended and for the period April 2, 1996
(commencement of operations) through December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of Americas
New York, New York
February 17, 1998
12
UBS International Equity Portfolio
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- --------------------------------------------------------------------------------------- -----------
COMMON STOCK -- 94.1%
AUSTRALIA -- 5.0%
32,000 Australia & New Zealand Bank Group (Banking & Finance)................................. $ 211,480
15,800 Australian National Industries (Metals & Mining)....................................... 14,520
254,362 Burns Philp & Co. (Food)............................................................... 39,787
62,500 Coles Myer Ltd. (Retail)............................................................... 300,212
138,400 Fosters Brewing Group (Beverages)...................................................... 263,390
160,100 Goodman Fielder Limited (Food)......................................................... 254,602
721,323 MIM Holdings (Metals & Mining)......................................................... 441,915
89,000 Pacific Dunlop Ltd. (Diversified)...................................................... 188,519
570,000 Pasminco Limited (Metals & Mining)..................................................... 653,836
70,000 WMC Limited (Metals & Mining).......................................................... 244,080
-----------
2,612,341
-----------
DENMARK -- 1.8%
4,440 BG Bank A/S (Banking & Finance)........................................................ 298,774
10,500 Tele Danmark -- B shares (Telecommunications).......................................... 651,384
-----------
950,158
-----------
FRANCE -- 16.7%
3,060 AXA Company (Banking & Finance)........................................................ 236,777
10,200 Alcatel Alsthom SA (Electrical & Electronics).......................................... 1,296,502
18,768 Banque Nationale de Paris (Banking & Finance).......................................... 997,571
5,500 Compagnie de Saint Gobain (Building Materials)......................................... 781,341
11,700 Groupe Danone (Food)................................................................... 2,089,801
27,120 Moulinex (Household Appliances)........................................................ 670,058
5,200 Sefimeg (Societe Francaise d'Investissements Immobiliers et de Gestion) (Real
Estate).............................................................................. 259,201
13,400 Societe Nationale Elf-Aquitaine (Energy Sources)....................................... 1,558,528
2,048 Suez Lyonnaise des Eaux (Building & Construction)...................................... 226,629
5,070 Total Cie Francaise des Petroles -- B shares (Energy Sources).......................... 551,774
-----------
8,668,182
-----------
GERMANY -- 7.4%
45,300 Bayer AG (Chemicals)................................................................... 1,692,611
2,050 MAN AG (Automotive & Heavy Machinery).................................................. 593,856
4,500 Schering AG (Pharmaceuticals).......................................................... 434,112
2,000 Volkswagen AG (Automotive)............................................................. 1,125,382
-----------
3,845,961
-----------
GREAT BRITAIN -- 16.2%
164,000 Allied Domecq PLC (Food & Beverages)................................................... 1,416,757
88,000 B.A.T. Industries (Tobacco)............................................................ 800,678
186,117 BG PLC -- New Shares (Natural Gas)..................................................... 837,534
330,000 BTR Limited (Diversified).............................................................. 997,235
38,540 Bass PLC (Beverages)................................................................... 599,440
113,000 Coats Viyella (Apparel & Textiles)..................................................... 168,883
53,000 MEPC British Registered (Real Estate).................................................. 442,186
324,000 Marley PLC (Building Materials)........................................................ 500,194
123,550 Northern Foods PLC (Food).............................................................. 535,689
65,615 Peninsular & Orient Steam (Transportation)............................................. 746,257
79,760 Safeway PLC (Food -- Retail)........................................................... 449,309
18,336 South West Water PLC (Utilities)....................................................... 278,556
209,750 Tarmac PLC (Building Materials)........................................................ 392,711
15,000 Thames Water PLC (Utilities)........................................................... 223,319
-----------
8,388,748
-----------
- ------------------------
See notes to financial statements.
13
UBS International Equity Portfolio
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- --------------------------------------------------------------------------------------- -----------
INDONESIA -- 0.3%
924,000 PT Bank Internasional Indonesia (Banking & Finance).................................... $ 54,600
502,000 PT Indah Kiat Pulp & Paper Corporation -- Foreign Shares (Paper & Forest Products)..... 88,991
-----------
143,591
-----------
ITALY -- 1.5%
131,000 Eni S.p.A. (Energy Sources)............................................................ 748,085
-----------
JAPAN -- 24.3%
12,000 Dai Nippon Printing Co. (Printing)..................................................... 225,167
12,000 Fuji Photo Film Co. (Photographic Equipment & Supplies)................................ 459,524
130,000 Hitachi Ltd. (Hit. Seisakusho) (Electrical & Electronics).............................. 925,940
140,000 Ishikawajima Harima Heavy Industries (Machinery)....................................... 209,083
31,000 JGC Engineering & Construction Corp. (Engineering)..................................... 65,291
74 Japan Tobacco, Inc. (Tobacco).......................................................... 524,807
75,000 Japan Wool Textile Co. (Apparel & Textiles)............................................ 258,482
56,000 Kajima Corp. (Building & Construction)................................................. 141,104
78,000 Kansai Paint Co. (Chemicals)........................................................... 188,175
15,000 Kao Corp. (Household Products)......................................................... 215,976
90,000 Koito Manufacturing Co., Ltd. (Automotive -- Parts & Equipment)........................ 358,428
39,000 Marudai Food Co., Ltd. (Food).......................................................... 85,425
50,000 Matsushita Electric Industries (Electrical & Electronics).............................. 731,408
301,000 Mitsubishi Chemical Corp. (Chemicals).................................................. 431,087
76,000 Mitsubishi Estate Co. (Real Estate).................................................... 826,530
80,000 Mitsubishi Heavy Industries (Aerospace/Defense Equipment).............................. 333,308
101,000 Nihon Cement Co. (Building Materials).................................................. 208,080
184,000 Nikko Securities Co. (Investment Banking).............................................. 487,585
162,000 Nippon Yusen Kabushiki Kaish (Shipping)................................................ 444,176
51,250 Nissan Fire & Marine Insurance (Insurance)............................................. 155,826
63,000 Nisshinbo Industries, Inc. (Apparel & Textiles)........................................ 265,375
17,000 Sanwa Bank Ltd. (Banking & Finance).................................................... 171,862
44,000 Sharp Corporation (Electronics)........................................................ 302,612
4,300 Sony Corp. (Electrical & Electronics).................................................. 382,017
58,000 Sumitomo Marine & Fire (Insurance)..................................................... 306,502
232,000 Tokyo Gas (Energy Sources)............................................................. 525,940
44,000 Tokyo Steel Manufacturing (Metals & Mining)............................................ 148,610
75,000 Toray Industries, Inc. (Chemicals)..................................................... 336,027
54,000 Tostem Corporation (Building & Construction)........................................... 579,000
44,000 Toyo Seikan Kaisha (Packaging)......................................................... 626,790
11,000 Uny Co. (Retail)....................................................................... 150,800
152 West Japan Railway (Transportation).................................................... 484,277
81,000 Yamaha Motor Co. (Automotive).......................................................... 542,812
25,000 Yamanouchi Pharmaceutical (Pharmaceuticals)............................................ 536,111
-----------
12,634,137
-----------
NETHERLANDS -- 5.2%
7,800 Akzo Nobel (Chemicals)................................................................. 1,345,212
9,490 Internationale Nederlanden Groep NV (Banking & Finance)................................ 399,806
18,700 Koninklijke Papierfabrieken BT NV (Paper & Forest Products)............................ 430,808
4,800 Philips Electronics NV (Electronics)................................................... 287,938
5,114 Royal PTT Nederland (Telecommunications)............................................... 213,430
-----------
2,677,194
-----------
NEW ZEALAND -- 0.6%
10,300 Ceramco Corp. Ltd. (Diversified)....................................................... 8,672
43,840 Fletcher Challenge Forestry Shares (Forest Products)................................... 36,402
192,000 Fletcher Challenge Paper Shares (Paper & Forest Products).............................. 250,841
-----------
295,915
-----------
PHILIPPINES -- 0.4%
190,000 San Miquel Corporation Class B (Food & Beverages)...................................... 232,222
-----------
- ------------------------
See notes to financial statements.
14
UBS International Equity Portfolio
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- --------------------------------------------------------------------------------------- -----------
SINGAPORE -- 3.9%
280,579 Dairy Farm International Holdings (Food)............................................... $ 303,025
30,000 Development Bank Of Singapore Limited -- Foreign Shares (Banking & Finance)............ 256,304
229,696 Hong Kong Land Holdings (Real Estate).................................................. 441,016
46,765 Jardine Matheson Holdings (Diversified)................................................ 238,502
194,250 Keppel Corp., Ltd. (Diversified)....................................................... 557,799
264,000 United Overseas Land Ltd. (Real Estate)................................................ 222,415
-----------
2,019,061
-----------
SOUTH KOREA -- 1.3%
39,400 Hyundai Motor Co. GDR (Automotive)*.................................................... 61,464
8,470 Hyundai Motor Co., Ltd. (Automotive)................................................... 93,445
1,551 Housing & Commercial Bank, Korea (Banking & Finance)................................... 10,432
380 SK Telecom Co. Ltd. (Telecommunications)............................................... 115,477
8,720 Korean Air (Airlines).................................................................. 36,629
42,110 Shinhan Bank (Banking & Finance)....................................................... 187,570
23,400 Yukong Ltd. (Energy Sources)........................................................... 186,372
-----------
691,389
-----------
SWEDEN -- 3.7%
19,250 Electrolux (Household Appliances)...................................................... 1,336,098
8,000 Forenings Sparbanken AB (Banking & Finance)............................................ 181,896
33,400 Stora Kopparbergs -- A shares (Paper & Forest Products)................................ 420,729
-----------
1,938,723
-----------
SWITZERLAND -- 4.4%
41 Bobst AG (Machinery)................................................................... 60,317
600 Forbo Holding (Building Materials)..................................................... 245,099
1,170 Nestle SA (Food & Beverages)........................................................... 1,752,458
210 Schindler Holding AG (Machinery)....................................................... 218,701
-----------
2,276,575
-----------
THAILAND -- 1.4%
73,000 Bangkok Bank Public Company, Ltd. (Banking & Finance).................................. 187,681
15,000 Italian-Thai Development PLC -- Foreign Shares (Building & Construction)............... 4,821
79,000 Shinawatra Computer Company -- Foreign Shares (Technology)............................. 270,809
266,000 TelecomAsia Corp. -- Foreign Shares (Telecommunications)............................... 52,431
100,000 Thai Farmers Bank Public Co., Ltd. (Banking & Finance)................................. 187,467
58,000 Thai Military Bank, Ltd. (Banking & Finance)........................................... 12,644
-----------
715,853
-----------
TOTAL COMMON STOCK (COST $54,398,010).................................................. 48,838,135
-----------
CONVERTIBLE PREFERRED STOCK -- 1.2%
JAPAN -- 1.2%
114,000,000 Sakura Finance, Series II, 0.75%, due 10/01/01* (Banking & Finance) (Cost $988,849).... 637,359
-----------
TOTAL INVESTMENTS AT MARKET VALUE -- 95.3%
(COST $55,386,859)................................................................... 49,475,494
OTHER ASSETS IN EXCESS OF LIABILITIES -- 4.7%.......................................... 2,444,405
-----------
NET ASSETS -- 100.0%................................................................... $51,919,899
-----------
-----------
- ------------------------
GDR: Global Depository Receipts.
* Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. At December 31, 1997, the value of these securities amounted to
$698,823 or 1.35% of net assets.
Note: Based upon the cost of investments of $55,386,859 for Federal Income Tax
purposes at December 31, 1997, the aggregate gross unrealized appreciation
and depreciation was $5,130,863 and $11,042,228, respectively, resulting
in net unrealized depreciation of $5,911,365.
See notes to financial statements.
15
UBS International Equity Portfolio
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
FOREIGN U.S. DOLLAR U.S. DOLLAR
CURRENCY UNITS U.S. DOLLAR VALUE AT NET UNREALIZED
CURRENCY AND SETTLEMENT DATE SOLD COST DECEMBER 31, 1997 APPRECIATION
- ----------------------------------------------------- -------------- ------------ ------------------ --------------
SALE CONTRACTS
British Pound, 1/06/98............................... 274,280 $459,939 $450,327 $ 9,612
French Franc, 1/30/98................................ 2,675,794 446,434 445,394 1,040
-------
$10,652
-------
-------
- ------------------------
See notes to financial statements.
16
UBS International Equity Portfolio
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
SUMMARY OF INDUSTRY DIVERSIFICATION
PERCENT OF
INDUSTRY DIVERSIFICATION (UNAUDITED) NET ASSETS
- ------------------------------------------------------------------------------------------------------ ----------
Banking & Finance..................................................................................... 7.7%
Chemicals............................................................................................. 7.7
Energy Sources........................................................................................ 6.9
Food & Beverages...................................................................................... 6.6
Electrical & Electronics.............................................................................. 6.4
Food.................................................................................................. 6.4
Real Estate........................................................................................... 4.2
Building Materials.................................................................................... 4.1
Household Appliances.................................................................................. 3.9
Diversified........................................................................................... 3.8
Automotive............................................................................................ 3.5
Metals & Mining....................................................................................... 2.9
Tobacco............................................................................................... 2.6
Transportation........................................................................................ 2.4
Paper & Forest Products............................................................................... 2.3
Telecommunications.................................................................................... 2.0
Pharmaceuticals....................................................................................... 1.9
Building & Construction............................................................................... 1.8
Beverages............................................................................................. 1.7
Natural Gas........................................................................................... 1.6
Apparel & Textiles.................................................................................... 1.3
Packaging............................................................................................. 1.2
Automotive & Heavy Machinery.......................................................................... 1.1
Electronics........................................................................................... 1.1
Utilities............................................................................................. 1.0
Machinery............................................................................................. 0.9
Investment Banking.................................................................................... 0.9
Insurance............................................................................................. 0.9
Photographic Equipment & Supplies..................................................................... 0.9
Retail................................................................................................ 0.9
Food -- Retail........................................................................................ 0.9
Shipping.............................................................................................. 0.9
Automotive -- Parts & Equipment....................................................................... 0.7
Aerospace/Defense Equipment........................................................................... 0.6
Technology............................................................................................ 0.5
Printing.............................................................................................. 0.4
Household Products.................................................................................... 0.4
Engineering........................................................................................... 0.1
Airlines.............................................................................................. 0.1
Forest Products....................................................................................... 0.1
-----
Total Portfolio Holdings.............................................................................. 95.3
Other assets in excess of liabilities................................................................. 4.7
-----
Total Net Assets...................................................................................... 100.0%
-----
-----
- ------------------------
See notes to financial statements.
17
UBS International Equity Portfolio
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $55,386,859)......................................... $49,475,494
Cash............................................................................. 1,469,272
Foreign currency (cost $6,980)................................................... 6,867
Receivable for investment securities sold........................................ 895,058
Dividends receivable............................................................. 112,201
Interest receivable.............................................................. 16,119
Unrealized appreciation on open forward foreign currency contracts............... 10,652
Deferred organization expenses and other assets.................................. 23,861
-----------
Total Assets................................................................ 52,009,524
-----------
LIABILITIES:
Investment advisory fees payable................................................. 23,586
Administrative services fees payable............................................. 10,147
Other accrued expenses........................................................... 55,892
-----------
Total Liabilities........................................................... 89,625
-----------
NET ASSETS....................................................................... $51,919,899
-----------
-----------
- ------------------------
See notes to financial statements.
18
UBS International Equity Portfolio
Statement of Operations
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign withholding tax of $192,979).............. $ 849,307
Interest............................................................ 333,088
---------
Investment income.............................................. $ 1,182,395
EXPENSES
Investment advisory fees............................................ 428,213
Administrative services fees........................................ 33,324
Custodian fees and expenses......................................... 87,000
Fund accounting fees................................................ 50,407
Audit fees.......................................................... 36,000
Amortization of organization expenses............................... 8,567
Trustees' fees...................................................... 7,000
Miscellaneous expense............................................... 4,119
---------
Total expenses................................................. 654,630
Less: Fee waiver............................................... (176,323)
---------
Net expenses................................................... 478,307
-----------
Net investment income............................................... 704,088
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities transactions........................ 2,033,639
Net realized loss on foreign currency transactions.................. (51,477)
Net change in unrealized depreciation of investments................ (6,285,266)
Net change in unrealized appreciation of foreign currency contracts
and translations.................................................. 4,482
-----------
Net realized and unrealized loss on investments..................... (4,298,622)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $(3,594,534)
-----------
-----------
- ------------------------
See notes to financial statements.
19
UBS International Equity Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
FOR THE APRIL 2, 1996*
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income..................................................... $ 704,088 $ 483,834
Net realized gain on securities and foreign currency transactions......... 1,982,162 372,215
Net change in unrealized (depreciation) appreciation of investments,
foreign currency contracts and foreign currency translations............ (6,280,784) 367,572
----------------- -----------------
Net (decrease) increase in net assets resulting from operations........... (3,594,534) 1,223,621
----------------- -----------------
CAPITAL TRANSACTIONS:
Proceeds from contributions............................................... 44,945,810 60,373,286
Value of withdrawals...................................................... (30,977,956) (20,050,328)
----------------- -----------------
Net increase in net assets from capital transactions...................... 13,967,854 40,322,958
----------------- -----------------
NET INCREASE IN NET ASSETS................................................ 10,373,320 41,546,579
NET ASSETS:
Beginning of period....................................................... 41,546,579 --
----------------- -----------------
End of period............................................................. $51,919,899 $41,546,579
----------------- -----------------
----------------- -----------------
- ------------------------
* Commencement of operations.
See notes to financial statements.
20
UBS International Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
FOR THE APRIL 2, 1996*
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)............................. $51,920 $41,547
Average commission rate per share(1)................................. $ 0.02 $ 0.02
Ratio of expenses to average net assets(2)........................... 0.95% 0.88%(3)
Ratio of net investment income to average net assets(2).............. 1.40% 2.07%(3)
Portfolio turnover................................................... 26% 42%
- ------------------------
* Commencement of operations.
(1) Most foreign securities markets do not charge commissions based on a rate
per share but as a percentage of the principal value of the transaction.
As a result, the above rate is not indicative of the commission
arrangements currently in effect.
(2) Net of fee waivers. Such fee waivers had the effect of reducing the ratio of
expenses to average net assets and increasing the ratio of net investment
income to average net assets by 0.35% and 0.79% (annualized) for the
respective periods.
(3) Annualized.
See notes to financial statements.
21
UBS International Equity Portfolio
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. GENERAL
UBS International Equity Portfolio (the 'Portfolio'), a separate series of UBS
Investor Portfolios Trust (the 'Trust'), is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Trust is organized as a trust under the laws of the State of New York. At
December 31, 1997, all of the beneficial interests in the Portfolio were held by
UBS International Equity Fund, UBS Institutional International Equity Fund and
UBS International Equity Fund, Ltd.
The investment adviser of the Portfolio is Union Bank of Switzerland, New York
Branch ('UBS'); UBS International Investment London Limited ('UBSII') is the
sub-adviser of the Portfolio. Investors Fund Services (Ireland) Limited ('IBT
Ireland') acts as the Portfolio's administrator.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements:
A. INVESTMENT VALUATION -- Equity securities in the portfolio are valued at the
last sale price on the exchange on which they are primarily traded, or in the
absence of recorded sales, at the average of readily available closing bid and
asked prices, or at the quoted bid price. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision of the Portfolio's Board of Trustees (the 'Trustees').
Trading in securities on most foreign exchanges and over-the-counter market is
normally completed before the close of the New York Stock Exchange and may also
take place on days on which the New York Stock Exchange is closed. If events
materially affecting the value of foreign securities occur between the time when
the exchange on which they are traded closes and the pricing of the Portfolio,
such securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
B. FOREIGN CURRENCY TRANSLATION -- The accounting records of the Portfolio are
maintained in U.S. dollars. Assets, including investment securities, and
liabilities denominated in foreign currency are translated into U.S. dollars at
the prevailing rate of exchange at period-end. Purchases and sales of
securities, income and expenses are translated at the prevailing rate of
exchange on the respective dates of such transactions. Gain/loss on translation
of foreign currency includes net exchange gains and losses, gains and losses on
disposition of foreign currency and adjustments to the amount of foreign taxes
withheld.
The assets and liabilities are presented at the exchange rates and market value
at the close of the period. The changes in net assets arising from changes in
exchange rates and the changes in net assets resulting from changes in market
prices of securities at period-end are not separately presented. However, gains
and losses from certain foreign currency transactions are treated as ordinary
income for U.S. Federal income tax purposes.
C. FORWARD FOREIGN CURRENCY CONTRACTS -- The Portfolio may enter into forward
foreign currency contracts in connection with planned purchases or sales of
securities or to hedge the U.S. dollar value of portfolio securities denominated
in a particular currency. The Portfolio could be exposed to risks if the
22
UBS International Equity Portfolio
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
counterparties to the contracts are unable to meet the terms of their contracts
and from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. The forward foreign currency contracts are marked-to-market
daily using the daily exchange rate of the underlying currency and any resulting
gains or losses are recorded for financial statement purposes as unrealized
gains or losses until the contract settlement date.
The Portfolio's use of forward contracts involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts reflect the extent of the
Portfolio's involvement in these financial instruments. Risks arise from the
possible movements in the foreign exchange rates underlying these instruments.
The unrealized appreciation/depreciation on forward contracts reflects the
Portfolio's exposure at period-end to credit loss in the event of the
counterparty's failure to perform its obligations.
D. ACCOUNTING FOR INVESTMENTS -- Securities transactions are accounted for on
trade date. Realized gains and losses on security transactions are determined on
the identified cost basis. Dividend income and other distributions from
portfolio securities are recorded on the ex-dividend date, except, if the
ex-dividend date has passed, certain dividends from foreign securities are
recorded as soon as the Portfolio is informed of the ex-dividend date. Dividend
income is recorded net of foreign taxes withheld where recovery of such taxes is
not assured. Withholding taxes on foreign dividends have been provided for in
accordance with the Portfolio's understanding of the applicable countries' tax
rules and rates. Recoveries of foreign taxes withheld from the Portfolio's
income are generally recorded, where applicable, by the funds investing in the
Portfolio. Interest income, adjusted for amortization of premiums and accretion
of discounts on investments, is accrued daily.
E. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code (the 'Code'). As such, each investor in the
Portfolio will be taxed on its share of the Portfolio's ordinary income and
capital gains. Accordingly, no provision for federal income taxes is necessary.
It is intended that the Portfolio will be managed in such a way that an investor
will be able to satisfy the requirements of the Code applicable to regulated
investment companies.
F. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Portfolio in
connection with its organization in the amount of approximately $40,000 have
been deferred and are being amortized on a straight line basis over five years
from the Portfolio's commencement of operations (April 2, 1996).
G. OTHER -- The Portfolio bears all costs of its operations other than expenses
specifically assumed by UBS, UBSII and IBT Ireland. Expenses incurred by the
Trust on behalf of any two or more portfolios are allocated in proportion to net
assets of each portfolio, except when allocations of direct expenses to each
portfolio can otherwise be made fairly. Expenses directly attributable to the
Portfolio are charged directly to the Portfolio.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY AGREEMENT -- The Portfolio has retained the services of
UBS as investment adviser and UBSII as investment sub-adviser. UBSII makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments and
operations subject to the supervision of UBS and the Trustees. As compensation
for overall investment management services, the Trust has agreed to pay UBS an
investment advisory fee, accrued daily and payable monthly, at an annual rate of
0.85% of the Portfolio's average daily net assets. UBS, in turn, has agreed to
pay UBSII a fee, accrued daily and payable monthly, at an annual rate of 0.75%
of the Portfolio's first $20 million average daily net assets, 0.50% of the next
$30 million
23
UBS International Equity Portfolio
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
average daily net assets and 0.40% of the Portfolio's average daily net assets
in excess of $50 million. For the year ended December 31, 1997, the investment
advisory fee amounted to $428,213. UBS voluntarily agreed to waive $176,323 of
this amount.
B. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Trust, effective March 13, 1997, IBT Ireland provides overall
administrative services and general office facilities to the Portfolio and the
Trust. As compensation for such services, the Portfolio has agreed to pay IBT
Ireland an administrative services fee, accrued daily and payable monthly, at an
annual rate of 0.07% of the Portfolio's first $100 million average daily net
assets and 0.05% of the Portfolio's average daily net assets in excess of $100
million. Prior to March 13, 1997, Signature Financial Group (Grand Cayman), Ltd.
('SFG') provided overall administrative services and general office facilities
to the Portfolio and the Trust. As compensation for such services, the Portfolio
had agreed to pay SFG an administrative services fee, accrued daily and paid
monthly, at an annual rate of 0.05% of the Portfolio's average daily net assets.
For the year ended December 31, 1997, the administrative services fee amounted
to $33,324.
4. PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1997, purchases and sales of investment
securities, excluding short-term investments, aggregated to $30,831,633 and
$11,714,524, respectively.
24
UBS International Equity Portfolio
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees
and Investors of
UBS Investor Portfolios Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the UBS International Equity
Portfolio (the 'Portfolio') (one of the portfolios constituting UBS Investor
Portfolios Trust) at December 31, 1997, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for the year then ended and for the period April 2, 1996 (commencement of
operations) through December 31, 1996, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1997 by correspondence with the custodian and brokers, and the application
of alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 17, 1998
25
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UBS INTERNATIONAL EQUITY GROWTH FUND
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
INVESTMENT ADVISER Union Bank of Switzerland,
New York Branch
1345 Avenue of the Americas
New York, NY 10105
ADMINSTRATOR Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
DISTRIBUTOR First Fund Distributors, Inc.
4455 East Camelback Road
Phoenix, AZ 85018
CUSTODIAN AND TRANSFER AGENT Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
STATEMENT OF DIFFERENCES
The Japanese Yen sign shall be expressed as......................'Y'
- --------------------------------------------------------------------------------
UBS
INTERNATIONAL
EQUITY
FUND
- -----------
UBS
PRIVATE INVESTOR
FUNDS, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1998
- --------------------------------------------------------------------------------
UBS Private Investor Funds, Inc.
Chairman's Letter
- --------------------------------------------------------------------------------
Dear Shareholder,
Thank you for your investment in the UBS International Equity Fund, which is
part of the UBS Private Investor Funds.
We are pleased to provide you with the Fund's semi-annual report for the six
months ended June 30, 1998. This report contains a letter from the portfolio
manager discussing the performance of the Fund for the six months ended June 30,
1998, including a market overview. In addition, it includes a complete set of
financial statements as well as a schedule of investments.
The UBS Private Investor Funds are an integral part of the asset allocation
service provided by The Private Bank* of Union Bank of Switzerland, the largest
bank in Switzerland. The Funds provide investment opportunities in U.S. and
international securities markets to enhance investment performance, diversify
risk and preserve capital within your investment objectives.
The UBS Private Investor Funds bring you:
The expertise of The Private Bank's professional money managers
Global investment perspective and knowledge
A high priority on financial stability and preservation of wealth
As you are aware, in December, 1997, Union Bank of Switzerland and Swiss Bank
Corporation ('SBC') announced their intention to merge. Early in February, 1998,
the shareholders of UBS and SBC overwhelmingly approved the proposed merger. The
merger was completed on Monday June 29, 1998, creating UBS A.G.
UBS A.G. is a top-tier global financial services company which concentrates on
clearly defined core businesses. As private banking and asset management are
core businesses of the bank, shareholders of the UBS Private Investor Funds will
continue to see a commitment to growing and building the mutual fund business.
We will continue to keep you informed of any new developments as they occur.
To learn more about the other UBS Private Investor Funds, please call (888)
UBS-FUND. You will be provided with a copy of the prospectus which contains more
complete information including charges and expenses. Please read it carefully
before investing.
We appreciate your continued confidence in the UBS Private Investor Funds.
Sincerely,
Dr. HansPeter Lochmeier
Dr. HansPeter Lochmeier
Chairman of the Board
UBS Private Investor Funds, Inc.
- ------------------------
* 'The Private Bank', as used in this document, refers to Union Bank of
Switzerland, New York Branch.
This semi-annual report must be accompanied or preceded by the Fund's
prospectus.
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
FUND PERFORMANCE
The UBS International Equity Fund achieved a total return of 16.1% in the first
six months of the year which equaled the 16.1% rise in the MSCI EAFE Index. The
performance was contributed to a positive contribution from stock selection
partially offset by a negative contribution from country/asset allocation.
(a) STOCK SELECTION
There has been somewhat of a reversal in the trend of large cap outperformance
seen in 1997. We had anticipated this by positioning the portfolio away from
such companies.
Very positive returns were seen in Japan where we have been holding a number of
companies biased towards the domestic economy which had become very cheap on
basic financial criteria. We were also, as shareholders, significant
beneficiaries of Salomon Smith Barney's entry into Nikko Securities.
Further outperformance was seen in Europe from a number of restructuring plays
that we have held for sometime. Disappointing results in Australia were due to
our over-exposure to resource stocks.
(b) COUNTRY/ASSET ALLOCATION
There was a positive contribution from being overweighted in France, which has
risen strongly as economic growth has picked up. This was more than offset by
being underweight in peripheral European markets such as Finland, Spain and
Italy, which were again very strong due to EMU convergence leading to falling
interest rates.
Although relatively small amounts have been committed to the Pacific Basin, the
deteriorating economic position led to further sharp falls in stock markets
adversely affecting performance.
Our holding in cash proved to be negative.
This chart provides a comparison of the Fund's performance to that of the MSCI
EAFE Index. This chart compares total returns (which includes changes in share
price and reinvestment of all dividends and capital gains distributions) of a
hypothetical $10,000 investment made on April 2, 1996* and held through June 30,
1998.
[PERFORMANCE GRAPH]
UBS INTERNATIONAL EQUITY FUND MSCI EAFE INDEX
- ----------------------------- ---------------
$10,000 $10,000
10,205 10,310
10,061 10,120
10,132 10,177
9,898 9,880
10,008 9,902
10,122 10,165
10,126 10,061
10,500 10,462
10,465 10,327
10,281 9,967
10,434 10,131
10,617 10,170
10,551 10,226
11,076 10,894
11,726 11,498
11,706 11,686
11,076 10,816
11,447 11,432
10,764 10,548
10,432 10,443
10,077 10,537
10,669 11,022
11,186 11,731
11,763 12,095
11,800 12,193
11,784 12,137
11,697 12,232
2
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
Average Annual Total Return:
UBS
INTERNATIONAL MSCI
EQUITY EAFE
FUND INDEX
------------- -----
Six months ended June 30, 1998...................................... 16.07% 16.09%
1 year ended June 30, 1998.......................................... (0.24)% 6.38%
Since inception* through June 30, 1998.............................. 7.23% 9.38%
- ------------
* Commencement of operations -- April 2, 1996.
ECONOMIC AND MARKET BACKGROUND
The first six months saw a continuation of the trends of the last year, both in
terms of economic performance and stock markets. Recovery in European economic
growth has been confirmed while, by contrast, economic data for Asia remains
unremittingly bleak. European markets have been testing new highs, while Asian
markets remain under severe pressure, with Japan close to lows for the decade.
One indicator of the strength of the recovery in Europe has been the broad
decline in unemployment from acutely high levels. This applies particularly to
France, where the economic recovery is perhaps strongest for both domestic and
exporting companies. Germany remains mixed, with exporters doing well but a
stagnant domestic economy. The consumer there remains concerned about the future
and is not spending, whilst the situation in the eastern half of the country
remains substantially more depressed than the west.
In the UK, further evidence of strength in the domestic economy led the Bank of
England to raise interest rates during June by 0.25% to 7.5%. Having initially
taken the market by surprise, developments since then suggest that a further
rise may be necessary, despite damage being inflicted on exporters by the
resulting strength of the Sterling.
The potential problems that the new European Central Bank (ECB) will face were
graphically illustrated by the difficulty in the appointment of the first
governor. At the insistence of France, the preferred candidate for the other
members, Duisenberg of the Netherlands, will step down four years into his eight
year term to be replaced by a Frenchman. This sort of political horse trading
does not bode well for the political independence of the monetary authority.
Politics were also a feature in Denmark, where a damaging general strike in May
was only ended after rather unsatisfactory government intervention.
Concern over the stability of the Japanese financial system caused a sell-off in
the yen. This in turn caused a further shock throughout Asia as yen weakness
might force a further round of currency depreciation on the rest of Asia
including perhaps China itself. To break the risk of this vicious spiral, the
Bank of Japan and the US Federal Reserve Bank stepped in to support the yen. It
is highly unusual for the Federal Reserve to act in this way and the
authorization for the move may have come from President Clinton as he prepared
to visit China. As a result, there was a quick rebound in the yen but it remains
under pressure.
During the quarter Japanese companies reported their results for the financial
year ending in March. Excluding the massively loss-taking financial sector,
pre-tax profits fell 5% and there is no sign that this
3
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
trend will reverse this year. Even the major global players came under pressure:
profits for the big five Japanese semi-conductor makers halved last year because
of weak pricing for memory chips.
