0000912057-01-537555.txt : 20011107
0000912057-01-537555.hdr.sgml : 20011107
ACCESSION NUMBER: 0000912057-01-537555
CONFORMED SUBMISSION TYPE: 497
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011102
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BRINSON FUNDS INC
CENTRAL INDEX KEY: 0000886244
STANDARD INDUSTRIAL CLASSIFICATION: []
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 497
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-47287
FILM NUMBER: 1774336
BUSINESS ADDRESS:
STREET 1: 209 S LASALLE ST
CITY: CHICAGO
STATE: IL
ZIP: 60604-1795
BUSINESS PHONE: 8001482430
MAIL ADDRESS:
STREET 1: 209 S LASALLE ST
CITY: CHICAGO
STATE: IL
ZIP: 60604-1795
497
1
a2058846z497.txt
DEFINITIVE PROSPECTUS/SAI
The Brinson Funds
U.S. Bond Fund
High Yield Fund
U.S. Balanced Fund
U.S. Equity Fund
U.S. Value Equity Fund
U.S. Large Cap Equity Fund
U.S. Large Cap Growth Fund
U.S. Small Cap Equity Fund
U.S. Small Cap Growth Fund
U.S. Real Estate Equity Fund
Global Balanced Fund
Global Equity Fund
Global Technology Fund
Global Biotech Fund
Global Bond Fund
International Equity Fund
--------------------
PROSPECTUS
NOVEMBER 5, 2001
----------------------------------
This prospectus offers Class A, Class B, Class C and Class Y shares in the
sixteen Funds listed above. Each class has different sales charges and ongoing
expenses. You can choose the class that is best for you based on how much you
plan to invest and how long you plan to hold your Fund shares. Class Y shares
are available only to certain types of investors.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any Fund's shares or determined whether this prospectus
is complete or accurate. To state otherwise is a crime.
Not FDIC Insured. May lose value. No bank guarantee.
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
CONTENTS
THE FUNDS
--------------------------------------------------------------------------------
What every investor U.S. Bond Fund
should know about 4 Investment Objective, Strategies and Risks
the Funds 5 Performance
6 Expenses and Fee Tables
High Yield Fund
7 Investment Objective, Strategies and Risks
8 Performance
9 Expenses and Fee Tables
U.S. Balanced Fund
10 Investment Objective, Strategies and Risks
11 Performance
12 Expenses and Fee Tables
U.S. Equity Fund
13 Investment Objective, Strategies and Risks
14 Performance
15 Expenses and Fee Tables
U.S. Value Equity Fund
16 Investment Objective, Strategies and Risks
17 Performance
18 Expenses and Fee Tables
U.S. Large Cap Equity Fund
19 Investment Objective, Strategies and Risks
20 Performance
21 Expenses and Fee Tables
U.S. Large Cap Growth Fund
22 Investment Objective, Strategies and Risks
23 Performance
24 Expenses and Fee Tables
U.S. Small Cap Equity Fund
25 Investment Objective, Strategies and Risks
26 Performance
27 Expenses and Fee Tables
U.S. Small Cap Growth Fund
28 Investment Objective, Strategies and Risks
29 Performance
30 Expenses and Fee Tables
U.S. Real Estate Equity Fund
31 Investment Objective, Strategies and Risks
32 Performance
33 Expenses and Fee Tables
Global Balanced Fund
34 Investment Objective, Strategies and Risks
35 Performance
36 Expenses and Fee Tables
Global Equity Fund
37 Investment Objective, Strategies and Risks
38 Performance
39 Expenses and Fee Tables
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Prospectus Page 2
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The Brinson Funds
Global Technology Fund
40 Investment Objective, Strategies and Risks
41 Performance
42 Expenses and Fee Tables
Global Biotech Fund
43 Investment Objective, Strategies and Risks
44 Performance
45 Expenses and Fee Tables
Global Bond Fund
46 Investment Objective, Strategies and Risks
47 Performance
48 Expenses and Fee Tables
International Equity Fund
49 Investment Objective, Strategies and Risks
50 Performance
51 Expenses and Fee Tables
52 Securities Selection Process
YOUR INVESTMENT
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Information for 56 Managing Your Fund Account
managing your Fund --Flexible Pricing
account --Buying Shares
--Selling Shares
--Exchanging Shares
--Pricing and Valuation
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
Additional important 62 Management
information about 64 Dividends and Taxes
the Funds 65 Related Performance Information
66 Financial Highlights
--------------------------------------------------------------------------------
Where to learn more Back Cover
about the Funds
The Funds are not a complete or
balanced investment program.
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Prospectus Page 3
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Brinson U.S. Bond Fund
U.S. BOND FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
As a matter of fundamental policy, under normal circumstances, at least 65% of
the Fund's total assets are invested in investment grade U.S. debt securities,
with an initial maturity of more than one year. Investments in fixed income
securities may include debt securities of the U.S. government, its agencies and
instrumentalities, debt securities of U.S. corporations, mortgage-backed
securities and asset-backed securities.
Investment-grade fixed income securities possess a minimum rating of BBB by
Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Services,
Inc. ("Moody's") or, if unrated, are determined to be of comparable quality by
Brinson Partners, Inc., the Funds' investment advisor ("Brinson Partners" or the
"Advisor").
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- INTEREST RATE RISK -- The risk that changing interest rates may adversely
affect the value of an investment. An increase in prevailing interest rates
typically causes the value of fixed income securities to fall, while a decline
in prevailing interest rates may cause the market value of fixed income
securities to rise. Changes in interest rates will affect the value of longer-
term fixed income securities more than shorter-term securities and higher
quality securities more than lower quality securities.
- PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
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Prospectus Page 4
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------------------------
Brinson U.S. Bond Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1996 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1996 3.53%
1997 9.64%
1998 8.37%
1999 -1.04%
2000 10.82%
Total Return January 1 to September 30, 2001: 8.60%
Best quarter during calendar years shown: Q4 2000: 4.19%%
Worst quarter during calendar years shown: Q1 1996: -2.23%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A SALOMON SMITH
(FORMERLY (FORMERLY BARNEY BROAD
CLASS CLASS I) CLASS N)* INVESTMENT GRADE (BIG)
(INCEPTION DATE) (8/31/95) (6/30/97) BOND INDEX(1)
---------------- --------- --------- -------------
One Year....................................... 10.82% 5.54% 11.59%
Five Year...................................... 6.16% N/A 6.45%
Life of Class Y................................ 6.83% N/A 7.07%
Life of Class A................................ N/A 5.33% 7.30%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 4.50%.
(1) The Salomon Smith Barney BIG Bond Index is the benchmark for the U.S. Bond
Fund, and is a broad-based index that includes U.S. bonds with over one year to
maturity.
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Prospectus Page 5
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Brinson U.S. Bond Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 4.50% 5.00% 1.75% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 4.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 0.75% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None
Other Expenses**............................................ 0.25% 0.25% 0.25% 0.25%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.00% 1.75% 1.50% 0.75%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.15% 0.15% 0.15% 0.15%
---- ---- ---- ----
Net Expenses***............................................. 0.85% 1.60% 1.35% 0.60%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending June
30, 2001, but have been restated to reflect the Fund's current fees. The Class B
shares and Class C shares are new classes of shares, so the operating expenses
shown for these classes are based on estimated expenses for the Fund's current
fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.60% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $533 $709 $ 900 $1,452
Class B (assuming sale of all shares at end of period)...... 663 805 1,071 1,514
Class B (assuming no sale of shares)........................ 163 505 871 1,514
Class C (assuming sale of all shares at end of period)...... 311 523 832 1,708
Class C (assuming no sale of shares)........................ 236 523 832 1,708
Class Y..................................................... 61 192 335 750
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Prospectus Page 6
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Brinson High Yield Fund
HIGH YIELD FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to provide high current income, as well as capital growth when
consistent with high current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests in a portfolio of higher yielding, lower rated debt securities
issued by foreign and domestic companies. Under normal conditions, at least 80%
of the Fund's net assets are invested in fixed income securities that provide
higher yields and are lower-rated.
Lower-rated bonds are bonds rated in the lower rating categories of Moody's and
S&P, including securities rated Ba or lower by Moody's or BB or lower by S&P.
Securities rated in these categories are considered to be of poorer quality and
predominantly speculative. Bonds in these categories may also be called "high
yield bonds" or "junk bonds."
The Fund will invest in securities that Brinson Partners (NY), Inc., the Fund's
sub-advisor, expects will appreciate in value as a result of declines in
long-term interest rates or favorable developments affecting the business or
prospects of the issuer which may improve the issuer's financial condition and
credit rating. Up to 25% of the Fund's total assets may be invested in foreign
securities, which may include securities of issuers in emerging markets.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- INTEREST RATE RISK -- The risk that changing interest rates may adversely
affect the value of an investment. An increase in prevailing interest rates
typically causes the value of fixed income securities to fall, while a decline
in prevailing interest rates may cause the market value of fixed income
securities to rise. Changes in interest rates will affect the value of longer-
term fixed income securities more than shorter-term securities and higher
quality securities more than lower quality securities.
- CREDIT RISK -- The risk that the issuer of bonds with ratings of BB (S&P) or
Ba (Moody's) or below will default or otherwise be unable to honor a financial
obligation. These securities are considered to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. High yield bonds are more likely
to be subject to an issuer's default than investment grade (higher rated)
bonds.
- PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The risk that prices of a
Fund's investments in foreign securities may go down because of unfavorable
foreign government actions, political instability or the absence of accurate
information about foreign issuers. Also, a decline in the value of foreign
currencies relative to the U.S. Dollar will reduce the value of securities
denominated in those currencies. Also, foreign securities are sometimes less
liquid and harder to sell and to value than securities of U.S. issuers. Each
of these risks is more severe for securities of issuers in emerging market
countries.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 7
--------------------------------------------------------------------------------
------------------------
Brinson High Yield Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1998 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1998 7.75%
1999 4.85%
2000 -5.18%
Total Return January 1 to September 30, 2001: -3.00%
Best quarter during calendar years shown: Q4 1998: 4.32%
Worst quarter during calendar years shown: Q4 2000: -4.34%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A MERRILL LYNCH
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* HIGH YIELD
(INCEPTION DATE) (9/30/97) (12/31/98) MASTER INDEX(1)
---------------- ------------------ ------------------- ---------------
One Year.......................................... -5.18% -9.65% -3.79%
Life of Class Y................................... 2.87% N/A 1.19%
Life of Class A................................... N/A -0.57% -2.82%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 4.50%.
(1) The Merrill Lynch High Yield Master Index is the benchmark for the High
Yield Fund, and is an index of publicly placed non-convertible, coupon bearing
U.S. domestic debt with a term to maturity of at least one year.
--------------------------------------------------------------------------------
Prospectus Page 8
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------------------------
Brinson High Yield Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 4.50% 5.00% 1.75% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 4.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 0.75% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.60% 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None
Other Expenses**............................................ 0.34% 0.34% 0.34% 0.34%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.19% 1.94% 1.69% 0.94%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.24% 0.24% 0.24% 0.24%
---- ---- ---- ----
Net Expenses***............................................. 0.95% 1.70% 1.45% 0.70%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.70% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $543 $739 $ 952 $1,564
Class B (assuming sale of all shares at end of period)...... 673 836 1,123 1,627
Class B (assuming no sale of shares)........................ 173 536 923 1,627
Class C (assuming sale of all shares at end of period)...... 321 554 884 1,818
Class C (assuming no sale of shares)........................ 246 554 884 1,818
Class Y..................................................... 72 224 390 871
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Prospectus Page 9
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------------------------
Brinson U.S. Balanced Fund
U.S. BALANCED FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a wide range of U.S. equity, fixed income and
money market securities. Under normal circumstances, the Fund will invest at
least 25% of its net assets in fixed income securities and 25% of its net assets
in equity securities. Investments in fixed income securities may include debt
securities of the U.S. government, its agencies and instrumentalities, debt
securities of U.S. corporations, mortgage-backed securities and asset-backed
securities. To select equity securities for the Fund, the Advisor focuses on
identifying discrepancies between a security's fundamental value (what, in the
Advisor's assessment, the stock is worth) and its observed market price. These
value estimates are then compared to current market prices and ranked against
the other stocks in the valuation universe. Investments in equity securities may
include common stock and preferred stock.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- INTEREST RATE RISK -- The risk that changing interest rates may adversely
affect the value of an investment. An increase in prevailing interest rates
typically causes the value of fixed income securities to fall, while a decline
in prevailing interest rates may cause the market value of fixed income
securities to rise. Changes in interest rates will affect the value of longer-
term fixed income securities more than shorter-term securities and higher
quality securities more than lower quality securities.
- PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- ASSET ALLOCATION RISK -- The risk that the Fund may allocate assets to an
asset category that underperforms other asset categories. For example, the
Fund may be overweighted in equity securities when the stock market is falling
and the fixed income market is rising.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 10
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Balanced Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1995 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1995 25.48%
1996 11.32%
1997 13.22%
1998 9.92%
1999 -6.95%
2000 12.49%
Total Return January 1 to September 30, 2001: -0.67%
Best quarter during calendar years shown: Q2 1997: 7.10%
Worst quarter during calendar years shown: Q3 1999: -5.12%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
(FORMERLY (FORMERLY SALOMON SMITH U.S. BALANCED
CLASS CLASS I) CLASS N)* BARNEY BIG WILSHIRE 5000 MUTUAL FUND
(INCEPTION DATE) (12/31/94) (6/30/97) BOND INDEX(1) EQUITY INDEX(2) INDEX(3)
------------------------------------------------- ---------- --------- ------------- --------------- ---------------
One Year......................................... 12.49% 5.98% 11.59% -10.89% -3.26%
Five Year........................................ 7.71% N/A 6.45% 16.68% 13.35%
Life of Class Y.................................. 10.48% N/A 8.37% 19.76% 15.88%
Life of Class A.................................. N/A 3.81% 7.30% 12.63% 11.16%
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of
5.50%.
(1) The Salomon Smith Barney BIG Bond Index is a broad-based index that includes
U.S. bonds with over one year to maturity.
(2) The Wilshire 5000 Equity Index is a broad-based, market capitalization
weighted index that includes all U.S. common stocks. It is designed to
provide a representative indication of the capitalization and return for the
U.S. equity market.
(3) The U.S. Balanced Mutual Fund Index is the benchmark for the U.S. Balanced
Fund, and is an unmanaged index compiled by Brinson Partners and represents
a fixed composite of 65% Wilshire 5000 Equity Index and 35% Salomon Smith
Barney BIG Bond Index.
--------------------------------------------------------------------------------
Prospectus Page 11
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Balanced Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.70% 0.70% 0.70% 0.70%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 0.38% 0.38% 0.38% 0.38%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.33% 2.08% 2.08% 1.08%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.28% 0.28% 0.28% 0.28%
---- ---- ---- ----
Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending June
30, 2001, but have been restated to reflect the Fund's current fees. The Class B
shares and Class C shares are new classes of shares, so the operating expenses
shown for these classes are based on estimated expenses for the Fund's current
fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.80% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $651 $866 $1,098 $1,762
Class B (assuming sale of all shares at end of period)...... 683 866 1,175 1,738
Class B (assuming no sale of shares)........................ 183 566 975 1,738
Class C (assuming sale of all shares at end of period)...... 381 661 1,065 2,195
Class C (assuming no sale of shares)........................ 281 661 1,065 2,195
Class Y..................................................... 82 255 444 990
--------------------------------------------------------------------------------
Prospectus Page 12
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Equity Fund
U.S. EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in U.S. equity
securities, which may include dividend-paying securities. Investments in equity
securities may include common stock and preferred stock. In general, the Fund
emphasizes large capitalization stocks, but also may hold small and intermediate
capitalization stocks. To select securities for the Fund, the Advisor focuses on
identifying discrepancies between a security's fundamental value (what, in the
Advisor's assessment, the stock is worth) and its observed market price. These
value estimates are then compared to current market prices and ranked against
the other stocks in the valuation universe.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- SMALL COMPANY RISK -- The risk that investments in smaller companies may be
more volatile than investments in larger companies, as smaller companies
generally experience higher growth and failure rates. The trading volume of
smaller company securities is normally lower than that of larger companies.
Such securities may be less liquid than others and could make it difficult to
sell a security at a time or price desired. Changes in the demand for the
securities of smaller companies generally have a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 13
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1995 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1995 40.58%
1996 25.65%
1997 24.76%
1998 18.57%
1999 -4.05%
2000 3.23%
Total Return January 1 to September 30, 2001: -10.47%
Best quarter during calendar years shown: Q4 1998: 16.35%
Worst quarter during calendar years shown: Q3 1999: -14.25%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* WILSHIRE 5000
(INCEPTION DATE) (2/28/94) (6/30/97) EQUITY INDEX(1)
---------------- ------------------ ------------------- ---------------
One Year.......................................... 3.23% -2.69% -10.89%
Five Year......................................... 12.97% N/A 16.68%
Life of Class Y................................... 14.63% N/A 17.01%
Life of Class A................................... N/A 4.66% 12.63%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The Wilshire 5000 Equity Index is a broad-based, market capitalization
weighted index that includes all U.S. common stocks. It is designed to provide a
representative indication of the capitalization and return for the U.S. equity
market.
--------------------------------------------------------------------------------
Prospectus Page 14
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.70% 0.70% 0.70% 0.70%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 0.22% 0.22% 0.22% 0.22%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.17% 1.92% 1.92% 0.92%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.12% 0.12% 0.12% 0.12%
---- ---- ---- ----
Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.80% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $651 $866 $1,098 $1,762
Class B (assuming sale of all shares at end of period)...... 683 866 1,175 1,738
Class B (assuming no sale of shares)........................ 183 566 975 1,738
Class C (assuming sale of all shares at end of period)...... 381 661 1,065 2,195
Class C (assuming no sale of shares)........................ 281 661 1,065 2,195
Class Y..................................................... 82 255 444 990
--------------------------------------------------------------------------------
Prospectus Page 15
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Value Equity Fund
U.S. VALUE EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund invests at least 65% of its total assets in
U.S. equity securities, which may include dividend-paying securities.
Investments in equity securities may include common stock and preferred stock.
The Fund normally invests in companies whose stock prices, in the Advisor's
opinion, do not reflect the company's full value. These expectations are based
on the Advisor's assessment of a company's ability to generate profit and to
grow the business in the future. The Advisor analyzes industry competitive
strategy, structure and global integration. The Advisor's on-site company visits
examine the characteristics of each company (i.e., balance sheet fundamentals,
culture, productivity, pricing, etc.), and the Advisor determines which
companies offer attractive valuation.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risk presented by an investment in the Fund is:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 16
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Value Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
There is no performance information quoted for the Fund as the Fund did not
commence investment operations until June 29, 2001. See "Related Performance
Information" on page 66 of this prospectus for information about the historical
performance of private accounts managed by Brinson Partners with substantially
similar investment objectives, policies and strategies to those of the Fund.
--------------------------------------------------------------------------------
Prospectus Page 17
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Value Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.70% 0.70% 0.70% 0.70%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses*............................................. 0.23% 0.23% 0.23% 0.23%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.18% 1.93% 1.93% 0.93%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.08% 0.08% 0.08% 0.08%
---- ---- ---- ----
Net Expenses**.............................................. 1.10% 1.85% 1.85% 0.85%
==== ==== ==== ====
---------
* Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
** The fees and expenses are based on estimates. The Advisor has agreed, from
September 1, 2001 through September 1, 2002, to waive its fees and reimburse
certain expenses so that total operating expenses of the Fund, exclusive of
12b-1 fees, do not exceed 0.85% for each of the Class A, Class B, Class C and
Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $656 $880 * *
Class B (assuming sale of all shares at end of period)...... 688 882 * *
Class B (assuming no sale of shares)........................ 188 582 * *
Class C (assuming sale of all shares at end of period)...... 386 676 * *
Class C (assuming no sale of shares)........................ 286 676 * *
Class Y..................................................... 87 271 * *
---------
* The Fund has not projected expenses beyond the three year period shown
because the Fund had not commenced investment operations until June 29, 2001.
--------------------------------------------------------------------------------
Prospectus Page 18
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Large Cap Equity Fund
U.S. LARGE CAP EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a non-diversified Fund that normally invests at least 65% of its
total assets in equity securities of U.S.-based large capitalization companies.
Large capitalization companies are defined as companies with a market
capitalization of $7.5 billion or greater at the time the Fund purchases its
securities. Investments in equity securities may include common stock and
preferred stock. To select securities for the Fund, the Advisor focuses on
identifying discrepancies between a security's fundamental value (what, in the
Advisor's assessment, the stock is worth) and its observed market price. These
value estimates are then compared to current market prices and ranked against
the other stocks in the valuation universe.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more
volatile than a diversified Fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified Fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 19
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Large Cap Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1999 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1999 -11.05%
2000 2.18%
Total Return January 1 to September 30, 2001: -9.97%
Best quarter during calendar years shown: Q2 1999: 8.15%
Worst quarter during calendar years shown: Q3 1999: -15.36%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* S&P 500
(INCEPTION DATE) 4/30/98 4/30/98 INDEX(1)
---------------- ------- ------- --------
One Year...................................... 2.18% -3.99% -9.10%
Life of Class Y............................... -1.43% N/A 8.04%
Life of Class A............................... N/A -3.79% 8.04%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The S&P 500 Index is the benchmark for the U.S. Large Cap Equity Fund, and
is a board capitalization market-weighted index that includes common stocks of
the leading companies in the top industries in the U.S. It is designed to
provide a representative indication of the capitalization and return of the
large cap U.S. equity market.
--------------------------------------------------------------------------------
Prospectus Page 20
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Large Cap Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.70% 0.70% 0.70% 0.70%
Distribution and/or Service (12b-1) Fees.................... 0.25 1.00 1.00 None
Other Expenses**............................................ 0.65 0.65 0.65 0.65
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.60% 2.35% 2.35% 1.35%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.55% 0.55% 0.55% 0.55%
---- ---- ---- ----
Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.80% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $651 $866 $1,098 $1,762
Class B (assuming sale of all shares at end of period)...... 683 866 1,175 1,738
Class B (assuming no sale of shares)........................ 183 566 975 1,738
Class C (assuming sale of all shares at end of period)...... 381 661 1,065 2,195
Class C (assuming no sale of shares)........................ 281 661 1,065 2,195
Class Y..................................................... 82 255 444 990
--------------------------------------------------------------------------------
Prospectus Page 21
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Large Cap Growth Fund
U.S. LARGE CAP GROWTH FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
At least 65% of the Fund's total assets are invested in securities issued by
U.S. large capitalization growth companies. The Fund is a non-diversified Fund
that normally invests in securities of companies with market capitalizations of
$7.5 billion or greater at the time the Fund purchases its securities. Up to 20%
of the Fund's total assets may be invested in foreign securities. Investments in
equity securities may include common stock and preferred stock. The Fund invests
in companies that the Fund's sub-advisor, Brinson Partners (NY), Inc. (the
"Sub-Advisor"), believes possess a dominant market position and franchise, a
major technical edge or a unique competitive advantage. This superiority should
enable them to generate above average sales and profit growth. The Sub-Advisor
expects that these companies can sustain an above-average return on invested
capital at a higher level and over a longer period of time than is reflected in
current market prices.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- FOREIGN INVESTING RISK -- The risk that prices of a Fund's investments in
foreign securities may go down because of unfavorable foreign government
actions, political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies relative
to the U.S. Dollar will reduce the value of securities denominated in those
currencies. Also, foreign securities are sometimes less liquid and harder to
sell and to value than securities of U.S. issuers.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more
volatile than a diversified Fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified Fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 22
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Large Cap Growth Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1998 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1998 24.90%
1999 32.73%
2000 -16.10%
Total Return January 1 to September 30, 2001: -31.91%
Best quarter during calendar years shown: Q4 1998: 26.41%
Worst quarter during calendar years shown: Q4 2000: -14.11%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* RUSSELL 1000
(INCEPTION DATE) (10/14/97) (12/31/98) GROWTH INDEX(1)
---------------- ------------------ ------------------- ---------------
One Year.......................................... -16.10% -20.90% -22.42%
Life of Class Y................................... 12.32% N/A 13.91%
Life of Class A................................... N/A 2.26% 1.64%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The Russell 1000 Growth Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index, which represents approximately 92% of the
total market capitalization of the Russell 3000 Index. The Russell 1000 Growth
Index measures the performance of those Russell 1000 companies with higher
price-to-book ratios and higher forecasted growth values.
--------------------------------------------------------------------------------
Prospectus Page 23
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Large Cap Growth Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.70% 0.70% 0.70% 0.70%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 1.24% 1.24% 1.24% 1.24%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 2.19% 2.94% 2.94% 1.94%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 1.14% 1.14% 1.14% 1.14%
---- ---- ---- ----
Net Expenses***............................................. 1.05% 1.80% 1.80% 0.80%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.80% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $651 $866 $1,098 $1,762
Class B (assuming sale of all shares at end of period)...... 683 866 1,175 1,738
Class B (assuming no sale of shares)........................ 183 566 975 1,738
Class C (assuming sale of all shares at end of period)...... 381 661 1,065 2,195
Class C (assuming no sale of shares)........................ 281 661 1,065 2,195
Class Y..................................................... 82 255 444 990
--------------------------------------------------------------------------------
Prospectus Page 24
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Small Cap Equity Fund
U.S. SMALL CAP EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
At least 65% of the Fund's total assets will typically be invested in equity
securities issued by U.S.-based small capitalization companies. The Fund is a
non-diversified Fund that normally invests in common stocks of companies with
market capitalizations of $1.5 billion or less at the time of purchase. The Fund
looks for companies with strong and innovative management, good financial
controls, increasing market share, diversified product/service offerings, and
low market capitalization-to-sales ratios relative to similar companies.
Investments in equity securities may include common stock and preferred stock.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- SMALL COMPANY RISK -- The risk that investments in smaller companies may be
more volatile than investments in larger companies, as smaller companies
generally experience higher growth and failure rates. The trading volume of
smaller company securities is normally lower than that of larger companies.
Such securities may be less liquid than others and could make it difficult to
sell a security at a time or price desired. Changes in the demand for the
securities of smaller companies generally have a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more
volatile than a diversified Fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified Fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 25
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Small Cap Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
There is no performance information quoted for the Fund as the Fund had not
commenced investment operations as of the date of this prospectus.
--------------------------------------------------------------------------------
Prospectus Page 26
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Small Cap Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses*............................................. 0.23% 0.23% 0.23% 0.23%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.48% 2.23% 2.23% 1.23%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.08% 0.08% 0.08% 0.08%
---- ---- ---- ----
Net Expenses**.............................................. 1.40% 2.15% 2.15% 1.15%
==== ==== ==== ====
---------
* Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
** The fees and expenses are based on estimates. The Advisor has agreed, from
September 1, 2001 through September 1, 2002, to waive its fees and reimburse
certain expenses so that total operating expenses of the Fund, exclusive of
12b-1 fees, do not exceed 1.15% for each of the Class A, Class B, Class C and
Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $685 $969 * *
Class B (assuming sale of all shares at end of period)...... 718 973 * *
Class B (assuming no sale of shares)........................ 218 673 * *
Class C (assuming sale of all shares at end of period)...... 416 766 * *
Class C (assuming no sale of shares)........................ 316 766 * *
Class Y..................................................... 117 365 * *
---------
* The Fund has not projected expenses beyond the three year period shown
because the Fund had not commenced investment operations prior to the date of
this prospectus.
--------------------------------------------------------------------------------
Prospectus Page 27
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Small Cap Growth Fund
U.S. SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests in securities of companies with market capitalizations
of $1.5 billion or less at the time of purchase. Under normal conditions, the
Fund invests at least 65% of its total assets in equity securities meeting this
criteria.
The Fund seeks to invest in companies with strong business franchises and
attractive competitive positions that generate rapidly rising earnings (or
profits). In the overall small capitalization universe, the Fund's sub-advisor,
Brinson Partners (NY), Inc. (the "Sub-Advisor"), targets companies with earnings
growth in the top 40%. The Fund may also invest in securities of emerging growth
companies, which are companies that the Sub-Advisor expects to experience
above-average earnings or cash flow growth or meaningful changes in underlying
asset values. Investments in equity securities may include common stock and
preferred stock. The Fund may invest up to 20% of its total assets in foreign
securities.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- SMALL COMPANY RISK -- The risk that investments in smaller companies may be
more volatile than investments in larger companies, as smaller companies
generally experience higher growth and failure rates. The trading volume of
smaller company securities is normally lower than that of larger companies.
Such securities may be less liquid than others and could make it difficult to
sell a security at a time or price desired. Changes in the demand for the
securities of smaller companies generally have a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
- FOREIGN INVESTING RISK -- The risk that prices of a Fund's investments in
foreign securities may go down because of unfavorable foreign government
actions, political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies relative
to the U.S. Dollar will reduce the value of securities denominated in those
currencies. Also, foreign securities are sometimes less liquid and harder to
sell and to value than securities of U.S. issuers.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 28
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Small Cap Growth Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1998 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1998 -6.70%
1999 41.70%
2000 22.44%
Total Return January 1 to September 30, 2001: -24.62%
Best quarter during calendar years shown: Q4 1999: 32.94%
Worst quarter during calendar years shown: Q3 1998: -23.86%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* RUSSELL 2000
(INCEPTION DATE) (9/30/97) (12/31/98) GROWTH INDEX(1)
---------------- ------------------ ------------------- ---------------
One Year.......................................... 22.44% 15.51% -22.43%
Life of Class Y................................... 13.91% N/A 0.96%
Life of Class A................................... N/A 27.64% 5.36%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The Russell 2000 Growth Index is an unmanaged index composed of those
companies in the Russell 2000 Index with higher price-to-book ratios and higher
forecasted growth values. The Russell 2000 Index is an index composed of the
2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000 Index.
--------------------------------------------------------------------------------
Prospectus Page 29
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Small Cap Growth Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 0.39% 0.39% 0.39% 0.39%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.64% 2.39% 2.39% 1.39%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.24% 0.24% 0.24% 0.24%
---- ---- ---- ----
Net Expenses***............................................. 1.40% 2.15% 2.15% 1.15%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 1.15% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $685 $969 $1,274 $2,137
Class B (assuming sale of all shares at end of period)...... 718 973 1,354 2,117
Class B (assuming no sale of shares)........................ 218 673 1,154 2,117
Class C (assuming sale of all shares at end of period)...... 416 766 1,243 2,558
Class C (assuming no sale of shares)........................ 316 766 1,243 2,558
Class Y..................................................... 117 365 633 1,398
--------------------------------------------------------------------------------
Prospectus Page 30
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Real Estate Equity Fund
U.S. REAL ESTATE EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a non-diversified Fund that normally invests at least 65% of its
total assets in U.S. real estate securities, including real estate investment
trusts (REITs). REITs are publicly traded companies that own and often operate
real property and/or invest in mortgage and mortgage-backed securities. REITs
and other real estate securities may be of any market capitalization, including
small market capitalization (below $1.5 billion). Investments in equity
securities may include common stock and preferred stock.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- INDUSTRY CONCENTRATION RISK -- The risk that changes in economic, political or
other conditions may have a particularly negative effect on issuers in an
industry or sector in which a Fund's investments are concentrated. The Fund
invests principally in the real estate sector by purchasing securities issued
by REITs. There is, therefore, a risk that changes in real estate values or
interest rates, along with economic downturns, can have a substantial impact
on the Fund's investments. The Fund's portfolio may be more volatile than a
Fund with a broader range of investments.
- SMALL COMPANY RISK -- The risk that investments in smaller companies may be
more volatile than investments in larger companies, as smaller companies
generally experience higher growth and failure rates. The trading volume of
smaller company securities is normally lower than that of larger companies.
Such securities may be less liquid than others and could make it difficult to
sell a security at a time or price desired. Changes in the demand for the
securities of smaller companies generally have a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
- PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more
volatile than a diversified Fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified Fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 31
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Real Estate Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
There is no performance information quoted for the Fund as the Fund had not
commenced investment operations as of the date of this prospectus.
--------------------------------------------------------------------------------
Prospectus Page 32
--------------------------------------------------------------------------------
------------------------
Brinson U.S. Real Estate Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.90% 0.90% 0.90% 0.90%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses*............................................. 0.23% 0.23% 0.23% 0.23%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.38% 2.13% 2.13% 1.13%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.08% 0.08% 0.08% 0.08%
---- ---- ---- ----
Net Expenses**.............................................. 1.30% 2.05% 2.05% 1.05%
==== ==== ==== ====
---------
* Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
** The fees and expenses are based on estimates. The Advisor has agreed, from
September 1, 2001 through September 1, 2002, to waive its fees and reimburse
certain expenses so that total operating expenses of the Fund, exclusive of
12b-1 fees, do not exceed 1.05% for each of the Class A, Class B, Class C and
Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $675 $939 * *
Class B (assuming sale of all shares at end of period)...... 708 943 * *
Class B (assuming no sale of shares)........................ 208 643 * *
Class C (assuming sale of all shares at end of period)...... 406 736 * *
Class C (assuming no sale of shares)........................ 306 736 * *
Class Y..................................................... 107 334 * *
---------
* The Fund has not projected expenses beyond the three year period shown
because the Fund had not commenced investment operations prior to the date of
this prospectus.
--------------------------------------------------------------------------------
Prospectus Page 33
--------------------------------------------------------------------------------
------------------------
Brinson Global Balanced Fund
GLOBAL BALANCED FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund (formerly known as the Global Fund) seeks to maximize total return,
consisting of capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in equity and fixed income
securities of issuers located within and outside the U.S. Under normal
circumstances, the Fund will invest at least 25% of its net assets in fixed
income securities and 25% of its net assets in equity securities. Investments in
fixed income securities may include debt securities of governments throughout
the world (including the U.S.), their agencies and instrumentalities, debt
securities of corporations, mortgage-backed securities and asset-backed
securities. Investments in equity securities may include common stock and
preferred stock. The Fund may invest in emerging market issuers by investing in
other open-end investment companies advised by Brinson Partners.
The Fund attempts to mitigate risks by investing in various countries,
industries and securities around the world. In addition, the Fund attempts to
generate positive returns through sophisticated currency management techniques.
These decisions are integrated with analysis of global market and economic
conditions.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- INTEREST RATE RISK -- The risk that changing interest rates may adversely
affect the value of an investment. An increase in prevailing interest rates
typically causes the value of fixed income securities to fall, while a decline
in prevailing interest rates may cause the market value of fixed income
securities to rise. Changes in interest rates will affect the value of longer-
term fixed income securities more than shorter-term securities and lower
quality securities more than higher quality securities.
- PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The risk that prices of a
Fund's investments in foreign securities may go down because of unfavorable
foreign government actions, political instability or the absence of accurate
information about foreign issuers. Also, a decline in the value of foreign
currencies relative to the U.S. Dollar will reduce the value of securities
denominated in those currencies. Also, foreign securities are sometimes less
liquid and harder to sell and to value than securities of U.S. issuers. Each
of these risks is more severe for securities of issuers in emerging market
countries.
- ASSET ALLOCATION RISK -- The risk that the Fund may allocate assets to an
asset category that underperforms other asset categories. For example, the
Fund may be overweighted in equity securities when the stock market is falling
and the fixed income market is rising.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 34
--------------------------------------------------------------------------------
------------------------
Brinson Global Balanced Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1993 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1993 11.15%
1994 -1.89%
1995 24.14%
1996 14.10%
1997 11.00%
1998 8.32%
1999 1.49%
2000 6.52%
Total Return January 1 to September 30, 2001: -5.87%
Best quarter during calendar years shown: Q2 1997: 8.24%
Worst quarter during calendar years shown: Q3 1998: -5.32%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A SALOMON SMITH GSMI MUTUAL
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* MSCI WORLD EQUITY BARNEY WORLD FUND
(INCEPTION DATE) (8/31/92) (6/30/97) (FREE) INDEX(1) GOV'T BOND INDEX(2) INDEX(3)
---------------- ------------------ ------------------- ----------------- ------------------- ---------------
One Year................... 6.52% 0.33% -13.08% 1.59% -6.11%
Five Year.................. 8.19% N/A 12.35% 3.10% 10.44%
Life of Class Y............ 9.14% N/A 13.09% 5.51% 11.44%
Life of Class A............ N/A 3.19% 9.19% 3.76% 8.24%
----------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The MSCI World Equity (Free) Index is a broad-based securities index that
represents the U.S. and developed international equity markets in terms of
capitalization and performance. It is designed to provide a representative total
return for all major stock exchanges located inside and outside the United
States.
(2) The Salomon Smith Barney World Government Bond Index represents the broad
global fixed income markets and includes debt issues of U.S. and most developed
international governments, governmental entities and supranationals.
(3) The Global Securities Markets Index (GSMI) Mutual Fund Index is the
benchmark for the Global Balanced Fund, and is an unmanaged index compiled by
Brinson Partners. It is currently constructed as follows: 40% Wilshire 5000
Equity Index, 22% MSCI World Ex USA (Free) Index, 21% Salomon Smith Barney Broad
Investment Grade BIG Bond Index, 9% Salomon Smith Barney Non-U.S. Government
Bond Index, 3% Merrill Lynch High Yield Master Index, 3% MSCI Emerging Markets
Free Index and 2% JP Morgan EMBI Global.
