-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HeE0K3ufOrXHZrgvvzGR7LAzWe6BhNW5uDYjgghKbSC1I+3OaxMD/70chGC2sdtV f849PX+WANFrk9g2i50vZg== 0000950131-99-001426.txt : 19990312 0000950131-99-001426.hdr.sgml : 19990312 ACCESSION NUMBER: 0000950131-99-001426 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990311 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: N-30D SEC ACT: SEC FILE NUMBER: 811-06637 FILM NUMBER: 99562393 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 N-30D 1 BRINSON PARTNERS SEMI ANNUAL REPORTS --------------------- The Brinson Funds Brinson U.S. Balanced Fund Brinson U.S. Equity Fund Brinson U.S. Large Capitalization Equity Fund Brinson U.S. Bond Fund Semi-Annual Report (Unaudited) Brinson U.S. Large Capitalization Growth Fund Brinson U.S. Small Capitalization Growth Fund Brinson High Yield Fund Annual Report December 31, 1998 Institutional Asset Management ------------------------------ Trustees and Officers Trustees [BRINSON LOGO Walter E. Auch APPEARS HERE] Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Debra L. Nichols Chairman of the Board Vice President E. Thomas McFarlan Carolyn M. Burke, CPA President Secretary and Treasurer Thomas J. Digenan, CFA, CPA David E. Floyd Vice President Assistant Secretary 1 The Funds' Advisor -- Brinson Partners, Inc. The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 125 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific client objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent. 2 Table of Contents [BRINSON LOGO APPEARS HERE] Shareholder Letter 4 U.S. Economic and Market Highlights 6 U.S. Balanced Fund (Unaudited) 7 Schedule of Investments 11 Financial Statements 14 Financial Highlights 17 U.S. Equity Fund (Unaudited) 20 Schedule of Investments 24 Financial Statements 26 Financial Highlights 29 U.S. Large Capitalization Equity Fund (Unaudited) 32 Schedule of Investments 36 Financial Statements 37 Financial Highlights 40 U.S. Bond Fund (Unaudited) 43 Schedule of Investments 46 Financial Statements 49 Financial Highlights 52 U.S. Large Capitalization Growth Fund 55 Schedule of Investments 58 Financial Statements 59 Financial Highlights 62 U.S. Small Capitalization Growth Fund 63 Schedule of Investments 66 Financial Statements 67 Financial Highlights 70 High Yield Fund 71 Schedule of Investments 74 Financial Statements 76 Financial Highlights 79 The Brinson Funds--Notes to Financial Statements 80 Report of Independent Auditors 88 Special Meeting of Shareholders 89 3 Shareholder Letter [BRINSON LOGO APPEARS HERE] February 20, 1999 Dear Shareholder: We are very pleased to present the Report for The Brinson Funds for the six months ended December 31, 1998. Within this Report, we'll focus on current domestic economic outlook as well as our current strategies and performance updates for our seven Domestic Funds: U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund. Since our last report to you, Union Bank of Switzerland and Swiss Bank Corporation merged to become UBS AG, one of the world's major financial institutions. In connection with this merger, the former SBC Brinson/Brinson Partners, Inc.'s activities of Swiss Bank Corporation were combined with the worldwide UBS asset management operations into the UBS Brinson Division of UBS AG. During this process, the UBS Private Investor Funds merged into the Brinson fund family on December 18, 1998. This merger created the following three new Brinson Funds: the U.S. Large Capitalization Growth Fund, the U.S. Small Capitalization Growth Fund and the High Yield Fund. The UBS Brinson Division manages over USD 390 billion of institutional assets, including USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for the UBS Private Banking Division and The Brinson Funds which total over USD 125 billion. The Advisor of The Brinson Funds, Brinson Partners, Inc., also manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund are all actively managed funds that provide integrated asset management across and within security markets. The investment process is strategic in nature and is driven by deviations of market price from fundamental value. This philosophy offers the greatest potential for achieving enhanced, long-term returns while controlling risk. 4 Shareholder Letter [BRINSON LOGO APPEARS HERE] Each of our Funds employ the same value-oriented investment philosophy applied across the U.S. spectrum. Each Fund also uses the resources of our entire worldwide research team. All of our analysts apply the same value philosophy to their work. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our talent. The Reports that follow highlight the investment characteristics and the performance of the respective Funds. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Gary P. Brinson Gary P. Brinson President and Chief Investment Officer Brinson Partners, Inc. 5 U.S. Economic and Market Highlights [BRINSON LOGO APPEARS HERE] Economic growth in 1998 was largely unaffected by the turmoil in Asia and Russia. While demand for exports softened and imports continued strong, the consumer kept spending throughout the year and the measured savings rate turned negative for the first time ever. Corporate investment spending was also very strong, contributing about 13/4 percentage points of real GDP growth on average for the first three quarters of the year. A primary driver of the strong investment spending was the low cost of equity capital. By the end of the year, the market had shaken off the credit worries of autumn and risen to new highs. This was in spite of a quickly deteriorating earnings picture. Because of the strong investment environment of the last few years and the downturn in Asia, many industries, particularly commodity-related, are suffering from relatively severe overcapacity. Commodity weakness has hit the energy sector particularly hard, with real oil prices lower than at any time in the last 30 years. This has had a positive effect on inflation, as the headline Consumer Price Index rose by only 11/2% during the year. Looking at the core rate, absent energy and food price effects, inflation has been running at about 21/4% for the last few years. The provision of substantial amounts of liquidity by the Fed, while not immediately boosting inflation, has increased the risks of a jump in the CPI in the future. U.S. Environment [CHARTS APPEAR HERE] Major Markets One Year Ended December 31, 1998 U.S. Cash Equivalents U.S. Bonds U.S. Equities 12/31/98 4.55 8.72 23.43 Saloman U.S. Treasury Benchmark Returns One Year Ended December 31, 1998 1 5.89 2 6.6 5 9.61 10 12.88 30 16.51 Maturity (Years) Top Ten Industry Returns Relative to S&P 500 One Year Ended December 31, 1998 Coal & Uranium 47.03 Telephone, Telegraph 29.7 Liquor 28.17 Business Machines 21.67 Drugs, Medicine 21.51 Forest Products 12.13 Media 12.05 Mortgage Financing 10.66 Retail (Food) 8.91 Retail (Other) 8.13 Source BARRA Bottom Ten Industry Returns Relative to S&P 500 One Year Ended December 31, 1998 Oil Service -62.88 Dom Petroleum -37.94 Photographic -34.80 Water Transpor -32.69 Precious Metals -28.16 Apparel, Textiles -27.83 Tire & Rubber -27.60 Containers -27.37 Oil Refining, Dis -25.53 Iron & Steel -25.50 Source BARRA 6 U.S. Balanced Fund [BRINSON LOGO APPEARS HERE] The U.S. Balanced Fund is an actively managed portfolio that applies our value-based asset allocation process to U.S. stocks, bonds and cash. The Fund's investment strategy is developed in the context of our global asset allocation process and is based on analysis of long-term economic and market conditions. The Brinson U.S. Balanced Fund Class I has produced an annualized return of 14.81% since its performance inception on December 31, 1994. Over the same period, the return on the U.S. Balanced Mutual Fund Index was 21.55%. The Fund's performance was achieved with an annualized volatility over this period of 5.32%, considerably below the benchmark's volatility of 9.75%. For calendar year 1998, the Brinson U.S. Balanced Fund Class I returned 9.92%, substantially below the benchmark return of 18.85%. This underperformance, and the reason for the long-term performance characteristics, was due primarily to the equity underweight and bond overweight. Performance was also adversely affected by security selection as the Fund's U.S. Equity performance for the year fell below its benchmark. Performance of the equity market was particularly difficult to match, given that it was driven in large part by a collection of the largest capitalization companies, particularly in the technology area. In the bond market, high yield and investment-grade corporate debt were hurt along with equities during the market crisis in the fall. However, the debt markets only partially recovered on the series of Federal Reserve interest rate cuts, whereas many equity indices reached new highs before the end of the year. This continuation of the upward march in equities has produced a very high level of overpricing and consequent paltry return expectations. Bonds, although only fairly priced on an absolute basis, remain quite attractive relative to equities. Thus, the Fund strategy remains substantially overweighted bonds relative to equities. A portion of the bond allocation is held in Treasury Inflation Protected Securities, or TIPS. The difference in yields between these bonds and conventional Treasury bonds, which is a measure of inflation expectations, had fallen well below 1%. Our expectation is that average inflation over the next decade is unlikely to be quite so subdued, and the TIPS are an attractive alternative to conventional bonds. 7 U.S. Balanced Fund Total Return
6 months 1 year 3 years 12/31/94* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - ---------------------------------------------------------------------------------- Brinson U.S. Balanced Fund Class I 3.74% 9.92% 11.47% 14.81% - ---------------------------------------------------------------------------------- U.S. Balanced Mutual Fund Index** 6.67 18.85 19.03 21.55 - ---------------------------------------------------------------------------------- Wilshire 5000 Index 6.90 23.43 25.24 27.95 - ---------------------------------------------------------------------------------- Salomon Smith Barney Broad Investment Grade (BIG) Bond Index 4.57 8.72 7.29 10.00 - ----------------------------------------------------------------------------------
* Performance inception date of the Brinson U.S. Balanced Fund Class I. ** An un-managed index compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index and 35% Salomon Smith Barney Broad Investment Grade Bond Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Balanced Fund Class I, the U.S. Balanced Mutual Fund Index, the Wilshire 5000 Index and the Salomon Smith Barney BIG Bond Index if you had invested $1,000,000 on December 31, 1994, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Balanced Fund Class I vs. U.S. Balanced Mutual Fund Index, Wilshire 5000 Index and Salomon Smith Barney BIG Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Balanced Salomon Smith U.S. Balanced Mutual Fund Barney Big Bond Fund Class I Index Wilshire 5000 Index -------------- ------------- ------------- --------------- 12/31/94 1,000,000 1,000,000 1,000,000 1,000,000 1/31/95 1,019,000 1,020,459 1,021,610 1,020,700 2/28/95 1,050,000 1,054,246 1,062,301 1,044,584 3/31/95 1,064,000 1,074,390 1,090,303 1,050,643 4/30/95 1,080,000 1,096,416 1,117,397 1,065,037 5/31/95 1,120,000 1,133,880 1,155,243 1,107,319 6/30/95 1,139,086 1,160,041 1,192,095 1,115,070 7/31/95 1,154,301 1,190,257 1,241,150 1,112,840 8/31/95 1,170,530 1,202,592 1,253,251 1,125,637 9/30/95 1,192,845 1,236,362 1,301,050 1,136,219 10/31/95 1,199,945 1,234,092 1,287,988 1,151,444 11/30/95 1,236,461 1,274,817 1,342,560 1,169,406 12/31/95 1,254,813 1,294,523 1,364,511 1,185,544 1/31/96 1,278,797 1,320,146 1,401,066 1,193,606 2/29/96 1,273,346 1,327,345 1,425,571 1,173,434 3/31/96 1,276,616 1,333,439 1,441,166 1,164,985 4/30/96 1,279,887 1,351,402 1,476,778 1,156,364 5/31/96 1,284,248 1,375,182 1,517,153 1,155,786 6/30/96 1,293,124 1,374,034 1,504,667 1,170,696 7/31/96 1,273,247 1,327,149 1,423,490 1,173,857 8/31/96 1,287,603 1,354,048 1,469,027 1,172,096 9/30/96 1,324,045 1,409,152 1,547,238 1,192,490 10/31/96 1,354,965 1,433,054 1,568,869 1,219,321 11/30/96 1,405,762 1,503,041 1,672,806 1,239,440 12/31/96 1,396,859 1,487,401 1,653,954 1,228,533 1/31/97 1,414,616 1,541,133 1,742,490 1,233,201 2/28/97 1,419,351 1,541,265 1,741,688 1,234,558 3/31/97 1,394,492 1,491,506 1,664,653 1,222,089 4/30/97 1,418,167 1,541,250 1,737,249 1,239,565 5/31/97 1,459,599 1,617,300 1,860,333 1,251,217 6/30/97 1,493,510 1,672,330 1,945,797 1,266,106 7/31/97 1,555,541 1,771,762 2,095,390 1,300,418 8/31/97 1,530,490 1,723,138 2,016,624 1,289,234 9/30/97 1,563,891 1,798,097 2,135,625 1,308,186 10/31/97 1,548,383 1,768,165 2,064,487 1,326,893 11/30/97 1,559,120 1,808,702 2,132,078 1333,129 12/31/97 1,581,464 1,836,885 2,171,479 1,346,727 1/31/98 1,597,411 1,851,662 2,183,270 1,364,100 2/28/98 1,638,609 1,938,829 2,342,213 1,363,145 3/31/98 1,670,504 2,004,551 2,459,440 1,368,461 4/30/98 1,666,517 2,023,665 2,488,634 1,375,577 5/31/98 1,670,504 1,995,462 2,422,411 1,388,783 6/30/98 1,675,623 2,046,664 2,507,341 1,400,171 7/31/98 1,661,933 2,019,021 2,452,405 1,403,111 8/31/98 1,614,019 1,825,458 2,070,492 1,424,579 9/30/98 1,672,885 1,918,042 2,205,737 1,458,199 10/31/98 1,705,740 2,007,777 2,369,843 1,451,637 11/30/98 1,726,275 2,093,822 2,519,072 1,459,621 12/31/98 1,738,302 2,183,183 2,680,268 1,464,146 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 8 U.S. Balanced Fund Total Return
6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - -------------------------------------------------------------------------- Brinson U.S. Balanced Fund Class N 3.61% 9.92% 10.50% - -------------------------------------------------------------------------- U.S. Balanced Mutual Fund Index** 6.67 18.85 19.45 - -------------------------------------------------------------------------- Wilshire 5000 Index 6.90 23.43 23.80 - -------------------------------------------------------------------------- Salomon Smith Barney Broad Investment Grade (BIG) Bond Index 4.57 8.72 10.17 - --------------------------------------------------------------------------
* Inception date of the Brinson U.S. Balanced Fund Class N. ** An un-managed index compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index and 35% Salomon Smith Barney Broad Investment Grade Bond Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Balanced Fund Class N, the U.S. Balanced Mutual Fund Index, the Wilshire 5000 Index and the Salomon Smith Barney BIG Bond Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Balanced Fund Class N vs. U.S. Balanced Mutual Fund Index, Wilshire 5000 Index and Salomon Smith Barney BIG Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Balanced Salomon Smith U.S. Balanced Mutual Fund Barney Big Bond Fund Class N Index Wilshire 5000 Index -------------- ------------- ------------ --------------- 6/30/97 $1,000,000 $1,000,000 $1,000,000 $1,000,000 7/31/97 $1,041,534 $1,059,457 $1,076,880 $1,027,100 8/31/97 $1,023,962 $1,030,382 $1,036,400 $1,018,267 9/30/97 $1,046,326 $1,075,205 $1,097,558 $1,033,235 10/31/97 $1,035,144 $1,057,307 $1,060,998 $1,048,011 11/30/97 $1,042,332 $1,081,546 $1,095,735 $1,052,936 12/31/97 $1,057,159 $1,098,399 $1,115,985 $1,063,676 1/31/98 $1,067,820 $1,107,235 $1,122,044 $1,077,398 2/28/98 $1,095,359 $1,159,358 $1,203,729 $1 076,644 3/31/98 $1,117,569 $1,198,658 $1,263,976 $1,080,842 4/30/98 $1,114,903 $1,210,087 $1,278,979 $1,086,463 5/31/98 $1,117,569 $1,193,223 $1,244,946 $1,096,893 6/30/98 $1,121,533 $1,223,840 $1,288,593 $1,105,887 7/31/98 $1,112,392 $1,207,310 $1,260,360 $1,108,210 8/31/98 $1,080,401 $1,091,566 $1,064,084 $1,125,165 9/30/98 $1,118,791 $1,146,928 $1,133,590 $1,l51,719 10/31/98 $1,l40,728 $1,200,587 $1,217,930 $1,146,537 11/30/98 $1,154,438 $1,252,039 $1,294,623 $1,152,8431 12/31/98 $1,162,059 $1,305,474 $1,337,466 $1,156,416 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 9 U.S. Balanced Fund [BRINSON LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ------------------------------------------------------------------------------ U.S. Equities Energy 1.49% ------- Capital Investment Capital Goods 4.53 Technology 6.93 ------- 11.46 Basic Industries Chemicals 1.31 Housing/Paper 4.61 Metals 0.21 ------- 6.13 Consumer Non-Durables 3.70 Retail/Apparel 2.17 Autos/Durables 1.73 Health: Drugs 2.29 Health: Non-Drugs 2.22 ------- 12.11 Financial Banks 4.69 Non-Banks 3.37 ------- 8.06 Utilities Electric 1.62 Telephone 0.39 ------- 2.01 Transportation 4.90% Services/Misc 2.16 ------- Total U.S. Equities 48.32* ------- U.S. BONDS Corporate Bonds Airlines 1.02 Banks 0.90 Consumer 0.73 Financial Services 3.35 Industrial Components 0.60 Services/Miscellaneous 1.10 Utilities 2.55 ------- 10.25 International Dollar Bonds 3.57 Mortgage-Backed Securities 7.17 U.S. Government Agencies 12.66 U.S. Government Obligations 15.24 ------- Total U.S. Bonds 48.89* ------- SHORT-TERM INVESTMENTS 2.21* ------- TOTAL INVESTMENTS 99.42 CASH AND OTHER ASSETS, LESS LIABILITIES 0.58 ------- NET ASSETS 100.00% ======= * The Fund held a long position in U.S. Treasury futures on December 31, 1998 which increased U.S. bond exposure from 48.89% to 66.13%. The Fund also held a short position in stock index futures which reduced U.S. equity exposure from 48.32% to 31.00%. These two adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 2.21% to 2.29%. Asset Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ------------------------------------ U.S. Equity 65% 30% U.S. Bonds 35 70 - ------------------------------------ 100% 100% Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------ 1. Xerox Corp. 2.94% 2. FDX Corp. 2.04% 3. Burlington Northern Santa Fe Corp. 2.03% 4. Lockheed Martin Corp. 1.77% 5. Philip Morris Companies, Inc. 1.69% 6. Baxter International, Inc. 1.26% 7. Kimberly Clark Corp. 1.23% 8. Entergy Corp. 1.16% 9. CIGNA Corp. 1.14% 10. Aon Corp. 1.13% - ------------------------------------------------ 10 U.S. Balanced Fund -- Schedule of Investments December 31, 1998 (Unaudited) Shares Value ----------- ------------------ U.S. Equities -- 48.32% Advanced Micro Devices, Inc. (b) 10,300 $ 298,056 Aetna, Inc. 6,300 495,337 Allergan, Inc. 2,600 168,350 Alza Corp. (b) 5,400 282,150 American Standard Companies, Inc. (b) 5,700 204,844 Aon Corp. 9,200 509,450 Automatic Data Processing, Inc. 4,200 336,787 BankBoston Corp. 2,900 112,919 Baxter International, Inc. 8,800 565,950 Beckman Coulter Inc. 2,300 124,775 Bestfoods 3,800 202,350 Biogen, Inc. (b) 1,300 107,900 Birmingham Steel Corp. 3,200 13,400 Burlington Northern Santa Fe Corp. 27,000 911,250 Champion Enterprises, Inc. (b) 1,200 32,850 Champion International Corp. 2,700 109,350 Chase Manhattan Corp. 4,700 319,894 CIGNA Corp. 6,600 510,262 Circuit City Stores-Circuit City Group 7,400 369,537 CMS Energy Corp. 7,000 339,062 Comerica, Inc. 2,200 150,013 CommScope, Inc. (b) 3,766 63,316 Comverse Technology, Inc. (b) 2,420 171,820 Consolidated Stores Corp. (b) 7,200 145,350 Corning, Inc. 10,600 477,000 Covance, Inc. (b) 2,675 77,909 Crown Cork & Seal Co., Inc. 2,600 80,113 Dial Corp. 2,800 80,850 Eastman Chemical Co. 3,000 134,250 Electronic Data Systems Corp. 9,900 497,475 EMC Corp. (b) 3,200 272,000 Entergy Corp. 16,700 519,787 FDX Corp. (b) 10,300 916,700 First American Corp. of Tennessee 1,400 62,125 First Data Corp. 13,058 413,775 First Security Corp. 2,625 61,359 Fleet Financial Group, Inc. 7,000 312,812 Fleetwood Enterprises, Inc. 900 31,275 Food Lion Inc., Class A 12,300 130,688 Fort James Corp. 9,300 372,000 General Instrument Corp. (b) 12,300 417,431 General Semiconductor, Inc. (b) 3,950 32,341 Genzyme Corp. (b) 2,200 109,450 Genzyme-Molecular Oncology (b) 237 770 Geon Co. 1,500 34,500 Goodyear Tire & Rubber Co. 7,100 358,106 Great Lakes Chemical Corp. 1,700 68,000 GreenPoint Financial Corp. 3,100 108,888 Harnischfeger Industries, Inc. 3,800 38,713 HCR Manor Care, Inc. (b) 2,850 83,719 Hibernia Corp., Class A 3,000 52,125 Household International Inc. 5,100 202,088 IMC Global Inc. 8,500 181,688 Johnson Controls Inc. 2,600 153,400 Kimberly Clark Corp. 10,100 550,450 Shares Value ----------- ------------------ Lafarge Corp. 2,400 $ 97,200 Lear Corp. (b) 6,500 250,250 Lockheed Martin Corp. 9,371 794,192 Lyondell Petrochemical Co. 7,800 140,400 Martin Marietta Materials, Inc. 1,536 95,520 Masco Corp. 12,600 362,250 Nabisco Holdings Corp., Class A 5,500 228,250 National Service Industries, Inc. 1,600 60,800 Nextel Communications, Inc., Class A (b) 7,500 177,188 Norfolk Southern Corp. 11,800 373,912 Peco Energy Co. 9,400 391,275 Pentair, Inc. 2,900 115,456 Philip Morris Companies, Inc. 14,200 759,700 Praxair, Inc. 5,000 176,250 Raytheon Co., Class B 9,200 489,900 Regions Financial Corp. 1,400 56,438 Schering Plough Corp. 5,000 276,250 Sears, Roebuck and Co. 7,800 331,500 Southdown, Inc. 3,116 184,428 St. Jude Medical, Inc. (b) 5,100 141,206 Timken Co. 900 16,988 TRW, Inc. 300 16,856 Tyson Foods, Inc., Class A 10,000 212,500 Ultramar Diamond Shamrock Corp. 6,090 147,683 Unocal Corp. 3,800 110,913 US Bancorp 6,959 247,044 USG Corp. 1,200 61,125 Vencor, Inc. (b) 5,200 23,400 Ventas, Inc. 5,200 63,375 Viad Corp. 5,300 160,988 Wells Fargo and Co. 7,000 279,562 Witco Corp. 1,900 30,281 Xerox Corp. 11,200 1,321,600 York International Corp. 3,400 138,763 ------------------ Total U.S. Equities (Cost $18,571,684) 21,710,202 ------------------ Face Amount Value ----------- ------------------ Bonds -- 48.89% U.S. Corporate Bonds -- 10.25% Archer Daniels, 6.950%, due 12/15/97 $ 250,000 $ 270,313 Citicorp Series F, 6.375%, due 11/15/08 200,000 207,480 Continental Airlines, Inc., EETC, 6.900%, due 01/02/18 450,000 457,389 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00 415,000 419,243 Enron Corp., 6.750%, due 08/01/09 125,000 128,924 MBNA Global Capital Securities FRN, 6.019%, due 02/01/27 215,000 197,857 Noram Energy Corp., 6.375%, due 11/01/03 200,000 203,244 PanAMSat Corp., 6.000%, due 01/15/03 335,000 332,368 Residential Asset Securitization Trust 97-A10, Class A1, 7.250%, due 12/25/27 609,890 615,336 97-A11, Class A2, 7.000%, due 01/25/28 221,995 222,808 Sprint Capital Corp., 6.875%, due 11/15/28 200,000 207,676 11 Face Amount Value ----------- ------------------ TCI Communications, Inc., 8.750%, due 08/01/15 $ 220,000 $ 274,132 Time Warner Inc., 7.570%, due 02/01/24 290,000 327,065 Tyco International Group, 144A, 5.875%, due 11/01/04 250,000 248,459 U.S.A. Waste Services, 6.500%, due 12/15/02 360,000 367,336 Williams Holdings of Delaware, 6.500%, due 12/01/08 125,000 123,620 4,603,250 International Dollar Bonds -- 3.57% Abbey National PLC, 6.700%, Resettable Perpetual Step-up Notes 250,000 244,866 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 270,000 270,000 Empresa Nacional Electric, 8.125%, due 02/01/2097 200,000 164,000 LKB-Baden Wuerttemberg Finance NV, 8.125%, due 01/27/00 280,000 287,451 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14 235,000 193,701 Southern Investments UK, 6.800%, due 12/01/06 430,000 445,894 ------------------ 1,605,912 ------------------ Mortgage-Backed Securities -- 7.17% First Security Auto Grantor Trust Series 98-A, Class A, 5.970%, due 04/15/04 494,513 498,306 Morgan Stanley Capital, Inc., 6.830%, due 10/15/06 1,058,814 1,101,166 Prudential Home Mortgage Securities 93-43, Class A9, 6.750%, due 10/25/23 728,674 733,935 UCFC Home Equity Loan 97-C, Class A8, FRN, 5.478%, due 09/15/27 894,012 885,420 ------------------ 3,218,827 ------------------ U.S. Government Agencies -- 12.66% Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23 454,644 472,021 9.000%, due 03/01/24 228,551 243,014 Federal National Mortgage Association 6.789%, due 11/01/07 499,291 532,694 7.500%, due 02/25/22 728,836 761,691 0.000%, due 09/25/22 330,540 305,896 FNCI, 8.000%, due 02/01/13 415,446 428,169 Government National Mortgage Association 8.000%, due 08/15/22 625,324 651,092 7.000%, due 12/15/23 730,038 747,464 7.500%, due 06/15/24 568,246 585,733 Jordan Aid, 8.750%, due 09/01/19 775,765 961,731 ------------------ 5,689,505 ------------------ Face Amount Value ----------- ------------------ U.S. Government Obligations -- 15.24% U.S. Treasury Notes and Bonds 7.500%, due 02/15/05 $ 140,000 $ 160,258 8.000%, due 11/15/21 1,605,000 2,150,199 U.S. Treasury Inflation Indexed Note 3.625%, due 01/15/08 4,210,000 4,189,272 3.625%, due 04/15/28 350,000 345,768 ------------------ 6,845,497 ------------------ Total U.S. Bonds (Cost $21,742,928) 21,962,991 ------------------ Short-Term Investments -- 2.21% U.S. Government Obligations -- 1.02% U.S. Treasury Bill 4.320%, due 02/25/99 460,000 457,143 ------------------ Investment Companies -- 1.19% Brinson Supplementary Trust U.S. Cash Management Prime Fund 534,192 534,192 ------------------ Total Short-Term Investments (Cost $991,086) 991,335 ------------------ Total Investments (Cost $41,305,698) -- 99.42% (a) 44,664,528 ------------------ Cash and other assets, less liabilities -- 0.58% 261,475 ------------------ Net Assets -- 100% $ 44,926,003 ================== See accompanying notes to schedule of investments. 12 U.S. Balanced Fund -- Schedule of Investments December 31, 1998 (Unaudited) NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $41,305,698; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 4,581,591 Gross unrealized depreciation (1,222,761) ----------- Net unrealized appreciation $ 3,358,830 =========== (b) Non-income producing security FRN: Floating rate note--The rate disclosed is that in effect at December 31, 1998. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $831,037, or 1.85% of net assets. Resettable Perpetual Step-up Notes: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FUTURES CONTRACTS The U.S. Balanced Fund had the following open futures contracts as of December 31, 1998:
Settlement Cost/ Current Unrealized Date Proceeds Value Gain/(Loss) ---------- ----------- ---------- ----------- Interest Rate Futures Buy Contracts 5 Year U.S. Treasury Note, 51 contracts March 1999 $5,768,578 $5,780,531 $ 11,953 10 Year U.S. Treasury Note, 9 contracts March 1999 1,067,688 1,072,406 4,718 30 Year U.S. Treasury Bond, 7 contracts March 1999 896,737 894,469 (2,268) Index Futures Sale Contracts Standard & Poor's 500, 25 contracts March 1999 7,302,950 7,784,375 (481,425) ----------- Total $ (467,022) ===========
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at December 31, 1998 was $457,143. See accompanying notes to financial statements. 13 U.S. Balanced Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $40,771,506) $ 44,130,336 Affiliated issuers (Cost $534,192) 534,192 Cash 93,114 Receivables: Investment securities sold 34,069 Dividends 42,873 Interest 295,082 Other assets 7,676 ------------ TOTAL ASSETS 45,137,342 ------------ LIABILITIES: Payables: Investment securities purchased 116,073 Fund shares redeemed 1,833 Investment advisory fees 19,654 Variation margin 23,203 Accrued expenses 50,576 ------------ TOTAL LIABILITIES 211,339 ------------ NET ASSETS $ 44,926,003 ============ NET ASSETS CONSIST OF: Paid in capital 14,425,066 Distribution in excess of net investment income (16,787) Accumulated net realized gain 27,625,916 Net unrealized appreciation 2,891,808 ------------ NET ASSETS $ 44,926,003 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $42,780,766 and 4,554,478 shares issued and outstanding) $ 9.39 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,159 and 123 shares issued and outstanding) $ 9.42 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $2,144,078 and 229,620 shares issued and outstanding) $ 9.34 ============ See accompanying notes to financial statements. 14 U.S. Balanced Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Interest $ 956,815 Dividends 184,098 ------------- TOTAL INCOME 1,140,913 ------------- EXPENSES: Advisory 198,756 Professional 28,974 Registration 14,530 Distribution 5,002 Other 25,127 ------------- TOTAL EXPENSES 272,389 Expenses waived by Advisor (40,475) ------------- NET EXPENSES 231,914 ------------- NET INVESTMENT INCOME 908,999 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on: Investments 3,445,075 Future contracts 498,232 ------------- Net realized gain 3,943,307 ------------- Change in net unrealized appreciation or depreciation on: Investments (4,180,368) Future contracts (413,603) ------------- Change in net unrealized appreciation or depreciation (4,593,971) ------------- Net realized and unrealized loss (650,664) ------------- Net increase in net assets resulting from operations $ 258,335 ============= See accompanying notes to financial statements. 15 U.S. Balanced Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- -------------- OPERATIONS: Net investment income $ 908,999 $ 9,285,597 Net realized gain 3,943,307 43,393,817 Change in net unrealized appreciation or depreciation (4,593,971) (19,387,830) ------------- -------------- Net increase in net assets resulting from operations 258,335 33,291,584 ------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from and in excess of net investment income: Brinson Class I (2,154,721) (11,202,072) Brinson Class N (56) (62) UBS Investment Funds Class (108,248) (96,209) Distributions from net realized gain: Brinson Class I (9,074,452) (20,202,719) Brinson Class N (243) (75) UBS Investment Funds Class (483,100) (121,168) ------------- -------------- Total distributions to shareholders (11,820,820) (31,622,305) ------------- -------------- CAPITAL SHARE TRANSACTIONS: Shares sold 8,764,497 58,797,856 Shares issued on reinvestment of distributions 11,632,239 31,535,417 Shares redeemed (46,345,419) (294,075,195) ------------- -------------- Net decrease in net assets resulting from capital share transactions (25,948,683) (203,741,922) ------------- -------------- TOTAL DECREASE IN NET ASSETS (37,511,168) (202,072,643) ------------- -------------- NET ASSETS: Beginning of period 82,437,171 284,509,814 ------------- -------------- End of period (including accumulated undistributed (distributions in excess of) net investment income of $(16,787) and $1,337,239, respectively) $ 44,926,003 $ 82,437,171 ============= ==============
See accompanying notes to financial statements. 16 U.S. Balanced Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, December 30, 1994* December 31, 1998 ------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 June 30, 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.24 $ 12.53 $ 11.71 $ 11.23 $ 10.00 ------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.19*** 0.49*** 0.47 0.44 0.23 Net realized and unrealized gain 0.24 0.93 1.29 1.04 1.16 ------- -------- -------- -------- -------- Total income from investment operations 0.43 1.42 1.76 1.48 1.39 ------- -------- -------- -------- -------- Less distributions: Distributions from net investment income (0.63) (0.77) (0.40) (0.43) (0.16) Distributions from net realized gain (2.65) (0.94) (0.54) (0.57) -- ------- -------- -------- -------- -------- Total distributions (3.28) (1.71) (0.94) (1.00) (0.16) ------- -------- -------- -------- -------- Net asset value, end of period $ 9.39 $ 12.24 $ 12.53 $ 11.71 $ 11.23 ======= ======== ======== ======== ======== Total return (non-annualized) 3.74% 12.19% 15.50% 13.52% 13.91% Ratios/Supplemental Data: Net assets, end of period (in 000s) $42,781 $80,556 $282,860 $227,829 $157,724 Ratio of expenses to average net assets: Before expense reimbursement 0.94%** 0.81% 0.88% 1.01% 1.06%** After expense reimbursement 0.80%** 0.80% 0.80% 0.80% 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement 3.08%** 3.88% 3.78% 3.76% 4.36%** After expense reimbursement 3.22%** 3.89% 3.86% 3.97% 4.63%** Portfolio turnover rate 65% 194% 329% 240% 196%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 17 U.S. Balanced Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year* December 31, 1998 Ended Brinson Class N (Unaudited) June 30, 1998 - -------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.27 $12.53 ------- ------- Income from investment operations: Net investment income 0.19*** 0.47*** Net realized and unrealized gain 0.23 0.94 ------- ------- Total income from investment operations 0.42 1.41 ------- ------- Less distributions: Distributions from net investment income (0.62) (0.73) Distributions from net realized gain (2.65) (0.94) ------- ------- Total distributions (3.27) (1.67) ------- ------- Net asset value, end of period $ 9.42 $12.27 ======= ======= Total return (non-annualized) 3.61% 12.15% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 1.19%** 1.06% After expense reimbursement 1.05%** 1.05% Ratio of net investment income to average net assets: Before expense reimbursement 2.83%** 3.63% After expense reimbursement 2.97%** 3.64% Portfolio turnover rate 65% 194%
* Commencement of Brinson Class N was June 30, 1997. ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 18 U.S. Balanced Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.19 $ 12.46 $ 11.67 $ 11.38 --------- -------- --------- -------- Income from investment operations: Net investment income 0.16*** 0.42*** 0.38 0.42 Net realized and unrealized gain 0.23 0.95 1.31 0.86 --------- -------- --------- -------- Total income from investment operations 0.39 1.37 1.69 1.28 --------- -------- --------- -------- Less distributions: Distributions from net investment income (0.59) (0.70) (0.36) (0.42) Distributions from net realized gain (2.65) (0.94) (0.54) (0.57) --------- -------- --------- -------- Total distributions (3.24) (1.64) (0.90) (0.99) --------- -------- --------- -------- Net asset value, end of period $ 9.34 $ 12.19 $ 12.46 $ 11.67 ========= ======== ========= ======== Total return (non-annualized) 3.46% 11.79% 14.99% 11.54% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 2,144 $ 1,880 $ 1,649 $ 779 Ratio of expenses to average net assets: Before expense reimbursement 1.44%** 1.31% 1.38% 1.51%** After expense reimbursement 1.30%** 1.30% 1.30% 1.30%** Ratio of net investment income to average net assets: Before expense reimbursement 2.58%** 3.38% 3.28% 3.26%** After expense reimbursement 2.72%** 3.39% 3.36% 3.47%** Portfolio turnover rate 65% 194% 329% 240%
* Commencement of UBS Investment Funds Class ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 19 U.S. Equity Fund [BRINSON LOGO APPEARS HERE] The U.S. Equity Fund is an actively managed fund invested in common stocks of U.S. corporations. The Fund is diversified by issue and industry; it is typically 70% invested in large capitalization stocks, with the remaining 30% in intermediate and small capitalization stocks. Investment strategies emphasize stock selection with attention to the management of factor and industry exposures. Since its performance inception on February 28, 1994, the Brinson U.S. Equity Fund Class I has provided an annualized return of 21.53% compared to the 22.40% return of its benchmark, the Wilshire 5000 Equity Index. This performance was achieved at an annualized volatility of 14.02%, below the 14.30% volatility for the Wilshire 5000 Equity Index. For calendar year 1998, the total return of the Brinson U.S. Equity Fund Class I was 18.57%, trailing the 23.43% return for its benchmark. The following paragraphs review the sources of Fund underperformance for the year. Market exposure (average beta of 0.95) detracted modestly from the Fund relative performance in the very strong equity environment which characterized 1998. Factor weightings had the largest negative impact on active returns for the full year. Among the most significant negative factor positions were the underexposure in the relative strength and size measures, as a relatively narrow segment of the largest capitalization stocks continued to dominate market performance. Most of these large stocks are perceived as high quality companies with predictable, sustainable growth rates, attributes that have been highly favored in an environment with increasing economic uncertainty exacerbated by pockets of global stress such as South East Asia, Russia and Brazil. The Fund has minimal exposure to these largest stocks. Our valuation work suggests peak levels of overvaluation. Industry weightings also detracted from active returns during 1998. The technology, telecommunications and drug industries relatively outperformed for the year. Underweights to these industries detracted from performance. The underweight in energy continued to contribute to performance as oil prices plunged to nearly ten dollars per barrel by the end of the year. Our overweights in economically sensitive basic industry, tire and railroad stocks also detracted from performance. Slowing industrial production, lower capacity utilization rates and the build-up of capital stock over the last seven years have led to overcapacity in many of the basic industries. Commodity prices, which deteriorated throughout the year, fell more sharply during the fourth quarter, below our estimate of normal or equilibrium levels for a number of metals, chemicals and paper grades. Stock selection had a modest positive effect on the Fund for the year. Among large capitalization issues, the best performers were Federal Express, EMC Corp. and Cigna while the worst were Lockheed Martin and Sears. In the intermediate capitalization segment of the Fund, the most positive contributors were Peco Energy, Allergan and Circuit City while the weakest were Harnischfeger, Lyondell, Nextel and Consolidated Stores. 20 U.S. Equity Fund [BRINSON LOGO APPEARS HERE] Total Return 6 months 1 year 3 years 2/28/94* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - ---------------------------------------------------------------------------- Brinson U.S. Equity Fund Class I 4.32% 18.57% 22.93% 21.53% - ---------------------------------------------------------------------------- Wilshire 5000 Equity Index 6.90 23.43 25.24 22.40 - ---------------------------------------------------------------------------- * Performance inception date of the Brinson U.S. Equity Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Equity Fund Class I and the Wilshire 5000 Equity Index if you had invested $1,000,000 on February 28, 1994, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Equity Fund Class I vs. Wilshire 5000 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Equity Fund Wilshire 5000 Class I Index ------------- ------------- 2/28/94 1,000,000 1,000,000 942,943 954,720 964,965 963,876 984,985 973,322 6/30/94 970,003 947,285 992,118 975,401 1,055,444 1,018,484 1,019,258 998,766 1,014,232 1,015,076 979,050 977,904 12/31/94 983,676 991,086 1,004,021 1,012,504 1,049,797 1,052,832 1,076,245 1,080,584 1,099,642 1,107,437 1,140,332 1,144,946 6/30/95 1,178,023 1,181,470 1,219,913 1,230,087 1,242,391 1,242,080 1,289,389 1,289,453 1,285,302 1,276,507 1,358,865 1,330,593 12/31/95 1,382,877 1,352,348 1,439,578 1,388,577 1,462,678 1,412,864 1,489,979 1,428,320 1,518,329 1,463,614 1,542,480 1,503,629 6/30/96 1,538,200 1,491,254 1,464,400 1,410,801 1,520,277 1,455,933 1,588,806 1,533,447 1,622,543 1,554,884 1,735,351 1,657,895 12/31/96 1,737,594 1,639,211 1,800,717 1,726,958 1,811,046 1,726,163 1,751,366 1,649,815 1,805,308 1,721,764 1,937,291 1,843,751 6/30/97 2,028,487 1,928,453 2,183,729 2,076,712 2,098,633 1,998,648 2,192,928 2,116,589 2,076,785 2,046,085 2,118,182 2,113,074 12/31/97 2,167,878 2,152,123 2,182/676 2,163,809 2,372,581 2,321,335 2,509,461 2,437,518 2,484,798 2,466,451 2,449,037 2,400,819 6/30/98 2,464,186 2,484,991 2,402,303 2,430,545 2,059,471 2,052,036 2,209,228 2,186,075 2,377,550 2,348,719 2,476,563 2,496,618 12/31/98 2,570,544 2,656,377 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 21 U.S. Equity Fund [BRINSON LOGO APPEARS HERE] Total Return 6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------ Brinson U.S. Equity Fund Class N 4.00% 17.99% 16.57% - ------------------------------------------------------------------ Wilshire 5000 Equity Index 6.90 23.43 23.80 - ------------------------------------------------------------------ *Inception date of the Brinson U.S. Equity Fund Class N. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Equity Fund Class N and the Wilshire 5000 Equity Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Equity Fund Class N vs. Wilshire 5000 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Equity Fund Wilshire 5000 Class I Index ------------- ------------- 6/30/97 1,000,000 1,000,000 7/31/97 1,076,531 1076880 8/31/97 1,034,580 1,036,400 9/30/97 1,080,499 1,097,558 10/31/97 1,023,243 1,060,998 11/30/97 1,043,084 1,095,735 12/31/97 1,067,291 1,115,985 1/31/98 1,074,577 1,122,044 2/28/98 1,168,071 1,203,729 3/31/98 1,234,245 1,263,976 4/30/98 1,222,103 1,278,979 5/31/98 1,203,890 1,244,946 6/30/98 1,210,968 1,288,593 7/31/98 1,179,902 1,260,360 8/31/98 1,011,779 1,064,084 9/30/98 1,083,049 1,133,590 10/31/98 1,165,282 1,217,930 11/30/98 1,214,013 1,294,623 12/31/98 1,259,349 1,377,466 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 22 U.S. Equity Fund U.S. Large Cap Equity Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. EQUITIES Energy 1.12% Capital Investment Capital Goods 9.75 Technology 14.55 ------- 24.30 Basic Industries Chemicals 4.79 Housing/Paper 8.98 Metals 0.41 ------- 14.18 Consumer Non-Durables 7.70 Retail/Apparel 4.47 Autos/Durables 2.75 Health: Drugs 4.36 Health: Non-Drugs 5.01 ------- 24.29 Financial Banks 7.78% Non-Banks 7.04 ------- 14.82 Utilities Electric 5.68 Telephone 0.82 ------- 6.50 Transportation 10.12 Services/Misc 4.50 ------- Total U.S. Equities 99.83 ------- SHORT-TERM INVESTMENTS 2.47 ------- TOTAL INVESTMENTS 102.30 ------- LIABILITIES, LESS CASH AND OTHER ASSETS (2.30) ------- NET ASSETS 100.00% ======= Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------- 1. Xerox Corp. 6.07% 2. FDX Corp. 4.25 3. Burlington Northern Santa Fe Corp. 4.21 4. Lockheed Martin Corp. 3.74 5. Philip Morris Companies, Inc. 3.46 6. Baxter International, Inc. 2.60 7. Kimberly Clark Corp. 2.55 8. Aetna Life & Casualty Co. 2.38 9. Energy Corp. 2.34 10. CIGNA Corp. 2.34 - ------------------------------------------------- 23 U.S. Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) Shares Value ----------- ------------------ U.S. Equities -- 99.83% Advanced Micro Devices, Inc. (b) 362,700 $ 10,495,631 Aetna, Inc. 231,500 18,201,687 Allergan, Inc. 90,400 5,853,400 Alza Corp. (b) 190,650 9,961,462 American Home Products Corp. 6,100 343,506 American Standard Companies, Inc. (b) 190,000 6,828,125 Aon Corp. 321,600 17,808,600 Automatic Data Processing, Inc. 147,200 11,803,600 BankBoston Corp. 103,800 4,041,713 Baxter International, Inc. 309,000 19,872,562 Beckman Coulter Inc. 82,500 4,475,625 Bestfoods 82,800 4,409,100 Biogen, Inc. (b) 43,050 3,573,150 Birmingham Steel Corp. 44,650 186,972 Burlington Northern Santa Fe Corp. 954,300 32,207,625 Champion Enterprises, Inc. (b) 65,000 1,779,375 Champion International Corp. 95,100 3,851,550 Chase Manhattan Corp. 165,000 11,230,312 CIGNA Corp. 231,650 17,909,441 Circuit City Stores-Circuit City Group 258,200 12,893,862 CMS Energy Corp. 246,150 11,922,891 Comerica, Inc. 78,650 5,362,947 CommScope, Inc. (b) 134,499 2,261,264 Comverse Technology, Inc. (b) 87,165 6,188,715 Consolidated Stores Corp. (b) 251,500 5,077,156 Corning, Inc. 373,800 16,821,000 Covance, Inc. (b) 95,850 2,791,631 Crown Cork & Seal Co., Inc. 93,700 2,887,131 Cummins Engine Co., Inc. 26,600 944,300 Dial Corp. 98,500 2,844,188 Eastman Chemical Co. 105,150 4,705,463 Electronic Data Systems Corp. 340,000 17,085,000 EMC Corp. (b) 112,550 9,566,750 Entergy Corp. 576,700 17,949,787 FDX Corp. (b) 365,500 32,529,500 First American Corp. of Tennessee 49,900 2,214,313 First Data Corp. 461,230 14,615,226 First Security Corp. 94,200 2,201,925 Fleet Financial Group, Inc. 239,000 10,680,312 Fleetwood Enterprises, Inc. 50,400 1,751,400 Food Lion Inc., Class A 434,200 4,613,375 Fort James Corp. 327,800 13,112,000 General Instrument Corp. (b) 434,750 14,754,328 General Semiconductor, Inc. (b) 66,575 545,083 Genzyme Corp. (b) 76,850 3,823,288 Genzyme-Molecular Oncology (b) 7,409 24,079 Geon Co. 52,550 1,208,650 Goodyear Tire & Rubber Co. 242,800 12,246,225 Great Lakes Chemical Corp. 61,100 2,444,000 GreenPoint Financial Corp. 109,200 3,835,650 Harnischfeger Industries, Inc. 132,650 1,351,372 HCR Manor Care, Inc. (b) 99,050 2,909,594 Hibernia Corp., Class A 105,850 1,839,144 Household International Inc. 190,000 7,528,750 IMC Global Inc. 296,500 6,337,688 Johnson Controls Inc. 90,000 5,310,000 Kimberly Clark Corp. 358,150 19,519,175 Lafarge Corp. 90,800 3,677,400 Lear Corp. (b) 228,550 8,799,175 Lockheed Martin Corp. 337,676 28,618,041 Lyondell Petrochemical Co. 274,250 4,936,500 Shares Value ----------- ------------------ Martin Marietta Materials, Inc. 55,907 $ 3,476,717 Masco Corp. 444,700 12,785,125 Nabisco Holdings Corp., Class A 194,300 8,063,450 National Service Industries, Inc. 61,200 2,325,600 Nextel Communications, Inc., Class A (b) 266,450 6,294,881 Norfolk Southern Corp. 403,400 12,782,737 Peco Energy Co. 328,200 13,661,325 Pentair, Inc. 100,800 4,013,100 Philip Morris Companies, Inc. 495,750 26,522,625 Praxair, Inc. 176,600 6,225,150 Raytheon Co., Class B 321,950 17,143,837 Regions Financial Corp. 49,000 1,975,313 Schering Plough Corp. 178,200 9,845,550 Sears, Roebuck and Co. 274,150 11,651,375 Southdown, Inc. 110,340 6,530,749 St. Jude Medical, Inc. (b) 179,300 4,964,369 Timken Co. 33,550 633,256 TRW, Inc. 48,200 2,708,238 Tyson Foods, Inc., Class A 354,750 7,538,438 Ultramar Diamond Shamrock Corp. 196,418 4,763,137 Unocal Corp. 130,000 3,794,375 US Bancorp 245,641 8,720,255 USG Corp. 43,900 2,236,156 Vencor, Inc. (b) 193,600 871,200 Ventas, Inc. 193,000 2,352,188 Viad Corp. 187,350 5,690,756 Wells Fargo and Co. 241,000 9,624,937 Witco Corp. 21,150 337,078 Xerox Corp. 393,750 46,462,500 York International Corp. 117,700 4,803,631 ------------------ Total U.S. Equities (Cost $637,542,592) 764,359,762 ------------------ Face Amount ----------- Short-Term Investments -- 2.47% Commercial Paper -- 0.33% Marriot International 5.750%, due 01/22/99 $ 1,500,000 1,494,968 Raytheon Co. 5.600%, due 01/22/99 1,000,000 997,365 ------------------ 2,492,333 U.S. Government Obligations -- 0.19% ------------------ U.S. Treasury Bill 4.320%, due 02/25/99 1,500,000 1,490,684 ------------------ Shares ----------- Investment Companies -- 1.95% Brinson Supplementary Trust U.S. Cash Management Prime Fund 14,913,259 14,913,259 ------------------ Total Short-Term Investments (Cost $18,894,832) 18,896,276 ------------------ Total Investments (Cost $656,437,424) -- 102.30% 783,256,038 ------------------ Liabilities, less cash and other assets -- (2.30%) (17,611,553) ------------------ Net Assets -- 100% $ 765,644,485 ================== See accompanying notes to schedule of investments. 24 U.S. Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $656,437,424; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 158,609,700 Gross unrealized depreciation (31,791,086) ------------- Net unrealized appreciation $ 126,818,614 ============= (b) Non-income producing security See accompanying notes to financial statements. 25 U.S. Equity Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $641,524,165) $768,342,779 Affiliated issuers (Cost $14,913,259) 14,913,259 Cash 222,399 Receivables: Investment securities sold 2,179,776 Dividends 1,450,031 Interest 23,580 Fund shares sold 279,437 Other assets 15,000 ------------- TOTAL ASSETS 787,426,261 ------------- LIABILITIES: Payables: Investment securities purchased 4,474,672 Fund shares redeemed 16,863,628 Investment advisory fees 438,298 Accrued expenses 5,178 TOTAL LIABILITIES 21,781,776 ------------- NET ASSETS $765,644,485 ============= NET ASSETS CONSIST OF: Paid in capital $626,791,335 Distributions in excess of net investment income (61,799) Accumulated net realized gain 12,096,335 Net unrealized appreciation 126,818,614 ------------- NET ASSETS $765,644,485 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $691,214,075 and 35,393,125 shares issued and outstanding) $ 19.53 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $4,337,407 and 222,981 shares issued and outstanding) $ 19.45 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $70,093,003 and 3,602,379 shares issued and outstanding) $ 19.46 ============= See accompanying notes to financial statements. 26 U.S. Equity Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends $5,256,751 Interest 369,095 ----------- TOTAL INCOME 5,625,846 ----------- EXPENSES: Advisory 2,368,764 Administration 154,148 Distribution 179,065 Other 180,729 ----------- TOTAL EXPENSES 2,882,706 ----------- NET INVESTMENT INCOME 2,743,140 ----------- NET REALIZED AND UNREALIZED GAIN: Net realized gain on: Investments 21,292,728 Futures contracts 1,501,017 ----------- Net realized gain 22,793,745 ----------- Change in net unrealized appreciation or depreciation on: Investments 10,133,678 Futures contracts (96,948) ----------- Change in net unrealized appreciation or depreciation 10,036,730 ----------- Net realized and unrealized gain 32,830,475 ----------- Net increase in net assets resulting from operations $35,573,615 =========== See accompanying notes to financial statements. 27 U.S. Equity Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- -------------- OPERATIONS: Net investment income $ 2,743,140 $ 5,791,742 Net realized gain 22,793,745 44,131,079 Change in net unrealized appreciation or depreciation 10,036,730 58,277,883 ------------ ------------- Net increase in net assets resulting from operations 35,573,615 108,200,704 ------------ ------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from and in excess of net investment income: Brinson Class I (3,835,995) (4,978,081) Brinson Class N (21,154) (832) UBS Investment Funds Class (190,577) (249,586) Distributions from net realized gain: Brinson Class I (34,670,366) (28,383,478) Brinson Class N (216,952) (64) UBS Investment Funds Class (3,774,710) (2,678,143) ------------ ------------- Total distributions to shareholders (42,709,754) (36,290,184) ------------ ------------- CAPITAL SHARE TRANSACTIONS: Shares sold 153,042,464 346,081,960 Shares issued in connection with reorganization 23,269,419 -- Shares issued on reinvestment of distributions 39,648,720 33,981,329 Shares redeemed (104,278,829) (163,864,419) ------------ ------------- Net increase in net assets resulting from capital share transactions 111,681,774 216,198,870 ------------ ------------- TOTAL INCREASE IN NET ASSETS 104,545,635 288,109,390 ------------ ------------- NET ASSETS: Beginning of period 661,098,850 372,989,460 ------------ ------------- End of period (including accumulated undistributed (distributions in excess of) net investment income of $(61,799) and $1,242,787, respectively) $765,644,485 $661,098,850 ============ =============
See accompany notes to financial statements 28 U.S. Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, February 22, 1994* December 31, 1998 ----------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.91 $ 17.64 $ 14.59 $ 11.53 $ 9.65 $ 10.00 ------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.08*** 0.19 0.15 0.17 0.16 0.05 Net realized and unrealized gain (loss) 0.73 3.39 4.27 3.31 1.89 (0.36) ------- -------- -------- -------- -------- ------- Total income (loss) from investment operations 0.81 3.58 4.42 3.48 2.05 (0.31) ------- -------- -------- -------- -------- ------- Less distributions: Distributions from net investment income (0.12) (0.18) (0.14) (0.17) (0.14) (0.04) Distributions from net realized gain (1.07) (1.13) (1.23) (0.25) (0.03) -- ------- -------- -------- -------- -------- ------- Total distributions (1.19) (1.31) (1.37) (0.42) (0.17) (0.04) ------- -------- -------- -------- -------- ------- Net asset value, end of period $ 19.53 $ 19.91 $ 17.64 $ 14.59 $ 11.53 $ 9.65 ======= ======== ======== ======== ======== ======= Total return (non-annualized) 4.32% 21.48% 31.87% 30.57% 21.45% (3.10)% Ratios/Supplemental data: Net assets, end of period (in 000s) $691,214 $605,768 $337,949 $126,342 $42,573 $8,200 Ratio of expenses to average net assets: Before expense reimbursement 0.80%** 0.80% 0.89% 1.14% 1.70% 5.40%** After expense reimbursement N/A N/A 0.80% 0.80% 0.80% 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement 0.86%** 1.12% 1.06% 1.13% 1.09% (2.82)%** After expense reimbursement N/A N/A 1.15% 1.47% 1.99% 1.78%** Portfolio turnover rate 17% 42% 43% 36% 33% 9%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not applicable See accompanying notes to financial statements. 29 U.S. Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year* December 31, 1998 Ended Brinson Class N (Unaudited) June 30, 1998 - -------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.88 $ 17.64 ------- ------- Income from investment operations: Net investment income 0.07*** 0.15 Net realized and unrealized gain 0.67 3.37 ------- ------- Total income from investment operations 0.74 3.52 ------- ------- Less distributions: Distributions from net investment income (0.10) (0.15) Distributions from net realized gain (1.07) (1.13) ------- ------- Total distributions (1.17) (1.28) ------- ------- Net asset value, end of period $ 19.45 $ 19.88 ======= ======= Total return (non-annualized) 4.00% 21.10% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 4,337 $ 268 Ratio of expenses to average net assets 1.05%** 1.05% Ratio of net investment income to average net assets 0.61%** 0.87% Portfolio turnover rate 17% 42%
* Commencement of Brinson Class N was June 30, 1997 ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 30 U.S. Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 19.83 $ 17.59 $ 14.58 $ 11.94 --------- -------- --------- -------- Income from investment operations: Net investment income 0.04*** 0.09 0.11 0.10 Net realized and unrealized gain 0.71 3.38 4.22 2.92 --------- -------- --------- -------- Total income from investment operations 0.75 3.47 4.33 3.02 --------- -------- --------- -------- Less distributions: Distributions from net investment income (0.05) (0.10) (0.09) (0.13) Distributions from net realized gain (1.07) (1.13) (1.23) (0.25) --------- -------- --------- -------- Total distributions (1.12) (1.23) (1.32) (0.38) --------- -------- --------- -------- Net asset value, end of period $ 19.46 $ 19.83 $ 17.59 $ 14.58 ========= ======== ========= ======== Total return (non-annualized) 4.04% 20.80% 31.28% 25.70% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 70,093 $ 55,063 $ 35,039 $ 5,387 Ratio of expenses to average net assets: Before expense reimbursement 1.32%** 1.32% 1.41% 1.66%** After expense reimbursement N/A N/A 1.32% 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement 0.34%** 0.60% 0.54% 0.61%** After expense reimbursement N/A N/A 0.63% 0.95%** Portfolio turnover rate 17% 42% 43% 36%
* Commencement of UBS Investment Funds Class ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 31 U.S. Large Capitalization Equity Fund [BRINSON LOGO APPEARS HERE] The U.S. Large Capitalization Equity Fund is an actively managed portfolio that invests in common stocks of the largest U.S. corporations. Issues are selected from a universe of less than 300 of the largest capitalization domestic stocks collectively comprising 65% of the value of the U.S. equity market. Since its performance inception on April 30, 1998, the Brinson U.S. Large Capitalization Equity Fund Class I has provided an annualized return of 5.87%, compared to the 11.71% return of its benchmark, the S&P 500 Equity Index. The discussion below focuses on Brinson's management of Large Capitalization Equities during 1998. The Brinson U.S. Large Capitalization Equity Fund Class I has underperformed since its performance inception on April 30, 1998. Market exposure detracted modestly from active returns, consistent with a slightly below market beta and very strong equity market returns. Results suffered from a meaningful underweight in the largest capitalization, highest momentum issues at a time when investors turned to large, stable growth stocks for safety. Industry exposures also detracted from active returns with negative contributions from our overweights in tires, tobacco and rails and relative underweights in drugs and telephone utilities. These negative returns were only partially offset by positive contributions from our overweights to electronics and electric utilities and underweights to producer goods and business machines. Stock selection has had a positive effect on the Fund. Among the strongest contributors were Federal Express, EMC Corp., Cigna and Schering Plough, while holdings in Lockheed Martin and Sears hurt stock-specific performance. Within the large capitalization segment of the market, a relatively small and increasingly narrow group of stocks provided the majority of returns during the year. Our research suggested that many of the widely held, "mega-cap" stocks like General Electric, Microsoft, Bristol Myers, Bell Atlantic, Procter & Gamble, Pfizer and AT&T were overvalued even before the turmoil in emerging markets surfaced. Here at the beginning of 1999, we remain convinced that there are greater relative values away from such issues, and the Fund is positioned accordingly. Specifically, the Fund's most important factor exposures, as we enter 1999, include underweightings in size, momentum and foreign earnings and overweightings in the traditional value measures of earnings-price, book-price and yield. From an industry standpoint, the Fund is underweighted in energy, drugs, telephone utilities, miscellaneous finance, chemicals and retail/apparel. Meaningful overweights include aerospace/defense, housing and paper, construction, transportation and service related issues. 32 U.S. Large Capitalization Equity Fund [BRINSON LOGO APPEARS HERE] Total Return 6 Months 4/30/98* Ended to 12/31/98 12/31/98 - ---------------------------------------------------------------------------- Brinson U.S. Large Capitalization Equity Fund Class I 6.01% 5.87% - ---------------------------------------------------------------------------- S&P 500 Equity Index 9.23 11.71 - ---------------------------------------------------------------------------- * Performance inception date of the Brinson U.S. Large Capitalization Equity Fund Class I. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Large Capitalization Equity Fund Class I and the S&P 500 Equity Index if you had invested $1,000,000 on April 30, 1998, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Large Capitalization Equity Fund Class I vs. S&P 500 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. S&P 500 Large Capitalization Equity Equity Fund Class I Index -------------------- --------- 4/30/98 1,000,000 1,000,000 5/31/98 983,723 982,810 6/30/98 996,297 1,022,732 7/31/98 977,960 1,011,840 8/31/98 848,584 865,548 9/30/98 914,800 920,995 10/31/98 981,016 995,909 11/30/98 1,023,802 1,056,263 12/31/98 1,058,703 1,117,131 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 33 U.S. Large Capitalization Equity Fund [BRINSON LOGO APPEARS HERE] Total Return 6 Months 4/30/98* ended to 12/31/98 12/31/98 - ----------------------------------------------------------------------------- Brinson U.S. Large Capitalization Equity Fund Class N 5.97% 5.58% - ----------------------------------------------------------------------------- S&P 500 Equity Index 9.23 11.71 - ----------------------------------------------------------------------------- * Performance inception date of the Brinson U.S. Large Capitalization Equity Fund Class N. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Large Capitalization Equity Fund Class N and the S&P 500 Equity Index if you had invested $1,000,000 on April 30, 1998, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Large Capitalization Equity Fund Class N vs. S&P 500 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. S&P 500 Large Capitalization Equity Equity Fund Class N Index -------------------- --------- 4/30/98 1,000,000 1,000,000 5/31/98 983,723 982,810 6/30/98 998,652 1,022,732 7/31/98 980,310 1,011,840 8/31/98 850,893 865,548 9/30/98 917,130 920,995 10/31/98 984,386 995,909 11/30/98 1,026,166 1,056,263 12/31/98 1,055,758 1,117,131 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 34 U.S. Large Capitalization Equity Fund [BRINSON LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. EQUITIES Basic Industries Chemicals 1.18% Housing/Paper 6.07 Metals 0.53 ------- 7.78 Capital Investment Capital Goods 8.54 Technology 13.77 ------- 22.31 Consumer Autos/Durables 2.37 Health: Drugs 1.85 Health: Non-Drugs 4.30 Non-Durables 5.92 Retail/Apparel 2.19 16.63 Energy 0.71% Financial Banks 10.77 Non-Banks 10.04 ------- 20.81 Transportation 14.58 Services/Miscellaneous 8.13 Utilities Electric 2.98 ------- Total U.S. Equities 93.93* SHORT-TERM INVESTMENTS 6.27* ------- TOTAL INVESTMENTS 100.20 LIABILITIES, LESS CASH AND OTHER ASSETS (0.20) ------- NET ASSETS 100.00% ======= *The Fund held a long position in stock index futures on December 31, 1998 which increased U.S. Equity exposure from 93.93% to 99.56% and reduced exposure to Short-Term Investments from 6.27% to 0.64%. Top 10 U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - --------------------------------------------------- 1. Xerox Corp. 8.74% 2. FDX Corp. 6.11 3. Burlington Northern Santa Fe Corp. 6.07 4. Lockheed Martin Corp. 5.32 5. Philip Morris Companies, Inc. 5.03 6. Baxter International, Inc. 3.78 7. Kimberly Clark Corp. 3.67 8. CIGNA Corp. 3.39 9. Aon Corp. 3.35 10. Aetna Life & Casualty Co. 3.30 - --------------------------------------------------- 35 U.S. Large Capitalization Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) Shares Value ----------- ------------------ U.S. Equities -- 93.93% Aetna, Inc. 9,300 $ 731,212 Aon Corp. 13,400 742,025 Automatic Data Processing, Inc. 6,100 489,144 BankBoston Corp. 4,300 167,431 Baxter International, Inc. 13,000 836,062 Bestfoods 3,700 197,025 Burlington Northern Santa Fe Corp. 39,800 1,343,250 Chase Manhattan Corp. 6,900 469,631 CIGNA Corp. 9,700 749,931 Comerica, Inc. 3,300 225,019 Corning, Inc. 15,600 702,000 Covance, Inc. (b) 4,000 116,500 Crown Cork & Seal Co., Inc. 3,800 117,088 Electronic Data Systems Corp. 14,200 713,550 EMC Corp. (b) 4,700 399,500 Entergy Corp. 21,200 659,850 FDX Corp. (b) 15,200 1,352,800 First Data Corp. 19,200 608,400 Fleet Financial Group, Inc. 10,000 446,875 Goodyear Tire & Rubber Co. 10,400 524,550 Household International Inc. 7,800 309,075 Kimberly Clark Corp. 14,900 812,050 Lockheed Martin Corp. 13,900 1,178,025 Masco Corp. 18,500 531,875 Norfolk Southern Corp. 16,800 532,350 Philip Morris Companies, Inc. 20,800 1,112,800 Shares Value ----------- ------------------ Praxair, Inc. 7,400 $ 260,850 Raytheon Co., Class B 13,400 713,550 Schering Plough Corp. 7,400 408,850 Sears, Roebuck and Co. 11,400 484,500 Unocal Corp. 5,400 157,613 US Bancorp 10,200 362,100 Wells Fargo and Co. 10,100 403,369 Xerox Corp. 16,400 1,935,200 ------------------ Total U.S. Equities (Cost $19,887,009) 20,794,050 Face Amount ----------- Short-Term Investments -- 6.27% Investment Companies -- 6.27% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $1,386,884) $ 1,386,884 1,386,884 ------------------ Total Investments (Cost $21,273,893) -- 100.20% (a) 22,180,934 ------------------ Liabilities, less cash and other assets -- (0.20%) (43,198) ------------------ Net Assets -- 100% $ 22,137,736 ================== See accompanying notes to schedule of investments. NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $21,273,893; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 2,018,260 Gross unrealized depreciation (1,111,219) ----------- Net unrealized appreciation $ 907,041 =========== (b) Non-income producing security FUTURES CONTRACTS The U.S. Large Capitalization Equity Fund had the following open futures contracts as of December 31, 1998:
Settlement Cost/ Current Unrealized Date Proceeds Value Gain ----------- ---------- ---------- ---------- Index Futures Buy Contracts Standard & Poor's 500, 4 contracts March 1999 $1,239,928 $1,245,500 $ 5,572
The segregated cash pledged to cover margin requirements for the open futures positions at December 31, 1998 was $54,000. See accompanying notes to financial statements. 36 U.S. Large Capitalization Equity Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $19,887,009) $ 20,794,050 Affiliated issuers (Cost $1,386,884) 1,386,884 Cash 35,998 Receivables: Investment securities sold 6,194 Dividends 50,850 Interest 1,392 Fund shares sold 1,595 Variation margin 3,400 Other assets 32,594 ------------- TOTAL ASSETS $ 22,312,957 ------------- LIABILITIES: Payables: Investment securities purchased 77,485 Fund shares redeemed 20,989 Investment advisory fees 4,624 Accrued expenses 72,123 ------------- TOTAL LIABILITIES 175,221 ------------- NET ASSETS $ 22,137,736 ============= NET ASSETS CONSIST OF: Paid in capital $ 21,319,701 Distributions in excess of net investment income (30,001) Accumulated net realized loss (64,577) Net unrealized appreciation 912,613 ------------- NET ASSETS $ 22,137,736 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $9,432,446 and 913,878 shares issued and outstanding) $ 10.32 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $12,704,221 and 1,232,392 shares issued and outstanding) $ 10.31 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,069 and 104 shares issued and outstanding) $ 10.28 ============= See accompanying notes to financial statements. 37 U.S. Large Capitalization Equity Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED December 31, 1998 (Unaudited) INVESTMENT INCOME: Dividends $ 141,180 Interest 19,744 ------------ TOTAL INCOME 160,924 ------------ EXPENSES: Advisory 59,251 Professional 24,181 Distribution 17,757 Other 35,497 TOTAL EXPENSES 136,686 Expenses deferred by Advisor (51,141) ------------ NET EXPENSES 85,545 ------------ NET INVESTMENT INCOME 75,379 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (87,071) Futures contracts 91,795 ------------ Net realized gain 4,724 ------------ Change in net unrealized appreciation or depreciation on: Investments 1,094,763 Futures contracts (3,464) ------------ Change in net unrealized appreciation or depreciation 1,091,299 ------------ Net realized and unrealized gain 1,096,023 ------------ Net increase in net assets resulting from operations $1,171,402 ============ See accompanying notes to financial statements. 38 U.S. Large Capitalization Equity Fund -- Financial Statements Statement of Changes in Net Assets
Six Months April 6, 1998* December 31, 1998 Through (Unaudited) June 30, 1998 ----------------- -------------- OPERATIONS: Net investment income $ 75,379 $ 32,434 Net realized gain (loss) 4,724 (69,301) Change in net unrealized appreciation or depreciation 1,091,299 (178,686) ------------ --------- Net increase (decrease) in net assets resulting from operations 1,171,402 (215,553) ------------ --------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from and in excess of net investment income: Brinson Class I (47,131) (191) Brinson Class N (69,880) (20,605) UBS Investment Funds Class (6) (1) ------------ --------- Total distributions to shareholders (117,017) (20,797) ------------ --------- CAPITAL SHARE TRANSACTIONS: Shares sold 9,027,897 16,922,491 Shares issued on reinvestment of distributions 116,156 20,775 Shares redeemed (4,248,075) (519,553) ------------ --------- Net increase in net assets resulting from capital share transactions 4,895,978 16,423,713 ------------ --------- TOTAL INCREASE IN NET ASSETS 5,950,363 16,187,363 ------------ --------- NET ASSETS: Beginning of period 16,187,373 10 ------------ --------- End of period (including accumulated undistributed (distributions in excess of) net investment income of $(30,001) and $11,637, respectively) $22,137,736 $16,187,373 ============ =========
* Commencement of investment operations See accompanying notes to financial statements. 39 U.S. Large Capitalization Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended April 6, 1998* December 31, 1998 Through Brinson Class I (Unaudited) June 30, 1994 - --------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.80 $10.00 ------- -------- Income from investment operations: Net investment income 0.03 0.02 Net realized and unrealized gain (loss) 0.56 (0.20) ------- -------- Total income (loss) from investment operations 0.59 (0.18) ------- -------- Less distributions: Distributions from net investment income (0.07) (0.02) Distributions from net realized gain -- -- ------- -------- Total distributions (0.07) (0.02) ------- -------- Net asset value, end of period $10.32 $9.80 ======= ======== Total return (non-annualized) 6.01% (1.83)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $9,432 $ 154 Ratio of expenses to average net assets: Before expense reimbursement 1.40%** 1.59%** After expense reimbursement 0.80%** 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement 0.50%** 0.52%** After expense reimbursement 1.10%** 1.31%** Portfolio turnover rate 19% 12%
* Commencement of investment operations ** Annualized See accompanying notes to financial statements. 40 U.S. Large Capitalization Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended April 6, 1998* December 31, 1998 Through Brinson Class N (Unaudited) June 30, 1994 - --------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.78 $ 10.00 ------- -------- Income from investment operations: Net investment income 0.04 0.02 Net realized and unrealized gain (loss) 0.54 (0.23) ------- -------- Total income (loss) from investment operations 0.58 (0.21) ------- -------- Less distributions: Distributions from net investment income (0.05) (0.01) Distributions from net realized gain -- -- ------- -------- Total distributions (0.05) (0.01) ------- -------- Net asset value, end of period $ 10.31 $ 9.78 ======= ======== Total return (non-annualized) 5.97% (2.02)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $12,704 $ 16,033 Ratio of expenses to average net assets: Before expense reimbursement 1.65%** 1.84%** After expense reimbursement 1.05%** 1.05%** Ratio of net investment income to average net assets: Before expense reimbursement 0.25%** 0.27%** After expense reimbursement 0.85%** 1.06%** Portfolio turnover rate 19% 12%
* Commencement of investment operations ** Annualized See accompanying notes to financial statements. 41 U.S. Large Capitalization Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended April 6, 1998* December 31, 1998 Through UBS Investment Funds Class (Unaudited) June 30, 1994 - --------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.79 $ 10.00 ------- -------- Income from investment operations: Net investment income 0.02 0.02 Net realized and unrealized gain (loss) 0.53 (0.22) ------- -------- Total income (loss) from investment operations 0.55 (0.20) ------- -------- Less distributions: Distributions from net investment income (0.06) (0.01) Distributions from net realized gain -- -- ------- -------- Total distributions (0.06) (0.01) ------- -------- Net asset value, end of period $ 10.28 $ 9.79 ======= ======== Total return (non-annualized) 5.63% (2.06)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 1.92%** 2.11%** After expense reimbursement 1.32%** 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement (0.02)%** 0.00%** After expense reimbursement 0.58%** 0.79%** Portfolio turnover rate 19% 12%