As for the rest of Asia, the risk of downward spiral has not receded entirely.
Economies which over the last decade have tended to grow at 5-10% each year now
face the prospect of economic contraction. This is already having political
ramifications: in Indonesia, where the economy is on the point of collapse,
General Suharto has been forced to step down after 30 years in power.
These trends were mirrored in stock markets where European indices were up
26.7%, Japan was down 2.5% and most other Asian markets down over 25%, in each
case in US$ in aggregate.
ECONOMIC AND MARKET OUTLOOK
The major event in Europe in the next six months will be the elections in
Germany, where Chancellor Kohl continues to lag his Social Democrat rival
Gerhard Schroder in the polls. In an effort to close the gap on his more
Euro-sceptic rival, Herr Kohl has begun to sound more critical of the EU,
speaking out against the heavy burden of bureaucracy and arguing for greater
autonomy amongst members. The outcome of the elections in Germany is likely to
be critical for the domestic economy of that country, with a clear cut victory
by either party that enables firm action to be taken preferable to messy
coalition. Given the importance of Germany in the whole European project, there
is a risk of increasing political tension within the EU.
France, which has so far enjoyed a robust recovery, now enters a critical period
after the excitement of the World Cup competition to see just how robust the
rebound in consumer confidence is. It is fair to say that many business leaders
are concerned that the domestic economy remains fragile and could suffer a
setback in the second half. Equity markets in Spain and Italy, which have risen
on the back of convergence in their interest rates towards German levels, are
losing momentum in the face of a heavy stock issuance program.
Apart from the continuing concerns over Southeast Asia, Europe has a more
immediate problem, even closer to home, in the Russian economic crisis. Germany
in particular has considerable exposure to Russia, and a major collapse in
confidence in the Russian economy would have repercussions not only for Eastern
Europe but also for the Western Europe banking system. This could prove to be
far more damaging to Europe than the crisis in Japan, severe though that
undoubtedly is.
The economic outlook for Japan remains poor despite the fact that Japan should
begin to feel the impact of the latest and largest public works package. The
critical issue for Japan is whether the authorities will begin to make the tough
decisions which will enable a sustainable recovery to occur. The precedents are
not promising but pressure from the rest of the world has intensified to a level
that cannot be ignored.
Prospects for the rest of Asia have been hurt by the further weakening of the
Japanese economy. Restructuring of balance sheets is the immediate requirement
and only companies with a strong franchise and open management will be able to
attract the necessary capital to survive.
Equity markets in Europe have surged more than reflecting the recovery in
profits on the back of corporate restructuring and broad economic recovery. The
risk of a setback in Europe has therefore increased and our policy is to trim
exposure to Europe and be underweight in the large, internationally held
companies vulnerable to a change in sentiment. Economic prospects in Asia show
no sign of improving, but we feel that this has increasingly been discounted by
the stock market such that for the first time we are finding quality companies
which satisfy our value criteria.
Robin Apps
Portfolio Manager
4
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
The Fund is not insured by the FDIC and is not a deposit with, an obligation of,
or guaranteed by Union Bank of Switzerland. The Fund is subject to investment
risks, including possible loss of principal amount invested.
Shares of the Fund are distributed by First Fund Distributors, Inc. which is not
affiliated with Union Bank of Switzerland.
Unlike other mutual funds, the Fund seeks to achieve its investment objective by
investing all of its investable assets in UBS Investor Portfolios Trust -- UBS
International Equity Portfolio (the 'Portfolio') which is a separate fund with
an identical investment objective. The Portfolio concentrates its investments in
securities of foreign issuers. A variety of factors such as changes in the
economic/political conditions and currency fluctuations in the international
markets may affect the value of your investment in the fund.
Union Bank of Switzerland is voluntarily waiving all shareholder servicing fees
for the Fund and reimbursing a portion of the Fund's expenses. Union Bank of
Switzerland is also waiving a portion of its advisory fees for the Portfolio. If
Union Bank of Switzerland had not waived fees and reimbursed expenses, total
return would have been lower. Past performance is not a guarantee of future
results. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.
The MSCI EAFE Index (Morgan Stanley Capital International -- Europe, Australia,
Far East Index) is an unmanaged index used to portray the pattern of common
stock price movement in Europe, Australia and the Far East.
5
UBS International Equity Fund
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investment in UBS Investor Portfolios Trust -- UBS International Equity Portfolio,
at value.......................................................................... $31,929,620
Tax reclaims receivable............................................................. 71,500
Receivable from sale of capital stock............................................... 12,000
Deferred organization expenses and other assets..................................... 75,571
-----------
Total Assets.............................................................. 32,088,691
-----------
LIABILITIES:
Administrative services fees payable................................................ 1,800
Payable to funds services agent..................................................... 1,841
Payable from purchase of capital stock.............................................. 213,570
Other accrued expenses.............................................................. 24,020
-----------
Total Liabilities......................................................... 241,231
-----------
NET ASSETS.......................................................................... $31,847,460
-----------
-----------
SHARES OUTSTANDING ($0.001 PAR VALUE, 10 MILLION SHARES AUTHORIZED)................. 287,682
-----------
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE...................... $ 110.70
-----------
-----------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par...................................................... $ 288
Additional paid-in capital.......................................................... 30,432,323
Net unrealized appreciation of investments, foreign currency contracts and foreign
currency translations............................................................. 194,041
Accumulated undistributed net investment income..................................... 277,035
Accumulated undistributed net realized gains on securities and foreign currency
translations...................................................................... 943,773
-----------
Net Assets................................................................ $31,847,460
-----------
-----------
- ------------------------
See notes to financial statements.
6
UBS International Equity Fund
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Investment Income and Expenses allocated from UBS Investor Portfolios
Trust -- UBS International Equity Portfolio
Dividends (net of foreign withholding tax of $87,038)............ $ 390,559
Interest......................................................... 78,326
----------
Investment income........................................... 468,885
Total expenses................................................... $189,820
Less: Fee waiver................................................. (52,586)
--------
Net expenses..................................................... 137,234
----------
Net Investment Income from UBS Investor Portfolios Trust -- UBS
International Equity Portfolio...................................... 331,651
EXPENSES:
Shareholder service fees.............................................. 37,658
Administrative services fees.......................................... 9,791
Registration fees..................................................... 16,402
Amortization of organization expenses................................. 11,461
Reports to shareholders expense....................................... 10,709
Transfer agent fees................................................... 7,439
Audit fees............................................................ 6,190
Legal fees............................................................ 6,149
Fund accounting fees.................................................. 4,464
Directors' fees....................................................... 1,700
Miscellaneous expenses................................................ 3,886
--------
Total expenses.............................................. 115,849
Less: Fee waiver and expense reimbursements................. (42,201)
--------
Net expenses................................................ 73,648
----------
Net investment income................................................. 258,003
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM UBS
INVESTOR PORTFOLIOS TRUST -- UBS INTERNATIONAL EQUITY PORTFOLIO
Net realized gain on securities transactions.......................... 605,634
Net realized loss on foreign currency transactions.................... (19,581)
Net change in unrealized appreciation of investments.................. 3,305,673
Net change in unrealized depreciation of foreign currency contracts
and translations.................................................... (9,313)
----------
Net realized and unrealized gain on investments from UBS Investor
Portfolios Trust -- UBS International Equity Portfolio.............. 3,882,413
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $4,140,416
----------
----------
- ------------------------
See notes to financial statements.
7
UBS International Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income........................................... $ 258,003 $ 338,671
Net realized gain on securities and foreign currency
transactions.................................................. 586,053 921,325
Net change in unrealized appreciation (depreciation) of
investments, foreign currency contracts and foreign currency
translations.................................................. 3,296,360 (3,442,927)
------------- -----------------
Net increase (decrease) in net assets resulting from
operations.................................................... 4,140,416 (2,182,931)
------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................... -- (323,895)
Net realized gains.............................................. -- (626,539)
------------- -----------------
Total dividends and distributions to shareholders............... -- (950,434)
------------- -----------------
TRANSACTIONS IN SHARES OF COMMON STOCK:
Net proceeds from sale of shares................................ 9,720,194 20,167,259
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions................... -- 879,502
Cost of shares redeemed......................................... (5,260,538) (21,289,737)
------------- -----------------
Net increase (decrease) in net assets from transactions in
shares of common stock........................................ 4,459,656 (242,976)
------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS........................... 8,600,072 (3,376,341)
NET ASSETS:
Beginning of period............................................. 23,247,388 26,623,729
------------- -----------------
End of period (including undistributed net investment income of
$277,035 and $19,032, respectively)........................... $ 31,847,460 $23,247,388
------------- -----------------
------------- -----------------
- ------------------------
See notes to financial statements.
8
UBS International Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE APRIL 2, 1996*
JUNE 30, 1998 YEAR ENDED THROUGH
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996
------------- ----------------- -----------------
FOR A SHARE OUTSTANDING FOR THE PERIOD
Net asset value, beginning of period...................... $ 95.37 $102.84 $100.00
------------- ----------------- -----------------
Income from investment operations:
Net investment income................................ 0.88 1.27 1.08
Net realized and unrealized gain (loss) on
investments........................................ 14.45 (5.01) 3.54
------------- ----------------- -----------------
Total income (loss) from investment operations....... 15.33 (3.74) 4.62
------------- ----------------- -----------------
Less dividends and distributions to shareholders:
Dividends from net investment income................. -- (1.26) (1.05)
Distributions from net realized gains................ -- (2.47) (0.73)
------------- ----------------- -----------------
Total dividends and distributions.................... -- (3.73) (1.78)
------------- ----------------- -----------------
Net asset value, end of period............................ $110.70 $ 95.37 $102.84
------------- ----------------- -----------------
------------- ----------------- -----------------
Total return.............................................. 16.07%(1) (3.70%) 4.65%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)............. $31,847 $23,247 $26,624
Ratio of expenses to average net assets(2)........... 1.40%(3) 1.26% 1.39%(3)
Ratio of net investment income to average net
assets(2).......................................... 1.71%(3) 1.28% 1.78%(3)
- ------------------------
* Commencement of operations.
(1) Not annualized.
(2) Includes the Fund's share of UBS Investor Portfolios Trust -- UBS
International Equity Portfolio expenses and net of fee waivers and expense
reimbursements. Such fee waivers and expense reimbursements had the effect
of reducing the ratio of expenses to average net assets and increasing the
ratio of net investment income to average net assets by 0.63% (annualized),
0.87% and 1.66% (annualized) for the respective periods.
(3) Annualized.
See notes to financial statements.
9
UBS International Equity Fund
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. GENERAL
UBS International Equity Fund (the 'Fund') is a diversified, no-load mutual fund
registered under the Investment Company Act of 1940. The Fund is one of several
series of UBS Private Investor Funds, Inc. (the 'Company'), an open-end
management investment company organized as a corporation under Maryland law. At
June 30, 1998, the Company included six other funds, UBS Bond Fund, UBS Value
Equity Fund, UBS Institutional International Equity Fund, UBS High Yield Bond
Fund, UBS Small Cap Fund and UBS Large Cap Growth Fund. These financial
statements relate only to the Fund.