--------------------------------------------------------------------------------
Prospectus Page 35
--------------------------------------------------------------------------------
------------------------
Brinson Global Balanced Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.80% 0.80% 0.80% 0.80%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 0.19% 0.19% 0.19% 0.19%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.24% 1.99% 1.99% 0.99%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.00% 0.00% 0.00% 0.00%
---- ---- ---- ----
Net Expenses***............................................. 1.24% 1.99% 1.99% 0.99%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 1.10% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $669 $922 $1,194 $1,967
Class B (assuming sale of all shares at end of period)...... 702 924 1,273 1,946
Class B (assuming no sale of shares)........................ 202 624 1,073 1,946
Class C (assuming sale of all shares at end of period)...... 400 718 1,162 2,394
Class C (assuming no sale of shares)........................ 300 718 1,162 2,394
Class Y..................................................... 101 315 547 1,213
--------------------------------------------------------------------------------
Prospectus Page 36
--------------------------------------------------------------------------------
------------------------
Brinson Global Equity Fund
GLOBAL EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
At least 65% of the Fund's total assets are invested in equity securities of
issuers located in the U.S. and foreign countries. Investments in equity
securities may include common stock and preferred stock. The Fund may invest in
stocks of companies of any size, but generally invests in companies with market
capitalizations above $1 billion, measured at the time the Fund purchases the
securities. The Fund's construction process begins with analysis at the
individual company and industry level, as well as broader analysis of economic
and currency factors, and aims to find equity securities that offer attractive
prices with opportunity for appreciation.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The risk that prices of a
Fund's investments in foreign securities may go down because of unfavorable
foreign government actions, political instability or the absence of accurate
information about foreign issuers. Also, a decline in the value of foreign
currencies relative to the U.S. Dollar will reduce the value of securities
denominated in those currencies. Also, foreign securities are sometimes less
liquid and harder to sell and to value than securities of U.S. issuers. Each
of these risks is more severe for securities of issuers in emerging market
countries.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 37
--------------------------------------------------------------------------------
------------------------
Brinson Global Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1995 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1995 21.93%
1996 17.26%
1997 10.72%
1998 14.03%
1999 12.87%
2000 -0.08%
Total Return January 1 to September 30, 2001: -16.89%
Best quarter during calendar years shown: Q4 1998: 14.25%
Worst quarter during calendar years shown: Q3 1998: -9.97%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* MSCI WORLD EQUITY
(INCEPTION DATE) (1/31/94) (6/30/97) (FREE) INDEX(1)
---------------- ------------------ ------------------- -----------------
One Year....................................... -0.08% -5.76 -13.08%
Five Year...................................... 10.79% N/A 12.35%
Life of Class Y................................ 10.11% N/A 11.69%
Life of Class A................................ N/A 4.91% 9.19%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The MSCI World Equity (Free) Index is the benchmark for the Global Equity
Fund, and is a broad-based index that represents the U.S. and developed non-U.S.
equity markets in terms of capitalization and performance. It is designed to
provide a representative total return for all major stock exchanges located
inside and outside the United States.
--------------------------------------------------------------------------------
Prospectus Page 38
--------------------------------------------------------------------------------
------------------------
Brinson Global Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.80% 0.80% 0.80% 0.80%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 0.36% 0.36% 0.36% 0.36%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.41% 2.16% 2.16% 1.16%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.16% 0.16% 0.16% 0.16%
---- ---- ---- ----
Net Expenses***............................................. 1.25% 2.00% 2.00% 1.00%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 1.00% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $670 $925 $1,199 $1,978
Class B (assuming sale of all shares at end of period)...... 703 927 1,278 1,956
Class B (assuming no sale of shares)........................ 203 627 1,078 1,956
Class C (assuming sale of all shares at end of period)...... 401 721 1,167 2,404
Class C (assuming no sale of shares)........................ 301 721 1,167 2,404
Class Y..................................................... 102 318 552 1,225
--------------------------------------------------------------------------------
Prospectus Page 39
--------------------------------------------------------------------------------
------------------------
Brinson Global Technology Fund
GLOBAL TECHNOLOGY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a non-diversified Fund that normally invests at least 65% of its
total assets in equity securities of technology companies located in the U.S. or
foreign countries. Technology companies develop, sell, or significantly benefit
from the use of technology products and services. The term technology includes
electronics, data processing, semi-conductors, telecommunications, and
technology services. Investments in equity securities may include common stock
and preferred stock. Companies are selected for investment principally because
of their strong competitive position. Furthermore, the quality of the
management, the technological innovation and the revenue growth of the companies
are very important.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- INDUSTRY CONCENTRATION RISK -- The risk that changes in economic, political or
other conditions may have a particularly negative effect on issuers in an
industry or sector in which a Fund's investments are concentrated. The Fund
invests principally in equity securities of companies within the technology
sector. There is, therefore, a risk that changes in the technology sector or
economic downturns can have a substantial impact on the Fund's investments.
The Fund's portfolio may be more volatile than a Fund with a broader range of
investments. Technology companies can be significantly affected by
obsolescence of existing technology, short product cycles, falling prices and
profits and competition from new market entrants.
- FOREIGN INVESTING RISK -- The risk that prices of a Fund's investments in
foreign securities may go down because of unfavorable foreign government
actions, political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies relative
to the U.S. Dollar will reduce the value of securities denominated in those
currencies. Also, foreign securities are sometimes less liquid and harder to
sell and to value than securities of U.S. issuers.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more
volatile than a diversified Fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified Fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 40
--------------------------------------------------------------------------------
------------------------
Brinson Global Technology Fund
PERFORMANCE
--------------------------------------------------------------------------------
There is no performance information quoted for the Fund as the Fund had less
than one year of operations as of December 31, 2000.
--------------------------------------------------------------------------------
Prospectus Page 41
--------------------------------------------------------------------------------
------------------------
Brinson Global Technology Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 1.40% 1.40% 1.40% 1.40%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 11.96% 11.96% 11.96% 11.96%
----- ----- ----- -----
Total Annual Fund Operating Expenses........................ 13.61% 14.36% 14.36% 13.28%
===== ===== ===== =====
Management Fee Waiver/Expense Reimbursements................ 11.81% 11.81% 11.81% 11.81%
----- ----- ----- -----
Net Expenses***............................................. 1.80% 2.55% 2.55% 1.55%
===== ===== ===== =====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending June
30, 2001, but have been restated to reflect the Fund's current fees. The Class B
shares and Class C shares are new classes of shares, so the operating expenses
shown for these classes are based on estimated expenses for the Fund's current
fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 1.55% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A.................................................... $723 $1,085 $1,471 $2,550
Class B (assuming sale of all shares at end of period)..... 758 1,093 1,555 2,534
Class B (assuming no sale of shares)....................... 258 793 1,355 2,534
Class C (assuming sale of all shares at end of period)..... 456 886 1,442 2,956
Class C (assuming no sale of shares)....................... 356 886 1,442 2,956
Class Y.................................................... 158 490 845 1,845
--------------------------------------------------------------------------------
Prospectus Page 42
--------------------------------------------------------------------------------
------------------------
Brinson Global Biotech Fund
GLOBAL BIOTECH FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a non-diversified Fund that normally invests at least 65% of its
total assets in equity securities of biotechnology companies located throughout
the world. Biotechnology companies are companies focused on research, product
development, product manufacture and distribution in a specific field of
biological science devoted to genetic engineering and recombinant DNA
technology. Companies often are newly established and may have a single product
in its early development stage.
Biotechnology companies generate value by developing new kinds of drugs and
technologies. Stock selection is based on analyzing individual companies for
their fundamental strengths. The basis of the fundamental analysis is to analyze
the science behind the drugs and technologies. The Fund may invest a substantial
percentage of its total assets in small capitalization stocks.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- INDUSTRY CONCENTRATION RISK -- The risk that changes in economic, political or
other conditions may have a particularly negative effect on issuers in an
industry or sector in which a Fund's investments are concentrated. The Fund
invests principally in equity securities of companies within the biotechnology
sector. There is, therefore, a risk that changes in the biotechnology sector
or economic downturns can have a substantial impact on the Fund's investments.
The Fund's portfolio may be more volatile than a Fund with a broader range of
investments. Biotechnology companies can be significantly affected by
obsolescence of existing technology, short product cycles, falling prices and
profits and competition from new market entrants.
- SMALL COMPANY RISK -- The risk that investments in smaller companies may be
more volatile than investments in larger companies, as smaller companies
generally experience higher growth and failure rates. The trading volume of
smaller company securities is normally lower than that of larger companies.
Such securities may be less liquid than others and could make it difficult to
sell a security at a time or price desired. Changes in the demand for the
securities of smaller companies generally have a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
- FOREIGN INVESTING RISK -- The risk that prices of a Fund's investments in
foreign securities may go down because of unfavorable foreign government
actions, political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies relative
to the U.S. Dollar will reduce the value of securities denominated in those
currencies. Also, foreign securities are sometimes less liquid and harder to
sell and to value than securities of U.S. issuers.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified Fund will be more
volatile than a diversified Fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified Fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 43
--------------------------------------------------------------------------------
------------------------
Brinson Global Biotech Fund
PERFORMANCE
--------------------------------------------------------------------------------
There is no performance information quoted for the Fund as the Fund had less
than one year of operations as of December 31, 2000.
--------------------------------------------------------------------------------
Prospectus Page 44
--------------------------------------------------------------------------------
------------------------
Brinson Global Biotech Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 1.15% 1.15% 1.15% 1.15%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 9.03% 9.03% 9.03% 9.03%
----- ----- ----- -----
Total Annual Fund Operating Expenses........................ 10.43% 11.18% 11.18% 10.10%
===== ===== ===== =====
Management Fee Waiver/Expense Reimbursements................ 8.88% 8.88% 8.88% 8.88%
----- ----- ----- -----
Net Expenses***............................................. 1.55% 2.30% 2.30% 1.30%
===== ===== ===== =====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 1.30% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A.................................................... $699 $1,013 $1,348 $2,294
Class B (assuming sale of all shares at end of period)..... 733 1,018 1,430 2,276
Class B (assuming no sale of shares)....................... 233 718 1,230 2,276
Class C (assuming sale of all shares at end of period)..... 431 811 1,318 2,709
Class C (assuming no sale of shares)....................... 331 811 1,318 2,709
Class Y.................................................... 132 412 713 1,568
--------------------------------------------------------------------------------
Prospectus Page 45
--------------------------------------------------------------------------------
------------------------
Brinson Global Bond Fund
GLOBAL BOND FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a non-diversified Fund that invests primarily in a portfolio of
investment grade global debt securities that may also provide the potential for
capital appreciation. Normally, at least 65% of the Fund's total assets are
invested in debt securities that have an initial maturity of more than one year.
While the Fund may invest in debt securities of all types, it expects to
emphasize debt securities of government issuers. Investments in fixed income
securities may include debt securities of governments throughout the world
(including the U.S.), their agencies and instrumentalities, debt securities of
corporations, mortgage-backed securities and asset-backed securities.
PRINCIPAL RISKS
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- INTEREST RATE RISK -- The risk that changing interest rates may adversely
affect the value of an investment. An increase in prevailing interest rates
typically causes the value of fixed income securities to fall, while a decline
in prevailing interest rates may cause the market value of fixed income
securities to rise. Changes in interest rates will affect the value of longer-
term fixed income securities more than shorter-term securities and lower
quality securities more than higher quality securities.
- FOREIGN INVESTING AND EMERGING MARKETS RISKS -- The risk that prices of a
fund's investments in foreign securities may go down because of unfavorable
foreign government actions, political instability or the absence of accurate
information about foreign issuers. Also, a decline in the value of foreign
currencies relative to the U.S. Dollar will reduce the value of securities
denominated in those currencies. Also, foreign securities are sometimes less
liquid and harder to sell and to value than securities of U.S. issuers. Each
of these risks is more severe for securities of issuers in emerging market
countries.
- CREDIT RISK -- The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise be unable to honor a financial
obligation.
- PREPAYMENT RISK -- The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- NON-DIVERSIFICATION RISK -- The risk that a non-diversified fund will be more
volatile than a diversified fund because it invests its assets in a smaller
number of issuers. The gains or losses on a single security may, therefore,
have a greater impact on a non-diversified fund's net asset value.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
--------------------------------------------------------------------------------
Prospectus Page 46
--------------------------------------------------------------------------------
------------------------
Brinson Global Bond Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for the Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1994 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1994 -3.49%
1995 20.32%
1996 9.30%
1997 1.63%
1998 11.98%
1999 -6.27%
2000 1.36%
Total Return January 1 to September 30, 2001: 1.10%
Best quarter during calendar years shown: Q3 1998: 6.06%
Worst quarter during calendar years shown: Q3 2000: -3.77%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A SALOMON SMITH
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* BARNEY WORLD
(INCEPTION DATE) (7/31/93) (6/30/97) GOV'T. BOND INDEX(1)
---------------- ------------------ ------------------- --------------------
One Year....................................... 1.36% -3.59% 1.59%
Five Year...................................... 3.39% N/A 3.10%
Life of Class Y................................ 4.89% N/A 5.41%
Life of Class A................................ N/A 0.45% 3.76%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 4.50%.
(1) The Salomon Smith Barney World Government Bond Index is the benchmark for
the Global Bond Fund, and represents the broad global fixed income markets and
includes debt issues of U.S. and most developed non-U.S. governments,
governmental entities and supranationals.
--------------------------------------------------------------------------------
Prospectus Page 47
--------------------------------------------------------------------------------
------------------------
Brinson Global Bond Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 4.50% 5.00% 1.75% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 4.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 0.75% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 0.75% None
Other Expenses**............................................ 0.34% 0.34% 0.34% 0.34%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.34% 2.09% 1.84% 1.01%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.19% 0.19% 0.19% 0.19%
---- ---- ---- ----
Net Expenses***............................................. 1.15% 1.90% 1.65% 0.90%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending June
30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 0.90% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $562 $799 $1,054 $1,785
Class B (assuming sale of all shares at end of period)...... 693 897 1,226 1,848
Class B (assuming no sale of shares)........................ 193 597 1,026 1,848
Class C (assuming sale of all shares at end of period)...... 341 615 988 2,035
Class C (assuming no sale of shares)........................ 266 615 988 2,035
Class Y..................................................... 92 287 498 1,108
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Prospectus Page 48
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------------------------
Brinson International Equity Fund
INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
--------------------------------------------------------------------------------
FUND OBJECTIVE
The Fund seeks to maximize total return, consisting of capital appreciation and
current income by investing primarily in the equity securities of non-U.S.
issuers.
PRINCIPAL INVESTMENT STRATEGIES
At least 65% of the Fund's total assets, under normal circumstances, are
invested in equity securities of issuers in countries other than the U.S.
Investments in equity securities may include common stock and preferred stock.
The Fund may invest in stocks of companies of any size, but generally invests in
companies with market capitalizations above $1 billion. The Fund's construction
process begins with analysis at the individual company and industry level, as
well as broader analysis of economic and currency factors, and aims to find
equity securities that offer attractive prices with opportunity for
appreciation.
PRINCIPAL RISK
An investment in the Fund is not guaranteed; you may lose money by investing in
the Fund. The other principal risks presented by an investment in the Fund are:
- MARKET RISK -- The risk that the market value of a Fund's investments will
fluctuate as the stock and bond markets fluctuate. Market risk may affect a
single issuer, industry or section of the economy, or it may affect the market
as a whole.
- FOREIGN INVESTING RISK -- The risk that prices of a Fund's investments in
foreign securities may go down because of unfavorable foreign government
actions, political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies relative
to the U.S. Dollar will reduce the value of securities denominated in those
currencies. Also, foreign securities are sometimes less liquid and harder to
sell and to value than securities of U.S. issuers.
Further discussion of the Fund's strategies is included in the section entitled
"Securities Selection Process."
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Prospectus Page 49
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------------------------
Brinson International Equity Fund
PERFORMANCE
--------------------------------------------------------------------------------
RISK/RETURN BAR CHART AND TABLE
The following bar chart and table reflect performance information for the
Class Y shares of the Fund, and the table also reflects performance information
for Class A shares of the Fund. On October 29, 2001, the Class Y shares were
redesignated from Class I shares of the Fund, and the Class A shares were
redesignated from Class N shares of the Fund.
The bar chart and table give an indication of the Fund's risks and performance.
The bar chart shows you how the Fund's performance has varied from year to year.
The table compares the Fund's performance over time to that of a broad measure
of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT
THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW IT WILL
PERFORM IN THE FUTURE.
TOTAL RETURN OF CLASS Y SHARES (FORMERLY CLASS I SHARES) (1994 IS THE FUND'S
FIRST FULL CALENDAR YEAR OF OPERATIONS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CALENDAR YEAR TOTAL RETURN
1994 0.94%
1995 15.55%
1996 12.75%
1997 5.74%
1998 14.39%
1999 19.16%
2000 -9.09%
Total Return January 1 to September 30, 2001: -20.68%
Best quarter during calendar years shown: Q4 1998: 17.15%
Worst quarter during calendar years shown: Q3 1998: -13.66%
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 2000
CLASS Y CLASS A
CLASS (FORMERLY CLASS I) (FORMERLY CLASS N)* MSCI WORLD EX
(INCEPTION DATE) (8/31/93) (6/30/97) USA (FREE) INDEX(1)
---------------- ------------------ ------------------- -------------------
One Year....................................... -9.09% -14.27% -13.47%
Five Year...................................... 8.11% N/A 7.48%
Life of Class Y................................ 7.18% N/A 7.53%
Life of Class A................................ N/A 2.07% 5.45%
---------
* The average annual total returns for the Class A shares have been calculated
to reflect the Class A shares' current maximum front-end sales charge of 5.50%.
(1) The MSCI World Ex USA (Free) Index is the benchmark for the International
Equity Fund, and is an unmanaged, market driven broad based securities index
which includes non-U.S. equity markets in terms of capitalization and
performance.
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Prospectus Page 50
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------------------------
Brinson International Equity Fund
EXPENSES AND FEE TABLES
--------------------------------------------------------------------------------
FEES AND EXPENSES These tables describe the fees and expenses that you may pay
if you buy and hold shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Maximum Sales Charge (Load)
(as a % of offering price)................................ 5.50% 5.00% 2.00% None
Maximum Front-End Sales Charge (Load) Imposed on Purchases
(as a % of offering price)................................ 5.50% None 1.00% None
Maximum Contingent Deferred Sales Charge (Load) (CDSC)
(as a % of offering price)................................ None 5.00% 1.00% None
Exchange Fee................................................ None None None None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)*
CLASS A CLASS B CLASS C CLASS Y
-------- -------- -------- --------
Management Fees............................................. 0.80% 0.80% 0.80% 0.80%
Distribution and/or Service (12b-1) Fees.................... 0.25% 1.00% 1.00% None
Other Expenses**............................................ 0.19% 0.19% 0.19% 0.19%
---- ---- ---- ----
Total Annual Fund Operating Expenses........................ 1.24% 1.99% 1.99% 0.99%
==== ==== ==== ====
Management Fee Waiver/Expense Reimbursements................ 0.00% 0.00% 0.00% 0.00%
---- ---- ---- ----
Net Expenses***............................................. 1.24% 1.99% 1.99% 0.99%
==== ==== ==== ====
---------
* The operating expenses shown for the Class A shares and Class Y shares are
based on expenses incurred during the Fund's most recent fiscal year ending
June 30, 2001, but have been restated to reflect the Fund's current fees. The
Class B shares and Class C shares are new classes of shares, so the operating
expenses shown for these classes are based on estimated expenses for the Fund's
current fiscal year.
** Includes an administrative fee of 0.075% paid by the Fund to Brinson
Advisors.
*** The Advisor has irrevocably agreed to permanently waive its fees and
reimburse certain expenses so that total operating expenses of the Fund,
exclusive of 12b-1 fees, do not exceed 1.00% for each of the Class A, Class B,
Class C and Class Y shares, respectively.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods unless
otherwise stated. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
Class A..................................................... $669 $922 $1,194 $1,967
Class B (assuming sale of all shares at end of period)...... 702 924 1,273 1,946
Class B (assuming no sale of shares)........................ 202 624 1,073 1,946
Class C (assuming sale of all shares at end of period)...... 400 718 1,162 2,394
Class C (assuming no sale of shares)........................ 300 718 1,162 2,394
Class Y..................................................... 101 315 547 1,213
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Prospectus Page 51
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The Brinson Funds
SECURITIES SELECTION PROCESS
--------------------------------------------------------------------------------
WHAT IS THE INVESTMENT PROCESS FOR THE BRINSON FUNDS THAT ARE INCLUDED IN THIS
PROSPECTUS?
Creating value-added investment portfolios is a three-stage process:
1) Research -- Identifying the Opportunity
2) Portfolio Construction & Risk Control -- Capturing the Opportunity
3) Execution -- Delivering the Portfolio
RESEARCH
Brinson Partners' research combines both TOP-DOWN and BOTTOM-UP analyses. The
"top-down," analysis seeks to identify broad economic and market shaping trends
that influence security prices. These encompass both long-term and short-term
economic factors and market-shaping themes, ranging from global interest rate
and inflation estimates to strategic sector and industry developments. The
Advisor seeks to identify broad trends that will affect the investment landscape
and to take advantage of them before other investors do.
The "bottom-up," analysis includes researching the very specific factors that
affect the cash flows of potential investments around the world. For example,
when analyzing stocks, the Advisor often meets with companies' management teams,
tours their facilities, speaks with their suppliers, competitors and
distributors and will often engage industry-leading experts to better understand
the intricacies of their businesses.
Importantly, this research is integrated around the world, giving Brinson
Partners the ability to take advantage of a wide array of investment
opportunities. With more and more companies selling their goods and services to
consumers around the world, the Advisor believes that a global presence is
critical. Research teams are located in all of the world's major financial
markets and utilize a consistent framework for researching and analyzing
investments. The teams rank investment opportunities found in the global
marketplace and evaluate the most likely risk and return scenarios that will
occur within and across their focused sets of potential investments.
PORTFOLIO CONSTRUCTION & RISK CONTROL
Once the research teams have identified the opportunities, seasoned investment
specialists select securities for the Funds' portfolios, taking into account
both the potential return as well as the potential risks inherent in each
investment. Because many of the factors that influence investments are
interrelated, understanding how investments behave in relation to one another is
a key part of constructing a sound investment portfolio.
When a new security is considered for inclusion in a portfolio, a detailed
analysis of how it will affect overall portfolio composition is undertaken. This
involves evaluating absolute risk as well as the risk relative to the
appropriate benchmark. The Brinson Funds have a dedicated risk analysis team
that uses risk analysis tools and techniques to augment the evaluation of
investment risks. Working together with this team, the investment specialists
select investments and determine the weights those investments will be given
within the portfolios.
EXECUTION
The Advisor believes that "Execution supersedes intention." That is why a great
deal of resources is devoted to attempting to ensure that investment decisions
are implemented quickly and in the most cost-effective way for our clients. The
Advisor's teams of traders are located around the world and have integral
knowledge of the markets in which the Funds invest. By leveraging global
resources, the Advisor is able to quickly and efficiently access financial
markets around the globe to execute the investment strategies.
ARE THERE CATEGORIES WITHIN WHICH EACH BRINSON FUND FALLS BASED ON ITS
INVESTMENT STRATEGY?
Each of the Funds included in this prospectus is categorized by portfolio type.
This categorization is based on the investment strategy that is pursued for each
Fund by the Advisor. The explanations that follow are intended to answer
questions about why the categories exist and how securities are selected for
each strategy type.
WHAT ARE THE BROAD STRATEGY TYPES (OR ASSET CLASSES) FOR THE BRINSON FUNDS?
There are five broadly defined asset classes represented in this prospectus:
Multi-Asset Funds, Equity Funds, Specialty/Sector Funds, Fixed Income Funds and
Global Funds. Multi-Asset Funds invest in both equity and fixed income
securities. Equity Funds invest primarily in publicly traded equity
securities -- stock issued by corporations. Specialty/Sector Funds may invest in
both equity and fixed income securities but generally limit investment to a
particular industry; e.g., biotechnology.
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Prospectus Page 52
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The Brinson Funds
Fixed Income Funds invest primarily in fixed income or debt securities issued by
corporations and government entities. Global Funds invest in securities of
foreign corporations or governments.
WHICH BRINSON FUNDS ARE INCLUDED IN EACH CATEGORY?
THE BRINSON FUNDS ARE CATEGORIZED AS FOLLOWS:
MULTI-ASSET FUNDS:
U.S. Balanced Fund
EQUITY FUNDS:
GROWTH EQUITY FUNDS:
U.S. Large Cap Growth Fund
U.S. Small Cap Growth Fund
CORE EQUITY FUNDS:
U.S. Equity Fund
U.S. Large Cap Equity Fund
U.S. Small Cap Equity Fund
VALUE EQUITY FUNDS:
U.S. Value Equity Fund
SPECIALTY/SECTOR FUNDS:
Global Technology Fund
Global Biotech Fund
U.S. Real Estate Equity Fund
FIXED INCOME FUNDS:
U.S. Bond Fund
High Yield Fund
GLOBAL FUNDS:
Global Balanced Fund
Global Equity Fund
International Equity Fund
Global Bond Fund
HOW ARE THE MULTI-ASSET FUNDS CONSTRUCTED?
One of the most important investment decisions with respect to the Multi-Asset
Funds is the ASSET ALLOCATION DECISION. This is the determination of the
proportion of the Funds' assets to invest in each of the major asset classes
(i.e., how much to invest in U.S. fixed income, U.S. equities, international
fixed income, international equities, etc.). Fixed income securities are
selected for these Funds using the approach described on page 54. Stocks are
chosen for the Multi-Asset Funds using the core and value equity process
described below.
Within each of these asset classes and in allocating assets among asset classes,
the Advisor also analyzes countries and market segments, seeking attractive
investment opportunities at these broad levels. For example, in constructing the
Global Balanced Fund, the Advisor evaluates the relative attractiveness of each
global market using a proprietary valuation model. Active overweight and
underweight decisions are made depending on the Advisor's investment judgment of
fair valuation opportunities while allowing for appropriate diversification.
HOW ARE SECURITIES SELECTED FOR THE CORE AND VALUE EQUITY FUNDS DISCUSSED IN
THIS PROSPECTUS?
The Core and Value approach is simple. When the Advisor's estimation of an
investment's FUNDAMENTAL VALUE is greater than its current MARKET PRICE, it is
considered as a candidate for inclusion in the Funds' portfolios.
FUNDAMENTAL VALUE is the Advisor's assessment of what a stock is worth.
MARKET PRICE is the price investors will pay to acquire a particular asset in
the investment marketplace today.
For each stock under analysis, the Advisor estimates a fundamental value based
upon detailed economic, industry and company analysis, and upon consideration of
each company's management team, competitive advantage and core competencies.
These value estimates are then compared to current market prices and ranked
against the other stocks in our valuation universe. Portfolios are constructed
by focusing on those stocks that rank in the top 20% of the valuation output.
Each Fund's risk is carefully monitored, with consideration given to market
sensitivity, common risk factor exposures (e.g., size, stock price, momentum),
industry weightings and individual stock selection.
HOW DO THE CORE AND VALUE FUNDS DIFFER?
Although the same underlying security selection process is used for both the
Core and Value Funds, the Value Funds have a different benchmark.
Value Funds will only invest in stocks contained in value benchmarks against
which performance and risk is measured.
HOW ARE SECURITIES SELECTED FOR THE GROWTH EQUITY FUNDS?
In the growth universe, the Advisor seeks to invest in companies that possess a
dominant market position and franchise, a major technical edge or a unique
competitive advantage. Factors employed in the quantitative disciplines include
earnings revision trends, positive stock price momentum and sales acceleration.
The investment professionals then conduct intensive fundamental research on the
universe of companies identified as attractive by the quantitative models.
Portfolios are constructed and monitored with close adherence to risk control
guidelines.
HOW ARE SECURITIES SELECTED FOR THE SPECIALTY/SECTOR FUNDS DISCUSSED IN THIS
PROSPECTUS?
Security selection for these Funds is similar to that of the Growth Funds.
Investment decisions rely on quantitative analysis and screening, as well as
fundamental research
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Prospectus Page 53
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------------------------
The Brinson Funds
and valuation work. This process narrows the universe of stocks in the sector to
those which, in the Advisor's assessment, have a fundamental value greater than
the market price. The Advisor then compares these stocks to determine their
attractiveness relative to each other, and selects those with the most favorable
return and risk profiles for the Fund.
WHAT IS DIFFERENT OR UNIQUE ABOUT THE SPECIALTY/SECTOR FUNDS?
The Specialty/Sector Funds were created in response to changing market
conditions, and for the varied and dynamic needs of shareholders. These Funds
are focused on narrower market segments than the Core, Value and Growth Funds,
and are intended to complement a diversified investment program.
HOW ARE SECURITIES SELECTED FOR THE FIXED INCOME FUNDS DISCUSSED IN THIS
PROSPECTUS?
The Advisor uses an internally developed valuation model for fixed income
securities selections for the Funds, which quantifies return expectations for
all of the major bond markets. Inputs to this model include forecasts of
inflation, risk premiums and interest rates. For the multi-country bond funds,
the Advisor determines optimal country and currency weightings based on its
assessments of global macroeconomic and political landscapes.
The credit review process for all of the bond funds incorporates both a top-down
strategy, which focuses on how macroeconomic forces shape various industry
outlooks, and a bottom-up strategy, looking at specific debt securities, which
relies on a combination of qualitative and quantitative factors.
The qualitative assessment focuses on management strength, market position,
competitive environment and financial flexibility. The quantitative assessment
focuses on historical operating results, calculation of various credit ratios
and an expected future outlook. With the exception of the High Yield Fund, the
fixed income selections generally include all categories of investment grade
fixed income securities, which are considered to be of medium to high credit
quality debt investments, and emphasize the higher quality securities in this
spectrum (those with a credit rating of Baa or BBB and above and lower
probability of default).
The Advisor's fixed income strategies combine judgments about the absolute value
of the fixed income universe and the relative value of issuer sectors, maturity
intervals, duration of securities, quality and coupon segments and specific
circumstances facing the issuers of fixed income securities.
Duration management involves adjusting the sensitivity to interest rates of the
holdings within a country. The Advisor manages duration by choosing a maturity
mix that provides opportunity for appreciation while also limiting interest rate
risks.
Depending on market conditions, undervalued securities may be found in different
countries, sectors and with different durations. Therefore, all investment
decisions are interrelated and made using ongoing sector, security, duration,
and (for global bonds) country/currency research.
HOW ARE SECURITIES SELECTED FOR THE GLOBAL FUNDS DISCUSSED IN THIS PROSPECTUS?
In the global universe, the Advisor uses a disciplined intrinsic or fundamental
value approach that seeks to take advantage of anomalies in markets often
created by human over-reactions to both good and bad news.
For each stock under analysis, a fundamental value is estimated based upon
detailed country, industry and company analysis, including visits to the
company, its competitors and suppliers. The resulting fundamental value estimate
is then compared to the company's current market stock price to ascertain
whether a valuation anomaly exists. A stock with a market price below the
estimated intrinsic or fundamental value would be considered a candidate for
inclusion in a Fund's portfolio. This comparison between price and intrinsic or
fundamental value allows comparisons across industries and countries.
Each Fund's risk is carefully monitored with consideration given to the risk
generated by individual positions, sector, country and currency views. For
additional discussion of how asset allocation decisions are made for the Global
Balanced Fund, see "How are the Multi-Asset Funds Constructed" on page 53 of
this prospectus.
MANY OF THE FUNDS INVEST EITHER GLOBALLY OR INTERNATIONALLY. HOW DIVERSIFIED ARE
THEY WITH RESPECT TO THE COUNTRIES IN WHICH THEY INVEST?
The Funds that invest either globally or internationally 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.
WHAT INVESTMENT PRACTICES APPLY TO ALL OF THE BRINSON FUNDS INCLUDED IN THIS
PROSPECTUS?
Unless otherwise stated, the following policies apply to all of the Funds.
- CASH AND CASH EQUIVALENTS
Each Fund may invest in cash or cash equivalent instruments, including units
of an affiliated money market fund that is not registered under the Investment
Company Act of 1940. When unusual
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Prospectus Page 54
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The Brinson Funds
market conditions warrant, a Fund may make substantial temporary defensive
investments in cash equivalents, which may affect the Fund's ability to meet
its objective. See the SAI for further information.
- PORTFOLIO TURNOVER
Portfolio turnover rates are not a factor in making buy and sell decisions.
Increased portfolio turnover may result in higher costs for brokerage
commissions, dealer mark-ups and other transaction costs. It may also result
in taxable gains. Higher costs associated with increased portfolio turnover
may offset gains in a Fund's performance. The portfolio turnover for the
following Funds may exceed 100%: Global Balanced, Global Equity, Global
Technology, Global Biotech, Global Bond, U.S. Balanced, U.S. Large Cap Equity,
U.S. Small Cap Growth, U.S. Small Cap Equity, U.S. Real Estate Equity, High
Yield and U.S. Bond.
WHAT ARE BENCHMARKS (OR INDICES) AND HOW ARE THEY USED?
Benchmarks are indices comprised of securities that serve as standards of
measurement for making risk and performance comparisons to actively managed
investment portfolios. The Funds' total returns are compared to the total
returns of their benchmarks in the Performance sections of this prospectus.
Benchmarks give the Fund's shareholders an objective target against which to
judge the Advisor's performance. The precise selection of benchmarks is often
critical to understanding and evaluating performance. Today, nearly all
institutional investors assign their investment advisors a benchmark against
which the advisor's performance is evaluated.
The Brinson Funds have adopted widely recognized industry benchmarks against
which they evaluate the performance of the Funds as well as the Funds'
management teams. For some Funds, the Advisor has chosen a benchmark that is
more narrowly defined, or that is more closely aligned to the types of
investments held in the Funds.
Benchmarks play a very important role in the investment process. The Funds'
managers attempt to add value by employing various strategies of overweighting
and underweighting broad country, sector and other factors such as market
capitalization, volatility, earnings yield, etc. relative to the assigned
benchmarks. For example, if the passive benchmark has 30% of its stock
weightings in technology companies, one of the active management decisions that
the Advisor makes is to hold more (overweight) or less (underweight) of the
Fund's investments in technology companies. The same type of decision can then
be made with respect to broadly aggregated factors like companies' earnings
volatility or price/earnings ratios.
The Advisor's risk management team utilizes tools to help ensure that the
portfolios are diversified and that during the construction process, unintended
risks relative to the benchmarks are mitigated.
In cases where no suitable (or industry standard) benchmark exists, the Advisor
constructs benchmarks by appropriately weighting and combining component
benchmarks created by external data providers.
WHAT DOES "NON-DIVERSIFIED" MEAN?
Some Funds are referred to as "non-diversified funds." A non-diversified Fund
may invest in fewer securities. This means that gains or losses on a single
security or issuer held by the Fund can potentially result in increased
fluctuations in the net asset value of the Fund.
MANY OF THE EQUITY FUND NAMES MAKE REFERENCE TO THE "CAP" (OR MARKET
CAPITALIZATION) OF THE INVESTMENTS THEY HOLD. WHAT DOES IT MEAN, AND WHAT IS ITS
SIGNIFICANCE?
The market capitalization of a stock is defined as the total number of shares of
the stock that are outstanding multiplied by the current market price of the
stock. It is a measure of the total dollar value (or size) of the company's
outstanding stock positions. Larger companies have historically been viewed by
investors as more stable than smaller companies; and their shares are generally
more widely held, thus more easily and frequently traded. A company's market
capitalization is most commonly classified as either "large," "mid or medium" or
"small."
WHAT ARE THE SPECIFIC DEFINITIONS OF "LARGE CAP" AND "SMALL CAP"?
The market capitalization definition is flexible and is subject to review and
adjustment from year to year depending on the Advisor's assessment of market
levels and market activity generally. As of September 30, 2001, the Advisor
considers "large cap" securities to be securities with market capitalizations of
$7.5 billion or greater at the time of purchase. Similarly, as of that date,
"small cap" securities are defined as those securities with market
capitalizations of $1.5 billion or less at the time of purchase.
CAN A LARGE CAP OR SMALL CAP FUND INVEST IN SECURITIES THAT FALL OUTSIDE THESE
MARKET CAPITALIZATION DEFINITIONS?
Yes, both the large and small capitalization Funds will invest primarily in
their respective market capitalization segments, however, they may also invest a
portion of their assets in securities that fall outside of the ranges defined
above. Further, if movement in the market price causes a security to change from
one classification to another, the security will not necessarily be removed from
the Fund's portfolio.
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Prospectus Page 55
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------------------------
The Brinson Funds
MANAGING YOUR FUND ACCOUNT
--------------------------------------------------------------------------------
FLEXIBLE PRICING
The Funds offer four classes of shares - Class A, Class B, Class C and Class Y.
Each class has different sales charges and ongoing expenses. You can choose the
class that is best for you, based on how much you plan to invest and how long
you plan to hold your shares of the Fund(s). Class Y shares are only available
to certain types of investors.
The Brinson Funds have adopted separate plans of distribution pertaining to the
Class A, Class B and Class C shares of the Funds under rule 12b-1 that allow the
Funds to pay service and (for Class B and Class C shares) distribution fees for
the sale of the Funds' shares and services provided to shareholders. Because the
12b-1 fees for Class B and Class C shares are paid out of a Fund's assets on an
ongoing basis, over time they will increase the cost of your investment and may
cost you more than if you paid the front-end sales charge for Class A shares.
You may qualify for a waiver of certain sales charges on Class A, Class B and
Class C shares. See "Sales Charge Waivers for Class A, Class B and Class C
Shares" below. You may also qualify for a reduced sales charge on Class A
shares. See "Sales Charge Reductions for Class A Shares" below.
CLASS A SHARES
Class A shares have a front-end sales charge that is included in the offering
price of the Class A shares. This sales charge is paid at the time of purchase
and is not invested in a Fund. Class A shares pay an annual 12b-1 service fee of
0.25% of average net assets, but they pay no 12b-1 distribution fees. The
ongoing expenses for Class A shares are lower than for Class B and Class C
shares.
The Class A sales charges for each Fund are described in the following tables:
CLASS A SALES CHARGES - U.S. Bond Fund, High Yield Fund and Global Bond Fund:
REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE OF: SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
-------------------- -------------- ------------------- ----------------------------
Less than $100,000............................ 4.50% 4.71% 4.00%
$100,000 to $249,999.......................... 3.50 3.63 3.00
$250,000 to $499,999.......................... 2.50 2.56 2.00
$500,000 to $999,999.......................... 2.00 2.04 1.75
$1,000,000 and over (1)....................... None None Up to 1.00(2)
CLASS A SALES CHARGES - U.S. Balanced Fund, U.S. Equity Fund, U.S. Value Equity
Fund, U.S. Large Cap Equity Fund, U.S. Large Cap Growth Fund, U.S. Small Cap
Equity Fund, U.S. Small Cap Growth Fund, U.S. Real Estate Equity Fund, Global
Balanced Fund, Global Equity Fund, Global Technology Fund, Global Biotech Fund
and International Equity Fund:
REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE OF: SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
-------------------- -------------- ------------------- ----------------------------
Less than $50,000............................. 5.50% 5.82% 5.00%
$50,000 to $99,999............................ 4.50 4.71 4.00
$100,000 to $249,999.......................... 3.50 3.63 3.00
$250,000 to $499,999.......................... 2.50 2.56 2.00
$500,000 to $999,999.......................... 2.00 2.04 1.75
$1,000,000 and over (1)....................... None None Up to 1.00(2)
---------
(1) A contingent deferred sales charge of 1% of the the shares' offering price
or the net asset value at the time of sale by the shareholder, whichever is
less, is charged on sales of shares made within one year of the purchase
date. Class A shares representing reinvestment of dividends are not subject
to this 1% charge. Withdrawals in the first year after purchase of up to 12%
of the value of the fund account under a Fund's Automatic Cash Withdrawal
Plan are not subject to this charge.
