-----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, UDVod+1w3TVHxT/EJm+DzPXzdupjOPbnUewGuzW0e3XvTAYc38BqsUFnEWKwJ7of KimgbM5wpTh2a4sfhUeNNA== 0000950131-97-002959.txt : 19970501 0000950131-97-002959.hdr.sgml : 19970501 ACCESSION NUMBER: 0000950131-97-002959 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19970430 SROS: NONE 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: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-47287 FILM NUMBER: 97592080 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06637 FILM NUMBER: 97592081 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 485APOS 1 THE BRINSON FUNDS POST-EFFECTIVE AMENDMENT NO. 18 UNITED STATES FILE NO. 33-47287 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FILE NO. 811-6637 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. | | ------ Post Effective Amendment No. 18 |X| ------ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X| Amendment No. 19 |X| ------ THE BRINSON FUNDS ================= (Exact name of Registrant as Specified in Charter) 209 South LaSalle Street Chicago, Illinois 60604-1295 - ----------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code 312-220-7100 ------------ The Brinson Funds 209 South LaSalle Street Chicago, Illinois 60604-1295 ---------------------------- (Name and Address of Agent for Service) COPIES TO: Bruce G. Leto, Esq. Stradley, Ronon, Stevens & Young, LLP 2600 One Commerce Square Philadelphia, PA 19103-7098 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICAL AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE: | | IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) | | ON (DATE), PURSUANT TO PARAGRAPH (b) ------ |X| 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1) | | ON (DATE) PURSUANT TO PARAGRAPH (a)(1) ------ | | 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2) | | ON (June 30, 1977) PURSUANT TO PARAGRAPH (a)(2) OF RULE 485. --------------- IF APPROPRIATE, CHECK THE FOLLOWING BOX: | | THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT. Registrant has previously registered an indefinite number of shares of beneficial interest of The Brinson Funds under the Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of 1940, as amended. Registrant filed a Notice pursuant to Rule 24f-2 for the fiscal period ended June 30, 1996 on August 28, 1996. ================================================================================ TOTAL PAGES: ____ INDEX TO EXHIBITS, PAGE: ____
THE BRINSON FUNDS Cross Reference Sheet Pursuant to Rule 481b FORM N-1A ITEM CAPTION IN PROSPECTUS --------------------- PART A INFORMATION REQUIRED IN A PROSPECTUS ------ ------------------------------------ 1. Cover Page Cover Page 2. Synopsis Prospectus Summary; Tables of Fees and Expenses 3. Condensed Financial Information Financial Highlights 4. General Description of Registrant Investment Objectives and Policies; Other Investment Practices and Risk Factors 5. Management of the Fund Management of the Trust 5A. Management's Discussion of Performance Information Fund Performance 6. Capital Stock and Other Securities General Information; Dividends and Taxes; Net Asset Value 7. Purchase of Securities Being Offered Purchase of Shares; Exchange of Shares; Distribution Plan 8. Redemption or Repurchase Redemption of Shares 9. Legal Proceedings * PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION ------ ------------------------------------------------------------- 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Covered in Part A 13. Investment Objectives and Policies Investment Policies; Investment Restrictions; Portfolio Transactions and Brokerage Commissions 14. Management of the Fund Trustees and Officers 15. Principal Holders of Securities Control Persons and Principal Holders of Securities 16. Investment Advisory and Other Services Investment Advisory and Other Services 17. Brokerage Allocation Portfolio Transactions and Brokerage Commissions ================================================================================================================== PAGE 2
18. Capital Stock and Other Securities Other Information 19. Purchase, Redemption and Pricing of Purchases; Redemptions Securities Being Offered 20. Tax Status Taxes 21. Underwriters Underwriter 22. Calculations of Performance Data Performance Information 23. Financial Statements Audited Financials dated June 30, 1996 PART C OTHER INFORMATION ------ ----------------- Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement. ======================================================================================================================== PAGE 3