The Fund seeks to achieve its investment objective by investing substantially
all of its investable assets in the UBS International Equity Portfolio of UBS
Investor Portfolios Trust (the 'Portfolio'), an open-end management investment
company that has the same investment objective as that of the Fund. At June 30,
1998, certain shares of the Fund were held by UBS or its affiliates on behalf of
its clients.
Investors Bank & Trust Company ('IBT') serves as the Fund's administrator and
First Fund Distributors, Inc. ('FFDI') serves as the Fund's distributor. Union
Bank of Switzerland, New York Branch ('UBS') serves as the funds services agent
to the Fund.
The financial statements of the Portfolio, including its Schedule of
Investments, are included elsewhere within this report and should be read in
conjunction with the Fund's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. Significant accounting policies
followed by the Fund are as follows:
A. INVESTMENT VALUATION -- The value of the Fund's investment in the Portfolio
included in the accompanying Statement of Assets and Liabilities reflects the
Fund's proportionate beneficial interest in the net assets of the Portfolio
(49.35% at June 30, 1998). Valuation of securities by the Portfolio is discussed
in Note 2A of the Portfolio's Notes to Financial Statements.
B. INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND
LOSSES -- The Fund records its share of the investment income, expenses and
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expenses and realized and unrealized gains and
losses are allocated daily to investors of the Portfolio based upon the amount
of their investment in the Portfolio. The amount of foreign withholding taxes
deducted from the dividend income allocated to the Fund from the Portfolio is
net of the amount the Fund expects to recover from foreign tax authorities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the requirement to distribute substantially all of its taxable income, including
any net realized capital gains on investment transactions, to its shareholders.
Accordingly, no provision for federal income or excise taxes is necessary.
D. DIVIDENDS AND DISTRIBUTIONS -- The Fund declares dividends from net
investment income to shareholders of record on the day of declaration. Such
dividends are declared and paid annually. Net realized gains, if any, will be
distributed at least annually. However, to the extent that net realized gains of
the Fund can be reduced by capital loss carryovers, such gains will not be
distributed. Dividends and distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These 'book/tax'
differences are either considered temporary or permanent in
10
UBS International Equity Fund
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based upon their federal
tax-basis treatment; temporary differences do not require reclassification.
E. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in connection
with its organization in the amount of approximately $107,500 have been deferred
and are being amortized on a straight line basis over five years from the Fund's
commencement of operations (April 2, 1996).
F. OTHER -- The Fund bears all costs of its operations other than expenses
specifically assumed by IBT, FFDI and UBS. Expenses incurred by the Company on
behalf of any two or more funds are allocated in proportion to the net assets of
each fund, except when allocations of direct expenses to each fund can otherwise
be made fairly. Expenses directly attributable to the Fund are charged directly
to the Fund.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Company, IBT provides overall administrative services and general
office facilities. As compensation for such services, the Company has agreed to
pay IBT a fee, accrued daily and payable monthly, at an annual rate of 0.065% of
the Fund's first $100 million average daily net assets and 0.025% of the next
$100 million average daily net assets. IBT does not receive a fee on average
daily net assets in excess of $200 million. For the six months ended June 30,
1998, the administrative services fee amounted to $9,791.
B. DISTRIBUTION AGREEMENT -- Under the terms of a Distribution Agreement, FFDI
serves as the distributor of Fund shares. FFDI does not receive any fees from
the Fund for services provided pursuant to this agreement.
C. SHAREHOLDER SERVICING AGREEMENT -- The Fund has entered into a Shareholder
Servicing Agreement with UBS pursuant to which UBS provides certain services to
shareholders of the Fund. The Fund has agreed to pay UBS a fee for these
services, accrued daily and payable monthly, at an annual rate of 0.25% of the
average daily net assets of the Fund. For the six months ended June 30, 1998,
the shareholder service fee amounted to $37,658 all of which was waived.
D. FUNDS SERVICES AGREEMENT -- Under the terms of a Funds Services Agreement
with the Company, UBS has agreed to provide certain administrative services to
the Fund. UBS is not entitled to any additional compensation pursuant to this
agreement.
E. EXPENSE REIMBURSEMENT -- UBS has voluntarily agreed to limit the total
operating expenses of the Fund, including its share of the Portfolio's expenses
and excluding extraordinary expenses, to an annual rate of 1.40% of the Fund's
average daily net assets. For the six months ended June 30, 1998, UBS reimbursed
the Fund for expenses totaling $4,543 in connection with this voluntary
limitation. UBS may modify or discontinue this voluntary expense limitation at
any time with 30 days' advance notice to the Fund.
11
UBS International Equity Fund
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. CAPITAL SHARE TRANSACTIONS
At June 30, 1998 there were 500 million shares of the Company's common stock
authorized, of which 10 million shares were classified as common stock of the
Fund. Transactions in shares of the Fund were as follows:
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
---------------- -----------------
Shares subscribed..................................... 91,999 187,382
Shares issued to shareholders from reinvestment of
dividends and
distributions....................................... 0 9,044
Shares redeemed....................................... (48,078) (211,542)
---------------- -----------------
Net (decrease) increase in shares
outstanding......................................... 43,921 (15,116)
---------------- -----------------
---------------- -----------------
12
UBS International Equity Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- -------------------------------------------------------------------------------------- -----------
COMMON STOCK -- 88.5%
AUSTRALIA -- 3.6%
40,000 Australia & New Zealand Bank Group (Banking & Finance)................................ $ 276,718
15,800 Australian National Industries (Metals & Mining)...................................... 9,125
254,362 Burns Philp & Co. (Food).............................................................. 20,535
62,500 Coles Myer Ltd. (Retail).............................................................. 244,519
102,400 Fosters Brewing Group (Beverages)..................................................... 241,644
211,100 Goodman Fielder Limited (Food)........................................................ 308,069
721,323 MIM Holdings (Metals & Mining)........................................................ 349,394
89,000 Pacific Dunlop Ltd. (Diversified)..................................................... 144,252
570,000 Pasminco Limited (Metals & Mining).................................................... 435,383
100,000 WMC Limited (Metals & Mining)......................................................... 301,806
-----------
2,331,445
-----------
DENMARK -- 1.7%
4,440 BG Bank A/S (Banking & Finance)....................................................... 275,294
9,000 Tele Danmark -- B shares (Telecommunications)......................................... 864,692
-----------
1,139,986
-----------
FRANCE -- 14.9%
3,060 AXA Company (Banking & Finance)....................................................... 344,179
8,700 Alcatel Alsthom SA (Electrical & Electronics)......................................... 1,771,457
16,517 Banque Nationale de Paris (Banking & Finance)......................................... 1,349,620
5,500 Compagnie de Saint Gobain (Building Materials)........................................ 1,019,816
4,300 Groupe Danone (Food).................................................................. 1,185,653
27,120 Moulinex (Household Appliances) (a)................................................... 703,827
5,200 Sefimeg (Societe Francaise d'Investissements Immobiliers et de Gestion) (Real
Estate)............................................................................. 376,731
13,400 Societe Nationale Elf-Aquitaine (Energy Sources)...................................... 1,883,984
2,048 Suez Lyonnaise des Eaux (Building & Construction)..................................... 337,059
5,070 Total Cie Francaise des Petroles -- B shares (Energy Sources)......................... 659,149
-----------
9,631,475
-----------
GERMANY -- 8.9%
45,300 Bayer AG (Chemicals).................................................................. 2,346,070
2,050 MAN AG (Automotive & Heavy Machinery)................................................. 800,244
4,500 Schering AG (Pharmaceuticals)......................................................... 530,234
2,153 Volkswagen AG (Automotive)............................................................ 2,080,833
-----------
5,757,381
-----------
GREAT BRITAIN -- 15.7%
172,200 Allied Domecq PLC (Food & Beverages).................................................. 1,609,603
89,591 B.A.T. Industries (Tobacco)........................................................... 894,908
186,117 BG PLC -- New Shares (Natural Gas).................................................... 1,079,695
484,725 BTR PLC (Diversified)................................................................. 1,364,523
34,410 Bass PLC (Beverages).................................................................. 638,106
113,000 Coats Viyella (Apparel & Textiles).................................................... 137,812
61,775 Express Dairies PLC (Food) (a)........................................................ 170,803
53,000 MEPC British Registered (Real Estate)................................................. 466,629
324,000 Marley PLC (Building Materials)....................................................... 584,594
123,550 Northern Foods PLC (Food)............................................................. 445,843
67,176 Peninsular & Orient Steam (Transportation)............................................ 969,646
80,839 Safeway PLC (Food -- Retail).......................................................... 533,462
118,000 Smith & Nephew PLC (Health Care Providers)............................................ 293,734
18,605 South West Water PLC (Utilities)...................................................... 308,649
214,679 Tarmac PLC (Building Materials)....................................................... 383,759
15,000 Thames Water PLC (Utilities).......................................................... 274,946
-----------
10,156,712
-----------
- ------------------------
See notes to financial statements.
13
UBS International Equity Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- -------------------------------------------------------------------------------------- -----------
HONG KONG -- 0.5%
33,000 Sun Hung Kai Properties Ltd. (Real Estate)............................................ $ 140,126
171,000 Wharf (Holdings) Ltd. (Banking & Finance)............................................. 168,837
-----------
308,963
-----------
INDONESIA -- 0.3%
1,468,000 PT Bank Internasional Indonesia -- Foreign Shares (Banking & Finance) (a)............. 29,858
771,000 PT Indah Kiat Pulp & Paper Corporation (Paper & Forest Products)...................... 147,666
-----------
177,524
-----------
ITALY -- 1.3%
131,000 Eni S.p.A. (Energy Sources)........................................................... 853,555
-----------
JAPAN -- 20.6%
12,000 Dai Nippon Printing Co. (Printing).................................................... 191,997
6,000 Fuji Photo Film Co. (Photographic Equipment & Supplies)............................... 209,333
98,000 Hitachi Ltd. (Hit. Seisakusho) (Electrical & Electronics)............................. 640,639
140,000 Ishikawajima Harima Heavy Industries (Machinery)...................................... 255,851
31,000 JGC Engineering & Construction Corp. (Engineering).................................... 75,910
74 Japan Tobacco, Inc. (Tobacco)......................................................... 501,921
75,000 Japan Wool Textile Co. (Apparel & Textiles)........................................... 357,556
56,000 Kajima Corp. (Building & Construction)................................................ 153,713
78,000 Kansai Paint Co. (Chemicals).......................................................... 180,295
15,000 Kao Corp. (Household Products)........................................................ 231,869
90,000 Koito Manufacturing Co., Ltd. (Automotive -- Parts & Equipment)....................... 445,319
39,000 Marudai Food Co., Ltd. (Food)......................................................... 90,711
48,000 Matsushita Electric Industries (Electrical & Electronics)............................. 773,187
301,000 Mitsubishi Chemical Corp. (Chemicals)................................................. 545,731
90,000 Mitsubishi Estate Co. (Real Estate)................................................... 793,123
80,000 Mitsubishi Heavy Industries (Aerospace / Defense Equipment)........................... 302,803
101,000 Nihon Cement Co. (Building Materials)................................................. 202,817
184,000 Nikko Securities Co. (Investment Banking)............................................. 764,230
162,000 Nippon Yusen Kabushiki Kaish (Shipping)............................................... 549,986
51,250 Nissan Fire & Marine Insurance (Insurance)............................................ 176,584
63,000 Nisshinbo Industries, Inc. (Apparel & Textiles)....................................... 252,564
248,000 Sakura Bank Ltd. (Banking & Finance).................................................. 644,900
44,000 Sharp Corporation (Electronics)....................................................... 357,238
2,600 Sony Corporation (Electrical & Electronics)........................................... 224,429
58,000 Sumitomo Marine & Fire (Insurance).................................................... 325,108
232,000 Tokyo Gas (Energy Sources)............................................................ 517,827
44,000 Tokyo Steel Manufacturing (Metals & Mining)........................................... 226,929
75,000 Toray Industries, Inc. (Chemicals).................................................... 390,061
54,000 Tostem Corporation (Building & Construction).......................................... 701,329
44,000 Toyo Seikan Kaisha (Packaging)........................................................ 540,306
18,000 Uny Co. (Retail)...................................................................... 292,546
152 West Japan Railway (Transportation)................................................... 552,268
81,000 Yamaha Motor Co. (Automotive)......................................................... 509,029
17,000 Yamanouchi Pharmaceutical (Pharmaceuticals)........................................... 354,883
-----------
13,332,992
-----------
NETHERLANDS -- 5.3%
7,800 Akzo Nobel (Chemicals)................................................................ 1,734,740
9,490 Internationale Nederlanden Groep NV (Banking & Finance)............................... 621,698
17,200 Koninklijke Papierfabrieken BT NV (Paper & Forest Products)........................... 444,117
3,400 Philips Electronics NV (Electronics).................................................. 285,946
5,114 Royal PTT Nederland (Telecommunications).............................................. 196,939
5,114 TNT Post Group NV (Transportation) (a)................................................ 130,790
-----------
3,414,230
-----------
- ------------------------
See notes to financial statements.