(2) Brinson Advisors pays 1.00% to the dealer for sales of greater than $1
million but less than $3 million, 0.75% for sales of at least $3 million but
less than $5 million, 0.50% for sales of at least $5 million but less than
$50 million, and 0.25% for sales of $50 million or more.
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CLASS B SHARES
Class B shares have a contingent deferred sales charge. When you purchase Class
B shares, we invest 100% of your purchase price in Fund shares. However, you may
have to pay the deferred sales charge when you sell your Fund shares, depending
on how long you own the shares.
Class B shares pay an annual 12b-1 distribution fee of 0.75% of average net
assets, as well as an annual 12b-1 service fee of 0.25% of average net assets.
If you hold your Class B shares for the period specified below, they will
automatically convert to Class A shares, which have lower ongoing expenses.
If you sell Class B shares before the end of the specified period, you will pay
a deferred sales charge. We calculate the deferred sales charge by multiplying
the lesser of the net asset value of the Class B shares at the time of purchase
or the net asset value at the time of sale by the percentage shown below:
PERCENTAGE (BASED ON AMOUNT OF
INVESTMENT) BY WHICH THE SHARES'
NET ASSET VALUE IS MULTIPLIED:
-----------------------------------------
LESS $100,000 $250,000 $500,000
IF YOU SELL THAN TO TO TO
SHARES WITHIN: $100,000 $249,999 $499,999 $999,999
-------------- -------- -------- -------- --------
1st year since
purchase........... 5% 3% 3% 2%
2nd year since
purchase........... 4% 2% 2% 1%
3rd year since
purchase........... 3% 2% 1% None
4th year since
purchase........... 2% 1% None None
5th year since
purchase........... 2% None None None
6th year since
purchase........... 1% None None None
7th year since
purchase........... None None None None
IF YOU ARE ELIGIBLE FOR A COMPLETE WAIVER OF THE SALES CHARGE ON CLASS A SHARES
BECAUSE YOU ARE INVESTING $1 MILLION OR MORE, YOU SHOULD PURCHASE CLASS A
SHARES, WHICH HAVE LOWER ONGOING EXPENSES.
Class B shares automatically convert to Class A shares after the end of the
sixth year if you purchase less than $100,000, after the end of the fourth year
if you purchase at least $100,000 but less than $250,000, after the end of the
third year if you purchase at least $250,000 but less than $500,000 and after
the end of the second year if you purchase $500,000 or more but less than $1
million. TO QUALIFY FOR THE LOWER DEFERRED SALES CHARGE AND SHORTER CONVERSION
SCHEDULE, YOU MUST MAKE THE INDICATED INVESTMENT AS A SINGLE PURCHASE.
Regardless of the amount of the investment, Class B shares of Family Funds
("Family Funds" include other Brinson Funds, PACE Select funds and other funds
for which Brinson Advisors or any of its affiliates serves as principal
underwriter) purchased or acquired prior to November 5, 2001 and exchanged
(including exchanges as part of a reorganization) for shares of the Funds after
November 5, 2001 (collectively, "Prior Class B Shares") are subject to a
deferred sales charge at the time of redemption at the following percentages:
(i) 5%, if shares are sold within the first year since purchase; (ii) 4%, if
shares are sold within the second year since purchase; (iii) 3%, if shares are
sold within the third year since purchase; (iv) 2%, if shares are sold within
the fourth or fifth year since purchase; and (v) 1%, if shares are sold within
the sixth year of purchase. Prior Class B Shares held longer than six years are
not subject to a deferred sales charge and automatically convert to Class A
shares, which have lower ongoing expenses.
We will not impose the deferred sales charge on Class B shares purchased by
reinvesting dividends or on withdrawals in any year of up to 12% of the value of
your Class B shares under the Automatic Cash Withdrawal Plan.
To minimize your deferred sales charge, we will assume that you are selling:
- First, Class B shares representing reinvested dividends, and
- Second, Class B shares that you have owned the longest.
CLASS C SHARES
Class C shares have a front-end sales charge that is included in the offering
price of the Class C shares, as described in the following table. This sales
charge is paid at the time of the purchase and is not invested in a Fund.
REALLOWANCE TO
SELECTED DEALERS
SALES CHARGE AS A PERCENTAGE OF: AS PERCENTAGE OF
OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE
--------------------- ------------------- ----------------
1.00% 1.01% 1.00%
Class C shares pay an annual 12b-1 distribution fee of 0.50% of average net
assets for fixed income funds, and 0.75% of average net assets for equity funds,
as well as an annual 12b-1 service fee of 0.25% of average net assets. Class C
shares do not convert to another class of shares. This means that you will pay
the 12b-1 fees for as long as you own your shares.
Class C shares also have a contingent deferred sales charge of 1.00% for equity
funds and 0.75% for fixed income funds, applicable if you sell your shares
within one year of the date you purchased them. We calculate the deferred sales
charge on sales of Class C shares by multiplying 1.00% for equity funds and
0.75% for fixed income funds by the lesser of the net asset value of the Class C
shares at the time of purchase or the net asset value at the time of sale.
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The Brinson Funds
SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES
CLASS A FRONT-END SALES CHARGE WAIVERS. Front-end sales charges will be waived
if you buy Class A shares with proceeds from the following sources:
1. Redemptions from any registered mutual fund for which Brinson Advisors or
any of its affiliates serves as principal underwriter if you:
- Originally paid a front-end sales charge on the shares; and
- Reinvest the money within 60 days of the redemption date.
The Funds' front-end sales charges will also not apply to Class A purchases by
or through:
2. Employees of UBS AG and its subsidiaries and members of the employees'
immediate families; and members of the Board of Directors/Trustees of any
investment company for which Brinson Advisors or any of its affiliates
serves as principal underwriter.
3. Trust companies and bank trust departments investing on behalf of their
clients if clients pay the bank or trust company an asset-based fee for
trust or asset management services.
4. Retirement plans and deferred compensation plans that have assets of at
least $1 million or at least 25 eligible employees.
5. Broker-dealers and other financial institutions (including registered
investment advisers and financial planners) that have entered into a selling
agreement with Brinson Advisors (or otherwise have an arrangement with a
broker-dealer or other financial institution with respect to sales of fund
shares), on behalf of clients participating in a fund supermarket, wrap
program, or other program in which clients pay a fee for advisory services,
executing transactions in Fund shares, or for otherwise participating in the
program.
6. Employees of broker-dealers and other financial institutions (including
registered investment advisers and financial planners) that have entered
into a selling agreement with Brinson Advisors (or otherwise having an
arrangement with a broker-dealer or other financial institution with respect
to sales of fund shares), and their immediate family members, as allowed by
the internal policies of their employer.
7. Insurance company separate accounts.
8. Shareholders of the Class N shares of any Brinson fund who held such shares
at the time they were redesignated as Class A shares.
9. Reinvestment of capital gains distributions and dividends.
10. College savings plans qualified under Section 529 of the Internal Revenue
Code whose sponsors or administrators have entered into an agreement with
Brinson Advisors or any of its affiliates to perform advisory or
administrative services.
11. A UBS PaineWebber Financial Advisor who was formerly employed as an
investment executive with a competing brokerage firm, and
- you were the Financial Advisor's client at the competing brokerage firm;
- within 90 days of buying shares in the Fund, you sell shares of one or
more mutual funds that were principally underwritten by the competing
brokerage firm or its affiliates, and you either paid a sales charge to
buy those shares, pay a contingent deferred sales charge when selling
them or held those shares until the contingent deferred sales charge was
waived; and
- you purchase an amount that does not exceed the total amount of money you
received from the sale of the other mutual fund.
CLASS C FRONT-END SALES CHARGE WAIVERS. Front-end sales charges will be waived
if you buy Class C shares through a UBS PaineWebber Financial Advisor who was
formerly employed as an investment executive with a competing brokerage firm,
and
- you were the Financial Advisor's client at the competing brokerage firm;
- within 90 days of buying shares in the Fund, you sell shares of one or more
mutual funds that were principally underwritten by the competing brokerage
firm or its affiliates, and you either paid a sales charge to buy those
shares, pay a contingent deferred sales charge when selling them or held those
shares until the contingent deferred sales charge was waived; and
- you purchase an amount that does not exceed the total amount of money you
received from the sale of the other mutual fund.
CLASS A, CLASS B AND CLASS C SHARES CONTINGENT DEFERRED SALES CHARGE
WAIVERS. The contingent deferred sales charge will be waived for:
- Redemptions of Class A shares by former holders of Class N shares;
- Exchanges between funds for which Brinson Advisors or one of its affiliates
serves as principal underwriter, if purchasing the same class of shares;
- Redemptions following the death or disability of the shareholder or beneficial
owner;
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- Tax-free returns of excess contributions from employee benefit plans;
- Distributions from employee benefit plans, including those due to plan
termination or plan transfer;
- Redemptions made in connection with the Automatic Cash Withdrawal Plan,
provided that such redemptions:
-- are limited annually to no more than 12% of the original account value;
-- are made in equal monthly amounts, not to exceed 1% per month; and
-- the minimum account value at the time the Automatic Cash Withdrawal Plan
was initiated was no less than $5,000; and
- Redemptions of shares purchased through retirement plans.
SALES CHARGE REDUCTIONS FOR CLASS A SHARES (RIGHT OF ACCUMULATION/CUMULATIVE
QUANTITY DISCOUNT)
A purchaser of Class A shares may qualify for a cumulative quantity discount by
combining a current purchase (or combined purchases as described below in
"Letter of Intent for Class A Shares") with certain other Class A shares of
Family Funds already owned. To determine if you qualify for a reduced front-end
sales charge, the amount of your current purchase is added to the cost or
current value, whichever is higher, of your other Class A shares as well as
those Class A shares of your spouse and children under the age of 21. If you are
the sole owner of a company, you may also add any company accounts, including
retirement plan accounts invested in Class A shares of the Family Funds.
Companies with one or more retirement plans may add together the total plan
assets invested in Class A shares of the Family Funds to determine the front-end
sales charge that applies. To qualify for the cumulative quantity discount on a
purchase through a financial institution, when each purchase is made the
investor or institution must provide Brinson Advisors with sufficient
information to verify that the purchase qualifies for the privilege or discount.
NOTE ON SALES CHARGE WAIVERS FOR CLASS A, CLASS B AND CLASS C SHARES
If you think you qualify for any of the sales charge waivers described above,
you will need to provide documentation to Brinson Advisors or the Funds. For
more information, you should contact your investment professional or call
1-800-647-1568. If you want information on the Automatic Cash Withdrawal Plan,
see the SAI or contact your investment professional.
CLASS Y SHARES
Class Y shares have no sales charge. Only specific types of investors can
purchase Class Y shares.
The following are eligible to purchase Class Y shares:
- Shareholders of the Class I shares of any Brinson Fund who held such shares as
of the date the shares were redesignated Class Y shares;
- Retirement plans with 5,000 or more eligible employees or $100 million or more
in plan assets;
- Retirement plan platforms/programs that include Fund shares if the
platform/program covers plan assets of at least $100 million;
- Trust companies and bank trust departments purchasing shares on behalf of
their clients in a fiduciary capacity;
- Other investors as approved by the Funds' Board of Trustees;
- Banks, registered investment advisors and other financial institutions
purchasing fund shares for their clients as part of a discretionary asset
allocation model portfolio, where the client is charged an advisory fee by the
institution; and
- Shareholders who owned Class Y shares of the Fund through PACE Multi-Advisor
as of November 15, 2001, will be eligible to continue to purchase Class Y
shares of that Fund through the program.
Class Y shares do not pay ongoing 12b-1 distribution or service fees. The
ongoing expenses for Class Y shares are the lowest of all the classes.
BUYING SHARES
You can buy Fund shares through your investment professional at a broker-dealer
or other financial institution with which Brinson Advisors has a dealer
agreement.
If you wish to invest in other Family Funds, you can do so by:
- Contacting your investment professional (if you have an account at a financial
institution that has entered into a dealer agreement with Brinson Advisors);
- Buying shares through the transfer agent as described below; or
- Opening an account by exchanging shares from another Family Fund.
The Funds and Brinson Advisors reserve the right to reject a purchase order or
suspend the offering of shares.
THROUGH FINANCIAL INSTITUTIONS/PROFESSIONALS
As mentioned above, the Funds have entered into one or more sales agreements
with brokers, dealers or other financial intermediaries ("Service Providers"),
as well as with financial institutions (banks and bank trust departments) (each
an "Authorized Dealer"). The Authorized Dealer, or intermediaries designated by
the Authorized Dealer (a "Sub-designee"), may in some cases
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The Brinson Funds
be authorized to 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 or
redemption order when the Authorized Dealer or Sub-designee accepts the order.
Such orders will be priced at the Fund's net asset value next computed after
such order is accepted by the Authorized Dealer or Sub-designee. These
Authorized Dealers may charge the investor a transaction fee or other fee for
their services at the time of purchase. These fees would not be otherwise
charged if you purchased shares directly from the Funds. It is the
responsibility of such Authorized Dealers or Sub-designees to promptly forward
purchase orders with payments to the Funds.
Brinson Partners, or its affiliates, may, from their own resources, compensate
Service Providers for services performed with respect to a Fund's Class Y
shares. These services may include marketing, shareholder servicing,
recordkeeping and/or other services. When these service arrangements are in
effect, they are generally made available to all qualified Service Providers.
MINIMUM INVESTMENTS:
Class A, Class B and Class C shares:
To open an account.................. $ 1,000
To add to an account................ $ 100
Class Y shares:
To open an account.................. $10,000,000
To add to an account................ $ 2,500
The Funds may waive or reduce these amounts for:
- Employees of Brinson Advisors or its affiliates; or
- Participants in certain pension plans, retirement accounts, unaffiliated
investment programs or the Funds' automatic investment plan.
In addition, the Funds will waive the minimum investment amounts for Class Y
shares for:
- Shareholders who owned Class I shares of the Funds prior to their
redesignation as Class Y shares;
- Retirement plans with 5,000 or more eligible employees in the plan or $100
million in plan assets; or
- Retirement plans offered through a common platform that have an aggregate $100
million in plan assets.
MARKET TIMERS. The interests of the Funds' long-term shareholders and their
ability to manage their investments may be adversely affected when their shares
are repeatedly bought and sold in response to short-term market fluctuations --
also known as "market timing." When large dollar amounts are involved, a Fund
may have difficulty implementing long-term investment strategies, because it
cannot predict how much cash it will have to invest. Market timing also may
force a Fund to sell portfolio securities at disadvantageous times to raise the
cash needed to buy a market timer's Fund shares. These factors may hurt a Fund's
performance and its shareholders. When Brinson Advisors believes frequent
trading would have a disruptive effect on a Fund's ability to manage its
investments, Brinson Advisors and the Fund may reject purchase orders and
exchanges into the Fund by any person, group or account that Brinson Advisors
believes to be a market timer.
SELLING SHARES
You can sell your Fund shares at any time. If you own more than one class of
shares, you should specify which class you want to sell. If you do not, a Fund
will assume that you want to sell shares in the following order: Class A, then
Class C, then Class B and last, Class Y.
If you want to sell shares that you purchased recently, a Fund may delay payment
until it verifies that it has received good payment.
If you hold your shares through a financial institution, you can sell shares by
contacting your investment professional, or an Authorized Dealer or
Sub-designee, for more information. Important note: Each institution or
professional may have its own procedures and requirements for selling shares and
may charge fees. If you purchased shares through the Funds' transfer agent, you
may sell them as explained below.
If you sell Class A shares and then repurchase Class A shares of the same Fund
within 365 days of the sale, you can reinstate your account without paying a
sales charge.
The Funds reserve the right to pay redemptions "in kind" (i.e., payment in
securities rather than cash) if the investment you are redeeming is large enough
to affect a Fund's operations (for example, if it represents more than $250,000
or 1% of the Fund's assets). In these cases, you might incur brokerage costs
converting the securities to cash.
It costs the Funds money to maintain shareholder accounts. Therefore, the Funds
reserve the right to repurchase all shares in any account that has a net asset
value of less than $500. If a Fund elects to do this with your account, it will
notify you that you can increase the amount invested to $500 or more within 60
days. A Fund will not repurchase shares in accounts that fall below $500 solely
because of a decrease in the Fund's net asset value.
EXCHANGING SHARES
You may exchange Class A, Class B or Class C shares of a Fund for shares of the
same class of most other Family Funds. You may not exchange Class Y shares.
You will not pay either a front-end sales charge or a deferred sales charge when
you exchange shares. However, you may have to pay a deferred sales charge if you
later sell the shares you acquired in the exchange. A Fund will
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The Brinson Funds
use the date of your original share purchase to determine whether you must pay a
deferred sales charge when you sell the shares of the Fund acquired in the
exchange.
Other Family Funds may have different minimum investment amounts. You may not be
able to exchange your shares if your exchange is not as large as the minimum
investment amount in that other Fund.
You may exchange shares of one Fund for shares of another Fund only after the
first purchase has settled and the first Fund has received your payment.
If you hold your Fund shares through a financial institution, you may exchange
your shares by placing an order with that institution. If you hold Fund shares
through the Funds' transfer agent, you may exchange your shares as explained
below.
The Funds may modify or terminate the exchange privilege at any time.
TRANSFER AGENT
If you wish to invest in any of the Family Funds through the Funds' transfer
agent, PFPC Inc., you can obtain an application by calling 1-800-647-1568. You
must complete and sign the application and mail it, along with a check to the
transfer agent.
You may also sell or exchange your shares by writing to the Funds' transfer
agent. Your letter must include:
- Your name and address;
- Your account number;
- The name of the Fund whose shares you are selling, and if exchanging shares,
the name of the Fund whose shares you want to buy;
- The dollar amount or number of shares you want to sell and/or exchange; and
- A guarantee of each registered owner's signature. A signature guarantee may be
obtained from a financial institution, broker, dealer or clearing agency that
is a participant in one of the medallion programs recognized by the Securities
Transfer Agents Association. These are: Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York
Stock Exchange Medallion Signature Program (MSP). The Funds will not accept
signature guarantees that are not part of these programs.
Applications to purchase shares (along with a check), and letters requesting
redemptions of shares or exchanges of shares through the transfer agent should
be mailed to:
PFPC Inc.
Attention: Brinson Mutual Funds
P. O. Box 8950
Wilmington, DE 19899.
You do not have to complete an application when you make additional investments
in the same Fund.
PRICING AND VALUATION
The price at which you may buy, sell or exchange Fund shares is based on the net
asset value per share. Each Fund calculates net asset value on days that the New
York Stock Exchange ("NYSE") is open. Each Fund calculates net asset value
separately for each class as of the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time). The NYSE normally is not open, and a Fund
does not price its shares, on most national holidays and on Good Friday.
Your price for buying, selling or exchanging shares of a Fund will be based on
the net asset value (adjusted for any applicable sales charges) that is next
calculated after the Fund receives your order in good form. If you place your
order through a financial institution, your investment professional is
responsible for making sure that your order is promptly sent to the Fund.
Each Fund calculates its net asset value based on the current market value of
its portfolio securities. Each Fund normally obtains market values for its
securities from independent pricing services that use reported last sales
prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at a fair value determined by or under the direction of the
Funds' Board of Trustees. Each Fund normally uses the amortized cost method to
value bonds that will mature in 60 days or less.
Judgment plays a greater role in valuing thinly traded securities, including
many lower-rated bonds, because there is less reliable, objective data
available.
Each Fund calculates the U.S. dollar value of investments that are denominated
in foreign currencies daily, based on current exchange rates. A Fund may own
securities including some securities that trade primarily in foreign markets
that trade on weekends or other days on which the Fund does not calculate net
asset value. As a result, a Fund's net asset value may change on days when you
will not be able to buy and sell your Fund shares. If a Fund concludes that a
material change in the value of a foreign security has occurred after the close
of trading in its principal foreign market but before the close of regular
trading on the NYSE, the Fund may use fair value methods to reflect those
changes. This policy is intended to assure that each Fund's net asset value
fairly reflects security values as of the time of pricing.
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MANAGEMENT
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INVESTMENT ADVISOR AND SUB-ADVISOR
Brinson Partners, Inc. ("Brinson Partners" or the "Advisor"), a Delaware
corporation located at 209 South LaSalle Street, Chicago, IL 60604-1295, is an
investment advisor registered with the U.S. Securities and Exchange Commission.
As of September 30, 2001, Brinson Partners had over $385 billion in assets under
management.
Brinson Partners is an indirect wholly owned subsidiary of UBS AG ("UBS"), and a
member of the UBS Asset Management Division. UBS is an internationally
diversified organization headquartered in Zurich, Switzerland, with operations
in many areas of the financial services industry.
The Advisor employs its affiliate, Brinson Partners (NY), Inc. (the
"Sub-Advisor"), to serve as sub-advisor to the Global Technology Fund, Global
Biotech Fund, U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund, U.S. Real
Estate Equity Fund and High Yield Fund. The Sub-Advisor is also a subsidiary of
UBS. As of September 30, 2001, the Sub-Advisor had approximately $13 billion in
assets under management. The Sub-Advisor is located at 10 East 50th Street, New
York, NY.
Subject to the Advisor's control and supervision, the Sub-Advisor is responsible
for managing the investment and reinvestment of a Fund's portfolio, including
placing orders for the purchase and sale of portfolio securities. The
Sub-Advisor also furnishes the Advisor with investment recommendations, asset
allocation advice, research and other investment services subject to the
direction of the Trust's Board and officers.
PORTFOLIO MANAGEMENT
Investment decisions for the Funds are made by investment management teams at
Brinson Partners and the Sub-Advisor. No member of any investment management
team is primarily responsible for making recommendations for portfolio
purchases.
ADVISORY FEES
The investment advisory fees (expressed as a percentage of average net assets)
payable to Brinson Partners, before fee waivers, by each Fund are presented in
the tables below.
In addition, Brinson Partners has irrevocably agreed to waive its fees and
reimburse certain expenses so that the total operating expenses (excluding 12b-1
fees) of the Funds do not exceed the amounts listed in the table below:
TOTAL
EXPENSE ADVISORY
LIMIT FEE
-------- --------
Global Balanced Fund........... 1.10% 0.80%
Global Equity Fund............. 1.00 0.80
Global Technology Fund......... 1.55 1.40
Global Biotech Fund............ 1.30 1.15
Global Bond Fund............... 0.90 0.75
U.S. Balanced Fund............. 0.80 0.70
U.S. Equity Fund............... 0.80 0.70
U.S. Large Cap Equity Fund..... 0.80 0.70
U.S. Large Cap Growth Fund..... 0.80 0.70
U.S. Small Cap Growth Fund..... 1.15 1.00
U.S. Bond Fund................. 0.60 0.50
High Yield Fund................ 0.70 0.60
International Equity Fund...... 1.00 0.80
On August 28, 2001, the Board of Trustees approved the submission of a proposal
to shareholders of each of the Funds listed above that would eliminate the
irrevocable fee waiver and expense reimbursement arrangement. If the proposal is
approved by shareholders, the irrevocable fee waiver and expense reimbursement
arrangement will be replaced by a one-year contractual fee waiver and expense
reimbursement at the rates set forth above.
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The Advisor has agreed, from September 1, 2001 through September 1, 2002, to
waive its fees and reimburse certain expenses so that the total operating
expenses (excluding 12b-1 fees) of the Funds do not exceed the amounts listed in
the table below:
TOTAL
EXPENSE ADVISORY
LIMIT FEE
-------- --------
U.S. Value Equity Fund......... 0.85% 0.70%
U.S. Small Cap Equity Fund..... 1.15 1.00
U.S. Real Estate Equity Fund... 1.05 0.90
In the case of the Global Technology Fund, Global Biotech Fund, U.S. Value
Equity Fund, U.S. Small Cap Equity Fund and U.S. Real Estate Equity Fund, the
Advisor is entitled to reimbursement of advisory fees waived during any of the
previous five years, provided that the reimbursement will never cause the total
operating expense ratios to exceed the limits set forth above.
The Advisor pays the Sub-Advisor a portion of the fee the Advisor receives under
its investment advisory agreement with each Fund sub-advised by the Sub-
Advisor. See the SAI for further information.
ADMINISTRATOR
Brinson Advisors, Inc., located at 51 West 52nd Street, New York, NY 10019-6114,
is the administrator of the Funds. Brinson Advisors, Inc. is an indirect wholly
owned asset management subsidiary of UBS. Each Fund pays Brinson Advisors, Inc.
at the annual contract rate of 0.075% of its average daily net assets for
administrative services.
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The Brinson Funds
DIVIDENDS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS
Income dividends are normally declared, and paid, by each fixed income fund
monthly, and by each equity fund and multi-asset fund annually. Capital gains,
if any, are distributed in December. The amount of any distributions will vary,
and there is no guarantee a Fund will pay either income dividends or capital
gain distributions.
Classes with higher expenses are expected to have lower income dividends. For
example, Class B and Class C shares are expected to have the lowest dividends of
a Fund's shares, while Class Y shares are expected to have the highest.
You will receive income dividends and capital gain distributions in additional
shares of the same class of a Fund unless you notify your investment
professional or the Fund in writing that you elect to receive them in cash.
Distribution options may be changed at any time by requesting a change in
writing. Dividends and distributions are reinvested on the reinvestment date at
the net asset value determined at the close of business on that date.
If you invest in a Fund shortly before it makes a distribution, you may receive
some of your investment back in the form of a taxable distribution.
TAXES
In general, if you are a taxable investor, Fund distributions are taxable to you
as either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional Fund shares or receive them in cash. For
federal income tax purposes, Fund distributions of short-term capital gains are
taxable to you as ordinary income. Fund distributions of long-term capital gains
are taxable to you as long-term capital gains no matter how long you have owned
your shares. Every January, you will receive a statement that shows the tax
status of distributions you received for the previous year.
By law, a Fund must withhold a portion of your taxable distributions and
redemption proceeds unless you:
- provide your correct social security or taxpayer identification number,
- certify that this number is correct,
- certify that you are not subject to backup withholding, and
- certify that you are a U.S. person (including a U.S. resident alien).
A Fund also must withhold if the IRS instructs it to do so.
When you sell your shares in a Fund, you may realize a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different Family
Fund is the same as a sale.
Fund distributions and gains from the sale of your Fund shares generally are
subject to state and local taxes. Any foreign taxes a Fund pays on its
investments may be passed through to you as a foreign tax credit. Non-U.S.
investors may be subject to U.S. withholding or estate tax, and are subject to
special U.S. tax certification requirements. You should consult your tax advisor
about the federal, state, local or foreign tax consequences of your investment
in a Fund.
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The Brinson Funds
RELATED PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The U.S. Value Equity Fund has recently commenced investment operations and
therefore has no performance information to include in this prospectus. To
assist prospective investors in making an informed investment decision, the
table below provides performance information for a composite of all advisory
accounts ("Account Composite Performance"), managed by the Advisor, in a
substantially similar manner to the way in which the Advisor will manage the
U.S. Value Equity Fund's assets. The Account Composite Performance has been
calculated in accordance with the recommended standards of the Association of
Investment Management and Research ("AIMR"). AIMR is a non-profit membership and
education organization that, among other things, has formulated a set of
performance presentation standards for investment advisors. The Account
Composite Performance was obtained from the records maintained by the Advisor,
and is adjusted to reflect U.S. Value Equity Fund's Class A total expenses.
However, the performance information does not reflect the Class A front-end
sales charge of 5.50%. The performance of an appropriate unmanaged benchmark
index, not adjusted for any fees or expenses, is provided as well.
Please note that the Account Composite Performance is not the U.S. Value Equity
Fund's own historical performance. The Account Composite Performance should not
be considered a substitute for the U.S. Value Equity Fund's performance, and the
Account Composite Performance is not necessarily an indication of the U.S. Value
Equity Fund's future performance. The accounts included in the Account Composite
Performance were not subject to certain investment limitations, diversification
requirements and other restrictions imposed on mutual funds by the Investment
Company Act of 1940 and the Internal Revenue Code, which, if applicable, may
have adversely affected the performance of these accounts.
COMPOSITE AVERAGE
ANNUAL TOTAL
RETURNS OF
ADVISORY ACCOUNTS RUSSELL 1000
NET OF FEES VALUE INDEX
----------------- ---------------
YTD (1/1/01 - 9/30/01)...................................... -5.91% -12.07%
1 Year...................................................... 1.27% -8.91%
Since inception (6/30/98)................................... 3.27% 1.25%
--------------------------------------------------------------------------------
Prospectus Page 65
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions).
GLOBAL BALANCED FUND, GLOBAL EQUITY FUND, GLOBAL TECHNOLOGY FUND, GLOBAL BIOTECH
FUND, GLOBAL BOND FUND, U.S. BALANCED FUND, U.S. EQUITY FUND, U.S. LARGE CAP
EQUITY FUND, U.S. BOND FUND AND INTERNATIONAL EQUITY FUND
The selected financial information in the following table has been audited by
the Funds' independent auditors, whose unqualified report thereon (the "Report")
appears in the Funds' Annual Report to Shareholders dated June 30, 2001 (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, 2001
and the Report are incorporated by reference into the SAI.
U.S. LARGE CAP GROWTH FUND, U.S. SMALL CAP GROWTH FUND AND HIGH YIELD FUND
The U.S. Large Cap Growth Fund, the U.S. Small Cap Growth Fund and the High
Yield Fund (collectively, the "New Funds") are successors to the UBS Large Cap
Growth Fund, the UBS Small Cap Fund and the UBS High Yield Bond Fund,
respectively (collectively, the "Predecessor Funds"). Each Predecessor Fund,
prior to its merger into a New Fund, operated as a separate portfolio of UBS
Private Investor Funds, Inc., another investment company that was advised by
another entity. The Predecessor Funds had fiscal years ending on December 31. On
December 18, 1998, following the approval of the shareholders of each
Predecessor Fund of an agreement and plan of reorganization, the UBS Large Cap
Growth Fund, the UBS Small Cap Fund and the UBS High Yield Bond Fund were
reorganized and merged into the U.S. Large Cap Growth Fund, the U.S. Small Cap
Growth Fund and the High Yield Fund, respectively. (These transactions are
collectively referred to as the "Reorganizations".) The New Funds had no
operations prior to the Reorganizations. The New Funds have fiscal years ending
on June 30.
The selected financial information in the following table, for the year ended
June 30, 2001, has been audited by the Funds' independent auditors, Ernst &
Young LLP, whose unqualified reports on the financial statements containing such
information appear in the Annual Report. The selected financial information in
the following table for the years ended June 30, 2000, June 30, 1999 and
December 31, 1998 has been audited by the Funds' independent auditors, whose
unqualified reports on the financial statements containing such information
appear in the New Funds' Annual Report to Shareholders (collectively, the "New
Funds' Reports") dated June 30, 1999 and December 31, 1998, respectively. The
selected financial information in the following table for the year ended
December 31, 1997 has been audited by the Predecessor Funds' independent
auditors, whose unqualified reports on the financial statements containing such
information (the "Predecessor Funds' Reports") appear in the Predecessor Funds'
Annual Report to Shareholders dated December 31, 1997 (the "Predecessor Funds'
Annual Report"). Additional performance and financial data and related notes are
contained in the Annual Report, the New Funds' Reports and the Predecessor
Funds' Annual Reports (collectively, the "New Funds' and Predecessor Funds'
Reports"), which are available without charge upon request. The New Funds'
financial statements for the fiscal year ended June 30, 2001 are incorporated by
reference into the SAI.
U.S. VALUE EQUITY FUND, U.S. SMALL CAP EQUITY FUND AND U.S. REAL ESTATE EQUITY
FUND
No financial information is presented for these Funds as they either had less
than six months of operations prior to the date of this prospectus (in the case
of U.S. Value Equity Fund) or they were not publicly offered prior to the date
of this prospectus (in the case of U.S. Small Cap Equity Fund and U.S. Real
Estate Equity Fund).
--------------------------------------------------------------------------------
Prospectus Page 66
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- FISCAL YEARS ENDED JUNE 30 AND DECEMBER 31
The following financial highlights tables are intended to help you understand
each Fund's financial performance for the periods shown. The tables show
information for the Funds' Class Y shares (formerly Class I shares) and Class A
shares (formerly Class N shares) because they were the only classes of shares
outstanding for the periods shown. Certain information reflects financial
results for a single Fund share. In the tables, "total investment return"
represents the rate that an investor would have earned (or lost) on an
investment in a Fund, assuming reinvestment of all dividends. This information
has been derived from the Funds' and the Predecessor Funds' financial
statements.
THE BRINSON FUNDS
BRINSON U.S. BOND FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS AUGUST 31, 1995)(1)
YEAR ENDED JUNE 30
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 10.00 $ 10.28 $ 10.58 $ 10.24 $ 9.93
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.64(2) 0.62(2) 0.58(2) 0.53 0.51(2)
Net realized and
unrealized gain
(loss)................ 0.42 (0.25) (0.26) 0.53 0.32
--------- --------- --------- --------- ---------
Total income from
investment
operations.......... 1.06 0.37 0.32 1.06 0.83
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (0.71) (0.65) (0.47) (0.58) (0.52)
Distributions from and
in excess of net
realized gain......... -- -- (0.15) (0.14) --
--------- --------- --------- --------- ---------
Total
distributions....... (0.71) (0.65) (0.62) (0.72) (0.52)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 10.35 $ 10.00 $ 10.28 $ 10.58 $ 10.24
========= ========= ========= ========= =========
Total return
(non-annualized)......... 10.86% 3.74% 2.97% 10.60% 8.45%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 62,514 $ 58,121 $ 92,030 $ 38,874 $ 22,421
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 0.73% 0.67% 0.61% 0.84% 1.65%
After expense
reimbursement......... 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 6.11% 6.12% 5.42% 5.61% 5.14%
After expense
reimbursement......... 6.24% 6.19% 5.43% 5.85% 6.19%
Portfolio turnover....... 314% 170% 260% 198% 410%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund -- Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
--------------------------------------------------------------------------------
Prospectus Page 67
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. BOND FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 9.99 $ 10.30 $ 10.58 $ 10.24
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.62(1) 0.58(1) 0.57(1) 0.61
Net realized and unrealized
gain (loss)................ 0.41 (0.25) (0.26) 0.42
--------- --------- --------- ---------
Total income from
investment operations.... 1.03 0.33 0.31 1.03
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.69) (0.64) (0.44) (0.55)
Distributions from and in
excess of net realized
gain....................... -- -- (0.15) (0.14)
--------- --------- --------- ---------
Total distributions....... (0.69) (0.64) (0.59) (0.69)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 10.33 $ 9.99 $ 10.30 $ 10.58
========= ========= ========= =========
Total return
(non-annualized).............. 10.56% 3.29% 2.88% 10.30%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 123 $ 1 $ 1 $ 1
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 0.98% 0.92% 0.86% 1.09%
After expense
reimbursement.............. 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 5.86% 5.87% 5.17% 5.36%
After expense
reimbursement.............. 5.99% 5.94% 5.18% 5.60%
Portfolio turnover............ 314% 170% 260% 198%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
--------------------------------------------------------------------------------
Prospectus Page 68
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON HIGH YIELD FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS SEPTEMBER 30, 1997)(4)(5)
-----------------------------------------------------------------
2001(8) 2000(8) 1999(7) 1998(5) 1997(3)
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 9.19 $ 9.96 $ 9.98 $ 10.05 $ 10.00
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.88(2) 0.91(2) 0.44(2) 7.30 0.18
Net realized and
unrealized gain
(loss)................ (1.08) (0.90) (0.15) 0.02 0.05
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... (0.20) 0.01 0.29 7.32 0.23
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (1.09) (0.71) (0.31) (7.33) (0.18)
Distributions from and
in excess of net
realized gain......... -- (0.07) -- (0.06) --
--------- --------- --------- --------- ---------
Total
distributions....... (1.09) (0.78) (0.31) (7.39) (0.18)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 7.90 $ 9.19 $ 9.96 $ 9.98 $ 10.05
========= ========= ========= ========= =========
Total return
(non-annualized)......... (1.83)% 0.02% 2.91% 7.75% 2.34%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 54,560 $ 50,845 $ 60,044 $ 34,900 $ 7,861
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 0.89% 0.86% 0.83%(1) 1.59% 4.98%(1)
After expense
reimbursement......... 0.72%(6) 0.70% 0.70%(1) 0.89% 0.90%(1)
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 9.90% 9.31% 8.54%(1) 7.38% 3.15%(1)
After expense
reimbursement......... 10.07% 9.47% 8.67%1 8.08% 7.23%(1)
Portfolio turnover....... 87% 73% 77% N/A N/A
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) For period from commencement of operations to December 31, 1997.
(4) Prior to the Reorganization, the Fund operated as a separate portfolio of
UBS Private Investor Funds, Inc. and invested all of its investable assets
in an affiliated investment company with an identical investment objective.
The Fund invested solely in the UBS Investor Portfolios Trust -- UBS High
Yield Bond Portfolio. The investment company in which the Fund invested is
referred to herein as the "Master Fund." The ratios set forth in this
Financial Highlights table for the Fund includes the Fund's share of its
Master Fund's expenses. The annualization of these ratios is also affected
by the fact that the Investment Advisory Agreement and Investment
Sub-Advisory Agreement to which the Fund was subject prior to the
Reorganizations were not ratified until December 29, 1997. Prior to that
date, investment advisory services were being provided without
compensation. Prior to the Reorganization, the Fund had a fiscal year end
of December 31.
(5) For the year ended December 31, 1998, reflects 10 for 1 share split
effective December 9, 1998.
(6) The ratio of net operating expenses to average net assets was 0.70%.
(7) For the period January 1, 1999 to June 30, 1999.
(8) For the fiscal year ended June 30.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 69
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON HIGH YIELD FUND
CLASS A SHARES
(COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1998)
YEAR ENDED JUNE 30,
-------------------------------------
2001 2000 1999(4)
--------- --------- ---------
Net asset value, beginning of
period............................. $ 9.18 $ 9.95 $ 9.98
--------- --------- ---------
Income (loss) from investment
operations:
Net investment income............ 0.85(2) 0.90(2) 0.42(2)
Net realized and unrealized
loss............................ (1.08) (0.90) (0.15)
--------- --------- ---------
Total income (loss) from
investment operations......... (0.23) -- 0.27
--------- --------- ---------
Less distributions:
Distributions from and in excess
of net investment income........ (1.08) (0.70) (0.30)
Distributions from and in excess
of net realized gain............ -- (0.07) --
--------- --------- ---------
Total distributions............ (1.08) (0.77) (0.30)
--------- --------- ---------
Net asset value, end of period..... $ 7.87 $ 9.18 $ 9.95
========= ========= =========
Total return (non-annualized)...... (2.28)% (0.13)% 2.71%
========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s).............................. $ 1 $ 1 $ 1
Ratio of expenses to average net
assets:
Before expense reimbursement..... 1.14% 1.11% 1.08%(1)
After expense reimbursement...... 0.97%(3) 0.95% 0.95%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement..... 9.65% 9.06% 8.29%(1)
After expense reimbursement...... 9.82% 9.22% 8.42%(1)
Portfolio turnover................. 87% 73% 77%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The ratio of net operating expenses to average net assets was 0.95%.