[THE BRINSON FUNDS LOGO] THE BRINSON FUNDS 209 South LaSalle Street Chicago, IL 60604-1295 PROSPECTUS JUNE 30, 1997 This Prospectus describes the BRINSON-CLASS N SHARES of the investment portfolios offered by The Brinson Funds (the "Trust"). The Trust is an open- end management investment company advised by Brinson Partners, Inc. ("Brinson Partners" or the "Advisor"), which currently offers seven distinct investment portfolios: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Series" and collectively, the "Series"). Each Series offers three separate classes of shares--the Brinson--Class N, the Brinson--Class I and the SwissKey Fund class. The Brinson-Class N shares of the Series are referred to herein as the: Brinson Global Fund, Brinson Global Equity Fund, Brinson Global Bond Fund, Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund, Brinson U.S. Bond Fund and Brinson Non-U.S. Equity Fund (each a "Fund" and collectively, the "Brinson Funds" or "Funds"). This Prospectus pertains only to the Brinson-- Class N shares, which do not have a sales load, but are subject to annual 12b- 1 plan expenses. The Brinson--Class I shares, which are designed primarily for institutional investors, do not have a sales load and are not subject to annual 12b-1 plan expenses. Further information relating to the Brinson--Class I shares may be obtained by calling 1-800-448-2430. The SwissKey Fund class shares do not have a sales load, but have slightly higher Rule 12b-1 fees and a lower minimum investment requirement. Further information relating to the SwissKey Fund class shares may be obtained by calling 1-800-SWISSKEY. This Prospectus sets forth concisely the information a prospective investor should know before investing in the Class N shares of any of the Brinson Funds. Investors should read and retain this Prospectus for future reference. Additional information about the Funds and the other classes of shares of the Trust's investment portfolios is contained in the Statement of Additional Information dated June 30, 1997, as amended from time to time, which has been filed with the U.S. Securities and Exchange Commission and is available upon request and without charge from the Trust at the addresses and telephone numbers below. The Statement of Additional Information is incorporated by reference into this Prospectus. The Statement of Additional Information, material incorporated by reference into this Prospectus, and other information regarding the Trust and each of the Series is maintained electronically with the U.S. Securities and Exchange Commission at its Internet Web site (http://www.sec.gov). AN INVESTMENT IN ANY OF THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN ANY OF THE FUNDS IS NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE U.S. SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. UNDERWRITER: ADVISOR: Funds Distributor, Inc. Brinson Partners, Inc. 60 State Street 209 South LaSalle Street Suite 1300 Chicago, IL 60604-1295 Boston, MA 02109 1-800-448-2430 1-800-448-2430 TABLE OF CONTENTS
PAGE ---- Annual Fund Operating Expenses............................................. 3 Description of the Funds................................................... 5 Investment Objectives and Policies......................................... 5 Global Fund.............................................................. 5 Global Equity Fund....................................................... 6 Global Bond Fund......................................................... 6 U.S. Balanced Fund....................................................... 7 U.S. Equity Fund......................................................... 7 U.S. Bond Fund........................................................... 7 Non-U.S. Equity Fund..................................................... 8 Investment Considerations and Risks........................................ 8 Management of the Trust.................................................... 11 Portfolio Management....................................................... 12 Administration of the Trust................................................ 13 Purchase of Shares......................................................... 14 Account Options............................................................ 15 Redemption of Shares....................................................... 16 Net Asset Value............................................................ 19 Distribution Plan.......................................................... 20 Dividends, Distributions and Taxes......................................... 21 General Information........................................................ 22 Performance Information.................................................... 24 Appendix A................................................................. 25
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE SUCH AN OFFER OR SOLICITATION. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) BRINSON--CLASS N SHARES
TOTAL FUND OPERATING EXPENSES MANAGEMENT FEES 12B-1 OTHER EXPENSES (AFTER FEE WAIVER AND/OR (AFTER FEE WAIVER)/1/ EXPENSES/2/ (AFTER REIMBURSEMENT)/3/ EXPENSE REIMBURSEMENT) --------------------- ----------- ------------------------ ------------------------ Brinson Global Fund..... 0.80% 0.25% 0.24% 1.29% Brinson Global Equity Fund................... 0.03% 0.25% 0.97% 1.25% Brinson Global Bond Fund................... 0.00% 0.25% 0.90% 1.15% Brinson U.S. Balanced Fund................... 0.49% 0.25% 0.31% 1.05% Brinson U.S. Equity Fund................... 0.36% 0.25% 0.44% 1.05% Brinson U.S. Bond Fund.. 0.00% 0.25% 0.60% 0.85% Brinson Non-U.S. Equity Fund................... 0.60% 0.25% 0.40% 1.25%