* Commencement of investment operations ** Annualized See accompanying notes to financial statements. 42 U.S. Bond Fund [BRINSON LOGO APPEARS HERE] The U.S. Bond Fund is an actively managed diversified portfolio of U.S. investment-grade fixed income securities. Using fundamental research, we develop expectations about the returns on U.S. bonds based on the divergence of current market yields from our estimates of equilibrium yields. Relative value analysis drives both sector and individual issue selection. Since its inception on August 31, 1995, the Brinson U.S. Bond Fund Class I has provided an annualized return of 8.12%, compared to the 8.21% return of the Salomon Smith Barney Broad Investment Grade (BIG) Bond Index. The Fund's annualized volatility over the same period has been 3.97% which is similar to the benchmark's 3.42%. For calendar year 1998, the Brinson U.S. Bond Fund Class I returned 8.37% versus 8.72% for the index. Returns were depressed by the unprecedented spread widening of corporate securities during the third quarter. Interest rates fell roughly 100 basis points during 1998 with nearly all of this decline occurring during the volatile third quarter. The Federal Reserve initiated an easing of monetary policy late in the third quarter to combat global instability. In all, the Fed lowered short rates 75 basis points to their current level of 4.75%. Most investors will remember 1998 as one of the more tumultuous years on record. A confluence of global events at mid-year raised fears that a global economic crisis was unfolding. This precipitated a reassessment of risk on the part of most investors, which severely impacted market liquidity. A general "flight-to-quality" characterized the U.S. bond market for most of the second half of the year. While many financial assets responded negatively to these developments, corporate securities suffered disproportionately as investors sought the safe-haven of U.S. Treasuries. Signs of increasing global stability and market liquidity have become evident as we enter 1999. Overall, quality and liquidity were the most rewarded factors during 1998. Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) U.S. BONDS Corporate Bonds Airlines 0.08% Asset-Backed 7.60 Banks 0.58 Business and Public Service 2.16 CMO 5.46 Consumer 2.69 Energy 2.96 Financial Services 4.89 Industrial Components 0.85 Real Estate 0.22 Telecommunications 3.42 ------- Total U.S. Corporate Bonds 30.91 U.S. Government Agencies 21.09 U.S. Government Obligations 38.32 International Dollar Bonds 4.77 ------- Total U.S. Bonds 95.09 ------- U.S. Equities 1.04 ------- SHORT-TERM INVESTMENTS 10.04 ------- TOTAL INVESTMENTS 106.17 LIABILITIES, LESS CASH AND OTHER ASSETS (6.17) ------- NET ASSETS 100.00% ======= 43 U.S. Bond Fund Total Return 6 months 1 year 3 years Annualized ended ended ended 8/31/95* to 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------- Brinson U.S. Bond Fund Class I 4.43% 8.37% 7.14% 8.12% - ------------------------------------------------------------------------------- Salomon Smith Barney Broad Investment Grade (BIG) Bond Index 4.57 8.72 7.29 8.21 - ------------------------------------------------------------------------------- * Inception date of the Brinson U.S. Bond Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Bond Fund Class I and the Salomon Smith Barney BIG Bond Index if you had invested $1,000,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Bond Fund Class I vs. Salomon Smith Barney BIG Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Salomon Smith Bond Fund Barney Big Class I Bond Index ------------- --------------- 8/31/95 1,000,000 1,000,000 1,009,000 1,009,400 1,024,000 1,022,926 1,040,000 1,038,884 12/31/95 1,054,932 1,053,220 1,061,071 1,060,382 1,038,561 1,042,462 1,031,398 1,034,956 1,023,213 1,027,297 1,020,143 1,026,784 6/30/96 1,035,997 1,040,029 1,039,127 1,042,837 1,032,867 1,041,273 1,054,776 1,059,391 1,081,902 1,083,227 1,109,028 1,101,101 12/31/96 1,092,169 1,091,411 1,094,338 1,095,558 1,096,507 1,096,763 1,081,323 1,085,686 1,098,676 1,101,211 1,109,522 1,111,563 6/30/97 1,123,558 1,124,790 1,158,669 1,155,272 1,148,794 1,145,337 1,164,156 1,162,173 1,180,614 1,178,792 1,183,906 1,184,333 12/31/97 1,197,458 1,196,413 1,211,341 1,211,847 1,211,341 1,210,998 1,214,812 1,215,721 1,220,597 1,222,043 1,232,167 1,233,775 6/30/98 1,242,614 1,243,892 1,243,789 1,246,504 1,264,930 1,265,575 1,287,245 1,295,443 1,282,547 1,289,613 1,291,943 1,296,706 12/31/98 1,297,674 1,300,726 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 44 U.S. Bond Fund [BRINSON LOGO APPEARS HERE] Total Return 6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------ Brinson U.S. Bond Fund Class N 4.53% 8.25% 9.93% - ------------------------------------------------------------------------ Salomon Smith Barney Broad Investment Grade (BIG) Bond Index 4.57 8.72 10.17 - ------------------------------------------------------------------------ * Inception date of the Brinson U.S. Bond Fund Class N. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Bond Fund Class N and the Salomon Smith Barney BIG Bond Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Bond Fund Class N vs. Salomon Smith Barney BIG Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Salomon Smith Bond Fund Barney Big Class N Bond Index ------------- --------------- 6/30/97 1,000,000 1,000,000 1,031,250 1,027,100 1,021,484 1,018,267 9/30/97 1,035,156 1,033,235 1,049,805 1,048,011 1,052,734 1,052,936 12/31/97 1,065,178 1,063,676 1,077,516 1,077,398 1,076,488 1,076,644 3/31/97 1,079,573 1,080,842 1,084,714 1,086,463 1,094,995 1,096,893 6/30/98 1,103,029 1,105,887 1,104,072 1,108,210 1,121,795 1,125,165 9/30/98 1,141,604 1,151,719 1,140,561 1,146,537 1,148,902 1,152,843 12/31/98 1,153,031 1,156,416 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 45 U.S. Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) Face Amount Value ----------- ------------------ Bonds -- 95.09% U.S. Corporate Bonds -- 30.91% Aid-Israel, Series 10-Z, 0.000%, due 02/15/03 $ 805,000 $ 660,123 Capital One Bank, 6.830%, due 05/17/99 359,000 360,070 Cendant Corp., 7.750%, due 12/01/03 700,000 715,388 Chase Mortgage Finance Corp. 93-J1, Class 1A5, 6.625%, due 08/25/09 63,049 63,217 Chemical Mortgage Securities Inc. 93-1, Class A5, 7.450%, due 02/25/23 667,258 671,028 Ches Pot Tel MD, 8.000%, due 10/15/29 87,000 108,754 Chrysler Financial Corp., 7.400%, due 08/01/97 100,000 112,690 Citicorp Mortgage Securities, Inc. 94-9, Class A8, 5.750%, due 06/25/09 1,039,536 1,023,381 Comed Transitional Funding Trust, 98-1, Class A7, 5.740%, due 12/25/10 695,000 698,996 Continental Airlines, Inc., EETC, 98-1B, 6.748%, due 09/15/18 75,000 75,088 Countrywide Funding Corp. FRN, 5.680%, due 12/01/03 250,000 241,250 Enron Corp., 6.750%, due 08/01/09 800,000 825,114 Farmers Exchange Capital, 144A, 7.050%, due 07/15/28 400,000 402,451 First Bank Corporate Card Master Trust, 97-1, Class A, 6.400%, due 02/15/03 980,000 1,007,048 First Nationwide Trust, 98-3, Class 1PPA, 6.500%, due 09/19/28 514,243 514,706 Ford Motor Co., 6.625%, due 10/01/28 500,000 514,440 GE Capital Mortgage Services, Inc., 97-HE4 A7, 6.735%, due 12/25/28 410,000 422,649 General Motors Acceptance Corp., 9.625%, due 12/15/01 294,000 327,018 GreenTree Financial Corp., 94.5, Class A5, 8.300%, due 11/15/19 320,000 347,977 Interamer Development Bank, 6.800%, due 10/15/25 100,000 113,318 Jefferson-Pilot, 144A, 8.285%, due 03/01/46 640,000 697,637 Lehman Brothers, Inc., Senior Note 7.250%, due 04/15/03 225,000 231,763 LG&E Capital Corp., 144A, 5.750%, due 11/01/01 65,000 64,744 Lockheed Martin Corp., Note 7.700%, due 06/15/08 282,000 318,932 MBNA Global Capital Securities FRN, 6.019%, due 02/01/27 90,000 82,824 Mid-America Energy, 6.375%, due 06/15/06 275,000 282,232 Monsanto Co., 144A, 6.600%, due 12/01/28 1,250,000 1,247,692 News America Holdings, 7.750%, due 12/01/45 358,000 380,216 Face Amount Value ----------- ------------------ Norwest Asset Securities Corp., 98-25, Class A5, 6.000%, due 12/25/28 $2,400,000 $ 2,358,624 PanAmSat Corp., 6.000%, due 01/15/03 375,000 372,054 6.375%, due 01/15/08 500,000 489,297 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24 215,000 221,787 Premier Auto Trust, 96-3A, 6.500%, due 03/06/00 53,129 53,246 96-4A, Class A4, 6.400%, due 10/06/01 350,000 353,707 Prudential Home Mortgage Securities, 93-30, Class A9, 6.963%, due 08/25/23 85,000 85,806 93-43, Class A9, 6.750%, due 10/25/23 281,533 283,566 94-3, Class A10, 6.500%, due 02/25/24 170,000 169,536 Residential Accredit Loans, Inc., 96-QS4, Class Al10, 7.900%, due 08/25/26 275,000 283,257 98-QS4, Class AI5, 7.000%, due 03/25/28 1,850,000 1,919,657 Residential Asset Securitization Trust, 97-A10, Class A1, 7.250%, due 12/25/27 692,587 698,772 SafeWay, Inc., 6.500%, due 11/15/08 315,000 326,486 Salomon, Inc., Debenture, 6.750%, due 02/15/03 300,000 308,976 Service Corp., International, 6.000%, due 12/15/05 250,000 249,223 Sprint Capital Corp., 6.875%, due 11/15/28 1,000,000 1,038,382 Structured Asset Securities Corp., 98-RF1, Class A, 8.712%, due 03/15/27 487,887 523,564 98-RF2, 144A, 8.582%, due 07/15/27 171,060 183,035 Teco Energy, Inc., 5.540%, due 09/15/01 1,250,000 1,249,579 Tele-Communications Inc, 9.800%, due 02/01/12 950,000 1,268,065 Texas Utilities, 5.940%, due 10/15/11 (putable 10/15/01) 420,000 419,107 The Money Store Home Equity Trust, 98-A, Class AF5, 6.370%, due 12/15/23 465,000 469,548 Thrift Financial Corp., 11.250%, due 01/01/16 38,455 40,400 Time Warner Entertainment, Inc., 8.375%, due 03/15/23 94,000 114,971 Time Warner Inc., 7.570%, due 02/01/24 340,000 383,456 Transamerica Capital III, 7.625%, due 11/15/37 735,000 767,566 U.S.A. Waste Services, 6.500%, due 12/15/02 400,000 408,151 UCFC Home Equity Loan, 97-C, Class A8, FRN, 5.478%, due 09/15/27 134,278 132,988 Vendee Mortgage Trust, 92-1, Class 2Z, 7.750%, due 05/15/22 512,194 561,243 Williams Co., 6.200%, due 08/01/02 1,100,000 1,102,748 Williams Holdings of Delaware, 6.500%, due 12/01/08 315,000 311,522 ------------------ 29,659,065 ------------------ 46 U.S. Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) Face Amount Value ----------- ------------------ International Dollar Bonds -- 4.77% Banco Santiago S.A., 7.000%, due 07/18/07 $ 380,000 $ 318,432 Banque Paribas, Sub. Notes, 6.875%, due 03/01/09 700,000 711,927 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 500,000 500,000 Den Danske Bank, 144A, 6.375%, due 06/15/08 560,000 568,896 Empresa Nacional de Electricidad S.A., 7.875%, due 02/01/27 394,000 328,906 Petroliam Nasional Berhad, 144A, 7.625%, due 10/15/26 430,000 293,273 Province of Quebec, 7.500%, due 07/15/23 200,000 228,700 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14 450,000 370,917 Repsol International Finance, 7.000%, due 08/01/05 200,000 215,886 Republic of South Africa, 9.625%, due 12/15/99 71,000 72,420 Royal Bank of Scotland, 7.375%, Resettable Perpetual Step-up Notes 80,000 82,353 Skandinaviska Enskilda Banken, 144A, Resettable Perpetual Step-up Notes 305,000 297,362 Tyco International Group, 144A, 5.875%, due 11/01/04 595,000 591,332 ------------------ 4,580,404 ------------------ U.S. Government Agencies -- 21.09% Federal Home Loan Bank, 5.570%, due 08/17/00 1,500,000 1,513,068 Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13 492,125 504,474 7.500%, due 01/15/23 157,195 165,716 7.238%, due 05/01/26 19,486 19,807 Federal Home Loan Mortgage Corp. Gold 8.000%, due 11/01/22 128,980 133,495 9.000%, due 03/01/24 97,878 104,072 Federal National Mortgage Association 6.959%, due 08/01/07 484,016 521,672 6.361%, due 06/01/08 1,422,447 1,482,190 8.000%, due 12/18/11 100,000 105,710 6.000%, due 01/01/14 TBA 295,000 295,832 8.000%, due 05/25/21 260,000 266,325 8.500%, due 07/15/21 82,101 84,870 9.000%, due 08/01/21 21,471 22,779 8.500%, due 07/01/22 14,724 15,605 Face Amount Value ----------- ------------------ 9.500%, due 08/01/22 $ 90,958 $ 97,069 0.000%, due 09/25/22 431,647 399,464 7.500%, due 12/01/23 624,461 641,049 7.500%, due 01/01/28 338,058 347,249 8.500%, due 02/01/28 138,666 145,252 6.000%, due 03/01/28 712,617 703,417 6.500%, due 06/01/28 780,479 785,851 6.500%, due 09/01/28 246,454 248,150 6.500%, due 11/01/28 3,511,180 3,535,351 6.000%, due 12/01/28 TBA 4,790,000 4,728,156 Federal National Mortgage Association Strips, 7.500%, due 05/01/23 interest only 298,479 47,911 0.000%, due 04/01/27 principal only 270,732 238,007 FNCI, 8.000%, due 02/01/13 254,508 262,302 FNW, Series 95-W3, Class A, 9.000%, due 04/25/25 170,324 177,497 Government National Mortgage Association 10.000%, due 09/15/00 1,782 1,887 10.000%, due 05/15/01 2,642 2,797 9.000%, due 11/15/04 12,190 12,799 9.000%, due 12/15/17 39,834 42,816 8.000%, due 08/15/22 56,279 58,598 7.500%, due 12/15/22 275,793 284,425 7.500%, due 12/15/23 1,121,946 1,156,769 7.500%, due 01/15/24 74,829 77,132 7.000%, due 02/16/24 150,000 152,450 7.500%, due 06/15/25 93,707 96,611 7.000%, due 07/15/25 101,728 104,135 Jordan Aid, 8.750%, due 09/01/19 517,177 641,154 ------------------ 20,223,913 ------------------ U.S. Government Obligations -- 38.32% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00 4,525,000 4,567,422 5.500%, due 05/31/00 2,450,000 2,478,329 6.625%, due 07/31/01 5,110,000 5,352,725 6.250%, due 08/31/02 2,200,000 2,312,064 6.500%, due 05/15/05 2,000,000 2,191,876 7.000%, due 07/15/06 6,320,000 7,196,900 5.625%, due 05/15/08 4,540,000 4,843,612 8.000%, due 11/15/21 4,905,000 6,571,170 U.S. Treasury Inflation Indexed Note, 3.625%, due 04/15/28 1,270,000 1,254,644 ------------------ 36,768,742 ------------------ Total Bonds (Cost $90,665,694) 91,232,124 ------------------ 47 U.S. Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) Shares Value ----------- ------------------ Equities -- 1.04% U.S. Equities -- 1.04% Centaur Funding Corp., 144A 1,355 $ 248,815 Centaur Funding Corp., 144A 715 747,622 ------------------ Total Equities (Cost $896,080) 996,437 ------------------ Face Amount ----------- Short-Term Investments -- 10.04% Commercial Paper -- 3.12% Marriot International, 5.750%, due 01/22/99 $1,500,000 1,494,969 Raytheon Co., 5.600%, due 01/22/99 1,500,000 1,496,047 ------------------ Total Commercial Paper (Cost $2,990,068) 2,991,016 ------------------ Shares ----------- Investment Companies -- 6.92 Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $6,638,700) 6,638,700 6,638,700 ------------------ Total Short-Term Investments (Cost $9,628,768) 9,629,716 ------------------ Total Investments (Cost $101,190,542) -- 106.17% 101,858,277 ------------------ Liabilities, less cash and other assets -- (6.17%) (5,916,014) ------------------ Net Assets -- 100% $95,942,263 ================== NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $101,190,542; and net unrealized appreciation consisted of: Gross unrealized appreciation $1,154,761 Gross unrealized depreciation (487,026) ---------- Net unrealized appreciation $ 667,735 ========== FRN: Floating rate note -- The rate disclosed is that in effect at December 31, 1998. TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $6,213,776, or 6.48% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. 48 U.S. Bond Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 (Unaudited) ASSETS: Investments, at value: Unaffiliated issuers (Cost $94,551,842) $ 95,219,577 Affiliated issuers (Cost $6,638,700) 6,638,700 Cash 35,470 Receivables: Investment securities sold 344,847 Fund shares sold 1,750 Interest 1,160,848 Other assets 8,846 ------------ TOTAL ASSETS 103,410,038 ------------ LIABILITIES: Payables: Investment securities purchased 7,403,466 Investment advisory fees 35,915 Dividends 1,774 Accrued expenses 26,620 ------------ TOTAL LIABILITIES 7,467,775 ------------ NET ASSETS $ 95,942,263 ============ NET ASSETS CONSIST OF: Paid in capital $ 95,212,858 Accumulated undistributed net investment income 10,071 Accumulated net realized gain 51,599 Net unrealized appreciation 667,735 ------------ NET ASSETS $ 95,942,263 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $90,868,678 and 8,556,121 shares issued and outstanding) $ 10.62 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,150 and 108 shares issued and outstanding) $ 10.65 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $5,072,435 and 479,337 shares issued and outstanding) $ 10.58 ============ See accompanying notes to financial statements. 49 U.S. Bond Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (Unaudited) INVESTMENT INCOME: Interest $ 1,955,254 ------------ TOTAL INCOME 1,955,254 ------------ EXPENSES: Advisory 164,957 Professional 19,203 Registration 13,667 Distribution 10,134 Other 12,089 ------------ TOTAL EXPENSES 220,050 Expenses waived by Advisor (12,367) ------------ NET EXPENSES 207,683 ------------ NET INVESTMENT INCOME 1,747,571 ------------ NET REALIZED AND UNREALIZED GAIN: Net realized gain 809,071 Change in net unrealized appreciation or depreciation 134,810 ------------ Net realized and unrealized appreciation 943,881 ------------ Net increase in net assets resulting from operations $ 2,691,452 ============ See accompanying notes to financial statements. 50 U.S. Bond Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- -------------- OPERATIONS: Net investment income $ 1,747,571 $ 1,638,048 Net realized gain 809,071 801,133 Change in net unrealized appreciation or depreciation 134,810 335,673 ------------ ----------- Net increase in net assets resulting from operations 2,691,452 2,774,854 ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (1,922,429) (1,526,152) Brinson Class N (27) (54) UBS Investment Funds Class (116,017) (103,513) Distributions from net realized gain: Brinson Class I (1,038,553) (335,742) Brinson Class N (16) (14) UBS Investment Funds Class (68,968) (25,812) ------------ ----------- Total distributions to shareholders (3,146,010) (1,991,287) ------------ ----------- CAPITAL SHARE TRANSACTIONS: Shares sold 69,994,288 21,794,978 Shares issued in connection with reorganization 15,177,263 -- Shares issued on reinvestment of distributions 2,681,835 1,174,894 Shares redeemed (32,774,989) (6,255,720) ------------ ----------- Net increase in net assets resulting from capital share transactions 55,078,397 16,714,152 ------------ ----------- TOTAL INCREASE IN NET ASSETS 54,623,839 17,497,719 ------------ ----------- NET ASSETS: Beginning of period 41,318,424 23,820,705 ------------ ----------- End of period (including accumulated undistributed net investment income of $10,071 and $300,973, respectively) $95,942,263 $41,318,424 ============ ===========
See accompanying notes to financial statements. 51 U.S. Bond Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended August 31, 1995* December 31, 1998 Year Ended Year Ended Through Brinson Class I (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.58 $ 10.24 $ 9.93 $ 10.00 ------- ------- ------- ------- Income from investment operations: Net investment income 0.29*** 0.53 0.51*** 0.50 Net realized and unrealized gain (loss) 0.18 0.53 0.32 (0.14) ------- ------- ------- ------- Total income from investment operations 0.47 1.06 0.83 0.36 ------- ------- ------- ------- Less distributions: Distributions from net investment income (0.28) (0.58) (0.52) (0.40) Distributions in excess of net realized gain (0.15) (0.14) -- (0.03) ------- ------- ------- ------- Total distributions (0.43) (0.72) (0.52) (0.43) ------- ------- ------- ------- Net asset value, end of period $ 10.62 $ 10.58 $ 10.24 $ 9.93 ======= ======= ======= ======= Total return (non-annualized) 4.43% 10.60% 8.45% 3.60% Ratios/Supplemental Data: Net assets, end of period (in 000s) $90,869 $38,874 $22,421 $ 9,047 Ratio of expenses to average net assets: Before expense reimbursement 0.64%** 0.84% 1.65% 3.63%** After expense reimbursement 0.60%** 0.60% 0.60% 0.60%** Ratio of net investment income to average net assets: Before expense reimbursement 5.30%** 5.61% 5.14% 3.00%** After expense reimbursement 5.34%** 5.85% 6.19% 6.03%** Portfolio turnover rate 140% 198% 410% 363%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 52 U.S. Bond Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998 - --------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.58 $ 10.24 ------- ------- Income from investment operations: Net investment income ` 0.34*** 0.61 Net realized and unrealized gain 0.14 0.42 ------- ------- Total income from investment operations 0.48 1.03 ------- ------- Less distributions: Distributions from net investment income (0.26) (0.55) Distributions from net realized gain (0.15) (0.14) ------- ------- Total distributions (0.41) (0.69) ------- ------- Net asset value, end of period $ 10.65 $ 10.58 ======= ======= Total return (non-annualized) 4.53% 10.30% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 0.89%** 1.09% After expense reimbursement 0.85%** 0.85% Ratio of net investment income to average net assets: Before expense reimbursement 5.05%** 5.36% After expense reimbursement 5.09%** 5.60% Portfolio turnover rate 140% 198%
* Commencement of Brinson Class N was June 30, 1997 ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 53 U.S. Bond Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended August 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 10.54 $ 10.22 $ 9.92 $ 10.00 --------- -------- --------- -------- Income from investment operations: Net investment income 0.26*** 0.50 0.46*** 0.46 Net realized and unrealized gain (loss) 0.18 0.49 0.32 (0.13) --------- -------- --------- -------- Total income from investment operations 0.44 0.99 0.78 0.33 --------- -------- --------- -------- Less distributions: Distributions from net investment income (0.25) (0.53) (0.48) (0.38) Distributions in excess of net realized gain (0.15) (0.14) -- (0.03) --------- -------- --------- -------- Total distributions (0.40) (0.67) (0.48) (0.41) --------- -------- --------- -------- Net asset value, end of period $ 10.58 $ 10.54 $ 10.22 $ 9.92 ========= ======== ========= ======== Total return (non-annualized) 4.21% 9.97% 7.91% 3.24% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 5,072 $ 2,444 $ 1,399 $ 636 Ratio of expenses to average net assets: Before expense reimbursement 1.11%** 1.31% 2.12% 4.10%** After expense reimbursement 1.07%** 1.07% 1.07% 1.07%** Ratio of net investment income to average net assets: Before expense reimbursement 4.83%** 5.14% 4.67% 2.53%** After expense reimbursement 4.87%** 5.38% 5.72% 5.56%** Portfolio turnover rate 140% 198% 410% 363%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 54 U.S. Large Capitalization Growth Fund [BRINSON LOGO APPEARS HERE] The U.S. Large Capitalization Growth Fund is an actively managed portfolio invested in the common stocks of companies whose internal financial returns and earnings or cash flow growth prospects are well above the average large capitalization company ($3 billion or larger). While valuation is an important aspect in the screening process, fundamental dynamics are more heavily weighted. The investment strategy emphasizes stock selection with attention given to factor and sector exposures relative to the benchmark. Since its performance inception on October 31, 1997, the Brinson U.S. Large Capitalization Growth Fund Class I has returned 25.03% compared to a return of the S&P 500 Index of 30.84%. For the calendar year 1998, the Fund returned 24.90%, compared to the benchmark's return of 28.58%. Generally, 1998 was a very good year to be a large capitalization growth manager. The uncertainties around the world led investors to seek assured growth wherever they could find it, particularly in larger sized companies. In the second half of the year, however, there began to be some differentiation among the favorites as many of the dominant global franchise companies such as Coca-Cola began to stumble with fundamental problems. This put even more focus on health care and technology where performance broadened out beyond just the biggest companies. Our performance was helped by our stock selection in the latter part of the year with investments such as Sun Microsystems, Oracle, Immunex, and AT&T. Areas which hurt performance were an overweighting in financial stocks and a small but meaningful commitment in the energy sector, particularly oil service companies such as Schlumberger. The major challenge facing growth investors in 1999 is twofold. First, some major sectors such as technology and health care have performed extremely well and are clearly not undervalued. World economic trends and populist political initiatives respectively could make both sectors more risky going forward. Our solution is to continue to look at companies which have not been the major leaders but which have strong fundamentals and relatively good valuations. Secondly, growth investing as a strategy has enjoyed extreme popularity in recent years at the expense of value investing. Efforts to reflate here and overseas may lead to more competitive earnings gains from more cyclical sources, something which has not been present for some time. Our solution is to look for growth companies which have been hurt by global economic woes and which may actually perform well under these conditions. We have consciously underweighted the major companies in most sectors unless we are extremely confident of fundamentals. 55 U.S. Large Capitalization Growth Fund Total Return 6 Months 1 Year ended ended 10/31/97* 12/31/98 12/31/98 to 12/31/98 - ----------------------------------------------------------------------------- Brinson U.S. Large Capitalization Growth Fund Class I 10.40% 24.90% 20.42% - ----------------------------------------------------------------------------- S&P 500 Equity Index 9.23 28.58 30.84 - ----------------------------------------------------------------------------- * Performance inception date of the Brinson U.S. Large Capitalization Growth Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Large Capitalization Growth Fund Class I and the S&P 500 Equity Index if you had invested $1,000,000 on October 31, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Large Capitalization Growth Fund Class I vs. S&P 500 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Large Capitalization S&P 500 Growth Fund Equity Class I Index ---------------- ------------ 10/31/97 1,000,000 1,000,000 11/30/97 1,018,495 1,046,290 12/31/97 1,039,140 1,064,255 1/31/98 1,031,495 1,076,025 2/28/98 1,091,715 1,153,628 3/31/98 1,134,665 1,212,706 4/30/98 1,156,858 1,224,906 5/31/98 1,131,408 1,203,849 6/30/98 1,175,605 1,252,750 7/31/98 1,171,311 1,239,408 8/31/98 973,788 1,060,214 9/30/98 1,026,697 1,128,132 10/31/98 1,026,697 1,219,894 11/30/98 1,129,126 1,293,822 12/31/98 1,297,885 1,368,380 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 56 U.S. Large Capitalization Growth Fund [BRINSON LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 - ----------------------------------------------------------------------------- U.S. EQUITIES Basic Industries Chemicals 2.17% Housing/Paper 2.10 ------ 4.27 Capital Investment Capital Goods 1.99 Technology 18.77 ------ 20.76 Consumer Autos/Durables 7.29 Health: Drugs 13.84 Health: Non-Drugs 8.13 Non-Durables 9.02 Retail/Apparel 5.10 ------ 43.38 Energy 4.17% Financial Banks 1.74 Non-Banks 6.01 ------ 7.75 Transportation 0.73 Services/Miscellaneous 8.04 Utilities Telephone 7.10 ------ Total U.S. Equities 96.20 SHORT-TERM INVESTMENTS 3.18 ------ TOTAL INVESTMENTS 99.38 CASH AND OTHER ASSETS, LESS LIABILITIES 0.62 ------ NET ASSETS 100.00% ====== Top 10 U.S. Equity Holdings As of December 31, 1998 Percent of Net Assets - ----------------------------------------------------- 1. Sun Microsystems, Inc. 4.13% 2. International Business Machines Corp. 4.01 3. General Electric Co. 3.69 4. Wal-Mart Stores, Inc. 2.75 5. Abbott Laboratories 2.72 6. Albertson's, Inc. 2.61 7. Philip Morris Companies, Inc. 2.58 8. AFLAC, Inc. 2.55 9. Time Warner, Inc. 2.54 10. Medtronics, Inc. 2.51 - ----------------------------------------------------- 57 U.S. Large Capitalization Growth Fund -- Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Shares Value ----------- ------------------ U.S. Equities -- 96.20% Abbott Laboratories 2,300 $ 112,700 AFLAC, Inc. 2,400 105,600 Albertson's, Inc. 1,700 108,269 American Express, Co. 1,000 102,250 AT&T Corp. 1,100 82,775 Autozone, Inc. (b) 2,200 72,463 BankAmerica Corp. 1,200 72,150 Bristol-Myers Squibb Co. 600 80,287 CBS Corp. 2,100 68,775 Chubb Corp. 1,000 64,875 Citigroup, Inc. 800 39,600 Compaq Computer Corp. 2,300 96,456 Continental Airlines, Inc., Class B (b) 900 30,150 Dayton Hudson Corp. 1,800 97,650 E.I. du Pont de Nemours & Co. 1,700 90,206 Exxon Corp. 900 65,813 Fox Entertainment Group, Inc., Class A (b) 800 20,150 General Electric Co. 1,500 153,094 Halliburton Co. 1,600 47,400 Hewlett-Packard Co. 700 47,819 Immunex Corp. (b) 800 100,650 Intel Corp. 500 59,281 International Business Machines Corp. 900 166,275 Johnson & Johnson 900 75,487 Kimberly Clark Corp. 1,600 87,200 Liberty Media Group, Class A (b) 1,400 64,488 Lilly (Eli) & Co. 1,100 97,762 Loral Space & Communications Ltd. (b) 3,600 64,125 Lowe's Companies, Inc. 1,500 76,781 Lucent Technologies, Inc. 400 44,000 McDonald's Corp. 900 68,963 Medtronic, Inc. 1,400 103,950 Merck & Co., Inc. 600 88,612 Microsoft, Inc. (b) 400 55,475 Monsanto Co. 1,100 52,250 Morgan Stanley Dean Witter & Co. 600 42,600 Northern Telecom Ltd. 800 40,100 Oracle Corp. (b) 1,200 51,750 PepsiCo, Inc. 2,200 90,062 Philip Morris Companies, Inc. 2,000 107,000 QUALCOMM, Inc. (b) 700 36,269 Raytheon Co., Class A 1,600 82,700 Schering Plough Corp. 1,700 93,925 Schlumberger Ltd. 1,300 59,963 Sun Microsystems, Inc. (b) 2,000 171,250 Tele-Communications TCI Ventures Group, Class A (b) 2,700 63,619 Texas Instruments, Inc. 1,100 94,119 Time Warner, Inc. 1,700 105,506 Wal-Mart Stores, Inc. 1,400 114,012 Waste Management, Inc. 1,600 74,600 ------------- Total U.S. Equities (Cost $3,402,970) 3,991,256 Face Amount Value ----------- ------------------ Short-Term Investments -- 3.18% Investment Companies -- 3.18% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $131,691) $131,691 $ 131,691 ------------- Total Investments (Cost $3,534,661) -- 99.38% 4,122,947 ------------- Cash and other assets, less liabilities -- 0.62% 25,841 ------------- Net Assets -- 100% $4,148,788 ============= NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $3,534,661; and net unrealized appreciation consisted of: Gross unrealized appreciation $677,003 Gross unrealized depreciation (88,717) -------- Net unrealized appreciation $588,286 ======== (b) Non-income producing security See accompanying notes to financial statements. 58 U.S. Large Capitalization Growth Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: Investments, at value: Unaffiliated issuers (Cost $3,402,970) $3,991,256 Affiliated issuers (Cost $131,691) 131,691 Cash 114 Receivables: Dividends 1,881 Interest 393 Fund shares sold 50,010 ---------- TOTAL ASSETS 4,175,345 ---------- LIABILITIES: Payables: Investment securities purchased 25,397 Accrued expenses 1,160 ---------- TOTAL LIABILITIES 26,557 ---------- NET ASSETS $4,148,788 ========== NET ASSETS CONSIST OF: Paid in capital $3,291,916 Accumulated net realized gain 268,586 Net unrealized appreciation 588,286 ---------- NET ASSETS $4,148,788 ========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $4,146,788 and 350,212 shares issued and outstanding) $ 11.84 ========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 84 shares issued and outstanding) $ 11.84 ========== UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 84 shares issued and outstanding) $ 11.84 ========== See accompanying notes to financial statements. 59 U.S. Large Capitalization Growth Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME: Dividends $ 61,083 Interest 14,387 ---------- TOTAL INCOME 75,470 ---------- EXPENSES: Advisory 33,493 Registration 22,522 Fund accounting 19,260 Transfer agent 14,665 Shareholder servicing 13,511 Shareholder reporting 12,757 Professional 11,125 Custodian 10,976 Administration 7,361 Other 7,579 ---------- TOTAL EXPENSES 153,249 Expenses waived and reimbursed by Advisor (98,048) ---------- NET EXPENSES 55,201 ---------- NET INVESTMENT INCOME 20,269 ---------- NET REALIZED AND UNREALIZED GAIN: Net realized gain on investments 438,421 Change in net unrealized appreciation or depreciation on investments 554,465 ---------- Net realized and unrealized gain 992,886 ---------- Net increase in net assets resulting from operations $1,013,155 ========== See accompanying notes to financial statements. 60 U.S. Large Capitalization Growth Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
October 14, 1997* Year Ended Through December 31, 1998 December 31, 1997 ----------------- ---------------- OPERATIONS: Net investment income $ 20,269 $ 9,350 Net realized gain (loss) 438,421 (14,545) Change in net unrealized appreciation or depreciation 554,465 33,821 Net increase in net assets resulting from operations 1,013,155 28,626 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (19,205) (9,050) Distributions from net realized gain: Brinson Class I (151,936) -- Total distributions to shareholders (171,141) (9,050) Capital share transactions: Shares sold 4,973,380 4,108,844 Shares issued on reinvestment of distributions 170,881 9,050 Shares redeemed (5,974,601) (356) Net increase (decrease) in net assets resulting from capital share transactions (830,340) 4,117,538 TOTAL INCREASE IN NET ASSETS 11,674 4,137,114 NET ASSETS: Beginning of period 4,137,114 -- End of period (including accumulated undistributed net investment income of $300 in 1997) $4,148,788 $4,137,114
* Commencement of investment operations See accompanying notes to financial statements. 61 U.S. Large Capitalization Growth Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.***
October 14, 1997* Year Ended Through Brinson Class I December 31, 1998 December 31, 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.92 $ 10.00 ------- -------- Income from investment operations: Net investment income 0.06 0.02 Net realized and unrealized gain (loss) 2.38 (0.08) ------- -------- Total income (loss) from investment operations 2.44 (0.06) ------- -------- Less distributions: Distributions from net investment income (0.06) (0.02) Distributions from net realized gain (0.46) -- ------- -------- Total distributions (0.52) (0.02) ------- -------- Net asset value, end of period $ 11.84 $ 9.92 ======= ======== Total return (non-annualized) 24.90% (0.55)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 4,147 $ 4,137 Ratio of expenses to average net assets: Before expense reimbursement 2.76% 8.54%** After expense reimbursement 0.99% 1.00%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement (1.40)% (6.19)%** After expense reimbursement 0.37% 1.35%** Portfolio turnover rate N/A N/A
* Commencement of investment operations ** Annualized *** Reflects 10 for 1 share split effective December 9, 1998. N/A = Information is not available for periods prior to reorganization, as described in notes to financial statements. See accompanying notes to financial statements. 62 U.S. Small Capitalization Growth Fund [BRINSON LOGO APPEARS HERE] The U.S. Small Capitalization Growth Fund invests in companies with market capitalizations of less than $1 billion which we expect to experience above-average earnings/cash flow growth or meaningful changes in underlying value. As such, we seek to identify rapidly growing companies with leading products or industry positions and a proven record of achievement. The Fund concentrates on companies with strong business franchises that generate rapidly rising earnings. The Fund also places emphasis on controlling risk through diversification and attention to reasonable valuations. Since September 30, 1997, the Brinson U.S. Small Capitalization Growth Fund Class I has experienced a -9.66% annualized return, versus a -4.67% return for the Russell 2000 Index, a commonly cited index of small capitalization stocks. For the calendar year 1998, the U.S. Small Capitalization Growth Fund Class I experienced a 6.70% decline in value, which trailed the 2.55% loss recorded for the Russell 2000 Index. Industry weighting and stock selection accounted for the poor performance of the U.S. Small Capitalization Growth Fund in 1998. The largest negative impact was from the Fund's overweight in the oil services area, which was down sharply, and from underweights in technology and utilities, which performed well. On the positive side, the Fund's overweights in retail foods, miscellaneous finance, and life insurance helped results. We have taken steps to narrow our portfolio ranges in order to keep industry selection from continuing to be such a large factor going forward. Stock selection was also negative this year, with a larger than usual number of companies experiencing unexpected accounting and operating problems. Stocks that detracted from performance in 1998 included Vesta Insurance, Oakwood Homes, Landry's Seafood, Technology Solutions, and General Nutrition. The Fund's better performing stocks included Waters Corp, Foodmaker, U.S. Foodservice, Sanmina, and Swift Transportation. If we widen our perspective to the overall small cap market, it was a difficult year for small cap investors. The Russell 2000 underperformed the large cap S&P 500 by almost 31 percentage points in 1998, which is the worst relative calendar year performance by small cap stocks in the past 25 years. The damage incurred by the average small cap stock was even worse than the market averages would indicate. The median stock in the Russell 2000, for example, declined 9.1% in 1998, and more than 500 companies in the index fell more than 30%. Despite the poor performance, fundamentals continue to be quite positive for small cap stocks. The average stock in the Russell 2000 has grown earnings per share by 16.5% annually over the past five years, which compares well with the 16.8% annual gains chalked up by the S&P 500. In addition, the Wall Street analyst consensus is forecasting 20.5% annual earnings growth for small cap stocks over the next five years, which is well above the 14.8% yearly gain projected for the S&P 500. Finally, relative price-earnings and price-sales ratios for small cap stocks have sunk to record lows versus large cap stocks, so we think it is only a matter of time before a small cap rally of substantial proportions occurs. 63 U.S. Small Capitalization Growth Fund Total Return 6 months 1 year ended ended 9/30/97* 12/31/98 12/31/98 to 12/31/98 - ---------------------------------------------------------------------- Brinson U.S. Small Capitalization Growth Fund Class I -9.32% -6.70% -9.66% - ---------------------------------------------------------------------- Russell 2000 Index -7.12 -2.55 -4.67 - ---------------------------------------------------------------------- * Inception date of the Brinson U.S. Small Capitalization Growth Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year represent average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Small Capitalization Growth Fund Class I and the Russell 2000 Index if you had invested $1,000,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Small Capitalization Growth Fund Class I vs. Russell 2000 Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson U.S. Small Capitalization Russell Growth Fund 2000 Class I Index --------------- ------------ 1,000,000 1,000,000 10/31/97 953,600 956071 936,600 949,887 12/31/97 943,800 996,513 932,700 951,260 2/28/98 1,007,600 1,021,599 1,049,900 1,063,732 4/30/98 1,047,200 1,069,618 990,700 1,012,012 6/30/98 971,100 1,014,141 887,800 932,042 8/31/98 700,200 751,059 739,372 809,835 10/31/98 788,803 842,863 807,515 887,022 12/31/98 880,562 941,913 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 64 U.S. Small Capitalization Growth Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 - ----------------------------------------------------------------------------- U.S. EQUITIES Basic Industries Housing/Paper 1.35% ------ 1.35 Capital Investment Capital Goods 6.29 Technology 9.12 ------ 15.41 Consumer Autos/Durables 7.00 Discretionary 4.04 Health: Drugs 0.39 Health: Non-Drugs 8.74 Non-Durables 8.27 Retail/Apparel 3.03 ------ 31.47 Energy 3.30% Financial Banks 11.22 Non-Banks 8.15 ------ 19.37 Transportation 11.21 Services/Miscellaneous 15.59 ------ Total U.S. Equities 97.70 ------ SHORT-TERM INVESTMENTS 4.24 ------ TOTAL INVESTMENTS 101.94 LIABILITIES, LESS CASH AND OTHER ASSETS (1.94) ------ NET ASSETS 100.00% ====== Top 10 U.S. Equity Holdings As of December 31, 1998 Percent of Net Assets - ----------------------------------------------------- 1. Waters Corp. 2.97% 2. U.S. Foodservice 2.95 3. Protective Life Corp. 2.89 4. Foodmaker, Inc. 2.88 5. Swift Transportation Co., Inc. 2.86 6. U.S. Trust Corp. 2.86 7. Patterson Dental Co. 2.83 8. Ha-Lo Industries, Inc. 2.81 9. Peoples Heritage Financial Group, Inc. 2.72 10. North Fork Bancorporation, Inc. 2.49 - ----------------------------------------------------- 65 U.S. Small Capitalization Growth Fund -- Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Shares Value ----------- ------------------ U.S. Equities -- 97.70% Aeroflex, Inc. (b) 13,200 $ 199,650 AFC Cable Systems, Inc. (b) 6,000 201,750 Airborne Freight Corp. 12,200 439,962 American Italian Pasta Co., Class A (b) 8,500 224,188 Andrx Corp. (b) 1,700 87,125 AXENT Technologies, Inc. (b) 12,500 382,031 Brightpoint, Inc. (b) 28,300 389,125 Casey's General Stores, Inc. 32,900 428,728 Coach USA, Inc. (b) 14,900 516,844 Comfort Systems USA, Inc. (b) 8,400 150,150 Commercial Federal Corp. 14,200 329,262 Consolidated Graphics, Inc. (b) 6,300 425,644 Datastream Systems, Inc. (b) 15,500 178,250 Dendrite International, Inc. (b) 9,800 244,694 Eclipsys Corp. (b) 3,500 101,500 Elcor Corp. 8,100 261,731 Emmis Broadcasting Corp. (b) 5,500 238,563 Ethan Allen Interiors, Inc. 4,500 184,500 Expeditors International of Washington, Inc. 12,100 508,200 Finova Group, Inc. 7,000 377,562 Foodmaker, Inc. (b) 29,500 650,844 Friede Goldman International, Inc. (b) 9,800 111,475 General Nutrition Companies, Inc. (b) 14,200 230,750 HA-LO Industries, Inc. (b) 16,900 635,862 Horace Mann Educators Corp. 11,100 316,350 Investors Financial Services Corp. 5,400 321,975 Ivex Packaging Corp. (b) 3,500 81,375 Kellstrom Industries, Inc. (b) 11,800 339,250 Kuhlman Corp. 13,100 496,162 Lason, Inc. (b) 4,900 285,119 Level One Communications, Inc. (b) 5,300 188,150 Mercury Interactive Corp. (b) 3,400 215,050 Mesaba Holdings, Inc. (b) 20,500 422,812 META Group, Inc. (b) 6,700 199,325 Metro Information Services, Inc. (b) 12,400 372,000 North Fork Bancorporation, Inc. 23,500 562,531 Ocular Sciences, Inc. (b) 13,300 355,775 Orthodontic Centers of America, Inc. (b) 17,000 330,437 Patterson Dental Co. (b) 14,700 639,450 Pediatrix Medical Group, Inc. (b) 6,500 389,594 Peoples Heritage Financial Group, Inc. 30,700 614,000 Personnel Group of America, Inc. (b) 17,900 313,250 Pier 1 Imports, Inc. 26,600 257,688 Pride International, Inc. (b) 19,600 138,425 Prime Bancshares, Inc. 5,300 91,425 Prime Group Realty Trust 11,400 172,425 Promus Hotel Corp. (b) 6,200 200,725 Protective Life Corp. 16,400 652,925 Shares Value ----------- ------------------ Province Healthcare Co. (b) 1,300 $ 46,638 R & B Falcon Corp. (b) 12,000 91,500 Richfood Holdings, Inc. 15,500 321,625 Sanmina Corp. (b) 6,700 418,750 Smith Int'l, Inc. (b) 10,400 261,950 Sunrise Assisted Living, Inc. (b) 8,800 456,500 Superior Consulting Holdings Corp. (b) 2,000 87,000 Swift Transportation Co., Inc. (b) 23,100 647,522 Sykes Enterprises, Inc. (b) 9,400 286,700 Tetra Tech, Inc. (b) 12,100 327,456 TMP Worldwide, Inc. (b) 5,800 243,600 Toll Brothers, Inc. (b) 10,000 225,625 Tuboscope Inc. (b) 17,700 143,813 U.S. Foodservice (b) 13,600 666,400 U.S. Trust Corp. 8,500 646,000 United Stationers, Inc. (b) 18,300 475,800 Waters Corp. (b) 7,700 671,825 Xoom.com, Inc. (b) 1,400 46,200 Zebra Technologies Corp., Class A (b) 9,600 276,000 Zions Bancorporation 4,700 293,163 ------------- Total U.S. Equities (Cost $19,919,618) 22,088,675 ------------- Short-Term Investments -- 4.24% Investment Companies -- 4.24% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $958,871) 958,871 958,871 ------------- Total Investments (Cost $20,878,489) -- 101.94% 23,047,546 ------------- Liabilities, less cash and other assets -- (1.94%) (438,235) ------------- Net Assets -- 100% $22,609,311 ============= NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $20,878,489; and net unrealized appreciation consisted of: Gross unrealized appreciation $3,485,524 Gross unrealized depreciation (1,316,467) ---------- Net unrealized appreciation $2,169,057 ========== (b) Non-income producing security See accompanying notes to financial statements. 66 U.S. Small Capitalization Growth Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: Investments, at value: Unaffiliated issuers (Cost $19,919,618) $22,088,675 Affiliated issuers (Cost $958,871) 958,871 Receivables: Investment securities sold 5,600 Dividends 9,074 Interest 1,136 Fund shares sold 39,000 ------------ TOTAL ASSETS 23,102,356 ------------ LIABILITIES: Payables: Investment securities purchased 484,257 Investment advisory fees 2,108 Accrued expenses 6,680 ------------ TOTAL LIABILITIES 493,045 ------------ NET ASSETS $22,609,311 ============ NET ASSETS CONSIST OF: Paid in capital $24,061,801 Accumulated net realized loss (3,621,547) Net unrealized appreciation 2,169,057 ------------ NET ASSETS $22,609,311 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $22,607,311 and 2,569,863 shares issued and outstanding) $ 8.80 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 114 shares issued and outstanding) $ 8.80 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 114 shares issued and outstanding) $ 8.80 ============ See accompanying notes to financial statements. 67 U.S. Small Capitalization Growth Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME: Dividends $ 96,327 Interest 76,924 ----------- TOTAL INCOME 173,251 ----------- EXPENSES: Advisory 114,211 Shareholder servicing 44,635 Fund accounting 27,596 Registration 27,361 Administration 24,165 Custodian 19,857 Professional 17,149 Other 40,310 ----------- TOTAL EXPENSES 315,284 Expenses waived by Advisor (92,133) ----------- NET EXPENSES 223,151 ----------- NET INVESTMENT LOSS (49,900) ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss on investments (3,615,782) Change in net unrealized appreciation or depreciation on investments 2,695,815 ----------- Net realized and unrealized loss (919,967) ----------- Net decrease in net assets resulting from operations $ (969,867) =========== See accompanying notes to financial statements. 68 U.S. Small Capitalization Growth Fund -- Financial Statements STATEMENT OF CHANGES IN NET ASSETS
September 30, 1997* Year Ended Through December 31, 1998 December 31, 1997 ----------------- ------------------- OPERATIONS: Net investment loss $ (49,900) $ (2,313) Net realized gain (loss) (3,615,782) 6,540 Change in net unrealized appreciation or depreciation 2,695,815 (526,758) ----------- ----------- Net decrease in net assets resulting from operations (969,867) (522,531) ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from capital gains: Brinson Class I (10,014) -- ----------- ----------- Total distributions to shareholders (10,014) -- ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares sold 18,352,730 12,731,529 Shares issued on reinvestment of distributions 9,859 -- Shares redeemed (6,727,395) (255,000) ----------- ----------- Net increase in net assets resulting from capital share transactions 11,635,194 12,476,529 ----------- ----------- TOTAL INCREASE IN NET ASSETS 10,655,313 11,953,998 ----------- ----------- NET ASSETS: Beginning of period 11,953,998 -- ----------- ----------- End of period $22,609,311 $11,953,998 =========== ===========
* Commencement of investment operations See accompanying notes to financial statements. 69 U.S. Small Capitalization Growth Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.***
September 30, 1997* Year Ended Through Brinson Class I December 31, 1998 December 31, 1997 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.44 $ 10.00 ------- -------- Income from investment operations: Net investment income (loss) (0.02) -- Net realized and unrealized loss (0.57) (0.56) ------- -------- Total income (loss) from investment operations (0.59) (0.56) ------- -------- Less distributions: Distributions from net realized gain (0.05) -- ------- -------- Total distributions (0.05) -- ------- -------- Net asset value, end of period $ 8.80 $ 9.44 ======= ======== Total return (non-annualized) (6.70)% (5.62)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $22,607 $11,954 Ratio of expenses to average net assets: Before expense reimbursement 1.69% 3.63%** After expense reimbursement 1.20% 1.20%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement (0.76)% (2.53)%** After expense reimbursement (0.27)% (0.10)%** Portfolio turnover rate N/A N/A
* Commencement of investment operations ** Annualized *** Reflects 10 for 1 share split effective December 9, 1998. N/A = Information is not available for periods prior to reorganization, as described in notes to financial statements. See accompanying notes to financial statements. 70 High Yield Fund UBS Brinson is an active manager of high yield fixed income client portfolios. We believe successful high yield investing involves capturing the market's high total return potential while minimizing losses due to credit deterioration or default. We believe that our research-intensive effort and our focus on long-term performance will result in superior risk-adjusted returns. At the forefront of our philosophy is a focus on diversification and preservation of principal. The Brinson High Yield Fund Class I earned an annualized return of 8.12% since inception on September 30, 1997, versus 5.04% for its benchmark, the Merrill Lynch High Yield Master Index. The Fund's total return for the calendar year 1998 was 7.75%, versus 3.66% for the benchmark. During 1998, the benchmark's yield-to-worst increased markedly, from 8.85% at year-end 1997 to 10.18% at year-end 1998. Spreads in the high yield market widened by 242 basis points during 1998 as investors fled the high yield market for the safety and liquidity of U.S. Treasuries. By year-end, liquidity had improved and spreads had tightened by 100 basis points from the October peak to end the year at 554 basis points. Industry weightings contributed significantly to 1998 results. During 1998, the Fund underweighted the energy, metals and paper industries, which all posted negative returns, and overweighted broadcasting and diversified media, which outperformed. Issue selection also played an important role in 1998 as bond holdings in Simmons Co. and Ryder TRS, among others, were refinanced via tender offers, resulting in significant capital appreciation. Most importantly, the Fund suffered no default-related losses and, since inception, has maintained a default rate of 0.00%. At year end, the Fund contained approximately 100 issues, with 19% in double-B, 74% in single-B and 7% in CCC/CC/C rated issues. 71 High Yield Fund Total Return 6 months 1 year 9/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - -------------------------------------------------------------------- Brinson High Yield Fund Class I 1.93% 7.75% 8.12% - -------------------------------------------------------------------- Merrill Lynch High Yield Master Index -0.81 3.66 5.04% - -------------------------------------------------------------------- * Inception date of the Brinson High Yield Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson High Yield Fund Class I and the Merrill Lynch High Yield Master Index if you had invested $1,000,000 on September 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson High Yield Fund Class I vs. Merrill Lynch High Yield Master Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Brinson High Merill Lynch Yield Fund High Yield Class I Master Index -------------- --------------- 9/30/97 1,000,000 1,000,000 10/31/97 995,405 1,006,640 11/30/97 1,005,534 1,016,173 12/31/97 1,023,434 1,025,816 1/31/98 1,047,259 1,041,091 2/28/98 1,054,152 1,045,391 3/31/98 1,066,777 1,054,402 4/30/98 1,068,387 1,059,410 5/31/98 1,070,928 1,066,784 6/30/98 1,081,780 1,072,064 7/31/98 1,098,343 1,078,175 8/31/98 1,042,275 1,031,652 9/30/98 1,057,065 1,033,715 10/31/98 1,049,791 1,016,742 11/30/98 1,109,624 1,063,035 12/31/98 1,102,713 1,063,388 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 72 High Yield Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 - ----------------------------------------------------------------------------- U.S. bonds Corporate Bonds Auto 2.01% Broadcasting & Public Service 15.28 Construction 6.29 Consumer Goods 4.11 Electronics and Electric Components 3.31 Energy 0.87 Financial 1.55 Food & House Products 2.88 Health 1.26 Industrial 13.68 Machinery & Engineering 3.17 Multi-Industry 2.76 Real Estate 1.19 Recreation 9.85 Retail 2.09 Services 3.80 Telecommunications 19.74% Utilities 0.95 Wholesale & International Trade 0.59 ------- Total U.S. Bonds 95.38 SHORT-TERM INVESTMENTS 3.86 ------- TOTAL INVESTMENTS 99.24 ------- CASH AND OTHER ASSETS, LESS LIABILITIES 0.76 ------- NET ASSETS 100.00% ======= Top Ten U.S. Bond Holdings As of December 31, 1998 Percent of Net Assets - -------------------------------------------------- 1. Echostar Communications 2.20% 2. Chancellor Media 1.73 3. Bally Total Fitness Holdings 1.69 4. Ackerley Group Inc. 1.60 5. Big Flower Press Holdings 1.59 6. Allbritton Communications 1.59 7. Verio Inc. 1.59 8. Mail-Well Corp. 1.58 9. PSINET Inc. 1.58 10. Diamond Triumph Inc. 1.57 - -------------------------------------------------- 73 High Yield Fund -- Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Face Amount Value ------------- -------------- U.S. Bonds -- 95.38% U.S. Corporate Bonds -- 95.38% Ackerley Group, Inc., Series 144A, 9.000%, due 01/15/09 $550,000 $558,250 Allbritton Communications, Series B, 8.875%, due 02/01/08 550,000 555,500 Alliance Laundry Systems, Series 144A, 9.625%, due 05/01/08 425,000 408,000 Aurora Foods, Series B 9.875%, due 02/15/07 300,000 327,000 8.750%, due 07/01/08 150,000 156,000 Avalon Cable, Series 144A, 9.375%, due 12/01/08 425,000 434,562 Bally Total Fitness Holdings Corp., Series B, 9.875%, due 10/15/07 600,000 588,000 Big Flower Press Holdings, Series 144A, 8.625%, due 12/01/08 550,000 555,500 Building Materials Holding Corp., Series 144A, 8.000%, due 12/01/08 425,000 423,937 CB Richard Ellis Services, Inc., 8.875%, due 06/01/06 425,000 416,500 Centennial Cellular, Series 144A, 10.750%, due 12/15/08 550,000 547,250 Century Communications Corp., 0.000%, due 01/15/08 425,000 212,500 Chancellor Media Corp., Series B, 10.500%, due 01/15/07 550,000 602,250 Citadel Broadcasting Co. 10.250%, due 07/01/07 275,000 299,063 Series 144A, 9.250%, due 11/15/08 275,000 286,688 Collins & Aikman Corp., 11.500%, due 04/15/06 500,000 520,000 CSC Holdings, Inc., 7.625%, due 07/15/18 250,000 245,150 Cumulus Media, Inc., 10.375%, due 07/01/08 450,000 477,000 Dan River, Inc., Snr-Sub-Nts, 10.125%, due 12/15/03 200,000 209,500 Diamond Triumph Autoglass, Inc., Series 144A, 9.250%, due 04/01/08 550,000 547,250 Digital Television, Series B, 12.500%, due 08/01/07 300,000 327,000 Dobson / Sygnet, Series 144A, 12.250%, due 12/15/08 125,000 127,188 E Spire Communications, Inc., Snr-Nts, Step, 0.000%, due 07/01/08 (c) 550,000 214,500 Eagle Family Foods, Series B, 8.750%, due 01/15/08 550,000 519,750 Echostar Communications, Step, 0.000%, due 06/01/04 (d) 750,000 768,750 Fedders North America, 9.375%, due 08/15/07 300,000 302,250 Federal-Mogul Corp., 7.875%, due 07/01/10 150,000 153,120 Face Amount Value ------------- -------------- Fox / Liberty Networks, Step, 0.000%, due 08/15/07 (e) $750,000 $510,000 Golden Sky Systems, Series 144A, 12.375%, due 08/01/06 450,000 465,750 Harrahs Operating Co., Inc., 7.875%, due 12/05/05 425,000 429,709 Harvey Casinos Resorts, 10.625%, due 06/01/06 100,000 108,000 Hollinger International, Inc., 9.250%, due 03/15/07 425,000 448,375 ICG Holdings, Inc., Step, 0.000%, due 09/15/05 (f) 425,000 350,625 Interep National Radio Sales, Series 144A, 10.000%, due 07/01/08 425,000 437,750 Intermedia Communications, Inc., Snr-Nts, Series B, 0.000%, due 07/15/07 550,000 374,000 International Comfort Products Corp., Series B, 8.625%, due 05/15/08 275,000 277,750 Iron Mountain, Inc., 10.125%, due 10/01/06 200,000 217,000 J.H. Heafner Co., Series 144A, 10.000%, due 05/15/08 425,000 427,125 JCAC, Inc., 10.125%, due 06/15/06 450,000 501,750 Level 3 Communications, Inc., 9.125%, due 05/01/08 450,000 444,375 Liberty Group Operating, 9.375%, due 02/01/08 550,000 539,000 LIN Holdings Corp., Step, 0.000%, due 03/01/08 (g) 600,000 420,000 Lowes Cineplex, 8.875%, due 08/01/08 350,000 361,375 Mail Well Corp. Series 144A, 8.750%, due 12/15/08 550,000 550,000 Marcus Cable Co., Step, 0.000%, due 12/15/05 (h) 500,000 473,750 McLeodusa, Inc., 9.250%, due 07/15/07 300,000 313,500 Mediacom LLC., Series B, 8.500%, due 04/15/08 500,000 511,875 Microcell Telecommunications, Snr-Nts, Series B, Step, 0.000%, due 06/01/06 (i) 350,000 259,875 MTS, Inc., 9.375%, due 05/01/05 450,000 438,750 National Equipment Services, Series 144A, 10.000%, due 11/30/04 550,000 536,250 Nationsrent, Inc., Series 144A, 10.375%, due 12/15/08 550,000 544,500 NBTY, Inc., Series B, 8.625%, due 09/15/07 450,000 438,750 Newpark Resource, Inc., Series B, 8.625%, due 12/15/07 350,000 331,625 Nextel Communications, Inc. Series 144A, Step, 0.000%, due 09/15/07 (j) 375,000 239,063 Snr-Nts, Step, 0.000%, due 10/31/07 (k) 250,000 151,250 Nextlink Communications, Series 144A, 10.750%, due 11/15/08 375,000 381,562 74 High Yield Fund -- Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Face Amount Value ------------- -------------- Nortek, Inc, 144A, 8.875%, due 08/01/08 $375,000 $382,500 NTL, Inc., Series 144A, Step, 0.000%, due 10/01/08 (l) 550,000 344,438 Outdoor Communications, Inc., Snr-Sub-Nts, 9.250%, due 08/15/07 200,000 212,000 Parker Drilling Corp., Series D, 9.750%, due 11/15/06 150,000 133,500 Paxson Communications, 11.625%, due 10/01/02 500,000 512,500 Pegasus Communications Corp. Series 144A, 9.750%, due 12/01/06 150,000 150,375 Series B, 9.625%, due 10/15/05 450,000 451,125 Pilgrim's Pride Corp., Snr-Sub-Nts, 10.875%, due 08/01/03 200,000 206,000 Premier Parks, Inc., Step, 0.000%, due 04/01/08 (m) 660,000 447,150 Pride Petroleum Service, Snr-Nts, 9.375%, due 05/01/07 325,000 302,250 PSINet, Inc. Series 144A, 11.500% due 11/01/08 525,000 549,937 R. H. Donnelley, Inc., 9.125%, due 06/01/08 350,000 366,625 Rayovac Corp., Series B, 10.250%, due 11/01/06 350,000 385,000 RCN Corp., Step, 0.000%, due 10/15/07 (n) 450,000 263,250 Revlon Consumer Products, 8.625%, due 02/01/08 550,000 500,500 SFX Entertainment, Inc., Series B, 9.125%, due 02/01/08 550,000 544,500 Sinclair Broadcast Group 10.000%, due 09/30/05 250,000 265,000 8.750%, due 12/15/07 250,000 252,500 Splitrock Services, Inc., Series B, 11.750%, due 07/15/08 220,000 190,300 Station Casinos, Series 144A, 8.875%, due 12/01/08 500,000 507,500 Trans-Resources, Inc., Series B, Step, 0.000%, due 03/15/08 (o) 250,000 132,500 Transwestern 9.625%, due 11/15/07 275,000 286,000 Snr-Nts, Series 144A, 9.625%, due 11/15/07 250,000 260,000 Trump Atlantic City Funding, Inc., 11.250%, due 05/01/06 100,000 88,000 Unisys Corp., 11.750%, due 10/15/04 300,000 348,000 United Artists Theatre Circuit, Inc., Series B Snr-Sub-Nts, 9.750%, due 10/15/07 125,000 115,000 9.750%, due 04/15/08 350,000 334,250 United Rentals Series B, 9.500%, due 06/01/08 125,000 126,250 Series 144A, 8.800%, due 08/15/08 425,000 416,500 Series 144A, 9.250%, due 01/15/09 250,000 250,625 Verio, Inc., Series 144A, 11.250%, due 12/01/08 550,000 552,750 Face Amount Value ------------- -------------- Weirton Steel Corp., 10.750%, due 06/01/05 $425,000 $ 365,500 Wesco Distribution, Inc., Series B, 9.125%, due 06/01/08 300,000 300,000 Young Broadcasting, Inc., Series B, 8.750%, due 06/15/07 475,000 482,125 ----------- Total U.S. Bonds (Cost $33,507,290) 33,290,242 ----------- Shares ------------- U.S. Equities -- 0.00% Splitrock Services, Inc., Warrants due 07/15/08 (b) (Cost $11,307) 220 -- ----------- Short-Term Investments -- 3.86% Investment Companies -- 3.86% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $1,345,443) 1,345,443 1,345,443 ----------- Total Investments -- (Cost $34,864,040) 99.24% (a) 34,635,685 ----------- Cash and other assets, less liabilities -- 0.76% 266,237 ----------- Net Assets -- 100% $34,901,922 =========== NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $34,864,040; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 423,318 Gross unrealized depreciation (651,672) ---------- Net unrealized depreciation $(228,355) ========== (b) Non-income producing security (c) Interest rate 0.000% until 07/01/03, then 10.625% to maturity (d) Interest rate 0.000% until 05/31/99, then 12.875% to maturity (e) Interest rate 0.000% until 08/15/02, then 9.750% to maturity (f) Interest rate 0.000% until 09/14/00, then 13.500% to maturity (g) Interest rate 0.000% until 03/01/03, then 10.000% to maturity (h) Interest rate 0.000% until 06/15/00, then 14.250% to maturity (i) Interest rate 0.000% until 12/01/01, then 14.000% to maturity (j) Interest rate 0.000% until 09/15/02, then 10.450% to maturity (k) Interest rate 0.000% until 10/31/02, then 9.750% to maturity (l) Interest rate 0.000% until 10/01/03, then 12.375% to maturity (m) Interest rate 0.000% until 04/01/03, then 10.000% to maturity (n) Interest rate 0.000% until 10/15/02, then 11.125% to maturity (o) Interest rate 0.000% until 03/15/03, then 12.000% to maturity 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $10,885,250 or 31.22% of net assets. See accompanying notes to financial statements. 75 High Yield Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: Investments, at value: Unaffiliated issuers (Cost $33,518,597) $ 33,290,242 Affiliated issuers (Cost $1,345,443) 1,345,443 Receivables: Investment securities sold 529,452 Interest 601,631 Fund shares sold 33,000 ------------ TOTAL ASSETS 35,799,768 ------------ LIABILITIES: Payables: Investment securities purchased 888,736 Investment advisory fees 3,721 Accrued expenses 5,389 ------------ TOTAL LIABILITIES 897,846 ------------ NET ASSETS $ 34,901,922 ============ NET ASSETS CONSIST OF: Paid in capital $ 35,056,372 Accumulated net realized gain 73,905 Net unrealized depreciation (228,355) ------------ NET ASSETS $ 34,901,922 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $34,899,922 and 3,498,244 shares issued and outstanding) $ 9.98 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 100 shares issued and outstanding) $ 9.98 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 100 shares issued and outstanding) $ 9.98 ============ See accompanying notes to financial statements. 76 High Yield Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED December 31, 1998 INVESTMENT INCOME: Dividends $ 349 Interest 1,537,251 ----------- TOTAL INCOME 1,537,600 ----------- EXPENSES: Advisory 78,138 Shareholder servicing 39,782 Fund accounting 31,164 Registration 27,308 Administration 21,515 Custodian 17,544 Professional 16,347 Shareholder reporting 15,051 Transfer agent 14,999 Other 10,466 ----------- TOTAL EXPENSES 272,314 Expenses waived and reimbursed by Advisor (120,078) ----------- NET EXPENSES 152,236 ----------- NET INVESTMENT INCOME 1,385,364 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on investments 261,744 Change in net unrealized appreciation or depreciation (260,233) ----------- Net realized and unrealized gain 1,511 ----------- Net increase in net assets resulting from operations $1,386,875 =========== See accompanying notes to financial statements. 77 High Yield Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
September 30, 1997* Year Ended Through December 31, 1998 December 31, 1997 ----------------- ------------------- OPERATIONS: Net investment income $ 1,385,364 $ 131,850 Net realized gain 261,744 17,380 Change in net unrealized appreciation or depreciation (260,233) 31,878 ------------ ----------- Net increase in net assets resulting from operations 1,386,875 181,108 ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (1,395,944) (129,573) Distributions from net realized gain: Brinson Class I (196,916) -- ------------ ----------- Total distributions to shareholders (1,592,860) (129,573) ------------ ----------- CAPITAL SHARE TRANSACTIONS: Shares sold 29,258,184 7,756,774 Shares issued on reinvestment of distributions 1,381,731 129,246 Shares redeemed (3,393,269) (76,294) ------------ ----------- Net increase in net assets resulting from capital share transactions 27,246,646 7,809,726 ------------ ----------- TOTAL INCREASE IN NET ASSETS 27,040,661 7,861,261 ------------ ----------- NET ASSETS: Beginning of period 7,861,261 -- ------------ ----------- End of period (including accumulated undistributed net investment income of $2,277 in 1997) $ 34,901,922 $7,861,261 ============ ===========
* Commencement of investment operations. See accompanying notes to financial statements. 78 High Yield Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.***
September 30, 1997* Year Ended Through Brinson Class I December 31, 1998 December 31, 1997 - --------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.05 $ 10.00 -------- -------- Income from investment operations: Net investment income 7.30 0.18 Net realized and unrealized gain 0.02 0.05 -------- -------- Total income from investment operations 7.32 0.23 -------- -------- Less distributions: Distributions from net investment income (7.33) (0.18) Distributions from net realized gain (0.06) -- -------- -------- Total distributions (7.39) (0.18) -------- -------- Net asset value, end of period $ 9.98 $ 10.05 ======== ======== Total return (non-annualized) 7.75% 2.34% Ratios/Supplemental Data: Net assets, end of period (in 000s) $34,900 $7,861 Ratio of expenses to average net assets: Before expense reimbursement 1.59% 4.98%** After expense reimbursement 0.89% 0.90%** Ratio of net investment income to average net assets: Before expense reimbursement 7.38% 3.15%** After expense reimbursement 8.08% 7.23%** Portfolio turnover rate N/A N/A
* Commencement of investment operations ** Annualized *** Reflects 10 for 1 share split effective December 9, 1998 N/A = Information is not available for periods prior to reorganization, as described in notes to financial statements. See accompanying notes to financial statements. 79 The Brinson Funds -- Notes To Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund, High Yield Fund and Global (ex-U.S.) Equity Fund (formerly, Non-U.S. Equity Fund) (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and UBS Investment Funds Class (formerly, SwissKey Class). There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. Prior to December 19, 1998, the U.S. Large Capitalization Growth Fund (formerly, UBS Large Cap Growth Fund), U.S. Small Capitalization Growth Fund (formerly, UBS Small Cap Fund), High Yield Fund (formerly, UBS High Yield Bond Fund), UBS Value Equity Fund and UBS Bond Fund sought to achieve their investment objectives by investing substantially all of their investable assets in a corresponding portfolio of UBS Investor Portfolios Trust (each a "Portfolio" and collectively, the "Portfolios"), an open-end management investment company that had the same investment objective. On October 20, 1998, the Board of Directors approved a tax-free plan of reorganization (the "Reorganization"). Pursuant to the Reorganization, the net assets of the UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS High Yield Bond Fund were withdrawn from their corresponding Portfolio and thereafter each began to operate, under its new name, as a separate Fund in the Trust. The accompanying financial statements reflect the results of operations for each of these Funds for the year ended December 31, 1998, including the operations of these Funds prior to their Reorganization. In addition, pursuant to the Reorganization, the net assets of the UBS Value Equity Fund and UBS Bond Fund were withdrawn from their corresponding Portfolio and acquired by the U.S. Equity Fund and U.S. Bond Fund, respectively, in exchange solely for Brinson Class I shares of each Fund. The UBS Value Equity Fund and UBS Bond Fund were then dissolved. Shares issued in exchange, net asset value and corresponding net unrealized appreciation at December 18, 1998, were as follows: Net Unrealized Fund Shares Asset Value Appreciation - ---- ------ ----------- ------------ UBS Value Equity Fund 1,233,797 $23,269,419 $774,047 UBS Bond Fund 1,429,121 15,177,263 27,192 The aggregate net assets of the U.S. Equity Fund, UBS Value Equity Fund, U.S. Bond Fund and UBS Bond Fund immediately before the mergers were $729,679,727, $23,269,419, $80,523,890 and $15,177,263, respectively. Information for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund for the six-month period ended December 31, 1998, is not covered by the Report of Independent Auditors. The following is a summary of significant accounting policies consistently followed by the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund and High Yield Fund in the preparation of their financial statements. A. Investment Valuation: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Equity securities traded over-the-counter are valued at the most recent bid price. Securities for which the most recent bid price or market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. 80 The Brinson Funds -- Notes To Financial Statements B. Investment Transactions: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. C. Investment Income: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. D. Federal Income Taxes: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the period ended December 31, 1998, therefore, no federal income tax provision was required. E. Distributions To Shareholders: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Differences in dividends per share between the classes are due to distribution expenses. Amounts equal to 9.18% and .02% of the amount taxable as ordinary income qualify for the dividends received deduction available to corporate shareholders for the U.S. Large Capitalization Growth Fund and High Yield Fund, respectively. At December 31, 1998, the U.S. Small Capitalization Growth Fund had a capital loss carry-forward for Federal income tax purposes of approximately $1,768,000 available to offset future net capital gains. This capital loss carry-forward will expire on December 31, 2006 F. Income and Expense Allocations: All income earned and expenses incurred by the Funds will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the UBS Investment Funds Class. G. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, each Fund pays the Advisor a monthly fee based on the Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions for the six months ended December 31, 1998, were as follows:
UBS Investment Advisory Brinson Class I Brinson Class N Funds Class Advisory Fees Fee Expense Cap Expense Cap Expense Cap Fees Deferred -------- --------------- --------------- -------------- --------- -------- U.S. Balanced Fund 0.70% 0.80% 1.05% 1.30% $ 198,756 $40,475 U.S. Equity Fund 0.70 0.80 1.05 1.32 2,368,764 -- U.S. Large Capitalization Equity Fund 0.70 0.80 1.05 1.32 59,251 51,141 U.S. Bond Fund 0.50 0.60 0.85 1.07 164,957 12,367
81 The Brinson Funds -- Notes To Financial Statements Investment advisory fees and other transactions for the period December 19, 1998 through December 31, 1998, were as follows:
UBS Investment Fees Waived Advisory Brinson Class I Brinson Class N Funds Class Advisory and/or Fee Expense Cap Expense Cap Expense Cap Fees Reimbursed -------- --------------- --------------- -------------- --------- ----------- U.S. Large Capitalization Growth Fund 0.70% 0.80% 1.05% 1.57% $ 849 $ 849 U.S. Small Capitalization Growth Fund 1.00 1.15 1.40 1.92 6,538 4,431 High Yield Fund 0.60 0.70 0.95 1.55 6,278 2,648
The investment advisor of the Portfolios was the Union Bank of Switzerland, New York Branch ("UBS"). Prior to December 19, 1998, the UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS High Yield Bond Fund, (the "UBS Funds") recorded their share of advisory expense, allocated from their corresponding Portfolio, on a daily basis. UBS voluntarily agreed to reimburse each Portfolio to the extent total operating expenses exceeded a specified percentage of each Portfolio's and each UBS fund's respective average daily net assets. Investment advisory fees allocated to the Funds and other transactions for the period January 1, 1998 through December 18, 1998, were as follows: Fees Expense Cap Advisory Fees Reimbursed ----------- ------------- ---------- UBS Large Capitalization Growth Fund 1.00% $ 32,644 $ 97,199 UBS Small Capitalization Growth Fund 1.20 107,673 87,702 UBS High Yield Bond Fund 0.90 71,860 117,430 Prior to the Reorganization, the UBS Funds had a Shareholder Servicing Agreement with UBS pursuant to which UBS provided certain services to shareholders of each UBS Fund. Each UBS Fund incurred a fee equal to 0.25% of the average daily net assets for these services. Fees incurred, all of which were waived, for the period January 1, 1998 through December 18, 1998, were as follows: Shareholder Servicing Fees ----------- UBS Large Capitalization Growth Fund $13,511 UBS Small Capitalization Growth Fund 44,635 UBS High Yield Bond Fund 39,782 Prior to the Reorganization, UBS provided certain administrative services to the UBS Funds under the terms of a Funds Services Agreement. UBS did not receive any additional compensation pursuant to that agreement. Certain officers of the Funds are also officers of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the six months ended December 31, 1998 were $3,864, $3,128, $3,864 and $2,024 for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund, respectively. For the year ended December 31, 1998, Trustees' fees paid to unaffiliated trustees were $5,635, $6,876 and $7,412 for the U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund, respectively. The following Funds invest in shares of the Brinson Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). The Supplementary Trust is managed by the Advisor. The Supplementary Trust is offered as a cash management option to mutual funds and other accounts managed by the Advisor. The Supplementary Trust pays no management fees. Distributions from the Supplementary 82 The Brinson Funds -- Notes To Financial Statements Trust are reflected as interest income on the statement of operations. Amounts relating to those investments at December 31, 1998 and for the period then ended are summarized as follows:
% of Sales Interest Net Fund Purchases Proceeds Income Value Assets - ---- --------- -------- -------- ----- ------ U.S. Balanced Fund $ 983,860 $ 449,668 $ 1,069 $ 534,192 1.19% U.S. Equity Fund 17,274,632 2,361,373 23,580 14,913,259 1.95 U.S. Large Capitalization Equity Fund 1,630,080 243,196 1,392 1,386,884 6.27 U.S. Bond Fund 8,213,871 1,575,171 10,333 6,638,700 6.92 U.S. Large Capitalization Growth Fund 139,680 7,989 393 131,691 3.18 U.S. Small Capitalization Growth Fund 958,871 -- 1,136 958,871 4.24 High Yield Fund 3,805,498 2,460,055 4,240 1,345,443 3.86
3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales ------------- ------------- U.S. Balanced Fund $ 33,150,071 $ 62,821,982 U.S. Equity Fund 178,283,409 114,182,027 U.S. Large Capitalization Equity Fund 7,501,992 3,060,203 U.S. Bond Fund 128,393,569 85,978,273 Investment transactions for the period December 19, 1998 through December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales ------------- ------------- U.S. Large Capitalization Growth Fund $ 25,396 $ -- U.S. Small Capitalization Growth Fund 1,110,379 1,239,887 High Yield Fund 2,456,438 654,750 4. FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 5. DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the UBS Investment Funds Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the UBS Investment Funds Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of each of the Funds. Annual fees under the UBS Investment Funds Plan, which include a 0.25% service fee, total 0.50%, 0.52%, 0.52%, 0.77%, 0.77%, 0.47%, and 0.85% of the average daily net assets of the UBS Investment Funds Class of the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund and High Yield Fund, respectively. 6. LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the 83 The Brinson Funds -- Notes To Financial Statements Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated based on the Federal Funds rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized balance of the line of credit. During the period ended December 31, 1998, the Funds had no borrowings under the agreement. 7. CAPITAL TRANSACTIONS Capital stock transactions were as follows:
U.S. Balanced Fund ------------------------------------------------- Six Months Ended December 31, 1998 Year Ended (Unaudited) June 30, 1998 ----------------------- ------------------------ Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I 645,486 $ 7,769,946 4,720,912 $ 58,173,143 Brinson Class N -- -- -- -- UBS Investment Funds Class 84,835 994,551 49,659 624,713 ---------- ------------ ---------- ------------ Total Sales 730,321 $ 8,764,497 4,770,571 $ 58,797,856 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 1,193,337 $ 11,121,901 2,662,862 $ 31,359,575 Brinson Class N 32 299 11 136 UBS Investment Funds Class 55,020 510,039 14,933 175,706 ---------- ------------ ---------- ------------ Total Dividend Reinvestment 1,248,389 $ 11,632,239 2,677,806 $ 31,535,417 ========== ============ ========== ============ Redemptions: Brinson Class I 3,863,158 $ 45,621,386 23,388,425 $293,534,522 Brinson Class N -- -- -- -- UBS Investment Funds Class 64,496 724,033 42,682 540,673 ---------- ------------ ---------- ------------ Total Redemptions 3,927,654 $ 46,345,419 23,431,107 $294,075,195 ========== ============ ========== ============
U.S. Equity Fund ------------------------------------------------- Six Months Ended December 31, 1998 Year Ended (Unaudited) June 30, 1998 ----------------------- ------------------------ Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I** 8,066,362 $150,512,394 16,875,765 $314,205,812 Brinson Class N 216,548 4,021,529 13,398 269,368 UBS Investment Funds Class 1,081,207 21,777,960 1,697,355 31,606,780 ---------- ------------ ---------- ------------ Total Sales 9,364,117 $176,311,883 18,586,518 $346,081,960 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 2,026,930 $ 37,801,864 1,861,660 $ 32,092,717 Brinson Class N 12,815 238,104 47 896 UBS Investment Funds Class 86,539 1,608,752 110,158 1,887,716 ---------- ------------ ---------- ------------ Total Dividend Reinvestment 2,126,284 $ 39,648,720 1,971,865 $ 33,981,329 ========== ============ ========== ============ Redemptions: Brinson Class I 5,126,943 $ 97,655,470 7,470,182 $144,565,891 Brinson Class N 19,879 361,850 5 100 UBS Investment Funds Class 342,279 6,261,509 1,023,014 19,298,428 ---------- ------------ ---------- ------------ Total Redemptions 5,489,101 $104,278,829 8,493,201 $163,864,419 ========== ============ ========== ============
**Includes shares issued in connection with reorganization. 84 The Brinson Funds -- Notes To Financial Statements
U.S. Large Capitalization Equity Fund ------------------------------------------------- Six Months Ended December 31, 1998 Period Ended (Unaudited) June 30, 1998* ----------------------- ------------------------ Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I 916,683 $ 8,949,197 16,662 $ 163,328 Brinson Class N 8,098 78,700 1,688,092 16,758,163 UBS Investment Funds Class -- -- 104 1,000 ---------- ------------ ---------- ------------ Total Sales 924,781 $ 9,027,897 1,704,858 $ 16,922,491 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 4,692 $ 46,270 18 $ 168 Brinson Class N 7,095 69,880 2,204 20,606 UBS Investment Funds Class -- 6 -- 1 ---------- ------------ ---------- ------------ Total Dividend Reinvestment 11,787 $ 116,156 2,222 $ 20,775 ========== ============ ========== ============ Redemptions: Brinson Class I 23,163 $ 228,994 1,015 $ 9,875 Brinson Class N 421,436 4,019,081 51,661 509,678 UBS Investment Funds Class -- -- -- -- ---------- ------------ ---------- ------------ Total Redemptions 444,599 $ 4,248,075 52,676 $ 519,553 ========== ============ ========== ============
* The Fund commenced operations on April 6, 1998.