(4) For the period commencement of operations to June 30, 1999.
--------------------------------------------------------------------------------
Prospectus Page 70
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. BALANCED FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS DECEMBER 30, 1994)(1)
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 8.59 $ 9.38 $ 12.24 $ 12.53 $ 11.71
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.31 0.26(2) 0.34(2) 0.49(2) 0.47
Net realized and
unrealized gain
(loss)................ 0.89 (0.74) 0.18 0.93 1.29
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... 1.20 (0.48) 0.52 1.42 1.76
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (0.38) (0.25) (0.73) (0.77) (0.40)
Distributions from and
in excess of net
realized gain......... -- (0.06) (2.65) (0.94) (0.54)
--------- --------- --------- --------- ---------
Total
distributions....... (0.38) (0.31) (3.38) (1.71) (0.94)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 9.41 $ 8.59 $ 9.38 $ 12.24 $ 12.53
========= ========= ========= ========= =========
Total return
(non-annualized)......... 14.18% (5.07)% 4.74% 12.19% 15.50%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 25,719 $ 11,136 $ 37,603 $ 80,556 $ 282,860
========= ========= ========= ========= =========
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.14% 1.01% 0.96% 0.81% 0.88%
After expense
reimbursement......... 0.80% 0.81%(3) 0.80% 0.80% 0.80%
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 3.06% 2.80% 3.00% 3.88% 3.78%
After expense
reimbursement......... 3.40% 3.00% 3.16% 3.89% 3.86%
Portfolio turnover....... 159% 96% 113% 194% 329%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund - Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The ratio of net operating expenses to average net assets was 0.80%.
--------------------------------------------------------------------------------
Prospectus Page 71
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. BALANCED FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 8.57 $ 9.38 $ 12.27 $ 12.53
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.28 0.23(1) 0.29(1) 0.47(1)
Net realized and unrealized
gain (loss)................ 0.89 (0.74) 0.18 0.94
--------- --------- --------- ---------
Total income (loss) from
investment operations.... 1.17 (0.51) 0.47 1.41
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.36) (0.24) (0.71) (0.73)
Distributions from and in
excess of net realized
gain....................... -- (0.06) (2.65) (0.94)
--------- --------- --------- ---------
Total distributions....... (0.36) (0.30) (3.36) (1.67)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 9.38 $ 8.57 $ 9.38 $ 12.27
========= ========= ========= =========
Total return
(non-annualized).............. 13.89% (5.39)% 4.17% 12.15%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 1 $ 1 $ 1 $ 1
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 1.39% 1.26% 1.21% 1.06%
After expense
reimbursement.............. 1.05% 1.06%(2) 1.05% 1.05%
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 2.81% 2.55% 2.75% 3.63%
After expense
reimbursement.............. 3.15% 2.75% 2.91% 3.64%
Portfolio turnover............ 159% 96% 113% 194%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(2) The ratio of net operating expenses to average net assets was 1.05%.
--------------------------------------------------------------------------------
Prospectus Page 72
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. EQUITY FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS FEBRUARY 22, 1994)(1)
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 16.07 $ 21.48 $ 19.91 $ 17.64 $ 14.59
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.12(2) 0.16(2) 0.17(2) 0.19 0.15
Net realized and
unrealized gain
(loss)................ 1.57 (3.75) 2.67 3.39 4.27
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... 1.69 (3.59) 2.84 3.58 4.42
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (0.34) (0.05) (0.15) (0.18) (0.14)
Distributions from and
in excess of net
realized gain......... (1.35) (1.77) (1.12) (1.13) (1.23)
--------- --------- --------- --------- ---------
Total
distributions....... (1.69) (1.82) (1.27) (1.31) (1.37)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 16.07 $ 16.07 $ 21.48 $ 19.91 $ 17.64
========= ========= ========= ========= =========
Total return
(non-annualized)......... 10.88% (17.00)% 15.22% 21.48% 31.87%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 125,997 $ 167,870 $ 713,321 $ 605,768 $ 337,949
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 0.92% 0.84% 0.80% 0.80% 0.89%
After expense
reimbursement......... 0.80% 0.80% N/A N/A 0.80%
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 0.62% 0.89% 0.82% 1.12% 1.06%
After expense
reimbursement......... 0.74% 0.93% N/A N/A 1.15%
Portfolio turnover....... 54% 55% 48% 42% 43%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund - Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 73
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. EQUITY FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 15.97 $ 21.39 $ 19.88 $ 17.64
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.08(1) 0.13(1) 0.08(1) 0.15
Net realized and unrealized
gain (loss)................ 1.56 (3.75) 2.67 3.37
--------- --------- --------- ---------
Total income (loss) from
investment operations.... 1.64 (3.62) 2.75 3.52
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.29) (0.03) (0.12) (0.15)
Distributions from and in
excess of net realized
gain....................... (1.35) (1.77) (1.12) (1.13)
--------- --------- --------- ---------
Total distributions....... (1.64) (1.80) (1.24) (1.28)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 15.97 $ 15.97 $ 21.39 $ 19.88
========= ========= ========= =========
Total return
(non-annualized).............. 10.63% (17.24)% 14.75% 21.10%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 7,067 $ 7,191 $ 7,563 $ 268
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 1.17% 1.09% 1.05% 1.05%
After expense
reimbursement.............. 1.05% 1.05% N/A N/A
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 0.37% 0.64% 0.57% 0.87%
After expense
reimbursement.............. 0.49% 0.68% N/A N/A
Portfolio turnover............ 54% 55% 48% 42%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 74
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. LARGE CAP EQUITY FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS APRIL 6, 1998)(3)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998(4)
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 7.48 $ 11.13 $ 9.80 $ 10.00
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.08(2) 0.09(2) 0.11(2) 0.02
Net realized and unrealized
gain (loss)................ 0.82 (2.68) 1.31 (0.20)
--------- --------- --------- ---------
Total income (loss) from
investment operations.... 0.90 (2.59) 1.42 (0.18)
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.20) (0.11) (0.09) (0.02)
Distributions from and in
excess of net realized
gain....................... -- (0.95) -- --
--------- --------- --------- ---------
Total distributions....... (0.20) (1.06) (0.09) (0.02)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 8.18 $ 7.48 $ 11.13 $ 9.80
========= ========= ========= =========
Total return
(non-annualized).............. 12.12% (23.95)% 14.54% (1.83)%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 2,859 $ 15,758 $ 22,668 $ 154
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 2.03% 1.27% 1.29% 1.59%(1)
After expense
reimbursement.............. 0.80% 0.80% 0.80% 0.80%(1)
Ratio of net investment income
to average net assets:
Before expense
reimbursement................. (0.25)% 0.70% 0.57% 0.52%(1)
After expense
reimbursement.............. 0.98% 1.17% 1.06% 1.31%(1)
Portfolio turnover.......... 94% 174% 88% 12%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The U.S. Large Cap Equity Fund changed its name from the U.S. Large
Capitalization Equity Fund on May 2, 2000.
(4) For the period commencement of operations to June 30, 1998.
--------------------------------------------------------------------------------
Prospectus Page 75
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. LARGE CAP EQUITY FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS APRIL 6, 1998)(3)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998(4)
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 7.51 $ 11.13 $ 9.78 $ 10.00
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.06(2) 0.07(2) 0.09(2) 0.02
Net realized and unrealized
gain (loss)................ 0.82 (2.68) 1.31 (0.23)
--------- --------- --------- ---------
Total income (loss) from
investment operations.... 0.88 (2.61) 1.40 (0.21)
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.15) (0.06) (0.05) (0.01)
Distributions from and in
excess of net realized
gain....................... -- (0.95) -- --
--------- --------- --------- ---------
Total distributions....... (0.15) (1.01) (0.05) (0.01)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 8.24 $ 7.51 $ 11.13 $ 9.78
========= ========= ========= =========
Total return
(non-annualized).............. 11.74% (24.12)% 14.40% (2.02)%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 20 $ 35 $ 3,756 $ 16,033
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 2.28% 1.52% 1.54% 1.84%(1)
After expense
reimbursement.............. 1.05% 1.05% 1.05% 1.05%(1)
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. (0.49)% 0.45% 0.32% 0.27%(1)
After expense
reimbursement.............. 0.74% 0.92% 0.81% 1.06%(1)
Portfolio turnover............ 94% 174% 88% 12%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The U.S. Large Cap Equity Fund changed its name from the U.S. Large
Capitalization Equity Fund on May 2, 2000.
(4) For the period commencement of operations June 30, 1998.
--------------------------------------------------------------------------------
Prospectus Page 76
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. LARGE CAP GROWTH FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS OCTOBER 14, 1997)(3),(5)
-----------------------------------------------------------------
2001(8) 2000(8) 1999(7) 1998(6) 1997(4)
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 15.28 $ 13.91 $ 11.84 $ 9.92 $ 10.00
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment income
(loss)................ (0.01) 0.03(2) 0.02 0.06 0.02
Net realized and
unrealized gain
(loss)................ (4.37) 2.29 2.05 2.38 (0.08)
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... (4.38) 2.32 2.07 2.44 (0.06)
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... -- -- -- (0.06) (0.02)
Distributions from and
in excess of net
realized gain......... (1.91) (0.95) -- (0.46) --
--------- --------- --------- --------- ---------
Total
distributions....... (1.91) (0.95) -- (0.52) (0.02)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 8.99 $ 15.28 $ 13.91 $ 11.84 $ 9.92
========= ========= ========= ========= =========
Total return
(non-annualized)......... (31.33)% 17.52% 17.48% 24.90% (0.55)%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 3,299 $ 5,885 $ 2,947 $ 4,147 $ 4,137
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.34% 1.86% 2.38%(1) 2.76% 8.54%(1)
After expense
reimbursement......... 0.80% 0.80% 0.80%(1) 0.99% 1.00%(1)
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... (0.66)% (0.97)% (1.26)%(1) (1.40)% (6.19)%(1)
After expense
reimbursement......... (0.12)% 0.09% 0.32%(1) 0.37% 1.35%(1)
Portfolio turnover....... 56% 86% 51% N/A N/A
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The U.S. Large Cap Growth Fund changed its name from the U.S. Large
Capitalization Growth Fund on May 2, 2000.
(4) For period from commencement of operations to December 31, 1997.
(5) Prior to the Reorganization, the Fund operated as a separate portfolio of
UBS Private Investor Funds, Inc. and invested all of its investable assets
in an affiliated investment company with an identical investment objective.
The U.S. Large Cap Growth Fund invested solely in the UBS Investor
Portfolios Trust - UBS Large Cap Growth Portfolio. The fund in which the
U.S. Large Cap Growth Fund invested is referred to herein as the "Master
Fund." The ratios set forth in this Financial Highlights table for the Fund
include the Fund's share of its Master Fund's expenses. The annualization
of these ratios is also affected by the fact that the Investment Advisory
Agreement and Investment Sub-Advisory Agreement to which the Fund was
subject prior to the Reorganization were not ratified until December 29,
1997. Prior to that date, investment advisory services were being provided
without compensation. Prior to the Reorganization, the Fund had a fiscal
year end of December 31.
(6) For the year ended December 31, 1998, reflects 10 for 1 share split
effective December 9, 1998.
(7) Reflects the Fund's change in fiscal year end from December 31 to June 30.
(8) For the fiscal year ended June 30.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 77
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. LARGE CAP GROWTH FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS DECEMBER 31, 1998)(3)
YEAR ENDED JUNE 30,
----------------------------------------------------
2001 2000 1999(4)
-------------- -------------- --------------
Net asset value, beginning of
period............................. $ 15.20 $ 13.88 $ 11.84
--------- --------- ---------
Income (loss) from investment
operations:
Net investment income (loss)..... (0.07) 0.02(2) (0.01)
Net realized and unrealized gain
(loss).......................... (4.32) 2.29 2.05
--------- --------- ---------
Total income (loss) from
investment operations......... (4.39) 2.27 2.04
--------- --------- ---------
Less distributions:
Distributions from and in excess
of net investment income........ -- -- --
Distributions from and in excess
of net realized gain............ (1.91) (0.95) --
--------- --------- ---------
Total distributions............ (1.91) (0.95) --
--------- --------- ---------
Net asset value, end of period..... $ 8.90 $ 15.20 $ 13.88
========= ========= =========
Total return (non-annualized)...... (31.59)% 17.18% 17.23%
========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s).............................. $ 1 $ 1 $ 1
Ratio of expenses to average net
assets:
Before expense reimbursement..... 1.59% 2.11% 2.63%(1)
After expense reimbursement...... 1.05% 1.05% 1.05%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement..... (0.91)% (1.22)% (1.51)%(1)
After expense reimbursement...... (0.37)% (0.16)% 0.07%(1)
Portfolio turnover................. 56% 86% 51%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The U.S. Large Cap Growth Fund changed its name from the U.S. Large
Capitalization Growth Fund on May 2, 2000.
(4) For the period commencement of operations to June 30, 1999.
--------------------------------------------------------------------------------
Prospectus Page 78
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. SMALL CAP GROWTH FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS SEPTEMBER 30, 1997)(3),(5)
-----------------------------------------------------------------
2001(8) 2000(8) 1999(7) 1998(6) 1997(4)
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 16.27 $ 9.18 $ 8.80 $ 9.44 $ 10.00
Income (loss) from
investment operations:
Net investment (loss)
income................ (0.07) (0.03)(2) (0.02) (0.02) --
Net realized and
unrealized gain
(loss)................ (1.51) 7.12 0.40 (0.57) (0.56)
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... (1.58) 7.09 0.38 (0.59) (0.56)
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... -- -- -- -- --
Distributions from and
in excess of net
realized gain......... (2.83) -- -- (0.05) --
--------- --------- --------- --------- ---------
Total
distributions....... (2.83) -- -- (0.05) --
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 11.86 $ 16.27 $ 9.18 $ 8.80 $ 9.44
========= ========= ========= ========= =========
Total return
(non-annualized)......... (10.74)% 77.23% 4.32% (6.70)% (5.62)%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 44,057 $ 50,975 $ 35,211 $ 22,607 $ 11,954
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.23% 1.31% 1.32%(1) 1.69% 3.63%(1)
After expense
reimbursement......... 1.15% 1.15% 1.15%(1) 1.20% 1.20%(1)
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... (0.62)% (0.76)% (0.62)%(1) (0.76)% (2.53)%(1)
After expense
reimbursement......... (0.54)% (0.60)% (0.45)%(1) (0.27)% (0.10)%(1)
Portfolio turnover....... 93% 104% 71% N/A N/A
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The U.S. Large Cap Equity Fund, U.S. Large Cap Growth Fund and U.S. Small
Cap Growth Fund changed their names from the U.S. Large Capitalization
Equity Fund, U.S. Large Capitalization Growth Fund and U.S. Small
Capitalization Growth Fund, respectively, on May 2, 2000.
(4) For period from commencement of operations to December 31, 1997.
(5) Prior to the Reorganization, the Fund operated as a separate portfolio of
UBS Private Investor Funds, Inc. and invested all of its investable assets
in an affiliated investment company with an identical investment objective.
The U.S. Small Cap Growth Fund invested solely in the UBS Investor
Portfolios Trust - UBS Small Cap Portfolio. The fund in which the U.S.
Small Cap Growth Fund invested is referred to herein as the "Master Fund."
The ratios set forth in this Financial Highlights table for the Fund
include the Fund's share of its Master Fund's expenses. The annualization
of these ratios is also affected by the fact that the Investment Advisory
Agreement and Investment Sub-Advisory Agreement to which the Fund was
subject prior to the Reorganization were not ratified until December 29,
1997. Prior to that date, investment advisory services were being provided
without compensation. Prior to the Reorganizations, the Fund had a fiscal
year end of December 31.
(6) For the year ended December 31, 1998, reflects 10 for 1 share split
effective December 9, 1998.
(7) Reflects the Fund's change in fiscal year end from December 31 to June 30.
(8) For the fiscal year ended June 30.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 79
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON U.S. SMALL CAP GROWTH FUND
CLASS A SHARES
(COMMENCEMENT OF OPERATIONS
DECEMBER 31, 1998)(3)
YEAR ENDED JUNE 30,
-------------------------------------
2001 2000 1999(4)
--------- --------- ---------
Net asset value, beginning of
period............................. $ 16.20 $ 9.16 $ 8.80
--------- --------- ---------
Income (loss) from investment
operations:
Net investment loss.............. (0.09) (0.08)(2) (0.04)
Net realized and unrealized gain
(loss).......................... (1.52) 7.12 0.40
--------- --------- ---------
Total income (loss) from
investment operations......... (1.61) 7.04 0.36
--------- --------- ---------
Less distributions:
Distributions from and in excess
of net investment income........ -- -- --
Distributions from and in excess
of net realized gain............ (2.83) -- --
--------- --------- ---------
Total distributions............ (2.83) -- --
--------- --------- ---------
Net asset value, end of period..... $ 11.76 $ 16.20 $ 9.16
========= ========= =========
Total return (non-annualized)...... (11.00)% 76.86% 4.09%
========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s).............................. $ 2 $ 2 $ 1
Ratio of expenses to average net
assets:
Before expense reimbursement..... 1.48% 1.56% 1.57%(1)
After expense reimbursement...... 1.40% 1.40% 1.40%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement..... (0.87)% (1.01)% (0.87)%(1)
After expense reimbursement...... (0.79)% (0.85)% 0.70%(1)
Portfolio turnover................. 93% 104% 71%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The U.S. Small Cap Growth Fund changed its name from the U.S. Small
Capitalization Growth Fund on May 2, 2000.
(4) For the period commencement of operations to June 30, 1999.
--------------------------------------------------------------------------------
Prospectus Page 80
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL BALANCED FUND
(FORMERLY BRINSON GLOBAL FUND) CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS AUGUST 31, 1992)(1)
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 11.25 $ 12.02 $ 12.77 $ 13.13 $ 12.22
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.25 0.23(2) 0.30 0.37 0.38
Net realized and
unrealized gain
(loss)................ 0.31 (0.30) 0.25 0.62 1.79
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... 0.56 (0.07) 0.55 0.99 2.17
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... -- (0.18) (0.46) (0.65) (0.61)
Distributions from and
in excess of net
realized gain......... (0.63) (0.52) (0.84) (0.70) (0.65)
--------- --------- --------- --------- ---------
Total
distributions....... (0.63) (0.70) (1.30) (1.35) (1.26)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 11.18 $ 11.25 $ 12.02 $ 12.77 $ 13.13
========= ========= ========= ========= =========
Total return
(non-annualized)......... 5.20% (0.48)% 4.76% 8.28% 18.79%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 156,130 $ 284,229 $ 469,080 $ 667,745 $ 586,667
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.05% 0.99% 0.96% 0.94% 0.99%
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 1.77% 1.99% 2.23% 2.70% 3.03%
Portfolio turnover....... 115% 98% 105% 88% 150%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund - Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
--------------------------------------------------------------------------------
Prospectus Page 81
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL BALANCED FUND
(FORMERLY BRINSON GLOBAL FUND) CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 11.20 $ 11.99 $ 12.75 $ 13.13
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.22 0.19(1) 0.27 0.63
Net realized and unrealized
gain (loss)................ 0.31 (0.30) 0.25 0.32
--------- --------- --------- ---------
Total income (loss) from
investment operations.... 0.53 (0.11) 0.52 0.95
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... -- (0.16) (0.44) (0.63)
Distributions from and in
excess of net realized
gain....................... (0.63) (0.52) (0.84) (0.70)
--------- --------- --------- ---------
Total distributions....... (0.63) (0.68) (1.28) (1.33)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 11.10 $ 11.20 $ 11.99 $ 12.75
========= ========= ========= =========
Total return
(non-annualized).............. 4.95% (0.80)% 4.47% 7.90%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 237 $ 202 $ 1,576 $ 1,163
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 1.30% 1.24% 1.21% 1.19%
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 1.52% 1.74% 1.98% 2.45%
Portfolio turnover............ 115% 98% 105% 88%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
--------------------------------------------------------------------------------
Prospectus Page 82
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL EQUITY FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS JANUARY 28, 1994)(1)
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 12.47 $ 13.42 $ 12.54 $ 12.76 $ 11.57
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.09 0.07(2) 0.14(2) 0.22 0.16
Net realized and
unrealized gain
(loss)................ (0.54) 0.27 1.09 0.78 2.14
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... (0.45) 0.34 1.23 1.00 2.30
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (0.02) (0.08) (0.17) (0.17) (0.12)
Distributions from and
in excess of net
realized gain......... (1.32) (1.21) (0.18) (1.05) (0.99)
--------- --------- --------- --------- ---------
Total
distributions....... (1.34) (1.29) (0.35) (1.22) (1.11)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 10.68 $ 12.47 $ 13.42 $ 12.54 $ 12.76
========= ========= ========= ========= =========
Total return
(non-annualized)......... (4.07)% 2.69% 10.14% 8.99% 21.26%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 49,306 $ 40,538 $ 42,106 $ 22,724 $ 48,054
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.12% 1.08% 1.05% 1.02% 1.25%
After expense
reimbursement......... 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 0.90% 0.48% 1.05% 1.29% 1.35%
After expense
reimbursement......... 1.02% 0.56% 1.10% 1.31% 1.60%
Portfolio turnover....... 81% 111% 86% 46% 32%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund - Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
--------------------------------------------------------------------------------
Prospectus Page 83
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL EQUITY FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 12.44 $ 13.40 $ 12.53 $ 12.76
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.07 0.04(1) 0.10(1) 0.13
Net realized and unrealized
gain (loss)................ (0.56) 0.27 1.09 0.82
--------- --------- --------- ---------
Total income (loss) from
investment operations.... (0.49) 0.31 1.19 0.95
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.02) (0.06) (0.14) (0.13)
Distributions from and in
excess of net realized
gain....................... (1.32) (1.21) (0.18) (1.05)
--------- --------- --------- ---------
Total distributions....... (1.34) (1.27) (0.32) (1.18)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 10.61 $ 12.44 $ 13.40 $ 12.53
========= ========= ========= =========
Total return
(non-annualized).............. (4.45)% 2.49% 9.80% 8.60%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 302 $ 224 $ 220 $ 1
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 1.37% 1.33% 1.30% 1.27%
After expense
reimbursement.............. 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 0.65% 0.23% 0.80% 1.04%
After expense
reimbursement.............. 0.77% 0.31% 0.85% 1.06%
Portfolio turnover............ 81% 111% 86% 46%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
--------------------------------------------------------------------------------
Prospectus Page 84
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL
TECHNOLOGY FUND
CLASS Y SHARES
(COMMENCEMENT OF
OPERATIONS
MAY 26, 2000)
YEAR ENDED JUNE 30,
-----------------------
2001 2000(3)
--------- ---------
Net asset value, beginning of period.... $ 11.30 $ 10.00
--------- ---------
Income (loss) from investment
operations:
Net investment income (loss).......... (0.08)(2) --
Net realized and unrealized gain
(loss)............................... (5.41) 1.30
--------- ---------
Total income (loss) from investment
operations......................... (5.49) 1.30
--------- ---------
Less distributions:
Distributions from and in excess of
net investment income................ -- --
Distributions from and in excess of
net realized gain.................... (0.01) --
--------- ---------
Total distributions................. (0.01) --
--------- ---------
Net asset value, end of period.......... $ 5.80 $ 11.30
========= =========
Total return (non-annualized)........... (48.58)% 13.00%
========= =========
Ratios/Supplemental Data:
Net assets, end of period (in 000s)..... $ 895 $ 224
Ratio of expenses to average net assets:
Before expense reimbursement.......... 4.60% 13.28%(1)
After expense reimbursement........... 1.55% 1.55%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement.......... (4.20)% (12.26)%(1)
After expense reimbursement........... (1.15)% (0.53)%(1)
Portfolio turnover...................... 221% 14%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) For the period commencement of operations to June 30, 2000.
--------------------------------------------------------------------------------
Prospectus Page 85
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL
TECHNOLOGY FUND
CLASS A SHARES
(COMMENCEMENT OF
OPERATIONS
MAY 26, 2000)
YEAR ENDED JUNE 30,
-----------------------
2001 2000(3)
--------- ---------
Net asset value, beginning of period.... $ 11.30 $ 10.00
--------- ---------
Income (loss) from investment
operations:
Net investment income (loss).......... (0.12)(2) --
Net realized and unrealized gain
(loss)............................... (5.38) 1.30
--------- ---------
Total income (loss) from investment
operations......................... (5.50) 1.30
--------- ---------
Less distributions:
Distributions from and in excess of
net investment income................ -- --
Distributions from and in excess of
net realized gain.................... (0.01) --
--------- ---------
Total distributions................. (0.01) --
--------- ---------
Net asset value, end of period.......... $ 5.79 $ 11.30
========= =========
Total return (non-annualized)........... (48.67)% 13.00%
========= =========
Ratios/Supplemental Data:
Net assets, end of period (in 000s)..... $ 1 $ 1
Ratio of expenses to average net assets:
Before expense reimbursement.......... 4.85% 13.53%(1)
After expense reimbursement........... 1.80% 1.80%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement.......... (4.45)% (12.51)%(1)
After expense reimbursement........... (1.40)% (0.78)%(1)
Portfolio turnover...................... 221% 14%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) For the period commencement of operations to June 30, 2000.
--------------------------------------------------------------------------------
Prospectus Page 86
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL
BIOTECH FUND
CLASS Y SHARES
(COMMENCEMENT
OF OPERATIONS
JUNE 2, 2000)
YEAR ENDED JUNE 30,
-----------------------
2001 2000(3)
--------- ---------
Net asset value, beginning of period.... $ 12.08 $ 10.00
--------- ---------
Income (loss) from investment
operations:
Net investment income (loss).......... (0.09)(2) --(2)
Net realized and unrealized gain
(loss)............................... (2.67) 2.08
--------- ---------
Total income (loss) from investment
operations......................... (2.76) 2.08
--------- ---------
Less distributions:
Distributions from and in excess of
net investment income................ -- --
Distributions from and in excess of
net realized gain.................... (0.21) --
--------- ---------
Total distributions................. (0.21) --
--------- ---------
Net asset value, end of period.......... $ 9.11 $ 12.08
========= =========
Total return (non-annualized)........... (23.25)% 20.80%
========= =========
Ratios/Supplemental Data:
Net assets, end of period (in 000s)..... $ 2,322 $ 691
Ratio of expenses to average net assets:
Before expense reimbursement.......... 3.86% 10.10%(1)
After expense reimbursement........... 1.30% 1.30%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement.......... (3.48)% (9.29)%(1)
After expense reimbursement........... (0.92)% (0.49)%(1)
Portfolio turnover...................... 205% 19%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) For the period commencement of operations to June 30, 2000.
--------------------------------------------------------------------------------
Prospectus Page 87
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL
BIOTECH FUND
CLASS A SHARES
(COMMENCEMENT
OF OPERATIONS
JUNE 2, 2000)
YEAR ENDED JUNE 30,
-----------------------
2001 2000(3)
--------- ---------
Net asset value, beginning of period.... $ 12.07 $ 10.00
--------- ---------
Income (loss) from investment
operations:
Net investment income (loss).......... (0.12)(2) (0.01)(2)
Net realized and unrealized gain
(loss)............................... (2.66) 2.08
--------- ---------
Total income (loss) from investment
operations......................... (2.78) 2.07
--------- ---------
Less distributions:
Distributions from and in excess of
net investment income................ -- --
Distributions from and in excess of
net realized gain.................... (0.21) --
--------- ---------
Total distributions................. (0.21) --
--------- ---------
Net asset value, end of period.......... $ 9.08 $ 12.07
========= =========
Total return (non-annualized)........... (23.44)% 20.70%
========= =========
Ratios/Supplemental Data:
Net assets, end of period (in 000s)..... $ 1 $ 1
Ratio of expenses to average net assets:
Before expense reimbursement.......... 4.11% 10.35%(1)
After expense reimbursement........... 1.55% 1.55%(1)
Ratio of net investment income to
average net assets:
Before expense reimbursement.......... (3.73)% (9.54)%(1)
After expense reimbursement........... (1.17)% (0.74)%(1)
Portfolio turnover...................... 205% 19%
-----------
(1) Annualized.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) For the period commencement of operations to June 30, 2000.
--------------------------------------------------------------------------------
Prospectus Page 88
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL BOND FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS JULY 30, 1993)(1)
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 9.01 $ 9.18 $ 9.41 $ 9.64 $ 10.04
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.36(2) 0.40(2) 0.39(2) 0.43(2) 0.67
Net realized and
unrealized gain
(loss)................ (0.72) (0.43) (0.07) (0.18) 0.08
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations (0.36) (0.03) 0.32 0.25 0.75
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (0.08) (0.13) (0.47) (0.31) (0.96)
Distributions from and
in excess of net
realized gain......... -- (0.01) (0.08) (0.17) (0.19)
--------- --------- --------- --------- ---------
Total
distributions....... (0.08) (0.14) (0.55) (0.48) (1.15)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 8.57 $ 9.01 $ 9.18 $ 9.41 $ 9.64
========= ========= ========= ========= =========
Total return
(non-annualized)......... (4.02)% (0.34)% 3.13% 2.69% 7.71%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 37,822 $ 43,467 $ 92,832 $ 91,274 $ 54,157
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.12% 1.05% 0.90% 0.96% 1.32%
After expense
reimbursement......... 0.90% 0.94%(3) N/A 0.90% 0.90%
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 3.85% 4.34% 4.05% 4.47% 4.90%
After expense
reimbursement......... 4.07% 4.45% N/A 4.53% 5.32%
Portfolio turnover....... 165% 87% 138% 151% 235%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund - Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The ratio of net operating expenses to average net assets was 0.90%.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 89
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON GLOBAL BOND FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 9.09 $ 9.16 $ 9.40 $ 9.64
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... 0.33(1) 0.37(1) 0.37(1) 0.42(1)
Net realized and unrealized
gain (loss)................ (0.72) (0.43) (0.07) (0.20)
--------- --------- --------- ---------
Total income (loss) from
investment operations.... (0.39) (0.06) 0.30 0.22
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.06) -- (0.46) (0.29)
Distributions from and in
excess of net realized
gain....................... -- (0.01) (0.08) (0.17)
--------- --------- --------- ---------
Total distributions....... (0.06) (0.01) (0.54) (0.46)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 8.64 $ 9.09 $ 9.16 $ 9.40
========= ========= ========= =========
Total return
(non-annualized).............. (4.27)% (0.66)% 2.89% 2.37%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 3 $ 1 $ 1,085 $ 9
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 1.37% 1.30% 1.15% 1.21%
After expense
reimbursement.............. 1.15% 1.19%(2) N/A 1.15%
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 3.60% 4.09% 3.80% 4.22%
After expense
reimbursement.............. 3.82% 4.20% N/A 4.28%
Portfolio turnover............ 165% 87% 138% 151%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(2) The ratio of net operating expenses to average net assets was 1.15%.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 90
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON INTERNATIONAL EQUITY FUND CLASS Y SHARES
(COMMENCEMENT OF OPERATIONS AUGUST 31, 1993)(1)
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value,
beginning of period...... $ 13.57 $ 12.34 $ 12.15 $ 12.59 $ 11.17
--------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment
income................ 0.13(2) 0.11(2) 0.16 0.18 0.18
Net realized and
unrealized gain
(loss)................ (2.25) 1.33 0.27 0.30 1.97
--------- --------- --------- --------- ---------
Total income (loss)
from investment
operations.......... (2.12) 1.44 0.43 0.48 2.15
--------- --------- --------- --------- ---------
Less distributions:
Distributions from and
in excess of net
investment income..... (0.04) (0.07) (0.12) (0.18) (0.17)
Distributions from and
in excess of net
realized gain......... (0.77) (0.14) (0.12) (0.74) (0.56)
--------- --------- --------- --------- ---------
Total
distributions....... (0.81) (0.21) (0.24) (0.92) (0.73)
--------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 10.64 $ 13.57 $ 12.34 $ 12.15 $ 12.59
========= ========= ========= ========= =========
Total return
(non-annualized)......... (16.15)% 11.76% 3.65% 4.78% 20.27%
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period
(in 000s)................ $ 192,408 $ 411,985 $ 490,322 $ 439,329 $ 420,855
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.06% 1.00%(3) 0.99% 1.00% 1.00%
After expense
reimbursement......... 1.03%(4) N/A N/A N/A N/A
Ratio of net investment
income to average net
assets:
Before expense
reimbursement......... 1.02% 0.89% 1.35% 1.52% 1.83%
After expense
reimbursement......... 1.05% N/A N/A N/A N/A
Portfolio turnover....... 62% 59% 74% 49% 25%
-----------
(1) Formerly known as the Brinson Fund Class shares; redesignated as the
Brinson Fund - Class I on June 30, 1997.
(2) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(3) The ratio of net operating expenses to average net assets was 0.99%.
(4) The ratio of net operating expenses to average net assets was 1.00%.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 91
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
FINANCIAL HIGHLIGHTS
(Continued)
--------------------------------------------------------------------------------
THE BRINSON FUNDS
BRINSON INTERNATIONAL EQUITY FUND CLASS A SHARES
(COMMENCEMENT OF OPERATIONS JUNE 30, 1997)
YEAR ENDED JUNE 30,
---------------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Net asset value, beginning of
period........................ $ 13.57 $ 12.30 $ 12.14 $ 12.59
--------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income....... --(1) 0.08(1) 0.12 0.16
Net realized and unrealized
gain (loss)................ (2.15) 1.33 0.27 0.29
--------- --------- --------- ---------
Total income (loss) from
investment operations.... (2.15) 1.41 0.39 0.45
--------- --------- --------- ---------
Less distributions:
Distributions from and in
excess of net investment
income..................... (0.04) -- (0.11) (0.16)
Distributions from and in
excess of net realized
gain....................... (0.77) (0.14) (0.12) (0.74)
--------- --------- --------- ---------
Total distributions....... (0.81) (0.14) (0.23) (0.90)
--------- --------- --------- ---------
Net asset value, end of
period........................ $ 10.61 $ 13.57 $ 12.30 $ 12.14
========= ========= ========= =========
Total return
(non-annualized).............. (16.37)% 11.51% 3.30% 4.51%
========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of period (in
000s)......................... $ 301 $ 1 $ 15 $ 11
Ratio of expenses to average
net assets:
Before expense
reimbursement.............. 1.31% 1.25%(2) 1.24% 1.25%
After expense
reimbursement.............. 1.28%(3) N/A N/A N/A
Ratio of net investment income
to average net assets:
Before expense
reimbursement.............. 0.77% 0.64% 1.10% 1.27%
After expense
reimbursement.............. 0.80% N/A N/A N/A
Portfolio turnover............ 62% 59% 74% 49%
-----------
(1) The net investment income per share data was determined by using average
shares outstanding throughout the period.
(2) The ratio of net operating expenses to average net assets was 1.24%.
(3) The ratio of net operating expenses to average net assets was 1.25%.
N/A Not applicable.
--------------------------------------------------------------------------------
Prospectus Page 92
--------------------------------------------------------------------------------
------------------------
The Brinson Funds
If you want more information about the Funds, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual reports,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Funds' performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Funds and is incorporated
by reference into this prospectus.
You may discuss your questions about the Funds by contacting your investment
professional. You may obtain free copies of the Funds' annual and semi-annual
reports and the SAI by contacting the Funds directly at 1-800-647-1568.
You may review and copy information about the Funds, including shareholder
reports and the SAI, at the Public Reference Room of the Securities and Exchange
Commission in Washington, D.C. You may obtain information about the operations
of the SEC's Public Reference Room by calling the SEC at 1-202-942-8090. You may
get copies of reports and other information about the Funds:
- For a fee, by electronic request at publicinfo@sec.gov or by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102; or
- Free from the EDGAR Database on the SEC's Internet website at:
http://www.sec.gov
The Brinson Funds
Investment Company Act File No. 811-6637
---------------
--------------------------------------------------------------------------------
THE BRINSON FUNDS
209 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60604-1295
STATEMENT OF ADDITIONAL INFORMATION
The following funds (the "Funds") are series of The Brinson Funds, an
open-end management investment company (the "Trust"):
U.S. Bond Fund U.S. Real Estate Equity Fund
High Yield Fund Global Balanced Fund
U.S. Balanced Fund Global Equity Fund
U.S. Equity Fund Global Technology Fund
U.S. Value Equity Fund Global Biotech Fund
U.S. Large Cap Equity Fund Global Bond Fund
U.S. Large Cap Growth Fund International Equity Fund
U.S. Small Cap Equity Fund Emerging Markets Debt Fund
U.S. Small Cap Growth Fund Emerging Markets Equity Fund
Brinson Partners, Inc., an indirect wholly owned subsidiary of UBS AG
("UBS"), serves as the investment advisor for the Funds. Brinson Advisors, Inc.
("Brinson Advisors") serves as the administrator and underwriter for the Funds.
Brinson Advisors is an indirect wholly owned asset management subsidiary of UBS.
Portions of the Funds' Annual Report to Shareholders are incorporated by
reference into this Statement of Additional Information ("SAI"). The Annual
Report accompanies this SAI. You may obtain additional copies of the Funds'
Annual Report without charge by calling toll-free 1-800-647-1568.
This SAI is not a prospectus and should be read only in conjunction with the
Funds' current Prospectuses, dated November 5, 2001. A copy of the Prospectuses
may be obtained by calling your investment professional or by calling the Trust
toll-free at 1-800-647-1568. The Prospectuses contain more complete information
about the Funds. You should read them carefully before investing. This SAI is
dated November 5, 2001.