- ---------- /1/Pursuant to the terms of the Investment Advisory Agreements between the Trust on behalf of each Series and the Advisor, the Advisor is entitled to receive a monthly fee at the following annual rates for each of the Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund: 0.80%, 0.80%, 0.75%, 0.70%, 0.70%, 0.50% and 0.80%, respectively. Brinson Partners has agreed irrevocably to waive its fees and reimburse certain expenses so that total operating expenses, with the exception of 12b-1 expenses, of the Brinson Global Fund, Brinson Global Equity Fund, Brinson Global Bond Fund, Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund, Brinson U.S. Bond Fund and Brinson Non-U.S. Equity Fund will never exceed 1.10%, 1.00%, 0.90%, 0.80%, 0.80%, 0.60% and 1.00%, respectively. Absent these fee waivers and expense reimbursements, the total operating expenses for the Brinson--Class N shares of the Series for the fiscal year ended June 30, 1996 would have been 1.29%--Global Fund, 2.02%--Global Equity Fund, 1.90%--Global Bond Fund, 1.26%--U.S. Balanced Fund, 1.39%--U.S. Equity Fund, 1.35%--U.S. Bond Fund and 1.45%--Non-U.S. Equity Fund. /2/For purposes of this Table, "12b-1 Expenses" is comprised of an asset-based sales charge of 0.25% of average daily net assets of each Series. See "Distribution Plans." /3The/Brinson--Class N shares commenced operations on June 30, 1997. Therefore, for the purpose of the table above, "Other Expenses" for the Brinson--Class N shares of a Fund are based on the operating expenses for the Brinson--Class I and SwissKey Fund class shares of the same Fund for the fiscal year ended June 30, 1996. Pursuant to rules of the National Association of Securities Dealers, Inc. ("NASD"), the aggregate initial sales charges, deferred sales charges and asset-based sales charges on shares of the Funds may not exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25% limitation is imposed on the Fund rather than on a per shareholder basis. Therefore, long-term shareholders of the Brinson Funds may pay more than the economic equivalent of the maximum front-end sales charges permitted by the NASD. This amount also includes service fees. 3 EXAMPLE: Based on the level of expenses listed above after fee waivers and reimbursements, the total expenses relating to an investment of $1,000 would be as follows assuming a 5% annual return and redemption at the end of each time period.
NAME OF FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------------ ------ ------- ------- -------- Brinson Global Fund............................. $13 $41 $71 $156 Brinson Global Equity Fund...................... $13 $40 $69 $151 Brinson Global Bond Fund........................ $12 $37 $63 $140 Brinson U.S. Balanced Fund...................... $11 $33 $58 $128 Brinson U.S. Equity Fund........................ $11 $33 $58 $128 Brinson U.S. Bond Fund.......................... $ 9 $27 $47 $105 Brinson Non-U.S. Equity Fund.................... $13 $40 $69 $151
The foregoing table is designed to assist the investor in understanding the various costs and expenses that a shareholder will bear directly or indirectly. - ------------------------------------------------------------------------------- THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN ACTUAL RETURNS GREATER OR LESS THAN 5%. - ------------------------------------------------------------------------------- THE TRUST ISSUES THREE CLASSES OF SHARES THAT INVEST IN THE SAME PORTFOLIOS OF SECURITIES. ALTHOUGH SHAREHOLDERS OF THE BRINSON--CLASS N, BRINSON--CLASS I AND SWISSKEY FUND CLASS SHARES DO NOT PAY SALES CHARGES, SHAREHOLDERS OF THE BRINSON--CLASS N AND SWISSKEY FUND CLASS SHARES ARE SUBJECT TO SEPARATE ANNUAL 12B-1 PLAN EXPENSES. THEREFORE, EXPENSES, AND ULTIMATELY, PERFORMANCE WILL VARY BETWEEN THE CLASSES. FURTHER INFORMATION ABOUT THE SWISSKEY FUND CLASS SHARES OF THE TRUST MAY BE OBTAINED BY CALLING 1-800-SWISSKEY. FURTHER INFORMATION ABOUT THE BRINSON--CLASS I SHARES OF THE TRUST MAY BE OBTAINED BY CALLING 1-800-448-2430. 4 DESCRIPTION OF THE FUNDS The investment objective of each Series is fundamental and may not be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Series, as defined in the Investment Company Act of 1940, as amended (the "Act"). Unless otherwise stated in this Prospectus or the Statement of Additional Information, each Series' investment policies are not fundamental and may be changed without shareholder approval. There can be no assurance that a Series will achieve its investment objective. None of the Series intends to concentrate its investments in a particular industry. None of the Series intends to issue senior securities as defined in the Act, except that each Series may engage in borrowing activities as defined in Appendix A and in the Statement of Additional Information. Each Series' investment objective and its policies concerning portfolio lending, borrowing, the issuance of senior securities and concentration are "fundamental," which means that they may not be changed without the affirmative vote of the holders of a majority of the Series' outstanding voting securities (as defined in the Act). INVESTMENT OBJECTIVES AND POLICIES GLOBAL FUND INVESTMENT OBJECTIVE The Global Fund's investment objective is to maximize total return, consisting of capital appreciation and current income. The Series will attempt to control risk while seeking to achieve its investment objective. As a global fund, at least 65% of the Series' total assets will be invested in securities of issuers in at least three countries, one of which may be the United States. The Series may utilize a wide range of equity, debt and money market securities in domestic and foreign markets, and the Series may invest in other open-end investment companies advised by Brinson Partners, Inc. ("Brinson Partners" or the "Advisor"). The Series may enter into repurchase agreements and reverse repurchase