14
UBS International Equity Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- -------------------------------------------------------------------------------------- -----------
NEW ZEALAND -- 0.4%
10,300 Ceramco Corp. Ltd. (Diversified)...................................................... $ 6,700
43,840 Fletcher Challenge Forestry Shares (Forest Products).................................. 24,637
192,000 Fletcher Challenge Paper Shares (Paper & Forest Products)............................. 213,801
-----------
245,138
-----------
PHILIPPINES -- 0.2%
84,000 San Miquel Corporation Class B (Food & Beverages)..................................... 110,791
-----------
SINGAPORE -- 2.3%
197,579 Dairy Farm International Holdings (Food).............................................. 211,410
39,000 Development Bank Of Singapore Limited -- Foreign Shares (Banking & Finance)........... 215,833
302,696 Hong Kong Land Holdings (Real Estate)................................................. 378,370
46,765 Jardine Matheson Holdings (Diversified)............................................... 126,266
303,250 Keppel Corp., Ltd. (Diversified)...................................................... 455,907
264,000 United Overseas Land Ltd. (Real Estate)............................................... 142,196
-----------
1,529,982
-----------
SOUTH KOREA -- 2.2%
2,033 Housing & Commercial Bank, Korea (Banking & Finance).................................. 6,767
39,400 Hyundai Motor Co. GDR (Automotive) *.................................................. 73,875
17,570 Hyundai Motor Co., Ltd. (Automotive).................................................. 177,875
68,259 Kookmin Bank (Banking & Finance) (a).................................................. 253,548
26,400 Korea Electric Power Corporation (Utilities).......................................... 281,690
10,900 Korean Air (Airlines) (a)............................................................. 28,103
623 SK Telecom Co. Ltd. (Telecommunications).............................................. 291,308
55,215 Shinhan Bank (Banking & Finance)...................................................... 183,380
26,500 Yukong Ltd. (Energy Sources).......................................................... 162,127
-----------
1,458,673
-----------
SWEDEN -- 4.7%
29,900 Astra AB (Pharmaceuticals)............................................................ 611,046
96,250 Electrolux (Household Appliances)..................................................... 1,653,241
8,000 Forenings Sparbanken AB (Banking & Finance)........................................... 240,722
400 Mandamus AB REIT (Real Estate) (a).................................................... 2,508
33,400 Stora Kopparbergs -- A shares (Paper & Forest Products)............................... 525,539
-----------
3,033,056
-----------
SWITZERLAND -- 4.8%
41 Bobst AG (Machinery).................................................................. 75,460
600 Forbo Holding (Building Materials).................................................... 305,561
1,120 Nestle SA (Food & Beverages).......................................................... 2,398,255
210 Schindler Holding AG (Machinery)...................................................... 320,008
-----------
3,099,284
-----------
THAILAND -- 1.1%
168,200 Bangkok Bank Public Company, Ltd. (Banking & Finance)................................. 207,261
15,000 Italian-Thai Development PLC -- Foreign Shares (Building & Construction) (a).......... 7,642
63,000 Shinawatra Computer Company -- Foreign Shares (Technology)............................ 229,905
266,000 TelecomAsia Corp. -- Foreign Shares (Telecommunications) (a).......................... 77,216
223,000 Thai Farmers Bank Public Co., Ltd. (Banking & Finance)................................ 196,842
58,000 Thai Military Bank, Ltd. (Banking & Finance).......................................... 7,147
-----------
726,013
-----------
TOTAL COMMON STOCK (COST $56,136,740)................................................. 57,307,200
-----------
- ------------------------
See notes to financial statements.
15
UBS International Equity Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
SHARES SECURITY DESCRIPTION VALUE
- ----------- -------------------------------------------------------------------------------------- -----------
CONVERTIBLE PREFERRED STOCK -- 0.2%
JAPAN -- 0.2%
15,000,000 Sanwa International Finance Bermuda Trust, 1.25%, due 8/01/05 (Banking & Finance)
(Cost $117,339)*.................................................................... $ 109,975
-----------
TOTAL INVESTMENTS AT MARKET VALUE -- 88.7%
(COST $56,254,079)............................................................................... 57,417,175
OTHER ASSETS IN EXCESS OF LIABILITIES -- 11.3%..................................................... 7,288,763
-----------
NET ASSETS -- 100.0%............................................................................... $64,705,938
-----------
-----------
- ------------------------
GDR Global Depository Receipts.
(a) Non-income producing security.
* Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 1998, the value of
these securities amounted to $183,850 or 0.28% of net assets.
Note: Based upon the cost of investments of $56,254,079 for Federal Income Tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $12,394,931 and 11,231,835, respectively, resulting in
net unrealized appreciation of $1,163,096.
See notes to financial statements.
16
UBS International Equity Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
FOREIGN U.S. DOLLAR
CURRENCY U.S. DOLLAR NET UNREALIZED
UNITS U.S. DOLLAR VALUE AT APPRECIATION/
CURRENCY AND SETTLEMENT DATE PURCHASED COST JUNE 30, 1998 (DEPRECIATION)
- -------------------------------------------------------------- --------- ----------- -------------- --------------
PURCHASE CONTRACTS
British Pound, 7/01/98........................................ 20,020 $33,402 $ 33,444 $ 42
British Pound, 7/02/98........................................ 19,477 32,517 32,536 19
British Pound, 7/06/98........................................ 19,486 32,427 32,544 117
Hong Kong Dollar, 7/02/98..................................... 386,798 49,926 49,913 (13)
Thai Baht, 7/02/98............................................ 943,161 22,716 22,316 (400)
Thai Baht, 7/02/98............................................ 1,353,139 32,551 32,017 (534)
Thai Baht, 7/02/98............................................ 1,019,636 24,067 24,126 59
------
$ (710)
------
------
- ------------------------
See notes to financial statements.
17
UBS International Equity Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
SUMMARY OF INDUSTRY DIVERSIFICATION
PERCENT OF
INDUSTRY DIVERSIFICATION (UNAUDITED) NET ASSETS
- ------------------------------------------------------------------------------------------------------ ----------
Chemicals............................................................................................. 8.0%
Banking & Finance..................................................................................... 7.9%
Food & Beverages...................................................................................... 6.4%
Energy Sources........................................................................................ 6.3%
Electrical & Electronics.............................................................................. 5.3%
Automotive............................................................................................ 4.4%
Building Materials.................................................................................... 3.9%
Food.................................................................................................. 3.8%
Household Appliances.................................................................................. 3.6%
Real Estate........................................................................................... 3.5%
Diversified........................................................................................... 3.2%
Transportation........................................................................................ 2.5%
Pharmaceuticals....................................................................................... 2.3%
Telecommunications.................................................................................... 2.2%
Tobacco............................................................................................... 2.2%
Paper & Forest Products............................................................................... 2.1%
Metals & Mining....................................................................................... 2.0%
Building & Construction............................................................................... 1.9%
Natural Gas........................................................................................... 1.7%
Beverages............................................................................................. 1.4%
Utilities............................................................................................. 1.3%
Automotive & Heavy Machinery.......................................................................... 1.2%
Investment Banking.................................................................................... 1.2%
Apparel & Textiles.................................................................................... 1.2%
Machinery............................................................................................. 1.0%
Electronics........................................................................................... 1.0%
Shipping.............................................................................................. 0.8%
Packaging............................................................................................. 0.8%
Retail................................................................................................ 0.8%
Food -- Retail........................................................................................ 0.8%
Insurance............................................................................................. 0.8%
Automotive -- Parts & Equipment....................................................................... 0.7%
Aerospace/Defense Equipment........................................................................... 0.5%
Health Care Providers................................................................................. 0.5%
Household Products.................................................................................... 0.4%
Technology............................................................................................ 0.4%
Photographic Equipment & Supplies..................................................................... 0.3%
Printing.............................................................................................. 0.3%
Engineeering.......................................................................................... 0.1%
Airlines.............................................................................................. 0.0%
Forest Products....................................................................................... 0.0%
----------
Total Portfolio Holdings.............................................................................. 88.7%
Other assets in excess of liabilities................................................................. 11.3%
----------
Total Net Assets...................................................................................... 100.0%
----------
----------
- ------------------------
See notes to financial statements.
18
UBS International Equity Portfolio
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investment, at value (cost $56,254,079)............................................. $57,417,175
Cash................................................................................ 7,214,585
Receivable for investment securities sold........................................... 1,919,491
Dividends receivable................................................................ 175,919
Interest receivable................................................................. 15,588
Deferred organization expenses and other assets..................................... 18,977
-----------
Total Assets.............................................................. 66,761,735
-----------
LIABILITIES:
Investment advisory fees payable.................................................... 26,659
Administrative services fees payable................................................ 3,895
Payable for investment securities purchased......................................... 227,040
Foreign Currency Overdraft (Cost $1,755,766)........................................ 1,747,270
Unrealized depreciation on open forward foreign currency contracts.................. 710
Other accrued expenses.............................................................. 50,223
-----------
Total Liabilities......................................................... 2,055,797
-----------
NET ASSETS.......................................................................... $64,705,938
-----------
-----------
- ------------------------
See notes to financial statements.