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE TRUST......................... 4
Diversification Status.................................... 4
General Definitions....................................... 4
INVESTMENT STRATEGIES....................................... 5
INVESTMENTS RELATING TO ALL FUNDS........................... 5
Cash and Cash Equivalents................................. 5
Repurchase Agreements..................................... 6
Reverse Repurchase Agreements............................. 6
Borrowing................................................. 7
Loans of Portfolio Securities............................. 7
Swaps..................................................... 7
Futures................................................... 8
Options................................................... 9
Index Options............................................. 11
Special Risks of Options on Indices....................... 11
Rule 144A and Illiquid Securities......................... 12
Investment Company Securities and Investments in
Affiliated Investment Companies......................... 13
Real Estate Investment Trusts (REITS)..................... 14
Other Investments......................................... 14
INVESTMENTS RELATING TO THE GLOBAL BALANCED FUND, GLOBAL
EQUITY FUND, GLOBAL TECHNOLOGY FUND, GLOBAL BIOTECH FUND,
U.S. BALANCED FUND, U.S. EQUITY FUND, U.S. VALUE EQUITY
FUND, U.S. LARGE CAP EQUITY FUND, U.S. LARGE CAP GROWTH
FUND, U.S. SMALL CAP EQUITY FUND, U.S. SMALL CAP GROWTH
FUND, U.S. REAL ESTATE EQUITY FUND, HIGH YIELD FUND,
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS EQUITY
FUND...................................................... 14
Equity Securities......................................... 14
Exchange-Traded Index Securities.......................... 15
INVESTMENTS RELATING TO THE GLOBAL FUNDS, U.S. VALUE EQUITY
FUND, U.S. LARGE CAP GROWTH FUND, U.S. SMALL CAP EQUITY
FUND, U.S. SMALL CAP GROWTH FUND, U.S. REAL ESTATE EQUITY
FUND AND HIGH YIELD FUND.................................. 15
Eurodollar Securities..................................... 15
Foreign Securities........................................ 15
Forward Foreign Currency Contracts........................ 16
Non-Deliverable Forwards.................................. 16
Options on Foreign Currencies............................. 17
Short Sales............................................... 18
INVESTMENTS RELATING TO THE GLOBAL BALANCED FUND, GLOBAL
BOND FUND, U.S. BALANCED FUND, U.S. REAL ESTATE EQUITY
FUND, U.S. BOND FUND, HIGH YIELD FUND, EMERGING MARKETS
DEBT FUND AND EMERGING MARKETS EQUITY FUND................ 18
Lower Rated Debt Securities............................... 18
Pay-In-Kind Bonds......................................... 19
Convertible Securities.................................... 19
When-Issued Securities.................................... 20
Mortgage-Backed Securities and Mortgage Pass-Through
Securities.............................................. 20
Collateralized Mortgage Obligations ("CMOs") and Real
Estate Mortgage Investment Conduits ("REMICs").......... 22
Dollar Rolls.............................................. 22
Other Mortgage-Backed Securities.......................... 23
Asset-Backed Securities................................... 23
Zero Coupon and Delayed Interest Securities............... 24
INVESTMENTS RELATING TO THE GLOBAL BALANCED FUND, GLOBAL
EQUITY FUND, GLOBAL TECHNOLOGY FUND, GLOBAL BIOTECH FUND,
HIGH YIELD FUND, INTERNATIONAL EQUITY FUND, EMERGING
MARKETS DEBT FUND AND EMERGING MARKETS EQUITY FUND........ 25
Emerging Markets Investments.............................. 25
Risks of Investing in Emerging Markets.................... 27
Investments in Russian Securities......................... 28
SECONDARY RISKS............................................. 29
INVESTMENT RESTRICTIONS..................................... 29
MANAGEMENT OF THE TRUST..................................... 31
Trustees and Officers..................................... 31
Compensation Table........................................ 34
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......... 34
INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING AND OTHER
SERVICE ARRANGEMENTS...................................... 43
Advisor................................................... 43
Sub-Advisor............................................... 46
Administrative, Accounting and Custody Services........... 47
Principal Underwriting Arrangements....................... 50
Prior Distribution Arrangements........................... 52
2
Transfer Agency Services.................................. 54
Independent Auditors...................................... 54
Legal Counsel............................................. 54
Personal Trading Policies................................. 54
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS............ 54
Portfolio Turnover........................................ 58
SHARES OF BENEFICIAL INTEREST............................... 58
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION
INFORMATION AND OTHER SERVICES............................ 59
Sales Charge Reductions and Waivers....................... 59
Automatic Cash Withdrawal Plan............................ 62
Individual Retirement Accounts............................ 62
Transfer of Accounts...................................... 62
Transfer of Securities.................................... 62
CONVERSION OF CLASS B SHARES................................ 63
NET ASSET VALUE............................................. 63
TAXATION.................................................... 64
Additional Information on Distributions and Taxes......... 64
Distributions............................................. 64
Investments in Foreign Securities......................... 64
Taxes..................................................... 65
Redemption of Shares...................................... 65
PERFORMANCE CALCULATIONS.................................... 67
Total Return.............................................. 68
Yield..................................................... 70
FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT AUDITORS.... 70
CORPORATE DEBT RATINGS--APPENDIX A.......................... A-1
SECONDARY RISKS--APPENDIX B................................. B-1
3
GENERAL INFORMATION ABOUT THE TRUST
The Trust currently offers shares of the following eighteen series
representing separate portfolios of investments: U.S. Bond Fund, High Yield
Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Value Equity Fund, U.S. Large
Cap Equity Fund, U.S. Large Cap Growth Fund, U.S. Small Cap Equity Fund,
U.S. Small Cap Growth Fund, U.S. Real Estate Equity Fund, Global Balanced Fund
(formerly, Global Fund), Global Equity Fund, Global Technology Fund, Global
Biotech Fund, Global Bond Fund, International Equity Fund (formerly, Global
(Ex-U.S.) Equity Fund), Emerging Markets Debt Fund and Emerging Markets Equity
Fund. The Trust currently offers four classes of shares for each Fund: the
Class A shares (formerly known as the Class N shares), the Class B shares, the
Class C shares and the Class Y shares (formerly known as the Class I shares).
Class A shares have a front-end sales charge, a contingent deferred sales charge
("CDSC") in the first year of ownership, and are subject to annual 12b-1 plan
expenses of 0.25% of average daily net assets of the respective Fund. Class B
shares have a CDSC and are subject to annual 12b-1 distribution fees of 0.75% of
average daily net assets, as well as annual 12b-1 plan expenses of 0.25% of
average daily net assets. Class C shares have a front-end sales charge and a
CDSC, and are subject to annual 12b-1 distribution fees of 0.50% or 0.75% of
average daily net assets, as well as annual 12b-1 plan expenses of 0.25% of
average daily net assets. Class Y shares, which are designed primarily for
institutional investors, have no sales charges and are not subject to annual
12b-1 plan expenses. The Trust was organized as a Delaware business trust on
December 1, 1993.
DIVERSIFICATION STATUS
Each of the U.S. Bond Fund, High Yield Fund, U.S. Balanced Fund,
U.S. Equity Fund, U.S. Value Equity Fund, U.S. Small Cap Growth Fund, Global
Balanced Fund, Global Equity Fund and International Equity Fund is "diversified"
as that term is defined in the Investment Company Act of 1940, as amended (the
"Act"). Each of the U.S. Large Cap Equity Fund, U.S. Large Cap Growth Fund,
U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Global Technology
Fund, Global Biotech Fund, Global Bond Fund, Emerging Markets Debt Fund and
Emerging Markets Equity Fund is classified as "non-diversified" for purposes of
the Act, which means that each Fund is not limited by the Act with regard to the
portion of its assets that may be invested in the securities of a single issuer.
To the extent that a non-diversified Fund makes investments in excess of 5% of
its total assets in the securities of a particular issuer, its exposure to the
risks associated with that issuer is increased. Because each non-diversified
Fund may invest in a limited number of issuers, the performance of particular
securities may adversely affect the performance of the Fund or subject the Fund
to greater price volatility than that experienced by diversified investment
companies.
GENERAL DEFINITIONS
As used throughout this SAI, the following terms shall have the meanings
listed:
"Act" shall mean the Investment Company Act of 1940, as amended.
"Administrator" or "Brinson Advisors" shall mean Brinson Advisors, Inc.,
which serves as the Funds' administrator.
"Advisor" or "Brinson Partners" shall mean Brinson Partners, Inc., which
serves as the Funds' investment advisor.
"Board" shall mean the Board of Trustees of the Trust.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Equity Funds" shall mean the U.S. Balanced Fund, U.S. Equity Fund, U.S.
Value Equity Fund, U.S. Large Cap Equity Fund, U.S. Large Cap Growth Fund, U.S.
Small Cap Equity Fund, U.S. Small Cap Growth Fund, U.S. Real Estate Equity Fund,
Global Balanced Fund, Global Equity Fund, Global Technology Fund, Global Biotech
Fund, International Equity Fund and Emerging Markets Equity Fund.
"Family Funds" shall mean Brinson Funds, PACE Select funds and other funds
for which Brinson Advisors or any of its affiliates serves as principal
underwriter.
"Fixed Income Funds" shall mean the U.S. Bond Fund, High Yield Fund, Global
Bond Fund and Emerging Markets Debt Fund.
4
"Funds" or "Series" shall mean collectively the Global Balanced Fund, Global
Equity Fund, Global Technology Fund, Global Biotech Fund, Global Bond Fund, U.S.
Balanced Fund, U.S. Equity Fund, U.S. Value Equity Fund, U.S. Large Cap Equity
Fund, U.S Large Cap Growth Fund, U.S. Small Cap Equity Fund, U.S. Small Cap
Growth Fund, U.S. Real Estate Equity Fund, U.S. Bond Fund, High Yield Fund,
International Equity Fund, Emerging Markets Debt Fund and Emerging Markets
Equity Fund (or individually, a "Fund" or a "Series").
"Global Funds" shall mean collectively the Global Balanced Fund, Global
Equity Fund, Global Technology Fund, Global Biotech Fund, Global Bond Fund,
International Equity Fund, Emerging Markets Debt Fund and Emerging Markets
Equity Fund (or individually, a "Global Fund").
"Moody's" shall mean Moody's Investors Services, Inc.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's Ratings Group.
"Sub-Advisor" shall mean Brinson Partners (NY), Inc., f/k/a UBS Asset
Management (New York), Inc., which serves as the sub-advisor to the Global
Technology Fund, Global Biotech Fund, U.S. Large Cap Growth Fund, U.S. Small Cap
Growth Fund, U.S. Real Estate Equity Fund and High Yield Fund.
"Sub-Advised Funds" shall mean the Global Technology Fund, Global Biotech
Fund, U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund, U.S. Real Estate
Equity Fund and High Yield Fund.
"Trust" shall mean The Brinson Funds, an open-end management investment
company registered under the Act.
"Underwriter" or "Brinson Advisors" shall mean Brinson Advisors, Inc., which
serves as the Funds' underwriter.
"U.S. Funds" shall mean collectively the U.S. Balanced Fund, U.S. Equity
Fund, U.S. Value Equity Fund, U.S. Large Cap Equity Fund, U.S. Large Cap Growth
Fund, U.S. Small Cap Equity Fund, U.S. Small Cap Growth Fund, U.S. Real Estate
Equity Fund, U.S. Bond Fund and High Yield Fund (or individually, a "U.S.
Fund").
"1933 Act" shall mean the Securities Act of 1933, as amended.
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 without the approval of the shareholders.
INVESTMENTS RELATING TO ALL FUNDS
The following discussion applies to all Series.
CASH AND CASH EQUIVALENTS
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. The
Series may also invest a portion of their assets in shares issued by money
market mutual funds. 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.
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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 are 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 Brinson Partners to manage its
investments. The Trustees of the Trust also serve as Trustees of the Brinson
Supplementary Trust. The Supplementary Trust Series invests in U.S. dollar
denominated money market instruments having a dollar-weighted average maturity
of 90 days or less, and operates in accordance with Rule 2a-7 under the Act. 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
Brinson Partners 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.
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 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 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.
Repurchase agreements are securities for purposes of the tax diversification
requirements that must be met for pass-through treatment under 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.
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 designated as segregated 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
designated as segregated are referred to in this SAI as "Segregated Assets"),
and such Segregated Assets shall be maintained in accordance with pertinent
positions of 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.
6
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 Act, except for notes to banks and
reverse repurchase agreements. Except with respect to the Global Technology Fund
and Global Biotech Fund, investment securities will not be purchased while a
Series has an outstanding borrowing that exceeds 5% of the Series' net assets.
LOANS OF PORTFOLIO SECURITIES
The Series may lend portfolio securities to qualified broker-dealers and
financial institutions pursuant to agreements 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 respective Series.
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 the Advisor under the supervision of
the Board, including the creditworthiness of the borrower 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 the Advisor.
SWAPS
The Series (except for the Global Equity Fund, U.S. Equity Fund, U.S. Large
Cap Equity Fund, U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund, High
Yield Fund and International 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. A Series 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 the Series anticipates purchasing at a
later date, or to gain exposure to certain markets in the most economical way
possible.
Interest rate swaps involve the exchange by a Series with another party of
their respective commitments to receive or pay interest (e.g., an exchange of
fixed rate payments for floating rate payments) with respect to a notional
amount of principal. Currency swaps involve the exchange of cash flows on a
notional amount based on changes in the values of referenced currencies.
The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
an interest rate floor entitles the purchaser to receive payments on a notional
principal amount from the party selling the floor to the extent that a specified
index falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return with a
predetermined range of interest rates or values.
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.
Swaps do not involve the delivery of securities or other underlying assets or
principal, and are subject to counterparty risk. If the other party to a swap
defaults and fails to consummate the transaction, a Series' risk of loss
consists of the net amount of interest payments that the Series
7
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 using the appropriate methodology
prescribed by the Internal Revenue Service.
The equity swaps in which all aforementioned Series intend to invest involve
agreements with a counterparty. The return to the Series on any equity swap
contact will be the total return on the notional amount of the contract as if it
were invested in the stocks comprising the contract index in exchange for an
interest component based on the notional amount of the agreement. A Series will
only enter into an equity swap contract on a net basis, i.e., the two parties'
obligations are netted out, with the Series paying or receiving, as the case may
be, only the net amount of the payments. Payments under an equity swap contract
may be made at the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to a swap contract, the Series
will be limited to contractual remedies pursuant to the agreements related to
the transaction. There is no assurance that a swap contract counterparty will be
able to meet its obligations pursuant to a swap contract or that, in the event
of a default, the Series will succeed in pursuing contractual remedies. The
Series thus assumes the risk that it may be delayed in or prevented from
obtaining payments owed to it pursuant to a swap contract. However, the amount
at risk is only the net unrealized gain, if any, on the swap, not the entire
notional amount. The Advisor will closely monitor, subject to the oversight of
the Board, the creditworthiness of swap counterparties in order to minimize the
risk of swaps.
The Advisor and the Trust do not believe that the Series' obligations under
swap contracts are senior securities and, accordingly, the Series will not treat
them as being subject to its borrowing or senior securities restrictions.
However, the net amount of the excess, if any, of a Series' obligations over its
entitlements with respect to each swap contract will be accrued on a daily basis
and an amount of Segregated Assets having an aggregate market value at least
equal to the accrued excess will be segregated in accordance with SEC positions.
To the extent that a Series cannot dispose of a swap in the ordinary course of
business within seven days at approximately the value at which the Series has
valued the swap, the Series will treat the swap as illiquid and subject to its
overall limit on illiquid investments of 15% of the Series' net assets.
FUTURES
The Series may enter into contracts for the purchase or sale for future
delivery of securities and indices. The Global Funds, U.S. Value Equity Fund,
U.S. Large Cap Growth Fund, U.S. Small Cap Equity Fund, U.S. Small Cap Growth
Fund, High Yield Fund and U.S. Real Estate 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' total 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 the Series' total assets.
When a Series enters into a futures transaction, it must deliver to the
futures commission merchant selected by the 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
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.
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 may sell stock index futures in
anticipation of or during a
8
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. The Series may also enter into futures contracts as a low cost method
for gaining exposure to a particular securities market without directly
investing in those securities.
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 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 foreign or U.S.
securities and indices and enter into related closing transactions, but will
only engage in option strategies for non-speculative purposes. A Series may also
purchase exchange-listed call options on particular market segment indices to
achieve temporary exposure to a specific industry.
The U.S. Funds may invest in options that are listed on U.S. exchanges or
traded over-the-counter and the Global Funds, the U.S. Value Equity Fund, U.S.
Large Cap Growth Fund, U.S. Small Cap Equity Fund, U.S. Small Cap Growth Fund,
U.S. Real Estate Equity Fund and High Yield 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.
9
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 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 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 assets.
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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.
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.
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.
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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.
RULE 144A AND ILLIQUID SECURITIES
The Series may invest in securities that are exempt under Rule 144A from the
registration requirements of the 1933 Act. Those securities purchased under
Rule 144A are traded among qualified institutional investors.
The Board has instructed Brinson Partners to consider the following factors
in determining the liquidity of a security purchased under Rule 144A: (i) the
security can be sold within seven days at approximately the same amount at which
it is valued by the Series; (ii) there is reasonable assurance that the security
will remain marketable throughout the period it is expected to be held by the
Series, taking into account the actual frequency of trades and quotations for
the security (expected frequency in the case of initial offerings); (iii) at
least two dealers make a market in the security; (iv) there are at least three
sources from which a price for the security is readily available;
(v) settlement is made in a "regular way" for the type of security at issue;
(vi) for Rule 144A securities that are also exempt from registration under
Section 3(c)(7) of the Act, there is a sufficient market of "qualified
purchasers" (as defined in the Act) to assure that it will remain marketable
throughout the period it is expected to be held by the Series. Although having
delegated the day-to-day functions, the Board 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 and Brinson Partners will continue
to monitor the liquidity of that security to ensure that each Series has no more
than 15% of its net 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' net assets, excluding restricted
securities eligible for resale pursuant to Rule 144A that have been determined
to be liquid pursuant to a policy and procedures adopted by the Trust's Board
which includes continuing oversight by the Board. The U.S. Small Cap Equity Fund
may invest up to 10% of its net assets in equity securities or interests in
non-public companies that are expected to have an initial public offering within
18 months.
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
12
ensure that the Series continue to adhere to such limitation, including
disposing of illiquid assets which may include such Rule 144A securities.
INVESTMENT COMPANY SECURITIES AND INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES
Subject to the provisions of any exemptive orders issued by the SEC (as
described in the following paragraphs), securities of other investment companies
may be acquired by each Series to the extent that such purchases are consistent
with that Series' investment objectives and restrictions and are permitted under
the Act. The Act requires that, as determined immediately after a purchase is
made, (i) not more than 5% of the value of the Series' total assets will be
invested in the securities of any one investment company, (ii) not more than 10%
of the value of the Series' total assets will be invested in securities of
investment companies as a group and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Series. Certain
exceptions to these limitations may apply. As a shareholder of another
investment company, a Series would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the expenses that such a Series
would bear in connection with its own operations.
The Global Balanced Fund, Global Equity Fund, Global Technology Fund, Global
Biotech Fund, High Yield Fund, International Equity Fund, Emerging Markets
Equity Fund and Emerging Markets Debt Fund may invest in securities issued by
other registered investment companies advised by Brinson Partners pursuant to
exemptive relief granted by the SEC. The Series will invest in corresponding
portfolios of the Brinson Relationship Funds only to the extent that the Advisor
determines that such investments are a more efficient means for the Series to
gain exposure to the asset classes referred to below than by investing directly
in individual securities. For example, to gain exposure to equity and fixed
income securities of issuers located in emerging market countries, the Global
Balanced Fund, Global Equity Fund and International Equity Fund may invest that
portion of their assets allocated to emerging markets investments in the Brinson
Emerging Markets Equity Fund portfolio of the Brinson Relationship Funds and, in
the case of the Global Balanced Fund, the Brinson Emerging Markets Debt Fund
portfolio of the 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 is permitted to invest in
the same types of securities that the Global Balanced Fund, Global Equity Fund
and International Equity Fund may invest in directly, and the Brinson Emerging
Markets Debt Fund is permitted to invest in the same types of securities that
the Global Balanced Fund may invest in directly.
In lieu of investing directly in certain high yield, higher risk securities,
the Global Balanced Fund may invest a portion of its assets in the Brinson High
Yield Fund portfolio of the Brinson Relationship Funds. The investment objective
of the Brinson High Yield Fund is to maximize total U.S. dollar return,
consisting of capital appreciation and current income, while controlling risk.
The Brinson High Yield Fund maintains a high yield portfolio and as such, at
least 65% of its total assets are invested in high yield securities. The Global
Balanced Fund currently intends to limit its investment in non-investment grade
debt securities to no more than 10% of its net assets. Any investment in the
Brinson 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 Balanced Fund may
invest a portion of its assets in the Brinson U.S. Small Capitalization Equity
Fund portfolio (the "U.S. Small Capitalization Equity Fund") of the Brinson
Relationship Funds. The investment objective of the U.S. Small Capitalization
Equity Fund is to maximize total U.S. dollar return, consisting of capital
appreciation and current income, while controlling risk. The U.S. Small
Capitalization Equity Fund invests primarily in publicly-traded companies
representing the lower 8% of the
13
Russell 3000 Index, and, as such, at least 65% of its total assets are invested
in small capitalization equity securities.
Each portfolio of the Brinson Relationship Funds in which the Global
Balanced Fund, Global Equity Fund and International Equity Fund may invest is
permitted to invest in the same securities of a particular asset class in which
the Global Balanced Fund, Global Equity Fund and International Equity Fund are
permitted to invest directly, and with similar risks. Pursuant to undertakings
with the SEC, the Global Balanced Fund, Global Equity Fund and International
Equity Fund will not be subject to the imposition of double management or
administration fees with respect to their investments in portfolios of the
Brinson Relationship Funds.
REAL ESTATE INVESTMENT TRUSTS (REITS) (THE U.S. REAL ESTATE EQUITY FUND ONLY)
Real estate investment trusts ("REITs") pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests. A REIT is not taxed on income distributed to its shareholders or
unitholders if it complies with regulatory requirements relating to its
organization, ownership, assets and income, and with a regulatory requirement
that it distribute to its shareholders or unitholders at least 95% of its
taxable income for each taxable year. Generally, REITs can be classified as
Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs invest the majority
of their assets directly in real property and derive their income primarily from
rents and capital gains from appreciation realized through property sales.
Equity REITs are further categorized according to the types of real estate
securities they own, e.g., apartment properties, retail shopping centers, office
and industrial properties, hotels, health-care facilities, manufactured housing
and mixed-property types. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive their income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity REITs and Mortgage
REITs.
A shareholder in the U.S. Real Estate Equity Fund, by investing in REITs
indirectly through the Series, will bear not only his proportionate share of the
expenses of the Series, but also, indirectly, the management expenses of the
underlying REITs. REITs may be affected by changes in the value of their
underlying properties and by defaults by borrowers or tenants. Mortgage REITs
may be affected by the quality of the credit extended. Furthermore, REITs are
dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a limited
number of properties, in a narrow geographic area, or in a single property type.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to defaults by
borrowers and to self-liquidations. In addition, the performance of a REIT may
be affected by its failure to qualify for tax-free pass-through of income, or
the REITs failure to maintain exemption from registration under the Act.
OTHER INVESTMENTS
The Board may, in the future, authorize a Series to invest in securities
other than those listed in this SAI and in the Prospectus, 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 BALANCED FUND,
GLOBAL EQUITY FUND, GLOBAL TECHNOLOGY FUND, GLOBAL BIOTECH FUND,
U.S. BALANCED FUND, U.S. EQUITY FUND, U.S. VALUE EQUITY FUND,
U.S. LARGE CAP EQUITY FUND, U.S. LARGE CAP GROWTH FUND,
U.S. SMALL CAP EQUITY FUND, U.S. SMALL CAP GROWTH FUND,
U.S. REAL ESTATE EQUITY FUND, HIGH YIELD FUND,
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS EQUITY FUND
EQUITY SECURITIES
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
14
States. The Series, except for the Global Biotech Fund, U.S. Small Cap Equity
Fund and U.S. Small Cap Growth Fund, expect their U.S. equity investments to
emphasize large and intermediate capitalization companies. The Global Biotech
Fund, U.S. Small Cap Equity Fund and U.S. Small Cap Growth Fund expect their
U.S. equity investments to emphasize small capitalization companies. The Global
Balanced Fund, U.S. Equity Fund, Global Biotech Fund, U.S. Small Cap Equity Fund
and U.S. Small Cap Growth 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
Balanced Fund, Global Technology Fund, Global Biotech Fund and U.S. Small Cap
Equity 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
U.S. Small Cap Equity Fund may invest up to 20% of its total assets in small
market capitalization equity securities of publicly traded foreign corporations
that were financed by venture capital partnerships. The Global Balanced Fund,
Global Equity Fund and International Equity Fund may also invest in open-end
investment companies advised by Brinson Partners. The Global Balanced Fund,
Global Equity Fund, Global Technology Fund, Global Biotech Fund, International
Equity Fund and Emerging Markets Equity Fund may invest 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.
EXCHANGE-TRADED INDEX SECURITIES
Subject to the limitations on investment in investment company securities
and their own investment objectives, the Series may invest in exchange-traded
index securities that are currently operational and that may be developed in the
future. Exchange-traded index securities generally trade on the American Stock
Exchange or New York Stock Exchange and are subject to the risks of an
investment in a broadly based portfolio of common stocks, including the risk
that the general level of stock prices may decline, thereby adversely affecting
the value of the investment. These securities generally bear certain operational
expenses. To the extent a Series invests in these securities, the Series must
bear these expenses in addition to the expenses of its own operation.
INVESTMENTS RELATING TO THE GLOBAL FUNDS, U.S. VALUE EQUITY FUND,
U.S LARGE CAP GROWTH FUND, U.S. SMALL CAP EQUITY FUND,
U.S. SMALL CAP GROWTH FUND, U.S. REAL ESTATE EQUITY FUND
AND HIGH YIELD FUND
The following discussion of strategies, techniques and policies applies only
to the Global Balanced Fund, Global Equity Fund, Global Technology Fund, Global
Biotech Fund, Global Bond Fund, U.S. Value Equity Fund, U.S. Large Cap Growth
Fund, U.S. Small Cap Equity Fund, U.S. Small Cap Growth Fund, U.S. Real Estate
Equity Fund, High Yield Fund, International Equity Fund, Emerging Markets Debt
Fund and Emerging Markets Equity Fund.
EURODOLLAR SECURITIES
The Global Technology Fund, Global Biotech Fund, Global Bond Fund,
U.S. Value Equity Fund, U.S. Small Cap Equity Fund, U.S. Real Estate Equity
Fund, High Yield Fund, Emerging Markets Debt Fund and Emerging Markets Equity
Fund may invest in Eurodollar securities, which are fixed income securities of a
U.S. issuer or a foreign issuer that are issued outside the United States.
Interest and dividends on Eurodollar securities are payable in U.S. dollars.
FOREIGN SECURITIES
Investors should recognize that investing in foreign issuers involves
certain considerations, including those set forth in the Series' Prospectus,
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
15
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.
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.
NON-DELIVERABLE FORWARDS
The Series may, from time to time, engage in non-deliverable forward
transactions to manage currency risk. A non-deliverable forward is a transaction
that represents an agreement between a Series and a counterparty (usually a
commercial bank) to buy or sell a specified (notional) amount of a particular
currency at an agreed upon foreign exchange rate on an agreed upon future date.
Unlike other currency transactions, there is no physical delivery of the
currency on the settlement of a non-deliverable forward transaction. Rather, the
Series and the counterparty agree to net the settlement by making a payment in
U.S. dollars or another fully convertible currency that represents any
differential between the foreign exchange rate agreed upon at the inception of
the non-deliverable forward agreement and the actual exchange rate on the agreed
upon future date. Thus, the actual gain or loss of a given non-deliverable
forward transaction is calculated by multiplying the transaction's notional
amount by the difference between the agreed upon forward exchange rate and the
actual exchange rate when the transaction is completed.
When a Series enters into a non-deliverable forward transaction, the Series'
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 non-deliverable forward transaction. If the additional
Segregated Assets placed in the segregated account decline in value or the
amount of the Series' commitment increases because of changes in currency rates,
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
under the non-deliverable forward agreement.
Since a Series generally may only close out a non-deliverable forward with
the particular counterparty, there is a risk that the counterparty will default
on its obligation under the agreement. If the counterparty defaults, a Series
will have contractual remedies pursuant to the agreement related to the
transaction, but there is no assurance that contract counterparties will be able
to meet their obligations pursuant to such agreements or that, in the event of a
default, a Series will succeed in pursuing contractual remedies. The Series thus
assumes the risk that it may be delayed or prevented from obtaining payments
owed to it pursuant to non-deliverable forward transactions.
16
In addition, where the currency exchange rates that are the subject of a
given non-deliverable forward transaction do not move in the direction or to the
extent anticipated, a Series could sustain losses on the non-deliverable forward
transaction. A Series' investment in a particular non-deliverable forward
transaction will be affected favorably or unfavorably by factors that affect the
subject currencies, including economic, political and legal developments that
impact the applicable countries, as well as exchange control regulations of the
applicable countries. These risks are heightened when a non-deliverable forward
transaction involves currencies of emerging market countries because such
currencies can be volatile and there is a greater risk that such currencies will
be devalued against the U.S. dollar or other currencies.
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.
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
17
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.
SHORT SALES
The Global Technology Fund, Global Biotech Fund, U.S. Value Equity Fund,
U.S. Large Cap Growth Fund, U.S. Small Cap Equity Fund, U.S. Small Cap Growth
Fund, U.S. Real Estate Equity Fund, High Yield Fund, Emerging Markets Debt Fund
and Emerging Markets Equity Fund may from time to time sell securities short. In
the event that the Advisor anticipates that the price of a security will
decline, it may sell the security short and borrow the same security from a
broker or other institution to complete the sale. The Series will only enter
into short sales for hedging purposes. The Series will incur a profit or a loss,
depending upon whether the market price of the security decreases or increases
between the date of the short sale and the date on which the Series must replace
the borrowed security. All short sales will be fully collateralized and a Series
will not sell securities short if immediately after and as a result of the short
sale, the value of all securities sold short by the Series exceeds 25% of its
total assets. Each Series will also limit short sales of any one issuer's
securities to 2% of its total assets and to 2% of any one class of the issuer's
securities. Short sales represent an aggressive trading practice with a high
risk/return potential, and short sales involve special considerations. Risks of
short sales include that possible losses from short sales may be unlimited
(e.g., if the price of a stock sold short rises), whereas losses from direct
purchases of securities are limited to the total amount invested, and a Series
may be unable to replace a borrowed security sold short.
INVESTMENTS RELATING TO THE GLOBAL BALANCED FUND, GLOBAL BOND FUND,
U.S. BALANCED FUND, U.S. REAL ESTATE EQUITY FUND, U.S. BOND FUND,
HIGH YIELD FUND, EMERGING MARKETS DEBT FUND AND EMERGING MARKETS EQUITY FUND
The following discussion applies to the Global Balanced Fund, Global Bond
Fund, U.S. Balanced Fund, U.S. Real Estate Equity Fund, U.S. Bond Fund, High
Yield Fund, Emerging Markets Debt Fund and Emerging Markets Equity Fund, except
as otherwise noted.
LOWER RATED DEBT SECURITIES
Fixed income securities rated lower than Baa by Moody's or BBB by S&P are
below investment grade and 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 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. The risk of loss due to default
by the issuer is significantly greater for the holders of lower rated securities
because such securities may be unsecured and may be subordinated to other
creditors of the issuer. Further, an economic recession may result in default
levels with respect to such securities in excess of historic averages.
18
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 and the Series' ability to dispose of
particular issues when necessary to meet the Series' liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer may be adversely affected.
Lower rated securities frequently have call or redemption features that
would permit an issuer to repurchase the security from the Series. If a call
were exercised by the issuer during a period of declining interest rates, the
Series likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Series and any
dividends to investors.
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 SAI.
Securities issued by foreign issuers rated below investment grade entail
greater risks than higher rated securities, including risk of untimely interest
and principal payment, default, price volatility and may present problems of
liquidity, valuation and currency risk. The High Yield Fund, Emerging Markets
Debt Fund and Emerging Markets Equity Fund do not intend to limit investments in
lower rated securities.
PAY-IN-KIND BONDS
The U.S. Real Estate Equity Fund, High Yield Fund, Emerging Markets Debt
Fund and Emerging Markets Equity Fund may invest in pay-in-kind bonds.
Pay-in-kind bonds are securities that pay interest through the issuance of
additional bonds. The Series will be deemed to receive interest over the life of
such bonds and may be treated for federal income tax purposes as if interest
were paid on a current basis, although no cash interest payments are received by
the Series until the cash payment date or until the bonds mature.
CONVERTIBLE SECURITIES (ALSO FOR GLOBAL TECHNOLOGY FUND, GLOBAL BIOTECH FUND,
U.S. VALUE EQUITY FUND, U.S. LARGE CAP GROWTH FUND, U.S. SMALL CAP EQUITY
FUND, U.S. SMALL CAP GROWTH FUND, AND U.S. REAL ESTATE EQUITY FUND)
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.
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WHEN-ISSUED SECURITIES (ALSO FOR U.S. LARGE CAP GROWTH FUND AND U.S. SMALL CAP
GROWTH FUND)
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. The Segregated
Assets maintained by the Series with respect to any when-issued or forward
delivery securities shall be liquid, unencumbered and marked-to-market daily,
and such Segregated Assets shall be maintained in accordance with pertinent SEC
positions.
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
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 Fannie
Mae, formerly known as the Federal National Mortgage Association, 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.
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.
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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) 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 Fannie Mae and Freddie Mac (formerly known as
the Federal Home Loan Mortgage Corporation). Fannie Mae is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation of the Secretary of Housing and Urban Development.
Fannie Mae 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 Fannie Mae are guaranteed as to timely payment
of principal and interest by Fannie Mae but are not backed by the full faith and
credit of the U.S. government.
Freddie Mac 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. Freddie Mac issues Participation Certificates ("PCs")
which represent interests in conventional mortgages from Freddie Mac's national
portfolio. Freddie Mac 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.
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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, Freddie Mac, or Fannie Mae 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 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.
DOLLAR ROLLS
A Series may enter into dollar rolls in which the Series sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-backed
securities, the mortgage-backed securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Series
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but the Series is compensated by the difference between
the current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Series could also be
compensated through receipt of fee income. The Series intend to enter into
dollar rolls only with government securities dealers recognized by the Federal
Reserve Board, or with member banks of the Federal Reserve. The Trust does not
believe the Series' obligations under dollar rolls are senior securities and
accordingly, the Series,
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as a matter of non-fundamental policy, will not treat dollar rolls as being
subject to its borrowing or senior securities restrictions. In addition to the
general risks involved in leveraging, dollar rolls are subject to the same risks
as repurchase and reverse repurchase agreements.
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'
Prospectus and this SAI have been supplemented.
ASSET-BACKED SECURITIES (ALSO FOR U.S. LARGE CAP GROWTH FUND AND U.S. SMALL CAP
GROWTH FUND)
The Series may invest a portion of their 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). The High Yield Fund will not invest in
asset-backed securities with remaining effective maturities of less than
thirteen months.
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.
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
23
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 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.
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
24
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
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 BALANCED FUND, GLOBAL EQUITY FUND,
GLOBAL TECHNOLOGY FUND, GLOBAL BIOTECH FUND, HIGH YIELD FUND,
INTERNATIONAL EQUITY FUND, EMERGING MARKETS DEBT FUND AND
EMERGING MARKETS EQUITY FUND
EMERGING MARKETS INVESTMENTS
The Global Equity Fund, Global Technology Fund, Global Biotech Fund and
International Equity Fund may each invest up to 15% of their total assets in
equity securities of emerging market issuers, or securities with respect to
which the return is derived from the equity securities of issuers in emerging
markets. The Global Balanced Fund may invest up to 10% of its total assets in
equity securities of emerging market issuers, or securities with respect to
which the return is derived from the equity securities of issuers in emerging
markets, and up to 10% of its total assets in debt securities of emerging
markets issuers, or securities with respect to which the return is derived from
debt securities of issuers in emerging markets. The Emerging Markets Debt Fund
and the Emerging Markets Equity Fund may invest substantially all of their
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 High Yield Fund may invest up to 25% of its
total assets in securities of foreign issuers, which may include 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 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.
Except as noted, 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.
25
The High Yield Fund, Emerging Markets Debt Fund and Emerging Markets Equity
Fund may invest in Brady Bonds, which 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 Plan debt restructurings
have been implemented to date in Argentina, Bulgaria, Brazil, Costa Rica,
Jordan, Mexico, Nigeria, the Philippines, Poland, Uruguay, Panama, Peru and
Venezuela. Brady Bonds have been issued only in recent years, and for that
reason do not have a very long payment history. 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.
Brady Bonds are often viewed as having three or four valuation components:
the collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative. There can be no assurance that the Brady
Bonds in which the Series invests will not be subject to restructuring
arrangements or to requests for a new credit which may cause the Series to
suffer a loss of interest or principal in any of its holdings.
The High Yield Fund, Emerging Markets Debt Fund and Emerging Markets Equity
Fund may invest a portion of its assets in 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 cash
flow of the underlying instruments may be apportioned among the newly issued
Structured Securities to create securities with different investment
characteristics, such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to Structured
Securities is dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in which the Series
anticipate investing typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. The Series
is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Securities. Thus, investments by the Series in Structured Securities will be
limited by the Series' prohibition on investing more than 15% of its net assets
in illiquid securities.
The High Yield Fund, Emerging Markets Debt Fund and Emerging Markets Equity
Fund 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. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender with respect to
the Participations. Even under such a structure, in the event of the Lender's
insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation may be impaired. The Series will acquire the
Participations only if the Lender interpositioned between the Series and the
borrower is determined by the Advisor to be creditworthy.
When the 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
26
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
There are additional risks inherent in investing in less developed countries
which are applicable to the Global Balanced Fund, Global Equity Fund, Global
Technology Fund, Global Biotech Fund, High Yield Fund, International Equity
Fund, Emerging Markets Debt Fund and Emerging Markets Equity Fund. The Series
consider a country to be an "emerging market" if it is defined as an emerging or
developing economy by any one of the following: the International Bank for
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation, or the United Nations or its authorities. An emerging market
security is a security issued by a government or other issuer that, in the
opinion of the Advisor, has one or more of the following characteristics:
(i) the principal trading market of the security is an emerging market;
(ii) the primary revenue of the issuer (at least 50%) is generated from goods
produced or sold, investments made, or services performed in an emerging market
country; or (iii) at least 50% of the assets of the issuer are situated in
emerging market countries.
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 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
27
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 expect 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 RUSSIAN SECURITIES
The Global Balanced Fund, Global Equity Fund, Global Technology Fund, Global
Biotech Fund, International Equity Fund, Emerging Markets Debt Fund and Emerging
Markets Equity Fund 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 a 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 a 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 or sell the company's shares by illegally instructing the registrar to
refuse to record transactions on the share register. Furthermore, these
practices may prevent a 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 Series if the company deems a purchaser
unsuitable, which may expose the Series to potential loss on its investment.
28
In light of the risks described above, the Board 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.