agreements, and engage in futures, options and currency transactions for hedging and other permissible purposes, as more fully described in "Investment Consideration and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. The Series is a diversified portfolio that seeks to achieve its objective by pursuing active asset allocation strategies across global equity and fixed income markets and active security selection within each market. These decisions are undertaken relative to the Global Securities Markets Index (the "Global Benchmark"), which is compiled by Brinson Partners. The Global Benchmark consists of eight distinct asset classes representing the primary wealth-holding public securities markets. These asset classes are U.S. equities, non-U.S. equities, emerging markets equities, U.S. bonds, non-U.S. bonds, emerging markets bonds, high yield bonds and cash equivalents. Each asset class is represented in the Global Benchmark by an index compiled by an independent data provider. In order to compile the Global Benchmark, the Advisor determines current relative market capitalizations in the world markets (U.S. equities, non-U.S. equities, emerging markets equities, U.S. bonds, non-U.S. bonds, emerging markets bonds, high yield bonds and cash) and then weights each relevant index. Based on this weighting, the Advisor determines the return of the relative indices, applies the index weighting and then determines the return of the Global Benchmark. From time to time, the Advisor may substitute an equivalent index within a given asset class when it believes that such index more accurately reflects the relevant global market. Although it may invest anywhere in the world, it is expected that the Series' assets will be primarily invested in equity markets listed in the Morgan Stanley Capital International ("MSCI") World Equity (Free) Index. The 5 Series will primarily invest in fixed income markets listed in the Salomon Brothers World Government Bond Index. The Series may invest up to 10% of its net assets in equity and debt securities of emerging market issuers, or securities with respect to which the return is derived from the equity or debt securities of issuers in emerging markets. GLOBAL EQUITY FUND INVESTMENT OBJECTIVE The Global Equity Fund's investment objective is to maximize total return, consisting of capital appreciation and current income. The Series will attempt to control risk while seeking to achieve its investment objective. As a global fund, at least 65% of the Series' total assets will be invested in equity securities of issuers in at least three countries, one of which may be the United States. The Series may utilize a wide range of equity securities that are traded on both domestic and foreign stock exchanges or, in the case of domestic stocks, in the over-the-counter market. The Series may enter into repurchase agreements and reverse repurchase agreements, and engage in futures, options and currency transactions for hedging and other permissible purposes, as more fully described in "Investment Considerations and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. The Series is a diversified portfolio that seeks to achieve its objective by pursuing an active asset allocation strategy across global equity markets, active management of currency exposures and active security selection within each market. The benchmark for the Series is the MSCI World Equity (Free) Index (the "Global Equity Benchmark"). The Global Equity Benchmark is a market driven broad based index which includes U.S. and non-U.S. equity markets in terms of capitalization and performance. The Global Equity Benchmark is designed to provide a representative total return for all major stock exchanges located inside and outside the United States. Although it may invest anywhere in the world, it is expected that the Series' assets will primarily be invested in equity markets listed in the Global Equity Benchmark. From time to time, the Advisor may substitute securities in an equivalent index when it believes that such securities in the index more accurately reflect the relevant global market. GLOBAL BOND FUND INVESTMENT OBJECTIVE The Global Bond Fund's investment objective is to maximize total return, consisting of capital appreciation and current income. The Series will attempt to control risk while seeking to achieve its investment objective. As a global fund, at least 65% of the Series' total assets will be invested in debt securities with an initial maturity of more than one year of issuers in at least three countries, one of which may be the United States. The Series seeks to achieve this objective by investing primarily in debt securities that may also provide the potential for capital appreciation. The Series may enter into repurchase agreements and reverse repurchase agreements, and may engage in futures, options and currency transactions for hedging and other permissible purposes, as more fully described in "Investment Considerations and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. The Series is a non-diversified portfolio as described in "Investment Considerations and Risks--Non-Diversified Status" below. The benchmark for the Series is the Salomon Brothers World Government Bond Index (the "Global Bond Benchmark"). The Global Bond Benchmark is a market driven index which measures the broad global fixed income markets invested in debt issues of