U.S. Bond Fund ------------------------------------------------- Six Months Ended December 31, 1998 Year Ended (Unaudited) June 30, 1998* ----------------------- ------------------------ Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I** 7,557,553 $81,377,100 1,926,960 $20,378,131 Brinson Class N 2,379 25,964 -- -- UBS Investment Funds Class 350,102 3,768,487 134,362 1,416,847 ---------- ------------ ---------- ----------- Total Sales 7,910,034 $85,171,551 2,061,322 $21,794,978 ========== ============ ========== =========== Dividend Reinvestment: Brinson Class I 239,645 $ 2,545,027 107,565 $ 1,114,591 Brinson Class N 4 43 6 68 UBS Investment Funds Class 12,927 136,765 5,825 60,235 ---------- ------------ ---------- ----------- Total Dividend Reinvestment 252,576 $ 2,681,835 113,396 $ 1,174,894 ========== ============ ========== =========== Redemptions: Brinson Class I 2,915,499 $31,500,447 549,381 $ 5,780,080 Brinson Class N 2,379 25,905 -- -- UBS Investment Funds Class 115,415 1,248,637 45,413 475,640 ---------- ------------ ---------- ----------- Total Redemptions 3,033,293 $32,774,989 594,794 $ 6,255,720 ========== ============ ========== ===========
** Includes shares issued in connection with reorganization. 85 The Brinson Funds -- Notes To Financial Statements
U.S. Large Capitalization Growth Fund ---------------------------------------------------- Six Months Ended Period from October 14, 1997 December 31, 1998 (commencement of operations) (Unaudited) to December 31, 1997 ----------------------- ---------------------------- Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I* 349,475 $ 4,971,380 41,609 $ 4,108,844 Brinson Class N 84 1,000 -- -- UBS Investment Funds Class 84 1,000 -- -- ---------- ------------ ---------- ----------- Total Sales 349,643 $ 4,973,380 41,609 $ 4,108,844 ========== ============ ========== =========== Dividend Reinvestment: Brinson Class I 15,430 $ 170,881 92 $ 9,050 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ---------- ------------ ---------- ----------- Total Dividend Reinvestment 15,430 $ 170,881 92 $ 9,050 ========== ============ ========== =========== Redemptions: Brinson Class I 56,390 $ 5,974,601 4 $ 356 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ---------- ------------ ---------- ----------- Total Redemptions 56,390 $ 5,974,601 4 $ 356 ========== ============ ========== ===========
U.S. Small Capitalization Growth Fund ----------------------------------------------------- Six Months Ended Period from September 30, 1997 December 31, 1998 (commencement of operations) (Unaudited) to December 31, 1997 ----------------------- ---------------------------- Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I** 2,571,818 $18,350,730 129,190 $ 12,731,529 Brinson Class N 114 1,000 -- -- UBS Investment Funds Class 114 1,000 -- -- ---------- ----------- -------- ------------ Total Sales 2,572,046 $18,352,730 129,190 $ 12,731,529 ========== =========== ======== ============ Dividend Reinvestment: Brinson Class I 132 $ 9,859 -- $ -- Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ---------- ----------- -------- ------------ Total Dividend Reinvestment 132 $ 9,859 -- $ -- ========== =========== ======== ============ Redemptions: Brinson Class I 128,744 $ 6,727,395 2,533 $ 255,000 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ---------- ----------- -------- ------------ Total Redemptions 128,744 $ 6,727,395 2,533 $ 255,000 ========== =========== ======== ============
* Includes 298,108 shares issued in 10 for 1 share split. ** Includes 2,227,053 shares issued in 10 for 1 share split. 86 The Brinson Funds -- Notes To Financial Statements
High Yield Fund ----------------------------------------------------- Six Months Ended Period from September 30, 1997 December 31, 1998 (commencement of operations) (Unaudited) to December 31, 1997 ----------------------- ---------------------------- Shares Value Shares Value ---------- ------------ ---------- ------------ Sales: Brinson Class I* 3,412,082 $29,256,184 77,644 $ 7,756,774 Brinson Class N 100 1,000 -- -- UBS Investment Funds Class 100 1,000 -- -- ---------- ----------- -------- ----------- Total Sales 3,412,282 $29,258,184 77,644 $ 7,756,774 ========== =========== ======== =========== Dividend Reinvestment: Brinson Class I 47,240 $ 1,381,731 1,296 $ 129,246 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ---------- ----------- -------- ----------- Total Dividend Reinvestment 47,240 $ 1,381,731 1,296 $ 129,246 ========== =========== ======== =========== Redemptions: Brinson Class I 39,259 $ 3,393,269 759 $ 76,294 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ---------- ----------- -------- ----------- Total Redemptions 39,259 $ 3,393,269 759 $ 76,294 ========== =========== ======== ===========
*Includes 2,898,051 shares issued in 10 for 1 share split. 87 Report of Independent Auditors The Board of Trustees and Shareholders The Brinson Funds -- U.S. Large Capitalization Growth Fund U.S. Small Capitalization Growth Fund High Yield Fund We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Brinson Funds--U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund as of December 31, 1998, the related statements of operations and changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and financial highlights of U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund for the period ended December 31, 1997, were audited by other auditors whose report dated February 17, 1998, expressed an unqualified opinion on those statements and financial highlights. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund at December 31, 1998, the results of their operations, the changes in their net assets and the financial highlights for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG Chicago, Illinois February 12, 1999 88 Special Meeting of Shareholders 89 Voting Results of Special Meeting of Shareholders (Unaudited) The proposal described below was submitted to a vote of shareholders of UBS Private Investor Funds, Inc. ("UBS Funds") at a special meeting of shareholders held on December 11, 1998 (the "Meeting"): Proposal No. 1 - Approval of a Plan of Reorganization pursuant to which UBS Fund's Value Equity, Bond, Large Cap Growth, Small Cap and High Yield Bond Funds (each, a "Fund") will be reorganized into Class I shares of the U.S. Equity, U.S. Bond, U.S. Large Capitalization Growth, U.S. Small Capitalization Growth and High Yield Fund, respectively. At the Meeting, the shareholders of each Fund approved Proposal No. 1 as follows: Fund For Against Abstain ---- --- ------- ------- UBS Value Equity Fund 104,031 0 0 UBS Bond Fund 136,024 0 0 UBS Large Cap Growth Fund 26,932 0 0 UBS Small Cap Fund 153,501 0 0 UBS High Yield Bond Fund 168,730 0 0 89 Distributed by: Funds Distributor, Inc. 60 State Street Boston, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. [BRINSON LOGO APPEARS HERE] The Brinson Funds Chicago - Bahrain - Basel - Frankfurt - Geneva - Hong Kong - London - Melbourne New York - Paris - Rio de Janeiro - Singapore - Sydney - Tokyo - Zurich 209 South LaSalle Street Chicago, Illinois 60604-1295 Tel: (800) 448-2430 --------------------- The Brinson Funds Brinson Global (ex-U.S.) Equity Fund Semi-Annual Report December 31, 1998 Institutional Asset Management ------------------------------ Trustees and Officers [BRINSON LOGO APPEARS HERE] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Debra L. Nichols Chairman of the Board Vice President E. Thomas McFarlan Carolyn M. Burke, CPA President Secretary and Treasurer Thomas J. Digenan, CFA, CPA David E. Floyd Vice President Assistant Secretary 1 The Fund's Advisor -- Brinson Partners, Inc. [BRINSON LOGO APPEARS HERE] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 125 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific client objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent. 2 Table of Contents [BRINSON LOGO APPEARS HERE] Shareholder Letter 4 Global Economic and Market Highlights 5 Global (ex-U.S.) Equity Fund 6 Schedule of Investments 10 Financial Statements 15 Financial Highlights 18 Notes to Financial Statements 21 3 Shareholder Letter [BRINSON LOGO APPEARS HERE] February 20, 1999 Dear Shareholder: We are very pleased to present the Semi-Annual report for the Global (ex-U.S.) Equity Fund for the six months ended December 31, 1998. The Non-U.S. Equity Fund was renamed the Global (ex-U.S.) Equity Fund on December 10, 1998. This change affects only the name of the Fund; the management, benchmark and all other aspects of the Fund will remain the same. Within this Report, we will focus on the current international economic outlook as well as our current strategy and performance update for the Global (ex-U.S.) Equity Fund. Since our last report to you, Union Bank of Switzerland and Swiss Bank Corporation merged to become UBS AG, one of the world's major financial institutions. In connection with this merger, the former SBC Brinson/Brinson Partners, Inc.'s activities of Swiss Bank Corporation were combined with the worldwide UBS asset management operations into the UBS Brinson division of UBS AG. During this process, the UBS Private Investor Funds merged into the Brinson fund family on December 18, 1998. This merger created the following three new Brinson Funds; the U.S. Large Capitalization Growth Fund, the U.S. Small Capitalization Growth Fund and the High Yield Fund. The UBS Brinson Division manages over USD 390 billion of institutional assets, including USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for the UBS Private Banking Division and The Brinson Funds which total over USD 125 billion. The Advisor of The Brinson Funds, Brinson Partners, Inc., also manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The Global (ex-U.S.) Equity Fund is an actively managed fund that provides integrated asset management across and within security markets. The investment process is strategic in nature and is driven by deviations of market price from fundamental value. This philosophy offers the greatest potential for achieving enhanced, long-term returns while controlling risk. Our international funds employ the same value-oriented investment philosophy within and across the international spectrum, as do our other funds. Each Fund uses the resources of our entire worldwide organization. Investment performance for out clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our talent. The Report that follows highlights the investment characteristics and the performance of the Global (ex-U.S.) Equity Fund. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Gary P. Brinson Gary P. Brinson President and Chief Investment Officer Brinson Partners, Inc. 4 Global Economic and Market Highlights Japan and most of Asia continue to be mired in severe downturns. The Japanese economy is particularly troubled, as the one bright spot in the economy, the export sector, has started to weaken in response to a dramatic strengthening of the yen. Bond yields have risen sharply as the government's deficit financing has pushed the gross debt to GDP ratio among the highest of the developed countries. The single European currency enjoyed a successful launch on January 1, 1999. Monetary policy for the eleven participating nations is now being administered by the European Central Bank. Cash rates and bond yields have converged, except for small spreads due to credit and liquidity differences. Although the euro's success in the near term is not in doubt, some longer-term concerns remain. Economic convergence of the EMU economies is not complete, and the economic environment appears to be softening. This creates an element of political risk for the ECB and the new currency. Inflation remains in check throughout the developed world and in many of the emerging markets. Weakness in Asia and overcapacity in basic industries have combined to push down commodity prices, particularly oil and related energy prices. Consumer price inflation is essentially zero in Japan, less than 1% in most of Europe, and under 2% in the U.S. The voices predicting global deflation seem to have largely disappeared however, after the Federal Reserve's series of rate cuts to provide liquidity during the market downturns in the fall. Global (ex-U.S.) Equity Environment
6 months 1 year 3 years 5 years 8/31/93* Major Markets ended ended ended ended to Total Return in U.S. Dollar Hedged Terms 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - ----------------------------------------------------------------------------------------- MSCI World ex USA (Free) Index -3.98% 13.84% 14.86% 10.84% 10.53% Japan -6.00 0.29 -4.17 -0.78 -0.90 U.K. 0.87 13.92 17.32 12.51 14.26 Germany -6.89 28.92 30.32 19.99 20.56 France 1.59 43.14 31.72 16.00 16.41 Canada -4.00 8.22 17.07 13.27 14.73 Netherlands -10.24 11.92 31.05 21.69 23.25 Australia 10.11 18.04 10.74 6.78 9.52 - ----------------------------------------------------------------------------------------- 6 months 1 year 3 years 5 years 8/31/93* Major Currencies ended ended ended ended to Percent Change Relative to U.S. Dollars 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - ----------------------------------------------------------------------------------------- Yen 23.04% 15.27% -2.94% -0.21% -1.39% Pound -0.28 1.12 2.33 2.38 2.12 Deutschemark 8.37 7.95 -4.93 0.84 0.14 Canadian Dollar -4.26 -6.83 -3.88 -2.93 -2.79 - -----------------------------------------------------------------------------------------
*Performance inception date of the Global (ex-U.S.) Equity Fund Class I All total returns in excess of 1 year are average annualized total returns 5 Global (ex-U.S.) Equity Fund The Global (ex-U.S.) Equity Fund is actively managed, providing a fully integrated approach to the developed equity markets across the world. We employ fundamental valuation models to determine the relative attractiveness of aggregate markets, as well as of individual stocks. Our portfolio construction process simultaneously sets country, currency, industry/factor and stock selection strategies. This interactive investment process has evolved within the context of an environment marked by growing globalization and increasingly integrated economies, industries and capital markets. The Brinson Global (ex-U.S.) Equity Fund Class I has provided an annualized return of 8.37% since its inception on August 31, 1993, compared to the 8.44% return of the MSCI World ex USA (Free) Index. This was achieved with a volatility of 12.69%, below the 14.52% volatility of the benchmark. For the year ended December 31, 1998, the Fund gained 14.39%, compared to the index's unhedged return of 18.67%. With the exception of the Pacific Rim and several small markets, most developed equity markets enjoyed solid performance. Monetary Union, privatization, restructuring, merger activity and increased capital flows have boosted European equity markets. Despite their excellent performance, European corporations are still early into their restructuring, with the potential for improving profitability ahead. Europe is our largest overweight. Most Pacific markets continued to suffer the consequences of last year's currency crisis. This situation has been aggravated in Japan by flawed macroeconomic policies, a largely insolvent financial sector and an unprofitable domestic corporate sector. We remain significantly underweight in Japan, Hong Kong and Singapore. In comparison, Australia and New Zealand have been unduly impacted by their geographic proximity to Asia and are attractively priced. We maintain an overweight in these markets. Overall market allocation detracted from performance. Holding cash (through July) in a period of unusually strong returns and overweighting New Zealand offset the positive effects of underweighting Japan and overweighting Belgium and Finland. Currency management was hurt by the yen underweight and the New Zealand dollar and Australian dollar overweights. Stock selection was positive due to successful strategies in Japan, helped by the significant underweight to banks, overweight to blue chips and stock specific returns, but hurt in the U.K. due to stock specific factors, the underweight to size and the overweight to basic industries. 6 Global (ex-U.S.) Equity Fund Total Return
6 months 1 year 3 years 5 years 8/31/93* ended ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------------------- Brinson Global (ex-U.S.) Equity Fund Class I 1.14% 14.39% 10.88% 9.72% 8.37% - ------------------------------------------------------------------------------------------- MSCI World ex USA (Free) Index** 2.72 18.67 9.06 9.27 8.44 - -------------------------------------------------------------------------------------------
* Performance inception date of the Brinson Global (ex-U.S.) Equity Fund Class I ** Formerly known as the MSCI Non-U.S. Equity (Free) Index. Performance is net of withholding taxes on dividends. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global (ex-U.S.) Equity Fund Class I and the MSCI World ex USA (Free) Index if you had invested $1,000,000 on August 31, 1993, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global (ex-U.S.) Equity Fund Class I vs. MSCI World ex USA (Free) Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] MSCI World Brinson Global (ex-U.S.) ex USA (Free) Index Equity Fund Class N ------------------- ------------------------ 8/31/93 $1,000,000 $1,000,000 $976,801 $972,000 $1,009,608 $997,000 $923,179 $929,000 12/31/93 $988,754 $965,500 $1,070,906 $1,033,606 $1,065,670 $1,002,558 $1,019,802 $957,488 $1,061,899 $984,530 $1,056,878 $985,531 6/30/94 $1,066,786 $975,547 $1,080,676 $990,648 $1,107,766 $1,019,844 $1,075,157 $990,648 $1,109,504 $1,007,763 $1,055,989 $974,540 12/31/94 $1,062,774 $974,540 $1,021,304 $940,310 $1,020,965 $936,283 $1,083,956 $952,391 $1,124,094 $983,601 $1,113,640 $984,608 6/30/95 $1,095,525 $974,540 $1,161,851 $1,032,932 $1,119,130 $1,049,040 $1,140,633 $1,066,155 $1,111,131 $1,056,087 $1,142,655 $1,082,263 12/31/95 $1,187,456 $1,126,103 $1,195,638 $1,148,603 $1,199,070 $1,144,317 $1,224,309 $1,159,318 $1,260,387 $1,202,176 $1,238,760 $1,196,819 6/30/96 $1,244,668 $1,204,891 $1,208,125 $1,171,452 $1,213,344 $1,176,845 $1,246,309 $1,212,442 $1,237,797 $1,209,206 $1,289,539 $1,270,691 12/31/96 $1,271,887 $1,269,637 $1,232,998 $1,262,768 $1,251,330 $1,283,375 $1,251,910 $1,291,389 $1,259,870 $1,300,548 $1,343,159 $1,385,267 6/30/97 $1,414,422 $1,449,115 $1,440,682 $1,475,588 $1,332,372 $1,371,998 $1,407,165 $1,449,115 $1,301,262 $1,358,186 $1,285,972 $1,335,166 12/31/97 $1,298,199 $1,342,509 $1,353,933 $1,387,259 $1,441,984 $1,460,600 $1,488,747 $1,516,538 $1,500,225 $1,528,968 $1,493,504 $1,528,968 6/30/98 $1,499,791 $1,518,353 $1,509,693 $1,533,349 $1,316,941 $1,343,399 $1,279,306 $1,310,908 $1,412,768 $1,412,131 $1,484,565 $1,484,612 12/31/98 $1,540,540 $1,535,729 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Global (ex-U.S.) Equity Fund Total Return
6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------- Brinson Global (ex-U.S.) Equity Fund Class N 0.88% 13.96% 3.58% - ------------------------------------------------------------------------- MSCI World ex USA (Free) Index** 2.72 18.67 5.86 - -------------------------------------------------------------------------
* Inception date of the Brinson Global (ex-U.S.) Equity Fund Class N ** Formerly known as the MSCI Non-U.S. Equity (Free) Index. Performance is net of withholding taxes on dividends. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global (ex-U.S.) Equity Fund Class N and the MSCI World ex USA (Free) Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global (ex-U.S.) Equity Fund Class N vs. MSCI World ex USA (Free) Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] MSCI World Brinson Global (ex-U.S.) ex USA (Free) Index Equity Fund Class N ------------------- ------------------------ 6/30/97 $1,000,000 $1,000,000 $1,018,566 $1,018,268 $941,990 $946,783 9/30/97 $994,869 $999,206 $919,996 $936,458 $909,186 $920,572 12/31/97 $917,830 $925,127 $957,234 $955,964 $1,019,486 $1,005,647 3/31/98 $1,052,548 $1,044,194 $1,060,663 $1,052,760 $1,055,911 $1,052,760 6/30/98 $1,060,356 $1,045,088 $1,067,357 $1,055,419 $931,081 $924,567 9/30/98 $904,473 $902,185 $998,831 $971,054 $1,049,591 $1,019,262 12/31/98 $1,089,166 $1,054,292 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 8 Global (ex-U.S.) Equity Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------- Global (ex-U.S.) EQUITIES Aerospace & Military 0.45% Airlines 0.16 Appliances & Households 3.18 Autos/Durables 1.69 Banking 10.47 Beverages & Tobacco 3.70 Broadcasting & Publishing 1.98 Building Materials 1.50 Business & Public Service 4.06 Chemicals 4.59 Construction 0.40 Data Processing 0.60 Electric Components 0.83 Electronics 5.50 Energy 8.13 Financial Services 1.60 Food & House Products 3.65 Forest Products 1.16 Health & Personal Care 9.34 Housing/Paper 0.10 Industrial Components 1.62 Insurance 8.81 Leisure & Tourism 0.31 Machinery & Engineering 0.23 Merchandising 4.65 Metals-Steel 0.87 Miscellaneous Materials 0.14 Multi-Industry 3.23 Non-Ferrous Metals 0.98 Real Estate 0.43 Recreation 0.58 Retail/Apparel 0.18 Telecommunications 8.83 Textiles & Apparel 0.19 Transportation 0.28 Utilities 4.40 Wholesale & International Trade 0.06 ------ Total Global (ex-U.S.) Equities 98.88 ------ CONVERTIBLE BONDS 0.05 SHORT-TERM INVESTMENTS 0.70 TOTAL INVESTMENTS 99.63 CASH AND OTHER ASSETS, LESS LIABILITIES 0.37 ------ NET ASSETS 100.00% ====== Market and Currency Strategy As of December 31, 1998 (Unaudited) Fund ------------------- Market Currency Strategy Strategy Index - -------------------------------------------------- Australia 5.38% 8.86% 2.47% Belgium 3.15 0.00 0.00 Canada 1.98 3.70 3.70 Denmark 0.59 0.86 0.86 Euro 0.00 38.67 38.67 Finland 2.99 0.00 0.00 France 10.41 0.00 0.00 Germany 11.69 0.00 0.00 Hong Kong 0.00 0.00 1.99 Italy 4.41 0.00 0.00 Japan 12.90 14.25 20.25 Netherlands 7.49 0.00 0.00 New Zealand 1.77 1.77 0.17 Norway 0.37 0.37 0.37 Singapore 0.74 0.72 0.72 Spain 1.92 0.00 0.00 Sweden 4.12 6.54 2.54 Switzerland 7.47 7.76 7.76 U.K. 22.62 16.50 20.50 - -------------------------------------------------- 100.00% 100.00% 100.00% Top Ten Global (ex-U.S.) Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - -------------------------------------------------- 1. Novartis AG (Reg.) 2.31% 2. Nestle S.A. (Reg.) 1.86 3. Allianz AG 1.85 4. Royal Dutch Petroleum Co. 1.80 5. Bayer AG 1.73 6. Nokia Oyj -D A Shares 1.66 7. Lloyds TSB Group PLC 1.58 8. Glaxo Wellcome PLC 1.51 9. Veba AG 1.50 10. Siemens AG 1.46 - -------------------------------------------------- 9 Global (ex-U.S.) Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Global (ex-U.S.) Equities -- 98.88% Australia -- 4.98% Amcor Ltd. 85,740 $ 366,730 Australia & New Zealand Banking Group 33,000 216,186 Brambles Industries Ltd. 68,040 1,658,993 Broken Hill Proprietary Co., Ltd. 269,620 1,987,758 Burns Philp & Co. Ltd. 254,362 20,283 CSR Ltd. 358,990 878,614 David Jones Ltd. 503,200 555,592 Goodman Fielder Ltd. 120,000 121,453 Lend Lease Corp. Ltd. 89,996 1,214,476 M.I.M. Holdings Ltd. 488,000 215,524 National Australia Bank Ltd. 204,648 3,088,060 News Corp., Ltd. 301,747 1,995,285 News Corp., Ltd., Preferred 129,469 788,603 Orica Ltd. 85,820 446,930 Pacific Dunlop Ltd. 365,450 591,800 Pasminco Ltd. 297,000 225,903 Qantas Airways Ltd. 391,138 798,946 QBE Insurance Group Ltd. 205,223 849,714 Rio Tinto Ltd. 66,560 790,223 Santos Ltd. 237,140 637,121 Telstra Corp., Ltd. (b) 705,210 3,300,549 Westpac Banking Corp., Ltd. 391,841 2,624,676 WMC Ltd. 256,270 773,403 Woolworth's Ltd. 117,460 400,309 ------------ 24,547,131 ------------ Belgium -- 2.74% Electrabel S.A. 11,895 5,228,374 Fortis AG 583 34 Fortis AG Strip (b) 17,173 6,223,587 KBC Bancassurance Holding 26,100 2,066,496 KBC Bancassurance Holding-Strip (b) 610 35 ------------ 13,518,526 ------------ Canada -- 2.04% Agrium, Inc. 37,580 330,293 Alcan Aluminum Ltd. 23,940 646,816 Bank of Montreal 16,010 643,110 Canadian National Railway Co. 17,390 902,899 Canadian Pacific 40,014 897,137 Extendicare Inc, Class A (b) 35,840 203,000 Hudson's Bay Co. 36,620 461,326 Imasco, Ltd. 24,800 527,969 Imperial Oil Ltd. 47,060 752,163 Magna International Inc., Class A 6,360 395,016 Newbridge Networks Corp. (b) 16,510 500,889 NOVA Chemicals Corp. 26,521 345,325 Potash Corporation of Saskatchewan, Inc. 6,360 407,852 Royal Bank of Canada 18,720 932,953 Seagram Co., Ltd. 8,800 333,724 Shaw Communications, Inc. Class B 33,880 818,326 TransCanada Pipelines Ltd. 46,376 677,826 Westcoast Energy, Inc. 14,320 284,349 ------------ 10,060,973 ------------ Denmark -- 0.54% Den Danske Bank Group 1,240 $ 166,580 Tele Danmark A/S 18,500 2,496,897 ------------ 2,663,477 ------------ Finland -- 2.51% Merita Ltd., Class A 301,600 1,917,984 Nokia Oyj-A Shares 66,730 8,170,913 UPM-Kymmene Corp. 81,000 2,271,596 ------------ 12,360,493 ------------ France -- 10.36% Air Liquide 16,122 2,958,192 Alcatel Alsthom 28,127 3,443,999 Axa 22,624 3,280,484 Axa Certificate de Valeur Garante (b) 8,422 3,995 Banque Nationale de Paris 33,146 2,730,620 Cie de Saint Gobain 14,263 2,014,519 Dexia France 11,810 1,820,273 Elf Aquitaine S.A. 17,934 2,073,926 France Telecom S.A. 33,090 2,630,045 Groupe Danone 7,790 2,282,768 Lafarge S.A. 1,687 160,359 Lagardere S.C.A. 70,530 2,998,617 Michelin, Class B 28,023 1,121,181 Moulinex 16,745 257,791 Paribas 14,973 1,301,849 Pinault-Printemps-Redoute S.A. 7,650 1,462,568 Rhone-Poulenc, Class A 43,420 2,235,436 SEFIMEG 2,126 150,329 SEITA 59,480 3,726,684 Societe Generale 11,573 1,874,900 Suez Lyonnaise des Eaux S.A. 16,042 3,296,734 Thomson CSF 52,120 2,239,232 Total S.A., Class B 25,833 2,617,428 Vivendi 16,794 4,359,189 ------------ 51,041,118 ------------ Germany -- 12.40% Allianz AG 24,472 9,109,414 Bayer AG 202,556 8,506,720 DaimlerChrysler AG (b) 66,618 6,619,404 Deutsche Bank AG 47,097 2,778,994 Deutsche Telekom AG 115,010 3,780,498 Dresdner Bank AG 62,180 2,605,766 Hoechst AG 66,610 2,755,421 Mannesmann AG (b) 42,850 4,958,776 SAP AG 5,230 2,260,807 Siemens AG 109,590 7,204,674 Veba AG 124,588 7,382,826 Volkswagen AG 38,206 3,092,080 ------------ 61,055,380 ------------ Hong Kong -- 0.08% Hongkong Land Holdings, Ltd. 153,000 180,540 Wharf (Holdings) Ltd. 136,000 198,366 ------------ 378,906 ------------ Indonesia -- 0.02% Indah Kiat Pulp & Paper Corp. 296,000 80,981 ------------ 10 Global (ex-U.S.) Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Italy -- 4.05% Assicurazioni Generali 104,446 $ 4,370,544 Danieli & Co. Savings (Risp) 59,100 235,835 ENI Spa 768,000 5,030,134 ENI Spa ADR (c) 11,080 750,670 La Rinascente Spa 264,140 2,722,388 Montedison Spa 1,614,280 2,148,859 San Paolo-imi, Spa 113,610 2,011,843 Telecom Italia Mobile Spa 360,000 2,663,526 ------------ 19,933,799 ------------ Japan -- 13.56% Acorn Co., Ltd. 9,000 579,255 Amada Co., Ltd. 131,000 635,257 Bridgestone Corp. 29,000 659,441 Canon, Inc. 91,000 1,948,271 Citizen Watch Co., Ltd. 115,000 693,262 Dai Nippon Printing Co., Ltd. 119,000 1,901,046 Daiichi Pharmaceutical Co., Ltd. 108,000 1,827,766 Daikin Industries Ltd. 130,000 1,290,780 Daiwa House Industry Co., Ltd. 61,000 650,559 Fanuc 51,700 1,773,750 Fuji Photo Film 23,000 856,383 Fujitsu 75,000 1,000,665 Hitachi Ltd. 53,000 328,901 Honda Motor Co. 56,000 1,841,844 Hoya Corp. 30,000 1,462,766 Ishikawajima-Harima Heavy Industries Co., Ltd. 9,000 15,957 Ito Yokado Co., Ltd. 50,000 3,501,773 Japan Wool Textile Co., Ltd. 27,000 146,729 Kajima Corp. 22,000 57,535 Kaneka Corp. 133,000 998,679 Kansai Paint Co., Ltd. 42,000 122,128 Kao Corp. 39,000 881,649 Kirin Brewery Co., Ltd. 142,000 1,812,766 Koito Manufacturing Co., Ltd. 54,000 229,309 Kokuyo 40,000 539,362 Kuraray Co., Ltd. 158,000 1,746,684 Marui Co., Ltd. 69,000 1,330,452 Matsushita Electric Industrial Co. 168,000 2,977,234 Mitsubishi Estate Co., Ltd. 42,000 377,181 Mitsubishi Heavy Industries, Ltd. 43,000 167,731 NGK Insulators 219,000 2,828,750 Nikko Securities Co., Ltd. 56,000 156,383 Nintendo Co., Ltd. 13,500 1,310,505 Nippon Denso Co., Ltd. 110,000 2,038,121 Nippon Meat Packers, Inc. 84,000 1,355,319 Nippon Yusen Kabushiki Kaisha 88,000 278,511 Nisshinbo Industries, Inc. 42,000 146,702 Omron Corp. 35,000 480,319 Sakura Bank, Ltd. 96,000 220,426 Sankyo Co., Ltd. 92,000 2,014,539 Secom Co., Ltd. 31,000 2,572,340 Sega Enterprises Ltd. 16,000 355,319 Sekisui House Ltd. 120,000 1,271,277 Sharp Corp. 11,000 99,371 Shin-Etsu Chemical Co., Ltd. 20,000 482,270 Sony Corp. 31,500 2,298,271 Shares Value ----------- ---------------- Sumitomo Chemical Co. 150,000 $ 585,106 Sumitomo Electric Industries 108,000 1,216,915 Sumitomo Marine & Fire Insurance Co., Ltd. 35,000 222,163 Taiheiyo Cement Corp. 78,600 197,197 Takeda Chemical Industries 76,000 2,930,851 TDK Corp. 20,000 1,831,560 Tokio Marine & Fire Insurance Co. 119,000 1,424,202 Tokyo Gas Co. 197,000 518,697 Tokyo Steel Mfg. 28,000 140,496 Toray Industries, Inc. 366,000 1,914,362 Toshiba Corp. 300,000 1,789,894 Toyo Seikan Kaisha, Ltd. 17,000 289,060 Toyo Suisan Kaisha 3,000 25,957 Toyota Motor Corp. 87,000 2,367,819 UNY Co., Ltd. 4,000 73,227 West Japan Railway Co. 70 310,284 Yamaha Motor Co., Ltd. 34,000 219,734 Yamato Transport Co., Ltd. 33,000 462,234 ------------ 66,783,296 ------------ Korea -- 0.09% Hyundai Motor Co., Ltd. 7,246 128,952 Korea Electric Power Corp. 1,000 24,782 Shinhan Bank (b) 25,300 193,563 SK Telecom Co., Ltd. 130 98,221 ------------ 445,518 ------------ Malaysia -- 0.02% Malayan Banking Bhd 27,000 38,287 Nestle (Malaysia) Bhd 15,000 41,989 ------------ 80,276 ------------ Netherlands -- 7.15% ABN AMRO Holdings NV 90,088 1,896,135 Akzo Nobel NV 12,825 584,290 Elsevier NV 189,870 2,660,831 Heineken NV 65,902 3,968,096 ING Groep NV 112,427 6,859,323 KPN NV 135,445 6,784,158 Philips Electronics NV 1,349 90,571 Royal Dutch Petroleum Co. 181,380 9,036,623 Unilever NV 38,740 3,313,140 ------------ 35,193,167 ------------ New Zealand -- 1.95% Auckland International Airport Ltd. (b) 248,210 347,493 Brierley Investments Ltd. 1,811,340 411,481 Carter Holt Harvey Ltd. 1,158,540 1,040,498 Fletcher Challenge Building 285,560 442,025 Fletcher Challenge Energy 306,600 583,118 Fletcher Challenge Paper 642,540 431,107 Lion Nathan Ltd. 348,570 889,444 Telecom Corp. of New Zealand Ltd. 1,111,890 4,846,155 Telecom Corp. of New Zealand Ltd. ADR (c) 16,500 588,844 ------------ 9,580,165 ------------ Norway -- 0.40% Norsk Hydro ASA 26,510 894,221 Norske Skogindustrier ASA 36,350 1,059,155 ------------ 1,953,376 ------------ 11 Global (ex-U.S.) Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Singapore -- 0.85% Development Bank of Singapore Ltd. 20,000 $ 180,606 Singapore Press Holdings Ltd. 216,975 2,353,850 United Overseas Bank Ltd. (Frgn.) 259,000 1,663,879 ------------ 4,198,335 ------------ Spain -- 1.79% Banco Popular Espanol S.A. 32,239 2,434,496 Endesa S.A. 178,238 4,729,680 Telefonica S.A. 37,432 1,666,925 Telefonica S.A. Rights (expiring 1/30/99) (b) 748 665 ------------ 8,831,766 ------------ Sweden -- 3.94% Astra AB, A Shares 144,058 2,941,301 Electrolux AB, B Shares 194,460 3,346,637 ForeningsSparbanken AB 4,971 128,786 Investor AB 44,870 2,026,009 Nordbanken Holding AB 231,960 1,488,060 Skandia Forsakrings AB 225,180 3,444,733 Stora Kopparbergs Berglags Aktiebolag 20,639 226,612 Svenska Handelsbanken, A Shares 19,560 825,276 Swedish Match AB 605,370 2,203,165 Telefonaktiebolaget LM Ericsson, B Shares 116,780 2,780,545 ------------ 19,411,124 ------------ Switzerland -- 7.24% CS Holdings AG (Reg.) 1,603 250,925 Julius Baer Holding AG 423 1,405,894 Nestle S.A. (Reg.) 4,203 9,149,596 Novartis AG (Reg.) 5,797 11,395,632 Roche Holding AG (Gen.) 512 6,247,630 Swiss Reinsurance Co. (Reg.) 1,306 3,405,013 SwissCom AG (Reg.) (b) 9,023 3,777,375 ------------ 35,632,065 ------------ Thailand -- 0.07% Bangkok Bank Public Co., Ltd. (b) 60,000 123,848 Italian-Thai Development Public Co., Ltd. (b) 15,000 30,136 Shinawatra Computer Public Co., Ltd. (b) 22,000 75,685 Thai Farmers Bank Public Co., Ltd. (Frgn) (b) 71,000 125,058 ------------ 354,727 ------------ United Kingdom -- 22.10% Allied Zurich AG (b) 232,252 3,464,285 Barclays PLC 157,230 3,390,348 BG PLC 83,250 525,308 Billiton PLC 116,500 231,147 BOC Group PLC 161,450 2,308,808 Booker PLC 295,950 307,753 Boots Company PLC 174,340 2,968,853 BPB PLC 5,000 18,905 British American Tobacco PLC 299,252 2,631,394 British Petroleum Co. PLC 380,383 5,680,145 British Steel PLC 1,457,140 2,157,720 BTR PLC 200,000 412,625 Cable & Wireless PLC 115,200 1,416,449 Charter PLC 278,988 1,531,804 Coats Viyella PLC 1,445,489 649,355 Diageo PLC 231,935 2,639,528 Shares Value ----------- ---------------- Fairview Holdings PLC (b) 154,702 $ 229,081 FKI PLC 1,093,225 2,437,352 Garban PLC (b) 12,658 48,229 General Electric Co. PLC 466,240 4,208,362 Glaxo Wellcome PLC 216,260 7,440,988 Greenalls Group PLC 201,750 1,075,834 Hanson PLC 375,482 2,981,528 Hillsdown Holdings PLC 309,395 386,081 House of Fraser PLC 484,090 426,880 IMI PLC 49,800 195,544 Lloyds TSB Group PLC 545,545 7,760,694 Marks & Spencer PLC 718,550 4,928,577 Marley PLC 202,230 410,496 Mirror Group PLC 600,240 1,500,525 National Westminster Bank PLC 138,050 2,662,096 Nycomed Amersham PLC 266,090 1,832,875 Peninsular & Oriental Steam Navigation Co. 166,986 1,974,004 Pennon Group PLC 11,860 229,690 Prudential Corp. PLC 406,820 6,142,608 Rank Group PLC 31,000 119,403 Reed International PLC 251,190 1,964,283 Rio Tinto PLC 186,890 2,173,537 RJB Mining PLC 408,840 530,581 Royal & Sun Alliance Insurance Group PLC 180,174 1,471,148 Safeway PLC 63,898 321,069 Sainsbury (J.) PLC 115,950 929,386 Scottish & Newcastle PLC 37,081 430,636 Scottish Hydro-Electric PLC 364,720 4,108,205 Smith & Nephew PLC 97,532 303,454 SmithKline Beecham PLC 317,750 4,440,877 Smurfit (Jefferson) Group PLC 293,929 528,166 Tarmac PLC 135,601 253,816 Tate & Lyle PLC 118,720 653,816 Terranova Foods PLC (b) 154,702 283,134 Tesco PLC 1,131,830 3,224,895 Thames Water PLC 153,589 2,938,744 Thames Water PLC, Class B (b) 134,310 168,717 United News & Media PLC 163,580 1,434,315 United Utilities PLC 21,046 291,688 Vodafone Group PLC 98,547 1,600,284 Williams PLC 189,277 1,074,668 Yorkshire Water PLC 260,000 2,379,249 ------------ 108,829,942 ------------ Total Global (ex-U.S.) Equities (Cost $408,772,123) 486,934,541 Face Amount ----------- Convertible Bonds -- 0.05% Australia -- 0.03% Burns, Philp Treasury, 7.50%, due 8/14/03 AUD 1,228,664 150,733 ------------ Japan -- 0.02% Sanwa Finance Trust, 1.25%, due 8/01/05 JPY 15,000,000 113,365 ------------ Total Convertible Bonds (Cost $264,410) 264,098 ------------ 12 Global (ex-U.S.) Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Short-Term Investments -- 0.70% Investment Companies -- 0.70% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $3,451,114) 3,451,114 $ 3,451,114 ------------ Total Investments (Cost $412,487,647) -- 99.63% (a) 490,649,753 ------------ Cash and other assets, less liabilities -- 0.37% 1,805,777 ------------ Net Assets -- 100% $492,455,530 ============ See accompanying notes to schedule of investments. 13 Global (ex-U.S.) Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $412,487,647; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 102,678,967 Gross unrealized depreciation (24,516,861) ------------- Net unrealized appreciation $ 78,162,106 ============= (b) Non-income producing security (c) Denominated in U.S. dollars FORWARD FOREIGN CURRENCY CONTRACTS The Global (ex-U.S.) Equity Fund had the following open forward foreign currency contracts as of December 31, 1998:
Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ---------- -------- ------- ----------- Forward Foreign Currency Buy Contracts Australian Dollar 2/19/99 32,300,000 $19,821,180 $ (677,170) Belgian Franc 2/19/99 333,000,000 9,716,971 163,459 British Pound 2/19/99 6,600,000 10,963,637 11,096 Canadian Dollar 2/19/99 10,600,000 6,901,985 (71,699) Finnish Markka 2/19/99 14,600,000 2,890,477 30,311 German Mark 2/19/99 33,700,000 20,282,511 1,146,743 Hong Kong Dollar 2/19/99 16,000,000 2,064,513 52,694 Italian Lira 2/19/99 13,390,000,006 8,140,230 316,699 Japanese Yen 2/19/99 1,695,000,000 15,126,051 2,319,252 Portguese Escudos 2/19/99 520,000,000 3,053,162 165,717 Singapore Dollars 2/19/99 6,300,000 3,834,846 280,344 Spanish Peseta 2/19/99 2,240,000,000 15,847,221 903,926 Swedish Krona 2/19/99 126,700,000 15,664,602 (776,812) Swiss Franc 2/19/99 17,900,000 13,098,967 155,531 Forward Foreign Currency Sale Contracts Australian Dollar 2/19/99 6,000,000 3,681,953 (86,153) Belgian Franc 2/19/99 455,000,000 13,276,942 (776,942) British Pound 2/19/99 22,600,000 37,542,152 (991,172) Finnish Markka 2/19/99 41,800,000 8,275,474 (462,390) French Franc 2/19/99 20,000,000 3,589,028 (72,853) German Mark 2/19/99 45,300,000 27,264,028 181,657 Hong Kong Dollar 2/19/99 16,000,000 2,064,513 (61,007) Italian Lira 2/19/99 9,140,000,000 5,556,512 (125,347) Japanese Yen 2/19/99 1,000,000,000 8,923,924 (308,062) Netherlands Guilder 2/19/99 15,600,000 8,332,799 (151,270) Singapore Dollar 2/19/99 6,300,000 3,834,846 (264,429) Spanish Peseta 2/19/99 1,279,000,000 9,048,480 (145,772) Swedish Krona 2/19/99 24,000,000 2,967,249 24,076 Swiss Franc 2/19/99 13,900,000 10,171,823 (59,345) ---------- Total $ 721,082 ==========
See accompanying notes to financial statements. 14 Global (ex-U.S.) Equity Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $409,036,533) $487,198,639 Affiliated issuers (Cost $3,451,114) 3,451,114 Foreign currency, at value (Cost $2,680,240) 2,653,947 Receivables: Investment securities sold 902,478 Dividends 890,378 Interest 55,532 Fund shares sold 6,285 Net unrealized appreciation on forward foreign currency contracts 721,082 ------------- TOTAL ASSETS 495,879,455 ------------- LIABILITIES: Payables: Investment securities purchased 2,985,374 Due to custodian bank 88,790 Investment advisory fees 311,394 Accrued expenses 38,367 ------------- TOTAL LIABILITIES 3,423,925 ------------- NET ASSETS $492,455,530 ============= NET ASSETS CONSIST OF: Paid in capital $431,264,036 Accumulated undistributed net investment income 1,427,023 Accumulated net realized loss (19,100,417) Net unrealized appreciation 78,864,888 ------------- NET ASSETS $492,455,530 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $487,467,742 and 40,220,544 shares issued and outstanding) $ 12.12 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $13,188 and 1,092 shares issued and outstanding) $ 12.08 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $4,974,600 and 414,597 shares issued and outstanding) $ 12.00 ============= See accompanying notes to financial statements. 15 Global (ex-U.S.) Equity Fund -- Financial Statements
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends (net of $278,261 for foreign taxes withheld) $ 3,094,946 Interest (including securities lending income of $60,855) 466,546 ------------ TOTAL INCOME 3,561,492 ------------ EXPENSES: Advisory 1,759,921 Administrative 163,950 Custodian 137,494 Distribution 20,399 Other 120,708 ------------ TOTAL EXPENSES 2,202,472 ------------ NET INVESTMENT INCOME 1,359,020 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (11,921,708) Foreign currency transactions (2,561,948) ------------ Net realized loss (14,483,656) ------------ Change in net unrealized appreciation or depreciation on: Investments and foreign currency 18,056,900 Forward contracts 3,190,576 Translation of other assets and liabilities denominated in foreign currency 14,586 ------------ Change in net unrealized appreciation or depreciation 21,262,062 ------------ Net realized and unrealized gain 6,778,406 ------------ Net increase in net assets resulting from operations $ 8,137,426 ============
See accompanying notes to financial statements. 16 Global (ex-U.S.) Equity Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 1,359,020 $ 6,539,098 Net realized gain (loss) (14,483,656) 12,223,856 Change in net unrealized appreciation or depreciation 21,262,062 6,875,111 ------------ ------------ Net increase in net assets resulting from operations 8,137,426 25,638,065 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (1,364,369) (6,380,973) Brinson Class N (36) (58) UBS Investment Funds Class (4,900) (51,271) Distributions from net realized gain: Brinson Class I (4,498,729) (25,288,399) Brinson Class N (126) (59) UBS Investment Funds Class (52,439) (521,640) ------------ ------------ Total distributions to shareholders (5,920,599) (32,242,400) ------------ ------------ Capital share transactions: Shares sold 328,933,304 317,039,181 Shares issued in connection with reorganization 21,515,034 -- Shares issued on reinvestment of distributions 5,616,506 31,189,854 Shares redeemed (310,475,289) (325,627,875) ------------ ------------ Net increase in net assets resulting from capital share transactions 45,589,555 22,601,160 ------------ ------------ TOTAL INCREASE IN NET ASSETS 47,806,382 15,996,825 ------------ ------------ NET ASSETS: Beginning of period 444,649,148 428,652,323 ------------ ------------ End of period (including accumulated undistributed net investment income of $1,427,023 and $1,437,308, respectively) $492,455,530 $444,649,148 ============ ============
See accompany notes to financial statements 17 Global (ex-U.S.) Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, August 31, 1993* December 31, 1998 ---------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1996 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69 $ 10.00 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.04 0.18 0.18 0.18 0.15 0.10 Net realized and unrealized gain (loss) 0.09 0.30 1.97 2.05 (0.16) (0.34) Total income (loss) from investment operations 0.13 0.48 2.15 2.23 (0.01) (0.24) -------- -------- -------- -------- -------- -------- Less distributions: Distributions from investment income (0.04) (0.18) (0.17) (0.18) -- (0.07) Distributions from net realized gain (0.12) (0.74) (0.56) (0.56) -- -- -------- -------- -------- -------- -------- -------- Total distributions (0.16) (0.92) (0.73) (0.74) -- (0.07) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 12.12 $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69 ======== ======== ======== ======== ======== ======== Total return (non-annualized) 1.14% 4.78% 20.27% 23.64% (0.10) (2.45)% Ratios/Supplemental data: Net assets, end of period (in 000s) $487,468 $439,329 $420,855 $212,366 $148,319 $ 71,544 Ratio of expenses to average net assets: Before expense reimbursement 0.99%** 1.00% 1.00% 1.20% 1.23% 1.60%** After expense reimbursement N/A N/A N/A 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reimbursement 0.63%** 1.52% 1.83% 1.67% 1.93% 1.28%** After expense reimbursement N/A N/A N/A 1.87% 2.16% 1.88%** Portfolio turnover rate 37% 49% 25% 20% 14% 12%
* Commencement of investment operations ** Annualized N/A = Not Applicable See accompanying notes to financial statements. 18 Global (ex-U.S.) Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.14 $ 12.59 ------- ------- Income from investment operations: Net investment income 0.02 0.16 Net realized and unrealized gain 0.08 0.29 ------- ------- Total income from investment operations 0.10 0.45 ------- ------- Less distributions: Distributions from net investment income (0.04) (0.16) Distributions from net realized gain (0.12) (0.74) ------- ------- Total distributions (0.16) (0.90) ------- ------- Net asset value, end of period $ 12.08 $ 12.14 ======= ======= Total return 0.88% 4.51% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 13 $ 11 Ratio of expenses to average net assets: Before expense reimbursement 0.38%** 1.25% After expense reimbursement N/A N/A Ratio of net investment income to average net assets: Before expense reimbursement 1.24%** 1.27% After expense reimbursement N/A N/A Portfolio turnover rate 37% 49%
* Commencement of Brinson Class N was June 30, 1997. ** Annualized N/A = Not Applicable See accompany notes to financial statements 19 Global (ex-U.S.) Equity Fund -- Financial Highlights 20 The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, July 31, 1995* December 31, 1998 ------------------------- Through UBS Investment Funds Class (Unaudited) 1998 1997 June 30, 1996 - -------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.05 $ 12.49 $ 11.12 $ 10.26 ------- -------- -------- -------- Income from investment operations: Net investment income (loss) (0.01) 0.08 0.11 0.12 Net realized and unrealized gain 0.09 0.30 1.93 1.45 ------- -------- -------- -------- Total income from investment operations 0.08 0.38 2.04 1.57 ------- -------- -------- -------- Less distributions: Distributions from net investment income (0.01) (0.08) (0.11) (0.15) Distributions from net realized gain (0.12) (0.74) (0.56) (0.56) ------- -------- -------- -------- Total distributions (0.13) (0.82) (0.67) (0.71) ------- -------- -------- -------- Net asset value, end of period $ 12.00 $ 12.05 $ 12.49 $ 11.12 ======= ======== ======== ======== Total return (non-annualized) 0.76% 3.90% 19.32% 15.78% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,975 $ 5,310 $ 7,797 $ 1,262 Ratio of expenses to average net assets: Before expense reimbursement 1.83%** 1.84% 1.81% 2.04%** After expense reimbursement N/A N/A N/A 1.84%** Ratio of net investment income to average net assets: Before expense reimbursement (0.21)%** 0.68% 1.02% 0.83%** After expense reimbursement N/A N/A N/A 1.03%** Portfolio turnover rate 37% 49% 25% 20%
* Commencement of UBS Investment Funds Class ** Annualized N/A = Not Applicable See accompanying notes to financial statements. 20 Global (ex-U.S.) Equity Fund -- Notes To Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund, High Yield Fund and Global (ex-U.S.) Equity Fund (formerly, Non-U.S. Equity Fund) (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and UBS Investment Funds Class (formerly, SwissKey Class). There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. On December 19, 1998, the Fund acquired all the net assets of the UBS International Equity Fund pursuant to a plan of reorganization approved by shareholders on December 11, 1998. The acquisition was accomplished by a tax-free exchange of 1,827,955 shares of the Global (ex-U.S.) Equity Fund for the shares of UBS International Equity Fund outstanding on December 18, 1998. The net assets of the UBS International Equity Fund, including $38,003 of unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Global (ex-U.S.) Equity Fund and the UBS International Equity Fund immediately before the mergers were $463,315,718 and $21,515,034, respectively. The following is a summary of significant accounting policies consistently followed by the Global (ex-U.S.) Equity Fund in the preparation of its financial statements. A. Investment Valuation: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange of which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. Foreign Currency Translation: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate on the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C. Investment Transactions: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D. Investment Income: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E. Federal Income Taxes: It is the policy of the Fund to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Fund has met the requirements of the Code applicable to regulated investment companies for the six months ended December 31, 1998, therefore, no federal income tax provision was required. F. Distributions To Shareholders: It is the policy of the Fund to distribute its net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing tax treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. 21 Global (ex-U.S.) Equity Fund -- Notes To Financial Statements G. Income and Expense Allocation: All income earned and expenses incurred by the Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the UBS Investment Funds Class. H. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Fund with investment management services. As compensation for these services, the Fund pays the Advisor a monthly fee based on the Fund's average daily net assets. The Advisor has agreed to waive its fees and reimburse the Fund to the extent total annualized expenses exceed a specified percentage of the Fund's average daily net assets. The expense cap is 1.00%, 1.25% and 1.84% of the average daily net assets of the Brinson Class I, Brinson Class N and UBS Investment Funds Class, respectively. Investment advisory fees for the six months ended December 31, 1998, were as follows: Advisory Advisory Fee Fees --------- ---------- Global (ex-U.S.) Equity Fund 0.80% $1,759,921 Certain officers of the Fund are also officers of the Advisor. All officers serve without direct compensation from the Fund. Trustees' fees paid to unaffiliated trustees for the six months ended December 31, 1998 were $2,944. The Fund invests in shares of the Brinson Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). The Supplementary Trust is managed by the Advisor. The Supplementary Trust is offered as a cash management option to mutual funds and other accounts managed by the Advisor. The Supplementary Trust pays no management fees. Distributions from the Supplementary Trusts are reflected as interest income on the statement of operations. Amounts relating to those investments at December 31, 1998 and for the six months then ended are summarized as follows:
% of Sales Interest Net Purchases Proceeds Income Value Assets ----------- ----------- -------- ---------- ------ Global (ex-U.S.) Equity Fund $24,086,054 $20,634,940 $27,845 $3,451,114 0.70%
3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales ------------ ------------ Global (ex U.S.) Equity Fund $204,961,081 $158,506,370 4. FORWARD FOREIGN CURRENCY CONTRACTS The Fund engages in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to the Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Fund realizes a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts at and for the six months ended December 31, 1998, was the Fund's custodian or an affiliate of the Fund's custodian. 5. FUTURES CONTRACTS The Fund may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Fund to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Fund enters into such 22 Global (ex-U.S.) Equity Fund -- Notes To Financial Statements contracts to hedge a portion of its portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Fund, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 6. SECURITY LENDING The Fund loaned securities to certain brokers with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. The Fund receives securities, which are not reflected in the statement of assets and liabilities, as collateral against the loaned securities. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 105% of the value of non-U.S. securities loaned. The value of loaned securities and related collateral at December 31, 1998 was $15,400,404 and $15,505,536, respectively. 7. DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the UBS Investment Funds Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the UBS Investment Funds Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the daily net assets of the Brinson Class N. Annual fees under the UBS Investment Funds Plan, which include a 0.25% service fee, shall not exceed 0.84% of the average daily net assets of the UBS Investment Funds Class. 8. LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is based on the Federal Funds rate plus 0.50% per year. The Funds pay a commitment fee of 0.08% per year of the average daily unutilized amount of the line of credit. During the six months ended December 31, 1998, the Global (ex-U.S.) Equity Fund had borrowings of $1,300,000 and $3,600,000 outstanding for 1 day each under the agreement. 9. CAPITAL TRANSACTIONS Capital stock transactions were as follows:
Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------- --------------------------------- Shares Value Shares Value ------------- ----------------- ------------- ----------------- Sales: Brinson Class I* 30,605,579 $347,475,664 26,268,807 $312,436,986 Brinson Class N 205 2,348 798 9,817 UBS Investment Funds Class 261,400 2,970,326 387,174 4,592,378 ----------- ------------ ----------- ------------ Total Sales 30,867,184 $350,448,338 26,656,779 $317,039,181 =========== ============ =========== ============ Dividend Reinvestment: Brinson Class I 488,199 $ 5,565,465 2,849,536 $ 30,664,100 Brinson Class N 15 162 10 117 UBS Investment Funds Class 4,502 50,879 49,433 525,637 ----------- ------------ ----------- ------------ Total Dividend Reinvestment 492,716 $ 5,616,506 2,898,979 $ 31,189,854 =========== ============ =========== ============ Redemptions: Brinson Class I 27,036,820 $307,200,527 26,391,131 $318,236,785 Brinson Class N 15 187 -- -- UBS Investment Funds Class 291,758 3,274,575 620,542 7,391,090 ----------- ------------ ----------- ------------ Total Redemptions 27,328,593 $310,475,289 27,011,673 $325,627,875 =========== ============ =========== ============
*Includes shares issued in connection with reorganization. 23 Special Meeting of Shareholders Voting Results of Special Meeting of Shareholders (Unaudited) The proposal described below was submitted to a vote of shareholders of UBS Private Investor Funds, Inc. ("UBS Funds") at a special meeting of shareholders held on December 11, 1998 (the "Meeting"): Proposal No. 1 -D Approval of a Plan of Reorganization pursuant to which UBS Fund's International Equity Fund (the "Fund") will be reorganized into Class I shares of the Global (ex-U.S.) Equity Fund. At the Meeting, the shareholders of the Fund approved Proposal No. 1 as follows: For Against Abstain ------- ------- ------- UBS International Equity Fund 126,983 0 0 24 Distributed by: Funds Distributor, Inc. 60 State Street Boston, MA 02109 This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund's objectives, policies, expenses and other information. [BRINSON LOGO APPEARS HERE] The Brinson Funds Chicago - Bahrain - Basel - Frankfurt - Geneva - Hong Kong - London - Melbourne - - New York - Paris - Rio de Janiero - Singapore - Sydney - Tokyo - Zurich 209 South LaSalle Street - Chicago, Illinois 60604-1295 - Tel: (800) 448-2430 [UBS LOGO APPEARS HERE] Global (ex-U.S.) Equity Fund Semi-Annual Report December 31, 1998 Trustees and Officers [UBS LOGO APPEARS HERE] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Debra L. Nichols Chairman of the Board Vice President E. Thomas McFarlan Carolyn M. Burke, CPA President Secretary and Treasurer Thomas J. Digenan, CFA, CPA David E. Floyd Vice President Assistant Secretary 1 The Fund's Advisor - Brinson Partners, Inc. [UBS LOGO APPEARS HERE] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 125 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific client objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent. 2 Table of Contents [UBS LOGO APPEARS HERE] Shareholder Letter 4 Global Economic and Market Highlights 5 Global (ex-U.S.) Equity Fund 6 Schedule of Investments 9 Financial Statements 14 Financial Highlights 17 Notes to Financial Statements 20 Special Meeting of Shareholders 23 3 Shareholder Letter [UBS LOGO APPEARS HERE] February 20, 1999 Dear Shareholder: We are very pleased to present the December 31, 1998 Semi-Annual Report for the Global (ex-U.S.) Equity Fund. The Non-U.S. Equity Fund was renamed the Global (ex-U.S.) Equity Fund effective December 10, 1998. This change affects only the name of the Fund; the management, benchmark and all other aspects of the Fund will remain the same. Within this Report, we will focus on the current international economic outlook as well as our current strategy and performance update for the Global (ex-U.S.) Equity Fund. Since our last report to you, Union Bank of Switzerland and Swiss Bank Corporation merged to become UBS AG, one of the world's major financial institutions. In connection with this merger, the former SBC Brinson/Brinson Partners, Inc.'s activities of Swiss Bank Corporation were combined with the worldwide UBS asset management operations into the UBS Brinson division of UBS AG. During this process, the UBS Private Investor Funds merged into the Brinson fund family on December 18, 1998. This merger created the following three new UBS Investment Funds on December 31, 1998; the U.S. Large Capitalization Growth Fund, the U.S. Small Capitalization Growth Fund and the High Yield Fund. The Global (ex-U.S.) Equity Fund is an actively managed fund that provides integrated asset management across and within security markets. The investment process is strategic in nature and is driven by deviations of market price from fundamental value. This philosophy offers the greatest potential for achieving enhanced, long-term returns while controlling risk. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our talent. The Report that follows highlights the investment characteristics and the performance of the Global (ex-U.S.) Equity Fund. We very much appreciate your continued trust and the confidence you have placed in the UBS Investment Funds. Sincerely, /s/ Hanspeter A. Walder /s/ Raymond Simon Hanspeter A. Walder Raymond Simon Executive Director Executive Director Private Banking Private Banking 4 Global Economic and Market Highlights [UBS LOGO APPEARS HERE] Japan and most of Asia continue to be mired in severe downturns. The Japanese economy is particularly troubled, as the one bright spot in the economy, the export sector, has started to weaken in response to a dramatic strengthening of the yen. Bond yields have risen sharply as the government's deficit financing has pushed the gross debt to GDP ratio among the highest of the developed countries. The single European currency enjoyed a successful launch on January 1, 1999. Monetary policy for the eleven participating nations is now being administered by the European Central Bank. Cash rates and bond yields have converged, except for small spreads due to credit and liquidity differences. Although the euro's success in the near term is not in doubt, some longer-term concerns remain. Economic convergence of the EMU economies is not complete, and the economic environment appears to be softening. This creates an element of political risk for the ECB and the new currency. Inflation remains in check throughout the developed world and in many of the emerging markets. Weakness in Asia and overcapacity in basic industries have combined to push down commodity prices, particularly oil and related energy prices. Consumer price inflation is essentially zero in Japan, less than 1% in most of Europe, and under 2% in the U.S. The voices predicting global deflation seem to have largely disappeared however, after the Federal Reserve's series of rate cuts to provide liquidity during the market downturns in the fall. Global (ex-U.S.) Equity Environment 6 months 1 year 3 years 7/31/95* Major Markets ended ended ended to Total Return in U.S. Dollar Hedged Terms 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------- MSCI World ex USA (Free) Index -3.98% 13.84% 14.86% 16.47% Japan -6.00 0.29 -4.17 2.85 U.K. 0.87 13.92 17.32 17.64 Germany -6.89 28.92 30.32 29.23 France 1.59 43.14 31.72 29.28 Canada -4.00 8.22 17.07 17.24 Netherlands -10.24 11.92 31.05 31.02 Australia 10.11 18.04 10.74 10.55 - ------------------------------------------------------------------------------- 6 months 1 year 3 years 7/31/95* Major Currencies ended ended ended to Percent Change Relative to U.S. Dollars 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------- Yen 23.04% 15.27% -2.94% -7.00% Pound -0.28 1.12 2.33 1.15 Deutschemark 8.37 7.95 -4.93 -5.34 Canadian Dollar -4.26 -6.83 -3.88 -3.24 - ------------------------------------------------------------------------------- *Performance inception date of the the UBS Investment Fund-Global (ex-U.S.) Equity All total returns in excess of 1 year are average annualized total returns 5 Global (ex-U.S.) Equity Fund [UBS LOGO APPEARS HERE] The Global (ex-U.S.) Equity Fund is actively managed, providing a fully integrated approach to the developed equity markets across the world. We employ fundamental valuation models to determine the relative attractiveness of aggregate markets, as well as of individual stocks. Our portfolio construction process simultaneously sets country, currency, industry/factor and stock selection strategies. This interactive investment process has evolved within the context of an environment marked by growing globalization and increasingly integrated economies, industries and capital markets. The UBS Investment Fund - Global (ex-U.S.) Equity has provided an annualized return of 11.39% since its inception on July 31, 1995, compared to the 8.61% return of the MSCI World ex USA (Free) Index. This was achieved with a volatility of 13.08%, below the 14.68% volatility of the benchmark. For the year ended December 31, 1998, the Fund gained 13.44%, compared to the index's return of 18.67%. With the exception of the Pacific Rim and several small markets, most developed equity markets enjoyed solid performance. Monetary Union, privatization, restructuring, merger activity and increased capital flows have boosted European equity markets. Despite their excellent performance, European corporations are still early into their restructuring, with the potential for improving profitability ahead. Europe is our largest overweight. Most Pacific markets continued to suffer the consequences of last year's currency crisis. This situation has been aggravated in Japan by flawed macroeconomic policies, a largely insolvent financial sector and an unprofitable domestic corporate sector. We remain significantly underweight in Japan, Hong Kong and Singapore. In comparison, Australia and New Zealand have been unduly impacted by their geographic proximity to Asia and are attractively priced. We maintain an overweight in these markets. Overall market allocation detracted from performance. Holding cash (through July) in a period of unusually strong returns and overweighting New Zealand offset the positive effects of underweighting Japan and overweighting Belgium and Finland. Currency management was hurt by the yen underweight and the New Zealand dollar and Australian dollar overweights. Stock selection was positive due to successful strategies in Japan, helped by the significant underweight to banks, overweight to blue chips and stock specific returns, but hurt in the U.K. due to stock specific factors, the underweight to size and the overweight to basic industries. 6 Global (ex-U.S.) Equity Fund [UBS LOGO APPEARS HERE] Total Return
6 months 1 year 3 years 7/31/95* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------------------- UBS Investment Fund - Global (ex-U.S.) Equity 0.76% 13.44% 10.02% 11.39% - --------------------------------------------------------------------------------------- MSCI World ex USA (Free) Index** 2.72 18.67 9.06 8.61 - ---------------------------------------------------------------------------------------
* Performance inception date of the UBS Investment Fund - Global (ex-U.S.) Equity ** Formerly known as the MSCI Non-U.S. Equity (Free) Index. Performance is net of withholding taxes on dividends. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund - Global (ex-U.S.) Equity and the MSCI World ex USA (Free) Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund - Global (ex-U.S.) Equity vs. MSCI World ex USA (Free) Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] UBS Investment MSCI Index Fund ex USA (Free) Index -------------- ------------------- 7/31/95 $10,000 $10,000 $10,146 $9,632 9/30/95 $10,302 $9,817 $10,205 $9,563 $10,448 $9,835 12/31/95 $10,858 $10,220 $11,065 $10,291 $11,024 $10,320 3/31/96 $11,158 $10,538 $11,563 $10,848 $11,500 $10,662 6/30/96 $11,578 $10,713 $11,256 $10,398 $11,287 $10,443 9/30/96 $11,630 $10,727 $11,578 $10,654 $12,161 $11,099 12/31/96 $12,140 $10,947 $12,074 $10,612 $12,262 $10,770 3/31/97 $12,328 $10,775 $12,405 $10,844 $13,220 $11,561 6/30/97 $13,815 $12,174 $14,059 $12,400 $13,063 $11,468 9/30/97 $13,782 $12,111 $12,920 $11,200 $12,687 $11,068 12/31/97 $12,750 $11,174 $13,166 $11,653 $13,844 $12,411 3/31/98 $14,379 $12,814 $14,486 $12,912 $14,475 $12,855 6/30/98 $14,354 $12,909 $14,497 $12,994 $12,698 $11,335 9/30/98 $12,377 $11,011 $13,318 $12,160 $13,985 $12,778 12/31/98 $14,463 $13,259 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Global (ex-U.S.) Equity Fund [UBS LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - --------------------------------------------------- Global (ex-U.S.) EQUITIES Aerospace & Military 0.45% Airlines 0.16 Appliances & Households 3.18 Autos/Durables 1.69 Banking 10.47 Beverages & Tobacco 3.70 Broadcasting & Publishing 1.98 Building Materials 1.50 Business & Public Service 4.06 Chemicals 4.59 Construction 0.40 Data Processing 0.60 Electric Components 0.83 Electronics 5.50 Energy 8.13 Financial Services 1.60 Food & House Products 3.65 Forest Products 1.16 Health & Personal Care 9.34 Housing/Paper 0.10 Industrial Components 1.62 Insurance 8.81 Leisure & Tourism 0.31 Machinery & Engineering 0.23 Merchandising 4.65 Metals-Steel 0.87 Miscellaneous Materials 0.14 Multi-Industry 3.23 Non-Ferrous Metals 0.98 Real Estate 0.43 Recreation 0.58 Retail/Apparel 0.18 Telecommunications 8.83 Textiles & Apparel 0.19 Transportation 0.28 Utilities 4.40 Wholesale & International Trade 0.06 ------- Total Global (ex-U.S.) Equities 98.88 ------- CONVERTIBLE BONDS 0.05 SHORT-TERM INVESTMENTS 0.70 TOTAL INVESTMENTS 99.63 CASH AND OTHER ASSETS, LESS LIABILITIES 0.37 ------- NET ASSETS 100.00% ======= Market and Currency Strategy As of December 31, 1998 (Unaudited) Fund ------------------- Market Currency Strategy Strategy Index - ------------------------------------------------ Australia 5.38% 8.86% 2.47% Belgium 3.15 0.00 0.00 Canada 1.98 3.70 3.70 Denmark 0.59 0.86 0.86 Euro 0.00 38.67 38.67 Finland 2.99 0.00 0.00 France 10.41 0.00 0.00 Germany 11.69 0.00 0.00 Hong Kong 0.00 0.00 1.99 Italy 4.41 0.00 0.00 Japan 12.90 14.25 20.25 Netherlands 7.49 0.00 0.00 New Zealand 1.77 1.77 0.17 Norway 0.37 0.37 0.37 Singapore 0.74 0.72 0.72 Spain 1.92 0.00 0.00 Sweden 4.12 6.54 2.54 Switzerland 7.47 7.76 7.76 U.K. 22.62 16.50 20.50 - ------------------------------------------------ 100.00% 100.00% 100.00% Top Ten Global (ex-U.S.) Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------- 1. Novartis AG (Reg.) 2.31% 2. Nestle S.A. (Reg.) 1.86 3. Allianz AG 1.85 4. Royal Dutch Petroleum Co. 1.80 5. Bayer AG 1.73 6. Nokia Oyj -D A Shares 1.66 7. Lloyds TSB Group PLC 1.58 8. Glaxo Wellcome PLC 1.51 9. Veba AG 1.50 10. Siemens AG 1.46 - ------------------------------------- 8 Global (ex-U.S.) Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Global (ex-U.S.) Equities - 98.88% Australia - 4.98% Amcor Ltd. 85,740 $ 366,730 Australia & New Zealand Banking Group 33,000 216,186 Brambles Industries Ltd. 68,040 1,658,993 Broken Hill Proprietary Co., Ltd. 269,620 1,987,758 Burns Philp & Co. Ltd. 254,362 20,283 CSR Ltd. 358,990 878,614 David Jones Ltd. 503,200 555,592 Goodman Fielder Ltd. 120,000 121,453 Lend Lease Corp. Ltd. 89,996 1,214,476 M.I.M. Holdings Ltd. 488,000 215,524 National Australia Bank Ltd. 204,648 3,088,060 News Corp., Ltd. 301,747 1,995,285 News Corp., Ltd., Preferred 129,469 788,603 Orica Ltd. 85,820 446,930 Pacific Dunlop Ltd. 365,450 591,800 Pasminco Ltd. 297,000 225,903 Qantas Airways Ltd. 391,138 798,946 QBE Insurance Group Ltd. 205,223 849,714 Rio Tinto Ltd. 66,560 790,223 Santos Ltd. 237,140 637,121 Telstra Corp., Ltd. (b) 705,210 3,300,549 Westpac Banking Corp., Ltd. 391,841 2,624,676 WMC Ltd. 256,270 773,403 Woolworth's Ltd. 117,460 400,309 ------------- 24,547,131 ------------- Belgium - 2.74% Electrabel S.A. 11,895 5,228,374 Fortis AG 583 34 Fortis AG Strip (b) 17,173 6,223,587 KBC Bancassurance Holding 26,100 2,066,496 KBC Bancassurance Holding-Strip (b) 610 35 ------------- 13,518,526 ------------- Canada - 2.04% Agrium, Inc. 37,580 330,293 Alcan Aluminum Ltd. 23,940 646,816 Bank of Montreal 16,010 643,110 Canadian National Railway Co. 17,390 902,899 Canadian Pacific Ltd. 48,014 897,137 Extendicare Inc., Class A (b) 35,840 203,000 Hudson's Bay Co. 36,620 461,326 Imasco, Ltd. 24,800 527,969 Imperial Oil Ltd. 47,060 752,163 Magna International Inc., Class A 6,360 395,016 Newbridge Networks Corp. (b) 16,510 500,889 NOVA Chemicals Corp. 26,521 345,325 Potash Corporation of Saskatchewan, Inc. 6,360 407,852 Royal Bank of Canada 18,720 932,953 Seagram Co., Ltd. 8,800 333,724 Shaw Communications, Inc., Class B 33,880 818,326 TransCanada Pipelines Ltd. 46,376 677,826 Westcoast Energy, Inc. 14,320 284,349 ------------- 10,060,973 ------------- Shares Value ----------- ---------------- Denmark - 0.54% Den Danske Bank Group 1,240 $ 166,580 Tele Danmark A/S 18,500 2,496,897 ------------- 2,663,477 ------------- Finland - 2.51% Merita Ltd., Class A 301,600 1,917,984 Nokia Oyj-A Shares 66,730 8,170,913 UPM-Kymmene Corp. 81,000 2,271,596 ------------- 12,360,493 ------------- France - 10.36% Air Liquide 16,122 2,958,192 Alcatel Alsthom 28,127 3,443,999 Axa 22,624 3,280,484 Axa Certificate de Valeur Garante (b) 8,422 3,995 Banque Nationale de Paris 33,146 2,730,620 Cie de Saint Gobain 14,263 2,014,519 Dexia France 11,810 1,820,273 Elf Aquitaine S.A. 17,934 2,073,926 France Telecom S.A. 33,090 2,630,045 Groupe Danone 7,970 2,282,768 Lafarge S.A. 1,687 160,359 Lagardere S.C.A. 70,530 2,998,617 Michelin, Class B 28,023 1,121,181 Moulinex 16,745 257,791 Paribas 14,973 1,301,849 Pinault-Printemps-Redoute S.A. 7,650 1,462,568 Rhone-Poulenc, Class A 43,420 2,235,436 SEFIMEG 2,126 150,329 SEITA 59,480 3,726,684 Societe Generale 11,573 1,874,900 Suez Lyonnaise des Eaux S.A. 16,042 3,296,734 Thomson CSF 52,120 2,239,232 Total S.A., Class B 25,833 2,617,428 Vivendi 16,794 4,359,189 ------------- 51,041,118 ------------- Germany - 12.40% Allianz AG 24,472 9,109,414 Bayer AG 202,556 8,506,720 DaimlerChrysler AG (b) 66,618 6,619,404 Deutsche Bank AG 47,097 2,778,994 Deutsche Telekom AG 115,010 3,780,498 Dresdner Bank AG 62,180 2,605,766 Hoechst AG 66,610 2,755,421 Mannesmann AG (b) 42,850 4,958,776 SAP AG 5,230 2,260,807 Siemens AG 109,590 7,204,674 Veba AG 124,588 7,382,826 Volkswagen AG 38,206 3,092,080 ------------- 61,055,380 ------------- Hong Kong - 0.08% Hongkong Land Holdings, Ltd. 153,000 180,540 Wharf (Holdings) Ltd. 136,000 198,366 ------------- 378,906 ------------- Indonesia - 0.02% Indah Kiat Pulp & Paper Corp. 296,000 80,981 ------------- 9 Global (ex-U.S.) Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Italy - 4.05% Assicurazioni Generali 104,446 $ 4,370,544 Danieli & Co. Savings (Risp) 59,100 235,835 ENI Spa 768,000 5,030,134 ENI Spa ADR (c) 11,080 750,670 La Rinascente Spa 264,140 2,722,388 Montedison Spa 1,614,280 2,148,859 San Paolo-imi, Spa 113,610 2,011,843 Telecom Italia Mobile Spa 360,000 2,663,526 ------------- 19,933,799 Japan - 13.56% Acorn Co., Ltd. 9,000 579,255 Amada Co., Ltd. 131,000 635,257 Bridgestone Corp. 29,000 659,441 Canon, Inc. 91,000 1,948,271 Citizen Watch Co., Ltd. 115,000 693,262 Dai Nippon Printing Co., Ltd. 119,000 1,901,046 Daiichi Pharmaceutical Co., Ltd. 108,000 1,827,766 Daikin Industries Ltd. 130,000 1,290,780 Daiwa House Industry Co., Ltd. 61,000 650,559 Fanuc 51,700 1,773,750 Fuji Photo Film 23,000 856,383 Fujitsu 75,000 1,000,665 Hitachi Ltd. 53,000 328,901 Honda Motor Co. 56,000 1,841,844 Hoya Corp. 30,000 1,462,766 Ishikawajima-Harima Heavy Industries Co., Ltd. 9,000 15,957 Ito Yokado Co., Ltd. 50,000 3,501,773 Japan Wool Textile Co., Ltd. 27,000 146,729 Kajima Corp. 22,000 57,535 Kaneka Corp. 133,000 998,679 Kansai Paint Co., Ltd. 42,000 122,128 Kao Corp. 39,000 881,649 Kirin Brewery Co., Ltd. 142,000 1,812,766 Koito Manufacturing Co., Ltd. 54,000 229,309 Kokuyo 40,000 539,362 Kuraray Co., Ltd. 158,000 1,746,684 Marui Co., Ltd. 69,000 1,330,452 Matsushita Electric Industrial Co. 168,000 2,977,234 Mitsubishi Estate Co., Ltd. 42,000 377,181 Mitsubishi Heavy Industries, Ltd. 43,000 167,731 NGK Insulators 219,000 2,828,750 Nikko Securities Co., Ltd. 56,000 156,383 Nintendo Co., Ltd. 13,500 1,310,505 Nippon Denso Co., Ltd. 110,000 2,038,121 Nippon Meat Packers, Inc. 84,000 1,355,319 Nippon Yusen Kabushiki Kaisha 88,000 278,511 Nisshinbo Industries, Inc. 42,000 146,702 Omron Corp. 35,000 480,319 Sakura Bank, Ltd. 96,000 220,426 Sankyo Co., Ltd. 92,000 2,014,539 Secom Co., Ltd. 31,000 2,572,340 Sega Enterprises Ltd. 16,000 355,319 Sekisui House Ltd. 120,000 1,271,277 Sharp Corp. 11,000 99,371 Shin-Etsu Chemical Co., Ltd. 20,000 482,270 Sony Corp. 31,500 2,298,271 Shares Value ----------- ---------------- Sumitomo Chemical Co. 150,000 $ 585,106 Sumitomo Electric Industries 108,000 1,216,915 Sumitomo Marine & Fire Insurance Co., Ltd. 35,000 222,163 Taiheiyo Cement Corp. 78,600 197,197 Takeda Chemical Industries 76,000 2,930,851 TDK Corp. 20,000 1,831,560 Tokio Marine & Fire Insurance Co. 119,000 1,424,202 Tokyo Gas Co. 197,000 518,697 Tokyo Steel Mfg. 28,000 140,496 Toray Industries, Inc. 366,000 1,914,362 Toshiba Corp. 300,000 1,789,894 Toyo Seikan Kaisha, Ltd. 17,000 289,060 Toyo Suisan Kaisha 3,000 25,957 Toyota Motor Corp. 87,000 2,367,819 UNY Co., Ltd. 4,000 73,227 West Japan Railway Co. 70 310,284 Yamaha Motor Co., Ltd. 34,000 219,734 Yamato Transport Co., Ltd. 33,000 462,234 ------------- 66,783,296 ------------- Korea - 0.09% Hyundai Motor Co., Ltd. 7,246 128,952 Korea Electric Power Corp. 1,000 24,782 Shinhan Bank (b) 25,300 193,563 SK Telecom Co., Ltd. 130 98,221 ------------- 445,518 ------------- Malaysia - 0.02% Malayan Banking Bhd 27,000 38,287 Nestle (Malaysia) Bhd 15,000 41,989 ------------- 80,276 ------------- Netherlands - 7.15% ABN AMRO Holdings NV 90,088 1,896,135 Akzo Nobel NV 12,825 584,290 Elsevier NV 189,870 2,660,831 Heineken NV 65,902 3,968,096 ING Groep NV 112,427 6,859,323 KPN NV 135,445 6,784,158 Philips Electronics NV 1,349 90,571 Royal Dutch Petroleum Co. 181,380 9,036,623 Unilever NV 38,740 3,313,140 ------------- 35,193,167 ------------- New Zealand - 1.95% Auckland International Airport Ltd. (b) 248,210 347,493 Brierley Investments Ltd. 1,811,340 411,481 Carter Holt Harvey Ltd. 1,158,540 1,040,498 Fletcher Challenge Building 285,560 442,025 Fletcher Challenge Energy 306,600 583,118 Fletcher Challenge Paper 642,540 431,107 Lion Nathan Ltd. 348,570 889,444 Telecom Corp. of New Zealand Ltd. 1,111,890 4,846,155 Telecom Corp. of New Zealand Ltd. ADR (c) 16,500 588,844 ------------- 9,580,165 ------------- Norway - 0.40% Norsk Hydro ASA 26,510 894,221 Norske Skogindustrier ASA 36,350 1,059,155 ------------- 1,953,376 ------------- 10 Global (ex-U.S.) Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Singapore - 0.85% Development Bank of Singapore Ltd. 20,000 $ 180,606 Singapore Press Holdings Ltd. 216,975 2,353,850 United Overseas Bank Ltd. (Frgn.) 259,000 1,663,879 ------------- 4,198,335 ------------- Spain - 1.79% Banco Popular Espanol S.A. 32,239 2,434,496 Endesa S.A. 178,238 4,729,680 Telefonica S.A. 37,432 1,666,925 Telefonica S.A. Rights (expiring 1/30/99) (b) 748 665 ------------- 8,831,766 ------------- Sweden - 3.94% Astra AB, A Shares 144,058 2,941,301 Electrolux AB, B Shares 194,460 3,346,637 ForeningsSparbanken AB 4,971 128,786 Investor AB 44,870 2,026,009 Nordbanken Holding AB 231,960 1,488,060 Skandia Forsakrings AB 225,180 3,444,733 Stora Kopparbergs Berglags Aktiebolag 20,639 226,612 Svenska Handelsbanken, A Shares 19,560 825,276 Swedish Match AB 605,370 2,203,165 Telefonaktiebolaget LM Ericsson, B Shares 116,780 2,780,545 ------------- 19,411,124 ------------- Switzerland - 7.24% CS Holdings AG (Reg.) 1,603 250,925 Julius Baer Holding AG 423 1,405,894 Nestle S.A. (Reg.) 4,203 9,149,596 Novartis AG (Reg.) 5,797 11,395,632 Roche Holding AG (Gen.) 512 6,247,630 Swiss Reinsurance Co. (Reg.) 1,306 3,405,013 SwissCom AG (Reg.) (b) 9,023 3,777,375 ------------- 35,632,065 ------------- Thailand - 0.07% Bangkok Bank Public Co., Ltd. (b) 60,000 123,848 Italian-Thai Development Public Co., Ltd. (b) 15,000 30,136 Shinawatra Computer Public Co., Ltd. (b) 22,000 75,685 Thai Farmers Bank Public Co., Ltd. (Frgn) (b) 71,000 125,058 ------------- 354,727 ------------- United Kingdom - 22.10% Allied Zurich AG (b) 232,252 3,464,285 Barclays PLC 157,230 3,390,348 BG PLC 83,250 525,308 Billiton PLC 116,500 231,147 BOC Group PLC 161,450 2,308,808 Booker PLC 295,950 307,753 Boots Company PLC 174,340 2,968,853 BPB PLC 5,000 18,905 British American Tobacco PLC 299,252 2,631,394 British Petroleum Co. PLC 380,383 5,680,145 British Steel PLC 1,457,140 2,157,720 BTR PLC 200,000 412,625 Cable & Wireless PLC 115,200 1,416,449 Charter PLC 278,988 1,531,804 Coats Viyella PLC 1,445,489 649,355 Diageo PLC 231,935 2,639,528 Shares Value ----------- ---------------- Fairview Holdings PLC (b) 154,702 $ 229,081 FKI PLC 1,093,225 2,437,352 Garban PLC (b) 12,658 48,229 General Electric Co. PLC 466,240 4,208,362 Glaxo Wellcome PLC 216,260 7,440,988 Greenalls Group PLC 201,750 1,075,834 Hanson PLC 375,482 2,981,528 Hillsdown Holdings PLC 309,395 386,081 House of Fraser PLC 484,090 426,880 IMI PLC 49,800 195,544 Lloyds TSB Group PLC 545,545 7,760,694 Marks & Spencer PLC 718,550 4,928,577 Marley PLC 202,230 410,496 Mirror Group PLC 600,240 1,500,525 National Westminster Bank PLC 138,050 2,662,096 Nycomed Amersham PLC 266,090 1,832,875 Peninsular & Oriental Steam Navigation Co. 166,986 1,974,004 Pennon Group PLC 11,860 229,690 Prudential Corp. PLC 406,820 6,142,608 Rank Group PLC 31,000 119,403 Reed International PLC 251,190 1,964,283 Rio Tinto PLC 186,890 2,173,537 RJB Mining PLC 408,840 530,581 Royal & Sun Alliance Insurance Group PLC 180,174 1,471,148 Safeway PLC 63,898 321,069 Sainsbury (J.) PLC 115,950 929,386 Scottish & Newcastle PLC 37,081 430,636 Scottish Hydro-Electric PLC 364,720 4,108,205 Smith & Nephew PLC 97,532 303,454 SmithKline Beecham PLC 317,750 4,440,877 Smurfit (Jefferson) Group PLC 293,929 528,166 Tarmac PLC 135,601 253,816 Tate & Lyle PLC 118,720 653,816 Terranova Foods PLC (b) 154,702 283,134 Tesco PLC 1,131,830 3,224,895 Thames Water PLC 153,589 2,938,744 Thames Water PLC, Class B (b) 134,310 168,717 United News & Media PLC 163,580 1,434,315 United Utilities PLC 21,046 291,688 Vodafone Group PLC 98,547 1,600,284 Williams PLC 189,277 1,074,668 Yorkshire Water PLC 260,000 2,379,249 ------------- 108,829,942 ------------- Total Global (ex-U.S.) Equities (Cost $408,772,123) 486,934,541 ------------- Face Amount ------------- Convertible Bonds - 0.05% Australia - 0.03% Burns, Philp Treasury, 7.50%, due 8/14/03 AUD 1,228,664 150,733 ------------- Japan - 0.02% Sanwa Finance Trust, 1.25%, due 8/01/05 JPY 15,000,000 113,365 ------------- Total Convertible Bonds (Cost $264,410) 264,098 ------------- 11 Global (ex-U.S.) Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- ---------------- Short-Term Investments - 0.70% Investment Companies - 0.70% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $3,451,114) 3,451,114 $ 3,451,114 ------------- Total Investments (Cost $412,487,647) - 99.63% (a) 490,649,753 ------------- Cash and other assets, less liabilities - 0.37% 1,805,777 ------------- Net Assets - 100% $ 492,455,530 ============= See accompanying notes to schedule of investments. 12 Global (ex-U.S.) Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $412,487,647; and net unrealized appreciation consisted of: Gross unrealized appreciation $102,678,967 Gross unrealized depreciation (24,516,861) ------------- Net unrealized appreciation $ 78,162,106 ============= (b) Non-income producing security (c) Denominated in U.S. dollars FORWARD FOREIGN CURRENCY CONTRACTS The Global (ex-U.S.) Equity Fund had the following open forward foreign currency contracts as of December 31, 1998:
Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ---------- -------- ------- ----------- Forward Foreign Currency Buy Contracts Australian Dollar 2/19/99 32,300,000 $19,821,180 $ (677,170) Belgian Franc 2/19/99 333,000,000 9,716,971 163,459 British Pound 2/19/99 6,600,000 10,963,637 11,096 Canadian Dollar 2/19/99 10,600,000 6,901,985 (71,699) Finnish Markka 2/19/99 14,600,000 2,890,477 30,311 German Mark 2/19/99 33,700,000 20,282,511 1,146,743 Hong Kong Dollar 2/19/99 16,000,000 2,064,513 52,694 Italian Lira 2/19/99 13,390,000,006 8,140,230 316,699 Japanese Yen 2/19/99 1,695,000,000 15,126,051 2,319,252 Portuguese Escudos 2/19/99 520,000,000 3,053,162 165,717 Singapore Dollars 2/19/99 6,300,000 3,834,846 280,344 Spanish Peseta 2/19/99 2,240,000,000 15,847,221 903,926 Swedish Krona 2/19/99 126,700,000 15,664,602 (776,812) Swiss Franc 2/19/99 17,900,000 13,098,967 155,531 Forward Foreign Currency Sale Contracts Australian Dollar 2/19/99 6,000,000 3,681,953 (86,153) Belgian Franc 2/19/99 455,000,000 13,276,942 (776,942) British Pound 2/19/99 22,600,000 37,542,152 (991,172) Finnish Markka 2/19/99 41,800,000 8,275,474 (462,390) French Franc 2/19/99 20,000,000 3,589,028 (72,853) German Mark 2/19/99 45,300,000 27,264,028 181,657 Hong Kong Dollar 2/19/99 16,000,000 2,064,513 (61,007) Italian Lira 2/19/99 9,140,000,000 5,556,512 (125,347) Japanese Yen 2/19/99 1,000,000,000 8,923,924 (308,062) Netherlands Guilder 2/19/99 15,600,000 8,332,799 (151,270) Singapore Dollar 2/19/99 6,300,000 3,834,846 (264,429) Spanish Peseta 2/19/99 1,279,000,000 9,048,480 (145,772) Swedish Krona 2/19/99 24,000,000 2,967,249 24,076 Swiss Franc 2/19/99 13,900,000 10,171,823 (59,345) ----------- Total $ 721,082 ===========