SECONDARY RISKS
The principal risks of investing in each of the Funds is described in the
"Risk Considerations" section of the Funds' Prospectus. The secondary risks of
investing in each of the Funds are described in Appendix B hereto.
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. Each of the Global
Balanced Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund,
U.S. Equity Fund, U.S. Large Cap Equity Fund, U.S. Bond Fund and International
Equity Fund 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 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 and U.S. Large Cap Equity Fund);
(ii) Invest in real estate or interests in real estate (this will not
prevent a Series from investing in publicly-held REITs 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) Issue senior securities or borrow money in excess of 33 1/3% of the
value of its total assets except as a temporary measure for
extraordinary or emergency purposes to facilitate redemptions. All
borrowings will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of a Series' total 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,
29
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 Balanced 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
(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.
Each of the Global Technology Fund, Global Biotech Fund, U.S. Large Cap
Growth Fund, U.S. Small Cap Growth Fund, U.S. Value Equity Fund, U.S. Small Cap
Equity Fund, U.S. Real Estate Equity Fund, High Yield Fund, Emerging Markets
Debt Fund and Emerging Markets Equity Fund may not:
(i) Purchase the securities of any one issuer (other than the U.S.
government or any of its agencies or instrumentalities or securities
of other investment companies) if immediately after such investment
(a) more than 5% of the value of the Fund's total assets would be
invested in such issuer or (b) more than 10% of the outstanding voting
securities of such issuer would be owned by the Fund, except that up
to 25% of the value of the Fund's total assets may be invested without
regard to such 5% and 10% limitations (this does not apply to the
Global Technology Fund, Global Biotech Fund, U.S. Large Cap Growth
Fund, U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund,
Emerging Markets Debt Fund and Emerging Markets Equity Fund);
(ii) Purchase or sell real estate, except that the Fund may purchase or
sell securities of real estate investment trusts;
(iii) Purchase or sell commodities, except that the Fund may purchase or
sell currencies, may enter into futures contracts on securities,
currencies and other indices or any other financial instruments, and
may purchase and sell options on such futures contracts;
(iv) Issue securities senior to the Fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed
to prohibit the Fund from (a) making any permitted borrowings, loans,
mortgages or pledges, (b) entering into options, futures contracts,
forward contracts, repurchase transactions or reverse repurchase
transactions, or (c) making short sales of securities to the extent
permitted by the Act and any rule or order thereunder, or SEC staff
interpretations thereof;
(v) Make loans to other persons, except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance
with its investment objectives and policies and (c) to the extent the
entry into a repurchase agreement is deemed to be a loan. The Fund may
also make loans to affiliated investment companies to the extent
permitted by the Act or any exemptions therefrom that may be granted by
the SEC;
(vi) Borrow money, except that the Fund may borrow money from banks to the
extent permitted by the Act, or to the extent permitted by any
exemptions therefrom which may be granted by the SEC, or for temporary
or emergency purposes and then in an amount not exceeding 33 1/3% of
the value of the Fund's total assets (including the amount borrowed);
(vii) Concentrate (invest more than 25% of its net assets) in securities of
issuers in a particular industry (other than securities issued or
guaranteed by the U.S. government or any of its agencies) (this does
30
not apply to the Global Technology Fund, Global Biotech Fund and
U.S. Real Estate Equity Fund); and
(viii) Act as an underwriter, except to the extent the Fund may be deemed to
be an underwriter when disposing of securities it owns or when
selling its own shares.
MANAGEMENT OF THE TRUST
The Trust is a Delaware business trust. Under Delaware law, the Board 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 Trustees and executive officers of the Trust, along with their principal
occupations over the past five years and their affiliations, if any, with
Brinson Partners, are listed below.
TRUSTEES AND OFFICERS
NAME AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
---- -------- ------------------------ -------------------------------------------
Walter E. Auch 80 Trustee Retired; prior thereto, Chairman and CEO of
6001 N. 62nd Place Chicago Board of Options Exchange
Paradise Valley, AZ 1979-1986; Trustee of the Trust since May,
85253 1994; Trustee, Brinson Relationship Funds
since 1994; Trustee, Brinson Supplementary
Trust since 1997; Director, Thomson Asset
Management Corp. since 1987; Director, Fort
Dearborn Income Securities, Inc.
1987-1995; Director, Smith Barney VIP Fund
since 1991; Director, SB Advisers since
1992; Director, SB Trak since 1992;
Director, Banyan Realty Trust since 1988;
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 Funds and Legend
Properties, Inc.; Director, Geotek Indus-
tries, Inc. 1987-1998.
Frank K. Reilly 65 Chairman and Trustee Professor, University of Notre Dame since
College of Business 1982; Trustee of the Trust since 1993;
University of Notre Dame Trustee, Brinson Relationship Funds since
Notre Dame, IN 1994; Trustee, Brinson Supplementary Trust
46556-0399 since 1997; Director of The Brinson
Funds, Inc. 1992-1993; Director, Fort
Dearborn Income Securities, Inc. since
1993; Director, Greenwood Trust Company
since 1993; and Director, Dean Witter
Trust, FSB since 1996.
31
NAME AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
---- -------- ------------------------ -------------------------------------------
Edward M. Roob 67 Trustee Retired; prior thereto, Senior Vice Presi-
841 Woodbine Lane dent, Daiwa Securities America Inc.
Northbrook, IL 60002 1986-1993; Trustee of the Trust since 1995;
Trustee, Brinson Relationship Funds since
1995; Trustee, Brinson Supplementary Trust
since 1997; Director, Fort Dearborn Income
Securities, Inc. since 1993; Director,
Brinson Trust Company since 1993; Committee
Member, Chicago Stock Exchange since 1993.
Brian M. Storms* 47 Trustee and President President (since 1999) and Chief Executive
51 W. 52nd Street Officer (since 2000), Brinson
New York, NY 10019 Advisors, Inc.; President, Prudential
Investments 1996-1999; President,
Prudential mutual fund, annuity and managed
money businesses 1996-1998; Trustee of the
Trust since 2001; Trustee, Brinson
Relationship Funds since 2001; Trustee,
Brinson Supplementary Trust since 2001.
Carolyn M. Burke** 33 Vice President 1995 Director, Brinson Partners, Inc. since
1997; Associate, Brinson Partners, Inc.
1995-1996; Vice President of the Trust
since 2000; Secretary, Treasurer and
Principal Accounting Officer of the Trust
1997-2001; Assistant Secretary of the Trust
1996-1997; Vice President of Brinson
Relationship Funds since 2000; Secretary,
Treasurer and Principal Accounting Officer
of Brinson Relationship Funds, 2000-2001;
Vice President of Brinson Supplementary
Trust since 2000; Secretary, Treasurer and
Principal Accounting Officer of Brinson
Supplementary Trust, 2000-2001.
Amy R. Doberman*** 39 Vice President & 2001 Executive Director and the General Coun-
Secretary sel, Brinson Advisors, Inc. since 2000;
General Counsel, Aeltus Investment Manage-
ment, Inc. 1996-2000; previously, Assistant
Chief Counsel, Division of Investment
Management, SEC; Vice President and Sec-
retary of 22 investment companies for which
Brinson Advisors, UBS PaineWebber or one of
their affiliates serves as investment
advisor.
------------------------
* Mr. Storms is an "interested person" of the Trust, as that term is defined
in the Act.
32
NAME AGE POSITION WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
---- -------- ------------------------ -------------------------------------------
Paul H. Schubert**** 38 Treasurer and Principal 2001 Executive Director and the Head of the
Accounting Officer Mutual Fund Finance Department, Brinson
Advisors, Inc. since 1997; First Vice
President and Senior Manager of Mutual Fund
Finance Department, Brinson Advi-
sors, Inc. 1994-1997; Treasurer and Princi-
pal Accounting Officer of the Trust since
2001; Treasurer and Principal Accounting
Officer of Brinson Relationship Funds since
2001; Treasurer and Principal Accounting
Officer of Brinson Supplementary Trust
since 2001; Vice President and Treasurer of
22 investment companies for which Brinson
Advisors, UBS PaineWebber or one of their
affiliates serves as investment advisor.
David E. Floyd** 32 Assistant Secretary 1998 Associate Director, Brinson Partners, Inc.
since 1998; Associate, Brinson Part-
ners, Inc., 1994-1998; Assistant Trust
Officer, Brinson Trust Company since 1993;
Assistant Secretary of the Trust since
1998; Assistant Secretary, Brinson
Relationship Funds since 1998; Assistant
Secretary, Brinson Supplementary Trust
since 1998.
Mark F. Kemper** 43 Assistant Secretary 1999 Director, Brinson Partners, Inc. since
1993; Secretary, Brinson Partners, Inc.
since 1999; Assistant Secretary, Brinson
Partners, Inc. 1993-1999; Assistant
Secretary, Brinson Trust Company since
1993; Secretary, UBS Brinson since 1998;
Assistant Secretary, Brinson Holdings, Inc.
1993-1998; Assistant Secretary of the Trust
since 1999; Assistant Secretary, Brinson
Relationship Funds since 1999; Assistant
Secretary, Brinson Supplementary Trust
since 1999.
------------------------
** This person's business address is Brinson Partners, Inc., 209 South LaSalle
Street, Chicago, IL 60604-1295.
*** This person's business address is Brinson Advisors, Inc., 51 West 52nd
Street, New York, NY 10019-6114.
**** This person's business address is Brinson Advisors, Inc., Newport
Center III, 499 Washington Blvd., 14th Floor, Jersey City, NJ 07310-1998.
33
COMPENSATION TABLE
TRUSTEES
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
FROM TRUST FOR FISCAL YEAR TRUST AND FUND COMPLEX
NAME AND POSITION HELD ENDED JUNE 30, 2001 PAID TO TRUSTEES(1)
---------------------- -------------------------- -----------------------
Walter E. Auch, Trustee $21,600 $49,200
6001 N. 62nd Place
Paradise Valley, AZ 85253
Frank K. Reilly, Trustee $21,600 $61,800
College of Business Administration
University of Notre Dame
Notre Dame, IN 46556-0399
Edward M. Roob, Trustee $21,600 $62,550
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 for the Trust's most recently
completed fiscal year; and (b) service on the Board of Trustees of three
other investment companies managed by Brinson Partners for the fiscal year
ended June 30, 2001, with respect to Messrs. Reilly and Roob, and two other
companies managed by Brinson Partners for the fiscal year ended June 30,
2001, with respect to Mr. Auch. During this period, the Trust had thirteen
operating series. Mr. Storms did not receive any compensation from the Trust
for the fiscal year ended June 30, 2001.
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 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, 2001. There is no separate nominating or
investment committee. Items pertaining to these committees are submitted to the
full Board.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 30, 2001, the officers and Trustees, unless otherwise noted,
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 September 30, 2001, the following persons owned, of record or
beneficially, more than 5% of the outstanding voting shares of the Brinson
Fund--Class Y (formerly, Brinson Fund--Class I), Brinson Fund--Class A
(formerly, Brinson Fund--Class N), UBS Investment Funds class of shares or of
the Series, as applicable:
U.S. BOND FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*Charles Schwab & Co., Inc. 29.29% 24.69%
San Francisco, CA
State Street Bank & Trust Co. 24.01% 20.23%
Westwood, MA
34
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
PaineWebber FBO Zanvyh & Isabelle 13.97% 11.80%
Baltimore, MD
Brinson Fund--Class A
*Charles Schwab & Co., Inc. 62.29% N/A
San Francisco, CA
*Guernroy Ltd. 37.21% N/A
Guernsey Channel ISL
UBS Investment Funds Class
PJ Mechanical Corp. 18.05% N/A
New York, NY
Fox & Co. 17.73% N/A
New York, NY
PaineWebber 17.48% N/A
Westley, CA
David J. Nash 12.26% N/A
New York, NY
UBS AG 11.08% N/A
New York, NY
PJ Mechanical Corp. 6.49% N/A
New York, NY
HIGH YIELD FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+UBS AG 34.90% 31.03%
New York, NY
BBH & Co. 17.54% 15.60%
Jersey City, NJ
Brown Brothers Harriman 7.72% 6.87%
Jersey City, NJ
State Street Bank & Trust Co. 6.31% 5.61%
Westwood, MA
UBS Investment Funds Class
*PaineWebber 38.29% N/A
Woodland Hills, CA
Blush and Co. 11.98% N/A
New York, NY
PaineWebber 11.34% N/A
Hillsborough, CA
PaineWebber 8.37% N/A
WeeHawken, NJ
PaineWebber 5.32% N/A
Houston, TX
35
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
PJ Mechanical Corp. 5.07% N/A
New York, NY
U.S. BALANCED FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+State Street Bank & Trust Co. 59.83% 56.20%
Westwood, MA
Brown Brothers Harriman 13.74% 12.91%
Jersey City, NJ
The Society of the Sisters of Christian Charity 11.99% 11.27%
Wilmette, IL
Charles Schwab & Co., Inc. 7.06% 6.63%
San Francisco, CA
Brinson Fund--Class A
*Brinson Partners, Inc. 100% N/A
Chicago, IL
UBS Investment Funds Class
*UBS AG 29.43% N/A
New York, NY
PaineWebber 20.99% N/A
Mt. Washington, MA
PaineWebber 18.66% N/A
Beverly Hills, CA
Thomas M. Quinn and Christine M. Brown Quinn 7.63% N/A
St. Albans Herts, England
PaineWebber 5.53% N/A
Newton, MA
PaineWebber 5.50% N/A
Chestnut Hill, MA
U.S. EQUITY FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+State Street Bank & Trust Co. 34.05% 31.07%
Westwood, MA
Brown Brothers Harriman 12.91% 11.78%
Jersey City, NJ
Charles Schwab & Co., Inc. 8.71% 7.95%
San Francisco, CA
IMS & Co. 7.25% 6.61%
Englewood, CO
36
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Wilmington Trust Co. 7.15% 6.53%
Wilmington, DE
Marshall & Ilsley Trust Co. 6.29% 5.74%
Janesville, WI
Brown Brothers Harriman 5.08% N/A
Jersey City, NJ
Brinson Fund--Class A
*Merrill Lynch, Pierce, Fenner & Smith 99.74% 5.43%
Jacksonville, FL
UBS Investment Funds Class
*Fox & Co. 27.84% N/A
New York, NY
UBS AG 21.54% N/A
New York, NY
Blush and Co. 17.79% N/A
New York, NY
U.S. LARGE CAP EQUITY FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+Deutsche Bank 78.75% 77.15%
Nashville, TN
Wilmington Trust Co. 11.68% 11.44%
Wilmington, DE
Brinson Fund--Class A
*National Financial Services Corp. 100% N/A
New York, NY
UBS Investment Funds Class
*Thomas M. Quinn and Christine M. Brown Quinn 39.53% N/A
St. Albans Herts, England
PaineWebber FBO Nazar Mahmoud 16.82% N/A
Los Angeles, CA
Clayton S. Hovivian TTEE 10.85% N/A
Los Angeles, CA
U.S. LARGE CAP GROWTH FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*Howard Smith & Levin LLP 34.18% 17.20%
New York, NY
*Wilmington Trust Co. 32.13% 16.17%
Wilmington, DE
37
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
PaineWebber 12.53% 6.31%
New York, NY
Wilmington Trust Co. 7.02% N/A
Wilmington, DE
Brinson Fund--Class A
*Brinson Partners, Inc. 100% N/A
Chicago, IL
UBS Investment Funds Class
UBS AG 21.74% 11.06%
New York, NY
Brian Vaughan 19.21% 9.78%
Moraga, CA
PaineWebber FBO George Arzt 11.48% 5.85%
New York, NY
PFPC Trust 6.06% N/A
Tinley Park, IL
U.S. SMALL CAP GROWTH FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+UBS 41.52% 39.40%
New York, NY
T. Rowe Price 9.87% 9.37%
Baltimore, MD
Island Holdings, Inc. 9.35% 8.87%
Honolulu, HI
Charles Schwab & Co., Inc. 8.35% 7.93%
San Francisco, CA
UBS AG 5.52% 5.24%
New York, NY
Wilmington Trust Co. 5.48% 5.21%
Wilmington, DE
PaineWebber 5.16% N/A
New York,.NY
Brinson Fund--Class A
*Brinson Partners, Inc. 100% N/A
Chicago, IL
UBS Investment Funds Class
UBS AG 21.69% N/A
New York, NY
PaineWebber 9.72% N/A
Los Angeles, CA
38
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
PaineWebber FBO Scott Erickson 9.48% N/A
Santa Clara, CA
RDA International Inc. 8.29% N/A
Houston, TX
PaineWebber 5.64% N/A
WeeHawken, NJ
PaineWebber 5.30% N/A
North Babylon, NJ
GLOBAL BALANCED FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+Wilmington Trust Co. 31.97% 31.48%
Wilmington, DE
Charles Schwab & Co., Inc. 11.60% 11.42%
San Francisco, CA
Bankers Trust Co. 11.40% 11.23%
Jersey City, NJ
Wilmington Trust Co. 5.90% 5.81%
Wilmington, DE
Brinson Fund--Class A
*Merrill Lynch, Pierce, Fenner & Smith 73.13% N/A
Jacksonville, FL
EMJAYCO 24.28% N/A
Milwaukee, WI
UBS Investment Funds Class
UBS AG 21.78% N/A
New York, NY
PFPC Trust Co. 5.80% N/A
Pompano Beach, FL
GLOBAL EQUITY FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*Wilmington Trust Co. 27.32% 19.66%
Wilmington, DE
*State Street Bank & Trust Co. 26.04% 18.74%
Westwood, MA
Charles Schwab & Co., Inc. 10.40% 7.48%
San Francisco, CA
IMS & Co. 10.02% 7.21%
Englewood, CO
39
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Donaldson Lufkin 6.52% N/A
Jersey City, NJ
Brinson Fund--Class A
*National Financial Services Corp. 26.82% N/A
New York, NY
Naidot & Co. 10.98% N/A
Woodbridge, NJ
UBS Investment Funds Class
UBS AG 16.53% N/A
New York, NY
Fox & Co. 7.62% N/A
New York, NY
GLOBAL TECHNOLOGY FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+IMS & Co. 56.30% 33.74%
Englewood, CO
*Charles Schwab & Co., Inc. 32.30% 19.36%
San Francisco, CA
Brinson Fund--Class A
*Brinson Partners, Inc. 100% N/A
Chicago, IL
UBS Investment Funds Class
RDA International Inc. 24.49% 9.79%
Houston, TX
Omibus Reinvest Acct. 23.07% 9.23%
New York, NY
Wilmington Trust Corp. 15.87% 6.35%
Wilmington, DE
PaineWebber FBO John Nichols 10.01% N/A
Leawood, KS
GLOBAL BIOTECH FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+Charles Schwab & Co., Inc. 54.48% 39.46%
San Francisco, CA
Brinson Partners, Inc. 22.14% 16.14%
Chicago, IL
IMS & Co. 21.96% 15.91%
Englewood, CO
40
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class A
*Brinson Partners, Inc. 100% N/A
Chicago, IL
UBS Investment Funds Class
*Wilmington Trust Corp. 35.70% 9.83%
Wilmington, DE
Wilmington Trust Corp. 18.27% 5.03%
Wilmington, DE
UBS AG 11.98% N/A
New York, NY
PaineWebber 10.04% N/A
Los Angeles, CA
RDA International Inc. 9.00% N/A
Houston, TX
GLOBAL BOND FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
*+Wilmington Trust Corp. 30.72% 29.95%
Wilmington, DE
Wilmington Trust Corp. 18.60% 18.14%
Wilmington, DE
Charles Schwab & Co., Inc. 14.71% 14.34%
San Francisco, CA
State Street Bank & Trust Co. 12.73% 12.41%
Westwood, MA
IMS & Co. 6.05% 5.91%
Englewood, CO
Brinson Fund--Class A
*Merrill Lynch, Pierce, Fenner & Smith 100% N/A
Jacksonville, FL
UBS Investment Funds Class
Fox & Co. 21.79% N/A
New York, NY
UBS AG 19.81% N/A
New York, NY
UBS AG 10.60% N/A
New York, NY
Herman Aster 10.20% N/A
San Jose, CA
Richard D. Freemon 6.80% N/A
San Francisco, CA
41
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Richard D. Freemon 6.79% N/A
San Francisco, CA
PaineWebber 6.70% N/A
Saratoga, CA
Blush and Co. 5.75% N/A
New York, NY
INTERNATIONAL EQUITY FUND
PERCENTAGE OF PERCENTAGE OF
NAME & ADDRESS OF BENEFICIAL OWNERS CLASS SERIES
----------------------------------- ------------- -------------
Brinson Fund--Class Y
Brown Brothers Harriman 19.50% 21.65%
New York, NY
Edna McConnell Clark 10.88% 12.08%
New York, NY
Key Trust Company 8.23% 9.14%
Cleveland, OH
Charles Schwab & Co., Inc. 8.07% 8.97%
San Francisco, CA
State Street Bank & Trust Co. 7.39% 8.21%
Westwood, MA
American Express Trust Co. 6.43% 7.14%
Minneapolis, MN
Brinson Fund--Class A
*National Financial Services Corp. 100% N/A
New York, NY
UBS Investment Funds Class
UBS AG 12.90% N/A
New York, NY
PaineWebber FBO Patricia DeSoma 12.19% N/A
Los Angeles, CA
PaineWebber 11.03% N/A
WeeHawken, NJ
PFPC Trust Co. 9.46% N/A
New York, NY
PaineWebber PJ Mechanical 8.24% N/A
New York, NY
PaineWebber 5.75% N/A
Gainsville, FL
------------------------
* 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.
42
As of September 30, 2001, the following persons owned of record or
beneficially more than 5% of the outstanding voting shares of the Trust:
NAME & ADDRESS OF BENEFICIAL AND RECORD OWNERS PERCENTAGE
---------------------------------------------- ----------
NONE
Any person who owns beneficially, either directly or through one or more
controlled companies, more than 25% of the voting securities of the Trust is
presumed to control the Trust under the provisions of the Act. Note that a
controlling person possesses the ability to control the outcome of matters
submitted for shareholder vote of the Trust or a particular Fund.
INVESTMENT ADVISORY, PRINCIPAL UNDERWRITING
AND OTHER SERVICE ARRANGEMENTS
ADVISOR
Brinson Partners, a Delaware corporation, is an investment management firm,
managing as of September 30, 2001, $385 billion, primarily for institutional
pension and profit sharing funds. Brinson Partners and its predecessor entities
have managed domestic and international investment assets since 1974 and global
investment assets since 1982. Brinson Partners is a wholly-owned subsidiary of
UBS AG ("UBS") and a member of the UBS Asset Management Division. UBS Asset
Management has offices worldwide in addition to Brinson Partners' principal
office at 209 South LaSalle Street, Chicago, IL 60604-1295. UBS, headquartered
in Zurich, Switzerland, is an internationally diversified organization with
operations in many areas of the financial services industry. UBS 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 two other
investment companies, Brinson Relationship Funds and Fort Dearborn Income
Securities, Inc., and as a sub-advisor to the Vision Group of Funds and one fund
within the Brinson Advisors family of funds.
Pursuant to its investment advisory agreements (the "Agreements") with the
Trust, on behalf of each Fund, Brinson Partners receives from each Fund a
monthly fee at an annual rate (as described in the Prospectus and below)
multiplied by the average daily net assets of that Fund for providing investment
advisory services. Brinson Partners is responsible for paying its expenses. Each
Fund 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 Funds' portfolio securities and of pricing the
Funds' 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 Fund's average daily net assets equal to annual rates of: 0.80% for
the Global Balanced Fund; 0.80% for the Global Equity Fund; 1.40% for the Global
Technology Fund; 1.15% for the Global Biotech Fund; 0.75% for the Global Bond
Fund; 0.70% for the U.S. Balanced Fund; 0.70% for the U.S. Equity Fund; 0.70%
for the U.S. Value Equity Fund; 0.70% for the U.S. Large Cap Equity Fund; 0.70%
for the U.S. Large Cap Growth Fund; 1.00% for the U.S. Small Cap Equity Fund;
1.00% for the U.S. Small Cap Growth Fund; 0.90% for the U.S. Real Estate Equity
Fund; 0.50% for the U.S. Bond Fund; 0.60% for the High Yield Fund; 0.80% for the
International Equity Fund; 1.10% for the Emerging Markets Equity Fund; and 0.65%
for the Emerging Markets Debt Fund. The fees payable to Brinson Partners by the
Global Balanced Fund, Global Equity Fund, Global Technology Fund, Global Biotech
Fund, U.S. Small Cap Equity Fund, U.S. Small Cap Growth Fund, U.S. Real Estate
Equity Fund, International Equity Fund and Emerging Markets Equity Fund are
higher than the advisory fees paid by most other mutual funds, but is comparable
to those of other mutual funds with similar investment objectives.
43
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 Fund's average daily net assets, excluding any 12b-1 Plan expenses:
1.10% for the Global Balanced Fund; 1.00% for the Global Equity Fund; 1.55% for
the Global Technology Fund; 1.30% for the Global Biotech Fund; 0.90% for the
Global Bond Fund; 0.80% for the U.S. Balanced Fund; 0.80% for the U.S. Equity
Fund; 0.80% for the U.S. Large Cap Equity Fund; 0.80% for the U.S. Large Cap
Growth Fund; 1.15% for the U.S. Small Cap Growth Fund; 0.60% for the U.S. Bond
Fund; 0.70% for the High Yield Fund; and 1.00% for the International Equity
Fund. The Advisor may recapture any amounts waived or reimbursed with respect to
the Global Technology Fund or Global Biotech Fund, subject to the following
conditions: (1) the Advisor must request reimbursement within five years from
the date on which the waiver and/or reimbursement was made, and (2) the Fund
must be able to reimburse the Advisor and remain within the operating expense
limits noted in this paragraph. On August 28, 2001, the Board of Trustees
approved the submission of a proposal to shareholders of each of the Funds
listed above that would eliminate the irrevocable fee waiver and expense
reimbursement arrangement. If the proposal is approved by shareholders, the
irrevocable fee waiver and expense reimbursement will be replaced by a one-year
contractual fee waiver and expense reimbursement at the rates set forth above.
From September 1, 2001 to September 1, 2002, the Advisor has agreed to waive
its fees and reimburse expenses to the extent that total operating expenses
exceed the following rates of the respective Fund's average daily net assets,
excluding any 12b-1 Plan expenses: 0.85% for the U.S. Value Equity Fund; 1.15%
for the U.S. Small Cap Equity Fund and Emerging Markets Debt Fund; 1.05% for the
U.S. Real Estate Equity Fund; and 1.60% for the Emerging Markets Equity Fund.
The Advisor may recapture any amounts waived or reimbursed with respect to the
Funds, subject to the following conditions: (1) the Advisor must request
reimbursement within five years from the date on which the waiver and/or
reimbursement was made, and (2) the Fund must be able to reimburse the Advisor
and remain within the operating expense limits noted in this paragraph.
Advisory fees accrued to Brinson Partners were as follows:
A. FISCAL YEAR ENDED JUNE 30, 2001
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSES
FEES EARNED PAID PAID
SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR
------- -------------- ----------------- -------------
Global Balanced Fund*.............................. $1,629,697 $1,629,697 $ 0
Global Equity Fund................................. $ 516,271 $ 443,277 $ 72,994
Global Technology Fund............................. $ 25,043 $ 0 $ 54,478
Global Biotech Fund................................ $ 23,776 $ 0 $ 52,816
Global Bond Fund................................... $ 290,895 $ 206,610 $ 84,285
U.S. Balanced Fund................................. $ 113,210 $ 57,778 $ 55,432
U.S. Equity Fund................................... $1,050,438 $ 875,328 $175,110
U.S. Large Cap Equity Fund......................... $ 48,938 $ 0 $ 86,264
U.S. Large Cap Growth Fund......................... $ 65,657 $ 14,679 $ 50,978
U.S. Small Cap Growth Fund......................... $ 507,842 $ 465,732 $ 42,110
U.S. Bond Fund..................................... $ 321,255 $ 237,585 $ 83,670
High Yield Fund.................................... $ 317,198 $ 227,248 $ 89,950
International Equity Fund.......................... $2,413,368 $2,398,738 $ 14,630
------------------------
* The U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging
Markets Debt Fund and Emerging Markets Equity Fund had not commenced
operations as of the time period indicated. The U.S. Value Equity Fund
commenced operations on June 29, 2001. Effective as of the date hereof, the
Global Fund changed its name to the Global Balanced Fund.
General expenses of the Trust (such as costs of maintaining corporate
existence, legal fees, insurance, etc.) will be allocated among the Funds in
proportion to their relative net assets. Expenses which relate exclusively to a
particular Fund, such as certain registration fees, brokerage commissions and
other portfolio expenses, will be borne directly by that Fund.
44
The Agreements for the Sub-Advised Funds permit the Advisor to engage the
services of sub-advisors to assist in managing the assets of the Funds.
B. FISCAL YEAR ENDED JUNE 30, 2000
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSES
FEES EARNED PAID PAID
SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR
------- -------------- ----------------- -------------
Global Balanced Fund*.............................. $2,899,741 $2,899,741 $ 0
Global Equity Fund................................. $ 639,859 $ 585,500 $ 54,359
Global Technology Fund............................. $ 549 $ 0 $ 4,639
Global Biotech Fund................................ $ 480 $ 0 $ 3,737
Global Bond Fund................................... $ 597,228 $ 506,159 $ 91,069
U.S. Balanced Fund................................. $ 199,072 $ 141,636 $ 57,436
U.S. Equity Fund................................... $3,376,519 $3,216,420 $160,099
U.S. Large Cap Equity Fund......................... $ 163,052 $ 54,768 $108,284
U.S. Large Cap Growth Fund......................... $ 71,140 $ 0 $101,585
U.S. Small Cap Growth Fund......................... $ 445,220 $ 375,907 $ 69,313
U.S. Bond Fund..................................... $ 452,989 $ 392,160 $ 60,829
High Yield Fund.................................... $ 336,440 $ 248,712 $ 87,728
International Equity Fund.......................... $3,822,993 $3,822,993 $ 0
------------------------
* The U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging
Markets Debt Fund and Emerging Markets Equity Fund had not commenced
operations as of the time period indicated. The U.S. Value Equity Fund
commenced operations on June 29, 2001. Effective as of the date hereof, the
Global Fund changed its name to the Global Balanced Fund.
C. FISCAL YEAR ENDED JUNE 30, 1999
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSES
FEES EARNED PAID PAID
SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR
------- -------------- ----------------- -------------
Global Balanced Fund*.............................. $4,403,642 $4,403,642 $ 0
Global Equity Fund................................. $ 628,067 $ 591,107 $36,960
Global Bond Fund................................... $ 957,176 $ 957,176 $ 0
U.S. Balanced Fund................................. $ 347,296 $ 268,010 $79,286
U.S. Equity Fund................................... $5,047,492 $5,047,492 $ 0
U.S. Large Cap Equity Fund......................... $ 137,200 $ 40,042 $97,158
U.S. Large Cap Growth Fund**....................... $ 18,582 $ 0 42,136
U.S. Small Cap Growth Fund**....................... $ 148,873 $ 123,087 $25,786
U.S. Bond Fund..................................... $ 418,445 $ 407,073 $11,372
High Yield Fund**.................................. $ 173,302 $ 137,039 $36,263
International Equity Fund.......................... $3,713,448 $3,713,448 $ 0
------------------------
* The Global Technology Fund, Global Biotech Fund, U.S. Value Equity Fund,
U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging Markets
Debt Fund and Emerging Markets Equity Fund had not commenced operations as
of the time period indicated. Effective as of the date hereof, the Global
Fund changed its name to the Global Balanced Fund.
** Effective December 19, 1998, and as further discussed below, the UBS Large
Cap Growth Fund, UBS Small Cap Fund and UBS High Yield Bond Fund were
reorganized into the U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund
and High Yield Fund, respectively. Fees for the U.S. Large Cap Growth Fund,
U.S. Small Cap Growth Fund and High Yield Fund reflect fees paid during the
period from January 1, 1999 through June 30, 1999. The U.S. Large Cap Growth
Fund, U.S. Small Cap Growth Fund and High Yield Fund initially had fiscal
years ending on December 31. At the February 22, 1999 Board of Trustees'
meeting, the Board of Trustees of the Trust voted to change the fiscal year
end of these three Funds to June 30.
45
Prior to the reorganization of the UBS Large Cap Growth Fund, UBS Small Cap
Fund and UBS High Yield Bond Fund (collectively, the "UBS Funds" and each a "UBS
Fund") into the U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund and High
Yield Fund, respectively, each of the UBS Funds invested substantially all of
its investable assets in a corresponding portfolio of UBS Investor Portfolios
Trust (collectively, the "UBS Portfolios" and each a "UBS Portfolio"). Under the
investment advisory agreement of each UBS Portfolio with the New York office of
UBS, as the successor to the New York Branch of the Union Bank of Switzerland
("UBS-NY"), UBS was entitled to a monthly fee of the corresponding UBS
Portfolios' average daily net assets as follows: annual rates of 0.60% for the
UBS Large Cap Growth Fund and the UBS Small Cap Fund and 0.45% for the UBS High
Yield Bond Fund. UBS-NY agreed to waive its fees and reimburse each UBS Fund and
its corresponding Portfolio to the extent that each UBS Fund's total operating
expenses (including its share of its corresponding Portfolio's expenses)
exceeded, on an annual basis, the following rates of the respective UBS Fund's
average daily net assets: 1.00% for the UBS Large Cap Growth Fund, 1.20% for the
UBS Small Cap Fund and 0.90% for the UBS High Yield Bond Fund.
Advisory fees accrued to UBS-NY for the UBS Funds for the period January 1,
1998 through December 18, 1998 were as follows:
GROSS ADVISORY NET ADVISORY FEES FUND EXPENSE
FEES EARNED PAID PAID
SERIES* BY ADVISOR AFTER FEE WAIVER BY ADVISOR
------- -------------- ----------------- ------------
UBS Large Cap Growth Fund.......................... $ 32,644 $ 0 $ 97,199
UBS Small Cap Fund................................. $107,673 $19,971 $ 87,702
UBS High Yield Bond Fund........................... $ 71,860 $ 0 $117,430
Under sub-advisory agreements with UBS Brinson, Inc., as the successor to
UBS Asset Management (New York), Inc. (the "Prior Sub-Advisor"), UBS-NY paid the
Prior Sub-Advisor a monthly fee of the respective UBS Portfolios' average daily
net assets as follows:
UBS Large Cap Growth Portfolio 0.30% of the first $25 million;
0.25% of the next $25 million; and
0.20% over $50 million
UBS Small Cap Portfolio 0.40% of the first $25 million;
0.325% of the next $25 million; and
0.25% over $50 million
UBS High Yield Bond Portfolio 0.25% of the first $25 million;
0.20% of the next $25 million; and
0.15% over $50 million
UBS-NY was responsible for paying the Prior Sub-Advisor its fees. For the
period January 1, 1998 to December 18, 1998, UBS-NY did not pay any fees to the
Prior Sub-Advisor on behalf of the UBS Large Cap Growth Portfolio, UBS Small Cap
Portfolio and UBS High Yield Bond Portfolio.
SUB-ADVISOR
The Advisor has entered into sub-advisory agreements with Brinson Partners
(NY), Inc., f/k/a UBS Asset Management (New York), Inc. (the "Sub-Advisor"), 10
East 50th Street, New York, New York, on behalf of each of the Sub-Advised
Funds. The Sub-Advisor is an affiliate of the Advisor. Under the direction of
the Advisor, the Sub-Advisor is responsible for managing the investment and
reinvestment of a Fund's portfolio. The Sub-Advisor serves as sub-advisor to the
Global Technology Fund, Global Biotech Fund, U.S. Large Cap Growth Fund, U.S.
Small Cap Growth Fund, U.S. Real Estate Equity Fund and High Yield Fund. The
Sub-Advisor had previously served as advisor to the UBS Portfolios. The
Sub-Advisor furnishes the Advisor with investment recommendations, asset
allocation advice, research and other investment services subject to the
direction of the Trust's Board and officers. Under the sub-advisory agreements,
the Advisor is obligated to pay the Sub-Advisor a
46
portion of the fees that the Advisor receives under its agreement with each
Sub-Advised Fund as set forth in the table below. For the fiscal year ended
June 30, 2001, the Sub-Advisor agreed to waive its fee with respect to each
Fund.
SUB-ADVISORY FEE PAID
TO THE SUB-ADVISOR
SERIES ADVISORY FEE BY ADVISOR
------ ------------ ---------------------
Global Technology Fund...................................... 1.40% 0.10%
Global Biotech Fund......................................... 1.15% 0.10%
U.S. Large Cap Growth Fund.................................. 0.70% 0.10%
U.S. Small Cap Growth Fund.................................. 1.00% 0.10%
U.S. Real Estate Equity Fund................................ 0.90% 0.10%
High Yield Fund............................................. 0.60% 0.10%
ADMINISTRATIVE, ACCOUNTING AND CUSTODY SERVICES
ADMINISTRATIVE AND ACCOUNTING SERVICES. Effective November 5, 2001, Brinson
Advisors, with its principal office located at 51 West 52nd Street, New York,
New York 10019-6114, serves as the Funds' administrator. Brinson Advisors is an
indirect wholly-owned asset management subsidiary of UBS. Brinson Advisors is an
affiliate of the Advisor.
As administrator, Brinson Advisors supervises and manages all aspects (other
than investment advisory activities) of the Trust's operations. Under the
Administration Contract, Brinson Advisors will not be liable for any error of
judgement or mistake of law or for any loss suffered by any Fund, the Trust or
any of its shareholders in connection with the performance of the Administration
Contract, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of Brinson Advisors in the performance of its duties or
from reckless disregard of its duties and obligations thereunder. The
Administration Contract terminates automatically upon its assignment and is
terminable at any time without penalty by the Board or by vote of the holders of
a majority of the Funds' outstanding voting securities, on 60 days' written
notice to Brinson Advisors, or by Brinson Advisors on 60 days' written notice to
the Trust. J.P. Morgan Investors Services Co. ("J.P. Morgan") (formerly named
Chase Global Funds Services Company) provides accounting, portfolio valuation
and certain administrative services for the Funds under a Multiple Services
Agreement between the Trust and The Chase Manhattan Bank ("Chase"). J.P. Morgan
is located at 73 Tremont Street, Boston, MA 02108-3913 and is a corporate
affiliate of Chase.
Each Fund pays a fee to Brinson Advisors that is computed daily and paid
monthly at an annual rate of 0.075% of average daily net assets of such Fund.
This fee is the same amount that was previously paid to J.P. Morgan as the
Trust's administrator.