U.S. and non-U.S. governments, governmental entities and supranationals. Although it may invest anywhere in the world, it is expected that the Series' assets will be 6 primarily invested in fixed income markets listed in the Global Bond Benchmark. From time to time, the Advisor may substitute securities in an equivalent index when it believes that such securities in the index more accurately reflect the relevant global fixed income securities market. U.S. BALANCED FUND INVESTMENT OBJECTIVE The U.S. Balanced Fund's investment objective is to maximize total return, consisting of capital appreciation and current income. The Series will attempt to control risk while seeking to achieve its investment objective. Under normal circumstances, the Series will invest at least 25% of its net assets in fixed income securities. The Series may utilize a wide range of equity, debt and money market securities. The Series may also invest in equity securities, including warrants, preferred stock and securities convertible into equity securities. The Series may enter into repurchase agreements and reverse repurchase agreements, and may engage in futures and options for hedging and other permissible purposes, as more fully described in "Investment Considerations and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. It is not the policy of the Series to take unreasonable risks to obtain speculative or aggressively high returns. The Series is a diversified portfolio that seeks to achieve its objective by pursuing active asset allocation strategies across U.S. equity and fixed income markets and active security selection within each market. These decisions are undertaken relative to the U.S. Balanced Index (the "U.S. Balanced Benchmark"), which is compiled by Brinson Partners. The U.S. Balanced Benchmark represents a fixed composite of 65% Wilshire 5000 Index, 30% Salomon Brothers Broad Investment Grade Bond Index and 5% 30-day Treasury Bill Index. From time to time, the Advisor may substitute an equivalent index within a given asset class when the Advisor believes that such new index more accurately reflects the relevant U.S. market. U.S. EQUITY FUND INVESTMENT OBJECTIVE The U.S. Equity Fund's investment objective is to maximize total return, consisting of capital appreciation and current income, while controlling risk. Under normal circumstances, at least 65% of the Series' total assets will be invested in equity securities of U.S. companies. The Series is a diversified portfolio that seeks to achieve its objective by investing in a wide range of equity securities of U.S. companies that are traded on major stock exchanges as well as in the over-the-counter market. The Series may engage in futures and options for hedging and other permissible purposes, as more fully described in "Investment Considerations and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. The benchmark for the Series is the Wilshire 5000 Index (the "U.S. Equity Benchmark"). The U.S. Equity Benchmark is a broad weighted index which includes all U.S. common stocks. The U.S. Equity Benchmark is designed to provide a representative indication of the capitalization and return for the U.S. equity market. U.S. BOND FUND INVESTMENT OBJECTIVE The U.S. Bond Fund's investment objective is to maximize total return, consisting of capital appreciation and current income, while controlling risk. As a matter of fundamental policy, under normal circumstances, the Series intends to invest at least 65% of its total assets in U.S. debt securities with an initial maturity of more than one year. The Series is a diversified portfolio that seeks to achieve its objective by investing primarily in fixed income securities, which may also provide the potential for capital appreciation. The Series may also engage in 7 futures and options transactions for hedging and other permissible purposes, as more fully described in "Investment Considerations and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. The Series may invest in a broad range of fixed income securities, including debt securities of the U.S. government, together with its agencies and instrumentalities and the debt securities of U.S. corporations. A majority of the fixed income securities in which the Series will invest will possess a minimum rating of BBB- by Standard & Poor's Ratings Group ("S&P") or Baa3 by Moody's Investors Services, Inc. ("Moody's") or, if unrated, will be determined to be of comparable quality by Brinson Partners. Such securities are considered to be investment grade. Other fixed income securities in which the Series may invest include zero coupon securities, mortgage-backed securities, asset-backed securities and when-issued securities. The Series may invest a portion of its assets in short-term debt securities (including repurchase and reverse repurchase agreements) of corporations, the U.S. government or its agencies or instrumentalities, and banks and finance companies. The benchmark for the Series is the Salomon Brothers Broad Investment Grade Bond Index (the "U.S. Bond Benchmark"). The U.S. Bond Benchmark is a market driven broad based index which includes U.S. bonds with over one year to maturity. From time to time, the Advisor may substitute securities in an equivalent index when it believes that such securities in the index more accurately reflect the relevant fixed income securities market. NON-U.S. EQUITY FUND