See accompanying notes to financial statements. 13 Global (ex-U.S.) Equity Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $409,036,533) $487,198,639 Affiliated issuers (Cost $3,451,114) 3,451,114 Foreign currency, at value (Cost $2,680,240) 2,653,947 Receivables: Investment securities sold 902,478 Dividends 890,378 Interest 55,532 Fund shares sold 6,285 Net unrealized appreciation on forward foreign currency contracts 721,082 ------------- TOTAL ASSETS 495,879,455 ------------- LIABILITIES: Payables: Investment securities purchased 2,985,374 Due to custodian bank 88,790 Investment advisory fees 311,394 Accrued expenses 38,367 ------------- TOTAL LIABILITIES 3,423,925 ------------- NET ASSETS $492,455,530 ============= NET ASSETS CONSIST OF: Paid in capital $431,264,036 Accumulated undistributed net investment income 1,427,023 Accumulated net realized loss (19,100,417) Net unrealized appreciation 78,864,888 ------------- NET ASSETS $492,455,530 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $487,467,742 and 40,220,544 shares issued and outstanding) $ 12.12 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $13,188 and 1,092 shares issued and outstanding) $ 12.08 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $4,974,600 and 414,597 shares issued and outstanding) $ 12.00 ============= See accompanying notes to financial statements. 14 Global (ex-U.S.) Equity Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends (net of $278,261 for foreign taxes withheld) $ 3,094,946 Interest (including securities lending income of $60,855) 466,546 ------------ TOTAL INCOME 3,561,492 ------------ EXPENSES: Advisory 1,759,921 Administrative 163,950 Custodian 137,494 Distribution 20,399 Other 120,708 ------------ TOTAL EXPENSES 2,202,472 ------------ NET INVESTMENT INCOME 1,359,020 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (11,921,708) Foreign currency transactions (2,561,948) ------------ Net realized loss (14,483,656) ------------ Change in net unrealized appreciation or depreciation on: Investments and foreign currency 18,056,900 Forward contracts 3,190,576 Translation of other assets and liabilities denominated in foreign currency 14,586 ------------ Change in net unrealized appreciation or depreciation 21,262,062 ------------ Net realized and unrealized gain 6,778,406 ------------ Net increase in net assets resulting from operations $ 8,137,426 ============ See accompanying notes to financial statements. 15 Global (ex-U.S.) Equity Fund - Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 1,359,020 $ 6,539,098 Net realized gain (loss) (14,483,656) 12,223,856 Change in net unrealized appreciation or depreciation 21,262,062 6,875,111 ------------ ------------ Net increase in net assets resulting from operations 8,137,426 25,638,065 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (1,364,369) (6,380,973) Brinson Class N (36) (58) UBS Investment Funds Class (4,900) (51,271) Distributions from net realized gain: Brinson Class I (4,498,729) (25,288,399) Brinson Class N (126) (59) UBS Investment Funds Class (52,439) (521,640) ------------ ------------ Total distributions to shareholders (5,920,599) (32,242,400) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold 328,933,304 317,039,181 Shares issued in connection with reorganization 21,515,034 - Shares issued on reinvestment of distributions 5,616,506 31,189,854 Shares redeemed (310,475,289) (325,627,875) ------------ ------------ Net increase in net assets resulting from capital share transactions 45,589,555 22,601,160 ------------ ------------ TOTAL INCREASE IN NET ASSETS 47,806,382 15,996,825 ------------ ------------ NET ASSETs: Beginning of period 444,649,148 428,652,323 ------------ ------------ End of period (including accumulated undistributed net investment income of $1,427,023 and $1,437,308, respectively) $492,455,530 $444,649,148 ============ ============
See accompanying notes to financial statements. 16 Global (ex-U.S.) Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, August 31, 1993* December 31, 1998 ----------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69 $ 10.00 -------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.04 0.18 0.18 0.18 0.15 0.10 Net realized and unrealized gain (loss) 0.09 0.30 1.97 2.05 (0.16) (0.34) -------- -------- -------- -------- -------- ------- Total income (loss) from investment operations 0.13 0.48 2.15 2.23 (0.01) (0.24) -------- -------- -------- -------- -------- ------- Less distributions: Distributions from investment income (0.04) (0.18) (0.17) (0.18) - (0.07) Distributions from net realized gain (0.12) (0.74) (0.56) (0.56) - - -------- -------- -------- -------- -------- ------- Total distributions (0.16) (0.92) (0.73) (0.74) - (0.07) -------- -------- -------- -------- -------- ------- Net asset value, end of period $ 12.12 $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69 ======== ======== ======== ======== ======== ======= Total return (non-annualized) 1.14% 4.78% 20.27% 23.64% (0.10)% (2.45)% Ratios/Supplemental data: Net assets, end of period (in 000s) $487,468 $439,329 $420,855 $212,366 $148,319 $71,544 Ratio of expenses to average net assets: Before expense reimbursement 0.99%** 1.00% 1.00% 1.20% 1.23% 1.60%** After expense reimbursement N/A N/A N/A 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reimbursement 0.63%** 1.52% 1.83% 1.67% 1.93% 1.28%** After expense reimbursement N/A N/A N/A 1.87% 2.16% 1.88%** Portfolio turnover rate 37% 49% 25% 20% 14% 12%
* Commencement of investment operations ** Annualized N/A = Not Applicable See accompanying notes to financial statements. 17 Global (ex-U.S.) Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.14 $ 12.59 Income from investment operations: Net investment income 0.02 0.16 Net realized and unrealized gain 0.08 0.29 ------- ------- Total income from investment operations 0.10 0.45 ------- ------- Less distributions: Distributions from net investment income (0.04) (0.16) Distributions from net realized gain (0.12) (0.74) ------- ------- Total distributions (0.16) (0.90) ------- ------- Net asset value, end of period $ 12.08 $ 12.14 ======= ======= Total return 0.88% 4.51% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 13 $ 11 Ratio of expenses to average net assets: Before expense reimbursement 0.38%** 1.25% After expense reimbursement N/A N/A Ratio of net investment income to average net assets: Before expense reimbursement 1.24%** 1.27% After expense reimbursement N/A N/A Portfolio turnover rate 37% 49%
* Commencement of Brinson Class N was June 30, 1997. ** Annualized N/A = Not Applicable See accompanying notes to financial statements. 18 Global (ex-U.S.) Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, July 31, 1993* December 31, 1998 --------------------- Through UBS Investment Funds Class (Unaudited) 1998 1997 June 30, 1996 - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.05 $ 12.49 $ 11.12 $ 10.26 -------- -------- -------- -------- Income from investment operations: Net investment income (loss) (0.01) 0.08 0.11 0.12 Net realized and unrealized gain 0.09 0.30 1.93 1.45 -------- -------- -------- -------- Total income from investment operations 0.08 0.38 2.04 1.57 -------- -------- -------- -------- Less distributions: Distributions from net investment income (0.01) (0.08) (0.11) (0.15) Distributions from net realized gain (0.12) (0.74) (0.56) (0.56) -------- -------- -------- -------- Total distributions (0.13) (0.82) (0.67) (0.71) -------- -------- -------- -------- Net asset value, end of period $ 12.00 $ 12.05 $ 12.49 $ 11.12 ======== ======== ======== ======== Total return (non-annualized) 0.76% 3.90% 19.32% 15.78% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 4,975 $ 5,310 $ 7,797 $ 1,262 Ratio of expenses to average net assets: Before expense reimbursement 1.83%** 1.84% 1.81% 2.04%** After expense reimbursement N/A N/A N/A 1.84%** Ratio of net investment income to average net assets: Before expense reimbursement (0.21)%** 0.68% 1.02% 0.83%** After expense reimbursement N/A N/A N/A 1.03%** Portfolio turnover rate 37% 49% 25% 20%
* Commencement of UBS Investment Funds Class ** Annualized N/A = Not Applicable See accompanying notes to financial statements. 19 Global (ex-U.S.) Equity Fund - Notes To Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund, High Yield Fund and Global (ex-U.S.) Equity Fund (formerly, Non-U.S. Equity Fund) (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and UBS Investment Funds Class (formerly, SwissKey Class). There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. On December 19, 1998, the Fund acquired all the net assets of the UBS International Equity Fund pursuant to a plan of reorganization approved by shareholders on December 11, 1998. The acquisition was accomplished by a tax-free exchange of 1,827,955 shares of the Global (ex-U.S.) Equity Fund for the shares of UBS International Equity Fund outstanding on December 18, 1998. The net assets of the UBS International Equity Fund, including $38,003 of unrealized appreciation, were combined with those of the Fund. The aggregate net assets of the Global (ex-U.S.) Equity Fund and the UBS International Equity Fund immediately before the mergers were $463,315,718 and $21,515,034, respectively. The following is a summary of significant accounting policies consistently followed by the Global (ex-U.S.) Equity Fund in the preparation of its financial statements. A. Investment Valuation: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange of which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. Foreign Currency Translation: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate on the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C. Investment Transactions: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D. Investment Income: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E. Federal Income Taxes: It is the policy of the Fund to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Fund has met the requirements of the Code applicable to regulated investment companies for the six months ended December 31, 1998, therefore, no federal income tax provision was required. F. Distributions To Shareholders: It is the policy of the Fund to distribute its net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing tax treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. 20 Global (ex-U.S.) Equity Fund - Notes To Financial Statements G. Income and Expense Allocation: All income earned and expenses incurred by the Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the UBS Investment Funds Class. H. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Fund with investment management services. As compensation for these services, the Fund pays the Advisor a monthly fee based on the Fund's average daily net assets. The Advisor has agreed to waive its fees and reimburse the Fund to the extent total annualized expenses exceed a specified percentage of the Fund's average daily net assets. The expense cap is 1.00%, 1.25% and 1.84% of the average daily net assets of the Brinson Class I, Brinson Class N and UBS Investment Funds Class, respectively. Investment advisory fees for the six months ended December 31, 1998, were as follows: Advisory Advisory Fee Fees --------- ----------- Global (ex-U.S.) Equity Fund 0.80% $1,759,921 Certain officers of the Fund are also officers of the Advisor. All officers serve without direct compensation from the Fund. Trustees' fees paid to unaffiliated trustees for the six months ended December 31, 1998 were $2,944. The Fund invests in shares of the Brinson Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). The Supplementary Trust is managed by the Advisor. The Supplementary Trust is offered as a cash management option to mutual funds and other accounts managed by the Advisor. The Supplementary Trust pays no management fees. Distributions from the Supplementary Trusts are reflected as interest income on the statement of operations. Amounts relating to those investments at December 31, 1998 and for the six months then ended are summarized as follows:
% of Sales Interest Net Purchases Proceeds Income Value Assets ----------- ----------- ------- --------- ------ Global (ex-U.S.) Equity Fund $24,086,054 $20,634,940 $27,845 $3,451,114 0.70%
3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales ------------ -------------- Global (ex U.S.) Equity Fund $204,961,081 $158,506,370 4. FORWARD FOREIGN CURRENCY CONTRACTS The Fund engages in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to the Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Fund realizes a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts at and for the six months ended December 31, 1998, was the Fund's custodian or an affiliate of the Fund's custodian. 5. FUTURES CONTRACTS The Fund may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Fund to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Fund enters into such 21 Global (ex-U.S.) Equity Fund - Notes To Financial Statements contracts to hedge a portion of its portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Fund, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 6. SECURITY LENDING The Fund loaned securities to certain brokers with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. The Fund receives securities, which are not reflected in the statement of assets and liabilities, as collateral against the loaned securities. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 105% of the value of non-U.S. securities loaned. The value of loaned securities and related collateral at December 31, 1998 was $15,505,536 and $15,400,404, respectively. 7. DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the UBS Investment Funds Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the UBS Investment Funds Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the daily net assets of the Brinson Class N. Annual fees under the UBS Investment Funds Plan, which include a 0.25% service fee, shall not exceed 0.84% of the average daily net assets of the UBS Investment Funds Class. 8. LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is based on the Federal Funds rate plus 0.50% per year. The Funds pay a commitment fee of 0.08% per year of the average daily unutilized amount of the line of credit. During the six months ended December 31, 1998, the Global (ex-U.S.) Equity Fund had borrowings of $1,300,000 and $3,600,000 outstanding for 1 day each under the agreement. 9. CAPITAL TRANSACTIONS Capital stock transactions were as follows:
Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------- --------------------------------- Shares Value Shares Value ------------- ----------------- ------------- ----------------- Sales: Brinson Class I* 30,605,579 $347,475,664 26,268,807 $312,436,986 Brinson Class N 205 2,348 798 9,817 UBS Investment Funds Class 261,400 2,970,326 387,174 4,592,378 ----------- ------------ ----------- ------------ Total Sales 30,867,184 $350,448,338 26,656,779 $317,039,181 =========== ============ =========== ============ Dividend Reinvestment: Brinson Class I 488,199 $ 5,565,465 2,849,536 $ 30,664,100 Brinson Class N 15 162 10 117 UBS Investment Funds Class 4,502 50,879 49,433 525,637 ----------- ------------ ----------- ------------ Total Dividend Reinvestment 492,716 $ 5,616,506 2,898,979 $ 31,189,854 =========== ============ =========== ============ Redemptions: Brinson Class I 27,036,820 $307,200,527 26,391,131 $318,236,785 Brinson Class N 15 187 - - UBS Investment Funds Class 291,758 3,274,575 620,542 7,391,090 ----------- ------------ ----------- ------------ Total Redemptions 27,328,593 $310,475,289 27,011,673 $325,627,875 =========== ============ =========== ============
*Includes shares issued in connection with reorganization. 22 Special Meeting of Shareholders Voting Results of Special Meeting of Shareholders (Unaudited) The proposal described below was submitted to a vote of shareholders of UBS Private Investor Funds, Inc. ("UBS Funds") at a special meeting of shareholders held on December 11, 1998 (the "Meeting"): Proposal No. 1 -D Approval of a Plan of Reorganization pursuant to which UBS Fund's International Equity Fund (the "Fund") will be reorganized into Class I shares of the Global (ex-U.S.) Equity Fund. At the Meeting, the shareholders of the Fund approved Proposal No. 1 as follows: For Against Abstain ------- ------- ------- UBS International Equity Fund 126,983 0 0 23 Distributed by: Funds Distributor, Inc. 60 State Street Boston, MA 02109 This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund's objectives, policies, expenses and other information. [UBS LOGO APPEARS HERE] P.O. Box 2798, Boston, Massachusetts 02208-9915 - Tel: (800) 794-7753 [UBS LOGO APPEARS HERE] U.S. Balanced Fund U.S. Equity Fund U.S. Large Capitalization Equity Fund U.S. Bond Fund Semi-Annual Report (Unaudited) U.S. Large Capitalization Growth Fund U.S. Small Capitalization Growth Fund High Yield Fund Annual Report December 31, 1998 Trustees and Officers [UBS LOGO APPEARS HERE] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Debra L. Nichols Chairman of the Board Vice President E. Thomas McFarlan Carolyn M. Burke, CPA President Secretary and Treasurer Thomas J. Digenan, CFA, CPA David E. Floyd Vice President Assistant Secretary 1 The Funds' Advisor - Brinson Partners, Inc. [UBS LOGO APPEARS HERE] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 125 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific client objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent. 2 Table of Contents [UBS LOGO APPEARS HERE] Shareholder Letter 4 U.S. Economic and Market Highlights 5 U.S. Balanced Fund (Unaudited) 6 Schedule of Investments 9 Financial Statements 12 Financial Highlights 15 U.S. Equity Fund (Unaudited) 18 Schedule of Investments 21 Financial Statements 23 Financial Highlights 26 U.S. Large Capitalization Equity Fund (Unaudited) 29 Schedule of Investments 32 Financial Statements 34 Financial Highlights 37 U.S. Bond Fund (Unaudited) 40 Schedule of Investments 42 Financial Statements 45 Financial Highlights 48 U.S. Large Capitalization Growth Fund 51 Schedule of Investments 53 Financial Statements 54 Financial Highlights 57 U.S. Small Capitalization Growth Fund 58 Schedule of Investments 60 Financial Statements 61 Financial Highlights 64 High Yield Fund 65 Schedule of Investments 67 Financial Statements 69 Financial Highlights 72 The UBS Investment Funds-Notes to Financial Statements 73 Report of Independent Auditors 81 Special Meeting of Shareholders 82 3 Shareholder Letter [UBS LOGO APPEARS HERE] February 20, 1999 Dear Shareholder: We are very pleased to present the December 31, 1998 Report for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund. Within this Report, we'll focus on current domestic economic outlook as well as our current strategies and performance updates for our seven Domestic Funds. Since our last report to you, Union Bank of Switzerland and Swiss Bank Corporation merged to become UBS AG, one of the world's major financial institutions. In connection with this merger, the former SBC Brinson/Brinson Partners, Inc.'s activities of Swiss Bank Corporation were combined with the worldwide UBS asset management operations into the UBS Brinson division of UBS AG. During this process, the UBS Private Investor Funds merged into the Brinson Fund family on December 18, 1998. This merger created the following three new UBS Investment Funds on December 31, 1998; the U.S. Large Capitalization Growth Fund, the U.S. Small Capitalization Growth Fund and the High Yield Fund. The U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund are all actively managed funds that provide integrated asset management across and within security markets. The investment process is strategic in nature and is driven by deviations of market price from fundamental value. This philosophy offers the greatest potential for achieving enhanced, long-term returns while controlling risk. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our talent. The Reports that follow highlight the investment characteristics and the performance of the respective Funds. We very much appreciate your continued trust and the confidence you have placed in the UBS Investment Funds. Sincerely, /s/ Hanspeter A. Walder /s/ Raymond Simon Hanspeter A. Walder Raymond Simon Executive Director Executive Director Private Banking Private Banking 4 U.S. Economic and Market Highlights [UBS LOGO APPEARS HERE] Economic growth in 1998 was largely unaffected by the turmoil in Asia and Russia. While demand for exports softened and imports continued strong, the consumer kept spending throughout the year and the measured savings rate turned negative for the first time ever. Corporate investment spending was also very strong, contributing about 13/4 percentage points of real GDP growth on average for the first three quarters of the year. A primary driver of the strong investment spending was the low cost of equity capital. By the end of the year, the market had shaken off the credit worries of autumn and risen to new highs. This was in spite of a quickly deteriorating earnings picture. Because of the strong investment environment of the last few years and the downturn in Asia, many industries, particularly commodity-related, are suffering from relatively severe overcapacity. Commodity weakness has hit the energy sector particularly hard, with real oil prices lower than at any time in the last 30 years. This has had a positive effect on inflation, as the headline Consumer Price Index rose by only 1 1/2% during the year. Looking at the core rate, absent energy and food price effects, inflation has been running at about 2 1/4% for the last few years. The provision of substantial amounts of liquidity by the Fed, while not immediately boosting inflation, has increased the risks of a jump in the CPI in the future. U.S. Environment [CHARTS APPEAR HERE] Major Markets One Year Ended December 31, 1998 U.S. Cash Equivalents U.S. Bonds U.S. Equities 12/31/98 4.55 8.72 23.43 Salomon U.S. Treasury Benchmark Returns One Year Ended December 31, 1998 1 5.89 2 6.6 5 9.61 10 12.88 30 16.51 Maturity (Years) Top Ten Industry Returns Relative to S&P 500 One Year Ended December 31, 1998 Coal & Uranium 47.03 Telephone, Telegraph 29.7 Liquor 28.17 Business Machines 21.67 Drugs, Medicine 21.51 Forest Products 12.13 Media 12.05 Mortgage Financing 10.66 Retail (Food) 8.91 Retail (Other) 8.13 Bottom Ten Industry Returns Relative to S&P 500 One Year Ended December 31, 1998 Oil Service -62.88 Dom. Petroleum Res. -37.94 Photographic -34.80 Water Transport -32.69 Precious Metals -28.16 Apparel, Textiles -27.83 Tire & Rubber -27.60 Containers -27.37 Oil Refining, Dist. -25.53 Iron & Steel -25.50 5 U.S. Balanced Fund [UBS LOGO APPEARS HERE] The U.S. Balanced Fund is an actively managed portfolio that applies our value-based asset allocation process to U.S. stocks, bonds and cash. The Fund's investment strategy is developed in the context of our global asset allocation process and is based on analysis of long-term economic and market conditions. The UBS Investment Fund-U.S. Balanced Fund has produced an annualized return of 12.22% since its performance inception on July 31, 1995. Over the same period, the return on the U.S. Balanced Mutual Fund Index was 19.43%. The Fund's performance was achieved with an annualized volatility over this period of 5.45%, considerably below the benchmark's volatility of 10.45%. For calendar year 1998, the UBS Investment Fund-U.S. Balanced returned 9.57%, substantially below the benchmark return of 18.85%. This underperformance, and the reason for the long-term performance characteristics, was due primarily to the equity underweight and bond overweight. Performance was also adversely affected by security selection. Performance of the equity market was particularly difficult to match, given that it was driven in large part by a collection of the largest capitalization companies, particularly in the technology area. In the bond market, high yield and investment-grade corporate debt were hurt along with equities during the market crisis in the fall. However, the debt markets only partially recovered on the series of Federal Reserve interest rate cuts, whereas many equity indices reached new highs before the end of the year. This continuation of the upward march in equities has produced a very high level of overpricing and consequent paltry return expectations. Bonds, although only fairly priced on an absolute basis, remain quite attractive relative to equities. Thus, the Fund strategy remains substantially overweighted bonds relative to equities. A portion of the bond allocation is held in Treasury Inflation Protected Securities, or TIPS. The difference in yields between these bonds and conventional Treasury bonds, which is a measure of inflation expectations, had fallen well below 1%. Our expectation is that average inflation over the next decade is unlikely to be quite so subdued, and the TIPS are an attractive alternative to conventional bonds. 6 U.S. Balanced Fund [UBS LOGO APPEARS HERE] Total Return
6 months 1 year 3 years 7/31/95* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------------ UBS Investment Fund - U.S. Balanced 3.46% 9.57% 11.01% 12.22% - ------------------------------------------------------------------------------------ U.S. Balanced Mutual Fund Index** 6.67 18.85 19.03 19.43 - ------------------------------------------------------------------------------------ Wilshire 5000 Index 6.90 23.43 25.24 25.27 - ------------------------------------------------------------------------------------ Salomon Smith Barney Big Bond Index 4.57 8.72 7.29 8.36 - ------------------------------------------------------------------------------------
* Performance inception date of the UBS Investment Fund - U.S. Balanced. ** An un-managed index compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index and 35% Salomon Smith Barney Broad Investment Grade Bond Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund - U.S. Balanced, the U.S. Balanced Mutual Fund Index, the Wilshire 5000 Index and the Salomon Smith Barney Big Bond Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund - U.S. Balanced vs. U.S. Balanced Mutual Fund Index, Wilshire 5000 Index and Salomon Smith Barney Big Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] UBS Investment U.S. Balanced Wilshire Salomon Smith Fund - U.S. Mutual Fund 5000 Barney BIG Balanced Index Index Bond Index -------------- ------------- ------- ------------- 7/31/95 $10,000 $10,000 $10,000 $10,000 8/31/95 $10,141 $10,104 $10,098 $10,115 9/30/95 $10,325 $10,387 $10,483 $10,210 10/31/95 $10,387 $10,368 $10,377 $10,347 11/30/95 $10,694 $10,710 $10,817 $10,508 12/31/95 $10,841 $10,876 $10,994 $10,653 1/31/96 $11,058 $11,091 $11,288 $10,726 2/29/96 $11,001 $11,152 $11,486 $10,544 3/31/96 $11,030 $11,203 $11,612 $10,469 4/30/96 $11,049 $11,354 $11,898 $10,391 5/31/96 $11,086 $11,554 $12,224 $10,386 6/30/96 $11,154 $11,544 $12,123 $10,520 7/31/96 $10,982 $11,150 $11,469 $10,548 8/31/96 $11,096 $11,376 $11,836 $10,532 9/30/96 $11,412 $11,839 $12,466 $10,716 10/31/96 $11,670 $12,040 $12,640 $10,957 11/30/96 $12,100 $12,628 $13,478 $11,138 12/31/96 $12,018 $12,496 $13,326 $11,040 1/31/97 $12,162 $12,948 $14,039 $11,082 2/28/97 $12,202 $12,949 $14,033 $11,094 3/31/97 $11,988 $12,531 $13,412 $10,982 4/30/97 $12,182 $12,949 $13,997 $11,139 5/31/97 $12,530 $13,588 $14,989 $11,243 6/30/97 $12,826 $14,050 $15,677 $11,377 7/31/97 $13,351 $14,886 $16,883 $11,686 8/31/97 $13,125 $14,477 $16,248 $11,585 9/30/97 $13,413 $15,107 $17,207 $11,755 10/31/97 $13,269 $14,855 $16,634 $11,923 11/30/97 $13,351 $15,196 $17,178 $11,980 12/31/97 $13,540 $15,433 $17,496 $12,102 1/31/98 $13,665 $15,557 $17,591 $12,258 2/28/98 $14,020 $16,289 $18,871 $12,249 3/31/98 $14,294 $16,841 $19,816 $12,297 4/30/98 $14,260 $17,002 $20,051 $12,361 5/31/98 $14,294 $16,765 $19,517 $12,480 6/30/98 $14,338 $17,195 $20,202 $12,582 7/31/98 $14,209 $16,963 $19,759 $12,608 8/31/98 $13,797 $15,337 $16,682 $12,801 9/30/98 $14,280 $16,115 $17,772 $13,103 10/31/98 $14,562 $16,868 $19,094 $13,044 11/30/98 $14,738 $17,591 $20,296 $13,116 12/31/98 $14,835 $18,342 $21,595 $13,157 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 U.S. Balanced Fund [UBS LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. Equities Energy 1.49% Capital Investment Capital Goods 4.53 Technology 6.93 ------- 11.46 Basic Industries Chemicals 1.31 Housing/Paper 4.61 Metals 0.21 ------- 6.13 Consumer Non-Durables 3.70 Retail/Apparel 2.17 Autos/Durables 1.73 Health: Drugs 2.29 Health: Non-Drugs 2.22 ------- 12.11 Financial Banks 4.69 Non-Banks 3.37 ------- 8.06 Utilities Electric 1.62 Telephone 0.39 ------- 2.01 Transportation 4.90% Services/Misc 2.16 ------- Total U.S. Equities 48.32* ------- U.S. BONDS Corporate Bonds Airlines 1.02 Banks 0.90 Consumer 0.73 Financial Services 3.35 Industrial Components 0.60 Services/Miscellaneous 1.10 Utilities 2.55 ------- 10.25 International Dollar Bonds 3.57 Mortgage-Backed Securities 7.17 U.S. Government Agencies 12.66 U.S. Government Obligations 15.24 ------- Total U.S. Bonds 48.89* ------- SHORT-TERM INVESTMENTS 2.21* ------- TOTAL INVESTMENTS 99.42 CASH AND OTHER ASSETS, LESS LIABILITIES 0.58 ------- NET ASSETS 100.00% ======= - ----------------------------------------------------------------------------- * The Fund held a long position in U.S. Treasury futures on December 31, 1998 which increased U.S. bond exposure from 48.89% to 66.13%. The Fund also held a short position in stock index futures which reduced U.S. equity exposure from 48.32% to 31.00%. These two adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 2.21% to 2.29%. Asset Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ---------------------------------------------------- U.S. Equity 65% 30% U.S. Bonds 35 70 - ---------------------------------------------------- 100% 100% Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ---------------------------------------------------- 1. Xerox Corp. 2.94% 2. FDX Corp. 2.04% 3. Burlington Northern Santa Fe Corp. 2.03% 4. Lockheed Martin Corp. 1.77% 5. Philip Morris Companies, Inc. 1.69% 6. Baxter International, Inc. 1.26% 7. Kimberly Clark Corp. 1.23% 8. Energy Corp. 1.16% 9. CIGNA Corp. 1.14% 10. Aon Corp. 1.13% - ---------------------------------------------------- 8 U.S. Balanced Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ ---------------- U.S. Equities - 48.32% Advanced Micro Devices, Inc. (b) 10,300 $ 298,056 Aetna, Inc. 6,300 495,337 Allergan, Inc. 2,600 168,350 Alza Corp. (b) 5,400 282,150 American Standard Companies, Inc. (b) 5,700 204,844 Aon Corp. 9,200 509,450 Automatic Data Processing, Inc. 4,200 336,787 BankBoston Corp. 2,900 112,919 Baxter International, Inc. 8,800 565,950 Beckman Coulter Inc. 2,300 124,775 Bestfoods 3,800 202,350 Biogen, Inc. (b) 1,300 107,900 Birmingham Steel Corp. 3,200 13,400 Burlington Northern Santa Fe Corp. 27,000 911,250 Champion Enterprises, Inc. (b) 1,200 32,850 Champion International Corp. 2,700 109,350 Chase Manhattan Corp. 4,700 319,894 CIGNA Corp. 6,600 510,262 Circuit City Stores-Circuit City Group 7,400 369,537 CMS Energy Corp. 7,000 339,062 Comerica, Inc. 2,200 150,013 CommScope, Inc. (b) 3,766 63,316 Comverse Technology, Inc. (b) 2,420 171,820 Consolidated Stores Corp. (b) 7,200 145,350 Corning, Inc. 10,600 477,000 Covance, Inc. (b) 2,675 77,909 Crown Cork & Seal Co., Inc. 2,600 80,113 Dial Corp. 2,800 80,850 Eastman Chemical Co. 3,000 134,250 Electronic Data Systems Corp. 9,900 497,475 EMC Corp. (b) 3,200 272,000 Entergy Corp. 16,700 519,787 FDX Corp. (b) 10,300 916,700 First American Corp. of Tennessee 1,400 62,125 First Data Corp. 13,058 413,775 First Security Corp. 2,625 61,359 Fleet Financial Group, Inc. 7,000 312,812 Fleetwood Enterprises, Inc. 900 31,275 Food Lion Inc., Class A 12,300 130,688 Fort James Corp. 9,300 372,000 General Instrument Corp. (b) 12,300 417,431 General Semiconductor, Inc. (b) 3,950 32,341 Genzyme Corp. (b) 2,200 109,450 Genzyme-Molecular Oncology (b) 237 770 Geon Co. 1,500 34,500 Goodyear Tire & Rubber Co. 7,100 358,106 Great Lakes Chemical Corp. 1,700 68,000 GreenPoint Financial Corp. 3,100 108,888 Harnischfeger Industries, Inc. 3,800 38,713 HCR Manor Care, Inc. (b) 2,850 83,719 Hibernia Corp., Class A 3,000 52,125 Household International Inc. 5,100 202,088 IMC Global Inc. 8,500 181,688 Johnson Controls Inc. 2,600 153,400 Kimberly Clark Corp. 10,100 550,450 Shares Value ------------ ---------------- Lafarge Corp. 2,400 $ 97,200 Lear Corp. (b) 6,500 250,250 Lockheed Martin Corp. 9,371 794,192 Lyondell Petrochemical Co. 7,800 140,400 Martin Marietta Materials, Inc. 1,536 95,520 Masco Corp. 12,600 362,250 Nabisco Holdings Corp., Class A 5,500 228,250 National Service Industries, Inc. 1,600 60,800 Nextel Communications, Inc., Class A (b) 7,500 177,188 Norfolk Southern Corp. 11,800 373,912 Peco Energy Co. 9,400 391,275 Pentair, Inc. 2,900 115,456 Philip Morris Companies, Inc. 14,200 759,700 Praxair, Inc. 5,000 176,250 Raytheon Co., Class B 9,200 489,900 Regions Financial Corp. 1,400 56,438 Schering Plough Corp. 5,000 276,250 Sears, Roebuck and Co. 7,800 331,500 Southdown, Inc. 3,116 184,428 St. Jude Medical, Inc. (b) 5,100 141,206 Timken Co. 900 16,988 TRW, Inc. 300 16,856 Tyson Foods, Inc., Class A 10,000 212,500 Ultramar Diamond Shamrock Corp. 6,090 147,683 Unocal Corp. 3,800 110,913 US Bancorp 6,959 247,044 USG Corp. 1,200 61,125 Vencor, Inc. (b) 5,200 23,400 Ventas, Inc. 5,200 63,375 Viad Corp. 5,300 160,988 Wells Fargo and Co. 7,000 279,562 Witco Corp. 1,900 30,281 Xerox Corp. 11,200 1,321,600 York International Corp. 3,400 138,763 ------------- Total U.S. Equities (Cost $18,571,684) 21,710,202 ------------- Face Amount Value ------------ ---------------- Bonds - 48.89% U.S. Corporate Bonds - 10.25% Archer Daniels, 6.950%, due 12/15/97 $ 250,000 $ 270,313 Citicorp Series F, 6.375%, due 11/15/08 200,000 207,480 Continental Airlines, Inc., EETC, 6.900%, due 01/02/18 450,000 457,389 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00 415,000 419,243 Enron Corp., 6.750%, due 08/01/09 125,000 128,924 MBNA Global Capital Securities FRN, 6.019%, due 02/01/27 215,000 197,857 Noram Energy Corp., 6.375%, due 11/01/03 200,000 203,244 PanAMSat Corp., 6.000%, due 01/15/03 335,000 332,368 Residential Asset Securitization Trust 97-A10, Class A1, 7.250%, due 12/25/27 609,890 615,336 97-A11, Class A2, 7.000%, due 01/25/28 221,995 222,808 Sprint Capital Corp., 6.875%, due 11/15/28 200,000 207,676 9 U.S. Balanced Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------ ---------------- TCI Communications, Inc., 8.750%, due 08/01/15 $ 220,000 $ 274,132 Time Warner Inc., 7.570%, due 02/01/24 290,000 327,065 Tyco International Group, 144A, 5.875%, due 11/01/04 250,000 248,459 U.S.A. Waste Services, 6.500%, due 12/15/02 360,000 367,336 Williams Holdings of Delaware, 6.500%, due 12/01/08 125,000 123,620 ------------- 4,603,250 ------------- International Dollar Bonds - 3.57% Abbey National PLC, 6.700%, Resettable Perpetual Step-up Notes 250,000 244,866 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 270,000 270,000 Empresa Nacional Electric, 8.125%, due 02/01/2097 200,000 164,000 LKB-Baden Wuerttemberg Finance NV, 8.125%, due 01/27/00 280,000 287,451 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14 235,000 193,701 Southern Investments UK, 6.800%, due 12/01/06 430,000 445,894 ------------- 1,605,912 ------------- Mortgage-Backed Securities - 7.17% First Security Auto Grantor Trust Series 98-A, Class A, 5.970%, due 04/15/04 494,513 498,306 Morgan Stanley Capital, Inc., 6.830%, due 10/15/06 1,058,814 1,101,166 Prudential Home Mortgage Securities 93-43, Class A9, 6.750%, due 10/25/23 728,674 733,935 UCFC Home Equity Loan 97-C, Class A8, FRN, 5.478%, due 09/15/27 894,012 885,420 ------------- 3,218,827 ------------- U.S. Government Agencies - 12.66% Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23 454,644 472,021 9.000%, due 03/01/24 228,551 243,014 Federal National Mortgage Association 6.789%, due 11/01/07 499,291 532,694 7.500%, due 02/25/22 728,836 761,691 0.000%, due 09/25/22 330,540 305,896 FNCI, 8.000%, due 02/01/13 415,446 428,169 Government National Mortgage Association 8.000%, due 08/15/22 625,324 651,092 7.000%, due 12/15/23 730,038 747,464 7.500%, due 06/15/24 568,246 585,733 Jordan Aid, 8.750%, due 09/01/19 775,765 961,731 ------------- 5,689,505 ------------- Face Amount Value ------------ ---------------- U.S. Government Obligations - 15.24% U.S. Treasury Notes and Bonds 7.500%, due 02/15/05 $ 140,000 $ 160,258 8.000%, due 11/15/21 1,605,000 2,150,199 U.S. Treasury Inflation Indexed Note 3.625%, due 01/15/08 4,210,000 4,189,272 3.625%, due 04/15/28 350,000 345,768 ------------- 6,845,497 ------------- Total U.S. Bonds (Cost $21,742,928) 21,962,991 ------------- Short-Term Investments - 2.21% U.S. Government Obligations - 1.02% U.S. Treasury Bill 4.320%, due 02/25/99 460,000 457,143 ------------- Investment Companies - 1.19% Brinson Supplementary Trust U.S. Cash Management Prime Fund 534,192 534,192 ------------- Total Short-Term Investments (Cost $991,086) 991,335 ------------- Total Investments (Cost $41,305,698) - 99.42% (a) 44,664,528 ------------- Cash and other assets, less liabilities - 0.58% 261,475 ------------- Net Assets - 100% $ 44,926,003 ============= See accompanying notes to schedule of investments. 10 U.S. Balanced Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $41,305,698; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 4,581,591 Gross unrealized depreciation (1,222,761) ----------- Net unrealized appreciation $ 3,358,830 =========== (b) Non-income producing security FRN: Floating rate note-The rate disclosed is that in effect at December 31, 1998. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $831,037, or 1.85% of net assets. Resettable Perpetual Step-up Notes: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FUTURES CONTRACTS The U.S. Balanced Fund had the following open futures contracts as of December 31, 1998:
Settlement Cost/ Current Unrealized Date Proceeds Value Gain/(Loss) ---------- -------- ------- ----------- Interest Rate Futures Buy Contracts 5 Year U.S. Treasury Note, 51 contracts March 1999 $5,768,578 $5,780,531 $ 11,953 10 Year U.S. Treasury Note, 9 contracts March 1999 1,067,688 1,072,406 4,718 30 Year U.S. Treasury Bond, 7 contracts March 1999 896,737 894,469 (2,268) Index Futures Sale Contracts Standard & Poor's 500, 25 contracts March 1999 7,302,950 7,784,375 (481,425) ---------- Total $ (467,022) ==========
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at December 31, 1998 was $457,143. See accompanying notes to financial statements. 11 U.S. Balanced Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $40,771,506) $ 44,130,336 Affiliated issuers (Cost $534,192) 534,192 Cash 93,114 Receivables: Investment securities sold 34,069 Dividends 42,873 Interest 295,082 Other assets 7,676 ------------ TOTAL ASSETS 45,137,342 ------------ LIABILITIES: Payables: Investment securities purchased 116,073 Fund shares redeemed 1,833 Investment advisory fees 19,654 Variation margin 23,203 Accrued expenses 50,576 ------------ TOTAL LIABILITIES 211,339 ------------ NET ASSETS $ 44,926,003 ============ NET ASSETS CONSIST OF: Paid in capital 14,425,066 Distributions in excess of net investment income (16,787) Accumulated net realized gain 27,625,916 Net unrealized appreciation 2,891,808 ------------ NET ASSETS $ 44,926,003 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $42,780,766 and 4,554,478 shares issued and outstanding) $ 9.39 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,159 and 123 shares issued and outstanding) $ 9.42 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $2,144,078 and 229,620 shares issued and outstanding) $ 9.34 ============ See accompanying notes to financial statements. 12 U.S. Balanced Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Interest $ 956,815 Dividends 184,098 ----------- TOTAL INCOME 1,140,913 ----------- EXPENSES: Advisory 198,756 Professional 28,974 Registration 14,530 Distribution 5,002 Other 25,127 ----------- TOTAL EXPENSES 272,389 Expenses waived by Advisor (40,475) ----------- NET EXPENSES 231,914 ----------- NET INVESTMENT INCOME 908,999 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on: Investments 3,445,075 Future contracts 498,232 ----------- Net realized gain 3,943,307 ----------- Change in net unrealized appreciation or depreciation on: Investments (4,180,368) Future contracts (413,603) ----------- Change in net unrealized appreciation or depreciation (4,593,971) ----------- Net realized and unrealized loss (650,664) ----------- Net increase in net assets resulting from operations $ 258,335 =========== See accompanying notes to financial statements. 13 U.S. Balanced Fund - Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- -------------- OPERATIONS: Net investment income $ 908,999 $ 9,285,597 Net realized gain 3,943,307 43,393,817 Change in net unrealized appreciation or depreciation (4,593,971) (19,387,830) ------------- ------------- Net increase in net assets resulting from operations 258,335 33,291,584 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from and in excess of net investment income: Brinson Class I (2,154,721) (11,202,072) Brinson Class N (56) (62) UBS Investment Funds Class (108,248) (96,209) Distributions from net realized gain: Brinson Class I (9,074,452) (20,202,719) Brinson Class N (243) (75) UBS Investment Funds Class (483,100) (121,168) ------------- ------------- Total distributions to shareholders (11,820,820) (31,622,305) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Shares sold 8,764,497 58,797,856 Shares issued on reinvestment of distributions 11,632,239 31,535,417 Shares redeemed (46,345,419) (294,075,195) ------------- ------------- Net decrease in net assets resulting from capital share transactions (25,948,683) (203,741,922) ------------- ------------- TOTAL DECREASE IN NET ASSETS (37,511,168) (202,072,643) ------------- ------------- NET ASSETS: Beginning of period 82,437,171 284,509,814 ------------- ------------- End of period (including accumulated undistributed (distributions in excess of) net investment income of $(16,787) and $1,337,239, respectively) $ 44,926,003 $ 82,437,171 ============= =============
See accompanying notes to financial statements. 14 U.S. Balanced Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, December 30, 1994* December 31, 1998 --------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 June 30, 1995 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.24 $ 12.53 $ 11.71 $ 11.23 $ 10.00 -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.19*** 0.49*** 0.47 0.44 0.23 Net realized and unrealized gain 0.24 0.93 1.29 1.04 1.16 -------- -------- -------- -------- -------- Total income from investment operations 0.43 1.42 1.76 1.48 1.39 -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income (0.63) (0.77) (0.40) (0.43) (0.16) Distributions from net realized gain (2.65) (0.94) (0.54) (0.57) -- -------- -------- -------- -------- -------- Total distributions (3.28) (1.71) (0.94) (1.00) (0.16) -------- -------- -------- -------- -------- Net asset value, end of period $ 9.39 $ 12.24 $ 12.53 $ 11.71 $ 11.23 Total return (non-annualized) 3.74% 12.19% 15.50% 13.52% 13.91% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 42,781 $ 80,556 $282,860 $227,829 $157,724 Ratio of expenses to average net assets: Before expense reimbursement 0.94%** 0.81% 0.88% 1.01% 1.06%** After expense reimbursement 0.80%** 0.80% 0.80% 0.80% 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement 3.08%** 3.88% 3.78% 3.76% 4.36%** After expense reimbursement 3.22%** 3.89% 3.86% 3.97% 4.63%** Portfolio turnover rate 65% 194% 329% 240% 196%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 15 U.S. Balanced Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.27 $ 12.53 ------- ------- Income from investment operations: Net investment income 0.19*** 0.47*** Net realized and unrealized gain 0.23 0.94 ------- ------- Total income from investment operations 0.42 1.41 ------- ------- Less distributions: Distributions from net investment income (0.62) (0.73) Distributions from net realized gain (2.65) (0.94) ------- ------- Total distributions (3.27) (1.67) ------- ------- Net asset value, end of period $ 9.42 $ 12.27 ======= ======= Total return (non-annualized) 3.61% 12.15% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 1.19%** 1.06% After expense reimbursement 1.05%** 1.05% Ratio of net investment income to average net assets: Before expense reimbursement 2.83%** 3.63% After expense reimbursement 2.97%** 3.64% Portfolio turnover rate 65% 194%
* Commencement of Brinson Class N was June 30, 1997. ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 16 U.S. Balanced Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.19 $ 12.46 $ 11.67 $ 11.38 ------- ------- ------- ------- Income from investment operations: Net investment income 0.16*** 0.42*** 0.38 0.42 Net realized and unrealized gain 0.23 0.95 1.31 0.86 ------- ------- ------- ------- Total income from investment operations 0.39 1.37 1.69 1.28 ------- ------- ------- ------- Less distributions: Distributions from net investment income (0.59) (0.70) (0.36) (0.42) Distributions from net realized gain (2.65) (0.94) (0.54) (0.57) ------- ------- ------- ------- Total distributions (3.24) (1.64) (0.90) (0.99) ------- ------- ------- ------- Net asset value, end of period $ 9.34 $ 12.19 $ 12.46 $ 11.67 ======= ======= ======= ======= Total return (non-annualized) 3.46% 11.79% 14.99% 11.54% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 2,144 $ 1,880 $ 1,649 $ 779 Ratio of expenses to average net assets: Before expense reimbursement 1.44%** 1.31% 1.38% 1.51%** After expense reimbursement 1.30%** 1.30% 1.30% 1.30%** Ratio of net investment income to average net assets: Before expense reimbursement 2.58%** 3.38% 3.28% 3.26%** After expense reimbursement 2.72%** 3.39% 3.36% 3.47%** Portfolio turnover rate 65% 194% 329% 240%
* Commencement of UBS Investment Funds Class ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 17 U.S. Equity Fund The U.S. Equity Fund is an actively managed fund invested in common stocks of U.S. corporations. The Fund is diversified by issue and industry; it is typically 70% invested in large capitalization stocks, with the remaining 30% in intermediate and small capitalization stocks. Investment strategies emphasize stock selection with attention to the management of factor and industry exposures. Since its performance inception on July 31, 1995, the UBS Investment Fund-U.S. Equity has provided an annualized return of 23.75% compared to the 25.27% return of its benchmark, the Wilshire 5000 Equity Index. For calendar year 1998, the total return of the UBS Investment Fund-U.S. Equity was 17.91%, trailing the 23.43% return for its benchmark. The following paragraphs review the sources of Fund underperformance for the year. Market exposure (average beta of 0.95) detracted modestly from the Fund relative performance in the very strong equity environment which characterized 1998. Factor weightings had the largest negative impact on active returns for the full year. Among the most significant negative factor positions were the underexposure in the relative strength and size measures, as a relatively narrow segment of the largest capitalization stocks continued to dominate market performance. Most of these large stocks are perceived as high quality companies with predictable, sustainable growth rates, attributes that have been highly favored in an environment with increasing economic uncertainty exacerbated by pockets of global stress such as South East Asia, Russia and Brazil. The Fund has minimal exposure to these largest stocks. Our valuation work suggests peak levels of overvaluation. Industry weightings also detracted from active returns during 1998. The technology, telecommunications and drug industries relatively outperformed for the year. Underweights to these industries detracted from performance. The underweight in energy continued to contribute to performance as oil prices plunged to nearly ten dollars per barrel by the end of the year. Our overweights in economically sensitive basic industry, tire and railroad stocks also detracted from performance. Slowing industrial production, lower capacity utilization rates and the build-up of capital stock over the last seven years have led to overcapacity in many of the basic industries. Commodity prices, which deteriorated throughout the year, fell more sharply during the fourth quarter, below our estimate of normal or equilibrium levels for a number of metals, chemicals and paper grades. Stock selection had a modest positive effect on the portfolio for the year. Among large capitalization issues, the best performers were Federal Express, EMC Corp. and Cigna while the worst were Lockheed Martin and Sears. In the intermediate capitalization segment of the portfolio, the most positive contributors were Peco Energy, Allergan and Circuit City while the weakest were Harnischfeger, Lyondell, Nextel and Consolidated Stores. 18 U.S. Equity Fund [UBS LOGO APPEARS HERE] Total Return 6 months 1 year 3 years 7/31/95* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------- UBS Investment Fund - U.S. Equity 4.04% 17.91% 22.28% 23.75% - --------------------------------------------------------------------------- Wilshire 5000 Equity Index 6.90 23.43 25.24 25.27 - --------------------------------------------------------------------------- * Performance inception date of the UBS Investment Fund - U.S. Equity Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund - U.S. Equity and the Wilshire 5000 Equity Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund - U.S. Equity vs. Wilshire 5000 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] UBS Investment Fund Wilshire U.S. Equity 5000 Index --------------- ---------- 7/31/95 10,000 10,000 8/31/95 10,184 10,098 9/30/95 10,570 10,483 10/31/95 10,528 10,377 11/30/95 11,122 10,817 12/31/95 11,335 10,994 1/31/96 11,790 11,288 2/29/96 11,971 11,486 3/31/99 12,194 11,612 4/30/96 12,418 11,898 5/31/96 12,615 12,224 6/30/96 12,570 12,123 7/31/96 11,958 11,469 8/31/96 12,415 11,836 9/30/96 12,966 12,466 10/31/96 13,242 12,640 11/30/96 14,156 13,478 12/31/96 14,157 13,326 1/31/97 14,663 14,039 2/28/97 14,757 14,033 3/31/97 14,260 13,412 4/30/97 14,691 13,997 5/31/97 15,759 14,989 6/30/97 16,499 15,677 7/31/97 17,756 16,883 8/31/97 17,053 16,248 9/30/97 17,812 17,207 10/31/97 16,865 16,634 11/30/97 17,193 17,178 12/31/97 17,587 17,196 1/31/98 17,697 17,591 2/28/98 19,232 18,871 3/31/98 20,326 19,816 4/30/98 20,115 20,051 5/31/98 19,814 19,517 6/30/98 19,931 20,202 7/31/98 19,418 19,759 8/31/98 16,644 16,682 9/30/98 17,840 17,772 10/31/98 19,187 19,094 11/30/98 19,991 20,296 12/31/98 20,737 21,595 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 19 U.S. Equity Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. EQUITIES Energy 1.12% Capital Investment Capital Goods 9.75 Technology 14.55 ------- 24.30 Basic Industries Chemicals 4.79 Housing/Paper 8.98 Metals 0.41 ------- 14.18 Consumer Non-Durables 7.70 Retail/Apparel 4.47 Autos/Durables 2.75 Health: Drugs 4.36 Health: Non-Drugs 5.01 ------- 24.29 Financial Banks 7.78% Non-Banks 7.04 ------- 14.82 Utilities Electric 5.68 Telephone 0.82 ------- 6.50 Transportation 10.12 Services/Misc 4.50 ------- Total U.S. Equities 99.83 ------- SHORT-TERM INVESTMENTS 2.47 ------- TOTAL INVESTMENTS 102.30 ------- LIABILITIES, LESS CASH AND OTHER ASSETS (2.30) ------- NET ASSETS 100.00% ======= Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ---------------------------------------------------- 1. Xerox Corp. 6.07% 2. FDX Corp. 4.25 3. Burlington Northern Santa Fe Corp. 4.21 4. Lockheed Martin Corp. 3.74 5. Philip Morris Companies, Inc. 3.46 6. Baxter International, Inc. 2.60 7. Kimberly Clark Corp. 2.55 8. Aetna Life & Casualty Co. 2.38 9. Energy Corp. 2.34 10. CIGNA Corp. 2.34 - ---------------------------------------------------- 20 U.S. Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------- ---------------- U.S. Equities - 99.83% Advanced Micro Devices, Inc. (b) 362,700 $ 10,495,631 Aetna, Inc. 231,500 18,201,687 Allergan, Inc. 90,400 5,853,400 Alza Corp. (b) 190,650 9,961,462 American Home Products Corp. 6,100 343,506 American Standard Companies, Inc. (b) 190,000 6,828,125 Aon Corp. 321,600 17,808,600 Automatic Data Processing, Inc. 147,200 11,803,600 BankBoston Corp. 103,800 4,041,713 Baxter International, Inc. 309,000 19,872,562 Beckman Coulter Inc. 82,500 4,475,625 Bestfoods 82,800 4,409,100 Biogen, Inc. (b) 43,050 3,573,150 Birmingham Steel Corp. 44,650 186,972 Burlington Northern Santa Fe Corp. 954,300 32,207,625 Champion Enterprises, Inc. (b) 65,000 1,779,375 Champion International Corp. 95,100 3,851,550 Chase Manhattan Corp. 165,000 11,230,312 CIGNA Corp. 231,650 17,909,441 Circuit City Stores-Circuit City Group 258,200 12,893,862 CMS Energy Corp. 246,150 11,922,891 Comerica, Inc. 78,650 5,362,947 CommScope, Inc. (b) 134,499 2,261,264 Comverse Technology, Inc. (b) 87,165 6,188,715 Consolidated Stores Corp. (b) 251,500 5,077,156 Corning, Inc. 373,800 16,821,000 Covance, Inc. (b) 95,850 2,791,631 Crown Cork & Seal Co., Inc. 93,700 2,887,131 Cummins Engine Co., Inc. 26,600 944,300 Dial Corp. 98,500 2,844,188 Eastman Chemical Co. 105,150 4,705,463 Electronic Data Systems Corp. 340,000 17,085,000 EMC Corp. (b) 112,550 9,566,750 Entergy Corp. 576,700 17,949,787 FDX Corp. (b) 365,500 32,529,500 First American Corp. of Tennessee 49,900 2,214,313 First Data Corp. 461,230 14,615,226 First Security Corp. 94,200 2,201,925 Fleet Financial Group, Inc. 239,000 10,680,312 Fleetwood Enterprises, Inc. 50,400 1,751,400 Food Lion Inc., Class A 434,200 4,613,375 Fort James Corp. 327,800 13,112,000 General Instrument Corp. (b) 434,750 14,754,328 General Semiconductor, Inc. (b) 66,575 545,083 Genzyme Corp. (b) 76,850 3,823,288 Genzyme-Molecular Oncology (b) 7,409 24,079 Geon Co. 52,550 1,208,650 Goodyear Tire & Rubber Co. 242,800 12,246,225 Great Lakes Chemical Corp. 61,100 2,444,000 GreenPoint Financial Corp. 109,200 3,835,650 Harnischfeger Industries, Inc. 132,650 1,351,372 HCR Manor Care, Inc. (b) 99,050 2,909,594 Hibernia Corp., Class A 105,850 1,839,144 Household International Inc. 190,000 7,528,750 IMC Global Inc. 296,500 6,337,688 Johnson Controls Inc. 90,000 5,310,000 Kimberly Clark Corp. 358,150 19,519,175 Lafarge Corp. 90,800 3,677,400 Lear Corp. (b) 228,550 8,799,175 Lockheed Martin Corp. 337,676 28,618,041 Lyondell Petrochemical Co. 274,250 4,936,500 Shares Value ------------- ---------------- Martin Marietta Materials, Inc. 55,907 $ 3,476,717 Masco Corp. 444,700 12,785,125 Nabisco Holdings Corp., Class A 194,300 8,063,450 National Service Industries, Inc. 61,200 2,325,600 Nextel Communications, Inc., Class A (b) 266,450 6,294,881 Norfolk Southern Corp. 403,400 12,782,737 Peco Energy Co. 328,200 13,661,325 Pentair, Inc. 100,800 4,013,100 Philip Morris Companies, Inc. 495,750 26,522,625 Praxair, Inc. 176,600 6,225,150 Raytheon Co., Class B 321,950 17,143,837 Regions Financial Corp. 49,000 1,975,313 Schering Plough Corp. 178,200 9,845,550 Sears, Roebuck and Co. 274,150 11,651,375 Southdown, Inc. 110,340 6,530,749 St. Jude Medical, Inc. (b) 179,300 4,964,369 Timken Co. 33,550 633,256 TRW, Inc. 48,200 2,708,238 Tyson Foods, Inc., Class A 354,750 7,538,438 Ultramar Diamond Shamrock Corp. 196,418 4,763,137 Unocal Corp. 130,000 3,794,375 US Bancorp 245,641 8,720,255 USG Corp. 43,900 2,236,156 Vencor, Inc. (b) 193,600 871,200 Ventas, Inc. 193,000 2,352,188 Viad Corp. 187,350 5,690,756 Wells Fargo and Co. 241,000 9,624,937 Witco Corp. 21,150 337,078 Xerox Corp. 393,750 46,462,500 York International Corp. 117,700 4,803,631 ------------- Total U.S. Equities (Cost $637,542,592) 764,359,762 ------------- Face Amount ------------- Short-Term Investments - 2.47% Commercial Paper - 0.33% Marriot International 5.750%, due 01/22/99 $ 1,500,000 1,494,968 Raytheon Co. 5.600%, due 01/22/99 1,000,000 997,365 ------------- 2,492,333 ------------- U.S. Government Obligations - 0.19% U.S. Treasury Bill 4.320%, due 02/25/99 1,500,000 1,490,684 ------------- Shares ------------- Shares Investment Companies - 1.95% Brinson Supplementary Trust U.S. Cash Management Prime Fund 14,913,259 14,913,259 ------------- Total Short-Term Investments (Cost $18,894,832) 18,896,276 ------------- Total Investments (Cost $656,437,424) - 102.30% 783,256,038 ------------- Liabilities, less cash and other assets - (2.30%) (17,611,553) ------------- Net Assets - 100% $ 765,644,485 ============= See accompanying notes to schedule of investments. 21 U.S. Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $656,437,424; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 158,609,700 Gross unrealized depreciation (31,791,086) ------------- Net unrealized appreciation $ 126,818,614 ============= (b) Non-income producing security See accompanying notes to financial statements. 22 U.S. Equity Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $641,524,165) $ 768,342,779 Affiliated issuers (Cost $14,913,259) 14,913,259 Cash 222,399 Receivables: Investment securities sold 2,179,776 Dividends 1,450,031 Interest 23,580 Fund shares sold 279,437 Other assets 15,000 ------------- TOTAL ASSETS 787,426,261 ------------- LIABILITIES: Payables: Investment securities purchased 4,474,672 Fund shares redeemed 16,863,628 Investment advisory fees 438,298 Accrued expenses 5,178 ------------- TOTAL LIABILITIES 21,781,776 ------------- NET ASSETS $ 765,644,485 ============= NET ASSETS CONSIST OF: Paid in capital $ 626,791,335 Distributions in excess of net investment income (61,799) Accumulated net realized gain 12,096,335 Net unrealized appreciation 126,818,614 ------------- NET ASSETS $ 765,644,485 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $691,214,075 and 35,393,125 shares issued and outstanding) $ 19.53 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $4,337,407 and 222,981 shares issued and outstanding) $ 19.45 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $70,093,003 and 3,602,379 shares issued and outstanding) $ 19.46 ============= See accompanying notes to financial statements. 23 U.S. Equity Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends $ 5,256,751 Interest 369,095 ------------- Total income 5,625,846 ------------- EXPENSES: Advisory 2,368,764 Administration 154,148 Distribution 179,065 Other 180,729 ------------- TOTAL EXPENSES 2,882,706 ------------- NET INVESTMENT INCOME 2,743,140 ------------- NET REALIZED AND UNREALIZED GAIN: Net realized gain on: Investments 21,292,728 Futures contracts 1,501,017 ------------- Net realized gain 22,793,745 ------------- Change in net unrealized appreciation or depreciation on: Investments 10,133,678 Futures contracts (96,948) ------------- Change in net unrealized appreciation or depreciation 10,036,730 ------------- Net realized and unrealized gain 32,830,475 ------------- Net increase in net assets resulting from operations $ 35,573,615 ============= See accompanying notes to financial statements. 24 U.S. Equity Fund - Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- --------------- OPERATIONS: Net investment income $ 2,743,140 $ 5,791,742 Net realized gain 22,793,745 44,131,079 Change in net unrealized appreciation or depreciation 10,036,730 58,277,883 ------------- ------------- Net increase in net assets resulting from operations 35,573,615 108,200,704 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from and in excess of net investment income: Brinson Class I (3,835,995) (4,978,081) Brinson Class N (21,154) (832) UBS Investment Funds Class (190,577) (249,586) Distributions from net realized gain: Brinson Class I (34,670,366) (28,383,478) Brinson Class N (216,952) (64) UBS Investment Funds Class (3,774,710) (2,678,143) ------------- ------------- Total distributions to shareholders (42,709,754) (36,290,184) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Shares sold 153,042,464 346,081,960 Shares issued in connection with reorganization 23,269,419 -- Shares issued on reinvestment of distributions 39,648,720 33,981,329 Shares redeemed (104,278,829) (163,864,419) ------------- ------------- Net increase in net assets resulting from capital share transactions 111,681,774 216,198,870 ------------- ------------- TOTAL INCREASE IN NET ASSETS 104,545,635 288,109,390 ------------- ------------- NET ASSETs: Beginning of period 661,098,850 372,989,460 ------------- ------------- End of period (including accumulated undistributed (distributions in excess of) net investment income (loss) of $(61,799) and $1,242,787, respectively) $ 765,644,485 $ 661,098,850 ============= =============
See accompany notes to financial statements 25 U.S. Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, February 22, 1994* December 31, 1998 ---------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.91 $ 17.64 $ 14.59 $ 11.53 $ 9.65 $ 10.00 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.08*** 0.19 0.15 0.17 0.16 0.05 Net realized and unrealized gain (loss) 0.73 3.39 4.27 3.31 1.89 (0.36) -------- -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.81 3.58 4.42 3.48 2.05 (0.31) -------- -------- -------- -------- -------- -------- Less distributions: Distributions from net investment income (0.12) (0.18) (0.14) (0.17) (0.14) (0.04) Distributions from net realized gain (1.07) (1.13) (1.23) (0.25) (0.03) -- -------- -------- -------- -------- -------- -------- Total distributions (1.19) (1.31) (1.37) (0.42) (0.17) (0.04) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 19.53 $ 19.91 $ 17.64 $ 14.59 $ 11.53 $ 9.65 ======== ======== ======== ======== ======== ======== Total return (non-annualized) 4.32% 21.48% 31.87% 30.57% 21.45% (3.10)% Ratios/Supplemental data: Net assets, end of period (in 000s) $691,214 $605,768 $337,949 $126,342 $ 42,573 $ 8,200 Ratio of expenses to average net assets: Before expense reimbursement 0.80%** 0.80% 0.89% 1.14% 1.70% 5.40%** After expense reimbursement N/A N/A 0.80% 0.80% 0.80% 0.80%** 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement 0.86%** 1.12% 1.06% 1.13% 1.09% (2.82)%** After expense reimbursement N/A N/A 1.15% 1.47% 1.99% 1.78%** Portfolio turnover rate 17% 42% 43% 36% 33% 9%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not applicable See accompanying notes to financial statements. 26 U.S. Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.88 $ 17.64 ------- ------- Income from investment operations: Net investment income 0.07*** 0.15 Net realized and unrealized gain 0.67 3.37 ------- ------- Total income from investment operations 0.74 3.52 ------- ------- Less distributions: Distributions from net investment income (0.10) (0.15) Distributions from net realized gain (1.07) (1.13) ------- ------- Total distributions (1.17) (1.28) ------- ------- Net asset value, end of period $ 19.45 $ 19.88 ======= ======= Total return (non-annualized) 4.00% 21.10% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 4,337 $ 268 Ratio of expenses to average net assets 1.05%** 1.05% Ratio of net investment income to average net assets 0.61%** 0.87% Portfolio turnover rate 17% 42%
* Commencement of Brinson Class N was June 30, 1997 ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 27 U.S. Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.83 $ 17.59 $ 14.58 $ 11.94 ------- ------- ------- ------- Income from investment operations: Net investment income 0.04*** 0.09 0.11 0.10 Net realized and unrealized gain 0.71 3.38 4.22 2.92 ------- ------- ------- ------- Total income from investment operations 0.75 3.47 4.33 3.02 ------- ------- ------- ------- Less distributions: Distributions from net investment income (0.05) (0.10) (0.09) (0.13) Distributions from net realized gain (1.07) (1.13) (1.23) (0.25) ------- ------- ------- ------- Total distributions (1.12) (1.23) (1.32) (0.38) ------- ------- ------- ------- Net asset value, end of period $ 19.46 $ 19.83 $ 17.59 $ 14.58 ======= ======= ======= ======= Total return (non-annualized) 4.04% 20.80% 31.28% 25.70% Ratios/Supplemental Data: Net assets, end of period (in 000s) $70,093 $55,063 $35,039 $ 5,387 Ratio of expenses to average net assets: Before expense reimbursement 1.32%** 1.32% 1.41% 1.66%** After expense reimbursement N/A N/A 1.32% 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement 0.34%** 0.60% 0.54% 0.61%** After expense reimbursement N/A N/A 0.63% 0.95%** Portfolio turnover rate 17% 42% 43% 36%
* Commencement of UBS Investment Funds Class ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompany notes to financial statements 28 U.S. Large Capitalization Equity Fund [UBS LOGO APPEARS HERE] The U.S. Large Capitalization Equity Fund is an actively managed portfolio that invests in common stocks of the largest U.S. corporations. Issues are selected from a universe of less than 300 of the largest capitalization domestic stocks collectively comprising 65% of the value of the U.S. equity market. Since its performance inception on April 30, 1998, the UBS Investment Fund - U.S. Large Capitalization Equity has provided an annualized return of 5.29%, compared to the 11.71% return of its benchmark, the S&P 500 Equity Index. The discussion below focuses on Brinson's management of Large Capitalization Equities during 1998. The UBS Investment Fund - U.S. Large Capitalization Equity has underperformed since its performance inception on April 30, 1998. Market exposure detracted modestly from active returns, consistent with a slightly below market beta and very strong equity market returns. Results suffered from a meaningful underweight in the largest capitalization, highest momentum issues at a time when investors turned to large, stable growth stocks for safety. Industry exposures also detracted from active returns with negative contributions from our overweights in tires, tobacco and rails and relative underweights in drugs and telephone utilities. These negative returns were only partially offset by positive contributions from our overweights to electronics and electric utilities and underweights to producer goods and business machines. Stock selection had a positive effect on the Fund in 1998. Among the strongest contributors were Federal Express, EMC Corp., Cigna and Schering Plough, while holdings in Lockheed Martin and Sears hurt stock-specific performance. Within the large capitalization segment of the market, a relatively small and increasingly narrow group of stocks provided the majority of returns during the year. Our research suggested that many of the widely held, "mega-cap" stocks like General Electric, Microsoft, Bristol Myers, Bell Atlantic, Procter & Gamble, Pfizer and AT&T were overvalued even before the turmoil in emerging markets surfaced. Here at the beginning of 1999, we remain convinced that there are greater relative values away from such issues, and the Fund is positioned accordingly. Specifically, the Fund's most important factor exposures, as we enter 1999, include underweightings in size, momentum and foreign earnings and overweightings in the traditional value measures of earnings-price, book-price and yield. From an industry standpoint, the portfolio is underweighted in energy, drugs, telephone utilities, miscellaneous finance, chemicals and retail/apparel. Meaningful overweights include aerospace/defense, housing and paper, construction, transportation and service related issues. 29 U.S. Large Capitalization Equity Fund Total Return 6 Months Ended 4/30/98* 12/31/98 to 12/31/98 - ----------------------------------------------------------------------------- UBS Investment Fund - U.S. Large Capitalization Equity 5.63% 5.29% - ----------------------------------------------------------------------------- S&P 500 Equity Index 9.23 11.71 - ----------------------------------------------------------------------------- * Performance inception date of the UBS Investment Fund - U.S. Large Capitalization Equity. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund - U.S. Large Capitalization Equity and the S&P 500 Equity Index if you had invested $10,000 on April 30, 1998, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund - U.S. Large Capitalization Equity vs. S&P 500 Equity Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] UBS Investment Fund - U.S. Large Capitalization S&P 500 Equity Equity Index -------------------- ------------ 4/30/96 $10,000 $10,000 5/31/98 $9,827 $9,828 6/30/98 $9,968 $10,227 7/31/98 $9,774 $10,118 8/31/98 $8,481 $8,655 9/30/98 $9,133 $9,210 10/31/98 $9,795 $9,959 11/30/98 $10,212 $10,563 12/31/98 $10,529 $11,171 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 30 U.S. Large Capitalization Equity Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. EQUITIES Basic Industries Chemicals 1.18% Housing/Paper 6.07 Metals 0.53 ------ 7.78 Capital Investment Capital Goods 8.54 Technology 13.77 ------ 22.31 Consumer Autos/Durables 2.37 Health: Drugs 1.85 Health: Non-Drugs 4.30 Non-Durables 5.92 Retail/Apparel 2.19 ------ 16.63 Energy 0.71% Financial Banks 10.77 Non-Banks 10.04 ------ 20.81 Transportation 14.58 Services/Miscellaneous 8.13 Utilities Electric 2.98 ------ Total U.S. Equities 93.93* ------ SHORT-TERM INVESTMENTS 6.27* ------ TOTAL INVESTMENTS 100.20 LIABILITIES, LESS CASH AND OTHER ASSETS (0.20) ------ NET ASSETS 100.00% ====== - ----------------------------------------------------------------------------- *The Fund held a long position in stock index futures on December 31, 1998 which increased U.S. Equity exposure from 93.93% to 99.56% and reduced exposure to Short-Term Investments from 6.27% to 0.64%. Top 10 U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------ 1. Xerox Corp. 8.74% 2. FDX Corp. 6.11 3. Burlington Northern Santa Fe Corp. 6.07 4. Lockheed Martin Corp. 5.32 5. Philip Morris Companies, Inc. 5.03 6. Baxter International, Inc. 3.78 7. Kimberly Clark Corp. 3.67 8. CIGNA Corp. 3.39 9. Aon Corp. 3.35 10. Aetna Life & Casualty Co. 3.30 - ------------------------------------------------ 31 U.S. Large Capitalization Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- -------------- U.S. Equities - 93.93% Aetna, Inc. 9,300 $ 731,212 Aon Corp. 13,400 742,025 Automatic Data Processing, Inc. 6,100 489,144 BankBoston Corp. 4,300 167,431 Baxter International, Inc. 13,000 836,062 Bestfoods 3,700 197,025 Burlington Northern Santa Fe Corp. 39,800 1,343,250 Chase Manhattan Corp. 6,900 469,631 CIGNA Corp. 9,700 749,931 Comerica, Inc. 3,300 225,019 Corning, Inc. 15,600 702,000 Covance, Inc. (b) 4,000 116,500 Crown Cork & Seal Co., Inc. 3,800 117,088 Electronic Data Systems Corp. 14,200 713,550 EMC Corp. (b) 4,700 399,500 Entergy Corp. 21,200 659,850 FDX Corp. (b) 15,200 1,352,800 First Data Corp. 19,200 608,400 Fleet Financial Group, Inc. 10,000 446,875 Goodyear Tire & Rubber Co. 10,400 524,550 Household International Inc. 7,800 309,075 Kimberly Clark Corp. 14,900 812,050 Lockheed Martin Corp. 13,900 1,178,025 Masco Corp. 18,500 531,875 Norfolk Southern Corp. 16,800 532,350 Philip Morris Companies, Inc. 20,800 1,112,800 Praxair, Inc. 7,400 260,850 Raytheon Co., Class B 13,400 713,550 Schering Plough Corp. 7,400 408,850 Sears, Roebuck and Co. 11,400 484,500 Unocal Corp. 5,400 157,613 US Bancorp 10,200 362,100 Wells Fargo and Co. 10,100 403,369 Xerox Corp. 16,400 1,935,200 ------------- Total U.S. Equities (Cost $19,887,009) 20,794,050 ------------- Face Amount Value ----------- -------------- Short-Term Investments - 6.27% Investment Companies - 6.27% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $1,386,884) $ 1,386,884 $ 1,386,884 ------------- Total Investments (Cost $21,273,893) - 100.20% (a) 22,180,934 ------------- Liabilities, less cash and other assets - (0.20%) (43,198) ------------- Net Assets - 100% $ 22,137,736 ============= See accompanying notes to schedule of investments. 32 U.S. Large Capitalization Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $21,273,893; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 2,018,260 Gross unrealized depreciation (1,111,219) ----------- Net unrealized appreciation $ 907,041 =========== (b) Non-income producing security FUTURES CONTRACTS The U.S. Large Capitalization Equity Fund had the following open futures contracts as of December 31, 1998:
Settlement Cost/ Current Unrealized Date Proceeds Value Gain ---------- -------- ------- ---------- Index Futures Buy Contracts Standard & Poor's 500, 4 contracts March 1999 $1,239,928 $1,245,500 $ 5,572
The segregated cash pledged to cover margin requirements for the open futures positions at December 31, 1998 was $54,000. See accompanying notes to financial statements. 33 U.S. Large Capitalization Equity Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $19,887,009) $ 20,794,050 Affiliated issuers (Cost $1,386,884) 1,386,884 Cash 35,998 Receivables: Investment securities sold 6,194 Dividends 50,850 Interest 1,392 Fund shares sold 1,595 Variation margin 3,400 Other assets 32,594 ------------ TOTAL ASSETS $ 22,312,957 ------------ LIABILITIES: Payables: Investment securities purchased 77,485 Fund shares redeemed 20,989 Investment advisory fees 4,624 Accrued expenses 72,123 ------------ TOTAL LIABILITIES 175,221 ------------ NET ASSETS $ 22,137,736 ============ NET ASSETS CONSIST OF: Paid in capital $ 21,319,701 Distributions in excess of net investment income (30,001) Accumulated net realized loss (64,577) Net unrealized appreciation 912,613 ------------ NET ASSETS $ 22,137,736 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $9,432,446 and 913,878 shares issued and outstanding) $ 10.32 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $12,704,221 and 1,232,392 shares issued and outstanding) $ 10.31 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,069 and 104 shares issued and outstanding) $ 10.28 ============ See accompanying notes to financial statements. 34 U.S. Large Capitalization Equity Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends $ 141,180 Interest 19,744 ----------- TOTAL INCOME 160,924 ----------- EXPENSES: Advisory 59,251 Professional 24,181 Distribution 17,757 Other 35,497 TOTAL EXPENSES 136,686 ----------- Expenses waived by Advisor (51,141) ----------- NET EXPENSES 85,545 ----------- NET INVESTMENT INCOME 75,379 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (87,071) Futures contracts 91,795 ----------- Net realized gain 4,724 ----------- Change in net unrealized appreciation or depreciation on: Investments 1,094,763 Futures contracts (3,464) ----------- Change in net unrealized appreciation or depreciation 1,091,299 ----------- Net realized and unrealized gain 1,096,023 ----------- Net increase in net assets resulting from operations $ 1,171,402 =========== See accompanying notes to financial statements. 35 U.S. Large Capitalization Equity Fund - Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended April 6, 1998* December 31, 1998 Through (Unaudited) June 30, 1998 ------------------ -------------- OPERATIONS: Net investment income $ 75,379 $ 32,434 Net realized gain (loss) 4,724 (69,301) Change in net unrealized appreciation or depreciation 1,091,299 (178,686) ------------ ------------ Net increase (decrease) in net assets resulting from operations 1,171,402 (215,553) ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from and in excess of net investment income: Brinson Class I (47,131) (191) Brinson Class N (69,880) (20,605) UBS Investment Funds Class (6) (1) ------------ ------------ Total distributions to shareholders (117,017) (20,797) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold 9,027,897 16,922,491 Shares issued on reinvestment of distributions 116,156 20,775 Shares redeemed (4,248,075) (519,553) ------------ ------------ Net increase in net assets resulting from capital share transactions 4,895,978 16,423,713 ------------ ------------ TOTAL INCREASE IN NET ASSETS 5,950,363 16,187,363 ------------ ------------ NET ASSETS: Beginning of period 16,187,373 10 ------------ ------------ End of period (including accumulated undistributed (distributions in excess of) net investment income of $(30,001) and $11,637, respectively) $ 22,137,736 $ 16,187,373 ============ ============
See accompanying notes to financial statements. 36 U.S. Large Capitalization Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended April 6, 1998* December 31, 1998 Through Brinson Class I (Unaudited) June 30, 1998 - -------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.80 $10.00 -------- ------ Income from investment operations: Net investment income 0.03 0.02 Net realized and unrealized gain (loss) 0.56 (0.20) -------- ------ Total income (loss) from investment operations 0.59 (0.18) -------- ------ Less distributions: Distributions from net investment income (0.07) (0.02) Distributions from net realized gain -- -- -------- ------ Total distributions (0.07) (0.02) -------- ------ Net asset value, end of period $ 10.32 $ 9.80 ======== ====== Total return (non-annualized) 6.01% (1.83)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 9,432 $ 154 Ratio of expenses to average net assets: Before expense reimbursement 1.40%** 1.59%** After expense reimbursement 0.80%** 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement 0.50%** 0.52%** After expense reimbursement 1.10%** 1.31%** Portfolio turnover rate 19% 12%
* Commencement of investment operations ** Annualized See accompanying notes to financial statements. 37 U.S. Large Capitalization Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended April 6, 1998* December 31, 1998 Through Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.78 $ 10.00 ------- ------- Income from investment operations: Net investment income 0.04 0.02 Net realized and unrealized gain (loss) 0.54 (0.23) ------- ------- Total income (loss) from investment operations 0.58 (0.21) ------- ------- Less distributions: Distributions from net investment income (0.05) (0.01) Distributions from net realized gain -- -- ------- ------- Total distributions (0.05) (0.01) ------- ------- Net asset value, end of period $ 10.31 $ 9.78 ======= ======= Total return (non-annualized) 5.97% (2.02)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $12,704 $16,033 Ratio of expenses to average net assets: Before expense reimbursement 1.65%** 1.84%** After expense reimbursement 1.05%** 1.05%** Ratio of net investment income to average net assets: Before expense reimbursement 0.25%** 0.27%** After expense reimbursement 0.85%** 1.06%** Portfolio turnover rate 19% 12%
*Commencement of investment operations **Annualized See accompanying notes to financial statements. 38 U.S. Large Capitalization Equity Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended April 6, 1998* December 31, 1998 Through UBS Investment Funds Class (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.79 $ 10.00 ------- ------- Income from investment operations: Net investment income 0.02 0.02 Net realized and unrealized gain (loss) 0.53 (0.22) Total income (loss) from investment operations 0.55 (0.20) Less distributions: Distributions from net investment income (0.06) (0.01) Distributions from net realized gain -- -- Total distributions (0.06) (0.01) Net asset value, end of period $ 10.28 $ 9.79 Total return (non-annualized) 5.63% (2.06)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 1.92%** 2.11%** After expense reimbursement 1.32%** 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement (0.02)%** 0.00%** After expense reimbursement 0.58%** 0.79%** Portfolio turnover rate 19% 12%
* Commencement of investment operations ** Annualized See accompanying notes to financial statements. 39 U.S. Bond Fund [UBS LOGO APPEARS HERE] The U.S. Bond Fund is an actively managed diversified portfolio of U.S. investment-grade fixed income securities. Using fundamental research, we develop expectations about the returns on U.S. bonds based on the divergence of current market yields from our estimates of equilibrium yields. Relative value analysis drives both sector and individual issue selection. Since its inception on August 31, 1995, the UBS Investment Fund - U.S. Bond has provided an annualized return of 7.60%, compared to the 8.21% return of the Salomon Smith Barney Broad Investment Grade (BIG) Bond Index. The fund's annualized return volatility over the same period has been 3.99% which is similar to the benchmark's 3.42%. For calendar year 1998, the UBS Investment Fund - U.S. Bond returned 7.80% versus 8.72% for the index. Returns were depressed by the unprecedented spread widening of corporate securities during the third quarter. Interest rates fell roughly 100 basis points during 1998 with nearly all of this decline occurring during the volatile third quarter. The Federal Reserve initiated an easing of monetary policy late in the third quarter to combat global instability. In all, the Fed lowered short rates 75 basis points to their current level of 4.75%. Most investors will remember 1998 as one of the more tumultuous years on record. A confluence of global events at mid-year raised fears that a global economic crisis was unfolding. This precipitated a reassessment of risk on the part of most investors, which severely impacted market liquidity. A general "flight-to-quality" characterized the U.S. bond market for most of the second half of the year. While many financial assets responded negatively to these developments, corporate securities suffered disproportionately as investors sought the safe-haven of U.S. Treasuries. Signs of increasing global stability and market liquidity have become evident as we enter 1999. Overall, quality and liquidity were the most rewarded factors during 1998. Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. BONDS Corporate Bonds Airlines 0.08% Asset-Backed 7.60 Banks 0.58 Business and Public Service 2.16 CMO 5.46 Consumer 2.69 Energy 2.96 Financial Services 4.89 Industrial Components 0.85 Real Estate 0.22 Telecommunications 3.42 Total U.S. Corporate Bonds 30.91 U.S. Government Agencies 21.09 U.S. Government Obligations 38.32 International Dollar Bonds 4.77 ------- Total U.S. Bonds 95.09 ------- U.S. Equities 1.04 ------- SHORT-TERM INVESTMENTS 10.04 ------- TOTAL INVESTMENTS 106.17 LIABILITIES, LESS CASH AND OTHER ASSETS (6.17) ------- NET ASSETS 100.00% ======= 40 U.S. Bond Fund Total Return
6 months 1 year 3 years Annualized ended ended ended 8/31/95* to 12/31/98 12/31/98 12/31/98 12/31/98 - ---------------------------------------------------------------------------------------- UBS Investment Fund - U.S. Bond 4.21% 7.80% 6.63% 7.60% - ---------------------------------------------------------------------------------------- Salomon Smith Barney Broad Investment Grade (BIG) Bond Index 4.57 8.72 7.29 8.21 - ----------------------------------------------------------------------------------------