Until November 2, 2001, J.P. Morgan served as administrator and accounting
and portfolio valuation agent under a Multiple Services Agreement, which also
included the custodian services performed by Chase. J.P. Morgan served as
transfer agent of the Trust until August 17, 2001. PFPC Inc. was appointed
transfer agent
47
of the Trust effective August 20, 2001. For the fiscal year ended June 30, 2001,
aggregate fees paid to J.P. Morgan for administration, accounting, portfolio
valuation and transfer agency services were as follows:
FISCAL YEAR
ENDED JUNE 30,
FUND 2001*
---- ---------------
Global Balanced Fund*....................................... $153,238
Global Equity Fund.......................................... $ 10,950
Global Technology Fund...................................... $ 698
Global Biotech Fund......................................... $ 476
Global Bond Fund............................................ $ 5,046
U.S. Balanced Fund.......................................... $ 384
U.S. Equity Fund............................................ $ 7,682
U.S. Large Cap Equity Fund.................................. $ 207
U.S. Large Cap Growth Fund.................................. $ 1,271
U.S. Small Cap Growth Fund.................................. $ 1,460
U.S. Bond Fund.............................................. $ 498
High Yield Fund............................................. $ 396
International Equity Fund................................... $ 85,387
------------------------
* The U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging
Markets Debt Fund and Emerging Markets Equity Fund had not commenced
operations as of the time period indicated. The U.S. Value Equity Fund
commenced operations on June 29, 2001. Effective as of the date hereof, the
Global Fund changed its name to the Global Balanced Fund.
For the fiscal year ended June 30, 2000, aggregate fees paid to J.P. Morgan
for administration, accounting, portfolio valuation and transfer agency services
under the Multiple Services Agreement were as follows:
FISCAL YEAR
ENDED JUNE 30,
FUND 2000*
---- ----------------
Global Balanced Fund*....................................... $265,531
Global Equity Fund.......................................... $ 8,046
Global Technology Fund...................................... $ 36
Global Biotech Fund......................................... $ 33
Global Bond Fund............................................ $ 4,425
U.S. Balanced Fund.......................................... $ 1,442
U.S. Equity Fund............................................ $ 38,857
U.S. Large Cap Equity Fund.................................. $ 388
U.S. Large Cap Growth Fund.................................. $ 527
U.S. Small Cap Growth Fund.................................. $ 1,458
U.S. Bond Fund.............................................. $ 1,098
High Yield Fund............................................. $ 1,087
International Equity Fund................................... $364,818
------------------------
* The Global Technology Fund commenced operations on May 26, 2000. The Global
Biotech Fund commenced operations on June 2, 2000. The U.S. Value Equity
Fund, U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging
Markets Debt Fund and Emerging Markets Equity Fund had not commenced
operations as of the time period indicated. Effective as of the date hereof,
the Global Fund changed its name to the Global Balanced Fund.
48
For the period October 1, 1998 through June 30, 1999, aggregate fees paid to
J.P. Morgan for administration, accounting, portfolio valuation and transfer
agency services were as follows:
OCTOBER 1, 1998
THROUGH FISCAL YEAR
FUND* ENDED JUNE 30, 1999
----- --------------------
Global Balanced Fund*....................................... $375,205
Global Equity Fund.......................................... $ 5,133
Global Bond Fund............................................ $ 15,273
U.S. Balanced Fund.......................................... $ 821
U.S. Equity Fund............................................ $ 31,531
U.S. Large Cap Equity Fund*................................. $ 547
U.S. Large Cap Growth Fund*................................. $ 195
U.S. Small Cap Growth Fund*................................. $ 505
U.S. Bond Fund.............................................. $ 127
High Yield Fund............................................. $ 418
International Equity Fund*.................................. $263,096
------------------------
* The Global Technology Fund, Global Biotech Fund, U.S. Value Equity Fund,
U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging Markets
Debt Fund and Emerging Markets Equity Fund had not commenced operations as
of the time period indicated. Effective as of the date hereof, the Global
Fund changed its name to the Global Balanced Fund. Effective on
December 19, 1998, the UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS
High Yield Bond Fund were reorganized into the U.S. Large Cap Growth Fund,
U.S. Small Cap Growth Fund and High Yield Fund, respectively. Fees for the
U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund and High Yield Fund
reflect fees paid during the period from January 1, 1999 through June 30,
1999.
For the period December 19, 1998 through December 31, 1998, the U.S. Large
Cap Growth Fund, U.S. Small Cap Growth Fund and High Yield Fund did not pay any
fees to J.P. Morgan for administration, accounting, portfolio valuation and
transfer agency services.
For the period July 1, 1998 through September 30, 1998, aggregate fees paid
to Morgan Stanley Trust Company, prior to its merger into Chase, for
administration, accounting, portfolio valuation and transfer agency services
were as follows:
JULY 1, 1998
THROUGH
FUND* SEPTEMBER 30, 1998
----- ------------------
Global Balanced Fund*....................................... $112,813
Global Equity Fund.......................................... $ 865
Global Bond Fund............................................ $ 1,985
U.S. Balanced Fund.......................................... $ 0
U.S. Equity Fund............................................ $ 58,362
U.S. Large Cap Equity Fund.................................. $ 0
U.S. Bond Fund.............................................. $ 0
International Equity Fund................................... $ 82,044
------------------------
* The Global Technology Fund, Global Biotech Fund, U.S. Value Equity Fund,
U.S. Large Cap Growth Fund, U.S. Small Cap Equity Fund, U.S. Small Cap
Growth Fund, U.S. Real Estate Equity Fund, High Yield Fund, Emerging Markets
Debt Fund and Emerging Markets Equity Fund had not commenced operations as
of the time period indicated. Effective as of the date hereof, the Global
Fund changed its name to the Global Balanced Fund.
Prior to the reorganization of the UBS Funds into the Trust in December,
1998, IBT Trust & Custodial Services (Ireland) Limited ("IBT Ireland") and
Investors Bank and Trust Company ("Investors Bank"),
49
200 Clarendon Street, Boston, Massachusetts 02116, provided certain
administrative services to the UBS Portfolios and the UBS Funds, respectively,
pursuant to Administration Agreements. For its services under the Administration
Agreements, each corresponding UBS Portfolio paid IBT Ireland a fee calculated
daily and paid monthly equal, on an annual basis, to 0.07% of the UBS
Portfolio's first $100 million in average daily net assets and 0.05% of the
assets in excess of $100 million. For its services under the Administration
Agreements, each corresponding UBS Fund paid Investors Bank a fee calculated
daily and paid monthly equal, on an annual basis, to 0.065% of the UBS Fund's
first $100 million in average daily net assets and 0.025% of the next $100
million in average daily net assets. Investors Bank was not paid a fee from a
UBS Fund on average daily net assets in excess of $200 million.
Administrative fees paid to IBT Ireland by the UBS Portfolios were as
follows:
JANUARY 1, 1998
THROUGH
SERIES* DECEMBER 18, 1998
------- ------------------
UBS Large Cap Growth Portfolio.............................. $12,574
UBS Small Cap Portfolio..................................... $22,896
UBS High Yield Bond Portfolio............................... $16,854
Administrative fees paid to Investors Bank by the UBS Funds were as follows:
JANUARY 1, 1998
THROUGH
SERIES* DECEMBER 18, 1998
------- ------------------
UBS Large Cap Growth Fund................................... $ 7,361
UBS Small Cap Fund.......................................... $24,165
UBS High Yield Bond Fund.................................... $21,515
------------------------
* Effective on December 19, 1998, the UBS Large Cap Growth Fund, UBS Small Cap
Fund and UBS High Yield Bond Fund were reorganized into the U.S. Large Cap
Growth Fund, U.S. Small Cap Growth Fund and High Yield Fund, respectively.
The U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund and High Yield
Fund initially had fiscal years ending on December 31. At the February 22,
1999 Board of Trustees' meeting, the Board of Trustees of the Trust voted to
change the fiscal year end of these three Funds to June 30.
CUSTODY SERVICES. Chase, located at 270 Park Avenue, New York, New York
10017 ("Chase") provides custodian services for the securities and cash of the
Funds. 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. Chase
utilizes foreign sub-custodians under procedures approved by the Board in
accordance with applicable legal requirements.
PRINCIPAL UNDERWRITING ARRANGEMENTS
Brinson Advisors acts as the principal underwriter of each class of shares
of the Funds pursuant to a principal underwriting contract with the Trust
("Principal Underwriting Contract"). The Principal Underwriting Contract
requires Brinson Advisors to use its best efforts, consistent with its other
businesses, to sell shares of the Funds. Shares of the Funds are offered
continuously. Brinson Advisors enters into dealer agreements with other
broker-dealers (affiliated and non-affiliated) and with other financial
institutions to authorize them to sell Fund shares.
Under separate plans of distribution pertaining to the Class A, Class B and
Class C shares of the Funds adopted by the Trust in the manner prescribed under
Rule 12b-1 under the Act (each, respectively, a "Class A Plan," "Class B Plan"
and "Class C Plan," and collectively, "Plans"), the Funds pay Brinson Advisors a
service fee, accrued daily and payable monthly, at the annual rate of 0.25% of
the average daily net assets of each class of shares. Under the Class B Plan,
the Funds pay Brinson Advisors a distribution fee, accrued daily and payable
monthly, at the annual rate of 0.75% of the average daily net assets of the
class of shares. Under the Class C
50
Plan, the Funds pay Brinson Advisors a distribution fee, accrued daily and
payable monthly, at the annual rate of 0.50% (for Fixed Income Funds) or 0.75%
(for Equity Funds) of the average daily net assets of the class of shares. There
is no distribution plan with respect to the Funds' Class Y shares and the Funds
pay no service or distribution fees with respect to their Class Y shares.
Brinson Advisors uses the service fees under the Plans for Class A, Class B
and Class C shares primarily to pay dealers for shareholder servicing, currently
at the annual rate of 0.25% of the aggregate investment amounts maintained in
each Fund by each dealer. Each dealer then compensates its investment
professionals for shareholder servicing that they perform and offsets its own
expenses in servicing and maintaining shareholder accounts including related
overhead expenses.
Brinson Advisors uses the distribution fees under the Class B and Class C
Plans to offset the commissions it pays to dealers for selling each Fund's
Class B and Class C shares, respectively, and to offset each Fund's marketing
costs attributable to such classes, such as the preparation, printing and
distribution of sales literature, advertising and prospectuses and other
shareholder materials to prospective investors. Brinson Advisors may also use
distribution fees to pay additional compensation to dealers and to offset other
costs allocated to Brinson Advisors' distribution activities.
Brinson Advisors receives the proceeds of the initial sales charge paid when
Class A and Class C shares are bought and of the contingent deferred sales
charge paid upon sales of shares. These proceeds also may be used to cover
distribution expenses.
The Plans and the Principal Underwriting Contract specify that the Funds
must pay service and distribution fees to Brinson Advisors as compensation for
its service- and distribution-related activities, not as reimbursement for
specific expenses incurred. Therefore, even if Brinson Advisors' expenses for
the Funds exceed the service or distribution fees it receives, the Funds will
not be obligated to pay more than those fees. On the other hand, if Brinson
Advisors' expenses are less than such fees, it will retain its full fees and
realize a profit. Expenses in excess of service and distribution fees received
or accrued through the termination date of any Plan will be Brinson Advisors'
sole responsibility and not that of the Funds. Annually, the Board reviews the
Plans and Brinson Advisors' corresponding expenses for each class of shares of
the Funds separately from the Plans and expenses of the other classes of shares.
Among other things, each Plan provides that (1) Brinson Advisors will submit
to the Board at least quarterly, and the Board members will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (2) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendment thereto is approved,
by the Board, including those Board members who are not "interested persons" of
the Trust and who have no direct or indirect financial interest in the operation
of the Plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by a Fund under the Plan shall not be
materially increased without the approval by a majority of the outstanding
voting securities of the relevant class of the Fund and (4) while the Plan
remains in effect, the selection and nomination of Board members who are not
"interested persons" of the Trust shall be committed to the discretion of the
Board members who are not "interested persons" of the Trust.
In reporting amounts expended under the Plans to the Board members, Brinson
Advisors allocates expenses attributable to the sale of each class of the Funds'
shares to such class based on the ratio of sales of shares of such class to the
sales of all three classes of shares. The fees paid by one class of a Fund's
shares will not be used to subsidize the sale of any other class of the Fund's
shares. For the fiscal year ended June 30, 2001, the Funds did not pay (or
accrue) any service and/or distribution fees to Brinson Advisors under the
Plans.
In approving the Class A Plan, the Class B Plan and the Class C Plan, the
Board considered all the features of the distribution system and the anticipated
benefits to the Funds and their shareholders. With regard to each Plan, the
Board considered (1) the advantages to the shareholders of economies of scale
resulting from growth in the Funds' assets and potential continued growth, (2)
the services provided to the Funds and their shareholders by Brinson Advisors,
(3) the services provided by dealers pursuant to each dealer agreement with
Brinson Advisors, and (4) Brinson Advisors' shareholder service-related and,
where applicable, distribution-related expenses and costs. With respect to the
Class B Plan, the Board also recognized that Brinson Advisors' willingness to
compensate dealers without the concomitant receipt by Brinson Advisors of
initial sales charges, was conditioned upon its expectation of being compensated
under the Class B Plan.
51
With respect to each Plan, the Board considered all compensation that
Brinson Advisors would receive under the Plan and the Principal Underwriting
Contract, including service fees and, as applicable, initial sales charges,
distribution fees and contingent deferred sales charges. The Board also
considered the benefits that would accrue to Brinson Advisors under each Plan in
that Brinson Advisors would receive service, distribution, advisory and
administrative fees that are calculated based upon a percentage of the average
net assets of the Funds, which fees would increase if the Plans were successful
and the Funds attained and maintained significant asset levels.
PRIOR DISTRIBUTION ARRANGEMENTS
Until November 5, 2001, a distribution plan, adopted pursuant to Rule 12b-1
under the Act, had related to the Trust's UBS Investment Funds class of shares
of the Global Balanced Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced
Fund, U.S. Equity Fund, U.S. Large Cap Equity Fund, U.S. Large Cap Growth Fund,
U.S. Small Cap Growth Fund, U.S. Bond Fund, High Yield Fund and International
Equity Fund (the "UBS Investment Plan I"). A separate distribution plan, adopted
pursuant to Rule 12b-1 under the Act, had related to the Trust's UBS Investment
Funds class of shares of the Global Technology Fund, Global Biotech Fund, U.S.
Value Equity Fund, U.S. Small Cap Equity Fund and U.S. Real Estate Equity Fund
(the "UBS Investment Plan II", and together with UBS Investment Plan I, the "UBS
Investment Plans"). The Board had also adopted 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 Plans and the Class N Plan are together
the "Prior Plans"), which was in place until November 5, 2001. The Prior Plans
had permitted each Series to reimburse Funds Distributor Inc., the Trust's
former underwriter ("FDI"), Brinson Partners and others from the assets of the
UBS Investment Funds class of shares 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. These expenses had included, but were not limited to, preparing
and distributing advertisements and sales literature, printing prospectuses and
reports used for sales purposes, and paying distribution and maintenance fees to
brokers, dealers and others in accordance with a selling agreement with the
Trust on behalf of the UBS Investment Funds class of shares and the Brinson
Fund--Class N shares or FDI. In addition, each Fund (as well as the Advisor,
from the Advisor's own resources) had made payments directly to FDI for payment
to dealers or others, or directly to others, such as banks, who had assisted in
the distribution of the UBS Investment Funds class of shares or Brinson
Fund--Class N shares or provided services with respect to the UBS Investment
Funds class of shares or Brinson Fund--Class N shares.
UBS, or one of its affiliates, pursuant to a selected dealer agreement, had
provided additional compensation to securities dealers from its own resources in
connection with sales of the UBS Investment Funds class of shares or Brinson
Fund--Class N shares of the Funds.
The aggregate distribution fees paid by the Funds from the assets of the
respective UBS Investment Funds class of shares to FDI and others under the UBS
Investment Plan I and UBS Investment Plan II could not exceed 0.90% and 1.00%,
respectively, of a Fund's average daily net assets in any year (0.25% of which
were service fees to be paid by the Series to FDI, dealers and others, for
providing personal service and/or maintaining shareholder accounts). The UBS
Investment Plan I had provided, however, that the aggregate distribution fees
for each subject Fund could not exceed the following maximum amounts for the
fiscal year ending June 30, 2001: UBS Investment Fund--Global Balanced--0.65%,
UBS Investment Fund--Global Equity--0.76%, UBS Investment Fund--Global
Bond--0.49%, UBS Investment Fund--U.S. Balanced--0.50%, UBS Investment
Fund--U.S. Equity--0.52%, UBS Investment Fund--U.S. Large Cap Equity--0.52%, UBS
Investment Fund--U.S. Large Cap Growth--0.77%, UBS Investment Fund--U.S. Small
Cap Growth--0.77%, UBS Investment Fund--U.S. Bond--0.47%, UBS Investment
Fund--High Yield--0.85% and UBS Investment Fund--International Equity--0.84%.
The UBS Investment Plan II had provided that the aggregate distribution fees for
each subject Fund could not exceed the following maximum amounts for the fiscal
year ending June 30, 2001: UBS Investment Fund--Global Technology--1.00%, UBS
Investment Fund--Global Biotech--1.00%, UBS Investment Fund--U.S. Value
Equity--1.00%, UBS Investment Fund--U.S. Small Cap Equity--1.00%, UBS Investment
Fund--U.S. Real Estate Equity--1.00%, UBS Investment Fund--Emerging Markets
Debt--1.00%, and UBS Investment Fund--Emerging Markets Equity--1.00%.
52
The aggregate distribution fees paid by the Funds from the assets of the
respective Brinson Fund--Class N shares to FDI and others under the Class N Plan
could not exceed 0.25% of a Fund's average daily net assets in any year.
The UBS Investment Plans did not apply to the Brinson Fund--Class I or the
Brinson Fund--Class N shares of each Fund and those shares were not included in
calculating the UBS Investment Plans' respective fees. The Class N Plan did not
apply to the Brinson Fund--Class I or the UBS Investment Funds class of shares
of each Fund and those shares were not included in calculating the Class N
Plan's fees.
The quarterly fees paid to FDI under the Plans were subject to the review
and approval by the Trust's Trustees who were not "interested persons" (as
defined in the Act) of the Advisor, and who could reduce the fees or terminate
the Plans at any time.
Amounts spent on behalf of each UBS Investment Funds class of shares
pursuant to the UBS Investment Plans during the fiscal year ended June 30, 2001
are set forth below:
COMPENSATION COMPENSATION COMPENSATION COMPENSATION
TO TO TO TO UBS SALES
FUND* PRINTING UNDERWRITERS DEALERS PERSONNEL ADVERTISING OTHER
----- ------------ ------------ ------------ ------------ ----------- --------
UBS Investment Fund--Global
Balanced.................... $0.00 $0.00 $0.00 $ 54,976.23 $0.00 $0.00
UBS Investment Fund--Global
Equity...................... $0.00 $0.00 $0.00 $187,697.08 $0.00 $0.00
UBS Investment Fund--Global
Technology.................. $0.00 $0.00 $0.00 $ 9,878.94 $0.00 $0.00
UBS Investment Fund--Global
Biotech..................... $0.00 $0.00 $0.00 $ 3,481.62 $0.00 $0.00
UBS Investment Fund--Global
Bond........................ $0.00 $0.00 $0.00 $ 8,458.71 $0.00 $0.00
UBS Investment Fund--U.S.
Balanced.................... $0.00 $0.00 $0.00 $ 6,769.48 $0.00 $0.00
UBS Investment Fund--U.S.
Equity...................... $0.00 $0.00 $0.00 $ 43,478.52 $0.00 $0.00
UBS Investment Fund--U.S.
Large Cap Equity............ $0.00 $0.00 $0.00 $ 1,169.85 $0.00 $0.00
UBS Investment Fund--U.S.
Large Cap Growth............ $0.00 $0.00 $0.00 $ 43,469.00 $0.00 $0.00
UBS Investment Fund--U.S.
Small Cap Growth............ $0.00 $0.00 $0.00 $ 27,944.75 $0.00 $0.00
UBS Investment Fund--U.S.
Bond........................ $0.00 $0.00 $0.00 $ 18,488.90 $0.00 $0.00
UBS Investment Fund--High
Yield....................... $0.00 $0.00 $0.00 $ 19,256.63 $0.00 $0.00
UBS Investment Fund--
International Equity........ $0.00 $0.00 $0.00 $ 44,316.71 $0.00 $0.00
53
Amounts spent on behalf of each Fund's Class N shares pursuant to the
Class N Plan during the fiscal year ended June 30, 2001 are set forth below:
COMPENSATION COMPENSATION COMPENSATION COMPENSATION
TO TO TO TO UBS SALES
FUND* PRINTING UNDERWRITERS DEALERS PERSONNEL ADVERTISING OTHER
----- ------------ ------------ ------------ ------------ ----------- --------
Global Balanced
Fund--Class N............... $0.00 $0.00 $ 566.34 $0.00 $0.00 $0.00
Global Equity
Fund--Class N............... $0.00 $0.00 $ 728.44 $0.00 $0.00 $0.00
Global Technology Fund--
Class N..................... $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
Global Biotech
Fund--Class N............... $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
Global Bond Fund--Class N..... $0.00 $0.00 $ 4.43 $0.00 $0.00 $0.00
U.S. Balanced
Fund--Class N............... $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
U.S. Equity Fund--Class N..... $0.00 $0.00 $20,631.02 $0.00 $0.00 $0.00
U.S. Large Cap Equity Fund--
Class N..................... $0.00 $0.00 $ 61.31 $0.00 $0.00 $0.00
U.S. Large Cap Growth--
Class N..................... $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
U.S. Small Cap Growth--
Class N..................... $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
U.S. Bond Fund--Class N....... $0.00 $0.00 $ 0.11 $0.00 $0.00 $0.00
High Yield--Class N........... $0.00 $0.00 $ 0.00 $0.00 $0.00 $0.00
International Equity Fund--
Class N..................... $0.00 $0.00 $ 10.40 $0.00 $0.00 $0.00
--------------------------
* The U.S. Small Cap Equity Fund, U.S. Real Estate Equity Fund, Emerging
Markets Debt Fund and Emerging Markets Equity Fund had not commenced
operations as of the time periods indicated. The U.S. Value Equity Fund
commenced operations on June 29, 2001. Effective as of the date hereof, the
Global Fund changed its name to the Global Balanced Fund.
TRANSFER AGENCY SERVICES
Effective August 20, 2001, PFPC Inc. ("PFPC"), a subsidiary of PNC Bank,
N.A., serves as the Trust's transfer and dividend disbursing agent. It is
located at 400 Bellevue Parkway, Wilmington, DE 19809.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, are the independent auditors of the
Trust.
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, is legal
counsel to the Trust and the independent Trustees.
PERSONAL TRADING POLICIES
The Trust, Brinson Partners, Brinson Advisors and the Sub-Advisor have each
adopted a Code of Ethics under Rule 17j-1 of the Act. Each Code of Ethics
establishes standards by which certain personnel covered by the rule may invest
in securities that may be purchased or held by the Funds but prohibits
fraudulent, deceptive or manipulative conduct in connection with that personal
investing.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brinson Partners is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' portfolio business and the
negotiation of commissions, if any, paid on such transactions. Subject to the
direction of Brinson Partners, the Sub-Advisor is responsible for decisions to
buy and sell securities and for the placement of portfolio business and the
negotiation of commissions, if any, paid on such transactions, for the
54
portion of each Fund's assets that the Sub-Advisor manages. Portfolio
transactions placed by the Sub-Advisor may be effected through Brinson Partners'
or the Sub-Advisor's trading desk. Fixed income securities in which the Funds
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 and the Sub-Advisor are responsible for effecting portfolio
transactions and will do so in a manner deemed fair and reasonable to the Funds.
Under its advisory agreements with the Global Funds and U.S. Real Estate 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 Funds.
The primary consideration in all portfolio transactions will be prompt
execution of orders in an efficient manner at the most favorable price. However,
subject to policies established by the Board of the Trust, a Fund may pay a
broker-dealer a commission for effecting a portfolio transaction for the Fund in
excess of the amount of commission another broker-dealer would have charged if
Brinson Partners or the Sub-Advisor 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
Funds, as to which Brinson Partners or the Sub-Advisor exercises investment
discretion. In selecting and monitoring broker-dealers and negotiating
commissions, Brinson Partners and the Sub-Advisor consider the firm's
reliability, the quality of its execution services on a continuing basis and its
financial condition. Brinson Partners and the Sub-Advisor may also consider the
sale of shares of the Funds and other funds that they advise as a factor in the
selection of brokers or dealers to effect transactions for the Funds, subject to
Brinson Partners' and the Sub-Advisor's duties to seek best execution. 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
Funds, to Brinson Partners or to the Sub-Advisor. 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 and the Sub-Advisor to supplement their own investment research
activities and obtain the views and information of others prior to making
investment decisions. Brinson Partners and the Sub-Advisor are of the opinion
that, because this material must be analyzed and reviewed by their staff, the
receipt and use of such material does not tend to reduce expenses but may
benefit the Funds by supplementing the Advisor's and the Sub-Advisor's research.
Brinson Partners and the Sub-Advisor effect portfolio transactions for other
investment companies and advisory accounts. Research services furnished by
dealers through whom the Funds effect their securities transactions may be used
by Brinson Partners or the Sub-Advisor in servicing all of their accounts; not
all such services may be used in connection with the Funds. In the opinion of
Brinson Partners and the Sub-Advisor, it is not possible to measure separately
the benefits from research services to each of the accounts (including the
Funds). Brinson Partners and the Sub-Advisor will attempt to equitably allocate
portfolio transactions among the Funds and others whenever concurrent decisions
are made to purchase or sell securities by the Funds and another. In making such
allocations between the Funds 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 Funds and the others. In some
cases, this procedure could have an adverse effect on the Funds. In the opinion
of Brinson Partners and the Sub-Advisor, however, the results of such procedures
will, on the whole, be in the best interest of each of the clients.
When buying or selling securities, the Funds may pay commissions to brokers
who are affiliated with the Advisor, the Sub-Advisor or the Funds. The Funds may
purchase securities in certain underwritten offerings for which an affiliate of
the Funds, the Advisor or the Sub-Advisor may act as an underwriter. The Funds
may effect future transactions through, and pay commissions to, futures
commission merchants who are affiliated with the Advisor, the Sub-Advisor or the
Funds in accordance with procedures adopted by the Board.
55
The Funds incurred brokerage commissions as follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FUND* JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2001
----- ------------- ------------- -------------
Global Balanced Fund............................... $ 612,462 $ 458,131 $257,850
Global Equity Fund................................. $ 225,396 $ 307,473 $133,005
Global Technology Fund*............................ N/A $ 255 $ 7,956
Global Biotech Fund*............................... N/A $ 375 $ 9,329
Global Bond Fund................................... $ 0 $ 0 $ 0
U.S. Balanced Fund................................. $ 38,711 $ 32,174 $ 19,501
U.S. Equity Fund................................... $ 798,223 $1,078,586 $273,507
U.S. Large Cap Equity Fund......................... $ 33,488 $ 74,174 $ 25,456
U.S. Large Cap Growth Fund**....................... $ 6,142 $ 15,626 $ 11,376
U.S. Small Cap Growth Fund**....................... $ 110,942 $ 271,215 $162,164
U.S. Bond Fund..................................... $ 0 $ 0 $ 0
High Yield Fund**.................................. $ 0 $ 0 $ 0
International Equity Fund.......................... $1,617,312 $1,256,390 $712,539
--------------------------
* The Global Technology Fund commenced operations on May 26, 2000. The Global
Biotech Fund commenced operations on June 2, 2000. The U.S. Value Equity
Fund commenced operations on June 29, 2001. The U.S. Small Cap Equity Fund,
U.S. Real Estate Equity Fund, Emerging Markets Debt Fund and Emerging
Markets Equity Fund had not commenced operations as of the time periods
indicated.
** Effective December 19, 1998, the UBS Large Cap Growth Fund, UBS Small Cap
Fund and UBS High Yield Bond Fund were reorganized into the U.S. Large Cap
Growth Fund, U.S. Small Cap Growth Fund and High Yield Fund, respectively.
For the fiscal year ended June 30, 1999, brokerage commissions for the U.S.
Large Cap Growth Fund, U.S. Small Cap Growth Fund and High Yield Fund
reflect fees paid during the period from January 1, 1999 to June 30, 1999.
For the fiscal year ended June 30, 1999, the Global Balanced Fund, Global
Equity Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Cap Equity Fund,
U.S. Large Cap Growth Fund and U.S. Small Cap Growth Fund paid brokerage
commissions to Warburg Dillon Read ("Warburg"), an affiliated broker-dealer, as
follows:
AGGREGATE % OF AGGREGATE
DOLLAR AMOUNT OF % OF AGGREGATE DOLLAR AMOUNT
COMMISSIONS PAID COMMISSIONS PAID PAID
FUND TO WARBURG TO WARBURG TO WARBURG
---- ---------------- ---------------- --------------
Global Balanced Fund............................ $42,341 6.91% 2.26%
Global Equity Fund.............................. $ 6,322 2.80% 4.45%
U.S. Balanced Fund.............................. $ 3,207 8.28% 2.08%
U.S. Equity Fund................................ $55,295 6.93% 8.01%
U.S. Large Cap Equity Fund...................... $10,625 31.73% 22.35%
U.S. Large Cap Growth Fund...................... $ 2,469 40.20% 59.78%
U.S. Small Cap Growth Fund...................... $ 5,232 4.72% 8.23%
For the fiscal year ended June 30, 1999, the International Equity Fund paid
brokerage commissions to UBS, AG, London, an affiliated broker-dealer, as
follows:
AGGREGATE % OF AGGREGATE
DOLLAR AMOUNT OF % OF AGGREGATE DOLLAR AMOUNT
COMMISSIONS PAID COMMISSIONS PAID PAID
TO UBS, AG, TO UBS, AG, TO UBS, AG,
FUND LONDON LONDON LONDON
---- ---------------- ---------------- --------------
International Equity Fund....................... $47,584 2.94% 2.46%
56
The U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund and High Yield
Fund, and the UBS Funds that were merged into the Funds, incurred brokerage
commissions as follows:
JANUARY 1, 1998 DECEMBER 18, 1998
THROUGH THROUGH
FUND* DECEMBER 19, 1998 DECEMBER 31, 1998
----- ----------------- -----------------
U.S. Large Cap Growth Fund.................................. $31,628** $ 25
U.S. Small Cap Growth Fund.................................. $52,862** $4,722
High Yield Fund............................................. N/A** $ 0
--------------------------
* The U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund and High Yield
Fund commenced operations effective on December 19, 1998. Effective December
19, 1998, the UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS High
Yield Bond Fund were reorganized into the U.S. Large Cap Growth Fund, U.S.
Small Cap Growth Fund and High Yield Fund, respectively. The U.S. Large Cap
Growth Fund, U.S. Small Cap Growth Fund and High Yield Fund initially had
fiscal years ending on December 31. At the February 22, 1999 Board of
Trustees' meeting, the Board of Trustees of the Trust voted to change the
fiscal year end of these three Funds to June 30.
** Prior to the reorganization of the UBS Funds into the corresponding series
of the Trust, each of the UBS Funds invested substantially all of its
investable assets in corresponding series of the UBS Investor Portfolios
Trust (collectively, the "UBS Portfolios"). As a result, the UBS Funds did
not incur brokerage commissions. The brokerage commissions reflected were
incurred by the UBS Portfolios.
For the fiscal year ended June 30, 2000, the Global Balanced Fund, Global
Equity Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Cap Equity Fund,
U.S. Large Cap Growth Fund and U.S. Small Cap Growth Fund paid brokerage
commissions to Warburg, as follows:
AGGREGATE % OF AGGREGATE
DOLLAR AMOUNT OF % OF AGGREGATE DOLLAR AMOUNT
COMMISSIONS PAID COMMISSIONS PAID PAID
FUND TO WARBURG TO WARBURG TO WARBURG
---- ---------------- ---------------- --------------
Global Balanced Fund............................ $ 61,971 13.53% 20.42%
Global Equity Fund.............................. $ 7,061 2.30% 4.01%
U.S. Balanced Fund.............................. $ 9,599 29.83% 34.06%
U.S. Equity Fund................................ $426,884 39.58% 45.39%
U.S. Large Cap Equity Fund...................... $ 28,014 37.77% 39.21%
U.S. Large Cap Growth Fund...................... $ 2,133 13.65% 32.34%
U.S. Small Cap Growth Fund...................... $ 9,675 3.57% 11.07%
For the fiscal year ended June 30, 2001, the Global Balanced Fund, Global
Equity Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Cap Equity Fund,
U.S. Large Cap Growth Fund, U.S. Small Cap Growth Fund, Global Technology Fund
and Global Biotech Fund paid brokerage commissions to Warburg, as follows:
AGGREGATE % OF AGGREGATE
DOLLAR AMOUNT OF % OF AGGREGATE DOLLAR AMOUNT
COMMISSIONS PAID COMMISSIONS PAID PAID
FUND TO WARBURG TO WARBURG TO WARBURG
---- ---------------- ---------------- --------------
Global Balanced Fund............................ $ 58,857 22.83% 22.88%
Global Equity Fund.............................. $ 3,838 2.89% 4.71%
U.S. Balanced Fund.............................. $ 3,449 17.69% 17.99%
U.S. Equity Fund................................ $107,381 39.26% 33.82%
U.S. Large Cap Equity Fund...................... $ 10,773 42.32% 50.35%
U.S. Large Cap Growth Fund...................... $ 2,356 20.71% 32.12%
Global Technology Fund.......................... $ 1,346 16.92% 20.17%
Global Biotech Fund............................. $ 254 2.72% 10.34%
For the fiscal year ended June 30, 2001, the Trust, the Advisor and the
Sub-Advisor had no agreements or understandings with a broker, or otherwise
through an internal allocation procedure, to cause the Funds' brokerage
transactions to be directed to a broker because of research services provided.
57
PORTFOLIO TURNOVER
The Funds 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 each Fund's respective
investment objective. The Funds 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 Fund's
investment objective.
The Funds 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 Fund 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 U.S. Equity
Fund, U.S. Value Equity Fund, U.S. Large Cap Growth Fund and International
Equity Fund is not expected to exceed 100%. The portfolio turnover rates for the
Global Balanced Fund, Global Equity Fund, Global Technology Fund, Global Biotech
Fund, Global Bond Fund, U.S. Large Cap Equity Fund, U.S. Small Cap Equity Fund,
U.S. Real Estate Equity Fund, High Yield Fund, Emerging Markets Debt Fund and
Emerging Markets Equity Fund may exceed 100%, and in some years, 200%. The
portfolio turnover rate for the U.S. Small Cap Growth Fund may exceed 150%, and
for the U.S. Balanced Fund and U.S. Bond Fund, the portfolio turnover rate 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 Funds and ultimately by the Funds'
shareholders. In addition, high portfolio turnover may result in increased
short-term capital gains, which, when distributed to shareholders, are treated
as ordinary income.
The portfolio turnover rate of each Fund for the fiscal years ended
June 30, 2000 and June 30, 2001 was as follows:
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FUND* JUNE 30, 2000 JUNE 30, 2001
----- -------------- --------------
Global Balanced Fund*....................................... 98% 115%
Global Equity Fund.......................................... 111% 81%
Global Bond Fund............................................ 87% 165%
Global Technology Fund*..................................... 14% 221%
Global Biotech Fund*........................................ 19% 205%
U.S. Balanced Fund.......................................... 96% 159%
U.S. Equity Fund............................................ 55% 54%
U.S. Large Cap Equity Fund.................................. 174% 94%
U.S. Large Cap Growth Fund.................................. 86% 56%
U.S. Small Cap Growth Fund.................................. 104% 93%
U.S. Bond Fund.............................................. 170% 314%
High Yield Fund............................................. 73% 87%
International Equity Fund................................... 59% 62%
--------------------------
* The Global Technology Fund commenced operations on May 26, 2000. The Global
Biotech Fund commenced operations on June 2, 2000. The U.S. Value Equity
Fund commenced operations on June 29, 2001. The U.S. Small Cap Equity Fund,
U.S. Real Estate Equity Fund, Emerging Markets Debt Fund and Emerging
Markets Equity Fund had not commenced operations as of the time periods
indicated.
SHARES OF BENEFICIAL INTEREST
The Trust currently offers four classes of shares for each Fund: the Brinson
Fund--Class A (the Class A shares) (formerly known as the Brinson Fund--Class N
shares), Brinson Fund--Class B (the Class B shares), Brinson Fund--Class C (the
Class C shares) and Brinson Fund--Class Y (the Class Y shares) (formerly known
58
as the Brinson Fund--Class I shares). Class B shares include Sub-Class B-1
shares, Sub-Class B-2 shares, Sub-Class B-3 shares, and Sub-Class B-4 shares.
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with a $0.001 par value per share. Each share of beneficial interest
represents an equal proportionate interest in the assets and liabilities of the
applicable Fund and has identical voting, dividend, redemption, liquidation, and
other rights and preferences as the other class of that Fund, except that only
the Class A shares may vote on any matter affecting the Class A Plan. Similarly,
only Class B shares and Class C shares may vote on matters that affect only the
Class B Plan and Class C 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 Fund's fundamental
investment objective and fundamental investment policies, changes to the Trust's
investment advisory agreements 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 for fractional shares.
The shares of the Funds 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 Funds into a greater or lesser number of
shares so affected. In the case of a liquidation of a Fund, each shareholder of
the Fund will be entitled to share, based upon the shareholder's percentage
share ownership, in the distribution out of assets, net of liabilities, of the
Fund. No shareholder is liable for further calls or assessment by a Fund.
On any matters affecting only one Fund or class, only the shareholders of
that Fund or class are entitled to vote. On matters relating to the Trust but
affecting the Funds differently, separate votes by the affected Funds or classes
are required. With respect to the submission to shareholder vote of a matter
requiring separate voting by a Fund or class, the matter shall have been
effectively acted upon with respect to any Fund or class if a majority of the
outstanding voting securities of that Fund 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 Fund or class; and
(2) the matter has not been approved by a majority of the outstanding voting
securities of the Trust.
The Trustees of the Trust do not intend to hold annual meetings of
shareholders of the Funds. 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 Funds. In addition, subject to certain
conditions, shareholders of each Fund may apply to the Fund to communicate with
other shareholders to request a shareholders' meeting to vote upon the removal
of a Trustee or Trustees.