INVESTMENT OBJECTIVE The Non-U.S. Equity Fund's investment objective is to maximize total return, consisting of capital appreciation and current income, by investing primarily in the equity securities of non-U.S. issuers. Under normal conditions, at least 65% of the Series' total assets will be invested in equity securities of issuers in at least three countries other than the United States. In seeking to achieve its investment objective while also controlling risk, the Series may invest in a wide range of equity securities, including: American, European and Global Depository Receipts, common and preferred stock; debt securities convertible into or exchangeable for common stock; and securities such as warrants or rights that are convertible into common stock. The Series may engage in futures, options and currency transactions for hedging and other permissible purposes, as more fully described in "Investment Considerations and Risks" and Appendix A in this Prospectus, and in the Statement of Additional Information. The Series is a diversified portfolio that seeks to achieve its objective by investing primarily in the equity securities of non-U.S. issuers. The benchmark for the Series is the MSCI Non-U.S. Equity (Free) Index (the "Non- U.S. Equity Benchmark"). The Non-U.S. Equity Benchmark is a market driven broad based index which includes non-U.S. equity markets in terms of capitalization and performance. From time to time, the Advisor may substitute securities in an equivalent index when it believes that such securities in the index more accurately reflect the relevant international market. Although it may invest anywhere in the world, it is expected that the Series' assets will be primarily invested in the equity markets included in the MSCI Non-U.S. Equity (Free) Index. INVESTMENT CONSIDERATIONS AND RISKS The following provides information about the types of instruments in which the Funds may invest, strategies employed by Brinson Partners in its attempt to attain each Series' investment objective and a summary of related risks. Shareholders should understand that all investments involve risks and there can be no guarantee against loss resulting from an investment in the Series, nor can there be any assurance that the Series will be able to 8 attain their investment objectives. A complete list of the Series' investment restrictions and more detailed information about the Series' investments are contained in Appendix A in this Prospectus, and in the Statement of Additional Information. EQUITY SECURITIES (GLOBAL FUND, GLOBAL EQUITY FUND, U. S. BALANCED FUND, U.S. EQUITY FUND AND NON-U.S. EQUITY FUND)--Equity securities fluctuate in value as a result of various factors, which are often unrelated to the value of the issuer of the securities. These fluctuations may be pronounced. The Global Fund may invest in small market capitalization companies and in equity securities that are considered by the Advisor to be in their post-venture capital stage. These securities may have limited marketability, and therefore, may be more volatile. Fluctuations in the value of the Series' equity investments will affect the value of their shares and thus the Funds' total returns to investors. FIXED INCOME SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND)--All fixed income securities are subject to two types of risks: credit risk and interest rate risk. The credit risk relates to the ability of the issuer to meet interest or principal payments or both as they come due. The interest rate risk refers to the fluctuations in the net asset value of any portfolio of fixed income securities resulting from the inverse relationship between the price and yield of fixed income securities; that is, when the general level of interest rates rises, the prices of outstanding fixed income securities decline, and when interest rates fall, prices rise. FOREIGN SECURITIES AND CURRENCY CONSIDERATIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND FUND AND NON-U.S. EQUITY FUND)--Investments in securities of foreign issuers may involve greater risks than those of U.S. issuers. There is generally less information available to the public about non-U.S. companies and less government regulation and supervision of non-U.S. stock exchanges, brokers and listed companies. Non-U.S. companies are not subject to uniform global accounting, auditing and financial reporting standards, practices and requirements. Securities of some non-U.S. companies are less liquid and their prices more volatile than securities of comparable U.S. companies. Securities trading practices abroad may offer less protection to investors. Settlement of transactions in some non-U.S. markets may be delayed or may be less frequent than in the United States, which could affect the liquidity of the Series' portfolios. Additionally, in some non-U.S. countries, there is the possibility of expropriation or confiscatory taxation, limitations on the removal of securities, property or other assets of the Series, political or social instability, or diplomatic developments which could affect U.S. investments in those countries. The Series intend to diversify broadly among countries, but reserve the right to invest a substantial portion of their assets in one or more countries if economic and business conditions warrant such investments. Brinson Partners will take these factors into consideration in managing the