19
UBS International Equity Portfolio
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $177,665)................ $670,780
Interest.............................................................. 160,726
--------
Investment income................................................ $ 831,506
EXPENSES:
Investment advisory fees.............................................. 264,201
Administrative services fees.......................................... 21,758
Custodian fees and expenses........................................... 49,299
Fund accounting fees.................................................. 27,274
Audit fees............................................................ 18,646
Amortization of organization expenses................................. 3,618
Legal fees............................................................ 2,801
Trustees' fees........................................................ 1,984
Miscellaneous expense................................................. 3,451
--------
Total expenses................................................... 393,032
Less: Fee waiver................................................. (108,788)
--------
Net expenses..................................................... 284,244
----------
Net investment income................................................. 547,262
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities transactions.......................... 1,261,946
Net realized loss on foreign currency transactions.................... (48,259)
Net change in unrealized appreciation of investments.................. 7,074,460
Net change in unrealized depreciation of foreign currency contracts
and translations.................................................... (10,678)
----------
Net realized and unrealized gain on investments....................... 8,277,469
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $8,824,731
----------
----------
- ------------------------
See notes to financial statements.
20
UBS International Equity Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income........................................... $ 547,262 $ 704,088
Net realized gain on securities and foreign currency
transactions.................................................. 1,213,687 1,982,162
Net change in unrealized appreciation (depreciation) of
investments, foreign currency contracts and foreign currency
translations.................................................. 7,063,782 (6,280,784)
------------- -----------------
Net increase (decrease) in net assets resulting from
operations.................................................... 8,824,731 (3,594,534)
------------- -----------------
CAPITAL TRANSACTIONS:
Proceeds from contributions..................................... 12,250,754 44,945,810
Value of withdrawals............................................ (8,289,446) (30,977,956)
------------- -----------------
Net increase in net assets from capital transactions............ 3,961,308 13,967,854
------------- -----------------
NET INCREASE IN NET ASSETS...................................... 12,786,039 10,373,320
NET ASSETS:
Beginning of period............................................. 51,919,899 41,546,579
------------- -----------------
End of period................................................... $ 64,705,938 $51,919,899
------------- -----------------
------------- -----------------
- ------------------------
See notes to financial statements.
21
UBS International Equity Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE YEAR APRIL 2, 1996*
JUNE 30, 1998 ENDED THROUGH
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996
------------- ----------------- -----------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)............. $64,706 $51,920 $41,547
Ratio of expenses to average net assets(1)........... 0.91%(2) 0.95% 0.88%(2)
Ratio of net investment income to average net
assets(1).......................................... 1.76%(2) 1.40% 2.07%(2)
Portfolio turnover................................... 8% 26% 42%
- ------------------------
* Commencement of operations.
(1) Net of fee waivers. Such fee waivers had the effect of reducing the ratio of
expenses to average net assets and increasing the ratio of net investment
income to average net assets by 0.35% (annualized), 0.35% and 0.79%
(annualized) for the respective periods.
(2) Annualized.
See notes to financial statements.
22
UBS International Equity Portfolio
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. GENERAL
UBS International Equity Portfolio (the 'Portfolio'), a separate series of UBS
Investor Portfolios Trust (the 'Trust'), is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Trust is organized as a trust under the laws of the State of New York. At
June 30, 1998, all of the beneficial interests in the Portfolio were held by UBS
International Equity Fund, UBS Institutional International Equity Fund and UBS
International Equity Fund, Ltd.
The investment adviser of the Portfolio is Union Bank of Switzerland, New York
Branch ('UBS'); UBS International Investment London Limited ('UBSII') is the
sub-adviser of the Portfolio. Investors Fund Services (Ireland) Limited ('IBT
Ireland') acts as the Portfolio's administrator.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements:
A. INVESTMENT VALUATION -- Equity securities in the portfolio are valued at the
last sale price on the exchange on which they are primarily traded, or in the
absence of recorded sales, at the average of readily available closing bid and
asked prices, or at the quoted bid price. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision of the Portfolio's Board of Trustees (the 'Trustees').
Trading in securities on most foreign exchanges and over-the-counter market is
normally completed before the close of the New York Stock Exchange and may also
take place on days on which the New York Stock Exchange is closed. If events
materially affecting the value of foreign securities occur between the time when
the exchange on which they are traded closes and the pricing of the Portfolio,
such securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
B. FOREIGN CURRENCY TRANSLATION -- The accounting records of the Portfolio are
maintained in U.S. dollars. Assets, including investment securities, and
liabilities denominated in foreign currency are translated into U.S. dollars at
the prevailing rate of exchange at period-end. Purchases and sales of
securities, income and expenses are translated at the prevailing rate of
exchange on the respective dates of such transactions. Gain/loss on translation
of foreign currency includes net exchange gains and losses, gains and losses on
disposition of foreign currency and adjustments to the amount of foreign taxes
withheld.
The assets and liabilities are presented at the exchange rates and market value
at the close of the period. The changes in net assets arising from changes in
exchange rates and the changes in net assets resulting from changes in market
prices of securities at period-end are not separately presented. However, gains
and losses from certain foreign currency transactions are treated as ordinary
income for U.S. Federal income tax purposes.
C. FORWARD FOREIGN CURRENCY CONTRACTS -- The Portfolio may enter into forward
foreign currency contracts in connection with planned purchases or sales of
securities or to hedge the U.S. dollar value of portfolio securities denominated
in a particular currency. The Portfolio could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts
and from unanticipated
23
UBS International Equity Portfolio
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
movements in the value of a foreign currency relative to the U.S. dollar. The
forward foreign currency contracts are marked-to market daily using the daily
exchange rate of the underlying currency and any resulting gains or losses are
recorded for financial statement purposes as unrealized gains or losses until
the contract settlement date.
The Portfolio's use of forward contracts involves, to varying degrees, elements
of market risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts reflect the extent of the
Portfolio's involvement in these financial instruments. Risks arise from the
possible movements in the foreign exchange rates underlying these instruments.
The unrealized appreciation/depreciation on forward contracts reflects the
Portfolio's exposure at period-end to credit loss in the event of counterparty's
failure to perform its obligations.
D. ACCOUNTING FOR INVESTMENTS -- Securities transactions are accounted for on
trade date. Realized gains and losses on security transactions are determined on
the identified cost basis. Dividend income and other distributions from
portfolio securities are recorded on the ex-dividend date, except, if the
ex-dividend date has passed, certain dividends from foreign securities are
recorded as soon as the Portfolio is informed of the ex-dividend date. Dividend
income is recorded net of foreign taxes withheld where recovery of such taxes is
not assured. Withholding taxes on foreign dividends have been provided for in
accordance with the Portfolio's understanding of the applicable countries' tax
rules and rates. Recoveries of foreign taxes withheld from the Portfolio's
income are generally recorded, where applicable, by the funds investing in the
Portfolio. Interest income, adjusted for amortization of premiums and accretion
of discounts on investments, is accrued daily.
E. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code (the 'Code'). As such, each investor in the
Portfolio will be taxed on its share of the Portfolio's ordinary income and
capital gains. Accordingly, no provision for federal income taxes is necessary.
It is intended that the Portfolio will be managed in such a way that an investor
will be able to satisfy the requirements of the Code applicable to regulated
investment companies.
F. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Portfolio in
connection with its organization in the amount of approximately $40,000 have
been deferred and are being amortized on a straight line basis over five years
from the Portfolio's commencement of operations (April 2, 1996).
G. OTHER -- The Portfolio bears all costs of its operations other than expenses
specifically assumed by UBS, UBSII and IBT Ireland. Expenses incurred by the
Trust on behalf of any two or more portfolios are allocated in proportion to net
assets of each portfolio, except when allocations of direct expenses to each
portfolio can otherwise be made fairly. Expenses directly attributable to the
Portfolio are charged directly to the Portfolio.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY AGREEMENT -- The Portfolio has retained the services of
UBS as investment adviser and UBSII as investment sub-adviser. UBSII makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments and
operations subject to the supervision of UBS and the Trustees. As compensation
for overall investment management services, the Trust has agreed to pay UBS an
investment advisory fee, accrued daily and payable monthly, at an annual rate of
0.85% of the Portfolio's average daily net assets. UBS, in turn, has agreed to
pay UBSII a fee, accrued daily and payable monthly, at an annual rate of 0.75%
of the Portfolio's first $20 million average daily net assets, 0.50% of the next
$30 million average daily net assets and 0.40% of the Portfolio's average daily
net assets in excess of $50 million. For the six months
24
UBS International Equity Portfolio
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ended June 30, 1998, the investment advisory fee amounted to $264,201. UBS
voluntarily agreed to waive $108,788 of this amount.
B. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Trust, IBT Ireland provides overall administrative services and general
office facilities to the Portfolio and the Trust. As compensation for such
services, the Portfolio has agreed to pay IBT Ireland an administrative services
fee, accrued daily and payable monthly, at an annual rate of 0.07% of the
Portfolio's first $100 million average daily net assets and 0.05% of the
Portfolio's average daily net assets in excess of $100 million. For the six
months ended June 30, 1998, the administrative services fee amounted to $21,758.
4. PURCHASE AND SALES OF INVESTMENTS
For the six months ended June 30, 1998, purchases and sales of investment
securities, excluding short-term investments, aggregated to $4,723,681 and
$5,135,229, respectively.
25
- -------------------------------------------------------------------------------
UBS International Equity Fund
200 Clarendon Street
Boston, Massachusetts 02116
Investment Adviser Union Bank of Switzerland,
New York Branch
1345 Avenue of the Americas
New York, NY 10105
Administrator Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Distributor First Fund Distributors, Inc.
4455 East Camelback Road
Phoenix, AZ 85018
Custodian and Transfer Agent Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
The accompanying financial statements dated as of June 30, 1998 were not audited
and, accordingly, no opinion is expressed on them.
- -------------------------------------------------------------------------------
PART C. OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Indemnification of the Registrant's Trustees is provided for in
Article VII, Sections 2 and 3 of the Registrant's Agreement and
Declaration of Trust dated August 9, 1993, as amended through August
24, 1998, as follows:
Section 2. Indemnification and Limitation of Liability. The Trustees
shall not be responsible or liable in any event for any neglect or
wrong-doing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, and, subject to the provisions
of the Bylaws, the Trust out of its assets may indemnify and hold
harmless each and every Trustee and officer of the Trust from and
against any and all claims, demands, costs, losses, expenses, and
damages whatsoever arising out of or related to such Trustee's
performance of his or her duties as a Trustee or officer of the Trust;
provided that nothing herein contained shall indemnify, hold harmless
or protect any Trustee or officer from or against any liability to the
Trust or any Shareholder to which he or she would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with
the Trust shall be conclusively deemed to have been issued, executed
or done only in or with respect to their or his or her capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers hereunder shall
be binding upon everyone interested in or dealing with the Trust. A
Trustee shall be liable to the Trust and to any Shareholder solely for
his or her own wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office
of Trustee and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration
of Trust and shall be under no liability for any act or omission in
accordance with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
C-1
Section 4. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets
insurance for liability and for all expenses, reasonably incurred or
paid or expected to be paid by a Trustee or officer in connection with
any claim, action, suit or proceeding in which he or she becomes
involved by virtue of his or her capacity or former capacity with the
Trust, whether or not the Trust would have the power to indemnify him
or her against such liability under the provisions of this Article.