The Trust had previously been authorized to issue interests in the Funds in
three classes of shares: the Brinson Fund--Class I, the Brinson Fund--Class N
and the UBS Investment Funds class of shares. At the meeting of the Board of
Trustees held on May 21, 2001, the Board approved: (i) the establishment and
creation of the Class B shares and Class C shares of the Funds; (ii) the
redesignation of the Class I shares of the Funds as the Class Y shares of the
Funds; and (iii) the abolishment and liquidation of the UBS Investment Funds
class of shares of the Funds. The Board approved the redesignation of the Class
N shares of the Funds as the Class A shares of the Funds, effective October 29,
2001. Accordingly, effective October 29, 2001, Class I shares of the Funds were
redesignated as Class Y shares of the Funds, and the Class N shares of the Funds
were redesignated as the Class A shares of the Funds. On November 9, 2001, the
UBS Investment Funds class of shares of each Fund is expected to be liquidated,
and all outstanding UBS Investment Funds shares are expected to be redeemed.
Prior to the date of this SAI, Class B and Class C shares of the Funds had not
been offered by the Trust.
REDUCED SALES CHARGES, ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION
AND OTHER SERVICES
SALES CHARGE REDUCTIONS AND WAIVERS
WAIVERS OF SALES CHARGES--CLASS A SHARES. The following additional sales
charge waivers are available for Class A shares if you:
- Acquire shares in connection with a reorganization pursuant to which the
fund acquires substantially all of the assets and liabilities of another
fund in exchange solely for shares of the acquiring fund; or
59
- Acquire shares in connection with the disposition of proceeds from the
sale of shares of Managed High Yield Plus Fund Inc. that were acquired
during that fund's initial public offering of shares and that meet certain
other conditions described in its prospectus.
REINSTATEMENT PRIVILEGE--CLASS A SHARES. Shareholders who have redeemed
Class A shares may reinstate their account without a sales charge by notifying
the transfer agent of such desire and forwarding a check for the amount to be
purchased within 365 days after the date of redemption. The reinstatement will
be made at the net asset value per share next computed after the notice of
reinstatement and check are received. The amount of a purchase under this
reinstatement privilege cannot exceed the amount of the redemption proceeds.
Gain on a redemption will be taxable regardless of whether the reinstatement
privilege is exercised, although a loss arising out of a redemption will not be
deductible to the extent the reinstatement privilege is exercised within 30 days
after redemption, in which event an adjustment will be made to the shareholder's
tax basis for shares acquired pursuant to the reinstatement privilege. Gain or
loss on a redemption also will be readjusted for federal income tax purposes by
the amount of any sales charge paid on Class A shares, under the circumstances
and to the extent described in "Taxes--Special Rule for Class A Shareholders,"
below.
PURCHASES OF CLASS A SHARES THROUGH THE UBS PAINEWEBBER INSIGHTONE-SM-
PROGRAM. Investors who purchase shares through the UBS PaineWebber
InsightOne-SM- Program are eligible to purchase Class A shares of the funds for
which Brinson Advisors serves as investment advisor or investment manager
without a sales load, and may exchange those shares for Class A shares of the
Funds. The UBS PaineWebber InsightOne-SM- Program offers a nondiscretionary
brokerage account to UBS PaineWebber clients for an asset-based fee at an annual
rate of up to 1.50% of the assets in the account. Account holders may purchase
or sell certain investment products without paying commissions or other
markups/markdowns.
PAYMENTS BY BRINSON ADVISORS--CLASS B SHARES. For purchases of Class B
shares in amounts of less than $100,000, your broker is paid an up-front
commission equal to 4% of the amount sold. For purchases of Class B shares in
amounts of $100,000 up to $249,999, your broker is paid an up-front commission
of 3.25%, and in amounts of $250,000 to $499,999, your broker is paid an
up-front commission equal to 2.5% of the amount sold. For purchases of Class B
shares in amounts of $500,000 to $999,999 your broker is paid an up-front
commission equal to 1.75% of the amount sold.
PAYMENTS BY BRINSON ADVISORS--CLASS Y SHARES. Class Y shares are sold
without sales charges and do not pay ongoing 12b-1 distribution or service fees.
As distributor of the Class Y shares, Brinson Advisors may, from time to time,
make payments out of its own resources to dealers who sell Class Y shares of the
Family Funds to shareholders who buy $10 million or more at any one time.
PURCHASES OF SHARES THROUGH THE PACE-SM- MULTI ADVISOR PROGRAM. An investor
who participates in the PACE-SM- Multi Advisor Program is eligible to purchase
Class A shares. The PACE-SM- Multi Advisor Program is an advisory program
sponsored by UBS PaineWebber that provides comprehensive investment services,
including investor profiling, a personalized asset allocation strategy using an
appropriate combination of funds, and a quarterly investment performance review.
Participation in the PACE-SM- Multi Advisor Program is subject to payment of an
advisory fee at the effective maximum annual rate of 1.5% of assets. Employees
of UBS PaineWebber and its affiliates are entitled to a waiver of this fee.
Please contact your UBS PaineWebber Financial Advisor or UBS PaineWebber's
correspondent firms for more information concerning mutual funds that are
available through the PACE-SM- Multi Advisor Program. Shareholders who owned
Class Y shares of a Fund through the PACE Multi-Advisor Program as of
November 15, 2001, will be eligible to continue to purchase Class Y shares of
that Fund through the program.
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION. As discussed in the
Prospectus, eligible shares of a Fund may be exchanged for shares of the
corresponding class of other Funds and most other Family Funds. Class Y shares
are not eligible for exchange.
Shareholders will receive at least 60 days' notice of any termination or
material modification of the exchange offer, except no notice need be given if,
under extraordinary circumstances, either redemptions are suspended under the
circumstances described below or a Fund temporarily delays or ceases the sales
of its
60
shares because it is unable to invest amounts effectively in accordance with the
Fund's investment objective, policies and restrictions.
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, result in the necessity of a Fund selling assets under
disadvantageous conditions and to the detriment of the remaining shareholders of
the Fund. 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. Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Trust may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund 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 Fund's 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. In-kind payments to
non-affiliated shareholders need not constitute a cross-section of a Fund's
portfolio. Where a shareholder has requested redemption of all or a part of the
shareholder's investment and where a Fund computes such redemption in-kind, the
Fund 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. Pursuant to redemption
in-kind procedures adopted by the Board on behalf of the Funds, the Trust is
permitted to pay redemptions in-kind to shareholders that are affiliated persons
of the Funds by nature of a greater than 5% ownership interest in the Funds.
A Fund may suspend redemption privileges or postpone the date of payment
during any period (1) when the New York Stock Exchange ("NYSE") is closed or
trading on the NYSE is restricted as determined by the SEC, (2) when an
emergency exists, as defined by the SEC, that makes it not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its assets, or (3) as the SEC may otherwise permit. The
redemption price may be more or less than the shareholder's cost, depending on
the market value of the Fund's portfolio at the time.
FINANCIAL INSTITUTIONS. The Funds may authorize financial institutions, or
their agents, to accept on the Funds' behalf purchase and redemption orders that
are in "good form" in accordance with the policies of those institutions. The
Funds will be deemed to have received these purchase and redemption orders when
such service organization or its agent accepts them. Like all customer orders,
these orders will be priced based on a Fund's net asset value next computed
after receipt of the order by the service organizations or their agents.
Financial institutions may include retirement plan service providers who
aggregate purchase and redemption instructions received from numerous retirement
plans or plan participants.
AUTOMATIC INVESTMENT PLAN--CLASS A, CLASS B AND CLASS C SHARES. Brinson
Advisors or your investment professional offers an automatic investment plan
with a minimum initial investment of $1,000 through which a Fund will deduct $50
or more on a monthly, quarterly, semi-annual or annual basis from the investor's
bank account to invest directly in the Fund's Class A, Class B or Class C
shares. In addition to providing a convenient and disciplined manner of
investing, participation in the automatic investment plan enables an investor to
use the technique of "dollar cost averaging." When a shareholder invests the
same dollar amount each month under the plan, the shareholder will purchase more
shares when the Fund's net asset value per share is low and fewer shares when
the net asset value per share is high. Using this technique, a shareholder's
average purchase price per share over any given period will be lower than if the
shareholder purchased a fixed number of shares on a monthly basis during the
period. Of course, investing through the automatic investment plan does not
assure a profit or protect against loss in declining markets. Additionally,
because the automatic investment plan involves continuous investing regardless
of price levels, an investor should consider his or her financial ability to
continue purchases through periods of both low and high price levels. An
investor should also consider whether a large, single investment would qualify
for sales load reductions.
61
AUTOMATIC CASH WITHDRAWAL PLAN--CLASS A, CLASS B, AND CLASS C
The Automatic Cash Withdrawal Plan allows investors to set up monthly,
quarterly (March, June, September and December), semi-annual (June and December)
or annual (December) withdrawals from their Family Fund accounts. Minimum
balances and withdrawals vary according to the class of shares:
- Class A and Class C shares. Minimum value of Fund shares is $5,000;
minimum withdrawals of $100.
- Class B shares. Minimum value of Fund shares is $10,000; minimum monthly,
quarterly, and semi-annual and annual withdrawals of $100, $200, $300 and
$400, respectively.
Withdrawals under the Automatic Cash Withdrawal Plan will not be subject to
a contingent deferred sales charge if the investor withdraws no more than 12% of
the value of the Fund account when the shareholder signed up for the plan (for
Class B shares, annually; for Class A and Class C shares, during the first year
under the plan). Shareholders who elect to receive dividends or other
distributions in cash may not participate in the plan.
An investor's participation in the Automatic Cash Withdrawal Plan will
terminate automatically if the "Initial Account Balance" (a term that means the
value of the Fund account at the time the shareholder elects to participate in
the Automatic Cash Withdrawal Plan), less aggregate redemptions made other than
pursuant to the Automatic Cash Withdrawal Plan, is less than the minimum values
specified above. Purchases of additional shares of a Fund concurrent with
withdrawals are ordinarily disadvantageous to shareholders because of tax
liabilities and, for Class A and Class C shares, initial sales charges. On or
about the 20th of a month for monthly, quarterly and semi-annual plans, your
investment professional will arrange for redemption by a Fund of sufficient Fund
shares to provide the withdrawal payments specified by participants in the
Automatic Cash Withdrawal Plan. The payments generally are mailed approximately
five Business Days (defined under "Net Asset Value") after the redemption date.
Withdrawal payments should not be considered dividends, but redemption proceeds.
If periodic withdrawals continually exceed reinvested dividends and other
distributions, a shareholder's investment may be correspondingly reduced. A
shareholder may change the amount of the automatic cash withdrawal or terminate
participation in the Automatic Cash Withdrawal Plan at any time without charge
or penalty by written instructions with signatures guaranteed to your investment
professional or PFPC Inc. Instructions to participate in the plan, change the
withdrawal amount or terminate participation in the plan will not be effective
until five days after written instructions with signatures guaranteed are
received by PFPC. Shareholders may request the forms needed to establish a
Automatic Cash Withdrawal Plan from their investment professionals or PFPC at
1-800-647-1568.
INDIVIDUAL RETIREMENT ACCOUNTS
Self-directed IRAs are available in which purchases of shares of Family
Funds and other investments may be made. Investors considering establishing an
IRA should review applicable tax laws and should consult their tax advisors.
TRANSFER OF ACCOUNTS
If investors holding Class A, Class B, Class C or Class Y shares of a Fund
in a brokerage account transfer their brokerage accounts to another firm, the
Fund shares will be moved to an account with PFPC. However, if the other firm
has entered into a dealer agreement with Brinson Advisors relating to the Fund,
the shareholder may be able to hold Fund shares in an account with the other
firm.
TRANSFER OF SECURITIES
At the discretion of the Trust, investors may be permitted to purchase Fund
shares by transferring securities to a Fund that meet the Fund's investment
objective and policies. Securities transferred to a Fund 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 Fund 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 Fund and must be delivered to the Fund by the
investor upon receipt from the issuer. Investors who are permitted to transfer
such
62
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 Fund's 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 Fund under the 1933 Act,
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 Fund, will not exceed 5% of the Fund's net assets
immediately after the transaction.
CONVERSION OF CLASS B SHARES
Class B shares of a Fund will automatically convert to Class A shares of
that Fund, based on the relative net asset values per share of the two classes,
as of the close of business on the first Business Day (as defined under "Net
Asset Value") of the month in which the sixth, fourth, third, or second
anniversary (depending on the amount of shares purchased) of the initial
issuance of those Class B shares occurs. For the purpose of calculating the
holding period required for conversion of Class B shares, the date of initial
issuance shall mean (1) the date on which the Class B shares were issued or
(2) for Class B shares obtained through the exchange, or a series of exchanges
the date on which the original Class B shares were issued. For purposes of
conversion to Class A shares, Class B shares purchased through the reinvestment
of dividends and other distributions paid in respect of Class B shares will be
held in a separate sub-account. Each time any Class B shares in the
shareholder's regular account (other than those in the sub-account) convert to
Class A shares, a pro rata portion of the Class B shares in the sub-account will
also convert to Class A shares. The portion will be determined by the ratio that
the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and other
distributions.
NET ASSET VALUE
Each Fund determines its net asset value per share separately for each class
of shares, normally as of the close of regular trading (usually 4:00 p.m.,
Eastern time) on the NYSE on each Business Day when the NYSE is open. Prices
will be calculated earlier when the NYSE closes early because trading has been
halted for the day. Currently the NYSE is open for trading every day (each such
day a "Business Day") except Saturdays, Sundays, and the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities that are listed on exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are generally valued on the exchange considered by
the Advisor as the primary market. Securities traded in the over-the-counter
market and listed on the Nasdaq Stock Market ("Nasdaq") normally are valued at
the last available sale price on Nasdaq prior to valuation; other over-the-
counter securities are valued at the last bid price available prior to valuation
(other than short-term investments that mature in 60 days or less, which are
valued as described further below). Where market quotations are readily
available, portfolio securities are valued based upon market quotations,
provided those quotations adequately reflect, in the judgment of the Advisor,
the fair value of the security. Where those market quotations are not readily
available, securities are valued based upon appraisals received from a pricing
service using a computerized matrix system or based upon appraisals derived from
information concerning the security or similar securities received from
recognized dealers in those securities. All other securities and other assets
are valued at fair value as determined in good faith by or under the direction
of the Board. It should be recognized that judgment often plays a greater role
in valuing thinly traded securities, including many lower rated bonds, than is
the case with respect to securities for which a broader range of dealer
quotations and last-sale information is available. The amortized cost method of
valuation generally is used to value debt obligations with 60 days or less
remaining until maturity, unless the Board determines that this does not
represent fair value.
63
TAXATION
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
2001 TAX ACT. On June 7, 2001, President Bush signed into law the Economic
Growth and Tax Relief Reconciliation Act of 2001. This Tax Act includes
provisions that significantly reduce individual income tax rates, provide for
marriage penalty relief, eliminate phase-outs of the standard deduction and
personal exemptions, provide additional savings incentives for individuals
(generally by increasing the maximum annual contribution limits applicable to
retirement and education savings programs) and provide for limited estate, gift
and generation-skipping tax relief. While these provisions have important tax
impact on individual shareholders in a Fund, their impact on the taxation of a
Fund are limited (as discussed in the following paragraphs).
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. Each Fund receives income generally
in the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of a Fund, constitutes a Fund's net
investment income from which dividends may be paid to you. If you are a taxable
investor, any income dividends a Fund pays are taxable to you as ordinary
income.
DISTRIBUTIONS OF CAPITAL GAINS
CAPITAL GAIN DISTRIBUTIONS. A Fund may realize capital gains and losses on
the sale or other disposition of its portfolio securities. Distributions from
net short-term capital gains are taxable to you as ordinary income.
Distributions from net long-term capital gains are taxable to you as long-term
capital gains, regardless of how long you have owned your shares in the Fund.
Any net capital gains realized by a Fund generally are distributed once each
year, and may be distributed more frequently, if necessary, to reduce or
eliminate excise or income taxes on a Fund.
TAXATION OF FIVE YEAR GAINS
SHAREHOLDERS IN THE 10 AND 15% FEDERAL BRACKETS. If you are in the 10 or
15% individual income tax bracket, capital gain distributions generally are
subject to a maximum rate of tax of 10%. However, if you receive distributions
from the Fund's sale of securities held for more than five years, these gains
are subject to a maximum rate of tax of 8%. The Fund will inform you in January
of the portion of any capital gain distributions you received for the previous
year that were five year gains qualifying for this reduced rate of tax.
SHAREHOLDERS IN HIGHER FEDERAL BRACKETS. If you are in a higher individual
income tax bracket (25, 28, 33 or 35% when fully phased-in in the year 2006),
capital gain distributions are generally subject to a maximum rate of tax of
20%. Beginning in the year 2006, any distributions from a Fund's sale of
securities purchased after January 1, 2001 and held for more than five years
will be subject to a maximum rate of tax of 18%.
INVESTMENTS IN FOREIGN SECURITIES
PASS-THROUGH OF FOREIGN TAX CREDITS. A Fund may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce a Fund's income dividends paid to you. If more than 50% of a Fund's
total assets at the end of a fiscal year is invested in foreign securities, the
Fund may elect to pass through to you your pro rata share of foreign taxes paid
by the Fund. If this election is made, the Fund may report more taxable income
to you than it actually distributes. You will then be entitled either to deduct
your share of these taxes in computing your taxable income, or to claim a
foreign tax credit for these taxes against your U.S. federal income tax (subject
to limitations for certain shareholders). A Fund will provide you with the
information necessary to complete your personal income tax return if it makes
this election.
EFFECT OF FOREIGN DEBT INVESTMENTS AND HEDGING ON DISTRIBUTIONS. Most
foreign exchange gains realized on the sale of debt securities are treated as
ordinary income by a Fund. Similarly, foreign exchange losses realized on the
sale of debt securities generally are treated as ordinary losses. These gains,
when distributed, are taxable to you as ordinary income, and any losses reduce a
Fund's ordinary income otherwise available for distribution
64
to you. This treatment could increase or decrease a Fund's ordinary income
distributions to you, and may cause some or all of the Fund's previously
distributed income to be classified as a return of capital. A return of capital
generally is not taxable to you, but reduces the tax basis of your shares in the
Fund. Any return of capital in excess of your basis, however, is taxable as a
capital gain.
PFIC SECURITIES. A Fund may invest in securities of foreign entities that
could be deemed for tax purposes to be passive foreign investment companies
(PFICs). When investing in PFIC securities, a Fund may mark-to-market these
securities and recognize any gains at the end of its fiscal and excise
(described below) tax years. Deductions for losses are allowable only to the
extent of any current or previously recognized gains. These gains (reduced by
allowable losses) are treated as ordinary income that the Fund is required to
distribute, even though it has not sold the securities.
INFORMATION ON THE AMOUNT AND TAX CHARACTER OF DISTRIBUTIONS. Each Fund
will inform you of the amount of your income dividends and capital gain
distributions at the time they are paid, and will advise you of their tax status
for federal income tax purposes shortly after the close of each calendar year.
If you have not owned your Fund shares for a full year, the Fund may designate
and distribute to you, as ordinary income or capital gains, a percentage of
income that may not be equal to the actual amount of each type of income earned
during the period of your investment in the Fund. Distributions declared in
December but paid in January are taxable to you as if paid in December.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. Each Fund intends
to elect and qualify or has elected to be treated as a regulated investment
company under Subchapter M of the Code. Each Fund that has been in existence for
more than one year has qualified as a regulated investment company for its most
recent fiscal year, and intends to continue to qualify during the current fiscal
year. As a regulated investment company, a Fund generally will pay no federal
income tax on the income and gains it distributes to you. The Board reserves the
right not to elect or maintain regulated investment company status for a Fund if
the Board determines this course of action to be beneficial to shareholders. In
that case, the Fund would be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you would be taxed
as ordinary income dividends to the extent of the Fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS. To avoid federal excise taxes, the
Code requires a Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts:
- 98% of its taxable ordinary income earned during the calendar year;
- 98% of its capital gain net income earned during the twelve month period
ending October 31; and
- 100% of any undistributed amounts of these categories of income or gain
from the prior year.
Each Fund intends to declare and pay these distributions in December (or to
pay them in January, in which case you must treat them as received in December),
but can give no assurances that its distributions will be sufficient to
eliminate all taxes.
REDEMPTION OF SHARES
REDEMPTIONS. Redemptions (including redemptions in kind) and exchanges of
Fund shares are taxable transactions for federal and state income tax purposes.
If you redeem your Fund shares, or exchange them for shares of a different
Family Fund, the Internal Revenue Service requires you to report any gain or
loss on your redemption or exchange. If you hold your shares as a capital asset,
any gain or loss that you realize is a capital gain or loss and is long-term or
short-term, generally depending on how long you have owned your shares.
TAXATION OF FIVE YEAR GAINS
- Shareholders in the 10 and 15% federal brackets. If you are in the 10 or
15% individual income tax bracket, gains from the redemption of your Fund
shares generally are subject to a maximum rate of tax of
65
10%. However, if you have held your shares for more than five years, these
gains are subject to a maximum rate of tax of 8%.
- Shareholders in higher federal brackets. If you are in a higher individual
income tax bracket (25, 28, 33 or 35% when fully phased-in), gains from
the redemption of your Fund shares generally are subject to a maximum rate
of tax of 20%. Beginning in the year 2006, any gains from the sale of Fund
shares purchased after January 1, 2001, and held for more than five years
will be subject to a maximum rate of tax of 18%. You may, however, elect
to mark your Fund shares to market as of January 2, 2001. If you make this
election, any Fund shares that you acquired before this date also will be
eligible for the 18% maximum rate of tax, beginning in 2006. However, in
making the election, you are required to pay tax on any appreciation in
the value of your Fund shares as of January 2, 2001, and to restart your
holding period in the shares as of that date. The election does not apply
to Fund shares redeemed on or before January 2, 2002.
REDEMPTIONS AT A LOSS WITHIN SIX MONTHS OF PURCHASE. Any loss incurred on
the redemption or exchange of shares held for six months or less is treated as a
long-term capital loss to the extent of any long-term capital gains distributed
to you by the Fund on those shares.
SPECIAL RULES FOR CLASS A SHAREHOLDERS. A special tax rule applies when a
shareholder sells or exchanges Class A shares of a Fund within 90 days of
purchase and subsequently acquires Class A shares of the Fund or another Family
Fund without paying a sales charge due to the 365-day reinstatement privilege or
the exchange privilege. In these cases, any gain on the sale or exchange of the
original Class A shares would be increased, or any loss would be decreased, by
the amount of the sales charge paid when those shares were bought, and that
amount would increase the basis in the Family Fund shares subsequently acquired.
WASH SALES. All or a portion of any loss that you realize on the redemption
of your Fund shares is disallowed to the extent that you buy other shares in the
Fund (through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules is added to
your tax basis in the new shares.
DEFERRAL OF BASIS. If you redeem some or all of your shares in a Fund, and
then reinvest the redemption proceeds in the Fund or in another Family Fund
within 90 days of buying the original shares, the sales charge that might
otherwise apply to your reinvestment may be reduced or eliminated. In reporting
any gain or loss on your redemption, all or a portion of the sales charge that
you paid for your original shares in the Fund is excluded from your tax basis in
the shares sold and added to your tax basis in the new shares.
U.S. GOVERNMENT SECURITIES. The income earned on certain U.S. government
securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to mutual fund dividends paid
to you from interest earned on these securities, subject in some states to
minimum investment or reporting requirements that must be met by a Fund. The
income on Fund investments in certain securities, such as repurchase agreements,
commercial paper and federal agency-backed obligations (e.g., Government
National Mortgage Association (GNMA) or Fannie Mae securities), generally does
not qualify for tax-free treatment. The rules on exclusion of this income are
different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. For corporate shareholders,
it is anticipated that a portion of the dividends paid by certain Fund will
qualify for the dividends-received deduction. You may be allowed to deduct these
qualified dividends, thereby reducing the tax that you would otherwise be
required to pay. The dividends-received deduction is available only with respect
to dividends designated by a Fund as qualifying for this treatment. Qualifying
dividends generally are limited to dividends of domestic corporations. All
dividends (including the deducted portion) are included in your calculation of
alternative minimum taxable income.
INVESTMENT IN COMPLEX SECURITIES. A Fund may invest in complex securities
that could require it to adjust the amount, timing and/or tax character
(ordinary or capital) of gains and losses it recognizes on these investments.
This, in turn, could affect the amount, timing and/or tax character of income
distributed to you. For example,
66
DERIVATIVES. If a Fund is permitted to invest in certain options, futures,
forwards or foreign currency contracts, it could be required to mark-to-market
these contracts and realize any unrealized gains and losses at its fiscal year
end even though it continues to hold the contracts. Under these rules, gains or
losses on the contracts generally would be treated as 60% long-term and 40%
short-term gains or losses, but gains or losses on certain foreign currency
contracts would be treated as ordinary income or losses. In determining its net
income for excise tax purposes, the Fund also would be required to
mark-to-market these contracts annually as of October 31 (for capital gain net
income) and December 31 (for taxable ordinary income), and to realize and
distribute any resulting income and gains.
CONSTRUCTIVE SALES. A Fund's entry into a short sale transaction or an
option or other contract could be treated as the "constructive sale" of an
"appreciated financial position," causing it to realize gain, but not loss, on
the position.
TAX STRADDLES. A Fund's investment in options, futures, forwards, or
foreign currency contracts in connection with certain hedging transactions could
cause it to hold offsetting positions in securities. If a Fund's risk of loss
with respect to specific securities in its portfolio is substantially diminished
by the fact that it holds other securities, the Fund could be deemed to have
entered into a tax "straddle" or to hold a "successor position" that would
require any loss realized by it to be deferred for tax purposes. Under proposed
regulations issued by the Internal Revenue Service, securities acquired as part
of a "hedging transaction" may not be treated as a capital asset, and any gain
or loss on the sale of these securities would be treated as ordinary income
(rather than capital gain) or loss. These regulations, if ultimately adopted and
deemed applicable to a Fund, could apply to any offsetting positions entered
into by the Fund to reduce its risk of loss.
SECURITIES PURCHASED AT DISCOUNT. A Fund may invest in securities issued or
purchased at a discount, such as zero coupon, step-up or payment-in-kind (PIK)
bonds, that could require it to accrue and distribute income not yet received.
If it invests in these securities, the Fund could be required to sell securities
in its portfolio that it otherwise might have continued to hold in order to
generate sufficient cash to make these distributions.
Each of the investments described above is subject to special tax
rules that could affect the amount, timing and/or tax character of income
realized by a Fund and distributed to you.
PERFORMANCE CALCULATIONS
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 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 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 Smith Barney 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.
67
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 Funds' calculations of yield or total return.
Performance information for the various classes of shares of each Fund will
vary due to the effect of expense ratios on the performance calculations.
TOTAL RETURN
Current yield and total return quotations used by the Funds (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)to the power of 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 Y shares (formerly Brinson Fund--Class I shares) of:*
(i) the U.S. Bond Fund, for the one- and five-year periods ended June 30,
2001 and the period August 31, 1995 (performance inception date)
through June 30, 2001 was 10.86%, 7.27% and 6.84%, respectively;
(ii) the High Yield Fund, for the one-year period ended June 30, 2001 and
the period September 30, 1997 (performance inception date) through
June 30, 2001 was -1.83% and 2.93%, respectively;**
(iii) the U.S. Balanced Fund, for the one- and five-year periods ended
June 30, 2001 and the period December 31, 1994 (performance inception
date) through June 30, 2001 was 14.18%, 8.02% and 10.40%,
respectively;
(iv) the U.S. Equity Fund, for the one- and five-year periods ended
June 30, 2001 and the period February 28, 1994 (performance inception
date) through June 30, 2001 was 10.88%, 11.17% and 13.98%,
respectively;
(v) the U.S. Large Cap Equity Fund, for the one-year period ended June 30,
2001 and for the period April 30, 1998 (performance inception date)
through June 30, 2001 was 12.12% and -0.79%, respectively;
(vi) the U.S. Large Cap Growth Fund, for the one-year period ended June 30,
2001 and the period October 31, 1997 (performance inception date)
through June 30, 2001 was -31.33% and 5.82%, respectively;**
(vii) the U.S. Small Cap Growth Fund, for the one-year period ended June 30,
2001 and the period September 30, 1997 (performance inception date)
through June 30, 2001 was -10.74% and 10.48%, respectively;**
(viii) the Global Balanced Fund, for the one and five-year periods ended
June 30, 2001 and the period August 31, 1992 (performance inception
date) through June 30, 2001 was 5.20%, 7.12% and 8.54%,
respectively;***
68
(ix) the Global Equity Fund, for the one and five-year periods ended
June 30, 2001 and the period January 31, 1994 (performance inception
date) through June 30, 2001 was -4.07%, 7.47% and 8.42%, respectively;
(x) the Global Technology Fund, for the one-year period ended June 30, 2001
and the period May 26, 2000 (performance inception date) through
June 30, 2001 was -48.58% and -41.96%, respectively;****
(xi) the Global Biotech Fund, for the period June 2, 2000 (performance
inception date) through June 30, 2001 was -23.25%;****
(xii) the Global Bond Fund, for the one and five-year periods ended June 30,
2001 and the period July 31, 1993 (performance inception date) through
June 30, 2001 was -4.02%, 1.76% and 3.80%, respectively; and
(xiii) the International Equity Fund, for the one- and five-year periods
ended June 30, 2001 and the period August 31, 1993 (performance
inception date) through June 30, 2001 was -16.15%, 4.12% and 5.08%,
respectively.*****
Based on the foregoing calculations, the average annual total return for the
Brinson Fund--Class A shares (formerly Brinson Fund-Class N shares) of:*
(i) the Global Balanced Fund, for the one-year period ended June 30, 2001
and the period June 30, 1997 (commencement of operations) through
June 30, 2001 was 4.95% and 4.08%, respectively;**
(ii) the Global Equity Fund, for the one-year period ended June 30, 2001 and
the period June 30, 1997 (commencement of operations) through June 30,
2001 was -4.45% and 3.95%, respectively;
(iii) the Global Technology Fund, for the one-year period ended June 30,
2001 and the period May 31, 2000 (performance inception date) through
June 30, 2001 was -48.67% and -42.06%, respectively;***
(iv) the Global Biotech Fund, for the one-year period ended June 30, 2001
and the period June 2, 2000 (performance inception date) through
June 30, 2001 was -23.44% and -23.44%, respectively;***
(v) the Global Bond Fund, for the one-year period ended June 30, 2001 and
the period June 30, 1997 (commencement of operations) through June 30,
2001 was -4.27% and 0.04%, respectively;
(vi) the U.S. Balanced Fund, for the one-year period ended June 30, 2001 and
the period June 30, 1997 (commencement of operations) through June 30,
2001 was 13.89% and 5.92%, respectively;
(vii) the U.S. Equity Fund, for the one-year period ended June 30, 2001 and
the period June 30, 1997 (commencement of operations) through June 30,
2001 was 10.63% and 6.20%, respectively;
(viii) the U.S. Large Cap Equity Fund, for the one-year period ended
June 30, 2001 and the period April 30, 1998 (performance inception
date) through June 30, 2001 was 11.74% and -1.07%, respectively;
(ix) the U.S. Large Cap Growth Fund, for the one-year period ended June 30,
2001 and the period December 31, 1998 (commencement of operations)
through June 30, 2001 was -31.59% and -2.46%, respectively;
--------------------------
* The U.S. Value Equity Fund, U.S. Small Cap Equity Fund, U.S. Real
Estate Equity Fund, Emerging Markets Debt Fund and Emerging Markets
Equity Fund had not commenced operations as of the time periods
indicated.
** These Series were reorganized as Series of the Trust on December 18,
1998. The average annual total return calculations also reflect the
performance of these Series while they were series of the UBS Private
Investor Funds, Inc.
*** As of the date hereof, the Global Fund changed its name to the Global
Balanced Fund.
**** This figure represents cumulative total return since inception.
***** As of December 7, 2000, the Global (Ex-U.S.) Equity Fund changed its
name to the International Equity Fund.
69
(x) the U.S. Small Cap Growth Fund, for the one-year period ended June 30,
2001 and the period December 31, 1998 (commencement of operations)
through June 30, 2001 was -11.00% and 21.85%, respectively;
(xi) the U.S. Bond Fund, for the one-year period ended June 30, 2001 and the
period June 30, 1997 (commencement of operations) through June 30, 2001
was 10.56% and 6.69%, respectively;
(xii) the High Yield Fund, for the one-year period ended June 30, 2001 and
the period December 31, 1998 (commencement of operations) through
June 30, 2001 was -2.28% and 0.09%, respectively; and
(xiii) the International Equity Fund, for the one-year period ended June 30,
2001 and the period June 30, 1997 (commencement of operations) through
June 30, 2001 was -16.37% and 0.17%, respectively.****
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 includes any fees charged to all shareholders
during the 30-day base periods. According to the SEC formula:
a-b
YIELD = 2 [ ( ---- +1 ) to the power of 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 Fund may be calculated by dividing the net investment income
per share earned by the particular Fund 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 Fund's 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 AND REPORTS OF INDEPENDENT AUDITORS
The Funds' financial statements for the fiscal year ended June 30, 2001 and
the reports thereon of August 3, 2001, which are contained in the Funds' Annual
Reports dated June 30, 2001 (as filed with the SEC on August 29, 2001, pursuant
to Section 30(b) of the Act and Rule 30b2-1 thereunder (Accession Number
0000912057-01-530762)) are incorporated herein by reference.
--------------------------
* The U.S. Value Equity Fund, U.S. Small Cap Equity Fund, U.S. Real
Estate Equity Fund, Emerging Markets Debt Fund and Emerging Markets
Equity Fund had not commenced operations as of the time periods
indicated.
** As of the date hereof, the Global Fund changed its name to the Global
Balanced Fund.
*** This figure represents cumulative total return since inception.
**** As of December 7, 2000, the Global (Ex-U.S.) Equity Fund changed its
name to the International Equity Fund.
70
APPENDIX A
CORPORATE DEBT RATINGS
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.
NOTE: 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
A-1
rating. C. The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating. D. Debt rated D is in
default, or is expected to default upon maturity or payment date.
CI. The rating CI is reserved for income bonds on which no interest is
being paid.
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.
A-2
APPENDIX B
SECONDARY RISKS
The chart below illustrates secondary risks of investing in the Funds.
FOREIGN
COUNTER- COUNTRY &
PARTY CREDIT DERIVATIVE CURRENCY
-------- -------- ---------- ---------
Global Balanced Fund................ * * *
Global Equity Fund.................. * *
Global Technology Fund.............. * *
Global Biotech Fund................. * *
Global Bond Fund.................... * * *
U.S. Balanced Fund.................. * * *
U.S. Equity Fund.................... * *
U.S Value Equity Fund............... * *
U.S. Large Cap Equity Fund.......... * *
U.S. Large Cap Growth Fund.......... * * *
U.S. Small Cap Equity Fund.......... * * *
U.S. Small Cap Growth Fund.......... * * *
U.S. Real Estate Equity Fund........ * *
U.S. Bond Fund...................... * * *
High Yield Fund..................... * * *
International Equity Fund........... * *
Emerging Markets Debt Fund.......... * *
Emerging Markets Equity Fund........ * *
GEOGRAPHIC HIGH NON-PUBLIC PRE-
CONCENTRATION YIELD SECURITIES PAYMENT
------------- -------- ---------- --------
Global Balanced Fund................ * * *
Global Equity Fund.................. *
Global Technology Fund.............. * * *
Global Biotech Fund................. * *
Global Bond Fund....................
U.S. Balanced Fund.................. *
U.S. Equity Fund.................... *
U.S Value Equity Fund............... *
U.S. Large Cap Equity Fund.......... *
U.S. Large Cap Growth Fund.......... *
U.S. Small Cap Equity Fund.......... *
U.S. Small Cap Growth Fund.......... *
U.S. Real Estate Equity Fund........ * *
U.S. Bond Fund...................... *
High Yield Fund..................... * *
International Equity Fund...........
Emerging Markets Debt Fund.......... * *
Emerging Markets Equity Fund........ * *
DEFINITIONS OF RISKS
COUNTERPARTY RISK The risk that when a Fund engages in repurchase, reverse
repurchase, derivative, when-issued, forward commitment, delayed settlement,
securities lending and swap transactions with another party, it relies on the
other party to consummate the transaction and is subject to the risk of default
by the other party. Failure of the other party to complete the transaction may
cause the Fund to incur a loss or to miss an opportunity to obtain a price
believed to be advantageous.
CREDIT RISK The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise be unable to honor a financial obligation.
Debt securities rated below investment-grade are especially susceptible to this
risk.
DERIVATIVE RISK The risk that downward price changes in a security may
result in a loss greater than a Fund's investment in the security. This risk
exists through the use of certain securities or techniques that tend to magnify
changes in an index or market.
FOREIGN COUNTRY AND CURRENCY RISKS The risk that prices of a Fund's
investments in foreign securities may go down because of unfavorable foreign
government actions, political instability or the absence of accurate information
about foreign issuers. Also, a decline in the value of foreign currencies
relative to the U.S. Dollar will reduce the value of securities denominated in
those currencies. Foreign securities are sometimes less liquid and harder to
value than securities of U.S. issuers. These risks are more severe for
securities of issuers in emerging market countries.
The World Bank and other international agencies consider a country to be an
"emerging markets" country on the basis of such factors as trade initiatives,
per capita income and level of industrialization. Emerging market countries
generally include every nation in the world except the U.S., Canada, Japan,
Australia, New Zealand and most nations located in Western Europe.
GEOGRAPHIC CONCENTRATION RISK The risk that if a Fund has most of its
investments in a single country or region, its portfolio will be more
susceptible to factors adversely affecting issuers located in that country or
region than would a more geographically diverse portfolio of securities.
B-1
HIGH YIELD RISK The risk that the issuer of bonds with ratings of BB (S&P)
or Ba (Moody's) or below will default or otherwise be unable to honor a
financial obligation. These securities are considered to be of poor standing and
are predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations and
involve major risk exposure. Bonds in this category may also be called "high
yield bonds" or "junk bonds".
NON-PUBLIC SECURITIES RISK The risk that there may be a less liquid market
for unlisted securities than for publicly traded securities. A Fund, therefore,
may not be able to resell its investments. In addition, less disclosure is
required from non-public companies. Although unlisted securities may be resold
in private transactions, the prices realized from the sale may be less than what
the investing Fund considers the fair value of the securities.
PREPAYMENT RISK The risk that issuers will prepay fixed rate obligations
when interest rates fall, forcing the Fund to re-invest in obligations with
lower interest rates than the original obligations.
B-2