* Inception date of the UBS Investment Fund - U.S. Bond. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund - U.S. Bond and the Salomon Smith Barney BIG Bond Index if you had invested $10,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund - U.S. Bond vs. Salomon Smith Barney BIG Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] UBS Salomon Smith Investment Fund Barney BIG U.S. Bond Bond Index --------------- ------------- 8/31/95 10,000 10,000 10,080 10,094 10,230 10,229 10,390 10,389 12/31/95 10,529 10,532 10,591 10,604 10,366 10,425 10,284 10,350 10,202 10,273 10,161 10,268 6/30/96 10,324 10,400 10,345 10,428 10,283 10,413 10,491 10,594 10,762 10,832 11,032 11,011 12/31/96 10,861 10,914 10,871 10,956 10,893 10,968 10,731 10,857 10,893 11,012 11,011 11,116 6/30/97 11,141 11,248 11,479 11,553 11,370 11,453 11,522 11,622 11,675 11,788 11,708 11,843 12/31/97 11,844 11,964 11,981 12,118 11,970 12,110 12,004 12,157 12,050 12,220 12,165 12,338 6/30/98 12,252 12,439 12,264 12,465 12,461 12,656 12,682 12,954 12,636 12,896 12,717 12,967 12/31/98 12,767 13,007 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 41 U.S. Bond Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ---------------- Bonds - 95.09% U.S. Corporate Bonds - 30.91% Aid-Israel, Series 10-Z, 0.000%, due 02/15/03 $ 805,000 $ 660,123 Capital One Bank, 6.830%, due 05/17/99 359,000 360,070 Cendant Corp., 7.750%, due 12/01/03 700,000 715,388 Chase Mortgage Finance Corp. 93-J1, Class 1A5, 6.625%, due 08/25/09 63,049 63,217 Chemical Mortgage Securities Inc. 93-1, Class A5, 7.450%, due 02/25/23 667,258 671,028 Ches Pot Tel MD, 8.000%, due 10/15/29 87,000 108,754 Chrysler Financial Corp., 7.400%, due 08/01/97 100,000 112,690 Citicorp Mortgage Securities, Inc. 94-9, Class A8, 5.750%, due 06/25/09 1,039,536 1,023,381 Comed Transitional Funding Trust, 98-1, Class A7, 5.740%, due 12/25/10 695,000 698,996 Continental Airlines, Inc., EETC, 98-1B, 6.748%, due 09/15/18 75,000 75,088 Countrywide Funding Corp. FRN, 5.680%, due 12/01/03 250,000 241,250 Enron Corp., 6.750%, due 08/01/09 800,000 825,114 Farmers Exchange Capital, 144A, 7.050%, due 07/15/28 400,000 402,451 First Bank Corporate Card Master Trust, 97-1, Class A, 6.400%, due 02/15/03 980,000 1,007,048 First Nationwide Trust, 98-3, Class 1PPA, 6.500%, due 09/19/28 514,243 514,706 Ford Motor Co., 6.625%, due 10/01/28 500,000 514,440 GE Capital Mortgage Services, Inc., 97-HE4 A7, 6.735%, due 12/25/28 410,000 422,649 General Motors Acceptance Corp., 9.625%, due 12/15/01 294,000 327,018 GreenTree Financial Corp., 94.5, Class A5, 8.300%, due 11/15/19 320,000 347,977 Interamer Development Bank, 6.800%, due 10/15/25 100,000 113,318 Jefferson-Pilot, 144A, 8.285%, due 03/01/46 640,000 697,637 Lehman Brothers, Inc., Senior Note 7.250%, due 04/15/03 225,000 231,763 LG&E Capital Corp., 144A, 5.750%, due 11/01/01 65,000 64,744 Lockheed Martin Corp., Note 7.700%, due 06/15/08 282,000 318,932 MBNA Global Capital Securities FRN, 6.019%, due 02/01/27 90,000 82,824 Mid-America Energy, 6.375%, due 06/15/06 275,000 282,232 Monsanto Co., 144A, 6.600%, due 12/01/28 1,250,000 1,247,692 News America Holdings, 7.750%, due 12/01/45 358,000 380,216 Face Amount Value ------------- ---------------- Norwest Asset Securities Corp., 98-25, Class A5, 6.000%, due 12/25/28 $2,400,000 $ 2,358,624 PanAmSat Corp., 6.000%, due 01/15/03 375,000 372,054 6.375%, due 01/15/08 500,000 489,297 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24 215,000 221,787 Premier Auto Trust, 96-3A, 6.500%, due 03/06/00 53,129 53,246 96-4A, Class A4, 6.400%, due 10/06/01 350,000 353,707 Prudential Home Mortgage Securities, 93-30, Class A9, 6.963%, due 08/25/23 85,000 85,806 93-43, Class A9, 6.750%, due 10/25/23 281,533 283,566 94-3, Class A10, 6.500%, due 02/25/24 170,000 169,536 Residential Accredit Loans, Inc., 96-QS4, Class Al10, 7.900%, due 08/25/26 275,000 283,257 98-QS4, Class AI5, 7.000%, due 03/25/28 1,850,000 1,919,657 Residential Asset Securitization Trust, 97-A10, Class A1, 7.250%, due 12/25/27 692,587 698,772 SafeWay, Inc., 6.500%, due 11/15/08 315,000 326,486 Salomon, Inc., Debenture, 6.750%, due 02/15/03 300,000 308,976 Service Corp., International, 6.000%, due 12/15/05 250,000 249,223 Sprint Capital Corp., 6.875%, due 11/15/28 1,000,000 1,038,382 Structured Asset Securities Corp., 98-RF1, Class A, 8.712%, due 03/15/27 487,887 523,564 98-RF2, 144A, 8.582%, due 07/15/27 171,060 183,035 Teco Energy, Inc., 5.540%, due 09/15/01 1,250,000 1,249,579 Tele-Communications Inc, 9.800%, due 02/01/12 950,000 1,268,065 Texas Utilities, 5.940%, due 10/15/11 (putable 10/15/01) 420,000 419,107 The Money Store Home Equity Trust, 98-A, Class AF5, 6.370%, due 12/15/23 465,000 469,548 Thrift Financial Corp., 11.250%, due 01/01/16 38,455 40,400 Time Warner Entertainment, Inc., 8.375%, due 03/15/23 94,000 114,971 Time Warner Inc., 7.570%, due 02/01/24 340,000 383,456 Transamerica Capital III, 7.625%, due 11/15/37 735,000 767,566 U.S.A. Waste Services, 6.500%, due 12/15/02 400,000 408,151 UCFC Home Equity Loan, 97-C, Class A8, FRN, 5.478%, due 09/15/27 134,278 132,988 Vendee Mortgage Trust, 92-1, Class 2Z, 7.750%, due 05/15/22 512,194 561,243 Williams Co., 6.200%, due 08/01/02 1,100,000 1,102,748 Williams Holdings of Delaware, 6.500%, due 12/01/08 315,000 311,522 ------------- 29,659,065 ------------- 42 U.S. Bond Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ---------------- International Dollar Bonds - 4.77% Banco Santiago S.A., 7.000%, due 07/18/07 $ 380,000 $ 318,432 Banque Paribas, Sub. Notes, 6.875%, due 03/01/09 700,000 711,927 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 500,000 500,000 Den Danske Bank, 144A, 6.375%, due 06/15/08 560,000 568,896 Empresa Nacional de Electricidad S.A., 7.875%, due 02/01/27 394,000 328,906 Petroliam Nasional Berhad, 144A, 7.625%, due 10/15/26 430,000 293,273 Province of Quebec, 7.500%, due 07/15/23 200,000 228,700 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14 450,000 370,917 Repsol International Finance, 7.000%, due 08/01/05 200,000 215,886 Republic of South Africa, 9.625%, due 12/15/99 71,000 72,420 Royal Bank of Scotland, 7.375%, Resettable Perpetual Step-up Notes 80,000 82,353 Skandinaviska Enskilda Banken, 144A, Resettable Perpetual Step-up Notes 305,000 297,362 Tyco International Group, 144A, 5.875%, due 11/01/04 595,000 591,332 ------------- 4,580,404 ------------- U.S. Government Agencies - 21.09% Federal Home Loan Bank, 5.570%, due 08/17/00 1,500,000 1,513,068 Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13 492,125 504,474 7.500%, due 01/15/23 157,195 165,716 7.238%, due 05/01/26 19,486 19,807 Federal Home Loan Mortgage Corp. Gold 8.000%, due 11/01/22 128,980 133,495 9.000%, due 03/01/24 97,878 104,072 Federal National Mortgage Association 6.959%, due 08/01/07 484,016 521,672 6.361%, due 06/01/08 1,422,447 1,482,190 8.000%, due 12/18/11 100,000 105,710 6.000%, due 01/01/14 TBA 295,000 295,832 8.000%, due 05/25/21 260,000 266,325 8.500%, due 07/15/21 82,101 84,870 9.000%, due 08/01/21 21,471 22,779 8.500%, due 07/01/22 14,724 15,605 Face Amount Value ------------- ---------------- 9.500%, due 08/01/22 $ 90,958 $ 97,069 0.000%, due 09/25/22 431,647 399,464 7.500%, due 12/01/23 624,461 641,049 7.500%, due 01/01/28 338,058 347,249 8.500%, due 02/01/28 138,666 145,252 6.000%, due 03/01/28 712,617 703,417 6.500%, due 06/01/28 780,479 785,851 6.500%, due 09/01/28 246,454 248,150 6.500%, due 11/01/28 3,511,180 3,535,351 6.000%, due 12/01/28 TBA 4,790,000 4,728,156 Federal National Mortgage Association Strips, 7.500%, due 05/01/23 interest only 298,479 47,911 0.000%, due 04/01/27 principal only 270,732 238,007 FNCI, 8.000%, due 02/01/13 254,508 262,302 FNW, Series 95-W3, Class A, 9.000%, due 04/25/25 170,324 177,497 Government National Mortgage Association 10.000%, due 09/15/00 1,782 1,887 10.000%, due 05/15/01 2,642 2,797 9.000%, due 11/15/04 12,190 12,799 9.000%, due 12/15/17 39,834 42,816 8.000%, due 08/15/22 56,279 58,598 7.500%, due 12/15/22 275,793 284,425 7.500%, due 12/15/23 1,121,946 1,156,769 7.500%, due 01/15/24 74,829 77,132 7.000%, due 02/16/24 150,000 152,450 7.500%, due 06/15/25 93,707 96,611 7.000%, due 07/15/25 101,728 104,135 Jordan Aid, 8.750%, due 09/01/19 517,177 641,154 ------------- 20,223,913 ------------- U.S. Government Obligations - 38.32% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00 4,525,000 4,567,422 5.500%, due 05/31/00 2,450,000 2,478,329 6.625%, due 07/31/01 5,110,000 5,352,725 6.250%, due 08/31/02 2,200,000 2,312,064 6.500%, due 05/15/05 2,000,000 2,191,876 7.000%, due 07/15/06 6,320,000 7,196,900 5.625%, due 05/15/08 4,540,000 4,843,612 8.000%, due 11/15/21 4,905,000 6,571,170 U.S. Treasury Inflation Indexed Note, 3.625%, due 04/15/28 1,270,000 1,254,644 ------------- 36,768,742 ------------- Total Bonds (Cost $90,665,694) 91,232,124 ------------- 43 U.S. Bond Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------- ---------------- Equities - 1.04% U.S. Equities - 1.04% Centaur Funding Corp., 144A 1,355 $ 248,815 ------------- Centaur Funding Corp., 144A 715 747,622 ------------- Total Equities (Cost $896,080) 996,437 ------------- Face Amount ------------- Short-Term Investments - 10.04% Commercial Paper - 3.12% Marriot International, 5.750%, due 01/22/99 $ 1,500,000 1,494,969 Raytheon Co., 5.600%, due 01/22/99 1,500,000 1,496,047 ------------- Total Commercial Paper (Cost $2,990,068) 2,991,016 ------------- Shares ------------- Investment Companies - 6.92 Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $6,638,700) 6,638,700 6,638,700 ------------- Total Short-Term Investments (Cost $9,628,768) 9,629,716 ------------- Total Investments (Cost $101,190,542) - 106.17% 101,858,277 ------------- Liabilities, less cash and other assets - (6.17%) (5,916,014) ------------- Net Assets - 100% $ 95,942,263 ============= NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $101,190,542; and net unrealized appreciation consisted of: Gross unrealized appreciation $1,154,761 Gross unrealized depreciation (487,026) ---------- Net unrealized appreciation $ 667,735 ========== FRN: Floating rate note - The rate disclosed is that in effect at December 31, 1998. TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $6,213,776, or 6.48% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. See accompanying notes to financial statements. 44 U.S. Bond Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $94,551,842) $ 95,219,577 Affiliated issuers (Cost $6,638,700) 6,638,700 Cash 35,470 Receivables: Investment securities sold 344,847 Fund shares sold 1,750 Interest 1,160,848 Other assets 8,846 ------------ TOTAL ASSETS 103,410,038 ------------ LIABILITIES: Payables: Investment securities purchased 7,403,466 Investment advisory fees 35,915 Dividends 1,774 Accrued expenses 26,620 ------------ TOTAL LIABILITIES 7,467,775 ------------ NET ASSETS $ 95,942,263 ============ NET ASSETS CONSIST OF: Paid in capital $ 95,212,858 Accumulated undistributed net investment income 10,071 Accumulated net realized gain 51,599 Net unrealized appreciation 667,735 ------------ NET ASSETS $ 95,942,263 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $90,868,678 and 8,556,121shares issued and outstanding) $ 10.62 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,150 and 108 shares issued and outstanding) $ 10.65 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $5,072,435 and 479,337 shares issued and outstanding) $ 10.58 ============ See accompanying notes to financial statements. 45 U.S. Bond Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (Unaudited) INVESTMENT INCOME: Interest $ 1,955,254 ----------- TOTAL INCOME 1,955,254 ----------- EXPENSES: Advisory 164,957 Professional 19,203 Registration 13,667 Distribution 10,134 Other 12,089 ----------- TOTAL EXPENSES 220,050 Expenses waived by Advisor (12,367) ----------- NET EXPENSES 207,683 ----------- NET INVESTMENT INCOME 1,747,571 ----------- NET REALIZED AND UNREALIZED GAIN: Net realized gain 809,071 Change in net unrealized appreciation or depreciation 134,810 ----------- Net realized and unrealized appreciation 943,881 ----------- Net increase in net assets resulting from operations $ 2,691,452 See accompanying notes to financial statements. 46 U.S. Bond Fund - Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 1,747,571 $ 1,638,048 Net realized gain 809,071 801,133 Change in net unrealized appreciation or depreciation 134,810 335,673 ------------ ------------ Net increase in net assets resulting from operations 2,691,452 2,774,854 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (1,922,429) (1,526,152) Brinson Class N (27) (54) UBS Investment Funds Class (116,017) (103,513) Distributions from net realized gain: Brinson Class I (1,038,553) (335,742) Brinson Class N (16) (14) UBS Investment Funds Class (68,968) (25,812) ------------ ------------ Total distributions to shareholders (3,146,010) (1,991,287) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold 69,994,288 21,794,978 Shares issued in connection with reorganization 15,177,263 -- Shares issued on reinvestment of distributions 2,681,835 1,174,894 Shares redeemed (32,774,989) (6,255,720) ------------ ------------ Net increase in net assets resulting from capital share transactions 55,078,397 16,714,152 ------------ ------------ TOTAL INCREASE IN NET ASSETS 54,623,839 17,497,719 ------------ ------------ NET assets: Beginning of period 41,318,424 23,820,705 ------------ ------------ End of period (including accumulated undistributed net investment income of $10,071 and $300,973, respectively) $ 95,942,263 $ 41,318,424 ============ ============
See accompanying notes to financial statements. 47 U.S. Bond Fund - Financial Statements The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended August 31, 1995* December 31, 1998 Year Ended Year Ended Through Brinson Class I (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.58 $ 10.24 $ 9.93 $ 10.00 ------- ------- ------- ------- Income from investment operations: Net investment income 0.29*** 0.53 0.51*** 0.50 Net realized and unrealized gain (loss) 0.18 0.53 0.32 (0.14) ------- ------- ------- ------- Total income from investment operations 0.47 1.06 0.83 0.36 ------- ------- ------- ------- Less distributions: Distributions from net investment income (0.28) (0.58) (0.52) (0.40) Distributions in excess of net realized gain (0.15) (0.14) -- (0.03) ------- ------- ------- ------- Total distributions (0.43) (0.72) (0.52) (0.43) ------- ------- ------- ------- Net asset value, end of period $ 10.62 $ 10.58 $ 10.24 $ 9.93 ======= ======= ======= ======= Total return (non-annualized) 4.43% 10.60% 8.45% 3.60% Ratios/Supplemental Data: Net assets, end of period (in 000s) $90,869 $38,874 $22,421 $ 9,047 Ratio of expenses to average net assets: Before expense reimbursement 0.64%** 0.84% 1.65% 363%** After expense reimbursement 0.60%** 0.60% 0.60% 0.60%** Ratio of net investment income to average net assets: Before expense reimbursement 5.30%** 5.61% 5.14% 3.00%** After expense reimbursement 5.34%** 5.85% 6.19% 6.03%** Portfolio turnover rate 140% 198% 410% 363%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 48 U.S. Bond Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.58 $ 10.24 ------- ------- Income from investment operations: Net investment income 0.34*** 0.61 Net realized and unrealized gain 0.14 0.42 ------- ------- Total income from investment operations 0.48 1.03 ------- ------- Less distributions: Distributions from net investment income (0.26) (0.55) Distributions from net realized gain (0.15) (0.14) ------- ------- Total distributions (0.41) (0.69) ------- ------- Net asset value, end of period $ 10.65 $ 10.58 ======= ======= Total return (non-annualized) 4.53% 10.30% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 0.89%** 1.09% After expense reimbursement 0.85%** 0.85% Ratio of net investment income to average net assets: Before expense reimbursement 5.05%** 5.36% After expense reimbursement 5.09%** 5.60% Portfolio turnover rate 140% 198%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 49 U.S. Bond Fund - Financial Statements The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended August 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.54 $ 10.22 $ 9.92 $ 10.00 ------- ------- ------- ------- Income from investment operations: Net investment income 0.26*** 0.50 0.46*** 0.46 Net realized and unrealized gain (loss) 0.18 0.49 0.32 (0.13) ------- ------- ------- ------- Total income from investment operations 0.44 0.99 0.78 0.33 ------- ------- ------- ------- Less distributions: Distributions from net investment income (0.25) (0.53) (0.48) (0.38) Distributions in excess of net realized gain (0.15) (0.14) -- (0.03) ------- ------- ------- ------- Total distributions (0.40) (0.67) (0.48) (0.41) ------- ------- ------- ------- Net asset value, end of period $ 10.58 $ 10.54 $ 10.22 $ 9.92 ======= ======= ======= ======= Total return (non-annualized) 4.21% 9.97% 7.91% 3.24% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 5,072 $ 2,444 $ 1,399 $ 636 Ratio of expenses to average net assets: Before expense reimbursement 1.11%** 1.31% 2.12% 4.10%** After expense reimbursement 1.07%** 1.07% 1.07% 1.07%** Ratio of net investment income to average net assets: Before expense reimbursement 4.83%** 5.14% 4.67% 2.53%** After expense reimbursement 4.87%** 5.38% 5.72% 5.56%** Portfolio turnover rate 140% 198% 410% 363%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. 50 U.S. Large Capitalization Growth Fund [UBS LOGO APPEARS HERE] The U.S. Large Capitalization Growth Fund is an actively managed portfolio invested in the common stocks of companies whose internal financial returns and earnings or cash flow growth prospects are well above the average large capitalization company ($3 billion or larger). While valuation is an important aspect in the screening process, fundamental dynamics are more heavily weighted. The investment strategy emphasizes stock selection with attention given to factor and sector exposures relative to the benchmark. The distribution of the UBS Investment Fund Class of the U.S. Large Capitalization Growth Fund commenced on December 31, 1998. The discussion that follows relates to the performance of the U.S. Large Capitalization Growth Fund for the year ended December 31, 1998. Generally, 1998 was a very good year to be a large capitalization growth manager. The uncertainties around the world led investors to seek assured growth wherever they could find it, particularly in larger sized companies. In the second half of the year, however, there began to be some differentiation among the favorites as many of the dominant global franchise companies such as Coca-Cola began to stumble with fundamental problems. This put even more focus on health care and technology where performance broadened out beyond just the biggest companies. Our performance was helped by our stock selection in the latter part of the year with investments such as Sun Microsystems, Oracle, Immunex, and AT&T. Areas which hurt performance were an overweighting in financial stocks and a small but meaningful commitment in the energy sector, particularly oil service companies such as Schlumberger. The major challenge facing growth investors in 1999 is twofold. First, some major sectors such as technology and health care have performed extremely well and are clearly not undervalued. World economic trends and populist political initiatives respectively could make both sectors more risky going forward. Our solution is to continue to look at companies which have not been the major leaders but which have strong fundamentals and relatively good valuations. Secondly, growth investing as a strategy has enjoyed extreme popularity in recent years at the expense of value investing. Efforts to reflate here and overseas may lead to more competitive earnings gains from more cyclical sources, something which has not been present for some time. Our solution is to look for growth companies which have been hurt by global economic woes and which may actually perform well under these conditions. We have consciously underweighted the major companies in most sectors unless we are extremely confident of fundamentals. 51 U.S. Large Capitalization Growth Fund [UBS LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 - ----------------------------------------------------------------------------- U.S. EQUITIES Basic Industries Chemicals 2.17% Housing/Paper 2.10 ------ 4.27 Capital Investment Capital Goods 1.99 Technology 18.77 ------ 20.76 Consumer Autos/Durables 7.29 Health: Drugs 13.84 Health: Non-Drugs 8.13 Non-Durables 9.02 Retail/Apparel 5.10 ------ 43.38 Energy 4.17% Financial Banks 1.74 Non-Banks 6.01 ------ 7.75 Transportation 0.73 Services/Miscellaneous 8.04 Utilities Telephone 7.10 ------ Total U.S. Equities 96.20 SHORT-TERM INVESTMENTS 3.18 ------ TOTAL INVESTMENTS 99.38 CASH AND OTHER ASSETS, LESS LIABILITIES 0.62 ------ NET ASSETS 100.00% ====== Top 10 U.S. Equity Holdings As of December 31, 1998 Percent of Net Assets - ---------------------------------------------------- 1. Sun Microsystems, Inc. 4.13% 2. International Business Machines Corp. 4.01 3. General Electric Co. 3.69 4. Wal-Mart Stores, Inc. 2.75 5. Abbott Laboratories 2.72 6. Albertson's, Inc. 2.61 7. Philip Morris Companies, Inc. 2.58 8. AFLAC, Inc. 2.55 9. Time Warner, Inc. 2.54 10. Medtronics, Inc. 2.51 - ---------------------------------------------------- 52 U.S. Large Capitalization Growth Fund - Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Shares Value ----------- ----------------- U.S. Equities - 96.20% Abbott Laboratories 2,300 $ 112,700 AFLAC, Inc. 2,400 105,600 Albertson's, Inc. 1,700 108,269 American Express, Co. 1,000 102,250 AT&T Corp. 1,100 82,775 Autozone, Inc. (b) 2,200 72,463 BankAmerica Corp. 1,200 72,150 Bristol-Myers Squibb Co. 600 80,287 CBS Corp. 2,100 68,775 Chubb Corp. 1,000 64,875 Citigroup, Inc. 800 39,600 Compaq Computer Corp. 2,300 96,456 Continental Airlines, Inc., Class B (b) 900 30,150 Dayton Hudson Corp. 1,800 97,650 E.I. du Pont de Nemours & Co. 1,700 90,206 Exxon Corp. 900 65,813 Fox Entertainment Group, Inc., Class A (b) 800 20,150 General Electric Co. 1,500 153,094 Halliburton Co. 1,600 47,400 Hewlett-Packard Co. 700 47,819 Immunex Corp. (b) 800 100,650 Intel Corp. 500 59,281 International Business Machines Corp. 900 166,275 Johnson & Johnson 900 75,487 Kimberly Clark Corp. 1,600 87,200 Liberty Media Group, Class A (b) 1,400 64,488 Lilly (Eli) & Co. 1,100 97,762 Loral Space & Communications Ltd. (b) 3,600 64,125 Lowe's Companies, Inc. 1,500 76,781 Lucent Technologies, Inc. 400 44,000 McDonald's Corp. 900 68,963 Medtronic, Inc. 1,400 103,950 Merck & Co., Inc. 600 88,612 Microsoft, Inc. (b) 400 55,475 Monsanto Co. 1,100 52,250 Morgan Stanley Dean Witter & Co. 600 42,600 Northern Telecom Ltd. 800 40,100 Oracle Corp. (b) 1,200 51,750 PepsiCo, Inc. 2,200 90,062 Philip Morris Companies, Inc. 2,000 107,000 QUALCOMM, Inc. (b) 700 36,269 Raytheon Co., Class A 1,600 82,700 Schering Plough Corp. 1,700 93,925 Schlumberger Ltd. 1,300 59,963 Sun Microsystems, Inc. (b) 2,000 171,250 Tele-Communications TCI Ventures Group, Class A (b) 2,700 63,619 Texas Instruments, Inc. 1,100 94,119 Time Warner, Inc. 1,700 105,506 Wal-Mart Stores, Inc. 1,400 114,012 Waste Management, Inc. 1,600 74,600 ------------ Total U.S. Equities (Cost $3,402,970) 3,991,256 ------------ Face Amount Value ----------- ----------------- Short-Term Investments - 3.18% Investment Companies - 3.18% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $131,691) $131,691 $ 131,691 ------------ Total Investments (Cost $3,534,661) - 99.38% 4,122,947 ------------ Cash and other assets, less liabilities - 0.62% 25,841 ------------ Net Assets - 100% $4,148,788 ============ NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $3,534,661; and net unrealized appreciation consisted of: Gross unrealized appreciation $677,003 Gross unrealized depreciation (88,717) -------- Net unrealized appreciation $588,286 ======== (b) Non-income producing security See accompanying notes to financial statements. 53 U.S. Large Capitalization Growth Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: Investments, at value: Unaffiliated issuers (Cost $3,402,970) $3,991,256 Affiliated issuers (Cost $131,691) 131,691 Cash 114 Receivables: Dividends 1,881 Interest 393 Fund shares sold 50,010 ----------- Total Assets 4,175,345 ----------- LIABILITIES: Payables: Investment securities purchased 25,397 Accrued expenses 1,160 ----------- TOTAL LIABILITIES 26,557 ----------- NET ASSETS $4,148,788 =========== NET ASSETS CONSIST OF: Paid in capital $3,291,916 Accumulated net realized gain 268,586 Net unrealized appreciation 588,286 ----------- NET ASSETS $4,148,788 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $4,146,788 and 350,212 shares issued and outstanding) $ 11.84 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 84 shares issued and outstanding) $ 11.84 =========== UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 84 shares issued and outstanding) $ 11.84 =========== See accompanying notes to financial statements. 54 U.S. Large Capitalization Growth Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME: Dividends $ 61,083 Interest 14,387 ----------- TOTAL INCOME 75,470 ----------- EXPENSES: Advisory 33,493 Registration 22,522 Fund accounting 19,260 Transfer agent 14,665 Shareholder servicing 13,511 Shareholder reporting 12,757 Professional 11,125 Custodian 10,976 Administration 7,361 Other 7,579 ----------- TOTAL EXPENSES 153,249 Expenses waived and reimbursed by advisor (98,048) ----------- NET EXPENSES 55,201 ----------- NET INVESTMENT INCOME 20,269 ----------- NET REALIZED AND UNREALIZED GAIN: Net realized gain on investments 438,421 Change in net unrealized appreciation or depreciation on investments 554,465 ----------- Net realized and unrealized gain 992,886 ----------- Net increase in net assets resulting from operations $ 1,013,155 =========== See accompanying notes to financial statements. 55 U.S. Large Capitalization Growth Fund - Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
October 14, 1997* Year Ended Through December 31, 1998 December 31, 1997 ----------------- ------------------ OPERATIONS: Net investment income $ 20,269 $ 9,350 Net realized gain (loss) 438,421 (14,545) Change in net unrealized appreciation or depreciation 554,465 33,821 ----------- ----------- Net increase in net assets resulting from operations 1,013,155 28,626 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (19,205) (9,050) Distributions from net realized gain: Brinson Class I (151,936) -- ----------- ----------- Total distributions to shareholders (171,141) (9,050) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares sold 4,973,380 4,108,844 Shares issued on reinvestment of distributions 170,881 9,050 Shares redeemed (5,974,601) (356) ----------- ----------- Net increase (decrease) in net assets resulting from capital share transactions (830,340) 4,117,538 ----------- ----------- TOTAL INCREASE IN NET ASSETS 11,674 4,137,114 ----------- ----------- NET ASSETS: Beginning of period 4,137,114 -- ----------- ----------- End of period (including accumulated undistributed net investment income of $300 in 1997) $ 4,148,788 $ 4,137,114 =========== ===========
* Commencement of investment operations See accompanying notes to financial statements. 56 U.S. Large Capitalization Growth Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.***
Six Months Ended October 14, 1997** December 31, 1998 Through Brinson Class I (Unaudited) June 30, 1998* - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.92 $ 10.00 ------- ------- Income from investment operations: Net investment income 0.06 0.02 Net realized and unrealized gain (loss) 2.38 (0.08) ------- ------- Total income from investment operations 2.44 (0.06) ------- ------- Less distributions: Distributions from net investment income (0.06) (0.02) Distributions from net realized gain (0.46) -- ------- ------- Total distributions (0.52) (0.02) ======= ======= Net asset value, end of period $ 11.84 $ 9.92 Total return (non-annualized) 24.90% (0.55)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 4,147 $ 4,137 Ratio of expenses to average net assets: Before expense reimbursement 2.76% 8.54%** After expense reimbursement 0.99% 1.00%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement (1.40)% (6.19)%** After expense reimbursement 0.37% 1.35%** Portfolio turnover rate N/A N/A
* Commencement of investment operations ** Annualized *** Reflects 10 for 1 share split effective December 9, 1998. N/A = Information is not available for periods prior to reorganization, as described in notes to financial statements. See accompanying notes to financial statements. 57 U.S. Small Capitalization Growth Fund [UBS LOGO APPEARS HERE] The U.S. Small Capitalization Growth Fund invests in companies with market capitalizations of less than $1 billion which we expect to experience above-average earnings/cash flow growth or meaningful changes in underlying value. As such, we seek to identify rapidly growing companies with leading products or industry positions and a proven record of achievement. The Fund's emphasis is on companies with strong business franchises that generate rapidly rising earnings and controlling risk through diversification and attention to reasonable valuations. The distribution of the UBS Investment Fund Class of the U.S. Small Capitalization Growth Fund commenced on December 31, 1998. The discussion that follows relates to the performance of the U.S. Small Capitalization Growth Fund for the year ended December 31, 1998. The largest negative impact was from the Fund's overweight in the oil services area, which was down sharply, and from underweights in technology and utilities, which performed well. On the positive side, the Fund's overweights in retail foods, miscellaneous finance, and life insurance helped results. We have taken steps to narrow our portfolio ranges in order to keep industry selection from continuing to be such a large factor going forward. Stock selection was also negative this year, with a larger than usual number of companies experiencing unexpected accounting and operating problems. Stocks that detracted from performance in 1998 included Vesta Insurance, Oakwood Homes, Landry's Seafood, Technology Solutions, and General Nutrition. The Fund's better performing stocks included Waters Corp, Foodmaker, U.S. Foodservice, Sanmina, and Swift Transportation. If we widen our perspective to the overall small cap market, it was a difficult year for small cap investors. The Russell 2000 underperformed the large cap S&P 500 by almost 31 percentage points in 1998, which is the worst relative calendar year performance by small cap stocks in the past 25 years. The damage incurred by the average small cap stock was even worse than the market averages would indicate. The median stock in the Russell 2000, for example, declined 9.1% in 1998, and more than 500 companies in the index fell more than 30%. Despite the poor performance, fundamentals continue to be quite positive for small cap stocks. The average stock in the Russell 2000 has grown earnings per share by 16.5% annually over the past five years, which compares well with the 16.8% annual gains chalked up by the S&P 500. In addition, the Wall Street analyst consensus is forecasting 20.5% annual earnings growth for small cap stocks over the next five years, which is well above the 14.8% yearly gain projected for the S&P 500. Finally, relative price-earnings and price-sales ratios for small cap stocks have sunk to record lows versus large cap stocks, so we think it is only a matter of time before a small cap rally of substantial proportions occurs. 58 U.S. Small Capitalization Growth Fund [UBS LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 - ----------------------------------------------------------------------------- U.S. EQUITIES Basic Industries Housing/Paper 1.35% ------ 1.35 Capital Investment Capital Goods 6.29 Technology 9.12 ------ 15.41 Consumer Autos/Durables 7.00 Discretionary 4.04 Health: Drugs 0.39 Health: Non-Drugs 8.74 Non-Durables 8.27 Retail/Apparel 3.03 ------ 31.47 Energy 3.30% Financial Banks 11.22 Non-Banks 8.15 ------ 19.37 Transportation 11.21 Services/Miscellaneous 15.59 ------ Total U.S. Equities 97.70 SHORT-TERM INVESTMENTS 4.24 ------ TOTAL INVESTMENTS 101.94 LIABILITIES, LESS CASH AND OTHER ASSETS (1.94) ------ NET ASSETS 100.00% ====== Top 10 U.S. Equity Holdings As of December 31, 1998 Percent of Net Assets - ------------------------------------------------------ 1. Waters Corp. 2.97% 2. U.S. Foodservice 2.95 3. Protective Life Corp. 2.89 4. Foodmaker, Inc. 2.88 5. Swift Transportation Co., Inc. 2.86 6. U.S. Trust Corp. 2.86 7. Patterson Dental Co. 2.83 8. Ha-Lo Industries, Inc. 2.81 9. Peoples Heritage Financial Group, Inc. 2.72 10. North Fork Bancorporation, Inc. 2.49 - ------------------------------------------------------ 59 U.S. Small Capitalization Growth Fund - Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Shares Value U.S. Equities - 97.70% ---------- ----------- Aeroflex, Inc. (b) 13,200 $ 199,650 AFC Cable Systems, Inc. (b) 6,000 201,750 Airborne Freight Corp. 12,200 439,962 American Italian Pasta Co., Class A (b) 8,500 224,188 Andrx Corp. (b) 1,700 87,125 AXENT Technologies, Inc. (b) 12,500 382,031 Brightpoint, Inc. (b) 28,300 389,125 Casey's General Stores, Inc. 32,900 428,728 Coach USA, Inc. (b) 14,900 516,844 Comfort Systems USA, Inc. (b) 8,400 150,150 Commercial Federal Corp. 14,200 329,262 Consolidated Graphics, Inc. (b) 6,300 425,644 Datastream Systems, Inc. (b) 15,500 178,250 Dendrite International, Inc. (b) 9,800 244,694 Eclipsys Corp. (b) 3,500 101,500 Elcor Corp. 8,100 261,731 Emmis Broadcasting Corp. (b) 5,500 238,563 Ethan Allen Interiors, Inc. 4,500 184,500 Expeditors International of Washington, Inc. 12,100 508,200 Finova Group, Inc. 7,000 377,562 Foodmaker, Inc. (b) 29,500 650,844 Friede Goldman International, Inc. (b) 9,800 111,475 General Nutrition Companies, Inc. (b) 14,200 230,750 HA-LO Industries, Inc. (b) 16,900 635,862 Horace Mann Educators Corp. 11,100 316,350 Investors Financial Services Corp. 5,400 321,975 Ivex Packaging Corp. (b) 3,500 81,375 Kellstrom Industries, Inc. (b) 11,800 339,250 Kuhlman Corp. 13,100 496,162 Lason, Inc. (b) 4,900 285,119 Level One Communications, Inc. (b) 5,300 188,150 Mercury Interactive Corp. (b) 3,400 215,050 Mesaba Holdings, Inc. (b) 20,500 422,812 META Group, Inc. (b) 6,700 199,325 Metro Information Services, Inc. (b) 12,400 372,000 North Fork Bancorporation, Inc. 23,500 562,531 Ocular Sciences, Inc. (b) 13,300 355,775 Orthodontic Centers of America, Inc. (b) 17,000 330,437 Patterson Dental Co. (b) 14,700 639,450 Pediatrix Medical Group, Inc. (b) 6,500 389,594 Peoples Heritage Financial Group, Inc. 30,700 614,000 Personnel Group of America, Inc. (b) 17,900 313,250 Pier 1 Imports, Inc. 26,600 257,688 Pride International, Inc. (b) 19,600 138,425 Prime Bancshares, Inc. 5,300 91,425 Prime Group Realty Trust 11,400 172,425 Promus Hotel Corp. (b) 6,200 200,725 Protective Life Corp. 16,400 652,925 Shares Value ---------- ----------- Province Healthcare Co. (b) 1,300 $ 46,638 R & B Falcon Corp. (b) 12,000 91,500 Richfood Holdings, Inc. 15,500 321,625 Sanmina Corp. (b) 6,700 418,750 Smith Int'l, Inc. (b) 10,400 261,950 Sunrise Assisted Living, Inc. (b) 8,800 456,500 Superior Consulting Holdings Corp. (b) 2,000 87,000 Swift Transportation Co., Inc. (b) 23,100 647,522 Sykes Enterprises, Inc. (b) 9,400 286,700 Tetra Tech, Inc. (b) 12,100 327,456 TMP Worldwide, Inc. (b) 5,800 243,600 Toll Brothers, Inc. (b) 10,000 225,625 Tuboscope Inc. (b) 17,700 143,813 U.S. Foodservice (b) 13,600 666,400 U.S. Trust Corp. 8,500 646,000 United Stationers, Inc. (b) 18,300 475,800 Waters Corp. (b) 7,700 671,825 Xoom.com, Inc. (b) 1,400 46,200 Zebra Technologies Corp., Class A (b) 9,600 276,000 Zions Bancorporation 4,700 293,163 ------------ Total U.S. Equities (Cost $19,919,618) 22,088,675 ------------ Short-Term Investments - 4.24% Investment Companies - 4.24% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $958,871) 958,871 958,871 ------------ Total Investments (Cost $20,878,489) - 101.94% 23,047,546 ------------ Liabilities, less cash and other assets - (1.94%) (438,235) ------------ Net Assets - 100% $22,609,311 ============ NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $20,878,489; and net unrealized appreciation consisted of: Gross unrealized appreciation $3,485,524 Gross unrealized depreciation (1,316,467) ----------- Net unrealized appreciation $2,169,057 ========== (b) Non-income producing security See accompanying notes to financial statements. 60 U.S. Small Capitalization Growth Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: INVESTMENTS, AT VALUE: Unaffiliated issuers (Cost $19,919,618) $ 22,088,675 Affiliated issuers (Cost $958,871) 958,871 Receivables: Investment securities sold 5,600 Dividends 9,074 Interest 1,136 Fund shares sold 39,000 ------------ TOTAL ASSETS 23,102,356 ------------ LIABILITIES: Payables: Investment securities purchased 484,257 Investment advisory fees 2,108 Accrued expenses 6,680 ------------ TOTAL LIABILITIES 493,045 ------------ NET ASSETS $ 22,609,311 ============ NET ASSETS CONSIST OF: Paid in capital $ 24,061,801 Accumulated net realized loss (3,621,547) Net unrealized appreciation 2,169,057 ------------ NET ASSETS $ 22,609,311 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $22,607,311 and 2,569,863 shares issued and outstanding) $ 8.80 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 114 shares issued and outstanding) $ 8.80 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 114 shares issued and outstanding) $ 8.80 ============ See accompanying notes to financial statements. 61 U.S. Small Capitalization Growth Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME: Dividends $ 96,327 Interest 76,924 ----------- TOTAL INCOME 173,251 ----------- EXPENSES: Advisory 114,211 Shareholder servicing 44,635 Administration 24,165 Fund accounting 27,596 Registration 27,361 Custodian 19,857 Professional 17,149 Other 40,310 ----------- TOTAL EXPENSES 315,284 ----------- Expenses waived and reimbursed by advisor (92,133) ----------- NET EXPENSES 223,151 ----------- NET INVESTMENT LOSS (49,900) ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss on investments (3,615,782) Change in net unrealized appreciation or depreciation on investments 2,695,815 ----------- Net realized and unrealized loss (919,967) ----------- Net decrease in net assets resulting from operations $(969,867) =========== See accompanying notes to financial statements. 62 U.S. Small Capitalization Growth Fund - Financial Statements StatementS of Changes in Net Assets
September 30, 1997* Year Ended Through December 31, 1998 December 31, 1997 ----------------- ------------------- OPERATIONS: Net investment loss $ (49,900) $ (2,313) Net realized gain (loss) (3,615,782) 6,540 Change in net unrealized appreciation or depreciation 2,695,815 (526,758) ------------- ------------- Net decrease in net assets resulting from operations (969,867) (522,531) ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from capital gains: Brinson Class I (10,014) -- ------------- ------------- Total distributions to shareholders (10,014) -- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Shares sold 18,352,730 12,731,529 Shares issued on reinvestment of distributions 9,859 -- Shares redeemed (6,727,395) (255,000) ------------- ------------- Net increase in net assets resulting from capital share transactions 11,635,194 12,476,529 ------------- ------------- TOTAL INCREASE IN NET ASSETS 10,655,313 11,953,998 ------------- ------------- NET ASSETS: Beginning of period 11,953,998 -- ------------- ------------- End of period $ 22,609,311 $ 11,953,998 ============= =============
* Commencement of investment operations See accompanying notes to financial statements. 63 U.S. Small Capitalization Growth Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.***
September 30, 1997* Year Ended Through Brinson Class I December 31, 1998 December 31, 1997 - ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.44 $ 10.00 ------- ------- Income from investment operations: Net investment income (loss) (0.02) -- Net realized and unrealized loss (0.57) (0.56) ------- ------- Total income (loss) from investment operations (0.59) (0.56) ------- ------- Less distributions: Distributions from net realized gain (0.05) -- ------- ------- Total distributions (0.05) -- ------- ------- Net asset value, end of period $ 8.80 $ 9.44 ======= ======= Total return (non-annualized) (6.70)% (5.62)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $22,607 $11,954 Ratio of expenses to average net assets: Before expense reimbursement 1.69% 3.63%** After expense reimbursement 1.20% 1.20%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement (0.76) (2.53)%** After expense reimbursement (0.27) (0.10)%** Portfolio turnover rate N/A N/A
* Commencement of investment operations ** Annualized *** Reflects 10 for 1 share split effective December 9, 1998. N/A = Information is not available for periods prior to reorganization, as described in notes to financial statements. See accompanying notes to financial statements. 64 High Yield Fund [UBS LOGO APPEARS HERE] UBS Brinson is an active manager of high yield fixed income client portfolios. We believe successful high yield investing involves capturing the market's high total return potential while minimizing losses due to credit deterioration or default. We believe that our research-intensive effort and our focus on long-term performance will result in superior risk-adjusted returns. At the forefront of our philosophy is a focus on diversification and preservation of principal. The distribution of the UBS Investment Fund Class of the High Yield Fund commenced on December 31, 1998. The discussion that follows relates to the performance of the High Yield Fund for the year ended December 31, 1998. During 1998, the benchmark's yield-to-worst increased markedly, from 8.85% at year-end 1997 to 10.18% at year-end 1998. Spreads in the high yield market widened by 242 basis points during 1998 as investors fled the high yield market for the safety and liquidity of U.S. Treasuries. By year-end, liquidity had improved and spreads had tightened by 100 basis points from the October peak to end the year at 554 basis points. Industry weightings contributed significantly to 1998 results. During 1998, the Fund underweighted the energy, metals and paper industries, which all posted negative returns, and overweighted broadcasting and diversified media, which outperformed. Issue selection also played an important role in 1998 as bond holdings in Simmons Co. and Ryder TRS, among others, were refinanced via tender offers, resulting in significant capital appreciation. Most importantly, the Fund suffered no default-related losses and, since inception, has maintained a default rate of 0.00%. At year end, the Fund contained approximately 100 issues, with 19% in double-B, 74% in single-B and 7% in CCC/CC/C rated issues. 65 High Yield Fund [UBS LOGO APPEARS HERE] Industry Diversification As a Percent of Net Assets As of December 31, 1998 - ----------------------------------------------------------------------------- U.S. bonds Corporate Bonds Auto 2.01% Broadcasting & Public Service 15.28 Construction 6.29 Consumer Goods 4.11 Electronics and Electric Components 3.31 Energy 0.87 Financial 1.55 Food & House Products 2.88 Health 1.26 Industrial 13.68 Machinery & Engineering 3.17 Multi-Industry 2.76 Real Estate 1.19 Recreation 9.85 Retail 2.09 Services 3.80 Telecommunications 19.74% Utilities 0.95 Wholesale & International Trade 0.59 ------- Total U.S. Bonds 95.38 ------- U.S. EQUITIES Warrants 0.00 Total U.S. Equities 0.00 ------- SHORT-TERM INVESTMENTS 3.86 ------- TOTAL INVESTMENTS 99.24 ------- CASH AND OTHER ASSETS, LESS LIABILITIES 0.76 ------- NET ASSETS 100.00% ======= - ----------------------------------------------------------------------------- Top Ten U.S. Bond Holdings As of December 31, 1998 Percent of Net Assets - ------------------------------------------------- 1. Echostar Communications 2.20% 2. Chancellor Media 1.73 3. Bally Total Fitness Holdings 1.69 4. Ackerley Group Inc. 1.60 5. Big Flower Press Holdings 1.59 6. Allbritton Communications 1.59 7. Verio Inc. 1.59 8. Mail-Well Corp. 1.58 9. PSINET Inc. 1.58 10. Diamond Triumph Inc. 1.57 - ------------------------------------------------- 66 High Yield Fund - Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Face Amount Value ----------- ----------------- U.S. Bonds - 95.38% U.S. Corporate Bonds - 95.38% Ackerley Group, Inc., Series 144A, 9.000%, due 01/15/09 $550,000 $ 558,250 Allbritton Communications, Series B, 8.875%, due 02/01/08 550,000 555,500 Alliance Laundry Systems, Series 144A, 9.625%, due 05/01/08 425,000 408,000 Aurora Foods, Series B 9.875%, due 02/15/07 300,000 327,000 8.750%, due 07/01/08 150,000 156,000 Avalon Cable, Series 144A, 9.375%, due 12/01/08 425,000 434,562 Bally Total Fitness Holdings Corp., Series B, 9.875%, due 10/15/07 600,000 588,000 Big Flower Press Holdings, Series 144A, 8.625%, due 12/01/08 550,000 555,500 Building Materials Holding Corp., Series 144A, 8.000%, due 12/01/08 425,000 423,937 CB Richard Ellis Services, Inc., 8.875%, due 06/01/06 425,000 416,500 Centennial Cellular, Series 144A, 10.750%, due 12/15/08 550,000 547,250 Century Communications Corp., 0.000%, due 01/15/08 425,000 212,500 Chancellor Media Corp., Series B, 10.500%, due 01/15/07 550,000 602,250 Citadel Broadcasting Co. 10.250%, due 07/01/07 275,000 299,063 Series 144A, 9.250%, due 11/15/08 275,000 286,688 Collins & Aikman Corp., 11.500%, due 04/15/06 500,000 520,000 CSC Holdings, Inc., 7.625%, due 07/15/18 250,000 245,150 Cumulus Media, Inc., 10.375%, due 07/01/08 450,000 477,000 Dan River, Inc., Snr-Sub-Nts, 10.125%, due 12/15/03 200,000 209,500 Diamond Triumph Autoglass, Inc., Series 144A, 9.250%, due 04/01/08 550,000 547,250 Digital Television, Series B, 12.500%, due 08/01/07 300,000 327,000 Dobson / Sygnet, Series 144A, 12.250%, due 12/15/08 125,000 127,188 E Spire Communications, Inc., Snr-Nts, Step, 0.000%, due 07/01/08 (c) 550,000 214,500 Eagle Family Foods, Series B, 8.750%, due 01/15/08 550,000 519,750 Echostar Communications, Step, 0.000%, due 06/01/04 (d) 750,000 768,750 Fedders North America, 9.375%, due 08/15/07 300,000 302,250 Federal-Mogul Corp., 7.875%, due 07/01/10 150,000 153,120 Face Amount Value ----------- ----------------- Fox / Liberty Networks, Step, 0.000%, due 08/15/07 (e) $750,000 $ 510,000 Golden Sky Systems, Series 144A, 12.375%, due 08/01/06 450,000 465,750 Harrahs Operating Co., Inc., 7.875%, due 12/05/05 425,000 429,709 Harvey Casinos Resorts, 10.625%, due 06/01/06 100,000 108,000 Hollinger International, Inc., 9.250%, due 03/15/07 425,000 448,375 ICG Holdings, Inc., Step, 0.000%, due 09/15/05 (f) 425,000 350,625 Interep National Radio Sales, Series 144A, 10.000%, due 07/01/08 425,000 437,750 Intermedia Communications, Inc., Snr-Nts, Series B, 0.000%, due 07/15/07 550,000 374,000 International Comfort Products Corp., Series B, 8.625%, due 05/15/08 275,000 277,750 Iron Mountain, Inc., 10.125%, due 10/01/06 200,000 217,000 J.H. Heafner Co., Series 144A, 10.000%, due 05/15/08 425,000 427,125 JCAC, Inc., 10.125%, due 06/15/06 450,000 501,750 Level 3 Communications, Inc., 9.125%, due 05/01/08 450,000 444,375 Liberty Group Operating, 9.375%, due 02/01/08 550,000 539,000 LIN Holdings Corp., Step, 0.000%, due 03/01/08 (g) 600,000 420,000 Lowes Cineplex, 8.875%, due 08/01/08 350,000 361,375 Mail Well Corp. Series 144A, 8.750%, due 12/15/08 550,000 550,000 Marcus Cable Co., Step, 0.000%, due 12/15/05 (h) 500,000 473,750 McLeodusa, Inc., 9.250%, due 07/15/07 300,000 313,500 Mediacom LLC., Series B, 8.500%, due 04/15/08 500,000 511,875 Microcell Telecommunications, Snr-Nts, Series B, Step, 0.000%, due 06/01/06 (i) 350,000 259,875 MTS, Inc., 9.375%, due 05/01/05 450,000 438,750 National Equipment Services, Series 144A, 10.000%, due 11/30/04 550,000 536,250 Nationsrent, Inc., Series 144A, 10.375%, due 12/15/08 550,000 544,500 NBTY, Inc., Series B, 8.625%, due 09/15/07 450,000 438,750 Newpark Resource, Inc., Series B, 8.625%, due 12/15/07 350,000 331,625 Nextel Communications, Inc. Series 144A, Step, 0.000%, due 09/15/07 (j) 375,000 239,063 Snr-Nts, Step, 0.000%, due 10/31/07 (k) 250,000 151,250 Nextlink Communications, Series 144A, 10.750%, due 11/15/08 375,000 381,562 67 High Yield Fund - Schedule of Investments December 31, 1998 - ----------------------------------------------------------------------------- Face Amount Value ----------- ----------------- Nortek, Inc, 144A, 8.875%, due 08/01/08 $375,000 $382,500 NTL, Inc., Series 144A, Step, 0.000%, due 10/01/08 (l) 550,000 344,438 Outdoor Communications, Inc., Snr-Sub-Nts, 9.250%, due 08/15/07 200,000 212,000 Parker Drilling Corp., Series D, 9.750%, due 11/15/06 150,000 133,500 Paxson Communications, 11.625%, due 10/01/02 500,000 512,500 Pegasus Communications Corp. Series 144A, 9.750%, due 12/01/06 150,000 150,375 Series B, 9.625%, due 10/15/05 450,000 451,125 Pilgrim's Pride Corp., Snr-Sub-Nts, 10.875%, due 08/01/03 200,000 206,000 Premier Parks, Inc., Step, 0.000%, due 04/01/08 (m) 660,000 447,150 Pride Petroleum Service, Snr-Nts, 9.375%, due 05/01/07 325,000 302,250 PSINet, Inc. Series 144A, 11.500% due 11/01/08 525,000 549,937 R. H. Donnelley, Inc., 9.125%, due 06/01/08 350,000 366,625 Rayovac Corp., Series B, 10.250%, due 11/01/06 350,000 385,000 RCN Corp., Step, 0.000%, due 10/15/07 (n) 450,000 263,250 Revlon Consumer Products, 8.625%, due 02/01/08 550,000 500,500 SFX Entertainment, Inc., Series B, 9.125%, due 02/01/08 550,000 544,500 Sinclair Broadcast Group 10.000%, due 09/30/05 250,000 265,000 8.750%, due 12/15/07 250,000 252,500 Splitrock Services, Inc., Series B, 11.750%, due 07/15/08 220,000 190,300 Station Casinos, Series 144A, 8.875%, due 12/01/08 500,000 507,500 Trans-Resources, Inc., Series B, Step, 0.000%, due 03/15/08 (o) 250,000 132,500 Transwestern 9.625%, due 11/15/07 275,000 286,000 Snr-Nts, Series 144A, 9.625%, due 11/15/07 250,000 260,000 Trump Atlantic City Funding, Inc., 11.250%, due 05/01/06 100,000 88,000 Unisys Corp., 11.750%, due 10/15/04 300,000 348,000 United Artists Theatre Circuit, Inc., Series B Snr-Sub-Nts, 9.750%, due 10/15/07 125,000 115,000 9.750%, due 04/15/08 350,000 334,250 United Rentals Series B, 9.500%, due 06/01/08 125,000 126,250 Series 144A, 8.800%, due 08/15/08 425,000 416,500 Series 144A, 9.250%, due 01/15/09 250,000 250,625 Verio, Inc., Series 144A, 11.250%, due 12/01/08 550,000 552,750 Face Amount Value ----------- ----------------- Weirton Steel Corp., 10.750%, due 06/01/05 $425,000 $ 365,500 Wesco Distribution, Inc., Series B, 9.125%, due 06/01/08 300,000 300,000 Young Broadcasting, Inc., Series B, 8.750%, due 06/15/07 475,000 482,125 ----------- Total U.S. Bonds (Cost $33,507,290) 33,290,242 ----------- Shares ----------- U.S. Equities - 0.00% Splitrock Services, Inc., Warrants due 07/15/08 (b) (Cost $11,307) 220 - ----------- Short-Term Investments - 3.86% Investment Companies - 3.86% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $1,345,443) 1,345,443 1,345,443 ----------- Total Investments - (Cost $34,864,040) 99.24% (a) 34,635,685 ----------- Cash and other assets, less liabilities - 0.76% 266,237 ----------- Net Assets - 100% $34,901,922 =========== NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $34,864,040; and net unrealized depreciation consisted of: Gross unrealized appreciation $ 423,318 Gross unrealized depreciation (651,672) --------- Net unrealized depreciation $(228,355) ========= (b) Non-income producing security (c) Interest rate 0.000% until 07/01/03, then 10.625% to maturity (d) Interest rate 0.000% until 05/31/99, then 12.875% to maturity (e) Interest rate 0.000% until 08/15/02, then 9.750% to maturity (f) Interest rate 0.000% until 09/14/00, then 13.500% to maturity (g) Interest rate 0.000% until 03/01/03, then 10.000% to maturity (h) Interest rate 0.000% until 06/15/00, then 14.250% to maturity (i) Interest rate 0.000% until 12/01/01, then 14.000% to maturity (j) Interest rate 0.000% until 09/15/02, then 10.450% to maturity (k) Interest rate 0.000% until 10/31/02, then 9.750% to maturity (l) Interest rate 0.000% until 10/01/03, then 12.375% to maturity (m) Interest rate 0.000% until 04/01/03, then 10.000% to maturity (n) Interest rate 0.000% until 10/15/02, then 11.125% to maturity (o) Interest rate 0.000% until 03/15/03, then 12.000% to maturity 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $10,885,250 or 31.22% of net assets. See accompanying notes to financial statements. 68 High Yield Fund - Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 ASSETS: Investments, at value (Cost $34,864,040) $ 34,635,685 Receivables: Investment securities sold 529,452 Interest 601,631 Fund shares sold 33,000 ------------ TOTAL ASSETS 35,799,768 ------------ LIABILITIES: Payables: Investment securities purchased 888,736 Investment advisory fees 3,721 Accrued expenses 5,389 ------------ TOTAL LIABILITIES 897,846 ------------ NET ASSETS $ 34,901,922 ============ NET ASSETS CONSIST OF: Paid in capital $ 35,056,372 Accumulated net realized gain 73,905 Net unrealized depreciation (228,355) ------------ NET ASSETS $ 34,901,922 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $34,899,922 and 3,498,244 shares issued and outstanding) $ 9.98 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 100 shares issued and outstanding) $ 9.98 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,000 and 100 shares issued and outstanding) $ 9.98 ============ See accompanying notes to financial statements. 69 High Yield Fund - Financial Statements STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME: Dividends $ 349 Interest 1,537,251 ------------ TOTAL INCOME 1,537,600 ------------ EXPENSES: Advisory 78,138 Shareholder servicing 39,782 Fund accounting 31,164 Registration 27,308 Administration 21,515 Custodian 17,544 Professional 16,347 Shareholder reporting 15,051 Transfer agent 14,999 Other 10,466 ------------ TOTAL EXPENSES 272,314 Expenses waived and reimbursed by advisor (120,078) ------------ NET EXPENSES 152,236 ------------ NET INVESTMENT INCOME 1,385,364 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on investments 261,744 Change in net unrealized appreciation or depreciation (260,233) ------------ Net realized and unrealized gain 1,511 ------------ Net increase in net assets resulting from operations $ 1,386,875 ============ See accompanying notes to financial statements. 70 High Yield Fund - Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
September 30, 1997* Year Ended Through December 31, 1998 December 31, 1997 ----------------- -------------------- OPERATIONS: Net investment income $ 1,385,364 $ 131,850 Net realized gain 261,744 17,380 Change in net unrealized appreciation or depreciation (260,233) 31,878 ------------ ------------ Net increase in net assets resulting from operations 1,386,875 181,108 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (1,395,944) (129,573) Distributions from net realized gain: Brinson Class I (196,916) -- ------------ ------------ Total distributions to shareholders (1,592,860) (129,573) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold 29,258,184 7,756,774 Shares issued on reinvestment of distributions 1,381,731 129,246 Shares redeemed (3,393,269) (76,294) ------------ ------------ Net increase in net assets resulting from capital share transactions 27,246,646 7,809,726 ------------ ------------ TOTAL INCREASE IN NET ASSETS 27,040,661 7,861,261 ------------ ------------ NET ASSETS: Beginning of period 7,861,261 -- ------------ ------------ End of period (including accumulated undistributed net investment income of $2,277 in 1997) $ 34,901,922 $ 7,861,261 ============ ============
* Commencement of investment operations. See accompanying notes to financial statements. 71 High Yield Fund - Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.***
September 30, 1997* Year Ended Through Brinson Class I December 31, 1998 December 31, 1997 - ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.05 $ 10.00 ------- ------- Income from investment operations: Net investment income 7.30 0.18 Net realized and unrealized gain 0.02 0.05 ------- ------- Total income from investment operations 7.32 0.23 ------- ------- Less distributions: Distributions from net investment income (7.33) (0.18) Distributions from net realized gain (0.06) -- ------- ------- Total distributions (7.39) (0.18) ------- ------- Net asset value, end of period $ 9.98 $ 10.05 ======= ======= Total return (non-annualized) 7.75% 2.34% Ratios/Supplemental Data: Net assets, end of period (in 000s) $34,900 $ 7,861 Ratio of expenses to average net assets: Before expense reimbursement 1.59% 4.98%** After expense reimbursement 0.89% 0.90%** Ratio of net investment income to average net assets: Before expense reimbursement 7.38% 3.15%** After expense reimbursement 8.08% 7.23%** Portfolio turnover rate N/A N/A
* Commencement of investment operations ** Annualized *** Reflects 10 for 1 share split effective December 9, 1998 N/A = Information is not available for periods prior to reorganization, as described in notes to financial statements. See accompanying notes to financial statements. 72 The UBS Investment Funds - Notes To Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund, High Yield Fund and Global (ex-U.S.) Equity Fund (formerly, Non-U.S. Equity Fund) (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and UBS Investment Funds Class (formerly, SwissKey Class). There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. Prior to December 21, 1998, the U.S. Large Capitalization Growth Fund (formerly, UBS Large Cap Growth Fund), U.S. Small Capitalization Growth Fund (formerly, UBS Small Cap Fund), High Yield Fund (formerly, UBS High Yield Bond Fund), UBS Value Equity Fund and UBS Bond Fund sought to achieve their investment objectives by investing substantially all of their investable assets in a corresponding portfolio of UBS Investor Portfolios Trust (each a "Portfolio" and collectively, the "Portfolios"), an open-end management investment company that had the same investment objective. On October 20, 1998, the Board of Directors of the Portfolios approved a tax-free plan of reorganization (the "Reorganization"). The Reorganization was ratified by the shareholders at a special meeting of the shareholders held on December 8, 1998. Pursuant to the Reorganization, the net assets of the UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS High Yield Bond Fund were withdrawn from their corresponding Portfolio and thereafter each began to operate, under its new name, as a separate Fund in the Trust. The accompanying financial statements reflect the results of operations for each of these Funds for the year ended December 31, 1998, including the operations of these Funds prior to their Reorganization. In addition, pursuant to the Reorganization, the net assets of the UBS Value Equity Fund and UBS Bond Fund were withdrawn from their corresponding Portfolio and acquired by the U.S. Equity Fund and U.S. Bond Fund, respectively, in exchange solely for Brinson Class I shares of each Fund. The UBS Value Equity Fund and UBS Bond Fund were then dissolved. Shares issued in exchange, net asset value and corresponding net unrealized appreciation at December 18, 1998, were as follows: Net Unrealized Fund Shares Asset Value Appreciation - ---- ------ ----------- ------------ UBS Value Equity Fund 1,233,797 23,269,419 774,047 UBS Bond Fund 1,429,121 15,177,263 27,192 The aggregate net assets of the U.S. Equity Fund and UBS Value Equity Fund and the U.S. Bond Fund and UBS Bond Fund immediately before the mergers were $729,679,727 and $23,269,419 and $80,523,890 and $15,177,263, respectively. These Reorganizations occurred because of the merger of Union Bank of Switzerland, the corporate parent of the UBS Portfolios investment advisor, and Swiss Bank Corporation, the corporate parent of the Trusts' investment advisor. The fiscal year end for U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund is December 31 and the fiscal year end for U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, and U.S. Bond Fund is June 30. Information for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund for the six-month period ended December 31, 1998, is not covered by the Report of Independent Auditors. The following is a summary of significant accounting policies consistently followed by the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund and High Yield Fund in the preparation of their financial statements. A. Investment Valuation: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Equity securities traded over-the-counter are valued at the most recent bid price. Securities for which the most recent bid price or market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of 73 The UBS Investment Funds - Notes To Financial Statements Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. Investment Transactions: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. C. Investment Income: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. D. Federal Income Taxes: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the period ended December 31, 1998, therefore, no federal income tax provision was required. E. Distributions To Shareholders: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Differences in dividends per share between the classes are due to distribution expenses. Amounts equal to 9.18% and .02% of the amount taxable as ordinary income qualify for the dividends received deduction available to corporate shareholders for the U.S. Large Capitalization Growth Fund and High Yield Fund, respectively. At December 31, 1998, the U.S. Small Capitalization Growth Fund had a capital loss carry-forward for Federal income tax purposes of approximately $1,768,000 available to offset future net capital gains which will expire on December 31, 2006. F. Income and Expense Allocations: All income earned and expenses incurred by the Funds will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the UBS Investment Funds Class. G. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, each Fund pays the Advisor a monthly fee based on the Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions with affiliates for the six months ended December 31, 1998 (unaudited), were as follows:
UBS Investment Fees Waived Advisory Brinson Class I Brinson Class N Funds Class Advisory and/or Fee Expense Cap Expense Cap Expense Cap Fees Reimbursed -------- --------------- --------------- -------------- --------- ----------- U.S. Balanced Fund 0.70% 0.80% 1.05% 1.30% $ 198,756 $ 40,475 U.S. Equity Fund 0.70 0.80 1.05 1.32 2,368,764 -- U.S. Large Capitalization Equity Fund 0.70 0.80 1.05 1.32 59,251 51,141 U.S. Bond Fund 0.50 0.60 0.85 1.07 164,957 12,367
74 The UBS Investment Funds - Notes To Financial Statements Investment advisory fees and other transactions with affiliates for the period December 21, 1998 through December 31, 1998, were as follows:
UBS Investment Fees Waived Advisory Brinson Class I Brinson Class N Funds Class Advisory and/or Fee Expense Cap Expense Cap Expense Cap Fees Reimbursed -------- --------------- --------------- -------------- --------- ----------- U.S. Large Capitalization Growth Fund 0.70% 0.80% 1.05% 1.57% $ 849 $ 849 U.S. Small Capitalization Growth Fund 1.00 1.15 1.40 1.92 6,538 4,431 High Yield Fund 0.60 0.70 0.95 1.55 6,278 2,648
The investment advisor of the Portfolios was the Union Bank of Switzerland, New York Branch ("UBS"). Prior to December 21, 1998, the UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS High Yield Bond Fund, (the "UBS Funds") recorded their share of advisory expense, allocated from their corresponding Portfolio, on a daily basis. UBS voluntarily agreed to reimburse each Portfolio to the extent total operating expenses exceeded a specified percentage of each Portfolio's and each UBS fund's respective average daily net assets. Investment advisory fees allocated to the Funds and other transactions with affiliates for the period January 1, 1998 through December 20, 1998, were as follows: Fees Expense Cap Advisory Fees Reimbursed ----------- ------------- ---------- UBS Large Capitalization Growth Fund 1.00% $ 32,644 $ 97,199 UBS Small Capitalization Growth Fund 1.20 107,673 87,702 UBS High Yield Bond Fund 0.90 71,860 117,430 Prior to the Reorganization, the UBS Funds had a Shareholder Servicing Agreement with UBS pursuant to which UBS provided certain services to shareholders of each UBS Fund. Each UBS Fund incurred a fee equal to 0.25% of the average daily net assets for these services. Fees incurred, all of which were waived, for the period January 1, 1998 through December 18, 1998, were as follows: Shareholder Servicing Fees ----------- UBS Large Capitalization Growth Fund $13,511 UBS Small Capitalization Growth Fund 44,635 UBS High Yield Bond Fund 39,782 Prior to the Reorganization, UBS provided certain administrative services to the UBS Funds under the terms of a Funds Services Agreement. UBS did not receive any additional compensation pursuant to that agreement. Certain officers of the Funds are also officers of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the six months ended December 31, 1998 were $3,864, $3,128, $3,864 and $2,024 for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund, respectively. For the year ended December 31, 1998, Trustees' fees paid to unaffiliated trustees were $5,635, $6,876 and $7,412 for the U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund, respectively. The following Funds invest in shares of the Brinson Supplementary Trust U.S. Cash Management Prime Fund ("Supplementary Trust"). The Supplementary Trust is managed by the Advisor. The Supplementary Trust is offered as a cash management option only to mutual funds and other accounts managed by the Advisor and is not available to the public. The Supplementary Trust pays no management fees. 75 The UBS Investment Funds - Notes To Financial Statements Distributions from the Supplementary Trust are reflected as interest income on the statement of operations. Amounts relating to those investments at December 31, 1998 and for the period then ended are summarized as follows:
% of Sales Interest Net Fund Purchases Proceeds Income Value Assets - ---- --------- -------- --------- ----- ------ U.S. Balanced Fund $ 983,860 $ 449,668 $ 1,069 $ 534,192 1.19% U.S. Equity Fund 17,274,632 2,361,373 23,580 14,913,259 1.95 U.S. Large Capitalization Equity Fund 1,630,080 243,196 1,392 1,386,884 6.27 U.S. Bond Fund 8,213,871 1,575,171 10,333 6,638,700 6.92 U.S. Large Capitalization Growth Fund 139,680 7,989 393 131,691 3.18 U.S. Small Capitalization Growth Fund 958,871 -- 1,136 958,871 4.24 High Yield Fund 3,805,498 2,460,055 4,240 1,345,443 3.86
3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 1998 (unaudited), excluding short-term investments, were as follows: Proceeds Purchases From Sales --------- ---------- U.S. Balanced Fund $ 33,150,071 $ 62,821,982 U.S. Equity Fund 178,283,409 114,182,027 U.S. Large Capitalization Equity Fund 7,501,992 3,060,203 U.S. Bond Fund 128,393,569 85,978,273 Investment transactions for the period December 21, 1998 through December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales --------- ---------- U.S. Large Capitalization Growth Fund $ 25,396 $ -- U.S. Small Capitalization Growth Fund 1,110,379 1,239,887 High Yield Fund 2,456,438 654,750 4. FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 5. DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the UBS Investment Funds Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the UBS Investment Funds Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of each of the Funds. Annual fees under the UBS Investment Funds Plan, which include a 0.25% service fee, total 0.50%, 0.52%, 0.52%, 0.77%, 0.77%, 0.47%, and 0.85% of the average daily net assets of the UBS Investment Funds Class of the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund and High Yield Fund, respectively. 6. LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated based on the Federal Funds rate plus 76 The UBS Investment Funds - Notes To Financial Statements 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized balance of the line of credit. During the period ended December 31, 1998, the Funds had no borrowings under the agreement. 7. CAPITAL TRANSACTIONS Capital stock transactions were as follows: U.S. Balanced Fund
U.S. Balanced Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I 645,486 $ 7,769,946 4,720,912 $ 58,173,143 Brinson Class N -- -- -- -- UBS Investment Funds Class 84,835 994,551 49,659 624,713 ----------- ------------ ---------- ------------ Total Sales 730,321 $ 8,764,497 4,770,571 $ 58,797,856 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 1,193,337 $ 11,121,901 2,662,862 $ 31,359,575 Brinson Class N 32 299 11 136 UBS Investment Funds Class 55,020 510,039 14,933 175,706 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 1,248,389 $ 11,632,239 2,677,806 $ 31,535,417 =========== ============ ========== ============ Redemptions: Brinson Class I 3,863,158 $ 45,621,386 23,388,425 $293,534,522 Brinson Class N -- -- -- -- UBS Investment Funds Class 64,496 724,033 42,682 540,673 ----------- ------------ ---------- ------------ Total Redemptions 3,927,654 $ 46,345,419 23,431,107 $294,075,195 =========== ============ ========== ============
U.S. Equity Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I** 8,066,362 $150,512,394 16,875,765 $314,205,812 Brinson Class N 216,548 4,021,529 13,398 269,368 UBS Investment Funds Class 1,081,207 21,777,960 1,697,355 31,606,780 ----------- ------------ ---------- ------------ Total Sales 9,364,117 $176,311,883 18,586,518 $346,081,960 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 2,026,930 $ 37,801,864 1,861,660 $ 32,092,717 Brinson Class N 12,815 238,104 47 896 UBS Investment Funds Class 86,539 1,608,752 110,158 1,887,716 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 2,126,284 $ 39,648,720 1,971,865 $ 33,981,329 =========== ============ ========== ============ Redemptions: Brinson Class I 5,126,943 $ 97,655,470 7,470,182 $144,565,891 Brinson Class N 19,879 361,850 5 100 UBS Investment Funds Class 342,279 6,261,509 1,023,014 19,298,428 ----------- ------------ ---------- ------------ Total Redemptions 5,489,101 $104,278,829 8,493,201 $163,864,419 =========== ============ ========== ============
** Includes shares issued in connection with reorganization. 77 The UBS Investment Funds - Notes To Financial Statements
U.S. Large Capitalization Equity Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I 916,683 $ 8,949,197 16,662 $ 163,328 Brinson Class N 8,098 78,700 1,688,092 16,758,163 UBS Investment Funds Class -- -- 104 1,000 ----------- ------------ ---------- ------------ Total Sales 924,781 $ 9,027,897 1,704,858 $ 16,922,491 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 4,692 $ 46,270 18 $ 168 Brinson Class N 7,095 69,880 2,204 20,606 UBS Investment Funds Class -- 6 -- 1 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 11,787 $ 116,156 2,222 $ 20,775 =========== ============ ========== ============ Redemptions: Brinson Class I 23,163 $ 228,994 1,015 $ 9,875 Brinson Class N 421,436 4,019,081 51,661 509,678 UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Redemptions 444,599 $ 4,248,075 52,676 $ 519,553 =========== ============ ========== ============
* The Fund commenced operations on April 6, 1998.
U.S. Bond Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I** 7,557,553 $ 81,377,100 1,926,960 $ 20,378,131 Brinson Class N 2,379 25,964 -- -- UBS Investment Funds Class 350,102 3,786,487 134,362 1,416,847 ----------- ------------ ---------- ------------ Total Sales 7,910,034 $ 85,171,551 2,061,322 $ 21,794,978 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 239,645 $ 2,545,027 107,565 $ 1,114,591 Brinson Class N 4 43 6 68 UBS Investment Funds Class 12,927 136,765 5,825 60,235 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 252,576 $ 2,681,835 113,396 $ 1,174,894 =========== ============ ========== ============ Redemptions: Brinson Class I 2,915,499 $ 31,500,447 549,381 $ 5,780,080 Brinson Class N 2,379 25,905 -- -- UBS Investment Funds Class 115,415 1,248,637 45,413 475,640 ----------- ------------ ---------- ------------ Total Redemptions 3,033,293 $ 32,774,989 594,794 $ 6,255,720 =========== ============ ========== ============
**Includes shares issued in connection with reorganization. 78 The UBS Investment Funds - Notes To Financial Statements
U.S. Large Capitalization Growth Fund --------------------------------------------------------- Period from October 14, 1997 Year Ended (commencement of operations) December 31, 1998 to December 31, 1997 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I* 349,475 $ 4,971,380 41,609 $ 4,108,844 Brinson Class N 84 1,000 -- -- UBS Investment Funds Class 84 1,000 -- -- ----------- ------------ ---------- ------------ Total Sales 349,643 $ 4,973,380 41,609 $ 4,108,844 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 15,430 $ 170,881 92 $ 9,050 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Dividend Reinvestment 15,430 $ 170,881 92 $ 9,050 =========== ============ ========== ============ Redemptions: Brinson Class I 56,390 $ 5,974,601 4 $ 356 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Redemptions 56,390 $ 5,974,601 4 $ 356 =========== ============ ========== ============
U.S. Small Capitalization Growth Fund ---------------------------------------------------------- Period from September 30, 1997 Year Ended (commencement of operations) December 31, 1998 to December 31, 1997 ---------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ --------------- Sales: Brinson Class I** 2,571,818 $ 18,350,730 129,190 $ 12,731,529 Brinson Class N 114 1,000 -- -- UBS Investment Funds Class 114 1,000 -- -- ----------- ------------ ---------- ------------ Total Sales 2,572,046 $ 18,352,730 129,190 $ 12,731,529 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 132 $ 9,859 -- $ -- Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Dividend Reinvestment 132 $ 9,859 -- $ -- =========== ============ ========== ============ Redemptions: Brinson Class I 128,744 $ 6,727,395 2,533 $ 255,000 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Redemptions 128,744 $ 6,727,395 2,533 $ 255,000 =========== ============ ========== ============
* Includes 298,108 shares issued in 10 for 1 share split. ** Includes 2,227,053 shares issued in 10 for 1 share split. 79 The UBS Investment Funds - Notes To Financial Statements
High Yield Fund ---------------------------------------------------------- Period from September 30, 1997 Year Ended (commencement of operations) December 31, 1998 to December 31, 1997 ---------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ --------------- Sales: Brinson Class I* 3,412,082 $ 29,256,184 77,644 $ 7,756,774 Brinson Class N 100 1,000 -- -- UBS Investment Funds Class 100 1,000 -- -- ----------- ------------ ---------- ------------ Total Sales 3,412,282 $ 29,258,184 77,644 $ 7,756,774 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 47,240 $ 1,381,731 1,296 $ 129,246 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Dividend Reinvestment 47,240 $ 1,381,731 1,296 $ 129,246 =========== ============ ========== ============ Redemptions: Brinson Class I 39,259 $ 3,393,269 759 $ 76,294 Brinson Class N -- -- -- -- UBS Investment Funds Class -- -- -- -- ----------- ------------ ---------- ------------ Total Redemptions 39,259 $ 3,393,269 759 $ 76,294 =========== ============ ========== ============
* Includes 2,898,051 shares issued in 10 for 1 share split. 80 Report of Independent Auditors The Board of Trustees and Shareholders The Brinson Funds - U.S. Large Capitalization Growth Fund U.S. Small Capitalization Growth Fund High Yield Fund We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Brinson Funds-U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund as of December 31, 1998, the related statements of operations and changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and financial highlights of U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund for the period ended December 31, 1997, were audited by other auditors whose report dated February 17, 1998, expressed an unqualified opinion on those statements and financial highlights. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds-U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund and High Yield Fund at December 31, 1998, the results of their operations, the changes in their net assets and the financial highlights for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Chicago, Illinois February 12, 1999 81 Special Meeting of Shareholders Voting Results of Special Meeting of Shareholders (Unaudited) The proposal described below was submitted to a vote of shareholders of UBS Private Investor Funds, Inc. ("UBS Funds") at a special meeting of shareholders held on December 11, 1998 (the "Meeting"): Proposal No. 1 - Approval of a Plan of Reorganization pursuant to which UBS Fund's Value Equity, Bond, Large Cap Growth, Small Cap and High Yield Bond Funds (each, a "Fund") will be reorganized into Class I shares of the U.S. Equity, U.S. Bond, U.S. Large Capitalization Growth, U.S. Small Capitalization Growth and High Yield Fund, respectively. At the Meeting, the shareholders of each Fund approved Proposal No. 1 as follows: Fund For Against Abstain ---- --- -------- ------- UBS Value Equity Fund 104,031 0 0 UBS Bond Fund 136,024 0 0 UBS Large Cap Growth Fund 26,932 0 0 UBS Small Cap Fund 153,501 0 0 UBS High Yield Bond Fund 168,730 0 0 82 Distributed by: Funds Distributor, Inc. 60 State Street Boston, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. [UBS LOGO APPEARS HERE] P.O. Box 2798, Boston, Massachusetts 02208-9915 - Tel: (800) 794-7753 [UBS LOGO APPEARS HERE] Global Fund Global Equity Fund Global Bond Fund Semi-Annual Report December 31, 1998 Trustees and Officers [UBS LOGO APPEARS HERE] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Debra L. Nichols Chairman of the Board Vice President E. Thomas McFarlan Carolyn M. Burke, CPA President Secretary and Treasurer Thomas J. Digenan, CFA, CPA David E. Floyd Vice President Assistant Secretary 1 The Funds' Advisor - Brinson Partners, Inc. [UBS LOGO APPEARS HERE] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 125 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific client objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent. 2 Table of Contents [UBS LOGO APPEARS HERE] Shareholder Letter 4 Global Economic and Market Highlights 5 Global Fund 6 Schedule of Investments 10 Financial Statements 18 Financial Highlights 22 Global Equity Fund 25 Schedule of Investments 29 Financial Statements 34 Financial Highlights 37 Global Bond Fund 40 Schedule of Investments 43 Financial Statements 47 Financial Highlights 50 The Brinson Funds-Notes to Financial Statements 53 3 Shareholder Letter [UBS LOGO APPEARS HERE] February 20, 1999 Dear Shareholder: We are very pleased to present the December 31, 1998 Semi-Annual Report for the Global Fund, Global Equity Fund and Global Bond Fund. Within this Report, we'll focus on current global economic outlook as well as our current strategies and performance for the three Global Funds. Since our last report to you, Union Bank of Switzerland and Swiss Bank Corporation merged to become UBS AG, one of the world's major financial institutions. In connection with this merger, the former SBC Brinson / Brinson Partners, Inc.'s activities of Swiss Bank Corporation were combined with the worldwide UBS asset management operations into the UBS Brinson division of UBS AG. During this process, the UBS Private Investor Funds merged into the Brinson fund family on December 18, 1998. This merger created the following three new UBS Investment Funds on December 31, 1998; the U.S. Large Capitalization Growth Fund, the U.S. Small Capitalization Growth Fund and the High Yield Fund. The Global Fund, Global Equity Fund and Global Bond Fund are all actively managed funds that provide integrated asset management across and within security markets. The investment process is strategic in nature and is driven by deviations of market price from fundamental value. This philosophy offers the greatest potential for achieving enhanced, long-term returns while controlling risk. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our talent. The Reports that follow highlight the investment characteristics and the performance of the respective Funds. We very much appreciate your continued trust and the confidence you have placed in the UBS Investment Funds. Sincerely, /s/ Hanspeter A. Walder /s/ Raymond Simon Hanspeter A. Walder Raymond Simon Executive Director Executive Director Private Banking Private Banking 4 Global Economic and Market Highlights [UBS LOGO APPEARS HERE] Japan and most of Asia continue to be mired in severe downturns. The Japanese economy is particularly troubled, as the one bright spot in the economy, the export sector, has started to weaken in response to a dramatic strengthening of the yen. Bond yields have risen sharply as the government's deficit financing has pushed the gross debt to GDP ratio among the highest of the developed countries. The single European currency enjoyed a successful launch on January 1st. Monetary policy for the eleven participating nations is now being administered by the European Central Bank. Cash rates and bond yields have converged, except for small spreads due to credit and liquidity differences. Although the euro's success in the near term is not in doubt, some longer-term concerns remain. Economic convergence of the EMU economies is not complete, and the economic environment appears to be softening. This creates an element of political risk for the ECB and the new currency. Inflation remains in check throughout the developed world and in many of the emerging markets. Weakness in Asia and overcapacity in basic industries have combined to push down commodity prices, particularly oil and related energy prices. Consumer price inflation is essentially zero in Japan, less than 1% in most of Europe, and under 2% in the U.S. The voices predicting global deflation seem to have largely disappeared however, after the Federal Reserve's series of rate cuts to provide liquidity during the market downturns in the fall. Global Environment