Indemnification of Registrant's custodian, transfer agent, accounting
services provider, administrator and distributor against certain
stated liabilities is provided until May 9, 1997 under the following
documents:
(a) Section 12 of Accounting Services Agreement, between the
Registrant and Fund/Plan Services, Inc., incorporated herein
by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637), Exhibit 9(c) as filed electronically
with the Commission on February 14, 1996.
(b) Section 8 of Administration Agreement between the Registrant
and Fund/Plan Services, Inc., incorporated herein by
reference to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637), Exhibit 9(b) as filed electronically with the
Commission on February 15, 1996.
(c) Section 14 of Custodian Agreement between the Registrant and
Bankers Trust Company, incorporated herein by reference to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-47287 and 811-6637),
Exhibit Nos. 8(a) and 8(b) as filed electronically with the
Commission on September 20, 1995.
(d) Section 19 of Shareholder Services Agreement between
Registrant and Fund/Plan Services, Inc., incorporated herein
by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637), Exhibit 9(a) as filed electronically
with the Commission on February 15, 1996.
(e) Section 8 of the Underwriting Agreement between Registrant
and Fund/Plan Broker Services, Inc. are incorporated herein
by reference to Post-Effective No. 16 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637), Exhibit No. (6) as filed electronically with the
Commission on February 15, 1996.
C-2
Effective May 10, 1997, indemnification of Registrant's custodian,
transfer agent, accounting services provider, administrator and
distributor against certain stated liabilities is provided for in the
following documents:
(a) Sections I.8(a), I.8(c)(iii), I.10, II.A.2, II.B.5, II.C.6,
III.1., III.2.(b) through III.2.(e), III.4.(e) and III.9.(b)
of the Multiple Services Agreement dated May 9, 1997, as
amended through January 23, 1998, between Morgan Stanley
Trust Company and the Registrant on behalf of each of the
series of the Registrant is incorporated herein by reference
to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998.
Effective February 24, 1997, indemnification of Registrant's
distributor against certain stated liabilities is provided for in the
following document:
(b) Section 1.10 of the Distribution Agreement between Funds
Distributor, Inc. and the Registrant on behalf of each
series of the Registrant dated February 24, 1997, as amended
through August 24, 1998, is incorporated herein by reference
to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998.
ITEM 16. EXHIBITS.
(1) Copies of the charter of the registrant as now in effect.
(a) Certificate of Trust of the Registrant dated August 9, 1993,
as filed with the Office of the Secretary of State of the
State of Delaware on August 13, 1993, is incorporated herein
by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(b) Agreement and Declaration of Trust dated August 19, 1993, as
amended through August 24, 1998, of the Registrant is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(c) Certificates of the Secretary of the Registrant dated April
14, 1998 are incorporated herein by reference to Post-
Effective Amendment
C-3
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(2) By-Laws.
By-Laws of The Brinson Funds dated August 9, 1993, are
incorporated hereby by reference to Exhibit 2 to Post-Effective
Amendment No. 17 to Registrant's Registration Statement on Form
N-1A (File Nos. 33-47287 and 811-6637), as electronically filed
with the Commission on August 29, 1996.
(3) Voting Trust Agreement.
Not applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it:
Form of Agreement and Plan of Reorganization is filed herewith as
Exhibit A to the Combined Prospectus/Proxy Statement.
(5) Instruments Defining the Rights of Security Holders.
(a) Form of Specimen Share Certificate of The Brinson Funds is
incorporated herein by reference to Post-Effective Amendment
No. 9 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed with the
Commission on July 21, 1994 and is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998.
The rights of security holders of The Brinson Funds are
further defined in the following sections of The Brinson
Funds By-Laws and Agreement and Declaration of Trust :
a. By-Laws.
See Article II "Voting," Section 7 and Section 10.
b. Agreement and Declaration of Trust.
See Article III "Shares," Section 1, Section 2 and
Section 6.
(6) Investment Advisory Contracts.
C-4
(a) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global Fund (f/k/a Brinson Global Fund) series, and
Secretary's Certificate relating thereto, is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(b) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global Bond Fund (f/k/a Brinson Global Bond Fund) series,
and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(c) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global (ex-U.S.) Equity Fund (f/k/a Non-U.S. Equity Fund)
series, and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(d) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global Equity Fund (f/k/a Brinson Global Equity Fund)
series, and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(e) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
U.S. Equity Fund (f/k/a Brinson U.S. Equity Fund) series,
and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(f) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
U.S.
C-5
Balanced Fund (f/k/a Brinson U.S. Balanced Fund) series, and
Secretary's Certificate relating thereto, is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(g) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
U.S. Bond Fund (f/k/a Brinson U.S. Bond Fund) series, and
Secretary's Certificate relating thereto, is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(h) Investment Advisory Agreement dated November 24, 1997
between Brinson Partners, Inc. and the Registrant on behalf
of the U.S. Large Capitalization Equity Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(i) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the U.S. Large Capitalization Growth Fund series
is incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-47287 and 811-6637) as filed
electronically with the Commission on September 18, 1998.
(j) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the U.S. Small Capitalization Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(k) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the High Yield Bond Fund series is incorporated
herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 18, 1998.
C-6
(l) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the Emerging Markets Equity Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(m) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the Emerging Markets Debt Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(7) Underwriting or Distribution Contracts.
Distribution Agreement dated February 24, 1997, as amended
through August 24, 1998, between Funds Distributor, Inc. and the
Registrant on behalf of each series is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and 811-
6637) as filed electronically with the Commission on September
15, 1998.
(8) Bonus, Profit Sharing, Pension or Other Similar Contracts.
Not applicable.
(9) Custodian Agreements.
Custodial arrangements are provided under the Multiple Services
Agreement dated May 9, 1997, as amended through January 23, 1998,
between Morgan Stanley Trust Company and the Registrant on behalf
of each series of the Registrant which is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and 811-
6637) as filed electronically with the Commission on September
15, 1998, and forms of amendments to Schedule B1 and Schedule F
are incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A (File
Nos. 33-47287 and 811-6637) as filed electronically with the
Commission on September 18, 1998.
(10) Rule 12b-1 Plan and Rule 18f-3 Plan.
C-7
(a) Amended Distribution Plan dated February 21, 1995, as
amended through August 24, 1998, relating to the UBS
Investment Fund class of shares (f/k/a the SwissKey Fund
Class) of each series of the Registrant is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998 and form of amendment to
Schedule A is incorporated herein by reference to Post-
Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-47287 and 811-6637) as
filed electronically with the Commission on September 18,
1998.
(b) Distribution Plan dated June 30, 1997, as amended through
August 24, 1998, relating to the Brinson Fund-Class N shares
of each series of the Registrant is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998 and amendment to Schedule A is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(c) Selected Dealer and Selling Agreement as last approved on
August 24, 1998 for the UBS Investment Fund class of shares
(f/k/a SwissKey Fund Class) of each series of the Registrant
is incorporated herein by reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-47287 and 811-6637) as filed
electronically with the Commission on September 15, 1998 and
amendment to Exhibits A and B are incorporated herein by
reference to Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 18, 1998.
(d) The Selected Dealer and Selling Agreements as approved
November 24, 1997 on behalf of each series of The Brinson
Funds are incorporated herein by reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-47287 and 811-6637) as filed
electronically with the Commission on September 15, 1998.
(e) Revised Multiple Class Plan dated May 19, 1997, as amended
through August 24, 1998, pursuant to Rule 18f-3 on behalf of
each series of the Registrant is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement (File Nos. 33-47287 and 811-6637) as
filed electronically with the Commission on September 15,
1998 and amendment to Appendix A is incorporated herein by
reference to Post-Effective Amendment No. 22 to Registrant's
Registration Statement (File Nos. 33-47287 and 811-6637) as
filed electronically with the Commission on September 18,
1998.
(11) Opinion of Counsel.
C-8
Legal opinion of Stradley, Ronon, Stevens & Young, LLP, counsel
to the Registrant, as to the legality of the securities being
registered, is incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form
N-1A (File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(12) Opinion of Counsel Supporting the Tax Matters and Consequences to
Shareholders.
Form of tax opinion of Stradley, Ronon, Stevens & Young, LLP,
counsel to the Registrant, supporting the tax matters and
consequences to shareholders discussed in the prospectus is filed
electronically herewith as EX-8.
(13) Other Material Contracts.
Not applicable.
(14) Other Opinions and Consents.
(a) Consent of Ernst & Young LLP, independent auditors to the
Registrant, is filed electronically herewith as EX-23.1.
(b) Consent of PricewaterhouseCoopers, LLP, independent auditors
to the UBS Private Investor Funds, Inc., is filed
electronically herewith as EX-23.2.
(c) Consent of PricewaterhouseCoopers, independent auditors to
the UBS Investor Portfolios Trust, is electronically filed
herewith as EX-23.3.
(15) Omitted Financial Statements.
Not applicable.
(16) Power of Attorney.
(a) Power-of-Attorney appointing Karl Hartmann, Lloyd Lipsett,
Kathleen O'Neill, Eddie Wang and Paul Roselli as attorneys-
in-fact and agents is filed electronically herewith as EX-
24.
(b) Certificate of Secretary and resolution relating to the
appointment of power of attorney is filed electronically
herewith as EX-24.1.
C-9
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c],
the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment shall
be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
C-10
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Chicago, and State of Illinois, on the 21st day
of September 1998.
THE BRINSON FUNDS
By: /s/ E. Thomas McFarlan
-------------------------
E. Thomas McFarlan
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE: TITLE: DATE:
/s/ E. Thomas McFarlan* President, September 21, 1998
- ------------------------------
E. Thomas McFarlan
/s/ Frank K. Reilly* Chairman and Trustee September 21, 1998
- ------------------------------
Frank K. Reilly
/s/ Walter E. Auch* Trustee September 21, 1998
- ------------------------------
Walter E. Auch
/s/ Edward M. Roob* Trustee September 21, 1998
- ------------------------------
Edward M. Roob
/s/ Carolyn M. Burke* Principal Accounting September 21, 1998
- ------------------------------
Carolyn M. Burke Officer, Secretary and
Treasurer
*By: Lloyd Lipsett
-----------------------------
as Attorney-In-Fact and Agent
Pursuant to Power of Attorney
40
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Document Page
- ----------- -------- ------------
EX-8 Form of tax opinion of Stradley, Ronon,
Stevens & Young, LLP
EX-23.1 Consent of Ernst & Young LLP, independent
auditors, relating to The Brinson Funds
EX-23.2 Consent of PricewaterhouseCoopers, LLP independent
auditors, relating to the UBS Private Investor Funds, Inc.
EX-23.3 Consent of PricewaterhouseCoopers, independent
auditors, relating to UBS Investor Portfolios Trust
EX-24 Power of Attorney
EX-24.1 Certificate of Secretary and resolution relating to
appointment of Power of Attorney
41