Series' investments. Because the Series will keep their books and records in U.S. dollars, the Series will be required, for federal income tax purposes, to account for income and losses on all transactions involving foreign currency under Section 988 of the Internal Revenue Code of 1986, as amended, and the applicable U.S. Treasury Regulations, so that generally any component of a gain or loss attributable to currency fluctuations results in ordinary income or loss and not capital gain or loss. The U.S. dollar market value of the Series' investments and of dividends and interest earned by the Series may be significantly affected by changes in currency exchange rates. Some currency prices may be volatile, and there is the possibility of governmental controls on currency exchange or governmental intervention in currency markets, which could adversely affect the Series. Although the Series may attempt to manage currency exchange rate risks, there is no assurance that the Series will do so at an appropriate time or that they will be able to predict exchange rates accurately. For example, if the Series increase their exposure to a currency and that currency's price subsequently falls, such currency management may result in increased losses to the Series. 9 Similarly, if the Series decrease their exposure to a currency, and the currency's price rises, the Series will lose the opportunity to participate in the currency's appreciation. Each Series will manage currency exposures relative to the normal currency allocation and will consider return and risk of currency exposures relative to its respective Benchmark. In addition, if the currency in which a security is denominated appreciates against the U.S. dollar, the dollar value of the security will increase. Conversely, a decline in the exchange rate of the currency would adversely affect the value of the security expressed in dollars. There are additional risks inherent in investing in less developed countries which are applicable to the Global Fund. Compared to the United States and other developed countries, emerging market countries may have relatively unstable governments, economies based on only a few industries, and securities markets that trade only a small number of securities and employ settlement procedures different from those used in the United States. Prices on these exchanges tend to be volatile and, in the past, securities in these countries have offered greater potential for gain (as well as loss) than securities of companies located in developed countries. Further, investments by foreign investors are subject to a variety of restrictions in many emerging countries. Emerging markets countries such as those in which the Global Fund may invest have historically experienced and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations or currency depreciation, large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. Additional factors which may influence the ability or willingness to service debt include, but are not limited to, a country's cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the relative size of its debt service burden to the economy as a whole, its government's policy towards the International Monetary Fund, the World Bank and other international agencies and the political constraints to which a government debtor may be subject. FOREIGN CURRENCY TRANSACTIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND FUND AND NON-U.S. EQUITY FUND)--To manage exposure to currency fluctuations, the Series may alter fixed income or money market exposures, enter into forward currency exchange contracts, buy or sell options or futures relating to foreign currencies and may purchase securities indexed to currency baskets. The Series will also use these currency exchange techniques in the normal course of business to hedge against adverse changes in exchange rates in connection with purchases and sales of securities. Some of these strategies may require the Series to set aside liquid assets in a segregated custodial account to cover their obligations. FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS (ALL SERIES)--The Series may attempt to reduce the overall level of investment risk of particular securities and attempt to protect against adverse market movements by investing in futures, options and other derivative instruments. A derivative instrument is commonly defined as a financial instrument whose performance and value are derived, at least in part, from another source, such as the performance of an underlying asset, a specific security or an index of securities. The derivative instruments in which the Series may invest include the purchase and writing of options on securities (including index options) and options on foreign currencies, investing in futures contracts for the purchase or sale of instruments based on financial indices, including interest rate indices or indices of U.S. or foreign government securities, equity or fixed income securities ("futures contracts"), forward contracts and swaps and swap-related products such as equity index swaps, interest rate swaps, currency swaps, and related caps, collars and floors. The investment in futures, options, forward contracts, swaps and similar strategies by the Series will depend on Brinson Partners' judgment as to the potential risks and rewards of different types of strategies, and it should be recognized that the