6 months 1 year 3 years 7/31/95* Major Markets ended ended ended to Total Return in U.S. Dollars 12/31/98 12/31/98 12/31/98 12/31/98 - ---------------------------------------------------------------------------------- U.S. Equity 6.90% 23.43% 25.42% 25.27% Global (ex-U.S.) Equities (currency unhedged) 2.72 18.67 9.06 8.61 Global (ex-U.S.) Equities (currency hedged) -3.98 13.84 14.86 16.47 U.S. Bonds 4.57 8.72 7.29 8.36 Global (ex-U.S.) Bonds (currency unhedged) 15.38 17.79 5.49 4.52 Global (ex-U.S.) Bonds (currency hedged) 5.79 11.54 11.48 12.03 U.S. Cash Equivalents 2.12 4.55 4.79 4.87 - ---------------------------------------------------------------------------------- 6 months 1 year 3 years 7/31/95* Major Currencies ended ended ended to Percent Change Relative to U.S. Dollars 12/31/98 12/31/98 12/31/98 12/31/98 - ---------------------------------------------------------------------------------- Yen 23.04% 15.27% -2.94% -7.00% Pound -0.28 1.12 2.33 1.15 Deutschemark 8.37 7.95 -4.93 -5.34 Canadian Dollar -4.26 -6.83 -3.88 -3.24 - ----------------------------------------------------------------------------------
* Inception date of the UBS Investment Fund - Global All total returns in excess of 1 year are average annualized returns. 5 Global Fund [UBS LOGO APPEARS HERE] The Global Fund is diversified across the equity and fixed income markets of the U.S. and a broad range of other countries. The Fund is actively managed within an asset allocation framework, involving value-based market, currency, and individual security selection. Our senior asset allocation, equity and fixed income professionals form the investment team for the Fund, supported by a globally integrated market analysis system. Security selection with each market is based on the fundamental research of our analytical teams in our offices worldwide. Since its inception on July 31, 1995, the UBS Investment Fund - Global has provided an annualized return of 11.74%. This is compared to the 14.69% return of the Global Securities Markets Mutual Fund Index. The Fund's performance over this period was achieved with an annualized volatility of 7.80%, well below the benchmark volatility of 10.16%. The Fund's 1998 return of 7.60% fell short of the benchmark return of 16.45%. Security selection in the U.S. equity and bond markets had a negative impact on added value, while security selection in Japanese equities contributed positively. The underweight in developed equity markets and the corresponding bond overweight detracted substantially, as riskier assets, with the exception of the emerging markets tended to perform better during the year. The bond and equity markets of European nations participating in the new single currency performed well. Yields on the previously high yielding peripheral bond markets fell to historically low levels toward the end of the year. The worst-performing equity markets were generally found in Asia, with emerging markets leading the bond market underperformers. The effects of the crisis in emerging markets spilled over into the developed equity and credit markets in September, although equities had rebounded by year-end. Japan's bond market suffered severely toward year-end, joining its equity market which continued to be adversely affected by the country's economic woes and a strengthening yen. Because of the renewed yen overvaluation, the Fund remains underweight. Sterling is likewise held at a below-benchmark allocation. Overweight currencies include the Canadian dollar and the Australian dollar. Asset class allocations remain heavily biased toward bonds and underweight developed equities. Valuations and risk considerations do not support normal equity allocations. 6 Global Fund [UBS LOGO APPEARS HERE] Total Return 6 months 1 year 3 years 7/31/95* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------ UBS Investment Fund - Global 1.59% 7.60% 10.41% 11.74% - ------------------------------------------------------------------------------ GSMI Mutual Fund Index** 5.71 16.45 14.42 14.69 - ------------------------------------------------------------------------------ MSCI World Equity (Free) Index 6.72 24.62 18.06 17.54 - ------------------------------------------------------------------------------ Salomon World Government Bond Index 12.17 15.29 6.20 5.92 - ------------------------------------------------------------------------------ * Inception date of the UBS Investment Fund - Global. ** An un-managed index compiled by the Advisor, constructed as follows: 40% Wilshire 5000 Index; 22% MSCI World ex USA (Free) Index; 21% Salomon Smith Barney BIG Bond Index; 9% Salomon Non-U.S. Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable Index; and 3% Merrill Lynch High Yield Master Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund - Global, the GSMI Mutual Fund Index, the MSCI World Equity (Free) Index and the Salomon World Government Bond Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund - Global vs. GSMI Mutual Fund Index, MSCI World Equity (Free) Index and Salomon World Government Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Salomon UBS GSMI MSCI World Investment Mutual Fund World Equity Government Fund-Global Index (Free) Index Bond Index ----------- ----------- ------------ ---------- 7/31/95 $10,000 $10,000 $10,000 $10,000 8/31/95 $10,129 $9,965 $9,777 $9,656 9/30/95 $10,293 $10,232 $10,066 $9,871 10/31/95 $10,362 $10,167 $9,909 $9,944 11/30/95 $10,655 $10,472 $10,255 $10,057 12/31/95 $10,861 $10,665 $10,556 $10,162 1/31/96 $11,063 $10,839 $10,753 $10,037 2/29/96 $11,008 $10,870 $10,818 $9,986 3/31/96 $11,091 $10,963 $10,998 $9,972 4/30/96 $11,229 $11,152 $11,256 $9,932 5/31/96 $11,266 $11,234 $11,265 $9,934 6/30/96 $11,324 $11,257 $11,325 $10,013 7/31/96 $11,157 $10,961 $10,925 $10,205 8/31/96 $11,334 $11,138 $11,054 $10,245 9/30/96 $11,687 $11,505 $11,488 $10,287 10/31/96 $11,873 $11,620 $11,567 $10,479 11/30/96 $12,329 $12,109 $12,219 $10,617 12/31/96 $12,332 $12,001 $12,025 $10,531 1/31/97 $12,475 $12,177 $12,172 $10,250 2/28/97 $12,567 $12,234 $12,311 $10,173 3/31/97 $12,373 $11,965 $12,064 $10,096 4/30/97 $12,506 $12,207 $12,460 $10,007 5/31/97 $13,008 $12,824 $13,231 $10,279 6/30/97 $13,377 $13,283 $13,889 $10,402 7/31/97 $13,797 $13,812 $14,531 $10,321 8/31/97 $13,428 $13,306 $13,547 $10,314 9/30/97 $13,838 $13,882 $14,284 $10,534 10/31/97 $13,428 $13,434 $13,534 $10,753 11/30/97 $13,449 $13,554 $13,771 $10,589 12/31/97 $13,589 $13,717 $13,939 $10,557 1/31/98 $13,735 $13,902 $14,330 $10,659 2/28/99 $14,575 $14,575 $15,299 $10,746 3/31/98 $14,556 $14,988 $15,943 $10,639 4/30/98 $14,568 $15,135 $16,099 $10,810 5/31/98 $14,478 $14,922 $15,904 $10,834 6/30/98 $14,394 $15,111 $16,276 $10,851 7/31/98 $14,349 $15,032 $16,251 $10,865 8/31/98 $13,193 $13,512 $14,085 $11,160 9/30/98 $13,601 $13,978 $14,335 $11,754 10/31/98 $14,088 $14,813 $15,634 $12,102 11/30/98 $14,473 $15,418 $16,565 $11,931 12/31/98 $14,622 $15,974 $17,370 $12,171 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Global Fund [UBS LOGO APPEARS HERE] Asset Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - -------------------------------------------------- U.S. Equities 40.0% 22.0% Global (ex-U.S.) Equities 22.0 18.0 Emerging Markets Equities 3.0 3.0 Dollar Bonds 21.0 33.0 High Yield Bonds 3.0 3.0 Global (ex-U.S.) Bonds 9.0 16.0 Emerging Markets Debt 2.0 5.0 Cash Equivalents 0.0 0.0 - -------------------------------------------------- 100.0% 100.0% Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ---------------------------------------------------- 1. Xerox Corp. 1.79% 2. FDX Corp. 1.25 3. Burlington Northern Santa Fe Corp. 1.24 4. Lockheed Martin Corp. 1.09 5. Philip Morris Companies, Inc. 1.03 6. Baxter International, Inc. 0.77 7. Kimberly Clark Corp. 0.75 8. Entergy Corp 0.71 9. Aetna, Inc. 0.70 10. CIGNA Corp. 0.69 - ---------------------------------------------------- Currency Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ---------------------------------------------------- U.S. 66.0% 62.4% Japan 7.0 1.0 U.K. 5.3 1.3 Continental Europe 16.3 20.3 Canada 1.2 5.2 Emerging Markets 3.0 3.0 Other 1.2 6.8 - ---------------------------------------------------- 100.0% 100.0% Top Ten Global (ex-U.S.) Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ---------------------------------------------------- 1. Novartis AG (Reg.) 0.46% 2. Telecom Corp of New Zealand, Ltd. 0.40 3. Royal Dutch Petroleum Co. 0.37 4. Nokia Oyj- A Shares 0.35 5. Nestle S.A. (Reg.) 0.35 6. Allianz A.G. 0.34 7. Lloyds TSB Group PLC 0.34 8. Bayer AG 0.33 9. Glaxo Wellcome PLC 0.31 10. ING Groep NV 0.30 - ---------------------------------------------------- 8 Global Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. Equities Energy 0.36% ------ Capital Investment Capital Goods 3.22 Technology 3.22 ------ 6.44 ------ Basic Industries Chemicals 0.93 Housing/Paper 2.67 Metals 0.15 ------ 3.75 ------ Consumer Non-Durables 2.62 Retail/Apparel 1.32 Autos/Durables 1.10 Health: Drugs 1.09 Health: Non-Drugs 1.67 ------ 7.80 ------ Financial Banks 2.67 Non-Banks 2.07 ------ 4.74 ------ Utilities Electric 1.70 Telephone 0.81 ------ 2.51 ------ Transportation 1.73 Services/Misc 2.26 Post Venture 1.18 ------ Total U.S. Equities 30.77* ------ global (ex-U.S.) Equities Aerospace & Military 0.10 Airlines 0.06 Appliances & Household 0.23 Autos/Durables 0.43 Banking 2.07 Beverages & Tobacco 0.58 Broadcasting & Publishing 0.57 Building Materials 0.27 Business & Public Service 0.65 Chemicals 0.69 Construction 0.03 Consumer 0.14 Data Processing 0.06 Electric Components 0.28 Electronics 0.95 Energy 1.39 Financial Services 0.62 Food & House Products 0.60 Forest Products 0.25 Health: Drugs 0.68 Health: Non-Drugs 1.07 Housing/Paper 0.04 Industrial Components 0.21 Insurance 1.47% Leisure & Tourism 0.09 Machinery & Engineering 0.03 Merchandising 0.75 Metals-Steel 0.18 Multi-Industry 0.67 Non-Ferrous Metals 0.19 Real Estate 0.06 Recreation 0.05 Retail & Apparel 0.08 Telecommunications 2.03 Textiles & Apparel 0.02 Transportation 0.04 Utilities 0.71 Wholesale & International Trade 0.01 ------ Total global (ex-U.S.) Equities 18.35 ------ Emerging Markets Equities 3.01 ------ TOTAL EQUITIES 52.13 ------ U.S. BONDS Corporate Bonds Airlines 0.03 Auto/Durables 0.16 Banks 0.62 Broadcasting & Public Service 0.21 CMO 2.80 Financial Services 1.26 Industrial Components 1.45 Telecommunications 0.02 Transportation 0.30 ------ 6.85 ------ U.S. Government Agencies 4.17 U.S. Government Obligations 8.75 International Dollar Bonds 2.01 ------ Total U.S. Bonds 21.78* ------ HIGH YIELD BONDS 3.01 ------ GLOBAL (EX-U.S.) BONDS Foreign Government Bonds 15.19 ------ EMERGING MARKETS DEBT 5.47 ------ SHORT TERM INVESTMENTS 23.31* ------ TOTAL INVESTMENTS 120.89 ------ LIABILITIES, LESS CASH AND OTHER ASSETS (20.89) ------ NET ASSETS 100.00% ====== * The Fund held a long position in U.S. Treasury futures on December 31, 1998 which increased U.S. Bond exposure from 21.78% to 31.12%. The Fund held a short position in stock index futures on December 31, 1998 which reduced U.S. Equity exposure from 30.77% to 20.84%. These adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 23.31% to 23.90%. 9 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value --------- ------------- Equities 52.13% U.S. Equities 30.77% Advanced Micro Devices, Inc. (b) 70,500 $ 2,040,094 Aetna, Inc. 45,300 3,561,712 Allergan, Inc. 17,800 1,152,550 Alza Corp. (b) 37,500 1,959,375 American Standard Companies, Inc. (b) 36,200 1,300,937 Aon Corp. 63,398 3,510,664 Automatic Data Processing, Inc. 28,600 2,293,362 BankBoston Corp. 20,400 794,325 Baxter International, Inc. 61,400 3,948,787 Beckman Coulter Inc. 16,300 884,275 Bestfoods 17,900 953,175 Biogen, Inc. (b) 8,500 705,500 Birmingham Steel Corp. 12,000 50,250 Brinson Post-Venture Fund (b) 317,715 6,015,904 Burlington Northern Santa Fe Corp. 187,900 6,341,625 Centaur Funding Corp., 144A 1,430 262,586 Centaur Funding Corp., 144A 750 784,219 Champion Enterprises, Inc. (b) 11,700 320,288 Champion International Corp. 18,800 761,400 Chase Manhattan Corp. 32,100 2,184,806 CIGNA Corp. 45,600 3,525,450 Circuit City Stores-Circuit City Group 50,800 2,536,825 CMS Energy Corp. 48,400 2,344,375 Comerica, Inc. 15,500 1,056,906 CommScope, Inc. (b) 26,333 442,724 Comverse Technology, Inc. (b) 17,160 1,218,360 Consolidated Stores Corp. (b) 49,400 997,263 Corning, Inc. 73,600 3,312,000 Covance, Inc. (b) 18,872 549,647 Crown Cork & Seal Co., Inc. 17,800 548,463 Cummins Engine Co., Inc. 4,200 149,100 Dial Corp. 19,400 560,175 Eastman Chemical Co. 20,700 926,325 Electronic Data Systems Corp. 66,100 3,321,525 EMC Corp. (b) 22,100 1,878,500 Entergy Corp. 116,400 3,622,950 FDX Corp. (b) 71,900 6,399,100 First American Corp. of Tennessee 9,800 434,875 First Data Corp. 90,830 2,878,176 First Security Corp. 18,575 434,191 Fleet Financial Group, Inc. 49,200 2,198,625 Fleetwood Enterprises, Inc. 8,100 281,475 Food Lion Inc., Class A 85,500 908,438 Fort James Corp. 64,500 2,580,000 General Instrument Corp. (b) 85,600 2,905,050 General Semiconductor, Inc. (b) 19,850 162,522 Genzyme Corp. (b) 15,100 751,225 Genzyme-Molecular Oncology (b) 1,594 5,179 Geon Co. 10,400 239,200 Goodyear Tire & Rubber Co. 47,900 2,415,956 Great Lakes Chemical Corp. 12,000 480,000 GreenPoint Financial Corp. 21,200 744,650 Harnischfeger Industries, Inc. 26,100 265,894 HCR Manor Care, Inc. (b) 19,198 563,941 Hibernia Corp., Class A 20,800 361,400 Household International Inc. 36,700 1,454,237 IMC Global Inc. 57,500 1,229,062 Johnson Controls Inc. 17,800 1,050,200 Shares Value --------- ------------- Kimberly Clark Corp. 70,300 $ 3,831,350 Lafarge Corp. 15,300 619,650 Lear Corp. (b) 44,400 1,709,400 Lockheed Martin Corp. 65,823 5,578,499 Lyondell Petrochemical Co. 54,000 972,000 Martin Marietta Materials, Inc. 10,984 683,068 Masco Corp. 87,500 2,515,625 Nabisco Holdings Corp., Class A 38,200 1,585,300 National Service Industries, Inc. 11,900 452,200 Nextel Communications, Inc., Class A (b) 52,400 1,237,950 Norfolk Southern Corp. 79,400 2,515,987 Peco Energy Co. 64,600 2,688,975 Pentair, Inc. 19,796 788,128 Philip Morris Companies, Inc. 98,100 5,248,350 Praxair, Inc. 34,800 1,226,700 Raytheon Co., Class B 63,200 3,365,400 Regions Financial Corp. 9,600 387,000 Schering Plough Corp. 34,700 1,917,175 Sears, Roebuck and Co. 53,900 2,290,750 Southdown, Inc. 21,336 1,262,824 St. Jude Medical, Inc. (b) 35,300 977,369 Timken Co. 6,600 124,575 TRW, Inc. 7,900 443,881 Tyson Foods, Inc., Class A 69,798 1,483,207 Ultramar Diamond Shamrock Corp. 38,702 938,524 Unocal Corp. 25,600 747,200 US Bancorp 48,180 1,710,390 USG Corp. 8,600 438,063 Vencor, Inc. (b) 39,700 178,650 Ventas, Inc. 39,800 485,063 Viad Corp. 36,900 1,120,838 Wells Fargo and Co. 48,200 1,924,987 Witco Corp. 6,500 103,594 Xerox Corp. 77,600 9,156,800 York International Corp. 23,400 955,013 ------------- Total U.S. Equities 157,224,303 ------------- Global (ex-U.S.) Equities 18.35% Australia 1.00% Amcor Ltd. 25,920 110,866 Brambles Industries Ltd. 14,770 360,131 Broken Hill Proprietary Co., Ltd. 59,710 440,209 CSR Ltd. 79,870 195,479 David Jones Ltd. 103,330 114,088 Lend Lease Corp., Ltd. 21,132 285,172 National Australia Bank Ltd. 45,027 679,440 News Corp. Ltd. 64,089 423,785 News Corp. Ltd., Preferred 28,536 173,814 Orica Ltd. 18,550 96,604 Pacific Dunlop Ltd. 69,610 112,725 Qantas Airways Ltd. 85,237 174,107 QBE Insurance Group Ltd. 42,683 176,727 Rio Tinto Ltd. 14,645 173,870 Santos Ltd. 55,490 149,084 Telstra Corp., Ltd. (b) 149,700 700,631 Westpac Banking Corp., Ltd. 78,128 523,326 WMC Ltd. 37,340 112,689 Woolworth's Ltd. 25,860 88,132 ------------- 5,090,879 ------------- 10 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value --------- ------------- Belgium -- 0.62% Delhaize-Le Lion S.A. 480 $ 42,476 Electrabel S.A. 2,650 1,164,791 Fortis AG 186 11 Fortis AG Strip (b) 3,913 1,418,092 KBC Bancassurance (Rights) (b) 8,790 0 KBC Bancassurance Holding Strip (b) 220 13 Kredietbank NV 6,600 522,562 ------------- 3,147,945 ------------- Canada -- 0.38% Agrium, Inc. 7,740 68,027 Alcan Aluminum Ltd. 5,120 138,333 Bank of Montreal 3,020 121,311 Canadian National Railway Co. 2,960 153,685 Canadian Pacific Ltd. 9,073 169,528 Extendicare, Inc., Class A (b) 6,960 39,422 Hudson's Bay Co. 6,810 85,790 Imasco, Ltd. 4,890 104,104 Imperial Oil Ltd. 9,110 145,606 Magna International, Inc., Class A 1,260 78,258 Newbridge Networks Corp. (b) 3,960 120,141 NOVA Corp. 6,004 78,177 Potash Corporation of Saskatchewan, Inc. 1,160 74,388 Royal Bank of Canada 3,570 177,919 Seagram Co., Ltd. 1,650 62,573 Shaw Communications, Inc., Class B 6,580 158,931 TransCanada Pipelines Ltd. 9,090 132,858 Westcoast Energy, Inc. 2,650 52,621 ------------- 1,961,672 ------------- Denmark -- 0.11% Den Danske Bank Group 390 52,392 Tele Danmark A/S 3,960 534,471 ------------- 586,863 ------------- Finland -- 0.55% Merita Ltd., Class A 70,330 447,254 Nokia Oyj-A Shares 14,780 1,809,772 UPM-Kymmene Corp. 19,770 554,438 ------------- 2,811,464 ------------- France -- 2.11% Air Liquide 3,495 641,290 Alcatel Alsthom 5,472 670,017 Axa 4,918 713,111 Banque Nationale de Paris 6,639 546,931 Cie de Saint Gobain 2,527 356,916 Dexia France 2,489 383,629 Elf Aquitaine S.A. 3,564 412,149 France Telecom S.A. 7,100 564,319 Groupe Danone 1,500 429,630 Lagardere S.C.A. 15,800 671,745 Michelin, Class B 6,819 272,823 Paribas 3,565 309,964 Pinault-Printemps-Redoute S.A. 1,740 332,663 Rhone-Poulenc, Class A 10,304 530,491 SEITA 12,900 808,242 Societe Generale 2,735 443,087 Suez Lyonnaise des Eaux S.A. 3,801 781,130 Shares Value --------- ------------- Thomson CSF 11,460 $ 492,356 Total S.A., Class B 4,796 485,936 Vivendi 3,634 943,271 ------------- 10,789,700 ------------- Germany -- 2.26% Allianz AG 4,654 1,732,397 Bayer AG 39,930 1,676,935 DaimlerChrysler AG (b) 10,356 1,029,052 DaimlerChrysler AG (b) 2,300 228,533 Deutsche Bank AG 8,581 506,329 Deutsche Telekom AG 24,060 790,877 Dresdner Bank AG 11,120 466,004 Hoechst AG 12,630 522,459 Mannesmann AG (b) 9,280 1,073,919 SAP AG 920 397,695 Siemens AG 19,850 1,304,980 Veba AG 21,739 1,288,208 Volkswagen AG 6,870 556,001 ------------- 11,573,389 ------------- Italy -- 0.87% Assicurazioni Generali 22,800 954,066 Danieli & Co. Savings (Risp) 22,000 87,790 ENI Spa 160,000 1,047,945 ENI Spa ADR 3,070 207,992 La Rinascente Spa 56,740 584,797 Montedison Spa 351,700 468,168 San Paolo-imi, Spa 28,511 504,882 Telecom Italia Mobile Spa 83,000 614,091 ------------- 4,469,731 ------------- Japan -- 1.11% Acom Co., Ltd. 1,000 64,362 Amada Co., Ltd. 11,000 53,342 Bridgestone Corp. 3,000 68,218 Canon, Inc. 10,000 214,096 Citizen Watch Co., Ltd. 9,000 54,255 Dai Nippon Printing Co., Ltd. 10,000 159,752 Daiichi Pharmaceutical Co., Ltd. 9,000 152,314 Daikin Industries Ltd. 11,000 109,220 Daiwa House Industry Co., Ltd. 5,000 53,324 Fanuc 5,000 171,543 Fuji Photo Film 2,000 74,468 Fujitsu 6,000 80,053 Honda Motor Co. 5,000 164,450 Hoya Corp. 3,000 146,277 Ito Yokado Co., Ltd. 5,000 350,177 Kaneka Corp. 10,000 75,089 Kao Corp. 4,000 90,426 Kirin Brewery Co., Ltd. 12,000 153,191 Kokuyo 4,000 53,936 Kuraray Co., Ltd. 13,000 143,715 Marui Co., Ltd. 6,000 115,691 Matsushita Electric Industrial Co. 13,000 230,381 NGK Insulators 18,000 232,500 Nintendo Corp., Ltd. 1,900 184,442 Nippon Denso Co., Ltd. 9,000 166,755 11 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value --------- ------------- Nippon Meat Packers, Inc. 7,000 $ 112,943 Omron Corp. 4,000 54,894 Sankyo Co., Ltd. 8,000 175,177 Secom Co., Ltd. 3,000 248,936 Sega Enterprises Ltd. 2,000 44,415 Sekisui House Ltd. 9,000 95,346 Shin-Etsu Chemical Co., Ltd. 2,000 48,227 Sony Corp. 3,000 218,883 Sumitomo Chemical Co. 13,000 50,709 Sumitomo Electric Industries 8,000 90,142 Takeda Chemical Industries 7,000 269,947 TDK Corp. 2,000 183,156 Tokio Marine & Fire Insurance Co. 10,000 119,681 Toray Industries, Inc. 29,000 151,684 Toshiba Corp. 26,000 155,124 Toyota Motor Corp. 8,000 217,731 Yamato Transport Co., Ltd. 4,000 56,028 ------------- 5,655,000 ------------- Malaysia -- 0.00% Malayan Banking Bhd 6,000 8,508 ------------- Netherlands -- 1.43% ABN AMRO Holdings NV 21,690 456,522 Elsevier NV 41,870 586,765 Heineken NV 14,252 858,142 ING Groep NV 25,020 1,526,504 KPN NV 25,009 1,252,649 Royal Dutch Petroleum Co. 37,790 1,882,754 Unilever NV 8,530 729,507 ------------- 7,292,843 ------------- New Zealand -- 0.73% Auckland International Airport Ltd. (b) 104,950 146,930 Brierley Investments Ltd. 703,970 159,920 Carter Holt Harvey Ltd. 368,840 331,260 Fletcher Challenge Building 101,985 157,865 Fletcher Challenge Energy 134,315 255,451 Fletcher Challenge Paper 232,730 156,148 Lion Nathan Ltd. 132,020 336,875 Telecom Corp. of New Zealand Ltd. 474,110 2,066,401 Telecom Corp. of New Zealand Ltd. ADR 2,790 99,568 ------------- 3,710,418 ------------- Norway -- 0.07% Norsk Hydro ASA 4,890 164,947 Norske Skogindustrier ASA 6,550 190,852 ------------- 355,799 ------------- Singapore -- 0.22% Oversea-Chinese Banking Corp., Ltd. 200 1,357 Singapore Press Holdings Ltd. 64,819 703,190 United Overseas Bank Ltd. (Frgn.) 66,360 426,313 ------------- 1,130,860 ------------- Spain -- 0.36% Banco Popular Espanol S.A. 6,991 527,918 Endesa S.A. 36,238 961,603 Shares Value --------- ------------- Telefonica S.A. 8,117 $ 361,467 Telefonica S.A. Rights (expiring 1/30/99) (b) 162 144 ------------- 1,851,132 ------------- Sweden -- 0.80% Astra AB, A Shares 30,020 612,933 Electrolux AB, B Shares 37,840 651,223 Investor AB 9,730 439,337 Nordbanken Holding AB 53,470 343,019 Skandia Forsakrings AB 45,320 693,291 Svenska Handelsbanken, A Shares 4,710 198,724 Swedish Match AB 133,390 485,455 Telefonaktiebolaget LM Ericsson, B Shares 27,220 648,111 ------------- 4,072,093 ------------- Switzerland -- 1.45% Julius Baer Holding AG 90 299,126 Nestle S.A. (Reg.) 819 1,782,898 Novartis AG (Reg.) 1,207 2,372,697 Roche Holding AG (Gen.) 111 1,354,467 Swiss Reinsurance Co. (Reg.) 287 748,269 SwissCom AG (Reg.) (b) 2,026 848,161 ------------- 7,405,618 ------------- United Kingdom -- 4.28% Allied Zurich AG (b) 44,052 657,082 Barclays PLC 31,050 669,531 Billiton PLC 33,230 65,931 BOC Group PLC 36,350 519,821 Booker PLC 68,440 71,169 Boots Company PLC 38,230 651,023 British American Tobacco PLC 27,842 244,821 British Petroleum Co. PLC 83,873 1,252,450 British Steel PLC 322,950 478,222 Cable & Wireless PLC 24,000 295,093 Charter PLC 63,676 349,618 Coats Viyella PLC 269,970 121,278 Diageo PLC 45,209 514,499 Fairview Holdings PLC (b) 43,937 65,062 FKI PLC 239,040 532,941 Garban PLC (b) 3,489 13,294 General Electric Co. PLC 95,360 860,736 Glaxo Wellcome PLC 46,260 1,591,696 Greenalls Group PLC 43,620 232,604 Hanson PLC 82,982 658,922 Hillsdown Holdings PLC 69,775 87,069 House of Fraser PLC 124,780 110,033 Lloyds TSB Group PLC 120,969 1,720,854 Marks & Spencer PLC 142,060 974,398 Mirror Group PLC 144,390 360,957 National Westminster Bank PLC 27,430 528,948 Nycomed Amersham PLC 57,844 398,440 Peninsular & Oriental Steam Navigation Co. 23,540 278,275 Prudential Corp. PLC 84,540 1,276,476 Reed International PLC 51,010 398,894 Rio Tinto Ltd. 43,190 502,301 RJB Mining PLC 99,590 129,245 Royal & Sun Alliance Insurance Group PLC 35,073 286,376 12 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value --------- ------------- Sainsbury (J.) PLC 27,300 $ 218,821 Scottish Hydro-Electric PLC 81,880 922,295 SmithKline Beecham PLC 68,810 961,689 Smurfit (Jefferson) Group PLC 70,517 126,713 Terranova Foods PLC (b) 30,937 56,621 Tesco PLC 249,190 710,011 Thames Water PLC 29,997 573,957 Thames Water PLC, Class B (b) 29,370 36,894 United News & Media PLC 32,490 284,881 Vodafone Group PLC 21,678 352,025 Williams PLC 39,463 224,061 Yorkshire Water PLC 54,080 494,884 ------------- 21,860,911 ------------- Total Global (ex-U.S.) Equities 93,774,825 ------------- Emerging Markets Equities -- 3.01% Brinson Emerging Markets Equity Fund (b) 2,194,457 15,364,050 ------------- Total Equities (Cost $237,656,681) 266,363,178 ------------- Face Amount Bonds -- 45.45% ------------- U.S. Bonds -- 21.78% U.S. Corporate Bonds -- 6.85% Aid-Israel, Series 10-Z, 0.000%, due 02/15/03 $ 4,935,000 4,046,843 Asset Securitization Corp., 7.210%, due 10/13/26 1,695,000 1,813,921 Capital One Bank, 6.830%, due 05/17/99 1,321,000 1,324,938 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02 730,000 739,753 Chemical Master Credit Card Trust, 6.230%, due 06/15/03 1,055,000 1,072,745 Chesapeake & Potomac Telephone of Maryland, 8.000%, due 10/15/29 78,000 97,504 Citicorp, Series F, 6.200%, due 11/10/00 355,000 360,736 Continental Airlines, Inc., EETC 6.900%, due 01/02/18 1,495,000 1,519,548 98-1B, 6.748%, due 09/15/18 175,000 175,205 Enron Corp., 6.750%, due 09/01/04 250,000 257,175 Floating Rate Note, due 03/30/00 5,000,000 5,000,000 Fanniemae Whole Loan, 95-W3, Class A, 9.000%, due 04/25/25 27,659 28,824 First Bank Corporate Card Master Trust, 97-1A, 6.400%, due 02/15/03 1,055,000 1,084,118 First Nationwide Trust, 98-3, Class 1PPA, 6.500%, due 09/19/28 1,527,896 1,529,271 Ford Credit Grantor Trust 95-B, 5.900%, due 01/01/80 29,110 29,177 General Motors Acceptance Corp., 9.625%, due 12/15/01 241,000 268,066 Lehman Brothers, Inc., 7.250%, due 04/15/03 510,000 525,330 LG&E Capital Corp., 144A, 5.750%, due 11/01/01 215,000 214,153 MBNA Global Capital Securities FRN, 6.019%, due 02/01/27 810,000 745,413 Face Amount Value ------------- ------------ News America Holdings, 7.750%, due 12/01/45 $ 1,027,000 $ 1,090,730 Norwest Asset Securities Corp., 96-2, Class A9, 7.000%, due 09/25/11 435,000 444,249 PanAMSat Corp., 6.000%, due 01/15/03 225,000 223,232 Premier Auto Trust 96-3A, 6.500%, due 03/06/00 60,120 60,252 Prudential Home Mortgage Securities, 94-3, Class A10, 6.500%, due 02/25/24 730,000 728,007 Residential Asset Securitization Trust, 97-A11, Class A2, 7.000%, due 01/25/28 142,711 143,234 97-A7, Class A1, 7.500%, due 09/25/27 550,980 555,911 97-A7, Class A1, 7.250%, due 12/25/27 1,080,000 1,101,377 Salomon, Inc., 7.200%, due 02/01/04 1,475,000 1,549,569 Structured Asset Securities Corp. 98-RF1, Class A, 8.712%, due 03/15/27 1,264,071 1,356,507 98-RF2, 144A, 8.582%, due 07/15/27 1,604,269 1,716,568 Thrift Financial Corp., 11.250%, due 01/01/16 67,492 70,906 Time Warner Entertainment, Inc., 8.375%, due 03/15/23 886,000 1,083,667 TransAmerica Financial Corp. Series E, 6.125%, due 11/01/01 405,000 406,707 UCFC Home Equity Loan 97-C, Class A8, FRN, 5.478%, due 09/15/27 1,137,833 1,126,898 Vendee Mortgage Trust, 98-2, Class 1G, 6.750%, due 06/15/28 1,760,000 1,811,847 Viacom, Inc., 7.750%, due 06/01/05 610,000 666,071 ------------- 34,968,452 ------------- International Dollar Bonds -- 2.01% Abbey National PLC, 6.700%, Resettable Perpetual Step-up Notes 1,075,000 1,052,926 ABN AMRO Bank NV (Chicago), 6.625%, due 10/31/01 230,000 235,030 Banco Santiago S.A., 7.000%, due 07/18/07 1,000,000 837,979 Banque Centrale de Tunisie, 8.250%, due 09/19/27 785,000 628,000 Banque Paribas, Sub. Notes, 6.875%, due 03/01/09 175,000 177,982 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 600,000 600,000 Empresa Nacional Electric, 7.875%, due 02/01/27 166,000 138,575 International Telecom Satelite, 8.125%, due 02/28/05 245,000 276,502 Korea Development Bank, 7.125%, due 09/17/01 180,000 169,796 Pan Pacific Industry PLC 144A, 0.000%, due 04/28/07 1,565,000 618,175 Province of Quebec, 7.500%, due 07/15/23 530,000 606,055 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14 1,000,000 824,260 13 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ------------ Repsol International Finance, 7.000%, due 08/01/05 $ 575,000 $ 620,673 Republic of South Africa, 9.625%, due 12/15/99 794,000 809,880 Royal Bank of Scotland, 7.375%, Resettable Perpetual Step-up Notes 505,000 519,853 Skandinaviska Enskilda Banken, 144A, Resettable Perpetual Step-up Notes 415,000 404,607 Sociedad Quimica y Minera de Chiles S.A., 144A, 7.700%, due 09/15/06 900,000 792,717 Southern Investments UK, 6.800%, due 12/01/06 915,000 948,820 ------------- 10,261,830 ------------- U.S. Government Agencies -- 4.17% Federal Home Loan Mortgage Corp. 6.200%, due 08/15/07 510,000 512,055 7.500%, due 01/15/23 854,458 900,771 7.238%, due 05/01/26 162,387 165,062 Federal Home Loan Mortgage Corp. Gold 8.000%, due 11/01/22 97,255 100,659 8.000%, due 05/01/23 948,691 984,950 9.000%, due 03/01/24 697,379 741,509 Federal National Mortgage Association 6.361%, due 06/01/08 1,631,338 1,699,854 9.000%, due 08/01/21 206,941 219,548 8.500%, due 07/01/22 441,957 468,410 8.500%, due 02/01/28 1,232,583 1,291,131 7.000%, due 10/01/28 996,959 1,016,275 Federal National Mortgage Assoc. Strips 0.000%, due 04/01/27 1,155,933 1,016,212 6.220%, due 03/13/06 1,370,000 1,452,396 7.500%, due 05/01/23 1,253,190 201,159 Federal National Mortgage Association 8.000%, due 02/25/07 1,380,276 1,407,560 8.000%, due 05/25/21 1,300,000 1,331,623 8.500%, due 07/15/21 667,754 690,278 8.000%, due 05/01/22 89,847 93,020 7.500%, due 07/25/22 2,336,416 2,455,620 FGGI, 7.500%, due 10/01/11 1,035,686 1,065,462 FNCI, 8.000%, due 02/01/13 748,552 771,476 Government National Mortgage Association 10.000%, due 09/15/00 2,022 2,141 10.000%, due 05/15/01 3,001 3,178 9.000%, due 11/15/04 9,339 9,806 9.000%, due 11/15/04 4,482 4,706 8.000%, due 08/15/22 375,930 391,421 8.000%, due 11/15/22 295,275 307,674 7.500%, due 11/15/24 1,953,955 2,014,455 ------------- 21,318,411 ------------- U.S. Government Obligations -- 8.75% U.S. Treasury Notes and Bonds 6.625%, due 05/15/07 135,000 151,833 8.000%, due 11/15/21 5,915,000 7,924,255 Face Amount Value ------------- ------------ U.S. Treasury Inflation Indexed Note 3.625%, due 01/15/08 $35,665,000 $ 35,489,403 3.625%, due 04/15/28 1,170,000 1,155,854 ------------- 44,721,345 ------------- Total U.S. Bonds 111,270,038 ------------- Shares ------------- High Yield Bonds -- 3.01% Brinson High Yield Fund (b) 1,168,955 15,399,222 ------------- Face Global (ex-U.S.) Bonds - 15.19% Amount ------------- Australia -- 1.48% Government of Australia 9.500%, due 08/15/03 AUD 4,020,000 2,946,856 10.000%, due 02/15/06 4,020,000 3,208,237 Queensland Treasury Corp.-Global Notes, 8.000%, due 05/14/03 2,010,000 1,376,261 ------------- 7,531,354 ------------- Canada -- 1.59% Government of Canada 7.500%, due 09/01/00 CAD 500,000 339,248 8.750%, due 12/01/05 1,950,000 1,555,900 7.000%, due 12/01/06 2,640,000 1,955,181 4.250%, due 12/01/21 5,090,000 3,729,684 Hydro-Quebec, 8.050%, due 07/07/24 450,000 545,427 ------------- 8,125,440 ------------- Denmark -- 1.52% Kingdom of Denmark 9.000%, due 11/15/00 DKK 7,400,000 1,266,179 7.000%, due 12/15/04 3,780,000 684,730 8.000%, due 03/15/06 30,070,000 5,826,432 ------------- 7,777,341 ------------- France -- 2.13% Government of France (BTAN), 5.750%, due 03/12/01 FRF 12,400,000 2,338,735 Government of France (OAT) 9.500%, due 01/25/01 9,740,000 1,963,274 7.500%, due 04/25/05 7,330,000 1,591,915 8.500%, due 12/26/12 19,120,000 4,999,567 ------------- 10,893,491 ------------- Germany --- 2.23% Bundesrepublik Deutscheland 8.500%, due 08/21/00 DEM 1,130,000 734,880 8.375%, due 05/21/01 2,880,000 1,931,412 6.250%, due 01/04/24 1,630,000 1,188,541 DSL Finance NV, 5.250%, due 04/15/04 3,095,000 1,999,876 Treuhandanstalt, 6.250%, due 03/04/04 8,200,000 5,563,653 ------------- 11,418,362 ------------- 14 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ------------ Italy -- 1.07% Buoni Poliennali Del Tes, 8.500%, due 08/01/04 ITL 3,220,000,000 $ 2,434,435 Republic of Italy (BTP) 12.000%, due 09/01/02 625,000,000 486,676 8.500%, due 04/01/04 3,447,000,000 2,558,479 ------------- 5,479,590 ------------- Spain -- 1.82% Government of Spain 6.750%, due 04/15/00 ESP 393,000,000 2,897,529 7.900%, due 02/28/02 105,000,000 844,213 8.000%, due 05/30/04 225,000,000 1,940,189 6.150%, due 01/31/13 434,000,000 3,616,064 ------------- 9,297,995 ------------- Sweden -- 1.09% Government of Sweden 10.250%, due 05/05/03 SEK 29,400,000 4,561,791 6.750%, due 05/05/14 6,400,000 984,066 ------------- 5,545,857 ------------- United Kingdom -- 2.26% UK Treasury 8.500%, due 12/07/05 GBP 3,420,000 7,060,439 8.500%, due 07/16/07 900,000 1,916,710 7.250%, due 12/07/07 900,000 1,800,659 8.750%, due 08/25/17 300,000 767,433 ------------- 11,545,241 ------------- Total Global (ex-U.S.) Bonds 77,614,671 ------------- Emerging Markets Debt -- 5.47% Shares ------------- Brinson Emerging Markets Debt Fund (b) 1,594,099 27,921,446 ------------- Total Bonds (Cost $260,497,023) 232,205,377 ------------- Face Amount ------------- Short-Term Investments -- 23.31% U.S. Government Obligations -- 0.58% U.S. Treasury Bill 4.320%, due 02/25/99 $3,000,000 2,981,367 Commercial Paper -- 13.78% Case Credit, 5.950% due 02/23/99 5,000,000 4,956,201 Corning, Inc., 5.100% due 01/04/99 5,125,000 5,122,822 Crown, Cork & Seal, 5.650% due 02/25/99 5,000,000 4,956,840 Detroit Edison, 5.250% due 01/4/99 3,700,000 3,698,381 Excel Paralubes, 5.650% 01/4/99 10,000,000 9,995,292 Marriott International, 5.700% 01/11/99 5,000,000 4,992,084 Norfolk Southern, 6.000%, due 01/11/99 950,000 948,417 6.050%, due 01/29/99 2,000,000 1,990,589 Raytheon Co. 5.600%, due 01/22/99 1,000,000 997,366 Face Amount Value ------------- ------------ Seagrams, 6.100%, due 01/29/99 $ 5,000,000 $ 4,976,278 7.000%, due 01/07/99 5,000,000 4,994,167 Tenneco, Inc., 6.450%, due 01/08/99 5,000,000 4,993,729 Texas Utilities Co. 5.500%, due 01/29/99 5,000,000 4,978,611 Times Mirror, 5.750%, due 01/08/99 1,106,000 1,104,763 Union Carbide, 6.130%, due 01/04/99 5,000,000 4,997,446 Union Pacific Resources, 5.670%, due 01/29/99 5,000,000 4,977,950 Vastar Resources, 5.100%, due 01/22/99 1,733,000 1,727,844 ------------- 70,408,780 ------------- U.S. Corporate Bonds -- 7.36% Burlington North Santa Fe, Variable Rate, due 05/13/99 5,000,000 5,000,000 Burlington Resources, 6.875%, due 08/01/99 2,000,000 2,011,995 Dayton Hudson Co., 7.500%, due 03/01/99 1,000,000 1,002,654 FMC Corp., 8.750%, due 04/01/99 2,880,000 2,899,210 James River Corp., 6.750%, due 10/01/99 1,000,000 1,007,596 Lehman Brothers, Inc., 6.300%, due 08/11/99 2,000,000 2,005,500 6.920%, due 10/04/99 3,000,000 3,022,342 Lockheed Martin Corp., 6.550%, due 05/15/99 6,000,000 6,013,422 Nabisco, Inc., 6.300%, due 8/26/99 1,000,000 1,003,331 Sonat, Inc., 9.500%, due 08/15/99 2,000,000 2,042,731 Supervalu Stores, Inc., 7.250%, due 07/15/99 2,000,000 2,014,276 Ultramar Corp., 8.250%, due 07/01/99 1,500,000 1,517,272 Union Carbide, 7.000%, due 08/01/99 5,000,000 5,031,435 Union Oil Of California, 7.240%, due 04/01/99 3,000,000 3,009,855 ------------- 37,581,619 ------------- Investment Companies -- 1.59% Brinson Supplementary Trust U.S. Cash Management Prime Fund 8,124,241 8,124,241 ------------- Total Short-Term Investments (Cost $81,512,130) 119,096,007 ------------- Total Investments (Cost $579,665,834)-- 120.89% (a) 617,664,562 ------------- Liabilities, less cash and other assets-- (20.89)% (106,728,507) ------------- Net Assets-- 100% $510,936,055 ============= See accompanying notes to Schedule of Investments. 15 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $579,665,834; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 61,012,536 Gross unrealized depreciation (23,013,808) ------------ Net unrealized appreciation $ 37,998,728 ============ (b) Non-income producing security. FRN: Floating Rate Note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $6,217,285 or 1.22% of net assets. Resettable Perpetual Step-up Notes: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Fund had the following open forward foreign currency contracts as of December 31, 1998:
Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ------------ ------------- ------------ ----------- Forward Foreign Currency Buy Contracts Australian Dollar 02/05/99 46,200,000 $ 28,347,732 $ (310,442) British Pound 02/05/99 7,100,000 11,799,508 (128,742) Canadian Dollar 02/05/99 38,300,000 24,937,331 (413,476) Danish Kroner 02/05/99 22,200,000 3,491,472 (25,553) German Mark 02/05/99 58,100,000 34,943,795 1,498,421 Japanese Yen 02/05/99 1,560,000,000 13,895,569 2,198,529 Netherlands Guilder 02/05/99 13,600,000 7,259,528 (62,360) Swedish Krona 02/05/99 135,000,000 16,680,670 (832,465) Swiss Franc 02/05/99 5,000,000 3,653,715 223,654 Forward Foreign Currency Sale Contracts Australian Dollar 02/05/99 7,817,000 4,796,258 (392,309) British Pound 02/05/99 23,000,000 38,223,759 (792,229) Canadian Dollar 02/05/99 9,200,000 5,990,168 162,032 Danish Kroner 02/05/99 70,500,000 11,087,782 (568,534) French Franc 02/05/99 34,000,000 6,097,156 (310,907) German Mark 02/05/99 67,800,000 40,777,785 (732,368) Japanese Yen 02/05/99 1,560,000,000 13,895,569 (672,989) Netherlands Guilder 02/05/99 13,600,000 7,259,528 (375,544) Spanish Peseta 02/05/99 600,000,000 4,241,885 46,586 Swedish Krona 02/05/99 21,000,000 2,594,771 21,237 Swiss Franc 02/05/99 5,000,000 3,653,715 1,255 ----------- Total $(1,466,204) ===========
See accompanying notes to financial statements. 16 GLOBAL FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- FUTURES CONTRACTS The Global Fund had the following open futures contracts as of December 31, 1998:
Settlement Cost/ Current Unrealized Date Proceeds Value Gain/(Loss) ------------ ------------- ------------ ------------ Futures Buy Contracts 5 year U.S. Treasury Note, 312 contracts March 1999 $ 35,289,052 $ 35,363,250 $ 74,198 10 year U.S. Treasury Note, 60 contracts March 1999 7,117,920 7,149,375 31,455 30 year U.S. Treasury Bonds, 41 contracts March 1999 5,251,256 5,239,031 (12,225) Index Futures Sales Contracts Standard & Poor's 500, 163 contracts March 1999 47,615,392 50,754,125 (3,138,733) ----------- Total $(3,045,305) ===========
The market value of investments pledged to cover margin requirements for the open futures positions at December 31, 1998 was $2,981,367. See accompanying notes to financial statements. 17 GLOBAL FUND -- FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $502,549,359) $544,839,699 Affiliated issuers (Cost $77,116,475) 72,824,863 Cash 589,467 Foreign currency, at value (Cost $888,209) 848,944 Receivables: Investment securities sold 4,437,224 Dividends 564,221 Interest 3,684,828 Fund shares sold 51,518 Other assets 49,823 ------------- TOTAL ASSETS 627,890,587 ------------- LIABILITIES: Payables: Securities loaned 111,993,032 Investment securities purchased 2,847,196 Investment advisory fees 344,091 Variation margin 150,423 Accrued expenses 153,586 Net unrealized depreciation on forward foreign currency contracts 1,466,204 ------------- TOTAL LIABILITIES 116,954,532 ------------- NET ASSETS $510,936,055 ============= NET ASSETS CONSIST OF: Paid in capital $471,475,723 Accumulated distribution in excess of net investment income (8,716,455) Accumulated net realized gain 14,687,962 Net unrealized appreciation 33,488,825 ------------- NET ASSETS $510,936,055 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $482,171,091 and 40,853,135 shares issued and outstanding) $ 11.80 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,521,291 and 129,168 shares issued and outstanding) $ 11.78 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $27,243,673 and 2,318,602 shares issued and outstanding) $ 11.75 ============= See accompanying notes to financial statements. 18 GLOBAL FUND -- FINANCIAL STATEMENTS STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Interest (net of $2,374 for foreign taxes withheld; including securities lending income of $173,798) $ 7,276,219 Dividends (net of $71,815 for foreign taxes withheld) 2,114,913 ------------ TOTAL INCOME 9,391,132 ------------ EXPENSES: Advisory 2,387,061 Administration 208,262 Distribution 93,124 Custodian 67,136 Professional 63,400 Other 116,031 ------------ TOTAL EXPENSES 2,935,014 ------------ NET INVESTMENT INCOME 6,456,118 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments 32,604,265 Futures contracts 641,645 Foreign currency transactions (4,173,116) ------------ Net realized gain 29,072,794 ------------ Change in net unrealized appreciation or depreciation on: Investments and foreign currency (29,165,044) Futures contracts (2,097,996) Forward contracts 2,070,460 Translation of other assets and liabilities denominated in foreign currency 26,013 ------------ Change in net unrealized appreciation or depreciation (29,166,567) ------------ Net realized and unrealized loss (93,773) ------------ Net increase in net assets resulting from operations $ 6,362,345 ============ See accompanying notes to financial statements. 19 GLOBAL FUND -- FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Interest received $ 11,059,378 Expenses paid (3,093,522) Purchases of long-term portfolio investments (258,143,687) Proceeds from sales of long-term portfolio investments 437,460,077 Net purchases in excess of proceeds from sales of short-term portfolio investments 36,387,615 Net cash from foreign currency and futures transactions (2,938,739) ------------- Net cash provided by operating activities 220,731,122 ------------- CASH FLOWS USEDFOR FINANCING ACTIVITIES: Net capital shares transactions (147,376,349) Net cash provided by securities loaned 7,046,988 Net cash used for commercial paper (32,491,443) Cash dividends paid to shareholders (47,336,204) ------------- Net cash used for financing activities (220,157,008) ------------- Net increase in cash 574,114 Cash at beginning of period 15,353 ------------- Cash at end of period $ 589,467 ============= RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net increase in net assets resulting from operations $ 6,362,345 Decrease in investments 212,943,573 Net realized gain on investment transactions 32,604,265 Net change in unrealized appreciation on investments (29,166,567) Net realized loss on foreign currency transactions (4,173,116) Net realized gain on futures contracts 641,645 Decrease in interest receivable (1,668,246) Accretion of discount (711,301) Amortization of premium 888,608 Decrease in prepaid assets 5,296 Decrease in investment advisory fee payable 121,351 Decrease in accrued expenses and other liabilities 2,883,269 ------------- Total adjustments 214,368,777 ------------- Net cash provided by operating activities $220,731,122 ============= See accompanying notes to financial statements. 20 GLOBAL FUND -- FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 6,456,118 $ 17,956,852 Net realized gain 29,072,794 39,774,075 Change in net unrealized appreciation or depreciation (29,166,567) (6,545,821) -------------- ------------ Net increase in net assets resulting from operations 6,362,345 51,185,106 -------------- ------------ Distributions to shareholders: Distributions from net investment income (6,456,118) (28,265,915) Distributions in excess of net investment income (7,870,965) (5,070,122) Distributions from net realized gain (33,009,121) (35,465,456) -------------- ------------ Total distributions to shareholders* (47,336,204) (68,801,493) -------------- ------------ CAPITAL SHARE TRANSACTIONS: Shares sold 167,229,603 256,422,880 Shares issued on reinvestment of distributions 44,653,081 64,950,197 Shares redeemed (359,315,493) (217,384,769) -------------- ------------ Net increase (decrease) in net assets resulting from capital share transactions (147,432,809) 103,988,308 -------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (188,406,668) 86,371,921 -------------- ------------ NET ASSETS: Beginning of period 699,342,723 612,970,802 -------------- ------------ End of period (including accumulated distribution in excess of net investment income of $8,716,455 and $845,490, respectively) $ 510,936,055 $ 699,342,723 ============== ============ *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I (13,661,783) (32,129,657) Brinson Class N (40,903) (9,572) UBS Investment Funds Class (624,397) (1,196,808) Distributions from net realized gain Brinson Class I (31,201,392) (33,973,096) Brinson Class N (97,443) (53) UBSInvestment Funds Class (1,710,286) (1,492,307) -------------- ------------ Total distributions to shareholders $(47,336,204) $(68,801,493) ============== ============
See accompanying notes to financial statements. 21 GLOBAL FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended June 30, Brinson Class I (Unaudited) 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.77 $ 13.13 $ 12.22 $ 11.35 $ 10.43 $ 10.87 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.18 0.37 0.38 0.44 0.43 0.33 Net realized and unrealized gain (loss) 0.05 0.62 1.79 1.37 0.86 (0.23) ------- ------- ------- ------- ------- ------- Total income from investment operations 0.23 0.99 2.17 1.81 1.29 0.10 ------- ------- ------- ------- ------- ------- Less distributions: Distributions from and in excess of net investment income (0.37) (0.65) (0.61) (0.62) (0.27) (0.27) Distributions from and in excess of net realized gains (0.83) (0.70) (0.65) (0.32) (0.10) (0.27) ------- ------- ------- ------- ------- ------- Total distributions (1.20) (1.35) (1.26) (0.94) (0.37) (0.54) ------- ------- ------- ------- ------- ------- Net asset value, end of period $ 11.80 $ 12.77 $ 13.13 $ 12.22 $ 11.35 $ 10.43 ======= ======= ======= ======= ======= ======= Total return (non-annualized) 1.99% 8.28% 18.79% 16.38% 12.57% 0.77% Ratios/Supplemental data: Net assets, end of period (in 000s) $482,171 $667,745 $586,667 $457,933 $365,678 $278,859 Ratio of expenses to average net assets: Before expense reimbursement 0.95%* 0.94% 0.99% 1.04% 1.09% 1.14% After expense reimbursement N/A N/A N/A N/A N/A 1.10% Ratio of net investment income to average net assets: Before expense reimbursement 2.20%* 2.70% 3.03% 3.69% 4.27% 3.21% After expense reimbursement N/A N/A N/A N/A N/A 3.25% Portfolio turnover rate 41% 88% 150% 142% 238% 231%
* Annualized N/A = Not applicable See accompanying notes to financial statements. 22 GLOBAL FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - -------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.75 $ 13.13 ------- ------- Income from investment operations: Net investment income 0.14 0.63 Net realized and unrealized gain 0.08 0.32 ------- ------- Total income from investment operations 0.22 0.95 ------- ------- Less distributions: Distributions from and in excess of net investment income (0.36) (0.63) Distributions from net realized gain (0.83) (0.70) ------- ------- Total distributions (1.19) (1.33) ------- ------- Net asset value, end of period $ 11.78 $ 12.75 ======= ======= Total return (non-annualized) 1.88% 7.90% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1,521 $ 1,163 Ratio of expenses to average net assets 1.20%** 1.19% Ratio of net investment income to average net assets 1.95%** 2.45% Portfolio turnover rate 41% 88%
* Commencement of Brinson Class N was June 30, 1997. ** Annualized See accompanying notes to financial statements. 23 GLOBAL FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.71 $ 13.05 $ 12.18 $ 11.60 -------- -------- -------- -------- Income from investment operations: Net investment income 0.13 0.30 0.34 0.39 Net realized and unrealized gain 0.05 0.61 1.75 1.10 -------- -------- -------- -------- Total income from investment operations 0.18 0.91 2.09 1.49 -------- -------- -------- -------- Less distributions: Distributions from and in excess of net investment income (0.31) (0.55) (0.57) (0.59) Distributions from net realized gain (0.83) (0.70) (0.65) (0.32) -------- -------- -------- -------- Total distributions (1.14) (1.25) (1.22) (0.91) -------- -------- -------- -------- Net asset value, end of period $ 11.75 $ 12.71 $ 13.05 $ 12.18 ======== ======== ======== ======== Total return (non-annualized) 1.59% 7.60% 18.13% 13.24% Ratios/Supplemental Data: Net assets, end of period (in 000s) $27,244 $30,436 $26,303 $14,030 Ratio of expenses to average net assets 1.60%** 1.59% 1.64% 1.69%** Ratio of net investment income to average net assets 1.55%** 2.05% 2.38% 3.04%** Portfolio turnover rate 41% 88% 150% 142%
* Commencement of UBS Investment Funds Class ** Annualized See accompanying notes to financial statements. 24 GLOBAL EQUITY FUND [UBS LOGO APPEARS HERE] The Global Equity Fund is actively managed, providing a fully integrated approach to the developed equity markets across the world. We employ fundamental valuation models to determine the relative attractiveness of aggregate markets, as well as of individual stocks. Our portfolio construction process simultaneously sets country, currency, industry/factor and stock selection strategies. This interactive investment process has evolved within the context of an environment marked by growing globalization and increasingly integrated economies, industries and capital markets. The UBS Investment Fund - Global Equity has provided an annualized return of 14.51% since its performance inception on July 31, 1995, compared to the 17.54% return for the benchmark, the MSCI World Equity (Free) Index. This performance was achieved with a volatility of 11.37%, well below the 14.05% volatility of the benchmark. For the full year, the Fund gained 13.17%, lagging the index's unhedged return of 24.62%. With the exception of the Pacific Rim and several small markets, most developed equity markets enjoyed solid market performance. The EMU and North America both gained over 29%, in local terms. The U.S. market has been remarkably resilient, continuing an unprecedented bull market underpinned by various one-time events. This market is extremely overvalued; the U.S. is our largest underweight. Monetary Union, privatization, restructuring, merger activity and increased capital flows have boosted European equity markets. Despite their excellent performance, European corporations are still early into their restructuring, with the potential for improving profitability ahead. Europe is our largest overweight. Most Pacific markets continued to suffer the consequences of last year's currency crisis. This situation has been aggravated in Japan by flawed macroeconomic policies, a largely insolvent financial sector and an unprofitable domestic corporate sector. We remain very underweight Japan, Hong Kong and Singapore. In comparison, Australia and New Zealand have been unduly impacted by their geographic proximity to Asia and are attractively priced. We maintain an overweight in these markets. Market allocation made a small positive contribution. The overweight of Belgium and Finland and underweight of Japan were successful strategies, but the overweight to New Zealand cost returns. Currency management decreased returns somewhat due to underweights of the yen and overweights of the New Zealand dollar and Australian dollar. Stock selection had an important impact on the year's performance. Japan stock selection was positive, but both the U.S. and the U.K. were negative. Japan was helped by the significant underweight to banks, overweight to blue chips and stock specific returns. U.S. stock selection was responsible for most of the underperformance, disadvantaged by the underweight to size and the overweight to basic industries. 25 GLOBAL EQUITY FUND [UBS LOGO APPEARS HERE] TOTAL RETURN
6 months 1 year 3 years 7/31/95* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - -------------------------------------------------------------------------------------------- UBS Investment Fund-- Global Equity 2.43% 13.17% 13.07% 14.51% - -------------------------------------------------------------------------------------------- MSCI World Equity (Free) Index 6.72 24.62 18.06 17.54 - --------------------------------------------------------------------------------------------
*Performance inception date of the UBS Investment Fund-- Global Equity. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund -- Global Equity and the MSCI World Equity (Free) Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund -- Global Equity vs. MSCI World Equity (Free) Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] UBS MCSI Investment Fund- World Equity Global Equity (Free) Index ---------------- ------------- 7/31/95 $10,000 $10,000 8/31/95 $10,129 $9,965 9/30/95 $10,293 $10,232 10/31/95 $10,362 $10,167 11/30/95 $10,655 $10,472 12/31/95 $10,861 $10,665 1/31/96 $11,063 $10,839 2/29/96 $11,008 $10,870 3/31/96 $11,091 $10,963 4/30/96 $11,229 $11,152 5/31/96 $11,266 $11,234 6/30/96 $11,324 $11,257 7/31/96 $11,157 $10,961 8/31/96 $11,334 $11,138 9/30/96 $11,687 $11,505 10/31/96 $11,873 $11,620 11/30/96 $12,329 $12,109 12/31/96 $12,332 $12,001 1/31/97 $12,475 $12 177 2/28/97 $12,567 $12,234 3/31/97 $12,373 $11,965 4/30/97 $12,506 $12,207 5/31/97 $13,008 $12,824 6/30/97 $13,377 $13,283 7/31/97 $13,797 $13,812 8/31/97 $13,428 $13,306 9/30/97 $13,838 $13,882 10/31/97 $13,428 $13,434 11/30/97 $13,449 $13,554 12/31/97 $13,589 $13,717 1/31/98 $13,735 $13,902 2/28/98 $14,230 $14,575 3/31/98 $14,556 $14,988 4/30/98 $14,568 $15,135 5/31/98 $14,478 $14,922 6/30/98 $14,394 $15,111 7/31/98 $14,349 $15,032 8/31/98 $13,193 $13,512 9/30/98 $13,601 $13,978 10/31/98 $14,088 $14,813 11/30/98 $14,473 $15,418 12/31/98 $15,897 $17,370 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 26 GLOBAL EQUITY FUND MARKET ALLOCATION As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ----------------------------------------------------- U.S. 51.0% 41.9% Australia 1.2 3.2 Austria 0.2 0.0 Belgium 0.9 2.0 Canada 1.8 1.2 Denmark 0.4 0.4 Finland 0.7 1.9 France 4.5 6.5 Germany 5.0 7.3 Hong Kong 1.0 0.0 Ireland 0.2 0.0 Italy 2.5 2.7 Japan 9.9 2.6 Netherlands 3.1 4.7 New Zealand 0.1 2.3 Norway 0.2 0.2 Portugal 0.3 0.0 Singapore 0.3 0.6 Spain 1.6 1.2 Sweden 1.2 2.6 Switzerland 3.8 4.6 United Kingdom 10.1 14.1 - ----------------------------------------------------- 100.0% 100.0% TOP TEN U.S. EQUITY HOLDINGS As of December 31, 1998 (Unaudited) Percent of Net Assets - ----------------------------------------------------- 1. Xerox Corp. 2.54% 2. FDX, Corp. 1.78 3. Burlington Northern Santa Fe Corp. 1.76 4. Lockheed Martin Corp. 1.55 5. Philip Morris Companies, Inc. 1.46 6. Baxter International, Inc. 1.10 7. Kimberly Clark Corp. 1.07 8. Entergy Corp 1.01 9. CIGNA Corp. 0.98 10. Aon Corp. 0.98 - ----------------------------------------------------- CURRENCY ALLOCATION As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ----------------------------------------------------- U.S. 51.0% 48.0% Australia 1.2 5.0 Canada 1.8 5.8 Denmark 0.4 0.4 EMU 19.0 19.0 Hong Kong 1.0 0.0 Japan 9.9 3.9 New Zealand 0.1 2.3 Norway 0.2 0.2 Singapore 0.3 0.3 Sweden 1.2 5.2 Switzerland 3.8 3.8 United Kingdom 10.1 6.1 - ----------------------------------------------------- 100.0% 100.0% TOP TEN GLOBAL (EX-U.S.) EQUITY HOLDINGS As of December 31, 1998 (Unaudited) Percent of Net Assets - ----------------------------------------------------- 1. Novartis AG (Reg.) 1.50% 2. Telecom Corp. of New Zealand Ltd. 1.32 3. Royal Dutch Petroleum Co. 1.19 4. Nestle S.A. (Reg.) 1.13 5. Bayer AG 1.13 6. Nokia Oyj, A Shares 1.11 7. Lloyds TSB Group PLC 1.10 8. Allianz AG 1.06 9. Glaxo Wellcome PLC 0.98 10. ING Groep NV 0.97 - ----------------------------------------------------- 27 GLOBAL EQUITY FUND INDUSTRY DIVERSIFICATION As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. EQUITIES Energy 1.47% Capital Investment Capital Goods 4.34 Technology 5.68 ------- 10.02 Basic Industries Chemicals 2.04 Housing/Paper 3.73 Metals 0.17 ------- 5.94 ------- Consumer Non-Durables 2.84 Retail/Apparel 1.88 Autos/Durables 1.33 Health: Drugs 1.74 Health: Non-Drugs 2.18 ------- 9.97 ------- Financial Banks 3.79 Non-Banks 2.92 ------- 6.71 ------- Utilities Electric 1.41 Telephone 0.35 ------- 1.76 ------- Transportation 4.25 Services/Misc 1.88 ------- Total U.S. Equities 42.00 ------- Global (ex-U.S.) EQUITIES Aerospace & Military 0.31 Airlines 0.20 Appliances &Household 1.40 Autos/Durables 0.47 Banking 6.38 Beverages and Tobacco 1.98 Broadcasting & Publishing 1.83 Building Materials 0.84 Business & Public Service 1.60 Chemicals 1.46 Construction 0.07% Data Processing 0.12 Electric Components 0.19 Electronics 3.53 Energy 4.59 Financial Services 1.78 Food & House Products 2.10 Forest Products 0.76 Health: Drugs 2.05 Health: Non-Drugs 3.41 Housing/Paper 0.15 Industrial Components 0.45 Insurance 5.60 Investment Companies 0.28 Leisure & Tourism 0.14 Machinery & Engineering 0.39 Merchandising 2.21 Metals--Steel 0.58 Miscellaneous Materials 0.41 Multi-Industry 1.94 Non-Ferrous Metals 0.63 Real Estate 0.15 Recreation 0.10 Retail & Apparel 0.26 Telecommunications 6.53 Textiles &Apparel 0.07 Transportation 0.08 Utilities 2.17 ------- Total Global (ex-U.S.) Equities 57.21 ------- SHORT-TERM INVESTMENTS 1.21 ------- TOTAL INVESTMENTS 100.42 ------- LIABILITIES, LESS CASH AND OTHER ASSETS (0.42) ------- NET ASSETS 100.00% ======= 28 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- -------------- Equities -- 99.21% U.S. Equities -- 42.00% Advanced Micro Devices, Inc. (b) 14,700 $ 425,381 Aetna, Inc. 9,000 707,625 Allergan, Inc. 3,700 239,575 Alza Corp. (b) 7,700 402,325 American Standard Companies, Inc. (b) 7,900 283,906 Aon Corp. 13,050 722,644 Automatic Data Processing, Inc. 6,000 481,125 BankBoston Corp. 4,200 163,537 Baxter International, Inc. 12,600 810,337 Beckman Coulter Inc. 3,300 179,025 Bestfoods 5,100 271,575 Biogen, Inc. (b) 1,700 141,100 Birmingham Steel Corp. 3,100 12,981 Burlington Northern Santa Fe Corp. 38,600 1,302,750 Champion Enterprises, Inc. (b) 1,700 46,538 Champion International Corp. 3,800 153,900 Chase Manhattan Corp. 6,700 456,019 CIGNA Corp. 9,400 726,737 Circuit City Stores-Circuit City Group 10,500 524,344 CMS Energy Corp. 10,000 484,375 Comerica, Inc. 3,200 218,200 CommScope, Inc. (b) 5,433 91,342 Comverse Technology, Inc. (b) 3,525 250,275 Consolidated Stores Corp. (b) 10,200 205,912 Corning, Inc. 15,100 679,500 Covance, Inc. (b) 3,900 113,588 Crown Cork & Seal Co., Inc. 3,700 114,006 Cummins Engine Co., Inc. 600 21,300 Dial Corp. 4,000 115,500 Eastman Chemical Co. 4,300 192,425 Electronic Data Systems Corp. 13,800 693,450 EMC Corp. (b) 4,600 391,000 Entergy Corp. 23,900 743,887 FDX Corp. (b) 14,800 1,317,200 First American Corp. of Tennessee 2,000 88,750 First Data Corp. 18,704 592,683 First Security Corp. 3,850 89,994 Fleet Financial Group, Inc. 9,700 433,469 Fleetwood Enterprises, Inc. 1,500 52,125 Food Lion Inc., Class A 17,600 187,000 Fort James Corp. 13,300 532,000 General Instrument Corp. (b) 17,600 597,300 General Semiconductor, Inc. (b) 4,125 33,773 Genzyme Corp. (b) 3,100 154,225 Genzyme-Molecular Oncology (b) 399 1,297 Geon Co. 2,100 48,300 Goodyear Tire & Rubber Co. 10,100 509,419 Great Lakes Chemical Corp. 2,500 100,000 GreenPoint Financial Corp. 4,400 154,550 Harnischfeger Industries, Inc. 5,400 55,013 HCR Manor Care, Inc. (b) 4,050 118,969 Hibernia Corp., Class A 4,300 74,713 Household International Inc. 7,600 301,150 IMC Global Inc. 12,000 256,500 Johnson Controls Inc. 3,600 212,400 Kimberly Clark Corp. 14,500 790,250 Lafarge Corp. 3,700 149,850 Shares Value ----------- -------------- Lear Corp. (b) 9,200 $ 354,200 Lockheed Martin Corp. 13,551 1,148,447 Lyondell Petrochemical Co. 11,100 199,800 Martin Marietta Materials, Inc. 2,235 138,989 Masco Corp. 18,000 517,500 Nabisco Holdings Corp., Class A 7,900 327,850 National Service Industries, Inc. 2,300 87,400 Nextel Communications, Inc., Class A (b) 10,800 255,150 Norfolk Southern Corp. 16,300 516,506 Peco Energy Co. 13,300 553,612 Pentair, Inc. 4,100 163,231 Philip Morris Companies, Inc. 20,200 1,080,700 Praxair, Inc. 7,100 250,275 Raytheon Co., Class B 13,000 692,250 Regions Financial Corp. 2,000 80,625 Schering Plough Corp. 7,200 397,800 Sears, Roebuck and Co. 11,100 471,750 Southdown, Inc. 4,476 264,923 St. Jude Medical, Inc. (b) 7,300 202,119 Timken Co. 1,400 26,425 TRW, Inc. 2,100 117,994 Tyson Foods, Inc., Class A 14,400 306,000 Ultramar Diamond Shamrock Corp. 7,952 192,836 Unocal Corp. 5,300 154,694 US Bancorp 9,863 350,136 USG Corp. 1,800 91,688 Vencor, Inc. (b) 8,100 36,450 Ventas, Inc. 8,200 99,938 Viad Corp. 7,600 230,850 Wells Fargo and Co. 9,700 387,394 Witco Corp. 2,200 35,063 Xerox Corp. 15,900 1,876,200 York International Corp. 4,800 195,900 ------------ Total U.S. Equities 31,021,809 ------------ Global (ex-U.S.) Equities -- 57.21% Australia --3.19% Amcor Ltd. 10,700 45,766 Brambles Industries Ltd. 6,900 168,240 Broken Hill Proprietary Co., Ltd. 27,950 206,060 CSR Ltd. 37,400 91,535 David Jones Ltd. 48,400 53,439 Lend Lease Corp., Ltd. 8,294 111,926 National Australia Bank Ltd. 21,075 318,014 News Corp. Ltd. 30,040 198,638 News Corp. Ltd., Preferred 13,300 81,011 Orica Ltd. 8,500 44,266 Pacific Dunlop Ltd. 32,600 52,791 Qantas Airways Ltd. 38,977 79,615 QBE Insurance Group Ltd. 20,042 82,983 Rio Tinto Ltd. 6,863 81,480 Santos Ltd. 26,000 69,854 Telstra Corp. Ltd. (b) 70,100 328,084 Westpac Banking Corp., Ltd. 36,545 244,790 WMC Ltd. 17,500 52,814 Woolworth's Ltd. 12,100 41,237 ------------ 2,352,543 ------------ 29 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- -------------- Belgium -- 1.82% Electrabel S.A. 1,060 $ 465,917 Fortis AG 88 5 Fortis AG Strip (b) 1,798 651,605 KBC Bancassurance Holding Strip (b) 110 6 Kredietbank NV 2,870 227,235 ------------ 1,344,768 ------------ Canada -- 1.04% Agrium, Inc. 3,100 27,246 Alcan Aluminum Ltd. 1,900 51,335 Bank of Montreal 1,200 48,203 Canadian National Railway Co. 1,200 62,305 Canadian Pacific Ltd. 3,516 65,696 Extendicare, Inc., Class A (b) 2,700 15,293 Hudson's Bay Co. 3,200 40,312 Imasco, Ltd. 1,900 40,449 Imperial Oil Ltd. 3,800 60,736 Magna International, Inc., Class A 500 31,055 Newbridge Networks Corp. (b) 1,200 36,406 NOVA Chemicals Corp. 2,197 28,607 Potash Corporation of Saskatchewan, Inc. 500 32,064 Royal Bank of Canada 1,400 69,772 Seagram Co., Ltd. 700 26,546 Shaw Communications, Inc., Class B 2,600 62,799 TransCanada Pipelines Ltd. 3,588 52,442 Westcoast Energy, Inc. 1,000 19,857 ------------ 771,123 ------------ Denmark -- 0.29% Tele Danmark A/S 1,600 215,948 ------------ Finland -- 1.70% Merita Ltd., Class A 30,200 192,053 Nokia Oyj-A Shares 6,700 820,397 UPM-Kymmene Corp. 8,700 243,986 ------------ 1,256,436 ------------ France -- 6.40% Accor S.A. Air Liquide 1,638 300,553 Alcatel Alsthom 2,386 292,153 Axa-Certificate de Valeur Garante (b) 2,181 316,245 Banque Nationale de Paris 2,922 240,719 Cie de Saint Gobain 1,136 160,450 Dexia France 1,127 173,704 Elf Aquitaine S.A. 1,602 185,259 France Telecom S.A. 3,220 255,931 Groupe Danone 640 183,309 Lagardere S.C.A. 7,120 302,710 Michelin, Class B 3,031 121,268 Paribas 1,583 137,636 Pinault-Printemps-Redoute S.A. 790 151,036 Rhone-Poulenc, Class A 4,550 234,252 SEITA 4,090 256,257 Societe Generale 1,223 198,134 Shares Value ----------- -------------- Suez Lyonnaise des Eaux S.A. 1,687 $ 346,689 Thomson CSF 5,295 227,489 Total S.A., Class B 2,249 227,871 Vivendi 1,608 417,386 ------------ 4,729,051 ------------ Germany -- 7.42% Allianz AG 2,098 780,956 Bayer AG 19,840 833,218 DaimlerChrysler AG (b) 5,925 588,729 Deutsche Bank AG 3,950 233,073 Deutsche Telekom AG 11,260 370,128 Dresdner Bank AG 5,200 217,915 Hoechst AG 5,900 244,062 Mannesmann AG (b) 4,350 503,400 SAP AG 450 194,525 Siemens AG 9,220 606,142 Veba AG 11,010 652,430 Volkswagen AG 3,190 258,172 ------------ 5,482,750 ------------ Italy -- 2.83% Assicurazioni Generali 10,700 447,742 Danieli & Co. Savings (Risp) 7,400 29,529 ENI Spa 71,000 465,025 ENI Spa ADR 1,700 115,175 La Rinascente Spa 26,875 276,990 Montedison Spa 164,560 219,055 San Paolo-imi, Spa 13,912 246,349 Telecom Italia Mobile Spa 39,000 288,549 ------------ 2,088,414 ------------ Japan -- 2.23% Amada Co., Ltd. 4,000 19,397 Bridgestone Corp. 1,000 22,739 Canon, Inc. 3,000 64,229 Citizen Watch Co., Ltd. 4,000 24,114 Dai Nippon Printing Co., Ltd. 2,000 31,950 Daiichi Pharmaceutical Co., Ltd. 3,000 50,771 Daikin Industries Ltd. 4,000 39,716 Daiwa House Industry Co., Ltd. 2,000 21,330 Fanuc 1,400 48,032 Fuji Photo Film 1,000 37,234 Fujitsu 2,000 26,684 Honda Motor Co. 1,000 32,890 Hoya Corp. 1,000 48,759 Ito Yokado Co., Ltd. 1,000 70,036 Kaneka Corp. 3,000 22,527 Kao Corp. 1,000 22,606 Kirin Brewery Co., Ltd. 4,000 51,064 Kokuyo 1,000 13,484 Kuraray Co., Ltd. 3,000 33,165 Marui Co., Ltd. 2,000 38,564 Matsushita Electric Industrial Co. 3,000 53,165 NGK Insulators 5,000 64,583 Nintendo Corp., Ltd. 500 48,537 Nippon Denso Co., Ltd. 3,000 55,585 30 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- -------------- Nippon Meat Packers, Inc. 1,000 $ 16,135 Omron Corp. 1,000 13,723 Sankyo Co., Ltd. 2,000 43,794 Secom Co., Ltd. 1,000 82,979 Sekisui House Ltd. 3,000 31,782 Shin-Etsu Chemical Co., Ltd. 1,000 24,114 Sony Corp. 1,000 72,961 Sumitomo Chemical Co. 5,000 19,504 Sumitomo Electric Industries 3,000 33,803 Takeda Chemical Industries 2,000 77,128 TDK Corp. 1,000 91,578 Tokio Marine & Fire Insurance Co. 2,000 23,936 Toray Industries, Inc. 11,000 57,535 Toshiba Corp. 10,000 59,663 Toyota Motor Corp. 2,000 54,433 ------------ 1,644,229 ------------ Netherlands -- 4.72% ABN AMRO Holdings NV 10,149 213,612 Elsevier NV 19,600 274,674 Heineken NV 6,693 402,999 ING Groep NV 11,702 713,955 KPN NV 13,115 656,903 Royal Dutch Petroleum Co. 17,675 880,595 Unilever NV 4,000 342,090 ------------ 3,484,828 ------------ New Zealand -- 2.24% Auckland International Airport Ltd. (b) 49,200 68,880 Brierley Investments Ltd. 282,400 64,153 Carter Holt Harvey Ltd. 170,900 153,487 Fletcher Challenge Building 41,450 64,161 Fletcher Challenge Energy 58,450 111,165 Fletcher Challenge Paper 104,700 70,248 Lion Nathan Ltd. 57,300 146,212 Telecom Corp. of New Zealand Ltd. 224,500 978,480 ------------ 1,656,786 ------------ Norway -- 0.23% Norsk Hydro ASA 2,300 77,582 Norske Skogindustrier ASA 3,200 93,241 ------------ 170,823 ------------ Singapore -- 0.71% Singapore Press Holdings Ltd. 29,046 315,105 United Overseas Bank Ltd. (Frgn.) 32,000 205,576 ------------ 520,681 ------------ Spain -- 1.21% Banco Popular Espanol S.A. 3,280 247,686 Endesa S.A. 17,803 472,416 Telefonica S.A. 3,808 169,578 Telefonica S.A. Rights (expiring 1/30/99) (b) 76 68 ------------ 889,748 ------------ Shares Value ----------- -------------- Sweden -- 2.49% Astra AB, A Shares 13,160 $ 268,694 Electrolux AB, B Shares 16,970 292,052 Investor AB 4,560 205,897 Nordbanken Holding AB 23,910 153,387 Skandia Forsakrings AB 21,170 323,852 Svenska Handelsbanken, A Shares 2,220 93,666 Swedish Match AB 58,550 213,085 Telefonaktiebolaget LM Ericsson, B Shares 12,140 289,055 ------------ 1,839,688 ------------ Switzerland -- 4.74% CS Holdings AG (Reg.) 230 36,003 Julius Baer Holding AG 42 139,592 Nestle S.A. (Reg.) 383 833,761 Novartis AG (Reg.) 565 1,110,666 Roche Holding AG (Gen.) 52 634,525 Swiss Reinsurance Co. (Reg.) 134 349,366 SwissCom AG (Reg.) (b) 948 396,869 ------------ 3,500,782 ------------ United Kingdom -- 13.95% Allied Zurich AG (b) 20,375 303,915 Barclays PLC 15,000 323,445 BOC Group PLC 18,000 257,408 Boots Company PLC 18,000 306,524 British American Tobacco PLC 13,375 117,610 British Petroleum Co. PLC 39,313 587,049 British Steel PLC 151,750 224,710 Cable & Wireless PLC 10,500 129,103 Charter PLC 33,422 183,506 Coats Viyella PLC 120,250 54,020 Diageo PLC 21,630 246,159 Fairview Holdings PLC (b) 13,250 19,620 FKI PLC 111,405 248,378 Garban PLC (b) 900 3,429 General Electric Co. PLC 44,820 404,553 Glaxo Wellcome PLC 21,120 726,688 Greenalls Group PLC 20,000 106,650 Hanson PLC 38,750 307,696 Hillsdown Holdings PLC 32,500 40,555 House of Fraser PLC 45,250 39,902 Lloyds TSB Group PLC 57,220 813,988 Marks & Spencer PLC 66,120 453,521 Mirror Group PLC 66,000 164,992 National Westminster Bank PLC 13,350 257,436 Nycomed Amersham PLC 26,000 179,093 Peninsular & Oriental Steam Navigation Co. 12,475 147,472 Prudential Corp. PLC 37,000 558,666 Reed International PLC 24,000 187,678 Rio Tinto Ltd. 24,020 279,353 RJB Mining PLC 40,500 52,560 Royal & Sun Alliance Insurance Group PLC 15,779 128,838 Sainsbury (J.) PLC 12,500 100,193 Scottish Hydro-Electric PLC 36,650 412,825 Sedgwick Group PLC 40,000 148,412 31 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ----------- -------------- SmithKline Beecham PLC 31,850 $ 445,136 Smurfit (Jefferson) Group PLC 28,196 50,666 Tate & Lyle PLC 2,000 11,014 Terranova Foods PLC (b) 13,250 24,250 Tesco PLC 116,250 331,228 Thames Water PLC 14,458 276,637 Thames Water PLC, Class B (b) 12,500 15,702 United News & Media PLC 15,000 131,524 Vodafone Group PLC 9,825 159,546 Williams PLC 19,461 110,495 Yorkshire Water PLC 25,500 233,349 ------------ 10,305,494 ------------ Total Global (ex-U.S.) Equities 42,254,092 ------------ Total Equities (Cost $59,154,576) 73,275,901 ------------ Face Amount Value ----------- -------------- Short-Term Investments -- 1.21% U.S. Government Obligations -- 0.81% U.S. Treasury Bill 4.320%, due 02/25/99 $600,000 $ 596,273 Shares ----------- Investment Companies -- 0.40% Brinson Supplementary Trust U.S. Cash Management Prime Fund 295,185 295,185 Total Short-Term Investments (Cost $891,132) 891,458 ------------ Total Investments (Cost $60,045,708)-- 100.42% (a) 74,167,359 ------------ Liabilities, less cash and other assets-- (0.42%) (307,762) ------------ Net Assets-- 100% $ 73,859,597 ============ See accompanying notes to schedule of investments. 32 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $60,045,708; and net unrealized appreciation consisted of: Gross unrealized appreciation $17,271,007 Gross unrealized depreciation (3,149,356) ------------ Net unrealized appreciation $14,121,651 =========== (b) Non-income producing security (c) Denominated in U.S. dollars Forward Foreign Currency Contracts The Global Equity Fund had the following open forward foreign currency contracts as of December 31, 1998:
Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ---------- ---------- --------- ----------- Forward Foreign Currency Buy Contracts Australian Dollar 6/04/99 3,200,000 $1,965,638 $(57,402) Canadian Dollar 6/04/99 5,300,000 3,453,331 (33,786) Japanese Yen 6/04/99 127,000,000 1,149,402 84,547 Spanish Peseta 6/04/99 79,000,000 561,943 6,134 Swedish Krona 6/04/99 20,900,000 2,596,051 (158) Forward Foreign Currency Sale Contracts Australian Dollar 6/04/99 1,200,000 737,114 (434) Belgian Franc 6/04/99 10,100,000 296,325 (3,486) British Pounds 6/04/99 3,400,000 5,640,064 (32,705) Finnish Markka 6/04/99 4,000,000 796,227 (5,852) French Franc 6/04/99 8,300,000 1,497,562 (6,098) German Mark 6/04/99 1,700,000 1,028,726 (4,259) Netherlands Guilder 6/04/99 2,600,000 1,396,371 (10,368) Spanish Peseta 6/04/99 79,000,000 591,943 (2,532) Swedish Krona 6/04/99 4,900,000 608,643 5,415 Swiss Franc 6/04/99 600,000 443,289 (1,788) --------- Total $(62,772) =========
See accompanying notes to financial statements. 33 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $59,750,523) $73,872,174 Affiliated issuers (Cost $295,185) 295,185 Foreign currency, at value (Cost $160,851) 155,949 Receivables: Investment securities sold 49,555 Dividends 134,275 Interest 3,190 Other assets 45 ----------- TOTAL ASSETS 74,510,373 ----------- LIABILITIES: Payables: Investment securities purchased 377,088 Due to custodian bank 101,328 Investment advisory fees 43,446 Accrued expenses 66,142 Net unrealized depreciation on forward foreign currency contracts 62,772 ----------- TOTAL LIABILITIES 650,776 ----------- NET ASSETS $73,859,597 =========== NET ASSETS CONSIST OF: Paid in capital $58,566,651 Accumulated undistributed net investment income 26,143 Accumulated net realized gain 1,212,206 Net unrealized appreciation 14,054,597 ----------- NET ASSETS $73,859,597 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $24,604,008 and 1,955,626 shares issued and outstanding) $ 12.58 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $205,845 and 16,400 shares issued and outstanding) $ 12.55 =========== UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $49,049,744 and 3,901,394 shares issued and outstanding) $ 12.57 =========== See accompanying notes to financial statements. 34 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTs STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends (net of $21,094 for foreign taxes withheld) $ 557,653 Interest 60,004 ---------- Total income 617,657 ---------- EXPENSES: Advisory 289,624 Distribution 190,850 Professional 25,275 Other 65,630 ---------- TOTAL EXPENSES 571,379 ---------- Expenses deferred by Advisor (18,480) ---------- NET EXPENSES 552,899 ---------- NET INVESTMENT INCOME 64,758 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments 2,495,750 Futures contracts (472,356) Foreign currency transactions 333,247 ---------- Net realized gain 2,356,641 ---------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency (1,767,221) Futures contracts 575,614 Forward contracts 21,023 Translation of other assets and liabilities denominated in foreign currency (906) ---------- Change in net unrealized appreciation or depreciation (1,171,490) ---------- Net realized and unrealized gain 1,185,151 ---------- Net increase in net assets resulting from operations $1,249,909 ========== See accompanying notes to financial statements. 35 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTs STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 --------------- ----------------- OPERATIONS: Net investment income $ 64,758 $ 677,369 Net realized gain 2,356,641 6,903,703 Change in net unrealized appreciation or depreciation (1,171,490) (1,282,988) ------------ ------------ Net increase in net assets resulting from operations 1,249,909 6,298,084 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (227,414) (242,673) Brinson Class N (1,853) (11) UBSInvestment Funds Class (186,532) (397,017) Distributions from net realized gain: Brinson Class I (352,100) (1,266,777) Brinson Class N (2,950) (82) UBSInvestment Funds Class (710,918) (5,307,194) ------------ ------------ Total distributions to shareholders (1,481,767) (7,213,754) ------------ ------------ Capital share transactions: Shares sold 7,405,967 40,216,740 Shares issued on reinvestment of distributions 1,306,231 6,378,677 Shares redeemed (16,492,751) (73,542,587) ------------ ------------ Net decrease in net assets resulting from capital share transactions (7,780,553) (26,947,170) ------------ ------------ TOTAL DECREASE IN NET ASSETS (8,012,411) (27,862,840) ------------ ------------ NET ASSETS: Beginning of period 81,872,008 109,734,848 ------------ ------------ End of period (including accumulated undistributed net investment income of $26,143 and $377,184, respectively) $ 73,859,597 $ 81,872,008 ============ ============
See accompanying notes to financial statements. 36 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, January 28, 1994* December 31, 1998 ----------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.54 $ 12.76 $ 11.57 $ 9.93 $ 9.49 $ 10.00 ------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.04 0.22 0.16 0.18 0.18 0.07 Net realized and unrealized gain (loss) 0.30 0.78 2.14 2.29 0.39 (0.54) ------- -------- -------- -------- -------- ------- Total income (loss) from investment operations 0.34 1.00 2.30 2.47 0.57 (0.47) ------- -------- -------- -------- -------- ------- Less distributions: Distributions from net investment income (0.12) (0.17) (0.12) (0.14) (0.04) (0.04) Distributions from and in excess of net realized gain (0.18) (1.05) (0.99) (0.69) (0.09) -- ------- -------- -------- -------- -------- ------- Total distributions (0.30) (1.22) (1.11) (0.83) (0.13) (0.04) ------- -------- -------- -------- -------- ------- Net asset value, end of period $ 12.58 $ 12.54 $ 12.76 $ 11.57 $ 9.93 $ 9.49 ======= ======== ======== ======== ======== ======= Total return (non-annualized) 2.86% 8.99% 21.26% 25.66% 6.06% (4.70)% Ratios/Supplemental data: Net assets, end of period (in 000s) $24,604 $ 22,724 $ 48,054 $ 27,126 $ 20,706 $ 20,642 Ratio of expenses to average net assets: Before expense reimbursement 1.05%** 1.02% 1.25% 1.77% 2.06% 2.65%** After expense reimbursement 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reimbursement 0.66%** 1.29% 1.35% 0.57% 0.71% 0.24%** After expense reimbursement 0.71%** 1.31% 1.60% 1.34% 1.77% 1.89%** Portfolio turnover rate 49% 46% 32% 74% 36% 21%
* Commencement of investment operations ** Annualized See accompanying notes to financial statements. 37 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.53 $ 12.76 Income from investment operations: Net investment income 0.03 0.13 Net realized and unrealized gain 0.29 0.82 ------- ------- Total income from investment operations 0.32 0.95 ------- ------- Less distributions: Distributions from net investment income (0.12) (0.13) Distributions from net realized gain (0.18) (1.05) ------- ------- Total distributions (0.30) (1.18) ------- ------- Net asset value, end of period $ 12.55 $ 12.53 ======= ======= Total return (non-annualized) 2.68% 8.60% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 206 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 1.30%** 1.27% After expense reimbursement 1.25%** 1.25% Ratio of net investment income to average net assets: Before expense reimbursement 0.41%** 1.04% After expense reimbursement 0.46%** 1.06% Portfolio turnover rate 49% 46%
* Commencement of Brinson Class N was June 30, 1997 ** Annualized See accompanying notes to financial statements. 38 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.51 $ 12.73 $ 11.57 $ 10.35 --------- -------- --------- -------- Income from investment operations: Net investment income (loss) 0.00 0.07 0.08 (0.01) Net realized and unrealized gain 0.29 0.83 2.13 1.93 --------- -------- --------- -------- Total income from investment operations 0.29 0.90 2.21 1.92 --------- -------- --------- -------- Less distributions: Distributions from net investment income (0.05) (0.07) (0.06) (0.01) Distributions from net realized gain (0.18) (1.05) (0.99) (0.69) --------- -------- --------- -------- Total distributions (0.23) (1.12) (1.05) (0.70) --------- -------- --------- -------- Net asset value, end of period $ 12.57 $ 12.51 $ 12.73 $ 11.57 ========= ======== ========= ======== Total return (non-annualized) 2.43% 8.15% 20.34% 19.25% Ratios/Supplemental Data: Net assets, end of period (in 000s) $49,050 $59,147 $ 61,680 $33,012 Ratio of expenses to average net assets: Before expense reimbursement 1.81%** 1.78% 2.00% 2.53%** After expense reimbursement 1.76%** 1.76% 1.75% 1.76%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement (0.10)%** 0.53% 0.60% (0.19)%** After expense reimbursement (0.05)%** 0.55% 0.85% 0.58%** Portfolio turnover rate 49% 46% 32% 74%
* Commencement of UBS Investment Funds Class ** Annualized See accompanying notes to financial statements. 39 GLOBAL BOND FUND [UBS LOGO APPEARS HERE] The Global Bond Fund is actively managed, providing a fully integrated treatment of the U.S. and other major developed fixed income markets across the world. This global approach takes full advantage of relationships both within and across markets, based on consistent analysis of macroeconomic and market conditions. Market and currency strategies are developed in a global asset allocation framework, in conjunction with senior fixed income professionals in our offices around the world. The UBS Investment Fund Global Bond has provided an annualized return of 8.35% since its inception on July 31, 1995, above the 5.92% return of its benchmark, the Salomon World Government Bond Index. The Fund's annualized volatility of 4.48% was below the index volatility of 5.65% over this period. For calendar year 1998, the Fund returned 11.58%, trailing the index return of 15.29%. Bond market returns were generally quite strong in dollar-hedged terms in 1998. Declining inflation worldwide was the primary driver, to the point where deflation worries began to surface. Causes for these concerns included the continued economic weakness in Asia, the default of the Russian government in August, and financial instability in Latin American countries. By mid-October long yields had fallen to all time historical lows in many markets. Market allocation strategies contributed positively to relative Fund performance in 1998. The Fund benefited in particular from its underweight in Japan, where rates spiked upward in December. The overweight to the U.K., which was the strongest performer in 1998, also helped, as did the overweight in Sweden. Bond selection strategies within markets detracted from overall performance. In the U.S., holdings of corporate and mortgage securities reduced performance as spreads on these bonds widened sharply in the third quarter. In addition, defensive duration strategies in most markets detracted as yields fell throughout the year. At the end of the year, duration was 0.9 times the index in Canadian conventional bonds and the U.K. duration was equal to the index in all other markets. Currency allocation also hurt performance. The underweight of the yen detracted, as did the overweight of the Australian dollar. The underweight of the U.S. dollar helped offset these effects, as most currencies strengthened against it. 40 GLOBAL BOND FUND [UBS LOGO APPEARS HERE] TOTAL RETURN
6 months 1 year 3 years 7/31/95* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - ------------------------------------------------------------------------------------------- UBS Investment Fund Global Bond 9.91% 11.58% 7.05% 8.35% - ------------------------------------------------------------------------------------------- Salomon World Government Bond Index 12.17 15.29 6.20 5.92 - -------------------------------------------------------------------------------------------
*Performance inception date of the UBS Investment Fund - Global Bond. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in the UBS Investment Fund Global Bond and the Salomon World Government Bond Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. UBS Investment Fund Global Bond vs. Salomon World Government Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Salomon UBS World Investment Fund- Government Global Bond Bond Index ---------------- ------------ 7/31/95 $10,000 $10,000 8/31/95 $10,104 $9,656 9/30/95 $10,218 $9,871 10/31/95 $10,388 $9,944 11/30/95 $10,587 $10,057 12/31/95 $10,722 $10,162 1/31/96 $10,776 $10,037 2/29/96 $10 658 $9,986 3/31/96 $10,701 $9,972 4/30/96 $10,808 $9,932 5/31/96 $10,829 $9,934 6/30/96 $10,917 $10,013 7/31/96 $11,036 $10,205 8/31/96 $11,113 $10,245 9/30/96 $11,287 $10,287 10/31/96 $11,527 $10,479 11/30/96 $11,734 $10,617 12/31/96 $11,654 $10,531 1/31/97 $11,484 $10,250 2/28/97 $11,484 $10,173 3/31/97 $11,313 $10,096 4/30/97 $11,240 $10,007 5/31/97 $11,569 $10,279 6/30/97 $11,703 $10,402 7/31/97 $11,654 $10,321 8/31/97 $11,606 $10,314 9/30/97 $11,837 $10,534 10/31/97 $11,984 $10,753 11/30/97 $11 825 $10,589 12/31/97 $11,791 $10 557 1/31/98 $11,892 $10,659 2/28/98 $11,968 $10,746 3/31/98 $11,829 $10,639 4/30/98 $11,980 $10,810 5/31/98 $11,968 $10,834 6/30/98 $11,970 $10,851 7/31/98 $11,957 $10,865 8/31/98 $12,097 $11,160 9/30/98 $12,671 $11,754 10/31/98 $12,938 $12,102 11/30/98 $12,849 $11,931 12/31/98 $13,156 $12,171 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 41 GLOBAL BOND FUND [UBS LOGO APPEARS HERE] ASSET ALLOCATION As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ----------------------------------------------------- U.S. 29.8% 39.9% Australia 0.7 5.8 Austria 0.8 0.0 Belgium 2.7 0.0 Canada 2.8 5.6 Denmark 1.5 6.2 Finland 0.8 0.0 France 8.7 9.3 Germany 8.7 8.2 Ireland 0.4 0.0 Italy 8.1 4.6 Japan 19.8 0.0 Netherlands 3.0 0.0 Portugal 0.4 0.0 Spain 3.5 7.3 Sweden 1.4 4.4 Switzerland 0.5 0.0 U.K. 6.4 8.7 - ----------------------------------------------------- 100.0% 100.0% CURRENCY ALLOCATION As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ----------------------------------------------------- U.S. 29.8% 25.8% Australia 0.7 6.7 Canada 2.8 6.8 Denmark 1.5 1.5 EMU 37.1 37.1 Japan 19.8 13.8 Sweden 1.4 5.4 Switzerland 0.5 0.5 U.K. 6.4 2.4 - ----------------------------------------------------- 100.0% 100.0% INDUSTRY DIVERSIFICATION As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. Bonds Corporate Bonds Aerospace &Military 0.11% Asset-Backed 3.47 Banking 0.16 CMO 4.44 Consumer 0.49 Financial Services 1.61 Food and Housing Products 0.40 Industrial Components 0.85 Services/Miscellaneous 0.76 Telecommunications 0.79 Transportation 0.91 ------- 13.99 ------- International Dollar Bonds 3.24 U.S. Government Agencies 8.13 U.S. Government Obligations 10.48 ------- 21.85 ------- Total U.S. Bonds 35.84 ------- Global (Ex-U.S.) Bonds Foreign Financial Bonds 14.18 Foreign Government Bonds 40.21 ------- Total Global (ex-U.S.) Bonds 54.39 ------- U.S. EQUITIES 0.44 ------- SHORT-TERM INVESTMENTS 7.36 ------- TOTAL INVESTMENTS 98.03 CASH AND OTHER ASSETS, LESS LIABILITIES 1.97 ------- NET ASSETS 100.00% ======= 42 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ---------------- Bonds -- 90.23% U.S. Bonds -- 35.84% U.S. Corporate Bonds -- 13.99% Archer Daniels, 6.950%, due 12/15/97 $ 500,000 $ 540,626 Bear Stearns Mortgage Securities, Inc., 96-7A4 6.000%, due 01/28/09 200,000 198,938 Capital One Bank, 6.830%, due 05/17/99 200,000 200,596 Cendant Corp., 7.750%, due 12/01/03 500,000 510,991 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02 125,000 126,670 Comed Transitional Funding Trust, 98-1, Class A7, 5.740%, due 12/25/10 840,000 844,830 Continental Airlines, Inc., EETC, 6.900%, due 01/02/18 710,000 721,658 Countrywide Capital, Inc., 8.000%, due 12/15/26 250,000 259,129 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00 375,000 378,834 Fanniemae Whole Loan, 95-W3, Class A, 9.000%, due 04/25/25 13,102 13,654 First Bank Corporate Card Master Trust, 97-1A, 6.400%, due 02/15/03 240,000 246,624 First Nationwide Trust, 98-3, Class 1PPA, 6.500%, due 09/19/28 613,136 613,688 First Union Lehman Brothers, 97-C2, Class A2, 6.600%, due 05/18/07 240,000 249,439 Ford Credit Grantor Trust 95-B, 5.900%, due 10/15/00 379,155 380,030 Freddie Mac, 83, Class F, 6.288%, due 08/15/27 66,020 66,041 GE Capital Mortgage Services, Inc., 93-7F, Class FA3, 6.500%, due 09/25/08 313,155 313,897 Kroger Co., 6.000%, due 07/01/00 500,000 501,891 Lockheed Martin Corp., 7.700%, due 06/15/08 125,000 141,371 Merrill Lynch & Co., Series B, 5.930%, due 03/23/01 550,000 553,930 Metlife Funding, 6.850%, due 05/20/08 225,000 235,052 News America Holdings, 7.750%, due 12/01/45 575,000 610,682 Norwest Asset Securities Corp., 98-25, Class A5, 6.000%, due 12/25/28 965,000 948,363 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24 190,000 195,998 Premier Auto Trust, 96-3, Class A4, 96-3A 6.750%, due 11/06/00 475,000 480,538 Prudential Home Mortgage Securities 96-7, Class A4, 6.750%, due 06/25/11 150,000 152,477 93-43, Class A9, 6.750%, due 10/25/23 211,150 212,674 Residential Accredit Loans, Inc. 96-QS4, Class Al10, 7.900%, due 08/25/26 625,000 643,767 98-QS4, Class AI5, 7.000%, due 03/25/28 400,000 415,061 Face Amount Value ------------- ---------------- Residential Asset Securitization Trust, 97-A7, Class A1, 7.500%, due 09/25/27 $169,532 $171,050 97-A7, Class A1, 7.250%, due 12/25/27 335,000 341,631 97-A11, Class A2, 7.000%, due 01/25/28 206,139 206,893 97-A11, Class A6, 7.000%, due 01/25/28 430,000 438,626 98-A1, Class A1, 7.000%, due 03/25/28 169,440 170,339 Salomon, Inc., 7.200%, due 02/01/04 240,000 252,133 Sprint Capital Corp., 6.875%, due 11/15/28 450,000 467,272 Structured Asset Securities Corp. 98-RF1, Class A, 8.712%, due 03/15/27 261,685 280,821 98-RF2, 144A, 8.582%, due 07/15/27 392,977 420,485 Structured Mortgage Asset Residential Trust, 96-5C, Class CI, 7.150%, due 03/25/23 925,000 939,946 The Money Store, 98-B, Class AF2, 6.115%, due 05/15/10 60,000 60,055 Time Warner Inc., 7.570%, due 02/01/24 560,000 631,574 UCFC Home Equity Loan 97-C, Class A8, FRN, 5.478%, due 09/15/27 123,678 122,489 USA Waste Services, 7.000%, due 10/01/04 300,000 313,696 Vanderbilt Mortgage Finance, 98-B, Class 1A26,.120%, due 05/07/09 600,000 603,852 Williams Co., 6.200%, due 08/01/02 400,000 400,999 World Omni Automobile Lease Securitization Trust, 97-A, Class A3, 6.850%, due 06/25/03 253,906 256,531 Worldcom Inc., Series *, 8.875%, due 01/15/06 465,000 506,560 ------------ 17,342,401 ------------ International Dollar Bonds -- 3.24% Banco Santiago S.A., 7.000%, due 07/18/07 400,000 335,192 Banque Centrale de Tunisie, 8.250%, due 09/19/27 400,000 320,000 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 500,000 500,000 DR Investments, 144A, 7.450%, due 05/15/07 455,000 489,960 Den Danske Bank, 144A, 6.375%, due 06/15/08 500,000 507,942 Empresa National Electric, 7.875%, due 02/01/27 500,000 361,776 Pan Pacific Industry PLC, 144A, 0.000%, due 04/28/07 715,000 282,425 Province of Quebec, 7.500%, due 07/15/23 235,000 268,723 Republic of South Africa, 9.625%, due 12/15/99 125,000 127,500 Royal Bank of Scotland, 7.375%, Resettable Perpetual Step-up Notes 300,000 308,823 43 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ---------------- Southern Investments UK, 6.800%, due 12/01/06 $ 500,000 $ 518,481 ------------ 4,020,822 ------------ U.S. Government Agencies -- 8.13% Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13 68,215 69,927 7.500%, due 01/15/23 85,601 90,241 7.238%, due 05/01/26 27,606 28,061 Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23 59,104 61,363 9.000%, due 03/01/24 174,782 185,842 Federal National Mortgage Assoc. 6.220%, due 03/13/06 150,000 159,021 6.820%, due 10/01/07 477,554 510,982 6.361%, due 06/01/08 686,356 715,183 8.000%, due 03/01/11 100,480 103,557 6.000%, due 01/01/14 TBA 615,000 616,735 9.000%, due 08/01/21 18,273 19,386 8.500%, due 07/01/22 12,478 13,224 7.500%, due 12/01/23 416,307 427,366 7.500%, due 05/18/25 250,000 256,169 7.890%, due 04/01/26 240,305 245,283 8.500%, due 02/01/28 308,146 322,783 6.500%, due 06/01/28 2,361,195 2,377,449 6.500%, due 09/01/28 1,261,839 1,270,525 6.000%, due 12/01/28 TBA 750,000 740,317 Federal National Mortgage Assoc. Strips 7.500%, due 05/01/23 interest only 184,168 29,562 0.000%, due 04/01/27 principal only 170,348 149,757 FNCI, 8.000%, due 02/01/13 108,540 111,864 Government National Mortgage Assoc. 7.500%, due 08/15/23 82,927 85,496 7.500%, due 12/15/23 122,466 126,267 7.500%, due 01/15/24 85,915 88,559 7.000%, due 08/15/24 425,074 435,164 7.000%, due 07/15/25 59,634 61,044 Jordan Aid, 8.750%, due 09/01/19 193,941 240,433 Tennesse Valley Authority, 6.375%, due 06/15/05 500,000 530,948 ------------ 10,072,508 ------------ U.S. Government Obligations -- 10.48% U.S. Treasury Inflation Indexed Note, 3.625%, due 04/15/28 570,000 563,108 U.S. Treasury Notes and Bonds 5.500%, due 02/29/00 1,730,000 1,746,219 5.500%, due 05/31/00 1,345,000 1,360,552 6.625%, due 07/31/01 1,765,000 1,848,838 6.250%, due 08/31/02 610,000 641,072 7.500%, due 02/15/05 830,000 950,091 7.000%, due 07/15/06 110,000 125,263 6.625%, due 05/15/07 745,000 837,893 8.000%, due 11/15/21 3,675,000 4,923,353 ------------ 12,996,389 ------------ Total U.S. Bonds 44,432,120 ------------ Global (ex-U.S.) Bonds -- 54.39% Australia -- 5.63% Government of Australia, 9.500%, due 08/15/03 AUD 3,000,000 2,199,146 New South Wales Treasury Corp., 7.000%, due 04/01/04 1,000,000 669,372 Face Amount Value ------------- ---------------- Queensland Treasury Corp.-Global Note 8.000%, due 05/14/03 AUD 980,000 $ 671,012 6.500%, due 06/14/05 5,230,000 3,436,653 ------------ 6,976,183 ------------ Austria -- 2.01% Republic of Austria, 5.500%, due 01/18/04 FRF 12,800,000 2,487,559 ------------ Canada -- 5.08% British Columbia, 7.750%, due 06/16/03 1,540,000 1,112,353 Government of Canada 6.000%, due 06/01/08 CAD 1,200,000 845,703 4.250%, due 12/01/21 3,800,000 2,784,440 Province of Ontario, 7.500%, due 01/19/06 . 2,100,000 1,549,195 ------------ 6,291,691 ------------ Denmark -- 5.94% City of Copenhagen, 6.250%, due 03/15/01 DKK 2,400,000 393,825 Great Belt, 7.000%, due 09/02/03 10,650,000 1,866,825 Kingdom of Denmark 8.000%, due 11/15/01 8,000,000 1,394,862 7.000%, due 12/15/04 16,800,000 3,043,243 7.000%, due 11/15/07 1,400,000 264,118 7.000%, due 11/10/24 2,000,000 402,231 ------------ 7,365,104 ------------ Finland -- 1.27% Republic of Finland, 9.000%, due 08/13/03 FIN 7,200,000 1,579,696 ------------ France -- 3.42% Government of France (BTAN), 7.750%, due 04/12/00 FRF 4,000,000 756,722 Government of France (OAT) 9.500%, due 01/25/01 1,800,000 362,823 7.500%, due 04/25/05 7,200,000 1,563,682 8.500%, due 04/25/23 5,600,000 1,552,325 ------------ 4,235,552 ------------ Germany -- 6.36% Bundesrepublik Deutscheland, 6.250%, due 01/04/24 DEM 700,000 510,417 European Economic Community, 6.500%, due 03/10/00 1,110,000 691,001 IBRD, 7.125%, due 04/12/05 4,250,000 3,009,332 KFW International Finance, 6.625%, due 04/15/03 3,800,000 2,558,087 LKB Baden-Wuerttemberg Finance, 6.500%, due 09/15/08 1,600,000 1,118,516 ------------ 7,887,353 ------------ Ireland -- 1.60% Republic of Ireland, 7.250%, due 03/18/03 IEP 2,900,000 1,988,135 ------------ Italy -- 3.78% Bayerische Landesbank, 10.750%, due 03/01/03 ITL 750,000,000 575,085 International Bank for Reconstruction & Development, 5.000%, due 10/15/00 1,000,000,000 624,007 LKB Baden-Wuerttemberg Finance, 10.750%, due 04/14/03 650,000,000 500,870 44 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------- ---------------- Republic of Italy (BTP) 9.000%, due 10/01/03 ITL 2,300,000,000 $ 1,714,948 9.500%, due 02/01/06 800,000,000 650,114 9.000%, due 11/01/23 650,000,000 626,766 ------------ 4,691,790 ------------ Luxembourg -- 0.33% Tyco International Group S.A., 7.000%, due 06/15/28 LUX 400,000 412,693 ------------ Portugal -- 1.12% Republic of Portugal, 5.625%, due 04/03/07 FRF 7,000,000 1,383,879 ------------ Spain -- 6.36% Government of Spain 7.900%, due 02/28/02 ESP 460,000,000 3,698,457 10.000%, due 02/28/05 230,000,000 2,182,227 6.150%, due 01/31/13 240,000,000 1,999,667 ------------ 7,880,351 ------------ Sweden -- 3.59% Government of Sweden 10.250%, due 05/05/03 SEK 20,700,000 3,211,873 6.000%, due 02/09/05 4,600,000 628,688 6.750%, due 05/05/14 4,000,000 615,041 ------------ 4,455,602 ------------ Face Amount Value ------------- ---------------- United Kingdom -- 7.90% Abbey National PLC, 8.750%, due 05/24/04 GBP 350,000 $ 660,585 Abbey National Treasury Service, 6.500%, due 03/05/04 850,000 1,483,183 British Gas PLC, 8.125%, due 03/31/03 545,000 986,686 European Investment Bank, 7.625%, due 12/07/06 1,820,000 3,505,066 UK Treasury, 8.000%, due 09/27/13 1,380,000 3,159,377 ------------ 9,794,897 ------------ Total Global (ex-U.S.) Bonds 67,430,485 ------------ Total Bonds (Cost $107,517,922) 111,862,605 ------------ Shares ------------- Equities -- 0.44% U.S. Equities -- 0.44% Centaur Funding Corp., 144A 0.000%, due 04/21/20 750 137,720 9.080%, due 04/21/20 390 407,794 ------------ Total Equities (Cost $490,229) 545,514 ------------ Short-Term Investments -- 7.36% Investment Companies -- 7.36% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $9,131,709) 9,131,709 9,131,709 ------------ Total Investments (Cost $117,139,860)-- 98.03% (a) 121,539,828 ------------ Cash and other assets, less liabilities-- 1.97% 2,437,503 ------------ Net Assets-- 100% $123,977,331 ============ See accompanying notes to schedule of investments. 45 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $117,139,860; and net unrealized appreciation consisted of: Gross unrealized appreciation $5,176,005 Gross unrealized depreciation (776,037) ---------- Net unrealized appreciation $4,399,968 ========== FRN: Floating Rate Note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $2,746,326 or 2.22% of net assets. Resettable Perpetual Step-up Notes: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Bond Fund had the following open forward foreign currency contracts as of December 31, 1998:
Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ---------- ------------- ------------- ------------- Forward Foreign Currency Buy Contracts Australian Dollar 3/01/99 2,800,000 $ 1,718,413 $ (83,751) Austrian Schilling 3/01/99 13,200,000 1,129,788 12,512 Belgian Franc 3/01/99 104,000,000 3,036,331 32,200 Canadian Dollar 3/01/99 2,800,000 1,823,237 11,749 Finnish Markka 3/01/99 4,000,000 792,332 8,594 German Mark 3/01/99 3,600,000 2,167,813 23,986 Italian Lira 3/01/99 7,500,000,000 4,561,908 51,172 Japanese Yen 3/01/99 2,000,000,000 17,874,166 1,007,205 Netherlands Guilder 3/01/99 6,600,000 3,527,280 39,185 Swedish Krona 3/01/99 10,900,000 1,348,376 (8,257) Forward Foreign Currency Sale Contracts Australian Dollar 3/01/99 1,000,000 613,719 27,851 British Pound 3/01/99 4,440,000 7,374,680 (26,922) Canadian Dollar 3/01/99 400,000 260,462 (537) Danish Kroner 3/01/99 32,700,000 5,145,960 (34,764) German Mark 3/01/99 2,200,000 1,324,774 (28,445) Spanish Peseta 3/01/99 610,000,000 4,317,815 (51,998) ---------- Total $ 979,780 ==========
See accompanying notes to financial statements. 46 GLOBAL BOND FUND -- FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (Unaudited) ASSETS: Investments, at value: Unaffiliated issuers (Cost $108,008,151) $112,408,119 Affiliated issuers (Cost $9,131,709) 9,131,709 Foreign currency, at value (Cost $350,083) 350,965 Receivables: Investment securities sold 1,290 Interest 2,577,447 Fund shares sold 2,761 Net unrealized appreciation on forward foreign currency contracts 979,780 Other assets 50,762 ------------ TOTAL ASSETS 125,502,833 ------------ LIABILITIES: Payables: Investment securities purchased 1,361,987 Investment advisory fees 77,599 Accrued expenses 52,961 Due to custodian bank 32,955 ------------ TOTAL LIABILITIES 1,525,502 ------------ NET ASSETS $123,977,331 ============ NET ASSETS CONSIST OF: Paid in capital $119,483,156 Accumulated distribution in excess of net investment income (1,070,788) Accumulated net realized gain 149,327 Net unrealized appreciation 5,415,636 ------------ NET ASSETS $123,977,331 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $119,514,551 and 12,066,245 shares issued and outstanding) $ 9.90 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $105,601 and 10,682 shares issued and outstanding) $ 9.89 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $4,357,179 and 440,711 shares issued and outstanding) $ 9.89 ============ See accompanying notes to financial statements. 47 GLOBAL BOND FUND -- FINANCIAL STATEMENTS STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (Unaudited) INVESTMENT INCOME: Interest (net of $14,950 for foreign taxes withheld) $ 2,832,036 ------------ TOTAL INCOME 2,832,036 ------------ EXPENSES: Advisory 414,159 Professional 24,750 Distribution 10,402 Other 58,207 ------------ TOTAL EXPENSES 507,518 ------------ NET INVESTMENT INCOME 2,324,518 ------------ NET REALIZED AND UNREALIZED GAIN: Net realized gain on: Investments 1,093,835 Foreign currency transactions 1,538,594 ------------ Net realized gain 2,632,429 ------------ Change in net unrealized appreciation or depreciation on: Investments and foreign currency 4,369,775 Forward contracts 1,336,164 Translation of other assets and liabilities denominated in foreign currency 37,420 ------------ Change in net unrealized appreciation or depreciation 5,743,359 ------------ Net realized and unrealized gain 8,375,788 ------------ Net increase in net assets resulting from operations $10,700,306 ============ 48 GLOBAL BOND FUND -- FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 2,324,518 $ 3,009,836 Net realized gain (loss) 2,632,429 (1,114,801) Change in net unrealized appreciation or depreciation 5,743,359 (276,626) ------------ ------------ Net increase in net assets resulting from operations 10,700,306 1,618,409 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income (3,327,917) (2,183,342) Distributions in excess of net investment income (1,070,788) -- Distributions from net realized gain (961,267) (1,041,855) ------------ ------------ Total distributions to shareholders* (5,359,972) (3,225,197) ------------ ------------ Capital share transactions: Shares sold 41,337,859 46,034,839 Shares issued on reinvestment of distributions 3,845,267 2,230,731 Shares redeemed (22,206,338) (9,266,587) ------------ ------------ Net increase in net assets resulting from capital share transactions 22,976,788 38,998,983 ------------ ------------ TOTAL INCREASE IN NET ASSETS 28,317,122 37,392,195 ------------ ------------ NET assets: Beginning of period 95,660,209 58,268,014 ------------ ------------ End of period (including accumulated undistributed net investment income of $(1,070,788) and $1,003,399, respectively) $123,977,331 $95,660,209 ============ ============ *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I $ (4,248,289) $(2,070,571) Brinson Class N (3,700) (98) UBS Investment Funds Class (146,716) (112,673) Distributions from net realized gain Brinson Class I (925,451) (969,902) Brinson Class N (811) (18) UBS Investment Funds Class (35,005) (71,935) ------------ ------------ Total distributions to shareholders $ (5,359,972) $ (3,225,197) ============ ============
See accompanying notes to financial statements. 49 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, July 30, 1993* December 31, 1998 ----------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.41 $ 9.64 $ 10.04 $ 10.39 $ 9.55 $ 10.00 ------- -------- -------- -------- -------- ------- Income (loss) from investment operations: Net investment income 0.21*** 0.43*** 0.67 0.84 0.50 0.45 Net realized and unrealized gain (loss) 0.74 (0.18) 0.08 0.31 0.58 (0.52) ------- -------- -------- -------- -------- ------- Total income (loss) from investment operations 0.95 0.25 0.75 1.15 1.08 (0.07) ------- -------- -------- -------- -------- ------- Less distributions: Distributions from and in excess of net investment income (0.38) (0.31) (0.96) (1.40) (0.24) (0.28) Distributions from net realized gain (0.08) (0.17) (0.19) (0.10) -- (0.10) ------- -------- -------- -------- -------- ------- Total distributions (0.46) (0.48) (1.15) (1.50) (0.24) (0.38) ------- -------- -------- -------- -------- ------- Net asset value, end of period $ 9.90 $ 9.41 $ 9.64 $ 10.04 $ 10.39 $ 9.55 ======= ======== ======== ======== ======== ======= Total return (non-annualized) 10.14% 2.69% 7.71% 11.50% 11.34% (0.79)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $119,515 $ 91,274 $54,157 $41,066 $51,863 $36,849 Ratio of expenses to average net assets: Before expense reimbursement 0.90%** 0.96% 1.32% 1.65% 1.43% 1.78%** After expense reimbursement N/A 0.90% 0.90% 0.90% 0.90% 0.90%** Ratio of net investment income to average net assets: Before expense reimbursement 4.23%** 4.47% 4.90% 4.98% 5.53% 4.03%** After expense reimbursement N/A 4.53% 5.32% 5.73% 6.06% 4.91%** Portfolio turnover rate 49% 151% 235% 184% 199% 189%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 50 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 9.40 $ 9.64 ------- ------- Income from investment operations: Net investment income 0.18*** 0.42*** Net realized and unrealized gain (loss) 0.77 (0.20) ------- ------- Total income from investment operations 0.95 0.22 ------- ------- Less distributions: Distributions from and in excess of net investment income (0.38) (0.29) Distributions from net realized gain (0.08) (0.17) ------- ------- Total distributions (0.46) (0.46) ------- ------- Net asset value, end of period $ 9.89 $ 9.40 ======= ======= Total return (non-annualized) 10.13% 2.37% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 106 $ 9 Ratio of expenses to average net assets: Before expense reimbursement 1.15%** 1.21% After expense reimbursement N/A 1.15% Ratio of net investment income to average net assets: Before expense reimbursement 3.98%** 4.22% After expense reimbursement N/A 4.28% Portfolio turnover rate 49% 151%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 51 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.39 $ 9.61 $ 10.02 $10.56 ------- ------ ------- ------ Income from investment operations: Net investment income 0.18*** 0.38*** 0.62 0.78 Net realized and unrealized gain (loss) 0.75 (0.18) 0.10 0.15 ------- ------ ------- ------ Total income from investment operations 0.93 0.20 0.72 0.93 ------- ------ ------- ------ Less distributions: Distributions from and in excess of net investment income (0.35) (0.25) (0.94) (1.37) Distributions from net realized gain (0.08) (0.17) (0.19) (0.10) ------- ------ ------- ------ Total distributions (0.43) (0.42) (1.13) (1.47) ------- ------ ------- ------ Net asset value, end of period $ 9.89 $ 9.39 $ 9.61 $10.02 ======= ====== ======= ====== Total return (non-annualized) 9.91% 2.28% 7.20% 9.17% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 4,357 $ 4,377 $4,110 $3,653 Ratio of expenses to average net assets: Before expense reimbursement 1.39%** 1.45% 1.81% 2.14%** After expense reimbursement N/A 1.39% 1.39% 1.39%** Ratio of net investment income to average net assets: Before expense reimbursement 3.74%** 3.98% 4.41% 4.49%** After expense reimbursement N/A 4.04% 4.83% 5.24%** Portfolio turnover rate 49% 151% 235% 184%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 52 THE UBS INVESTMENT FUNDS -- NOTES TO FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund, High Yield Fund and Global (ex-U.S.) Equity Fund (formerly, Non-U.S. Equity Fund) (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and UBSInvestment Funds Class (formerly, SwissKey Class). There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the Global Fund, Global Equity Fund and Global Bond Fund in the preparation of their financial statements. A. Investment Valuation: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. U.S. equity securities traded over-the-counter are priced at the most recent bid price. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. Foreign Currency Translation: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate of the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C. Investment Transactions: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D. Investment Income: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E. Federal Income Taxes: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the six months ended December 31, 1998, therefore, no federal income tax provision was required. F. Distributions To Shareholders: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. G. Income and Expense Allocation: All income earned and expenses incurred by each Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the UBS Investment Funds Class. H. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 53 THE UBS INVESTMENT FUNDS -- NOTES TO FINANCIAL STATEMENTS 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, the Funds pay the Advisor a monthly fee based on each Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent that total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions, for the six months ended December 31, 1998, were as follows:
UBS Investment Advisory Brinson Class I Brinson Class N Funds Class Advisory Fee Expense Cap Expense Cap Expense Cap Fees Fees Waived -------- --------------- --------------- --------------- ------------ ----------- Global Fund 0.80% 1.10% 1.35% 1.75% $2,387,061 $ -- Global Equity Fund 0.80 1.00 1.25 1.76 289,624 18,480 Global Bond Fund 0.75 0.90 1.15 1.39 414,159 --
Certain officers of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the six months ended December 31, 1998 were $5,888, $2,392 and $2,208 for the Global Fund, Global Equity Fund and Global Bond Fund, respectively. The Global Fund invests in shares of certain affiliated investment companies also sponsored by the Advisor. These investments represented 14.25% of the Fund's total net assets at December 31, 1998. Activity for the six months ended December 31, 1998 was as follows:
Net Net Sales Realized Unrealized Interest Affiliates Purchases Proceeds Gains/(Loss) Gains/(Loss) Income Value - ---------- ------------- ------------ ------------ ------------ ---------- ------------ Brinson Post-Venture Fund $ -- $ 1,949,866 $ 448,329 $ (995,074) $ -- $ 6,015,904 Brinson High Yield Fund 3,900,000 4,900,682 766,824 (1,162,241) -- 15,399,222 Brinson Emerging Markets Equity Fund -- 5,140,074 (2,553,399) (3,158,736) -- 15,364,050 Brinson Emerging Markets Debt Fund 6,400,000 8,703,323 1,961,791 (4,291,159) -- 27,921,446 Brinson Supplementary Trust U.S. Cash Management Prime Fund 12,835,861 4,711,620 -- -- 16,107 8,124,241
The Global Equity Fund and Global Bond Fund invest in shares of the Brinson Supplementary Trust U.S. Cash Management Prime Fund (Supplementary Trust). The Supplementary Trust is managed by the Advisor. The Supplementary Trust is offered as a cash management option to mutual funds and other accounts managed by the Advisor. The Supplementary Trust pays no management fees. Distributions from the Supplementary Trust are reflected as interest income in the statement of operations. Amounts relating to those investments at December 31, 1998 and for the six months then ended is summarized as follows:
% of Sales Interest Net Affiliates Purchases Proceeds Income Value Assets - ----------- ----------- ---------- -------- ---------- ------ Global Equity Fund $ 4,693,073 $4,397,888 $ 3,173 $ 295,185 0.40% Global Bond Fund 9,279,598 147,889 13,429 9,131,709 7.36%
3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales ------------ ------------ Global Fund $237,754,413 $424,385,284 Global Equity Fund 34,531,153 38,516,369 Global Bond Fund 69,215,909 49,804,987 54 THE UBS INVESTMENT FUNDS -- NOTES TO FINANCIAL STATEMENTS 4. FORWARD FOREIGN CURRENCY CONTRACTS The Funds may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Funds realize a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts at and for the six months ended December 31, 1998, was the Funds' custodian or an affiliate of the Funds' custodian. 5. FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as net unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 6. SECURITY LENDING The Global Fund loaned securities to certain brokers, with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. Securities loaned are recorded at the amount of cash collateral received. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 102% of the value of domestic securities loaned and 105% of the value of non-U.S. securities loaned. The cash collateral received is invested in short-term investments. The value of loaned securities and related collateral outstanding at December 31, 1998 were as follows: Value of Loaned Cash Collateral Securities Received ---------------- --------------- Global Fund $107,582,042 $111,993,032 ============ ============ 7. DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940 as amended for the Brinson Class N and the UBSInvestment Funds Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the UBSInvestment Funds Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of the Global Fund, Global Equity Fund and Global Bond Fund. Annual fees under the UBSInvestment Funds Plan, which include a 0.25% service fee, total 0.65%, 0.76% and 0.49% of the average daily net assets of the UBSInvestment Funds Class of the Global Fund, Global Equity Fund and Global Bond Fund, respectively. 8. LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364-day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated based on the Federal Funds Rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized amount of the line of credit. During the six months ended December 31, 1998 the Global Equity and Global Bond Funds had no borrowings under the agreement. During the six months ended December 31, 1998, the Global Fund had borrowings of $33,900,000, $62,000,000 and $47,400,000 outstanding for 1 day each under the agreement. 55 THE UBS INVESTMENT FUNDS -- NOTES TO FINANCIAL STATEMENTS 9. CAPITAL TRANSACTIONS Capital stock transactions were as follows:
Global Fund -------------------------------------------------- Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------------- -------------------------- Shares Value Shares Value ---------- ------------ ----------- ------------ Sales: Brinson Class I 13,259,375 $163,000,397 18,850,057 $244,898,004 Brinson Class N 26,870 342,468 90,370 1,177,290 UBS Investment Funds Class 323,181 3,886,738 803,666 10,347,586 ---------- ------------ ---------- ------------ Total Sales 13,609,426 $167,229,603 19,744,093 $256,422,880 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 3,653,840 $ 42,311,080 5,179,618 $ 62,332,662 Brinson Class N 11,968 138,346 769 9,625 UBS Investment Funds Class 190,958 2,203,655 217,810 2,607,910 ---------- ------------ ---------- ------------ Total Dividend Reinvestment 3,856,766 $ 44,653,081 5,398,197 $ 64,950,197 ========== ============ ========== ============ Redemptions: Brinson Class I 28,358,651 $352,033,813 16,402,396 $209,137,318 Brinson Class N 864 10,547 21 276 UBS Investment Funds Class 590,874 7,271,133 641,736 8,247,175 ---------- ------------ ---------- ------------ Total Redemptions 28,950,389 $359,315,493 17,044,153 $217,384,769 ========== ============ ========== ============
Global Equity Fund -------------------------------------------------- Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------------- -------------------------- Shares Value Shares Value ---------- ------------ ----------- ------------ Sales: Brinson Class I 413,888 $ 5,114,516 1,466,054 $17,934,645 Brinson Class N 15,911 200,000 -- -- UBS Investment Funds Class 173,268 2,091,451 1,779,376 22,282,095 ---------- ------------ ----------- ------------ Total Sales 603,067 $ 7,405,967 3,245,430 $40,216,740 ========== ============ =========== ============ Dividend Reinvestment: Brinson Class I 44,491 $ 532,553 126,859 $ 1,426,171 Brinson Class N 402 4,803 9 93 UBS Investment Funds Class 64,233 768,875 442,472 4,952,413 ---------- ------------ ----------- ------------ Total Dividend Reinvestment 109,126 $ 1,306,231 569,340 $ 6,378,677 ========== ============ =========== ============ Redemptions: Brinson Class I 314,413 $ 3,767,887 3,546,702 $44,596,092 Brinson Class N -- -- -- -- UBS Investment Funds Class 1,063,913 12,724,864 2,339,080 28,946,495 ---------- ------------ ----------- ------------ Total Redemptions 1,378,326 $16,492,751 5,885,782 $73,542,587 ========== ============ =========== ============
56 THE UBS INVESTMENT FUNDS -- NOTES TO FINANCIAL STATEMENTS
Global Bond Fund -------------------------------------------------- Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------------- -------------------------- Shares Value Shares Value ---------- ------------ ----------- ------------ Sales: Brinson Class I 3,975,826 $39,062,948 4,561,105 $43,233,367 Brinson Class N 9,292 93,297 860 8,169 UBS Investment Funds Class 221,978 2,181,614 293,533 2,793,303 ---------- ------------ ----------- ------------ Total Sales 4,207,096 $41,337,859 4,855,498 $46,034,839 ========== ============ =========== ============ Dividend Reinvestment: Brinson Class I 376,007 $ 3,681,105 220,347 $ 2,058,040 Brinson Class N 462 4,510 12 115 UBS Investment Funds Class 16,324 159,652 18,525 172,576 ---------- ------------ ----------- ------------ Total Dividend Reinvestment 392,793 $ 3,845,267 238,884 $ 2,230,731 ========== ============ =========== ============ Redemptions: Brinson Class I 1,983,791 $19,658,928 699,882 $ 6,667,104 Brinson Class N 26 251 22 210 UBS Investment Funds Class 263,784 2,547,159 273,680 2,599,273 ---------- ------------ ----------- ------------ Total Redemptions 2,247,601 $22,206,338 973,584 $ 9,266,587 ========== ============ =========== ============
57 Distributed by: Funds Distributor, Inc. 60 State Street Boston, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. [UBS LOGO APPEARS HERE] P.O. Box 2798, Boston, Massachusetts 02208-9915 - Tel: (800) 794-7753 ------------------------- The Brinson Funds Brinson Global Fund Brinson Global Equity Fund Brinson Global Bond Fund Semi-Annual Report December 31, 1998 Institutional Asset Management ------------------------------ Trustees and Officers [BRINSON LOGO APPEARS HERE] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Debra L. Nichols Chairman of the Board Vice President E. Thomas McFarlan Carolyn M. Burke, CPA President Secretary and Treasurer Thomas J. Digenan, CFA, CPA David E. Floyd Vice President Assistant Secretary 1 The Funds' Advisor -- Brinson Partners, Inc. [BRINSON LOGO APPEARS HERE] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 125 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific client objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent. 2 Table of Contents Shareholder Letter 4 Global Economic and Market Highlights 5 Global Fund 6 Schedule of Investments 11 Financial Statements 19 Financial Highlights 23 Global Equity Fund 26 Schedule of Investments 31 Financial Statements 36 Financial Highlights 39 Global Bond Fund 42 Schedule of Investments 46 Financial Statements 50 Financial Highlights 53 The Brinson Funds--Notes to Financial Statements 56 3 Shareholder Letter [BRINSON LOGO APPEARS HERE] February 20, 1999 Dear Shareholder: We are very pleased to present the Semi-Annual Report for The Brinson Funds for the six months ended December 31, 1998. Within this Report, we'll focus on current global economic outlook as well as our current strategies and performance updates for our three Global Funds: Global Fund, Global Equity Fund and Global Bond Fund. Since our last report to you, Union Bank of Switzerland and Swiss Bank Corporation merged to become UBS AG, one of the world's major financial institutions. In connection with this merger, the former SBC Brinson / Brinson Partners, Inc.'s activities of Swiss Bank Corporation were combined with the worldwide UBS asset management operations into the UBS Brinson Division of UBS AG. During this process, the UBS Private Investor Funds merged into the Brinson Fund family on December 18, 1998. This merger created the following three new Brinson Funds; the U.S. Large Capitalization Growth Fund, the U.S. Small Capitalization Growth Fund and the High Yield Fund. The UBS Brinson Division manages over USD 390 billion of institutional assets, including USD 265 billion of discretionary institutional assets on an active basis and mutual fund assets for the UBS Private Banking Division and The Brinson Funds which total over USD 125 billion. The Advisor of The Brinson Funds, Brinson Partners, Inc., also manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The Global Fund, the Global Equity Fund and the Global Bond Fund are all actively managed funds that provide integrated asset management across and within security markets. The investment process is strategic in nature and is driven by deviations of market price from fundamental value. This philosophy offers the greatest potential for achieving enhanced, long-term returns while controlling risk. Each of our Funds employ the same value-oriented investment philosophy applied across the global spectrum. Each Fund also uses the resources of our entire worldwide research team. All of our analysts apply the same value philosophy to their work. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is tailored to specific objectives and focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgement. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our talent. The Reports that follow highlight the investment characteristics and the performance of the respective Funds. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Gary P. Brinson Gary P. Brinson President and Chief Investment Officer Brinson Partners, Inc. 4 Global Economic and Market Highlights Japan and most of Asia continue to be mired in severe downturns. The Japanese economy is particularly troubled, as the one bright spot in the economy, the export sector, has started to weaken in response to a dramatic strengthening of the yen. Bond yields have risen sharply as the government's deficit financing has pushed the gross debt to GDP ratio among the highest of the developed countries. The single European currency enjoyed a successful launch on January 1st. Monetary policy for the eleven participating nations is now being administered by the European Central Bank. Cash rates and bond yields have converged, except for small spreads due to credit and liquidity differences. Although the euro's success in the near term is not in doubt, some longer-term concerns remain. Economic convergence of the EMU economies is not complete, and the economic environment appears to be softening. This creates an element of political risk for the ECB and the new currency. Inflation remains in check throughout the developed world and in many of the emerging markets. Weakness in Asia and overcapacity in basic industries have combined to push down commodity prices, particularly oil and related energy prices. Consumer price inflation is essentially zero in Japan, less than 1% in most of Europe, and under 2% in the U.S. The voices predicting global deflation seem to have largely disappeared however, after the Federal Reserve's series of rate cuts to provide liquidity during the market downturns in the fall. Global Environment
6 months 1 year 3 years 5 years 8/31/92* Major Markets ended ended ended ended to Total Return in U.S. Dollars 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------------------------------- U.S. Equity 6.90% 23.43% 25.42% 21.78% 20.38% Global (ex-U.S.) Equities (currency unhedged) 2.72 18.67 9.06 9.27 11.05 Global (ex-U.S.) Equities (currency hedged) -3.98 13.84 14.86 10.84 13.26 U.S. Bonds 4.57 8.72 7.29 7.30 7.56 Global (ex-U.S.) Bonds (currency unhedged) 15.38 17.79 5.49 8.26 7.86 Global (ex-U.S.) Bonds (currency hedged) 5.79 11.54 11.48 9.42 10.26 U.S. Cash Equivalents 2.12 4.55 4.79 4.72 4.32 - --------------------------------------------------------------------------------------------------- 6 months 1 year 3 years 5 years 8/31/92* Major Currencies ended ended ended ended to Percent Change Relative to U.S. Dollars 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------------------------------- Yen 23.04% 15.27% -2.94% -0.21% 1.41% Pound -0.28 1.12 2.33 2.38 -2.73 Deutschemark 8.37 7.95 -4.93 0.84 -2.63 Canadian Dollar -4.26 -6.83 -3.88 -2.93 -3.87 - ---------------------------------------------------------------------------------------------------
* Inception date of the Brinson Global Fund Class I All total returns in excess of 1 year are average annualized returns. 5 Global Fund [BRINSON LOGO APPEARS HERE] The Global Fund is diversified across the equity and fixed income markets of the U.S. and a broad range of other countries. The Fund is actively managed within an asset allocation framework, involving value-based market, currency, and individual security selection. Our senior asset allocation, equity and fixed income professionals form the investment team for the Fund, supported by a globally integrated market analysis system. Security selection with each market is based on the fundamental research of our analytical teams in our offices worldwide. Since its inception on August 31, 1992, the Brinson Global Fund Class I has provided an annualized return of 10.83%. This is compared to the 13.64% return of the Global Securities Markets Mutual Fund Index. The Fund's performance over this period was achieved with an annualized volatility of 6.54%, well below the benchmark volatility of 8.52%. The Fund's 1998 return of 8.32% fell short of the benchmark return of 16.45%. Security selection in the U.S. equity and bond markets had a negative impact on added value, while security selection in Japanese equities contributed positively. The underweight in developed equity markets and the corresponding bond overweight detracted substantially, as riskier assets, with the exception of the emerging markets tended to perform better during the year. The bond and equity markets of European nations participating in the new single currency performed well. Yields on the previously high yielding peripheral bond markets fell to historically low levels toward the end of the year. The worst-performing equity markets were generally found in Asia, with emerging markets leading the bond market underperformers. The effects of the crisis in emerging markets spilled over into the developed equity and credit markets in September, although equities had rebounded by year-end. Japan's bond market suffered severely toward year-end, joining its equity market which continued to be adversely affected by the country's economic woes and a strengthening yen. Because of the renewed yen overvaluation, the Fund remains underweight. Sterling is likewise held at a below-benchmark allocation. Overweight currencies include the Canadian dollar and the Australian dollar. Asset class allocations remain heavily biased toward bonds and underweight developed equities. Valuations and risk considerations do not support normal equity allocations. 6 Global Fund [BRINSON LOGO APPEARS HERE] Total Return
6 months 1 year 3 years 5 years 8/31/92* ended ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------------- Brinson Global Fund Class I 1.99% 8.32% 11.11% 10.81% 10.83% - --------------------------------------------------------------------------------- GSMI Mutual Fund Index** 5.71 16.45 14.42 13.76 13.64 - --------------------------------------------------------------------------------- MSCI World Equity (Free) Index 6.72 24.62 18.06 16.06 16.02 - --------------------------------------------------------------------------------- Salomon World Govt. Bond Index 12.17 15.29 6.20 7.85 7.78 - ---------------------------------------------------------------------------------
* Inception date of the Brinson Global Fund Class I. ** An un-managed index compiled by the Advisor, constructed as follows: 40% Wilshire 5000 Index; 22% MSCI World ex USA (Free) Index; 21% Salomon Smith Barney BIG Bond Index; 9% Salomon Non-U.S. Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable Index; and 3% Merrill Lynch High Yield Master Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Fund Class I, the GSMI Mutual Fund Index, the MSCI World Equity (Free) Index and the Salomon World Govt. Bond Index if you had invested $1,000,000 on August 31, 1992, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Fund Class I vs. GSMI Mutual Fund Index, MSCI World Equity (Free) Index and Salomon World Govt. Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] GSMI Mutual Brinson Global MSCI World Salomon World Fund Index Fund Class I (Free) Index Gov't Bond Index ------------ -------------- ------------- ---------------- 8/31/92 $1,000,000 $1,000,000 $1,000,000 $1,000,000 9/30/92 $1,005,314 $1,013,000 $991,423 $1,010,000 10/31/92 $997,514 $1,007,000 $964,679 $982,528 11/30/92 $1,017,428 $1,022,000 $981,884 $966,906 12/31/92 $1,030,790 $1,032,925 $990,218 $972,746 1/31/93 $1,042,387 $1,048,115 $993,554 $989,769 2/28/93 $1,055,458 $1,068,369 $1,017,111 $1,009,267 3/31/93 $1,087,329 $1,081,142 $1,075,990 $1,024,810 4/30/93 $1,093,919 $1,086,223 $1,125,787 $1,046,434 5/31/93 $1,116,872 $1,097,400 $1,151,607 $1,056,898 6/30/93 $1,119,316 $1,107,567 $1,141,994 $1,054,636 7/31/93 $1,127,126 $1,110,624 $1,165,369 $1,057,589 8/31/93 $1,166,328 $1,134,059 $1,219,770 $1,089,423 9/30/93 $1,165,278 $1,134,084 $1,197,452 $1,102,387 10/31/93 $1,182,155 $1,143,329 $1,230,667 $1,100,513 11/30/93 $1,153,045 $1,131,002 $1,160,612 $1,092,699 12/31/93 $1,179,801 $1,148,054 $1,216,971 $1,101,932 1/31/94 $1,218,762 $1,173,590 $1,297,252 $1,110,748 2/28/94 $1,200,386 $1,152,310 $1,280,212 $1,103,528 3/31/94 $1,159,904 $1,118,262 $1,225,058 $1,101,983 4/30/94 $1,172,614 $1,122,518 $1,263,624 $1,103,195 5/31/94 $1,176,336 $1,124,646 $1,267,367 $1,093,487 6/30/94 $1,164,819 $1,116,140 $1,263,654 $1,109,233 7/31/94 $1,189,041 $1,132,192 $1,287,845 $1,118,107 8/31/94 $1,220,386 $1,156,805 $1,326,765 $1,114,194 9/30/94 $1,201,154 $1,139,683 $1,291,736 $1,122,216 10/31/94 $1,219,946 $1,137,543 $1,328,899 $1,140,171 11/30/94 $1,185,232 $1,122,561 $1,271,624 $1,124,437 12/31/94 $1,196,582 $1,126,372 $1,283,697 $1,127,585 1/31/95 $1,208,708 $1,139,482 $1,264,853 $1,151,265 2/28/95 $1,241,252 $1,167,887 $1,283,629 $1,180,737 3/31/95 $1,281,224 $1,183,182 $1,345,557 $1,250,873 4/30/95 $1,311,158 $1,206,125 $1,392,627 $1,274,014 5/31/95 $1,344,050 $1,244,362 $1,405,194 $1,309,941 6/30/95 $1,364,548 $1,256,423 $1,404,730 $1,317,670 7/31/95 $1,407,051 $1,284,098 $1,475,061 $1,320,832 8/31/95 $1,402,131 $1,300,703 $1,442,139 $1,275,396 9/30/95 $1,439,648 $1,322,842 $1,484,738 $1,303,837 10/31/95 $1,430,595 $1,332,805 $1,461,673 $1,313,485 11/30/95 $1,473,410 $1,371,549 $1,512,618 $1,328,328 12/31/95 $1,500,615 $1,398,239 $1,557,008 $1,342,275 1/31/96 $1,525,115 $1,424,264 $1,586,118 $1,325,765 2/29/96 $1,529,469 $1,418,349 $1,595,765 $1,319,004 3/31/96 $1,542,531 $1,428,996 $1,622,258 $1,317,157 4/30/96 $1,569,098 $1,447,923 $1,660,371 $1,311,889 5/31/96 $1,580,746 $1,452,655 $1,661,700 $1,312,151 6/30/96 $1,583,964 $1,462,269 $1,670,556 $1,322,517 7/31/96 $1,542,337 $1,440,730 $1,611,517 $1,347,900 8/31/96 $1,567,235 $1,463,465 $1,630,575 $1,353,166 9/30/96 $1,618,828 $1,511,330 $1,694,511 $1,358,714 10/31/96 $1,634,998 $1,536,459 $1,706,176 $1,384,122 11/30/96 $1,703,760 $1,596,290 $1,802,360 $1,402,393 12/31/96 $1,688,579 $1,595,424 $1,773,715 $1,391,033 1/31/97 $1,713,300 $1,615,268 $1,795,458 $1,353,893 2/28/97 $1,721,365 $1,629,820 $1,815,922 $1,343,738 3/31/97 $1,683,518 $1,604,685 $1,779,579 $1,333,526 4/30/97 $1,717,598 $1,621,882 $1,837,956 $1,321,791 5/31/97 $1,804,433 $1,689,351 $1,951,687 $1,357,744 6/30/97 $1,869,036 $1,736,975 $2,048,777 $1,373,901 7/31/97 $1,943,405 $1,792,537 $2,143,340 $1,363,184 8/31/97 $1,872,161 $1,746,236 $1,998,281 $1,362,366 9/30/97 $1,953,277 $1,800,475 $2,106,924 $1,391,385 10/31/97 $1,890,285 $1,747,558 $1,996,326 $1,420,326 11/30/97 $1,907,153 $1,751,527 $2,031,241 $1,398,595 12/31/97 $1,930,073 $1,770,868 $2,056,062 $1,394,399 1/31/98 $1,956,072 $1,791,307 $2,113,744 $1,407,925 2/28/98 $2,050,747 $1,857,002 $2,256,714 $1,419,329 3/31/98 $2,108,872 $1,899,340 $2,351,694 $1,405,277 4/30/98 $2,129,617 $1,902,260 $2,374,688 $1,427,762 5/31/98 $2,099,572 $1,892,040 $2,345,875 $1,431,046 6/30/98 $2,126,234 $1,880,791 $2,400,742 $1,433,192 7/31/98 $2,115,137 $1,876,373 $2,397,120 $1,435,055 8/31/98 $1,901,138 $1,726,145 $2,077,601 $1,474,089 9/30/98 $1,966,845 $1,780,639 $2,114,573 $1,552,510 10/31/98 $2,084,211 $1,845,443 $2,306,041 $1,598,465 11/30/98 $2,169,407 $1,896,992 $2,443,383 $1,575,926 12/31/98 $2,247,617 $1,918,264 $2,562,162 $1,607,603 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Global Fund Total Return
6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------- Brinson Global Fund Class N 1.88% 8.00% 6.49% - --------------------------------------------------------------- GSMI Mutual Fund Index** 5.71 16.45 13.08 - --------------------------------------------------------------- MSCI World Equity (Free) Index 6.72 24.62 16.08 - --------------------------------------------------------------- Salomon World Gov't. Bond Index 12.17 15.29 11.04 - ---------------------------------------------------------------
* Inception date of the Brinson Global Fund Class N. ** An un-managed index compiled by the Advisor, constructed as follows: 40% Wilshire 5000 Index; 22% MSCI World ex USA (Free) Index; 21% Salomon Smith Barney BIG Bond Index; 9% Salomon Non-U.S. Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable Index; and 3% Merrill Lynch High Yield Master Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Fund Class N, the GSMI Mutual Fund Index, the MSCI World Equity (Free) Index and the Salomon World Gov't. Bond Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Fund Class N vs. GSMI Mutual Fund Index, MSCI World Equity (Free) Index and Salomon World Gov't. Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] MSCI Brinson Global GSMI Mutual World Equity Salomon World Fund Class N Fund Index (Free) Index Gov't Bond Index -------------- ----------- ------------- ---------------- 6/30/97 $1,000,000 $1,000,000 $1,000,000 $1,000,000 7/31/97 $1,032,226 $1,039,790 $1,046,155 $992,200 8/31/97 $1,003,808 $1,001,672 $975,353 $991,605 9/30/97 $1,035,796 $1,045,072 $1,028,381 $1,012,726 10/31/97 $1,004,570 $1,011,369 $974,399 $1,033,791 11/30/97 $1,006,093 $1,020,394 $991,441 $1,017,974 12/31/97 $1,017,857 $1,020,394 $1,003,556 $1,014,920 1/31/98 $1,028,766 $1,046,567 $1,031,710 $1,024,764 2/28/98 $1,066,526 $1,097,222 $1,101,493 $1,033,065 3/31/98 $1,090,861 $1,128,321 $1,147,852 $1,022,838 4/30/98 $1,091,700 $1,139,420 $1,159,076 $1,039,203 5/31/98 $1,085,826 $1,123,345 $1,145,012 $1,041,593 6/30/98 $1,079,019 $1,137,610 $1,171,793 $1,043,156 7/31/98 $1,076,480 $1,131,673 $1,170,024 $1,044,512 8/31/98 $990,159 $1,017,176 $1,014,069 $1,072,922 9/30/98 $1,021,471 $1,052,331 $1,032,115 $1,130,002 10/31/98 $1,057,862 $1,115,127 $1,125,569 $1,163,450 11/30/98 $1,086,636 $1,160,709 $1,192,605 $1,147,045 12/31/98 $1,099,252 $1,202,555 $1,250,581 $1,170,101 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 8 Global Fund Asset Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ------------------------------------------------------- U.S. Equities 40.0% 22.0% Global (ex-U.S.) Equities 22.0 18.0 Emerging Markets Equities 3.0 3.0 Dollar Bonds 21.0 33.0 High Yield Bonds 3.0 3.0 Global (ex-U.S.) Bonds 9.0 16.0 Emerging Markets Debt 2.0 5.0 Cash Equivalents 0.0 0.0 - ------------------------------------------------------- 100.0% 100.0% Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------------- 1. Xerox Corp. 1.79% 2. FDX Corp. 1.25 3. Burlington Northern Santa Fe Corp. 1.24 4. Lockheed Martin Corp. 1.09 5. Philip Morris Companies, Inc. 1.03 6. Baxter International, Inc. 0.77 7. Kimberly Clark Corp. 0.75 8. Entergy Corp 0.71 9. Aetna, Inc. 0.70 10. CIGNA Corp. 0.69 - ------------------------------------------------------- Currency Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ------------------------------------------------------- U.S. 66.0% 62.4% Japan 7.0 1.0 U.K. 5.3 1.3 Continental Europe 16.3 20.3 Canada 1.2 5.2 Emerging Markets 3.0 3.0 Other 1.2 6.8 - ------------------------------------------------------- 100.0% 100.0% Top Ten Global (ex-U.S.) Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------------- 1. Novartis AG (Reg.) 0.46% 2. Telecom Corp of New Zealand, Ltd. 0.40 3. Royal Dutch Petroleum Co. 0.37 4. Nokia Oyj- A Shares 0.35 5. Nestle S.A. (Reg.) 0.35 6. Allianz A.G. 0.34 7. Lloyds TSB Group PLC 0.34 8. Bayer AG 0.33 9. Glaxo Wellcome PLC 0.31 10. ING Groep NV 0.30 - ------------------------------------------------------- 9 Global Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S. Equities Energy 0.36% Capital Investment Capital Goods 3.22 Technology 3.22 ------- 6.44 ------- Basic Industries Chemicals 0.93 Housing/Paper 2.67 Metals 0.15 ------- 3.75 ------- Consumer Non-Durables 2.62 Retail/Apparel 1.32 Autos/Durables 1.10 Health: Drugs 1.09 Health: Non-Drugs 1.67 ------- 7.80 ------- Financial Banks 2.67 Non-Banks 2.07 ------- 4.74 ------- Utilities Electric 1.70 Telephone 0.81 ------- 2.51 ------- Transportation 1.73 Services/Misc 2.26 Post Venture 1.18 ------- Total U.S. Equities 30.77* ------- GLOBAL (EX-U.S.) EQUITIES Aerospace & Military 0.10 Airlines 0.06 Appliances & Household 0.23 Autos/Durables 0.43 Banking 2.07 Beverages & Tobacco 0.58 Broadcasting & Publishing 0.57 Building Materials 0.27 Business & Public Service 0.65 Chemicals 0.69 Construction 0.03 Consumer 0.14 Data Processing 0.06 Electric Components 0.28 Electronics 0.95 Energy 1.39 Financial Services 0.62 Food & House Products 0.60 Forest Products 0.25 Health: Drugs 0.68 Health: Non-Drugs 1.07 Housing/Paper 0.04 Industrial Components 0.21 Insurance 1.47% Leisure & Tourism 0.09 Machinery & Engineering 0.03 Merchandising 0.75 Metals--Steel 0.18 Multi-Industry 0.67 Non-Ferrous Metals 0.19 Real Estate 0.06 Recreation 0.05 Retail & Apparel 0.08 Telecommunications 2.03 Textiles & Apparel 0.02 Transportation 0.04 Utilities 0.71 Wholesale & International Trade 0.01 ------- Total global (ex-U.S.) Equities 18.35 ------- EMERGING MARKETS EQUITIES 3.01 ------- TOTAL EQUITIES 52.13 ------- U.S. BONDS Corporate Bonds Airlines 0.03 Auto/Durables 0.16 Banks 0.62 Broadcasting & Public Service 0.21 CMO 2.80 Financial Services 1.26 Industrial Components 1.45 Telecommunications 0.02 Transportation 0.30 ------- 6.85 ------- U.S. Government Agencies 4.17 U.S. Government Obligations 8.75 International Dollar Bonds 2.01 ------- Total U.S. Bonds 21.78* ------- High Yield Bonds 3.01 ------- global (ex-U.S.) Bonds Foreign Government Bonds 15.19 ------- Emerging Markets Debt 5.47 ------- Short Term Investments 23.31* ------- Total Investments 120.89 Liabilities, Less Cash and other Assets (20.89) ------- NET ASSETS 100.00% ======= * The Fund held a long position in U.S. Treasury futures on December 31, 1998 which increased U.S. Bond exposure from 21.78% to 31.12%. The Fund held a short position in stock index futures on December 31, 1998 which reduced U.S. Equity exposure from 30.77% to 20.84%. These adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 23.31% to 23.90%. 10 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Equities -- 52.13% U.S. Equities -- 30.77% Advanced Micro Devices, Inc. (b) 70,500 $ 2,040,094 Aetna, Inc. 45,300 3,561,712 Allergan, Inc. 17,800 1,152,550 Alza Corp. (b) 37,500 1,959,375 American Standard Companies, Inc. (b) 36,200 1,300,937 Aon Corp. 63,398 3,510,664 Automatic Data Processing, Inc. 28,600 2,293,362 BankBoston Corp. 20,400 794,325 Baxter International, Inc. 61,400 3,948,787 Beckman Coulter Inc. 16,300 884,275 Bestfoods 17,900 953,175 Biogen, Inc. (b) 8,500 705,500 Birmingham Steel Corp. 12,000 50,250 Brinson Post-Venture Fund (b) 317,715 6,015,904 Burlington Northern Santa Fe Corp. 187,900 6,341,625 Centaur Funding Corp., 144A 1,430 262,586 Centaur Funding Corp., 144A 750 784,219 Champion Enterprises, Inc. (b) 11,700 320,288 Champion International Corp. 18,800 761,400 Chase Manhattan Corp. 32,100 2,184,806 CIGNA Corp. 45,600 3,525,450 Circuit City Stores-Circuit City Group 50,800 2,536,825 CMS Energy Corp. 48,400 2,344,375 Comerica, Inc. 15,500 1,056,906 CommScope, Inc. (b) 26,333 442,724 Comverse Technology, Inc. (b) 17,160 1,218,360 Consolidated Stores Corp. (b) 49,400 997,263 Corning, Inc. 73,600 3,312,000 Covance, Inc. (b) 18,872 549,647 Crown Cork & Seal Co., Inc. 17,800 548,463 Cummins Engine Co., Inc. 4,200 149,100 Dial Corp. 19,400 560,175 Eastman Chemical Co. 20,700 926,325 Electronic Data Systems Corp. 66,100 3,321,525 EMC Corp. (b) 22,100 1,878,500 Entergy Corp. 116,400 3,622,950 FDX Corp. (b) 71,900 6,399,100 First American Corp. of Tennessee 9,800 434,875 First Data Corp. 90,830 2,878,176 First Security Corp. 18,575 434,191 Fleet Financial Group, Inc. 49,200 2,198,625 Fleetwood Enterprises, Inc. 8,100 281,475 Food Lion Inc., Class A 85,500 908,438 Fort James Corp. 64,500 2,580,000 General Instrument Corp. (b) 85,600 2,905,050 General Semiconductor, Inc. (b) 19,850 162,522 Genzyme Corp. (b) 15,100 751,225 Genzyme-Molecular Oncology (b) 1,594 5,179 Geon Co. 10,400 239,200 Goodyear Tire & Rubber Co. 47,900 2,415,956 Great Lakes Chemical Corp. 12,000 480,000 GreenPoint Financial Corp. 21,200 744,650 Harnischfeger Industries, Inc. 26,100 265,894 HCR Manor Care, Inc. (b) 19,198 563,941 Hibernia Corp., Class A 20,800 361,400 Household International Inc. 36,700 1,454,237 IMC Global Inc. 57,500 1,229,062 Johnson Controls Inc. 17,800 1,050,200 Shares Value ------------ --------------- Kimberly Clark Corp. 70,300 $ 3,831,350 Lafarge Corp. 15,300 619,650 Lear Corp. (b) 44,400 1,709,400 Lockheed Martin Corp. 65,823 5,578,499 Lyondell Petrochemical Co. 54,000 972,000 Martin Marietta Materials, Inc. 10,984 683,068 Masco Corp. 87,500 2,515,625 Nabisco Holdings Corp., Class A 38,200 1,585,300 National Service Industries, Inc. 11,900 452,200 Nextel Communications, Inc., Class A (b) 52,400 1,237,950 Norfolk Southern Corp. 79,400 2,515,987 Peco Energy Co. 64,600 2,688,975 Pentair, Inc. 19,796 788,128 Philip Morris Companies, Inc. 98,100 5,248,350 Praxair, Inc. 34,800 1,226,700 Raytheon Co., Class B 63,200 3,365,400 Regions Financial Corp. 9,600 387,000 Schering Plough Corp. 34,700 1,917,175 Sears, Roebuck and Co. 53,900 2,290,750 Southdown, Inc. 21,336 1,262,824 St. Jude Medical, Inc. (b) 35,300 977,369 Timken Co. 6,600 124,575 TRW, Inc. 7,900 443,881 Tyson Foods, Inc., Class A 69,798 1,483,207 Ultramar Diamond Shamrock Corp. 38,702 938,524 Unocal Corp. 25,600 747,200 US Bancorp 48,180 1,710,390 USG Corp. 8,600 438,063 Vencor, Inc. (b) 39,700 178,650 Ventas, Inc. 39,800 485,063 Viad Corp. 36,900 1,120,838 Wells Fargo and Co. 48,200 1,924,987 Witco Corp. 6,500 103,594 Xerox Corp. 77,600 9,156,800 York International Corp. 23,400 955,013 ------------- Total U.S. Equities 157,224,303 ------------- Global (ex-U.S.) Equities -- 18.35% Australia -- 1.00% Amcor Ltd. 25,920 110,866 Brambles Industries Ltd. 14,770 360,131 Broken Hill Proprietary Co., Ltd. 59,710 440,209 CSR Ltd. 79,870 195,479 David Jones Ltd. 103,330 114,088 Lend Lease Corp., Ltd. 21,132 285,172 National Australia Bank Ltd. 45,027 679,440 News Corp. Ltd. 64,089 423,785 News Corp. Ltd., Preferred 28,536 173,814 Orica Ltd. 18,550 96,604 Pacific Dunlop Ltd. 69,610 112,725 Qantas Airways Ltd. 85,237 174,107 QBE Insurance Group Ltd. 42,683 176,727 Rio Tinto Ltd. 14,645 173,870 Santos Ltd. 55,490 149,084 Telstra Corp., Ltd. (b) 149,700 700,631 Westpac Banking Corp., Ltd. 78,128 523,326 WMC Ltd. 37,340 112,689 Woolworth's Ltd. 25,860 88,132 ------------- 5,090,879 ------------- 11 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Belgium -- 0.62% Delhaize-Le Lion S.A. 480 $ 42,476 Electrabel S.A. 2,650 1,164,791 Fortis AG 186 11 Fortis AG Strip (b) 3,913 1,418,092 KBC Bancassurance (Rights) (b) 8,790 0 KBC Bancassurance Holding Strip (b) 220 13 Kredietbank NV 6,600 522,562 ------------- 3,147,945 ------------- Canada -- 0.38% Agrium, Inc. 7,740 68,027 Alcan Aluminum Ltd. 5,120 138,333 Bank of Montreal 3,020 121,311 Canadian National Railway Co. 2,960 153,685 Canadian Pacific Ltd. 9,073 169,528 Extendicare, Inc., Class A (b) 6,960 39,422 Hudson's Bay Co. 6,810 85,790 Imasco, Ltd. 4,890 104,104 Imperial Oil Ltd. 9,110 145,606 Magna International, Inc., Class A 1,260 78,258 Newbridge Networks Corp. (b) 3,960 120,141 NOVA Corp. 6,004 78,177 Potash Corporation of Saskatchewan, Inc. 1,160 74,388 Royal Bank of Canada 3,570 177,919 Seagram Co., Ltd. 1,650 62,573 Shaw Communications, Inc., Class B 6,580 158,931 TransCanada Pipelines Ltd. 9,090 132,858 Westcoast Energy, Inc. 2,650 52,621 ------------- 1,961,672 ------------- Denmark -- 0.11% Den Danske Bank Group 390 52,392 Tele Danmark A/S 3,960 534,471 ------------- 586,863 ------------- Finland -- 0.55% Merita Ltd., Class A 70,330 447,254 Nokia Oyj-A Shares 14,780 1,809,772 UPM-Kymmene Corp. 19,770 554,438 ------------- 2,811,464 ------------- France -- 2.11% Air Liquide 3,495 641,290 Alcatel Alsthom 5,472 670,017 Axa 4,918 713,111 Banque Nationale de Paris 6,639 546,931 Cie de Saint Gobain 2,527 356,916 Dexia France 2,489 383,629 Elf Aquitaine S.A. 3,564 412,149 France Telecom S.A. 7,100 564,319 Groupe Danone 1,500 429,630 Lagardere S.C.A. 15,800 671,745 Michelin, Class B 6,819 272,823 Paribas 3,565 309,964 Pinault-Printemps-Redoute S.A. 1,740 332,663 Rhone-Poulenc, Class A 10,304 530,491 SEITA 12,900 808,242 Societe Generale 2,735 443,087 Shares Value ------------ --------------- Suez Lyonnaise des Eaux S.A. 3,801 $ 781,130 Thomson CSF 11,460 492,356 Total S.A., Class B 4,796 485,936 Vivendi 3,634 943,271 ------------- 10,789,700 ------------- Germany -- 2.26% Allianz AG 4,654 1,732,397 Bayer AG 39,930 1,676,935 DaimlerChrysler AG (b) 10,356 1,029,052 DaimlerChrysler AG (b) 2,300 228,533 Deutsche Bank AG 8,581 506,329 Deutsche Telekom AG 24,060 790,877 Dresdner Bank AG 11,120 466,004 Hoechst AG 12,630 522,459 Mannesmann AG (b) 9,280 1,073,919 SAP AG 920 397,695 Siemens AG 19,850 1,304,980 Veba AG 21,739 1,288,208 Volkswagen AG 6,870 556,001 ------------- 11,573,389 ------------- Italy -- 0.87% Assicurazioni Generali 22,800 954,066 Danieli & Co. Savings (Risp) 22,000 87,790 ENI Spa 160,000 1,047,945 ENI Spa ADR 3,070 207,992 La Rinascente Spa 56,740 584,797 Montedison Spa 351,700 468,168 San Paolo-imi, Spa 28,511 504,882 Telecom Italia Mobile Spa 83,000 614,091 ------------- 4,469,731 ------------- Japan -- 1.11% Acom Co., Ltd. 1,000 64,362 Amada Co., Ltd. 11,000 53,342 Bridgestone Corp. 3,000 68,218 Canon, Inc. 10,000 214,096 Citizen Watch Co., Ltd. 9,000 54,255 Dai Nippon Printing Co., Ltd. 10,000 159,752 Daiichi Pharmaceutical Co., Ltd. 9,000 152,314 Daikin Industries Ltd. 11,000 109,220 Daiwa House Industry Co., Ltd. 5,000 53,324 Fanuc 5,000 171,543 Fuji Photo Film 2,000 74,468 Fujitsu 6,000 80,053 Honda Motor Co. 5,000 164,450 Hoya Corp. 3,000 146,277 Ito Yokado Co., Ltd. 5,000 350,177 Kaneka Corp. 10,000 75,089 Kao Corp. 4,000 90,426 Kirin Brewery Co., Ltd. 12,000 153,191 Kokuyo 4,000 53,936 Kuraray Co., Ltd. 13,000 143,715 Marui Co., Ltd. 6,000 115,691 Matsushita Electric Industrial Co. 13,000 230,381 NGK Insulators 18,000 232,500 Nintendo Corp., Ltd. 1,900 184,442 Nippon Denso Co., Ltd. 9,000 166,755 12 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Nippon Meat Packers, Inc. 7,000 $ 112,943 Omron Corp. 4,000 54,894 Sankyo Co., Ltd. 8,000 175,177 Secom Co., Ltd. 3,000 248,936 Sega Enterprises Ltd. 2,000 44,415 Sekisui House Ltd. 9,000 95,346 Shin-Etsu Chemical Co., Ltd. 2,000 48,227 Sony Corp. 3,000 218,883 Sumitomo Chemical Co. 13,000 50,709 Sumitomo Electric Industries 8,000 90,142 Takeda Chemical Industries 7,000 269,947 TDK Corp. 2,000 183,156 Tokio Marine & Fire Insurance Co. 10,000 119,681 Toray Industries, Inc. 29,000 151,684 Toshiba Corp. 26,000 155,124 Toyota Motor Corp. 8,000 217,731 Yamato Transport Co., Ltd. 4,000 56,028 ------------- 5,655,000 ------------- Malaysia -- 0.00% Malayan Banking Bhd 6,000 8,508 ------------- Netherlands -- 1.43% ABN AMRO Holdings NV 21,690 456,522 Elsevier NV 41,870 586,765 Heineken NV 14,252 858,142 ING Groep NV 25,020 1,526,504 KPN NV 25,009 1,252,649 Royal Dutch Petroleum Co. 37,790 1,882,754 Unilever NV 8,530 729,507 ------------- 7,292,843 ------------- New Zealand -- 0.73% Auckland International Airport Ltd. (b) 104,950 146,930 Brierley Investments Ltd. 703,970 159,920 Carter Holt Harvey Ltd. 368,840 331,260 Fletcher Challenge Building 101,985 157,865 Fletcher Challenge Energy 134,315 255,451 Fletcher Challenge Paper 232,730 156,148 Lion Nathan Ltd. 132,020 336,875 Telecom Corp. of New Zealand Ltd. 474,110 2,066,401 Telecom Corp. of New Zealand Ltd. ADR 2,790 99,568 ------------- 3,710,418 ------------- Norway -- 0.07% Norsk Hydro ASA 4,890 164,947 Norske Skogindustrier ASA 6,550 190,852 ------------- 355,799 ------------- Singapore -- 0.22% Oversea-Chinese Banking Corp., Ltd. 200 1,357 Singapore Press Holdings Ltd. 64,819 703,190 United Overseas Bank Ltd. (Frgn.) 66,360 426,313 ------------- 1,130,860 ------------- Spain -- 0.36% Banco Popular Espanol S.A. 6,991 527,918 Endesa S.A. 36,238 961,603 Shares Value ------------ --------------- Telefonica S.A. 8,117 $ 361,467 Telefonica S.A. Rights (expiring 1/30/99) (b) 162 144 ------------- 1,851,132 ------------- Sweden -- 0.80% Astra AB, A Shares 30,020 612,933 Electrolux AB, B Shares 37,840 651,223 Investor AB 9,730 439,337 Nordbanken Holding AB 53,470 343,019 Skandia Forsakrings AB 45,320 693,291 Svenska Handelsbanken, A Shares 4,710 198,724 Swedish Match AB 133,390 485,455 Telefonaktiebolaget LM Ericsson, B Shares 27,220 648,111 ------------- 4,072,093 ------------- Switzerland -- 1.45% Julius Baer Holding AG 90 299,126 Nestle S.A. (Reg.) 819 1,782,898 Novartis AG (Reg.) 1,207 2,372,697 Roche Holding AG (Gen.) 111 1,354,467 Swiss Reinsurance Co. (Reg.) 287 748,269 SwissCom AG (Reg.) (b) 2,026 848,161 ------------- 7,405,618 ------------- United Kingdom -- 4.28% Allied Zurich AG (b) 44,052 657,082 Barclays PLC 31,050 669,531 Billiton PLC 33,230 65,931 BOC Group PLC 36,350 519,821 Booker PLC 68,440 71,169 Boots Company PLC 38,230 651,023 British American Tobacco PLC 27,842 244,821 British Petroleum Co. PLC 83,873 1,252,450 British Steel PLC 322,950 478,222 Cable & Wireless PLC 24,000 295,093 Charter PLC 63,676 349,618 Coats Viyella PLC 269,970 121,278 Diageo PLC 45,209 514,499 Fairview Holdings PLC (b) 43,937 65,062 FKI PLC 239,040 532,941 Garban PLC (b) 3,489 13,294 General Electric Co. PLC 95,360 860,736 Glaxo Wellcome PLC 46,260 1,591,696 Greenalls Group PLC 43,620 232,604 Hanson PLC 82,982 658,922 Hillsdown Holdings PLC 69,775 87,069 House of Fraser PLC 124,780 110,033 Lloyds TSB Group PLC 120,969 1,720,854 Marks & Spencer PLC 142,060 974,398 Mirror Group PLC 144,390 360,957 National Westminster Bank PLC 27,430 528,948 Nycomed Amersham PLC 57,844 398,440 Peninsular & Oriental Steam Navigation Co. 23,540 278,275 Prudential Corp. PLC 84,540 1,276,476 Reed International PLC 51,010 398,894 Rio Tinto Ltd. 43,190 502,301 RJB Mining PLC 99,590 129,245 Royal & Sun Alliance Insurance Group PLC 35,073 286,376 13 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Sainsbury (J.) PLC 27,300 $ 218,821 Scottish Hydro-Electric PLC 81,880 922,295 SmithKline Beecham PLC 68,810 961,689 Smurfit (Jefferson) Group PLC 70,517 126,713 Terranova Foods PLC (b) 30,937 56,621 Tesco PLC 249,190 710,011 Thames Water PLC 29,997 573,957 Thames Water PLC, Class B (b) 29,370 36,894 United News & Media PLC 32,490 284,881 Vodafone Group PLC 21,678 352,025 Williams PLC 39,463 224,061 Yorkshire Water PLC 54,080 494,884 ------------- 21,860,911 Total Global (ex-U.S.) Equities 93,774,825 ------------- Emerging Markets Equities -- 3.01% Brinson Emerging Markets Equity Fund (b) 2,194,457 15,364,050 ------------- Total Equities (Cost $237,656,681) 266,363,178 ------------- Face Amount ------------ Bonds -- 45.45% U.S. Bonds -- 21.78% U.S. Corporate Bonds -- 6.85% Aid-Israel, Series 10-Z, 0.000%, due 02/15/03 $ 4,935,000 4,046,843 Asset Securitization Corp., 7.210%, due 10/13/26 1,695,000 1,813,921 Capital One Bank, 6.830%, due 05/17/99 1,321,000 1,324,938 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02 730,000 739,753 Chemical Master Credit Card Trust, 6.230%, due 06/15/03 1,055,000 1,072,745 Chesapeake & Potomac Telephone of Maryland, 8.000%, due 10/15/29 78,000 97,504 Citicorp, Series F, 6.200%, due 11/10/00 355,000 360,736 Continental Airlines, Inc., EETC 6.900%, due 01/02/18 1,495,000 1,519,548 98-1B, 6.748%, due 09/15/18 175,000 175,205 Enron Corp., 6.750%, due 09/01/04 250,000 257,175 Floating Rate Note, due 03/30/00 5,000,000 5,000,000 Fanniemae Whole Loan, 95-W3, Class A, 9.000%, due 04/25/25 27,659 28,824 First Bank Corporate Card Master Trust, 97-1A, 6.400%, due 02/15/03 1,055,000 1,084,118 First Nationwide Trust, 98-3, Class 1PPA, 6.500%, due 09/19/28 1,527,896 1,529,271 Ford Credit Grantor Trust 95-B, 5.900%, due 01/01/80 29,110 29,177 General Motors Acceptance Corp., 9.625%, due 12/15/01 241,000 268,066 Lehman Brothers, Inc., 7.250%, due 04/15/03 510,000 525,330 LG&E Capital Corp., 144A, 5.750%, due 11/01/01 215,000 214,153 MBNA Global Capital Securities FRN, 6.019%, due 02/01/27 810,000 745,413 Face Value Value ------------ --------------- News America Holdings, 7.750%, due 12/01/45 $ 1,027,000 $ 1,090,730 Norwest Asset Securities Corp., 96-2, Class A9, 7.000%, due 09/25/11 435,000 444,249 PanAMSat Corp., 6.000%, due 01/15/03 225,000 223,232 Premier Auto Trust 96-3A, 6.500%, due 03/06/00 60,120 60,252 Prudential Home Mortgage Securities, 94-3, Class A10, 6.500%, due 02/25/24 730,000 728,007 Residential Asset Securitization Trust, 97-A11, Class A2, 7.000%, due 01/25/28 142,711 143,234 97-A7, Class A1, 7.500%, due 09/25/27 550,980 555,911 97-A7, Class A1, 7.250%, due 12/25/27 1,080,000 1,101,377 Salomon, Inc., 7.200%, due 02/01/04 1,475,000 1,549,569 Structured Asset Securities Corp. 98-RF1, Class A, 8.712%, due 03/15/27 1,264,071 1,356,507 98-RF2, 144A, 8.582%, due 07/15/27 1,604,269 1,716,568 Thrift Financial Corp., 11.250%, due 01/01/16 67,492 70,906 Time Warner Entertainment, Inc., 8.375%, due 03/15/23 886,000 1,083,667 TransAmerica Financial Corp. Series E, 6.125%, due 11/01/01 405,000 406,707 UCFC Home Equity Loan 97-C, Class A8, FRN, 5.478%, due 09/15/27 1,137,833 1,126,898 Vendee Mortgage Trust, 98-2, Class 1G, 6.750%, due 06/15/28 1,760,000 1,811,847 Viacom, Inc., 7.750%, due 06/01/05 610,000 666,071 ------------- 34,968,452 ------------- International Dollar Bonds -- 2.01% Abbey National PLC, 6.700%, Resettable Perpetual Step-up Notes 1,075,000 1,052,926 ABN AMRO Bank NV (Chicago), 6.625%, due 10/31/01 230,000 235,030 Banco Santiago S.A., 7.000%, due 07/18/07 1,000,000 837,979 Banque Centrale de Tunisie, 8.250%, due 09/19/27 785,000 628,000 Banque Paribas, Sub. Notes, 6.875%, due 03/01/09 175,000 177,982 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 600,000 600,000 Empresa Nacional Electric, 7.875%, due 02/01/27 166,000 138,575 International Telecom Satelite, 8.125%, due 02/28/05 245,000 276,502 Korea Development Bank, 7.125%, due 09/17/01 180,000 169,796 Pan Pacific Industry PLC 144A, 0.000%, due 04/28/07 1,565,000 618,175 Province of Quebec, 7.500%, due 07/15/23 530,000 606,055 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14 1,000,000 824,260 14 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Value Value ------------ --------------- Repsol International Finance, 7.000%, due 08/01/05 $ 575,000 $ 620,673 Republic of South Africa, 9.625%, due 12/15/99 794,000 809,880 Royal Bank of Scotland, 7.375%, Resettable Perpetual Step-up Notes 505,000 519,853 Skandinaviska Enskilda Banken, 144A, Resettable Perpetual Step-up Notes 415,000 404,607 Sociedad Quimica y Minera de Chiles S.A., 144A, 7.700%, due 09/15/06 900,000 792,717 Southern Investments UK, 6.800%, due 12/01/06 915,000 948,820 ------------- 10,261,830 ------------- U.S. Government Agencies -- 4.17% Federal Home Loan Mortgage Corp. 6.200%, due 08/15/07 510,000 512,055 7.500%, due 01/15/23 854,458 900,771 7.238%, due 05/01/26 162,387 165,062 Federal Home Loan Mortgage Corp. Gold 8.000%, due 11/01/22 97,255 100,659 8.000%, due 05/01/23 948,691 984,950 9.000%, due 03/01/24 697,379 741,509 Federal National Mortgage Association 6.361%, due 06/01/08 1,631,338 1,699,854 9.000%, due 08/01/21 206,941 219,548 8.500%, due 07/01/22 441,957 468,410 8.500%, due 02/01/28 1,232,583 1,291,131 7.000%, due 10/01/28 996,959 1,016,275 Federal National Mortgage Assoc. Strips 0.000%, due 04/01/27 1,155,933 1,016,212 6.220%, due 03/13/06 1,370,000 1,452,396 7.500%, due 05/01/23 1,253,190 201,159 Federal National Mortgage Association 8.000%, due 02/25/07 1,380,276 1,407,560 8.000%, due 05/25/21 1,300,000 1,331,623 8.500%, due 07/15/21 667,754 690,278 8.000%, due 05/01/22 89,847 93,020 7.500%, due 07/25/22 2,336,416 2,455,620 FGGI, 7.500%, due 10/01/11 1,035,686 1,065,462 FNCI, 8.000%, due 02/01/13 748,552 771,476 Government National Mortgage Association 10.000%, due 09/15/00 2,022 2,141 10.000%, due 05/15/01 3,001 3,178 9.000%, due 11/15/04 9,339 9,806 9.000%, due 11/15/04 4,482 4,706 8.000%, due 08/15/22 375,930 391,421 8.000%, due 11/15/22 295,275 307,674 7.500%, due 11/15/24 1,953,955 2,014,455 ------------- 21,318,411 ------------- U.S. Government Obligations -- 8.75% U.S. Treasury Notes and Bonds 6.625%, due 05/15/07 135,000 151,833 8.000%, due 11/15/21 5,915,000 7,924,255 Face Amount Value ------------ --------------- U.S. Treasury Inflation Indexed Note 3.625%, due 01/15/08 $35,665,000 $ 35,489,403 3.625%, due 04/15/28 1,170,000 1,155,854 ------------- 44,721,345 ------------- Total U.S. Bonds 111,270,038 ------------- Shares ------------ High Yield Bonds -- 3.01% Brinson High Yield Fund (b) 1,168,955 15,399,222 ------------- Face Amount ------------ Global (ex-U.S.) Bonds -D 15.19% Australia -- 1.48% Government of Australia 9.500%, due 08/15/03 AUD 4,020,000 2,946,856 10.000%, due 02/15/06 4,020,000 3,208,237 Queensland Treasury Corp.-Global Notes, 8.000%, due 05/14/03 2,010,000 1,376,261 ------------- 7,531,354 ------------- Canada -- 1.59% Government of Canada 7.500%, due 09/01/00 CAD 500,000 339,248 8.750%, due 12/01/05 1,950,000 1,555,900 7.000%, due 12/01/06 2,640,000 1,955,181 4.250%, due 12/01/21 5,090,000 3,729,684 Hydro-Quebec, 8.050%, due 07/07/24 450,000 545,427 ------------- 8,125,440 ------------- Denmark -- 1.52% Kingdom of Denmark 9.000%, due 11/15/00 DKK 7,400,000 1,266,179 7.000%, due 12/15/04 3,780,000 684,730 8.000%, due 03/15/06 30,070,000 5,826,432 ------------- 7,777,341 ------------- France -- 2.13% Government of France (BTAN), 5.750%, due 03/12/01 FRF 12,400,000 2,338,735 Government of France (OAT) 9.500%, due 01/25/01 9,740,000 1,963,274 7.500%, due 04/25/05 7,330,000 1,591,915 8.500%, due 12/26/12 19,120,000 4,999,567 ------------- 10,893,491 ------------- Germany --- 2.23% Bundesrepublik Deutscheland 8.500%, due 08/21/00 DEM 1,130,000 734,880 8.375%, due 05/21/01 2,880,000 1,931,412 6.250%, due 01/04/24 1,630,000 1,188,541 DSL Finance NV, 5.250%, due 04/15/04 3,095,000 1,999,876 Treuhandanstalt, 6.250%, due 03/04/04 8,200,000 5,563,653 ------------- 11,418,362 ------------- 15 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Value Value ------------ --------------- Italy -- 1.07% Buoni Poliennali Del Tes, 8.500%, due 08/01/04 ITL 3,220,000,000 $ 2,434,435 Republic of Italy (BTP) 12.000%, due 09/01/02 625,000,000 486,676 8.500%, due 04/01/04 3,447,000,000 2,558,479 ------------- 5,479,590 ------------- Spain -- 1.82% Government of Spain 6.750%, due 04/15/00 ESP 393,000,000 2,897,529 7.900%, due 02/28/02 105,000,000 844,213 8.000%, due 05/30/04 225,000,000 1,940,189 6.150%, due 01/31/13 434,000,000 3,616,064 ------------- 9,297,995 ------------- Sweden -- 1.09% Government of Sweden 10.250%, due 05/05/03 SEK 29,400,000 4,561,791 6.750%, due 05/05/14 6,400,000 984,066 ------------- 5,545,857 ------------- United Kingdom -- 2.26% UK Treasury 8.500%, due 12/07/05 GBP 3,420,000 7,060,439 8.500%, due 07/16/07 900,000 1,916,710 7.250%, due 12/07/07 900,000 1,800,659 8.750%, due 08/25/17 300,000 767,433 ------------- 11,545,241 ------------- Total Global (ex-U.S.) Bonds 77,614,671 ------------- Shares ------------ Emerging Markets Debt -- 5.47% Brinson Emerging Markets Debt Fund (b) 1,594,099 27,921,446 ------------- Total Bonds (Cost $260,497,023) 232,205,377 ------------- Face Amount ------------ Short-Term Investments -- 23.31% U.S. Government Obligations -- 0.58% U.S. Treasury Bill 4.320%, due 02/25/99 $ 3,000,000 2,981,367 Commercial Paper -- 13.78% Case Credit, 5.950% due 02/23/99 5,000,000 4,956,201 Corning, Inc., 5.100% due 01/04/99 5,125,000 5,122,822 Crown, Cork & Seal, 5.650% due 02/25/99 5,000,000 4,956,840 Detroit Edison, 5.250% due 01/4/99 3,700,000 3,698,381 Excel Paralubes, 5.650% 01/4/99 10,000,000 9,995,292 Marriott International, 5.700% 01/11/99 5,000,000 4,992,084 Norfolk Southern, 6.000%, due 01/11/99 950,000 948,417 6.050%, due 01/29/99 2,000,000 1,990,589 Raytheon Co. 5.600%, due 01/22/99 1,000,000 997,366 Face Value Value ------------ --------------- Seagrams, 6.100%, due 01/29/99 $ 5,000,000 $ 4,976,278 7.000%, due 01/07/99 5,000,000 4,994,167 Tenneco, Inc., 6.450%, due 01/08/99 5,000,000 4,993,729 Texas Utilities Co. 5.500%, due 01/29/99 5,000,000 4,978,611 Times Mirror, 5.750%, due 01/08/99 1,106,000 1,104,763 Union Carbide, 6.130%, due 01/04/99 5,000,000 4,997,446 Union Pacific Resources, 5.670%, due 01/29/99 5,000,000 4,977,950 Vastar Resources, 5.100%, due 01/22/99 1,733,000 1,727,844 ------------- 70,408,780 ------------- U.S. Corporate Bonds -- 7.36% Burlington North Santa Fe, Variable Rate, due 05/13/99 5,000,000 5,000,000 Burlington Resources, 6.875%, due 08/01/99 2,000,000 2,011,995 Dayton Hudson Co., 7.500%, due 03/01/99 1,000,000 1,002,654 FMC Corp., 8.750%, due 04/01/99 2,880,000 2,899,210 James River Corp., 6.750%, due 10/01/99 1,000,000 1,007,596 Lehman Brothers, Inc., 6.300%, due 08/11/99 2,000,000 2,005,500 6.920%, due 10/04/99 3,000,000 3,022,342 Lockheed Martin Corp., 6.550%, due 05/15/99 6,000,000 6,013,422 Nabisco, Inc., 6.300%, due 8/26/99 1,000,000 1,003,331 Sonat, Inc., 9.500%, due 08/15/99 2,000,000 2,042,731 Supervalu Stores, Inc., 7.250%, due 07/15/99 2,000,000 2,014,276 Ultramar Corp., 8.250%, due 07/01/99 1,500,000 1,517,272 Union Carbide, 7.000%, due 08/01/99 5,000,000 5,031,435 Union Oil Of California, 7.240%, due 04/01/99 3,000,000 3,009,855 ------------- 37,581,619 ------------- Investment Companies -- 1.59% Brinson Supplementary Trust U.S. Cash Management Prime Fund 8,124,241 8,124,241 ------------- Total Short-Term Investments (Cost $81,512,130) 119,096,007 ------------- Total Investments (Cost $579,665,834) -- 120.89% (a) 617,664,562 ------------- Liabilities, less cash and other assets -- (20.89)% (106,728,507) ------------- Net Assets -- 100% $ 510,936,055 ============= See accompanying notes to Schedule of Investments. 16 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $579,665,834; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 61,012,536 Gross unrealized depreciation (23,013,808) ------------ Net unrealized appreciation $ 37,998,728 ============ (b) Non-income producing security. FRN: Floating Rate Note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $6,217,285 or 1.22% of net assets. Resettable Perpetual Step-up Notes: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Fund had the following open forward foreign currency contracts as of December 31, 1998: Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ----------- -------- ------- ----------- Forward Foreign Currency Buy Contracts Australian Dollar 02/05/99 46,200,000 $ 28,347,732 $ (310,442) British Pound 02/05/99 7,100,000 11,799,508 (128,742) Canadian Dollar 02/05/99 38,300,000 24,937,331 (413,476) Danish Kroner 02/05/99 22,200,000 3,491,472 (25,553) German Mark 02/05/99 58,100,000 34,943,795 1,498,421 Japanese Yen 02/05/99 1,560,000,000 13,895,569 2,198,529 Netherlands Guilder 02/05/99 13,600,000 7,259,528 (62,360) Swedish Krona 02/05/99 135,000,000 16,680,670 (832,465) Swiss Franc 02/05/99 5,000,000 3,653,715 223,654 Forward Foreign Currency Sale Contracts Australian Dollar 02/05/99 7,817,000 4,796,258 (392,309) British Pound 02/05/99 23,000,000 38,223,759 (792,229) Canadian Dollar 02/05/99 9,200,000 5,990,168 162,032 Danish Kroner 02/05/99 70,500,000 11,087,782 (568,534) French Franc 02/05/99 34,000,000 6,097,156 (310,907) German Mark 02/05/99 67,800,000 40,777,785 (732,368) Japanese Yen 02/05/99 1,560,000,000 13,895,569 (672,989) Netherlands Guilder 02/05/99 13,600,000 7,259,528 (375,544) Spanish Peseta 02/05/99 600,000,000 4,241,885 46,586 Swedish Krona 02/05/99 21,000,000 2,594,771 21,237 Swiss Franc 02/05/99 5,000,000 3,653,715 1,255 ----------- Total $(1,466,204) =========== 17 Global Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- FUTURES CONTRACTS The Global Fund had the following open futures contracts as of December 31, 1998:
Settlement Cost/ Current Unrealized Date Proceeds Value Gain/(Loss) ----------- -------- -------- ----------- Futures Buy Contracts 5 year U.S. Treasury Note, 312 contracts March 1999 $ 35,289,052 $35,363,250 $ 74,198 10 year U.S. Treasury Note, 60 contracts March 1999 7,117,920 7,149,375 31,455 30 year U.S. Treasury Bonds, 41 contracts March 1999 5,251,256 5,239,031 (12,225) Index Futures Sales Contracts Standard & Poor's 500, 163 contracts March 1999 47,615,392 50,754,125 (3,138,733) ----------- Total $(3,045,305) ===========
The market value of investments pledged to cover margin requirements for the open futures positions at December 31, 1998 was $2,981,367. See accompanying notes to financial statements. 18 Global Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED)
ASSETS: Investments, at value: Unaffilliated issuers (Cost $502,549,359) $ 544,839,699 Affilliated issuers (Cost $77,116,475) 72,824,863 Cash 589,467 Foreign currency, at value (Cost $888,209) 848,944 Receivables: Investment securities sold 4,437,224 Dividends 564,221 Interest 3,684,828 Fund shares sold 51,518 Other assets 49,823 ------------- TOTAL ASSETS 627,890,587 ------------- LIABILITIES: Payables: Securities loaned 111,993,032 Investment securities purchased 2,847,196 Investment advisory fees 344,091 Variation margin 150,423 Accrued expenses 153,586 Net unrealized depreciation on forward foreign currency contracts 1,466,204 TOTAL LIABILITIES 116,954,532 ------------- NET ASSETS $ 510,936,055 ============= NET ASSETS CONSIST OF: Paid in capital $ 471,475,723 Accumulated distribution in excess of net investment income (8,716,455) Accumulated net realized gain 14,687,962 Net unrealized appreciation 33,488,825 ------------- NET ASSETS $ 510,936,055 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $482,171,091 and 40,853,135 shares issued and outstanding) $ 11.80 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,521,291 and 129,168 shares issued and outstanding) $ 11.78 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $27,243,673 and 2,318,602 shares issued and outstanding) $ 11.75 =============
See accompanying notes to financial statements. 19 Global Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Interest (net of $2,374 for foreign taxes withheld; including securities lending income of $173,798) $ 7,276,219 Dividends (net of $71,815 for foreign taxes withheld) 2,114,913 ------------ TOTAL INCOME 9,391,132 ------------ EXPENSES: Advisory 2,387,061 Administration 208,262 Distribution 93,124 Custodian 67,136 Professional 63,400 Other 116,031 ------------ TOTAL EXPENSES 2,935,014 ------------ NET INVESTMENT INCOME 6,456,118 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments 32,604,265 Futures contracts 641,645 Foreign currency transactions (4,173,116) ------------ Net realized gain 29,072,794 ------------ Change in net unrealized appreciation or depreciation on: Investments and foreign currency (29,165,044) Futures contracts (2,097,996) Forward contracts 2,070,460 Translation of other assets and liabilities denominated in foreign currency 26,013 ------------ Change in net unrealized appreciation or depreciation (29,166,567) ------------ Net realized and unrealized loss (93,773) ------------ Net increase in net assets resulting from operations $ 6,362,345 ============ See accompanying notes to financial statements. 20 Global Fund -- Financial Statements STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Interest received $ 11,059,378 Expenses paid (3,093,522) Purchases of long-term portfolio investments (258,143,687) Proceeds from sales of long-term portfolio investments 437,460,077 Net purchases in excess of proceeds from sales of short-term portfolio investments 36,387,615 Net cash from foreign currency and futures transactions (2,938,739) ------------- Net cash provided by operating activities 220,731,122 ------------- CASH FLOWS USED FOR FINANCING ACTIVITIES: Net capital shares transactions (147,376,349) Net cash provided by securities loaned 7,046,988 Net cash used for commercial paper (32,491,443) Cash dividends paid to shareholders (47,336,204) ------------- Net cash used for financing activities (220,157,008) ------------- Net increase in cash 574,114 Cash at beginning of period 15,353 ------------- Cash at end of period $ 589,467 ============= RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net increase in net assets resulting from operations $ 6,362,345 Decrease in investments 212,943,573 Net realized gain on investment transactions 32,604,265 Net change in unrealized appreciation on investments (29,166,567) Net realized loss on foreign currency transactions (4,173,116) Net realized gain on futures contracts 641,645 Decrease in interest receivable (1,668,246) Accretion of discount (711,301) Amortization of premium 888,608 Decrease in prepaid assets 5,296 Decrease in investment advisory fee payable 121,351 Decrease in accrued expenses and other liabilities 2,883,269 ------------- Total adjustments 214,368,777 ------------- Net cash provided by operating activities $ 220,731,122 ============= See accompanying notes to financial statements. 21 Global Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 6,456,118 $ 17,956,852 Net realized gain 29,072,794 39,774,075 Change in net unrealized appreciation or depreciation (29,166,567) (6,545,821) ------------- ------------- Net increase in net assets resulting from operations 6,362,345 51,185,106 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income (6,456,118) (28,265,915) Distributions in excess of net investment income (7,870,965) (5,070,122) Distributions from net realized gain (33,009,121) (35,465,456) ------------- ------------- Total distributions to shareholders* (47,336,204) (68,801,493) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Shares sold 167,229,603 256,422,880 Shares issued on reinvestment of distributions 44,653,081 64,950,197 Shares redeemed (359,315,493) (217,384,769) ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (147,432,809) 103,988,308 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (188,406,668) 86,371,921 ------------- ------------- NET ASSETS: Beginning of period 699,342,723 612,970,802 End of period (including accumulated distribution in excess of net investment income of $8,716,455 and $845,490, respectively) $ 510,936,055 $ 699,342,723 ============= ============= *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I (13,661,783) (32,129,657) Brinson Class N (40,903) (9,572) UBS Investment Funds Class (624,397) (1,196,808) Distributions from net realized gain Brinson Class I (31,201,392) (33,973,096) Brinson Class N (97,443) (53) UBS Investment Funds Class (1,710,286) (1,492,307) ------------- ------------- Total distributions to shareholders $ (47,336,204) $ (68,801,493) ============= =============
See accompanying notes to financial statements. 22 Global Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, December 31, 1998 ------------------------------------------------------- Brinson Class I (Unaudited) 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.77 $ 13.13 $ 12.22 $ 11.35 $ 10.43 $ 10.87 ------- -------- -------- -------- -------- ------- Income from investment operations: Net investment income 0.18 0.37 0.38 0.44 0.43 0.33 Net realized and unrealized gain (loss) 0.05 0.62 1.79 1.37 0.86 (0.23) ------- -------- -------- -------- -------- ------- Total income from investment operations 0.23 0.99 2.17 1.81 1.29 0.10 ------- -------- -------- -------- -------- ------- Less distributions: Distributions from and in excess of net investment income (0.37) (0.65) (0.61) (0.62) (0.27) (0.27) Distributions from and in excess of net realized gains (0.83) (0.70) (0.65) (0.32) (0.10) (0.27) ------- -------- -------- -------- -------- ------- Total distributions (1.20) (1.35) (1.26) (0.94) (0.37) (0.54) ------- -------- -------- -------- -------- ------- Net asset value, end of period $ 11.80 $ 12.77 $ 13.13 $ 12.22 $ 11.35 $ 10.43 ======= ======== ======== ======== ======== ======= Total return (non-annualized) 1.99% 8.28% 18.79% 16.38% 12.57% 0.77% Ratios/Supplemental data: Net assets, end of period (in 000s) $482,171 $667,745 $586,667 $457,933 $365,678 $278,859 Ratio of expenses to average net assets: Before expense reimbursement 0.95%* 0.94% 0.99% 1.04% 1.09% 1.14% After expense reimbursement N/A N/A N/A N/A N/A 1.10% Ratio of net investment income to average net assets: Before expense reimbursement 2.20%* 2.70% 3.03% 3.69% 4.27% 3.21% After expense reimbursement N/A N/A N/A N/A N/A 3.25% Portfolio turnover rate 41% 88% 150% 142% 238% 231%
* Annualized N/A = Not applicable See accompanying notes to financial statements. 23 Global Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - --------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.75 $ 13.13 ------- ------- Income from investment operations: Net investment income 0.14 0.63 Net realized and unrealized gain 0.08 0.32 ------- ------- Total income from investment operations 0.22 0.95 ------- ------- Less distributions: Distributions from and in excess of net investment income (0.36) (0.63) Distributions from net realized gain (0.83) (0.70) ------- ------- Total distributions (1.19) (1.33) ------- ------- Net asset value, end of period $ 11.78 $ 12.75 ======= ======= Total return (non-annualized) 1.88% 7.90% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 1,521 $ 1,163 Ratio of expenses to average net assets 1.20%** 1.19% Ratio of net investment income to average net assets 1.95%** 2.45% Portfolio turnover rate 41% 88%
* Commencement of Brinson Class N was June 30, 1997. ** Annualized See accompanying notes to financial statements. 24 Global Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, begining of period $ 12.71 $ 13.05 $ 12.18 $ 11.60 ------- ------- ------- ------- Income from investment operations: Net investment income 0.13 0.30 0.34 0.39 Net realized and unrealized gain 0.05 0.61 1.75 1.10 ------- ------- ------- ------- Total income from investment operations 0.18 0.91 2.09 1.49 ------- ------- ------- ------- Less distributions: Distributions from and in excess of net investment income (0.31) (0.55) (0.57) (0.59) ------- ------- ------- ------- Distributions from net realized gain (0.83) (0.70) (0.65) (0.32) ------- ------- ------- ------- Total distributions (1.14) (1.25) (1.22) (0.91) ------- ------- ------- ------- Net asset value, end of period $ 11.75 $ 12.71 $ 13.05 $ 12.18 ======= ======= ======= ======= Total return (non-annualized) 1.59% 7.60% 18.13% 12.24% Ratios/Supplemental Data: Net assets, end of period (in 000s) $27,244 $30,436 $26,303 $14,030 Ratio of expenses to average net assets 1.60%** 1.59% 1.64% 1.69%** Ratio of net investment income to average net assets 1.55%** 2.05% 2.38% 3.04%** Portfolio turnover rate 41% 88% 150% 142%
* Commencement of UBS Investment Funds Class ** Annualized See accompanying notes to financial statements. 25 Global Fund -- Financial Highlights [BRINSON LOGO APPEARS HERE] The Global Equity Fund is actively managed, providing a fully integrated approach to the developed equity markets across the world. We employ fundamental valuation models to determine the relative attractiveness of aggregate markets, as well as of individual stocks. Our portfolio construction process simultaneously sets country, currency, industry/factor and stock selection strategies. This interactive investment process has evolved within the context of an environment marked by growing globalization and increasingly integrated economies, industries and capital markets. The Brinson Global Equity Fund Class I has provided an annualized return of 11.75% since its performance inception on January 31, 1994, compared to the 14.85% return for the benchmark, the MSCI World Equity (Free) Index. This performance was achieved with a volatility of 10.56%, well below the 12.83% volatility of the benchmark. For the full year, the Fund gained 14.03%, lagging the index's return of 24.62%. With the exception of the Pacific Rim and several small markets, most developed equity markets enjoyed solid market performance. The EMU and North America both gained over 29%, in local terms. The U.S. market has been remarkably resilient, continuing an unprecedented bull market underpinned by various one-time events. This market is extremely overvalued; the U.S. is our largest underweight. Monetary Union, privatization, restructuring, merger activity and increased capital flows have boosted European equity markets. Despite their excellent performance, European corporations are still early into their restructuring, with the potential for improving profitability ahead. Europe is our largest overweight. Most Pacific markets continued to suffer the consequences of last year's currency crisis. This situation has been aggravated in Japan by flawed macroeconomic policies, a largely insolvent financial sector and an unprofitable domestic corporate sector. We remain very underweight Japan, Hong Kong and Singapore. In comparison, Australia and New Zealand have been unduly impacted by their geographic proximity to Asia and are attractively priced. We maintain an overweight in these markets. Market allocation made a small positive contribution. The overweight of Belgium and Finland and underweight of Japan were successful strategies, but the overweight to New Zealand cost returns. Currency management decreased returns somewhat due to underweights of the yen and overweights of the New Zealand dollar and Australian dollar. Stock selection had an important impact on the year's performance. Japan stock selection was positive, but both the U.S. and the U.K. were negative. Japan was helped by the significant underweight to banks, overweight to blue chips and stock specific returns. U.S. stock selection was responsible for most of the underperformance, disadvantaged by the underweight to size and the overweight to basic industries. 26 Global Equity Fund [BRINSON LOGO APPEARS HERE] Total Return 6 months 1 year 3 years 1/31/94* ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------- Brinson Global Equity Fund Class I 2.86% 14.03% 13.96% 11.75% - --------------------------------------------------------------------------- MSCI World Equity (Free) Index 6.72 24.62 18.06 14.85 - --------------------------------------------------------------------------- *Performance inception date of the Brinson Global Equity Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Equity Fund Class I and the MSCI World Equity (Free) Index if you had invested $1,000,000 on January 31, 1994, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Equity Fund Class Ivs. MSCI World Equity (Free) Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] MSCI World Brinson Global Equity (Free) Equity Fund Index Class I ------------- -------------- 31/01/94 1000000 1000000 28/02/94 986865 978000 31/03/94 944349 935000 31/05/94 974078 957000 30/06/94 976963 964000 31/07/94 974101 953025 31/08/94 992749 967085 30/09/94 1022751 1008259 31/10/94 995748 981144 30/11/94 1024396 983153 31/12/94 980245 957042 31/01/95 975025 942320 28/02/95 989499 957535 31/03/95 1037236 965650 30/04/95 1073521 991008 31/05/95 1083208 1004194 30/06/95 1082851 1010802 31/07/95 1137066 1057638 31/08/95 1111688 1075010 30/09/95 1144526 1094426 31/10/95 1126746 1092382 30/11/95 1166018 1131213 31/12/95 1200236 1166324 31/01/96 1222676 1201270 29/02/96 1230112 1206730 31/03/96 1250534 1227479 30/04/96 1279914 1261333 31/05/96 1280939 1264610 30/06/96 1287765 1270202 31/07/96 1242255 1229582 31/08/96 1256945 1251539 30/09/96 1306231 1293257 31/10/96 1315223 1297648 30/11/96 1389368 1363519 31/12/96 1367286 1367688 31/01/97 1384047 1379696 28/02/97 1399822 1398908 31/03/97 1371807 1392904 30/04/97 1416808 1401310 31/05/97 1504478 1484164 30/06/97 1579321 1540253 31/07/97 1652216 1590951 31/08/97 1540396 1517318 30/09/97 1624144 1582501 31/10/97 1538889 1496797 30/11/97 1565803 1495590 31/12/97 1584937 1514304 31/01/98 1629401 1539631 28/02/98 1739612 1634275 31/03/98 1812828 1700926 30/04/98 1830553 1698260 31/05/98 1808342 1692928 30/06/98 1850637 1678772 31/07/98 1847845 1670739 31/08/98 1601540 1487333 30/09/98 1630041 1511430 31/10/98 1777635 1611835 30/11/98 1883507 1673417 31/12/98 1975069 1726828 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 27 Global Equity Fund Total Return [BRINSON LOGO APPEARS HERE] 6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------- Brinson Global Equity Fund Class N 2.68% 13.63% 7.51% - --------------------------------------------------------------------- MSCI World Equity (Free) Index 6.72 24.62 16.08 - --------------------------------------------------------------------- *Inception date of the Brinson Global Equity Fund Class N. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Equity Fund Class N and the MSCI World Equity (Free) Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Equity Fund Class N vs. MSCI World Equity (Free) Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] MSCI World Brinson Global Equity (Free) Equity Fund Index Class N -------------- -------------- 6/30/97 $1,000,000 $1,000,000 7/31/97 $1,046,155 $1,032,915 8/31/97 $975,353 $984,326 9/30/97 $1,028,381 $1,026,646 10/31/97 $974,399 $970,219 11/30/97 $991,441 $969,436 12/31/97 $1,003,556 $981,339 1/31/98 $1,031,710 $996,889 2/28/98 $1,101,493 $1,058,222 3/31/98 $1,147,852 $1,101,415 4/30/98 $1,159,076 $1,098,823 5/31/98 $1,145,012 $1,096,232 6/30/98 $1,171,793 $1,085,985 7/31/98 $1,170,024 $1,080,785 8/31/98 $1,014,069 $962,046 9/30/98 $1,032,115 $976,780 10/31/98 $1,125,569 $1,040,917 11/30/98 $1,192,605 $1,080,785 12/31/98 $1,250,581 $1,115,067 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 28 Global Equity Fund [BRINSON LOGO APPEARS HERE] Market Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - -------------------------------------------- U.S. 51.0% 41.9% Australia 1.2 3.2 Austria 0.2 0.0 Belgium 0.9 2.0 Canada 1.8 1.2 Denmark 0.4 0.4 Finland 0.7 1.9 France 4.5 6.5 Germany 5.0 7.3 Hong Kong 1.0 0.0 Ireland 0.2 0.0 Italy 2.5 2.7 Japan 9.9 2.6 Netherlands 3.1 4.7 New Zealand 0.1 2.3 Norway 0.2 0.2 Portugual 0.3 0.0 Singapore 0.3 0.6 Spain 1.6 1.2 Sweden 1.2 2.6 Switzerland 3.8 4.6 United Kingdom 10.1 14.1 Cash Reserves 0.0 0.0 - -------------------------------------------- 100.0% 100.0% Top Ten U.S. Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------ 1. Xerox Corp. 2.54% 2. FDX, Corp. 1.78 3. Burlington Northern Santa Fe Corp. 1.76 4. Lockheed Martin Corp. 1.55 5. Philip Morris Companies, Inc. 1.46 6. Baxter International, Inc. 1.10 7. Kimberly Clark Corp. 1.07 8. Entergy Corp 1.01 9. CIGNA Corp. 0.98 10. Aon Corp. 0.98 - ----------------------------------------------- Currency Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ------------------------------------------------ U.S. 51.0% 48.0% Australia 1.2 5.0 Canada 1.8 5.8 Denmark 0.4 0.4 EMU 19.0 19.0 Hong Kong 1.0 0.0 Japan 9.9 3.9 New Zealand 0.1 2.3 Norway 0.2 0.2 Singapore 0.3 0.3 Sweden 1.2 5.2 Switzerland 3.8 3.8 United Kingdom 10.1 6.1 - ------------------------------------------------ 100.0% 100.0% Top Ten Global (ex-U.S.) Equity Holdings As of December 31, 1998 (Unaudited) Percent of Net Assets - ------------------------------------------------ 1. Novartis AG (Reg.) 1.50% 2. Telecom Corp. of New Zealand Ltd. 1.32 3. Royal Dutch Petroleum Co. 1.19 4. Nestle S.A. (Reg.) 1.13 5. Bayer AG 1.13 6. Nokia Oyj, A Shares 1.11 7. Lloyds TSB Group PLC 1.10 8. Allianz AG 1.06 9. Glaxo Wellcome PLC 0.98 10. ING Groep NV 0.97 - ------------------------------------------------ 29 Global Equity Fund Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- U.S.EQUITIES Energy 1.47% Capital Investment Capital Goods 4.34 Technology 5.68 ------- 10.02 Basic Industries Chemicals 2.04 Housing/Paper 3.73 Metals 0.17 ------- 5.94 ------- Consumer Non-Durables 2.84 Retail/Apparel 1.88 Autos/Durables 1.33 Health: Drugs 1.74 Health: Non-Drugs 2.18 ------- 9.97 Financial Banks 3.79 Non-Banks 2.92 ------- 6.71 Utilities Electric 1.41 Telephone 0.35 ------- 1.76 Transportation 4.25 Services/Misc 1.88 ------- Total U.S. Equities 42.00 ------- Global (ex-U.S.) EQUITIES Aerospace & Military 0.31 Airlines 0.20 Appliances & Household 1.40 Autos/Durables 0.47 Banking 6.38 Beverages and Tobacco 1.98 Broadcasting & Publishing 1.83 Building Materials 0.84 Business & Public Service 1.60 Chemicals 1.46 Construction 0.07% Data Processing 0.12 Electric Components 0.19 Electronics 3.53 Energy 4.59 Financial Services 1.78 Food & House Products 2.10 Forest Products 0.76 Health: Drugs 2.05 Health: Non-Drugs 3.41 Housing/Paper 0.15 Industrial Components 0.45 Insurance 5.60 Investment Companies 0.28 Leisure & Tourism 0.14 Machinery & Engineering 0.39 Merchandising 2.21 Metals--Steel 0.58 Miscellaneous Materials 0.41 Multi-Industry 1.94 Non-Ferrous Metals 0.63 Real Estate 0.15 Recreation 0.10 Retail & Apparel 0.26 Telecommunications 6.53 Textiles & Apparel 0.07 Transportation 0.08 Utilities 2.17 ------- Total Global (ex-U.S.) Equities 57.21 ------- SHORT-TERM INVESTMENTS 1.21 ------- TOTAL INVESTMENTS 100.42 ------- LIABILITIES, LESS CASH AND OTHER ASSETS (0.42) ------- NET ASSETS 100.00% ======= 30 Global Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Equities -- 99.21% U.S. Equities -- 42.00% Advanced Micro Devices, Inc. (b) 14,700 $ 425,381 Aetna, Inc. 9,000 707,625 Allergan, Inc. 3,700 239,575 Alza Corp. (b) 7,700 402,325 American Standard Companies, Inc. (b) 7,900 283,906 Aon Corp. 13,050 722,644 Automatic Data Processing, Inc. 6,000 481,125 BankBoston Corp. 4,200 163,537 Baxter International, Inc. 12,600 810,337 Beckman Coulter Inc. 3,300 179,025 Bestfoods 5,100 271,575 Biogen, Inc. (b) 1,700 141,100 Birmingham Steel Corp. 3,100 12,981 Burlington Northern Santa Fe Corp. 38,600 1,302,750 Champion Enterprises, Inc. (b) 1,700 46,538 Champion International Corp. 3,800 153,900 Chase Manhattan Corp. 6,700 456,019 CIGNA Corp. 9,400 726,737 Circuit City Stores-Circuit City Group 10,500 524,344 CMS Energy Corp. 10,000 484,375 Comerica, Inc. 3,200 218,200 CommScope, Inc. (b) 5,433 91,342 Comverse Technology, Inc. (b) 3,525 250,275 Consolidated Stores Corp. (b) 10,200 205,912 Corning, Inc. 15,100 679,500 Covance, Inc. (b) 3,900 113,588 Crown Cork & Seal Co., Inc. 3,700 114,006 Cummins Engine Co., Inc. 600 21,300 Dial Corp. 4,000 115,500 Eastman Chemical Co. 4,300 192,425 Electronic Data Systems Corp. 13,800 693,450 EMC Corp. (b) 4,600 391,000 Entergy Corp. 23,900 743,887 FDX Corp. (b) 14,800 1,317,200 First American Corp. of Tennessee 2,000 88,750 First Data Corp. 18,704 592,683 First Security Corp. 3,850 89,994 Fleet Financial Group, Inc. 9,700 433,469 Fleetwood Enterprises, Inc. 1,500 52,125 Food Lion Inc., Class A 17,600 187,000 Fort James Corp. 13,300 532,000 General Instrument Corp. (b) 17,600 597,300 General Semiconductor, Inc. (b) 4,125 33,773 Genzyme Corp. (b) 3,100 154,225 Genzyme-Molecular Oncology (b) 399 1,297 Geon Co. 2,100 48,300 Goodyear Tire & Rubber Co. 10,100 509,419 Great Lakes Chemical Corp. 2,500 100,000 GreenPoint Financial Corp. 4,400 154,550 Harnischfeger Industries, Inc. 5,400 55,013 HCR Manor Care, Inc. (b) 4,050 118,969 Hibernia Corp., Class A 4,300 74,713 Household International Inc. 7,600 301,150 IMC Global Inc. 12,000 256,500 Johnson Controls Inc. 3,600 212,400 Kimberly Clark Corp. 14,500 790,250 Lafarge Corp. 3,700 149,850 Shares Value ------------ --------------- Lear Corp. (b) 9,200 $ 354,200 Lockheed Martin Corp. 13,551 1,148,447 Lyondell Petrochemical Co. 11,100 199,800 Martin Marietta Materials, Inc. 2,235 138,989 Masco Corp. 18,000 517,500 Nabisco Holdings Corp., Class A 7,900 327,850 National Service Industries, Inc. 2,300 87,400 Nextel Communications, Inc., Class A (b) 10,800 255,150 Norfolk Southern Corp. 16,300 516,506 Peco Energy Co. 13,300 553,612 Pentair, Inc. 4,100 163,231 Philip Morris Companies, Inc. 20,200 1,080,700 Praxair, Inc. 7,100 250,275 Raytheon Co., Class B 13,000 692,250 Regions Financial Corp. 2,000 80,625 Schering Plough Corp. 7,200 397,800 Sears, Roebuck and Co. 11,100 471,750 Southdown, Inc. 4,476 264,923 St. Jude Medical, Inc. (b) 7,300 202,119 Timken Co. 1,400 26,425 TRW, Inc. 2,100 117,994 Tyson Foods, Inc., Class A 14,400 306,000 Ultramar Diamond Shamrock Corp. 7,952 192,836 Unocal Corp. 5,300 154,694 US Bancorp 9,863 350,136 USG Corp. 1,800 91,688 Vencor, Inc. (b) 8,100 36,450 Ventas, Inc. 8,200 99,938 Viad Corp. 7,600 230,850 Wells Fargo and Co. 9,700 387,394 Witco Corp. 2,200 35,063 Xerox Corp. 15,900 1,876,200 York International Corp. 4,800 195,900 ------------ Total U.S. Equities 31,021,809 ------------ Global (ex-U.S.) Equities -- 57.21% Australia -- 3.19% Amcor Ltd. 10,700 45,766 Brambles Industries Ltd. 6,900 168,240 Broken Hill Proprietary Co., Ltd. 27,950 206,060 CSR Ltd. 37,400 91,535 David Jones Ltd. 48,400 53,439 Lend Lease Corp., Ltd. 8,294 111,926 National Australia Bank Ltd. 21,075 318,014 News Corp. Ltd. 30,040 198,638 News Corp. Ltd., Preferred 13,300 81,011 Orica Ltd. 8,500 44,266 Pacific Dunlop Ltd. 32,600 52,791 Qantas Airways Ltd. 38,977 79,615 QBE Insurance Group Ltd. 20,042 82,983 Rio Tinto Ltd. 6,863 81,480 Santos Ltd. 26,000 69,854 Telstra Corp. Ltd. (b) 70,100 328,084 Westpac Banking Corp., Ltd. 36,545 244,790 WMC Ltd. 17,500 52,814 Woolworth's Ltd. 12,100 41,237 ------------ 2,352,543 ------------ 31 Global Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Belgium -- 1.82% Electrabel S.A. 1,060 $ 465,917 Fortis AG 88 5 Fortis AG Strip (b) 1,798 651,605 KBC Bancassurance Holding Strip (b) 110 6 Kredietbank NV 2,870 227,235 ------------ 1,344,768 ------------ Canada -- 1.04% Agrium, Inc. 3,100 27,246 Alcan Aluminum Ltd. 1,900 51,335 Bank of Montreal 1,200 48,203 Canadian National Railway Co. 1,200 62,305 Canadian Pacific Ltd. 3,516 65,696 Extendicare, Inc., Class A (b) 2,700 15,293 Hudson's Bay Co. 3,200 40,312 Imasco, Ltd. 1,900 40,449 Imperial Oil Ltd. 3,800 60,736 Magna International, Inc., Class A 500 31,055 Newbridge Networks Corp. (b) 1,200 36,406 NOVA Chemicals Corp. 2,197 28,607 Potash Corporation of Saskatchewan, Inc. 500 32,064 Royal Bank of Canada 1,400 69,772 Seagram Co., Ltd. 700 26,546 Shaw Communications, Inc., Class B 2,600 62,799 TransCanada Pipelines Ltd. 3,588 52,442 Westcoast Energy, Inc. 1,000 19,857 ------------ 771,123 ------------ Denmark -- 0.29% Tele Danmark A/S 1,600 215,948 Finland -- 1.70% Merita Ltd., Class A 30,200 192,053 Nokia Oyj-A Shares 6,700 820,397 UPM-Kymmene Corp. 8,700 243,986 ------------ 1,256,436 ------------ France -- 6.40% Accor S.A. Air Liquide 1,638 300,553 Alcatel Alsthom 2,386 292,153 Axa-Certificate de Valeur Garante (b) 2,181 316,245 Banque Nationale de Paris 2,922 240,719 Cie de Saint Gobain 1,136 160,450 Dexia France 1,127 173,704 Elf Aquitaine S.A. 1,602 185,259 France Telecom S.A. 3,220 255,931 Groupe Danone 640 183,309 Lagardere S.C.A. 7,120 302,710 Michelin, Class B 3,031 121,268 Paribas 1,583 137,636 Pinault-Printemps-Redoute S.A. 790 151,036 Rhone-Poulenc, Class A 4,550 234,252 SEITA 4,090 256,257 Societe Generale 1,223 198,134 Shares Value ------------ --------------- Suez Lyonnaise des Eaux S.A. 1,687 $ 346,689 Thomson CSF 5,295 227,489 Total S.A., Class B 2,249 227,871 Vivendi 1,608 417,386 ------------ 4,729,051 ------------ Germany -- 7.42% Allianz AG 2,098 780,956 Bayer AG 19,840 833,218 DaimlerChrysler AG (b) 5,925 588,729 Deutsche Bank AG 3,950 233,073 Deutsche Telekom AG 11,260 370,128 Dresdner Bank AG 5,200 217,915 Hoechst AG 5,900 244,062 Mannesmann AG (b) 4,350 503,400 SAP AG 450 194,525 Siemens AG 9,220 606,142 Veba AG 11,010 652,430 Volkswagen AG 3,190 258,172 ------------ 5,482,750 ------------ Italy -- 2.83% Assicurazioni Generali 10,700 447,742 Danieli & Co. Savings (Risp) 7,400 29,529 ENI Spa 71,000 465,025 ENI Spa ADR 1,700 115,175 La Rinascente Spa 26,875 276,990 Montedison Spa 164,560 219,055 San Paolo-imi, Spa 13,912 246,349 Telecom Italia Mobile Spa 39,000 288,549 ------------ 2,088,414 ------------ Japan -- 2.23% Amada Co., Ltd. 4,000 19,397 Bridgestone Corp. 1,000 22,739 Canon, Inc. 3,000 64,229 Citizen Watch Co., Ltd. 4,000 24,114 Dai Nippon Printing Co., Ltd. 2,000 31,950 Daiichi Pharmaceutical Co., Ltd. 3,000 50,771 Daikin Industries Ltd. 4,000 39,716 Daiwa House Industry Co., Ltd. 2,000 21,330 Fanuc 1,400 48,032 Fuji Photo Film 1,000 37,234 Fujitsu 2,000 26,684 Honda Motor Co. 1,000 32,890 Hoya Corp. 1,000 48,759 Ito Yokado Co., Ltd. 1,000 70,036 Kaneka Corp. 3,000 22,527 Kao Corp. 1,000 22,606 Kirin Brewery Co., Ltd. 4,000 51,064 Kokuyo 1,000 13,484 Kuraray Co., Ltd. 3,000 33,165 Marui Co., Ltd. 2,000 38,564 Matsushita Electric Industrial Co. 3,000 53,165 NGK Insulators 5,000 64,583 Nintendo Corp., Ltd. 500 48,537 Nippon Denso Co., Ltd. 3,000 55,585 32 Global Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- Nippon Meat Packers, Inc. 1,000 $ 16,135 Omron Corp. 1,000 13,723 Sankyo Co., Ltd. 2,000 43,794 Secom Co., Ltd. 1,000 82,979 Sekisui House Ltd. 3,000 31,782 Shin-Etsu Chemical Co., Ltd. 1,000 24,114 Sony Corp. 1,000 72,961 Sumitomo Chemical Co. 5,000 19,504 Sumitomo Electric Industries 3,000 33,803 Takeda Chemical Industries 2,000 77,128 TDK Corp. 1,000 91,578 Tokio Marine & Fire Insurance Co. 2,000 23,936 Toray Industries, Inc. 11,000 57,535 Toshiba Corp. 10,000 59,663 Toyota Motor Corp. 2,000 54,433 ------------ 1,644,229 ------------ Netherlands -- 4.72% ABN AMRO Holdings NV 10,149 213,612 Elsevier NV 19,600 274,674 Heineken NV 6,693 402,999 ING Groep NV 11,702 713,955 KPN NV 13,115 656,903 Royal Dutch Petroleum Co. 17,675 880,595 Unilever NV 4,000 342,090 ------------ 3,484,828 ------------ New Zealand -- 2.24% Auckland International Airport Ltd. (b) 49,200 68,880 Brierley Investments Ltd. 282,400 64,153 Carter Holt Harvey Ltd. 170,900 153,487 Fletcher Challenge Building 41,450 64,161 Fletcher Challenge Energy 58,450 111,165 Fletcher Challenge Paper 104,700 70,248 Lion Nathan Ltd. 57,300 146,212 Telecom Corp. of New Zealand Ltd. 224,500 978,480 ------------ 1,656,786 ------------ Norway -- 0.23% Norsk Hydro ASA 2,300 77,582 Norske Skogindustrier ASA 3,200 93,241 ------------ 170,823 ------------ Singapore -- 0.71% Singapore Press Holdings Ltd. 29,046 315,105 United Overseas Bank Ltd. (Frgn.) 32,000 205,576 ------------ 520,681 ------------ Spain -- 1.21% Banco Popular Espanol S.A. 3,280 247,686 Endesa S.A. 17,803 472,416 Telefonica S.A. 3,808 169,578 Telefonica S.A. Rights (expiring 1/30/99) (b) 76 68 ------------ 889,748 ------------ Shares Value ------------ --------------- Sweden -- 2.49% Astra AB, A Shares 13,160 $ 268,694 Electrolux AB, B Shares 16,970 292,052 Investor AB 4,560 205,897 Nordbanken Holding AB 23,910 153,387 Skandia Forsakrings AB 21,170 323,852 Svenska Handelsbanken, A Shares 2,220 93,666 Swedish Match AB 58,550 213,085 Telefonaktiebolaget LM Ericsson, B Shares 12,140 289,055 ------------ 1,839,688 ------------ Switzerland -- 4.74% CS Holdings AG (Reg.) 230 36,003 Julius Baer Holding AG 42 139,592 Nestle S.A. (Reg.) 383 833,761 Novartis AG (Reg.) 565 1,110,666 Roche Holding AG (Gen.) 52 634,525 Swiss Reinsurance Co. (Reg.) 134 349,366 SwissCom AG (Reg.) (b) 948 396,869 ------------ 3,500,782 ------------ United Kingdom -- 13.95% Allied Zurich AG (b) 20,375 303,915 Barclays PLC 15,000 323,445 BOC Group PLC 18,000 257,408 Boots Company PLC 18,000 306,524 British American Tobacco PLC 13,375 117,610 British Petroleum Co. PLC 39,313 587,049 British Steel PLC 151,750 224,710 Cable & Wireless PLC 10,500 129,103 Charter PLC 33,422 183,506 Coats Viyella PLC 120,250 54,020 Diageo PLC 21,630 246,159 Fairview Holdings PLC (b) 13,250 19,620 FKI PLC 111,405 248,378 Garban PLC (b) 900 3,429 General Electric Co. PLC 44,820 404,553 Glaxo Wellcome PLC 21,120 726,688 Greenalls Group PLC 20,000 106,650 Hanson PLC 38,750 307,696 Hillsdown Holdings PLC 32,500 40,555 House of Fraser PLC 45,250 39,902 Lloyds TSB Group PLC 57,220 813,988 Marks & Spencer PLC 66,120 453,521 Mirror Group PLC 66,000 164,992 National Westminster Bank PLC 13,350 257,436 Nycomed Amersham PLC 26,000 179,093 Peninsular & Oriental Steam Navigation Co. 12,475 147,472 Prudential Corp. PLC 37,000 558,666 Reed International PLC 24,000 187,678 Rio Tinto Ltd. 24,020 279,353 RJB Mining PLC 40,500 52,560 Royal & Sun Alliance Insurance Group PLC 15,779 128,838 Sainsbury (J.) PLC 12,500 100,193 Scottish Hydro-Electric PLC 36,650 412,825 Sedgwick Group PLC 40,000 148,412 33 Global Equity Fund - Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Shares Value ------------ --------------- SmithKline Beecham PLC 31,850 $ 445,136 Smurfit (Jefferson) Group PLC 28,196 50,666 Tate & Lyle PLC 2,000 11,014 Terranova Foods PLC (b) 13,250 24,250 Tesco PLC 116,250 331,228 Thames Water PLC 14,458 276,637 Thames Water PLC, Class B (b) 12,500 15,702 United News & Media PLC 15,000 131,524 Vodafone Group PLC 9,825 159,546 Williams PLC 19,461 110,495 Yorkshire Water PLC 25,500 233,349 ------------ 10,305,494 ------------ Total Global (ex-U.S.) Equities 42,254,092 ------------ Total Equities (Cost $59,154,576) 73,275,901 ------------ Face Amount Value ------------ --------------- Short-Term Investments -- 1.21% U.S. Government Obligations -- 0.81% U.S. Treasury Bill 4.320%, due 02/25/99 $ 600,000 $ 596,273 Shares ------------ Investment Companies -- 0.40% Brinson Supplementary Trust U.S. Cash Management Prime Fund 295,185 295,185 Total Short-Term Investments (Cost $891,132) 891,458 ------------ Total Investments (Cost $60,045,708) -- 100.42% (a) 74,167,359 ------------ Liabilities, less cash and other assets -- (0.42%) (307,762) ------------ Net Assets -- 100% $ 73,859,597 ============ See accompanying notes to schedule of investments. 34 Global Equity Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $60,045,708; and net unrealized appreciation consisted of: Gross unrealized appreciation $ 17,271,007 Gross unrealized depreciation (3,149,356) ------------ Net unrealized appreciation $ 14,121,651 ============ (b) Non-income producing security (c) Denominated in U.S. dollars Forward Foreign Currency Contracts The Global Equity Fund had the following open forward foreign currency contracts as of December 31, 1998:
Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ---------- -------- ------- ----------- Forward Foreign Currency Buy Contracts Australian Dollar 6/04/99 3,200,000 $1,965,638 $(57,402) Canadian Dollar 6/04/99 5,300,000 3,453,331 (33,786) Japanese Yen 6/04/99 127,000,000 1,149,402 84,547 Spanish Peseta 6/04/99 79,000,000 561,943 6,134 Swedish Krona 6/04/99 20,900,000 2,596,051 (158) Forward Foreign Currency Sale Contracts Australian Dollar 6/04/99 1,200,000 737,114 (434) Belgian Franc 6/04/99 10,100,000 296,325 (3,486) British Pounds 6/04/99 3,400,000 5,640,064 (32,705) Finnish Markka 6/04/99 4,000,000 796,227 (5,852) French Franc 6/04/99 8,300,000 1,497,562 (6,098) German Mark 6/04/99 1,700,000 1,028,726 (4,259) Netherlands Guilder 6/04/99 2,600,000 1,396,371 (10,368) Spanish Peseta 6/04/99 79,000,000 591,943 (2,532) Swedish Krona 6/04/99 4,900,000 608,643 5,415 Swiss Franc 6/04/99 600,000 443,289 (1,788) ---------- Total $(62,772) ==========
See accompanying notes to financial statements. 35 Global Equity Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (UNAUDITED) ASSETS: Investments, at value: Unaffiliated issuers (Cost $59,750,523) $73,872,174 Affiliated issuers (Cost $295,185) 295,185 Foreign currency, at value (Cost $160,851) 155,949 Receivables: Investment securities sold 49,555 Dividends 134,275 Interest 3,190 Other assets 45 ------------ TOTAL ASSETS 74,510,373 ------------ LIABILITIES: Payables: Investment securities purchased 377,088 Due to custodian bank 101,328 Investment advisory fees 43,446 Accrued expenses 66,142 Net unrealized depreciation on forward foreign currency contracts 62,772 ------------ TOTAL LIABILITIES 650,776 ------------ NET ASSETS $73,859,597 ============ NET ASSETS CONSIST OF: Paid in capital $58,566,651 Accumulated undistributed net investment income 26,143 Accumulated net realized gain 1,212,206 Net unrealized appreciation 14,054,597 ------------ NET ASSETS $73,859,597 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $24,604,008 and 1,955,626 shares issued and outstanding) $ 12.58 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $205,845 and 16,400 shares issued and outstanding) $ 12.55 ============ UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $49,049,744 and 3,901,394 shares issued and outstanding) $ 12.57 ============ See accompanying notes to financial statements. 36 Global Equity Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) INVESTMENT INCOME: Dividends (net of $21,094 for foreign taxes withheld) $ 557,653 Interest 60,004 ----------- TOTAL INCOME 617,657 ----------- EXPENSES: Advisory 289,624 Distribution 190,850 Professional 25,275 Other 65,630 ----------- TOTAL EXPENSES 571,379 ----------- Expenses deferred by Advisor (18,480) ----------- NET EXPENSES 552,899 ----------- NET INVESTMENT INCOME 64,758 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments 2,495,750 Futures contracts (472,356) Foreign currency transactions 333,247 ----------- Net realized gain 2,356,641 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency (1,767,221) Futures contracts 575,614 Forward contracts 21,023 Translation of other assets and liabilities denominated in foreign currency (906) ----------- Change in net unrealized appreciation or depreciation (1,171,490) ----------- Net realized and unrealized gain 1,185,151 ----------- Net increase in net assets resulting from operations $ 1,249,909 =========== See accompanying notes to financial statements. 37 Global Equity Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- -------------- OPERATIONS: Net investment income $ 64,758 $ 677,369 Net realized gain 2,356,641 6,903,703 Change in net unrealized appreciation or depreciation (1,171,490) (1,282,988) ------------ ------------- Net increase in net assets resulting from operations 1,249,909 6,298,084 ------------ ------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I (227,414) (242,673) Brinson Class N (1,853) (11) UBS Investment Funds Class (186,532) (397,017) Distributions from net realized gain: Brinson Class I (352,100) (1,266,777) Brinson Class N (2,950) (82) UBS Investment Funds Class (710,918) (5,307,194) ------------ ------------- Total distributions to shareholders (1,481,767) (7,213,754) ------------ ------------- CAPITAL SHARE TRANSACTIONS: Shares sold 7,405,967 40,216,740 Shares issued on reinvestment of distributions 1,306,231 6,378,677 Shares redeemed (16,492,751) (73,542,587) ------------ ------------- Net decrease in net assets resulting from capital share transactions (7,780,553) (26,947,170) ------------ ------------- TOTAL DECREASE IN NET ASSETS (8,012,411) (27,862,840) ------------ ------------- NET ASSETs: Beginning of period 81,872,008 109,734,848 ------------ ------------- End of period (including accumulated undistributed net investment income of $26,143 and $377,184, respectively) $ 73,859,597 $ 81,872,008 ============ =============
See accompany notes to financial statements 38 The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, January 28, 1994* December 31, 1998 ----------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, begining of period $ 12.54 $ 12.76 $ 11.57 $ 9.93 $ 9.49 $ 10.00 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.04 0.22 0.16 0.18 0.18 0.07 Net realized and unrealized gain (loss) 0.30 0.78 2.14 2.29 0.39 (0.54) Total income (loss) from investment operations 0.34 1.00 2.30 2.47 0.57 (0.47) Less distributions: Distributions from net investment income (0.12) (0.17) (0.12) (0.14) (0.04) (0.04) Distributions from and in excess of net realized gain (0.18) (1.05) (0.99) (0.69) (0.09) -- Total distributions (0.30) (1.22) (1.11) (0.83) (0.13) (0.04) Net asset value, end of period $ 12.58 $ 12.54 $ 12.76 $ 11.57 $ 9.93 $ 9.49 Total return (non-annualized) 2.86% 8.99% 21.26% 25.66% 6.06% (4.70)% Ratios/Supplemental data: Net assets, end of period (in 000s) $ 24,604 $ 22,724 $ 48,054 $ 27,126 $ 20,706 $ 20,642 Ratio of expenses to average net assets: Before expense reimbursement 1.05%** 1.02% 1.25% 1.77% 2.06% 2.65%** After expense reimbursement 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reimbursement 0.66%** 1.29% 1.35% 0.57% 0.71% 0.24%** After expense reimbursement 0.71%** 1.31% 1.60% 1.34% 1.77% 1.89%** Portfolio turnover rate 49% 46% 32% 74% 36% 21%
* Commencement of investment operations ** Annualized See accompany notes to financial statements 39 Global Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.53 $ 12.76 ------- ------- Income from investment operations: Net investment income 0.03 0.13 Net realized and unrealized gain 0.29 0.82 ------- ------- Total income from investment operations 0.32 0.95 ------- ------- Less distributions: Distributions from net investment income (0.12) (0.13) Distributions from net realized gain (0.18) (1.05) ------- ------- Total distributions (0.30) (1.18) ------- ------- Net asset value, end of period $ 12.55 $ 12.53 ======= ======= Total return (non-annualized) 2.68% 8.60% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 206 $ 1 Ratio of expenses to average net assets: Before expense reimbursement 1.30%** 1.27% After expense reimbursement 1.25%** 1.25% Ratio of net investment income to average net assets: Before expense reimbursement 0.41%** 1.04% After expense reimbursement 0.46%** 1.06% Portfolio turnover rate 49% 46%
* Commencement of Brinson Class N was June 30, 1997 ** Annualized See accompany notes to financial statements 40 Global Equity Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.51 $ 12.73 $ 11.57 $ 10.35 ------- ------- ------- ------- Income from investment operations: Net investment income (loss) 0.00 0.07 0.08 (0.01) Net realized and unrealized gain 0.29 0.83 2.13 1.93 ------- ------- ------- ------- Total income from investment operations 0.29 0.90 2.21 1.92 ------- ------- ------- ------- Less distributions: Distributions from net investment income (0.05) (0.07) (0.06) (0.01) Distributions from net realized gain (0.18) (1.05) (0.99) (0.69) ------- ------- ------- ------- Total distributions (0.23) (1.12) (1.05) (0.70) ------- ------- ------- ------- Net asset value, end of period $ 12.57 $ 12.51 $ 12.73 $ 11.57 ======= ======= ======= ======= Total return (non-annualized) 2.43% 8.15% 20.34% 19.25% Ratios/Supplemental Data: Net assets, end of period (in 000s) $49,050 $59,147 $61,680 $33,012 Ratio of expenses to average net assets: Before expense reimbursement 1.81%** 1.78% 2.00% 2.53%** After expense reimbursement 1.76%** 1.76% 1.75% 1.76%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement (0.10)%** 0.53% 0.60% (0.19)%** After expense reimbursement (0.05)%** 0.55% 0.85% 0.58%** Portfolio turnover rate 49% 46% 32% 74%
* Commencement of UBS Investment Funds Class ** Annualized See accompanying notes to financial statements. 41 Global Bond Fund [BRINSON LOGO APPEARS HERE] The Global Bond Fund is actively managed, providing a fully integrated treatment of the U.S. and other major developed fixed income markets across the world. This global approach takes full advantage of relationships both within and across markets, based on consistent analysis of macroeconomic and market conditions. Market and currency strategies are developed in a global asset allocation framework, in conjunction with senior fixed income professionals in our offices around the world. The Brinson Global Bond Fund Class I has provided an annualized return of 7.77% since its inception on July 31, 1993, below the 8.04% return of its benchmark, the Salomon World Government Bond Index. The Fund's annualized volatility of 4.44% was below the index volatility of 5.57% over this period. For calendar year 1998, the Fund returned 11.98%, trailing the index return of 15.29%. Bond market returns were generally quite strong in dollar-hedged terms in 1998. Declining inflation worldwide was the primary driver, to the point where deflation worries began to surface. Causes for these concerns included the continued economic weakness in Asia, the default of the Russian government in August, and financial instability in Latin American countries. By mid-October long yields had fallen to all time historical lows in many markets. Market allocation strategies contributed positively to relative Fund performance in 1998. The Fund benefited in particular from its underweight in Japan, where rates spiked upward in December. The overweight to the U.K., which was the strongest performer in 1998, also helped, as did the overweight in Sweden. Bond selection strategies within markets detracted from overall performance. In the U.S., holdings of corporate and mortgage securities reduced performance as spreads on these bonds widened sharply in the third quarter. In addition, defensive duration strategies in most markets detracted as yields fell throughout the year. At the end of the year, duration was 0.9 times the index in Canadian conventional bonds and the U.K. duration was equal to the index in all other markets. Currency allocation also hurt performance. The underweight of the yen detracted, as did the overweight of the Australian dollar. The underweight of the U.S. dollar helped offset these effects, as most currencies strengthened against it. 42 Global Bond Fund [BRINSON LOGO APPEARS HERE] Total Return
6 months 1 year 3 years 5 years 7/31/93* ended ended ended ended to 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------------------------- Brinson Global Bond Fund Class I 10.14% 11.98% 7.54% 7.63% 7.77% - --------------------------------------------------------------------------------------- Salomon World Government Bond Index 12.17 15.29 6.20 7.85 8.04 - ---------------------------------------------------------------------------------------
*Performance inception date of the Brinson Global Bond Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Bond Fund Class I and the Salomon World Government Bond Index if you had invested $1,000,000 on July 31, 1993, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Bond Fund Class I vs. Salomon World Government Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Salomon World Brinson Global Gov't Bond Bond Fund Index Class I ------------- -------------- 31/07/93 $1,000,000 $1,000,000 31/08/93 $1,030,100 $1,019,000 30/09/93 $1,042,358 $1,022,010 31/10/93 $1,040,586 $1,032,059 30/11/93 $1,033,198 $1,023,015 31/12/93 $1,041,929 $1,038,591 31/01/94 $1,050,264 $1,045,818 28/02/94 $1,043,437 $1,021,040 31/03/94 $1,041,976 $1,007,619 30/04/94 $1,043,123 $1,002,457 31/05/94 $1,033,943 $994,198 30/06/94 $1,048,832 $992,146 31/07/94 $1,057,223 $999,419 31/08/94 $1,053,522 $1,000,457 30/09/94 $1,061,108 $1,001,496 31/10/94 $1,078,085 $1,005,652 30/11/94 $1,063,208 $1,003,574 31/12/94 $1,066,185 $1,002,396 31/01/95 $1,088,575 $1,012,827 28/02/95 $1,116,442 $1,030,559 31/03/95 $1,182,759 $1,044,119 30/04/95 $1,204,640 $1,069,153 31/05/95 $1,238,611 $1,106,704 30/06/95 $1,245,919 $1,104,638 31/07/95 $1,248,909 $1,122,712 31/08/95 $1,205,946 $1,134,406 30/09/95 $1,232,839 $1,148,228 31/10/95 $1,241,962 $1,167,365 30/11/95 $1,255,996 $1,190,755 31/12/95 $1,269,184 $1,206,119 31/01/96 $1,253,573 $1,212,149 28/02/96 $1,247,180 $1,200,088 31/03/96 $1,245,434 $1,204,913 30/04/96 $1,240,452 $1,216,974 31/05/96 $1,240,700 $1,220,592 30/06/96 $1,250,502 $1,231,653 31/07/96 $1,274,511 $1,243,921 31/08/96 $1,279,482 $1,253,735 30/09/96 $1,284,728 $1,274,590 31/10/96 $1,308,752 $1,301,578 30/11/96 $1,326,028 $1,326,113 31/12/96 $1,315,287 $1,318,299 31/01/97 $1,280,169 $1,297,658 28/02/97 $1,270,567 $1,299,034 31/03/97 $1,260,911 $1,279,768 30/04/97 $1,249,815 $1,272,888 31/05/97 $1,283,810 $1,310,043 30/06/97 $1,299,088 $1,326,556 31/07/97 $1,288,955 $1,321,051 31/08/97 $1,288,181 $1,316,923 30/09/97 $1,315,619 $1,343,069 31/10/97 $1,342,984 $1,360,958 30/11/97 $1,322,437 $1,343,069 31/12/97 $1,318,469 $1,339,835 31/01/98 $1,331,259 $1,351,311 28/02/98 $1,342,042 $1,359,918 31/03/98 $1,328,756 $1,345,573 30/04/98 $1,350,016 $1,362,787 31/05/98 $1,353,121 $1,362,787 30/06/98 $1,355,150 $1,362,306 31/07/98 $1,356,912 $1,362,306 31/08/98 $1,393,820 $1,378,231 30/09/98 $1,467,971 $1,444,826 31/10/98 $1,511,423 $1,476,676 30/11/98 $1,490,112 $1,466,542 31/12/98 $1,520,063 $1,500,412 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 43 Global Bond Fund [BRINSON LOGO APPEARS HERE] Total Return
6 months 1 year 6/30/97* ended ended to 12/31/98 12/31/98 12/31/98 - --------------------------------------------------------------------- Brinson Global Bond Fund Class N 10.13% 11.83% 8.30% - --------------------------------------------------------------------- Salomon World Government Bond Index 12.17 15.29 11.04 - ---------------------------------------------------------------------
*Inception date of the Brinson Global Bond Fund Class N. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Bond Fund Class N and the Salomon World Government Bond Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through December 31, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Bond Fund Class N vs. Salomon World Government Bond Index Wealth Value with Dividends Reinvested [CHART APPEARS HERE] Salomon World Brinson Global Government Bond Index Bond Fund --------------------- --------------- 30/06/97 $1,000,000 $1,000,000 31/07/97 $992,200 $995,851 31/08/97 $991,605 $991,701 30/09/97 $1,012,726 $1,011,411 31/10/97 $1,033,791 $1,023,859 30/11/97 $1,017,974 $1,010,373 31/12/97 $1,014,9210 $1,008,216 31/01/98 $1,024,764 $1,015,772 28/02/98 $1,033,065 $1,022,249 31/03/98 $1,022,838 $1,011,454 30/04/98 $1,039,203 $1,024,408 31/05/98 $1,041,593 $1,023,328 30/06/98 $1,043,156 $1,023,719 31/7/98 $1,044,512 $1,022,630 31/8/98 $1,072,922 $1,034,610 30/9/98 $1,130,002 $1,083,618 31/10/98 $1,163,450 $1,106,488 30/11/98 $1,147,045 $1,101,043 31/12/98 $1,170,101 $1,127,443 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 44 Global Bond Fund Asset Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ------------------------------------------ U.S. 29.8% 39.9% Australia 0.7 5.8 Austria 0.8 0.0 Belgium 2.7 0.0 Canada 2.8 5.6 Denmark 1.5 6.2 Finland 0.8 0.0 France 8.7 9.3 Germany 8.7 8.2 Ireland 0.4 0.0 Italy 8.1 4.6 Japan 19.8 0.0 Netherlands 3.0 0.0 Portugal 0.4 0.0 Spain 3.5 7.3 Sweden 1.4 4.4 Switzerland 0.5 0.0 U.K. 6.4 8.7 - ------------------------------------------ 100.0% 100.0% Currency Allocation As of December 31, 1998 (Unaudited) Current Benchmark Strategy - ------------------------------------------ U.S. 29.8% 25.8% Australia 0.7 6.7 Canada 2.8 6.8 Denmark 1.5 1.5 EMU 37.1 37.1 Japan 19.8 13.8 Sweden 1.4 5.4 Switzerland 0.5 0.5 U.K. 6.4 2.4 - ------------------------------------------ 100.0% 100.0% Industry Diversification As a Percent of Net Assets As of December 31, 1998 (Unaudited) - ------------------------------------------ U.S. Bonds Corporate Bonds Aerospace & Military 0.11% Asset-Backed 3.47 Banking 0.16 CMO 4.44 Consumer 0.49 Financial Services 1.61 Food and Housing Products 0.40 Industrial Components 0.85 Services/Miscellaneous 0.76 Telecommunications 0.79 Transportation 0.91 ------- 13.99 International Dollar Bonds 3.24 U.S. Government Agencies 8.13 U.S. Government Obligations 10.48 ------- 21.85 ------- Total U.S. Bonds 35.84 ------- Global (Ex-U.S.) Bonds Foreign Financial Bonds 14.18 Foreign Government Bonds 40.21 ------- Total Global (ex-U.S.) Bonds 54.39 ------- U.S. Equities 0.44 ------- SHORT-TERM INVESTMENTS 7.36 ------- Total Investments 98.03 Cash and other Assets, LESS LIABILITIES 1.97 ------- Net Assets 100.00% ======= 45 Global Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------ --------------- Bonds -- 90.23% U.S. Bonds -- 35.84% U.S. Corporate Bonds -- 13.99% Archer Daniels, 6.950%, due 12/15/97 $ 500,000 $ 540,626 Bear Stearns Mortgage Securities, Inc., 96-7A4 6.000%, due 01/28/09 200,000 198,938 Capital One Bank, 6.830%, due 05/17/99 200,000 200,596 Cendant Corp., 7.750%, due 12/01/03 500,000 510,991 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02 125,000 126,670 Comed Transitional Funding Trust, 98-1, Class A7, 5.740%, due 12/25/10 840,000 844,830 Continental Airlines, Inc., EETC, 6.900%, due 01/02/18 710,000 721,658 Countrywide Capital, Inc., 8.000%, due 12/15/26 250,000 259,129 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00 375,000 378,834 Fanniemae Whole Loan, 95-W3, Class A, 9.000%, due 04/25/25 13,102 13,654 First Bank Corporate Card Master Trust, 97-1A, 6.400%, due 02/15/03 240,000 246,624 First Nationwide Trust, 98-3, Class 1PPA, 6.500%, due 09/19/28 613,136 613,688 First Union Lehman Brothers, 97-C2, Class A2, 6.600%, due 05/18/07 240,000 249,439 Ford Credit Grantor Trust 95-B, 5.900%, due 10/15/00 379,155 380,030 Freddie Mac, 83, Class F, 6.288%, due 08/15/27 66,020 66,041 GE Capital Mortgage Services, Inc., 93-7F, Class FA3, 6.500%, due 09/25/08 313,155 313,897 Kroger Co., 6.000%, due 07/01/00 500,000 501,891 Lockheed Martin Corp., 7.700%, due 06/15/08 125,000 141,371 Merrill Lynch & Co., Series B, 5.930%, due 03/23/01 550,000 553,930 Metlife Funding, 6.850%, due 05/20/08 225,000 235,052 News America Holdings, 7.750%, due 12/01/45 575,000 610,682 Norwest Asset Securities Corp., 98-25, Class A5, 6.000%, due 12/25/28 965,000 948,363 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24 190,000 195,998 Premier Auto Trust, 96-3, Class A4, 96-3A 6.750%, due 11/06/00 475,000 480,538 Prudential Home Mortgage Securities 96-7, Class A4, 6.750%, due 06/25/11 150,000 152,477 93-43, Class A9, 6.750%, due 10/25/23 211,150 212,674 Residential Accredit Loans, Inc. 96-QS4, Class Al10, 7.900%, due 08/25/26 625,000 643,767 98-QS4, Class AI5, 7.000%, due 03/25/28 400,000 415,061 Face Amount Value ------------ --------------- Residential Asset Securitization Trust, 97-A7, Class A1, 7.500%, due 09/25/27 $ 169,532 $ 171,050 97-A7, Class A1, 7.250%, due 12/25/27 335,000 341,631 97-A11, Class A2, 7.000%, due 01/25/28 206,139 206,893 97-A11, Class A6, 7.000%, due 01/25/28 430,000 438,626 98-A1, Class A1, 7.000%, due 03/25/28 169,440 170,339 Salomon, Inc., 7.200%, due 02/01/04 240,000 252,133 Sprint Capital Corp., 6.875%, due 11/15/28 450,000 467,272 Structured Asset Securities Corp. 98-RF1, Class A, 8.712%, due 03/15/27 261,685 280,821 98-RF2, 144A, 8.582%, due 07/15/27 392,977 420,485 Structured Mortgage Asset Residential Trust, 96-5C, Class CI, 7.150%, due 03/25/23 925,000 939,946 The Money Store, 98-B, Class AF2, 6.115%, due 05/15/10 60,000 60,055 Time Warner Inc., 7.570%, due 02/01/24 560,000 631,574 UCFC Home Equity Loan 97-C, Class A8, FRN, 5.478%, due 09/15/27 123,678 122,489 USA Waste Services, 7.000%, due 10/01/04 300,000 313,696 Vanderbilt Mortgage Finance, 98-B, Class 1A26,.120%, due 05/07/09 600,000 603,852 Williams Co., 6.200%, due 08/01/02 400,000 400,999 World Omni Automobile Lease Securitization Trust, 97-A, Class A3, 6.850%, due 06/25/03 253,906 256,531 Worldcom Inc., Series *, 8.875%, due 01/15/06 465,000 506,560 ------------ 17,342,401 International Dollar Bonds -- 3.24% Banco Santiago S.A., 7.000%, due 07/18/07 400,000 335,192 Banque Centrale de Tunisie, 8.250%, due 09/19/27 400,000 320,000 Credit Suisse-London, 144A, 7.900%, Resettable Perpetual Step-up Notes 500,000 500,000 DR Investments, 144A, 7.450%, due 05/15/07 455,000 489,960 Den Danske Bank, 144A, 6.375%, due 06/15/08 500,000 507,942 Empresa National Electric, 7.875%, due 02/01/27 500,000 361,776 Pan Pacific Industry PLC, 144A, 0.000%, due 04/28/07 715,000 282,425 Province of Quebec, 7.500%, due 07/15/23 235,000 268,723 Republic of South Africa, 9.625%, due 12/15/99 125,000 127,500 Royal Bank of Scotland, 7.375%, Resettable Perpetual Step-up Notes 300,000 308,823 46 Global Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------ --------------- Southern Investments UK, 6.800%, due 12/01/06 $ 500,000 $ 518,481 ------------ 4,020,822 ------------ U.S. Government Agencies -- 8.13% Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13 68,215 69,927 7.500%, due 01/15/23 85,601 90,241 7.238%, due 05/01/26 27,606 28,061 Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23 59,104 61,363 9.000%, due 03/01/24 174,782 185,842 Federal National Mortgage Assoc. 6.220%, due 03/13/06 150,000 159,021 6.820%, due 10/01/07 477,554 510,982 6.361%, due 06/01/08 686,356 715,183 8.000%, due 03/01/11 100,480 103,557 6.000%, due 01/01/14 TBA 615,000 616,735 9.000%, due 08/01/21 18,273 19,386 8.500%, due 07/01/22 12,478 13,224 7.500%, due 12/01/23 416,307 427,366 7.500%, due 05/18/25 250,000 256,169 7.890%, due 04/01/26 240,305 245,283 8.500%, due 02/01/28 308,146 322,783 6.500%, due 06/01/28 2,361,195 2,377,449 6.500%, due 09/01/28 1,261,839 1,270,525 6.000%, due 12/01/28 TBA 750,000 740,317 Federal National Mortgage Assoc. Strips 7.500%, due 05/01/23 interest only 184,168 29,562 0.000%, due 04/01/27 principal only 170,348 149,757 FNCI, 8.000%, due 02/01/13 108,540 111,864 Government National Mortgage Assoc. 7.500%, due 08/15/23 82,927 85,496 7.500%, due 12/15/23 122,466 126,267 7.500%, due 01/15/24 85,915 88,559 7.000%, due 08/15/24 425,074 435,164 7.000%, due 07/15/25 59,634 61,044 Jordan Aid, 8.750%, due 09/01/19 193,941 240,433 Tennesse Valley Authority, 6.375%, due 06/15/05 500,000 530,948 ------------ 10,072,508 ------------ U.S. Government Obligations -- 10.48% U.S. Treasury Inflation Indexed Note, 3.625%, due 04/15/28 570,000 563,108 U.S. Treasury Notes and Bonds 5.500%, due 02/29/00 1,730,000 1,746,219 5.500%, due 05/31/00 1,345,000 1,360,552 6.625%, due 07/31/01 1,765,000 1,848,838 6.250%, due 08/31/02 610,000 641,072 7.500%, due 02/15/05 830,000 950,091 7.000%, due 07/15/06 110,000 125,263 6.625%, due 05/15/07 745,000 837,893 8.000%, due 11/15/21 3,675,000 4,923,353 ------------ 12,996,389 ------------ Total U.S. Bonds 44,432,120 ------------ Global (ex-U.S.) Bonds -- 54.39% Australia -- 5.63% Government of Australia, 9.500%, due 08/15/03 AUD 3,000,000 2,199,146 New South Wales Treasury Corp., 7.000%, due 04/01/04 1,000,000 669,372 Face Amount Value ------------ --------------- Queensland Treasury Corp.-Global Note 8.000%, due 05/14/03 AUD 980,000 $ 671,012 6.500%, due 06/14/05 5,230,000 3,436,653 ------------ 6,976,183 ------------ Austria -- 2.01% Republic of Austria, 5.500%, due 01/18/04 FRF 12,800,000 2,487,559 ------------ Canada -- 5.08% British Columbia, 7.750%, due 06/16/03 1,540,000 1,112,353 Government of Canada 6.000%, due 06/01/08 CAD 1,200,000 845,703 4.250%, due 12/01/21 3,800,000 2,784,440 Province of Ontario, 7.500%, due 01/19/06 2,100,000 1,549,195 ------------ 6,291,691 ------------ Denmark -- 5.94% City of Copenhagen, 6.250%, due 03/15/01 DKK 2,400,000 393,825 Great Belt, 7.000%, due 09/02/03 10,650,000 1,866,825 Kingdom of Denmark 8.000%, due 11/15/01 8,000,000 1,394,862 7.000%, due 12/15/04 16,800,000 3,043,243 7.000%, due 11/15/07 1,400,000 264,118 7.000%, due 11/10/24 2,000,000 402,231 ------------ 7,365,104 ------------ Finland -- 1.27% Republic of Finland, 9.000%, due 08/13/03 FIN 7,200,000 1,579,696 ------------ France -- 3.42% Government of France (BTAN), 7.750%, due 04/12/00 FRF 4,000,000 756,722 Government of France (OAT) 9.500%, due 01/25/01 1,800,000 362,823 7.500%, due 04/25/05 7,200,000 1,563,682 8.500%, due 04/25/23 5,600,000 1,552,325 ------------ 4,235,552 ------------ Germany -- 6.36% Bundesrepublik Deutscheland, 6.250%, due 01/04/24 DEM 700,000 510,417 European Economic Community, 6.500%, due 03/10/00 1,110,000 691,001 IBRD, 7.125%, due 04/12/05 4,250,000 3,009,332 KFW International Finance, 6.625%, due 04/15/03 3,800,000 2,558,087 LKB Baden-Wuerttemberg Finance, 6.500%, due 09/15/08 1,600,000 1,118,516 ------------ 7,887,353 ------------ Ireland -- 1.60% Republic of Ireland, 7.250%, due 03/18/03 IEP 2,900,000 1,988,135 ------------ Italy -- 3.78% Bayerische Landesbank, 10.750%, due 03/01/03 ITL 750,000,000 575,085 International Bank for Reconstruction & Development, 5.000%, due 10/15/00 1,000,000,000 624,007 LKB Baden-Wuerttemberg Finance, 10.750%, due 04/14/03 650,000,000 500,870 47 Global Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- Face Amount Value ------------ --------------- Republic of Italy (BTP) 9.000%, due 10/01/03 ITL 2,300,000,000 $ 1,714,948 9.500%, due 02/01/06 800,000,000 650,114 9.000%, due 11/01/23 650,000,000 626,766 ------------ 4,691,790 Luxembourg -- 0.33% Tyco International Group S.A., 7.000%, due 06/15/28 LUX 400,000 412,693 ------------ Portugal -- 1.12% Republic of Portugal, 5.625%, due 04/03/07 FRF 7,000,000 1,383,879 ------------ Spain -- 6.36% Government of Spain 7.900%, due 02/28/02 ESP 460,000,000 3,698,457 10.000%, due 02/28/05 230,000,000 2,182,227 6.150%, due 01/31/13 240,000,000 1,999,667 ------------ 7,880,351 ------------ Sweden -- 3.59% Government of Sweden 10.250%, due 05/05/03 SEK 20,700,000 3,211,873 6.000%, due 02/09/05 4,600,000 628,688 6.750%, due 05/05/14 4,000,000 615,041 ------------ 4,455,602 ------------ Face Amount Value ------------ --------------- United Kingdom -- 7.90% Abbey National PLC, 8.750%, due 05/24/04 GBP 350,000 $ 660,585 Abbey National Treasury Service, 6.500%, due 03/05/04 850,000 1,483,183 British Gas PLC, 8.125%, due 03/31/03 545,000 986,686 European Investment Bank, 7.625%, due 12/07/06 1,820,000 3,505,066 UK Treasury, 8.000%, due 09/27/13 1,380,000 3,159,377 ------------ 9,794,897 ------------ Total Global (ex-U.S.) Bonds 67,430,485 ------------ Total Bonds (Cost $107,517,922) 111,862,605 ------------ Share ------------ Equities -- 0.44% U.S. Equities -- 0.44% Centaur Funding Corp., 144A 0.000%, due 04/21/20 750 137,720 9.080%, due 04/21/20 390 407,794 ------------ Total Equities (Cost $490,229) 545,514 ------------ Short-Term Investments -- 7.36% Investment Companies -- 7.36% Brinson Supplementary Trust U.S. Cash Management Prime Fund (Cost $9,131,709) 9,131,709 9,131,709 ------------ Total Investments (Cost $117,139,860) -- 98.03% (a) 121,539,828 ------------ Cash and other assets, less liabilities -- 1.97% 2,437,503 ------------ Net Assets -- 100% $123,977,331 ============ See accompanying notes to schedule of investments. 48 Global Bond Fund -- Schedule of Investments December 31, 1998 (Unaudited) - ----------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $117,139,860; and net unrealized appreciation consisted of: Gross unrealized appreciation $5,176,005 Gross unrealized depreciation (776,037) ----------- Net unrealized appreciation $4,399,968 =========== FRN: Floating Rate Note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 1998, the value of these securities amounted to $2,746,326 or 2.22% of net assets. Resettable Perpetual Step-up Notes: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Bond Fund had the following open forward foreign currency contracts as of December 31, 1998: Settlement Local Current Unrealized Date Currency Value Gain/(Loss) ---------- -------- ------- ----------- Forward Foreign Currency Buy Contracts Australian Dollar 3/01/99 2,800,000 $1,718,413 $ (83,751) Austrian Schilling 3/01/99 13,200,000 1,129,788 12,512 Belgian Franc 3/01/99 104,000,000 3,036,331 32,200 Canadian Dollar 3/01/99 2,800,000 1,823,237 11,749 Finnish Markka 3/01/99 4,000,000 792,332 8,594 German Mark 3/01/99 3,600,000 2,167,813 23,986 Italian Lira 3/01/99 7,500,000,000 4,561,908 51,172 Japanese Yen 3/01/99 2,000,000,000 17,874,166 1,007,205 Netherlands Guilder 3/01/99 6,600,000 3,527,280 39,185 Swedish Krona 3/01/99 10,900,000 1,348,376 (8,257) Forward Foreign Currency Sale Contracts Australian Dollar 3/01/99 1,000,000 613,719 27,851 British Pound 3/01/99 4,440,000 7,374,680 (26,922) Canadian Dollar 3/01/99 400,000 260,462 (537) Danish Kroner 3/01/99 32,700,000 5,145,960 (34,764) German Mark 3/01/99 2,200,000 1,324,774 (28,445) Spanish Peseta 3/01/99 610,000,000 4,317,815 (51,998) ---------- Total $ 979,780 ========== See accompanying notes to financial statements. 49 Global Bond Fund -- Financial Statements STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (Unaudited) ASSETS: Investments, at value: Unaffiliated issuers (Cost $108,008,151) $ 112,408,119 Affiliated issuers (Cost $9,131,709) 9,131,709 Foreign currency, at value (Cost $350,083) 350,965 Receivables: Investment securities sold 1,290 Interest 2,577,447 Fund shares sold 2,761 Net unrealized appreciation on forward foreign currency contracts 979,780 Other assets 50,762 ------------- TOTAL ASSETS 125,502,833 ------------- LIABILITIES: Payables: Investment securities purchased 1,361,987 Investment advisory fees 77,599 Accrued expenses 52,961 Due to custodian bank 32,955 ------------- TOTAL LIABILITIES 1,525,502 ------------- NET ASSETS $ 123,977,331 ============= NET ASSETS CONSIST OF: Paid in capital $ 119,483,156 Accumulated distribution in excess of net investment income (1,070,788) Accumulated net realized gain 149,327 Net unrealized appreciation 5,415,636 ------------- NET ASSETS $ 123,977,331 ============= OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $119,514,551 and 12,066,245 shares issued and outstanding) $ 9.90 ============= Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $105,601 and 10,682 shares issued and outstanding) $ 9.89 ============= UBS Investment Funds Class: Net asset value, offering price and redemption price per share (Based on net assets of $4,357,179 and 440,711 shares issued and outstanding) $ 9.89 ============= See accompanying notes to financial statements. 50 Global Bond Fund -- Financial Statements STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (Unaudited) INVESTMENT INCOME: Interest (net of $14,950 for foreign taxes withheld) $ 2,832,036 ------------ TOTAL INCOME 2,832,036 ------------ EXPENSES: Advisory 414,159 Professional 24,750 Distribution 10,402 Other 58,207 ------------ TOTAL EXPENSES 507,518 ------------ NET INVESTMENT INCOME 2,324,518 ------------ NET REALIZED AND UNREALIZED GAIN: Net realized gain on: Investments 1,093,835 Foreign currency transactions 1,538,594 ------------ Net realized gain 2,632,429 ------------ Change in net unrealized appreciation or depreciation on: Investments and foreign currency 4,369,775 Forward contracts 1,336,164 Translation of other assets and liabilities denominated in foreign currency 37,420 ------------ Change in net unrealized appreciation or depreciation 5,743,359 ------------ Net realized and unrealized gain 8,375,788 ------------ Net increase in net assets resulting from operations $10,700,306 ============ See accompanying notes to financial statements. 51 Global Bond Fund -- Financial Statements STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year December 31, 1998 Ended (Unaudited) June 30, 1998 ----------------- ------------- OPERATIONS: Net investment income $ 2,324,518 $ 3,009,836 Net realized gain (loss) 2,632,429 (1,114,801) Change in net unrealized appreciation or depreciation 5,743,359 (276,626) ------------- ------------ Net increase in net assets resulting from operations 10,700,306 1,618,409 ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income (3,327,917) (2,183,342) Distributions in excess of net investment income (1,070,788) -- Distributions from net realized gain (961,267) (1,041,855) ------------- ------------ Total distributions to shareholders* (5,359,972) (3,225,197) ------------- ------------ CAPITAL SHARE TRANSACTIONS: Shares sold 41,337,859 46,034,839 Shares issued on reinvestment of distributions 3,845,267 2,230,731 Shares redeemed (22,206,338) (9,266,587) ------------- ------------ Net increase in net assets resulting from capital share transactions 22,976,788 38,998,983 ------------- ------------ TOTAL INCREASE IN NET ASSETS 28,317,122 37,392,195 ------------- ------------ NET ASSETS: Beginning of period 95,660,209 58,268,014 ------------- ------------ End of period (including accumulated undistributed net investment income of $(1,070,788) and $1,003,399, respectively) $ 123,977,331 $ 95,660,209 ============= ============ *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I $ (4,248,289) $ (2,070,571) Brinson Class N (3,700) (98) UBS Investment Funds Class (146,716) (112,673) Distributions from net realized gain Brinson Class I (925,451) (969,902) Brinson Class N (811) (18) UBS Investment Funds Class (35,005) (71,935) ------------- ------------ Total distributions to shareholders $ (5,359,972) $ (3,225,197) ============= ============
See accompanying notes to financial statements. 52 Global Bond Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended Year Ended June 30, July 30, 1993* December 31, 1998 ----------------------------------------- Through Brinson Class I (Unaudited) 1998 1997 1996 1995 June 30, 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.41 $ 9.64 $ 10.04 $ 10.39 $ 9.55 $ 10.00 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income 0.21*** 0.43*** 0.67 0.84 0.50 0.45 Net realized and unrealized gain (loss) 0.74 (0.18) 0.08 0.31 0.58 (0.52) -------- -------- -------- -------- -------- -------- Total income (loss) from investment operations 0.95 0.25 0.75 1.15 1.08 (0.07) -------- -------- -------- -------- -------- -------- Less distributions: Distributions from and in excess of net investment income (0.38) (0.31) (0.96) (1.40) (0.24) (0.28) Distributions from net realized gain (0.08) (0.17) (0.19) (0.10) -- (0.10) -------- -------- -------- -------- -------- -------- Total distributions (0.46) (0.48) (1.15) (1.50) (0.24) (0.38) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 9.90 $ 9.41 $ 9.64 $ 10.04 $ 10.39 $ 9.55 ======== ======== ======== ======== ======== ======== Total return (non-annualized) 10.14% 2.69% 7.71% 11.50% 11.34% (0.79)% Ratios/Supplemental Data: Net assets, end of period (in 000s) $119,515 $ 91,274 $ 54,157 $ 41,066 $ 51,863 $ 36,849 Ratio of expenses to average net assets: Before expense reimbursement 0.90%** 0.96% 1.32% 1.65% 1.43% 1.78%** After expense reimbursement N/A 0.90% 0.90% 0.90% 0.90% 0.90%** Ratio of net investment income to average net assets: Before expense reimbursement 4.23%** 4.47% 4.90% 4.98% 5.53% 4.03%** After expense reimbursement N/A 4.53% 5.32% 5.73% 6.06% 4.91%** Portfolio turnover rate 49% 151% 235% 184% 199% 189%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 53 Global Bond Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended December 31, 1998 Year Ended Brinson Class N (Unaudited) June 30, 1998* - ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.40 $ 9.64 ------- ------- Income from investment operations: Net investment income 0.18*** 0.42*** Net realized and unrealized gain 0.77 (0.20) ------- ------- Total income from investment operations 0.95 0.22 ------- ------- Less distributions: Distributions from net investment income (0.38) (0.29) Distributions from net realized gain (0.08) (0.17) ------- ------- Total distributions (0.46) (0.46) ------- ------- Net asset value, end of period $ 9.89 $ 9.40 ======= ======= Total return (non-annualized) 10.13% 2.37% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 106 $ 9 Ratio of expenses to average net assets: Before expense reimbursement 1.15%** 1.21% After expense reimbursement N/A 1.15% Ratio of net investment income to average net assets: Before expense reimbursement 3.98%** 4.22% After expense reimbursement N/A 4.28% Portfolio turnover rate 49% 151%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 54 Global Bond Fund -- Financial Highlights The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
Six Months Ended July 31, 1995* December 31, 1998 Year Ended Year Ended Through UBS Investment Funds Class (Unaudited) June 30, 1998 June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.39 $ 9.61 $ 10.02 $ 10.56 ------- ------- ------- ------- Income from investment operations: Net investment income 0.18*** 0.38*** 0.62 0.78 Net realized and unrealized gain (loss) 0.75 (0.18) 0.10 0.15 ------- ------- ------- ------- Total income from investment operations 0.93 0.20 0.72 0.93 ------- ------- ------- ------- Less distributions: Distributions from and in excess of net investment income (0.35) (0.25) (0.94) (1.37) Distributions from net realized gain (0.08) (0.17) (0.19) (0.10) ------- ------- ------- ------- Total distributions (0.43) (0.42) (1.13) (1.47) ------- ------- ------- ------- Net asset value, end of period $ 9.89 $ 9.39 $ 9.61 $ 10.02 ======= ======= ======= ======= Total return (non-annualized) 9.91% 2.28% 7.20% 9.17% Ratios/Supplemental Data: Net assets, end of period (in 000s) $ 4,357 $ 4,377 $ 4,110 $ 3,653 Ratio of expenses to average net assets: Before expense reimbursement 1.39%** 1.45% 1.81% 2.14%** After expense reimbursement N/A 1.39% 1.39% 1.39%** Ratio of net investment income to average net assets: Before expense reimbursement 3.74%** 3.98% 4.41% 4.49%** After expense reimbursement N/A 4.04% 4.83% 5.24%** Portfolio turnover rate 49% 151% 235% 184%
* Commencement of investment operations ** Annualized *** The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not Applicable See accompanying notes to financial statements. 55 The Brinson Funds -- Notes To Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eleven series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Large Capitalization Growth Fund, U.S. Small Capitalization Growth Fund, U.S. Bond Fund, High Yield Fund and Global (ex-U.S.) Equity Fund (formerly, Non-U.S. Equity Fund) (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and UBS Investment Funds Class (formerly, SwissKey Class). There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the Global Fund, Global Equity Fund and Global Bond Fund in the preparation of their financial statements. A. Investment Valuation: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. U.S. equity securities traded over-the-counter are priced at the most recent bid price. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. Foreign Currency Translation: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate of the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C. Investment Transactions: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D. Investment Income: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E. Federal Income Taxes: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the six months ended December 31, 1998, therefore, no federal income tax provision was required. F. Distributions To Shareholders: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. G. Income and Expense Allocation: All income earned and expenses incurred by each Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the UBS Investment Funds Class. H. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 56 The Brinson Funds -- Notes To Financial Statements 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, the Funds pay the Advisor a monthly fee based on each Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent that total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions for the six months ended December 31, 1998, were as follows:
UBS Investment Advisory Brinson Class I Brinson Class N Funds Class Advisory Fee Expense Cap Expense Cap Expense Cap Fees Fees Waived -------- --------------- --------------- ----------- -------- ----------- Global Fund 0.80% 1.10% 1.35% 1.75% $2,387,061 $ -- Global Equity Fund 0.80 1.00 1.25 1.76 289,624 18,480 Global Bond Fund 0.75 0.90 1.15 1.39 414,159 --
Certain officers of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the six months ended December 31, 1998 were $5,888, $2,392 and $2,208 for the Global Fund, Global Equity Fund and Global Bond Fund, respectively. The Global Fund invests in shares of certain affiliated investment companies also sponsored by the Advisor. These investments represented 14.25% of the Fund's total net assets at December 31, 1998. Activity for the six months ended December 31, 1998 was as follows:
Net Net Sales Realized Unrealized Interest Affiliates Purchases Proceeds Gains/(Loss) Gains/(Loss) Income Value - ---------- --------- --------- ------------ ------------ -------- ----- Brinson Post-Venture Fund $ -- $1,949,866 $ 448,329 $ (995,074) $ -- $ 6,015,904 Brinson High Yield Fund 3,900,000 4,900,682 766,824 -- 15,399,222 Brinson Emerging Markets Equity Fund -- 5,140,074 (2,553,399) (3,158,736) -- 15,364,050 Brinson Emerging Markets Debt Fund 6,400,000 8,703,323 1,961,791 (4,291,159) -- 27,921,446 Brinson Supplementary Trust U.S. Cash Management Prime Fund 12,835,861 4,711,620 -- -- 16,107 8,124,241
The Global Equity Fund and Global Bond Fund invest in shares of the Brinson Supplementary Trust U.S. Cash Management Prime Fund (Supplementary Trust). The Supplementary Trust is managed by the Advisor. The Supplementary Trust is offered as a cash management option to mutual funds and other accounts managed by the Advisor. The Supplementary Trust pays no management fees. Distributions from the Supplementary Trust are reflected as interest income in the statement of operations. Amounts relating to those investments at December 31, 1998 and for the six months then ended is summarized as follows:
% of Sales Interest Net Affiliates Purchases Proceeds Income Value Assets - ---------- --------- -------- -------- ----- ------ Global Equity Fund $4,693,073 $4,397,888 $ 3,173 $ 295,185 0.40% Global Bond Fund 9,279,598 147,889 13,429 9,131,709 7.36%
3. INVESTMENT TRANSACTIONS Investment transactions for the six months ended December 31, 1998, excluding short-term investments, were as follows: Proceeds Purchases From Sales --------- ---------- Global Fund $237,754,413 $424,385,284 Global Equity Fund 34,531,153 38,516,369 Global Bond Fund 69,215,909 49,804,987 57 The Brinson Funds -- Notes To Financial Statements 4. FORWARD FOREIGN CURRENCY CONTRACTS The Funds may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Funds realize a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts at and for the six months ended December 31, 1998, was the Funds' custodian or an affiliate of the Funds' custodian. 5. FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as net unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 6. SECURITY LENDING The Global Fund loaned securities to certain brokers, with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. Securities loaned are recorded at the amount of cash collateral received. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 102% of the value of domestic securities loaned and 105% of the value of non-U.S. securities loaned. The cash collateral received is invested in short-term investments. The value of loaned securities and related collateral outstanding at December 31, 1998 were as follows: Value of Loaned Cash Collateral Securities Received --------------- --------------- Global Fund $107,582,042 $111,993,032 7. DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940 as amended for the Brinson Class N and the UBS Investment Funds Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the UBS Investment Funds Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of the Global Fund, Global Equity Fund and Global Bond Fund. Annual fees under the UBS Investment Funds Plan, which include a 0.25% service fee, total 0.65%, 0.76% and 0.49% of the average daily net assets of the UBS Investment Funds Class of the Global Fund, Global Equity Fund and Global Bond Fund, respectively. 8. LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364-day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated based on the Federal Funds Rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized amount of the line of credit. During the six months ended December 31, 1998 the Global Equity and Global Bond Funds had no borrowings under the agreement. During the six months ended December 31, 1998, the Global Fund had borrowings of $33,900,000, $62,000,000 and $47,400,000 outstanding for 1 day each under the agreement. 58 The Brinson Funds -- Notes To Financial Statements 9. CAPITAL TRANSACTIONS Capital stock transactions were as follows:
Global Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I 13,259,375 $163,000,397 18,850,057 $244,898,004 Brinson Class N 26,870 342,468 90,370 1,177,290 UBS Investment Funds Class 323,181 3,886,738 803,666 10,347,586 ----------- ------------ ---------- ------------ Total Sales 13,609,426 $167,229,603 19,744,093 $256,422,880 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 3,653,840 $ 42,311,080 5,179,618 $ 62,332,662 Brinson Class N 11,968 138,346 769 9,625 UBS Investment Funds Class 190,958 2,203,655 217,810 2,607,910 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 3,856,766 $ 44,653,081 5,398,197 $ 64,950,197 =========== ============ ========== ============ Redemptions: Brinson Class I 28,358,651 $352,033,813 16,402,396 $209,137,318 Brinson Class N 864 10,547 21 276 UBS Investment Funds Class 590,874 7,271,133 641,736 8,247,175 ----------- ------------ ---------- ------------ Total Redemptions 28,950,389 $359,315,493 17,044,153 $217,384,769 =========== ============ ========== ============
Global Equity Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I 413,888 $ 5,114,516 1,466,054 $ 17,934,645 Brinson Class N 15,911 200,000 -- -- UBS Investment Funds Class 173,268 2,091,451 1,779,376 22,282,095 ----------- ------------ ---------- ------------ Total Sales 603,067 $ 7,405,967 3,245,430 $ 40,216,740 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 44,491 $ 532,553 126,859 $ 1,426,171 Brinson Class N 402 4,803 9 93 UBS Investment Funds Class 64,233 768,875 442,472 4,952,413 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 109,126 $ 1,306,231 569,340 $ 6,378,677 =========== ============ ========== ============ Redemptions: Brinson Class I 314,413 $ 3,767,887 3,546,702 $ 44,596,092 Brinson Class N -- -- -- -- UBS Investment Funds Class 1,063,913 12,724,864 2,339,080 28,946,495 ----------- ------------ ---------- ------------ Total Redemptions 1,378,326 $ 16,492,751 5,885,782 $ 73,542,587 =========== ============ ========== ============
59 The Brinson Funds -- Notes To Financial Statements
Global Bond Fund --------------------------------------------------------- Six Months Ended Year Ended December 31, 1998 (Unaudited) June 30, 1998 --------------------------------------------------------- Shares Value Shares Value ------------- ------------- ------------ -------------- Sales: Brinson Class I 3,975,826 $39,062,948 4,561,105 $43,233,367 Brinson Class N 9,292 93,297 860 8,169 UBS Investment Funds Class 221,978 2,181,614 293,533 2,793,303 ----------- ------------ ---------- ------------ Total Sales 4,207,096 $41,337,859 4,855,498 $46,034,839 =========== ============ ========== ============ Dividend Reinvestment: Brinson Class I 376,007 $ 3,681,105 220,347 $ 2,058,040 Brinson Class N 462 4,510 12 115 UBS Investment Funds Class 16,324 159,652 18,525 172,576 ----------- ------------ ---------- ------------ Total Dividend Reinvestment 392,793 $ 3,845,267 238,884 $ 2,230,731 =========== ============ ========== ============ Redemptions: Brinson Class I 1,983,791 $19,658,928 699,882 $ 6,667,104 Brinson Class N 26 251 22 210 UBS Investment Funds Class 263,784 2,547,159 273,680 2,599,273 ----------- ------------ ---------- ------------ Total Redemptions 2,247,601 $22,206,338 973,584 $ 9,266,587 =========== ============ ========== ============
60 Distributed by: Funds Distributor, Inc. 60 State Street Boston, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. [BRINSON LOGO APPEARS HERE] The Brinson Funds Chicago - Bahrain - Basel - Frankfurt - Geneva - Hong Kong - London - Melbourne - - New York Paris - Rio de Janiero - Singapore - Sydney - Tokyo - Zurich 209 South LaSalle Street - Chicago, Illinois 60604-1295 - Tel: (800) 448-2430 -----END PRIVACY-ENHANCED MESSAGE-----