use of these instruments exposes the Series to additional investment risks and transaction costs. If the Advisor incorrectly analyzes the market conditions or does not employ the appropriate strategy with respect to these instruments, the Series could be left in a less favorable position. For example, gains and losses 10 on investments in futures depend on the Advisor's ability to predict correctly the direction of security prices, interest rates and other economic factors. Additional risks inherent in the use of futures, options and forward contracts include: adverse movements in the prices of securities or currencies being hedged; the possible absence of a liquid secondary market for any particular instrument at any time; and the possible need to defer closing out certain hedge positions to avoid adverse tax consequences. Options and futures can be volatile instruments and may not perform as expected. A Series could experience losses if the prices of its options and futures positions are poorly correlated with its other investments. If a hedge is applied at an inappropriate time or price trends are judged incorrectly, options and futures strategies may lower a Series' return (i.e., options and futures may fail as hedging techniques in cases where the price movements of the securities underlying the options and futures do not follow the price movements of the portfolio securities subject to the hedge). Options and futures traded on foreign exchanges generally are not regulated by U.S. authorities and may offer less liquidity and less protection to a Series in the event of default by the other party to the contract. The loss from investing in futures transactions is potentially unlimited. A Series does not intend to purchase put and call options that are traded on a national stock exchange in an amount exceeding 5% of its net assets. Each Series may invest in derivatives for hedging purposes, to maintain liquidity, or in anticipation of changes in the composition of its portfolio holdings. No Series will engage in derivative investments purely for speculative purposes. A Series will invest in one or more derivatives only to the extent that the instrument under consideration is judged by the Advisor to be consistent with the Series' overall investment objective and policies. In making such judgment, the potential benefits and risks will be considered in relation to the Series' other portfolio investments. Where not specified, investment limitations with respect to a Series' derivative instruments will be consistent with that Series' existing percentage limitations with respect to its overall investment policies and restrictions. The risks and policies of various types of derivative instruments permitted for the Series, including options, futures, forward contracts and applicable interest rate swaps, are described in greater detail in Appendix A in this Prospectus, and in the Statement of Additional Information. NON-DIVERSIFIED STATUS (GLOBAL BOND FUND ONLY)--The Global Bond Fund is classified as a "non-diversified" investment company under the Act, which means that the proportion of the Series' assets that may be invested in the securities of a single issuer is not limited by the Act. Since it may invest a larger portion of its assets in the securities of a single issuer than investment companies that are classified as diversified funds under the Act, an investment in the Global Bond Fund may be subject to greater fluctuations in value than an investment in a diversified fund. MANAGEMENT OF THE TRUST THE BOARD OF TRUSTEES The Trust is a Delaware business trust. Under Delaware law, the Board of Trustees has overall responsibility for managing the business and affairs of the Trust. The Trustees elect the officers of the Trust, who are responsible for administering the day-to-day operations of the Series. THE ADVISOR Brinson Partners, a Delaware corporation, is an investment management firm managing, as of December 31, 1996, approximately $119 billion, primarily for pension and profit sharing institutional accounts. Brinson Partners was organized in 1989 when it acquired the institutional asset management business of The First 11 National Bank of Chicago and First Chicago Investment Advisors, N.A. Brinson Partners and its predecessor entities have managed domestic and international investment assets since 1974 and global investment assets since 1982. Brinson Partners has offices in Basel, London, Melbourne, New York, Paris, Singapore, Sydney and Tokyo, in addition to its principal office at 209 South LaSalle Street, Chicago, IL 60604-1295. Brinson Partners is an indirect wholly-owned subsidiary of Swiss Bank Corporation ("Swiss Bank"). Swiss Bank, with headquarters in Basel, Switzerland, is an internationally diversified organization with operations in many aspects of the financial services industry. Brinson Partners also serves as the investment advisor to nine other investment companies: Brinson Relationship Funds, which includes six investment portfolios (series); The Enterprise Group of Funds, Inc.-- International Growth Portfolio; Enterprise Accumulation Trust--International Growth Portfolio; Fort Dearborn Income Securities, Inc.; The Hirtle Callaghan International Trust--The International Equity Portfolio; John Hancock Variable Series Trust I--International Balanced Portfolio; Managed Accounts Services Portfolio Trust--Pace Large Company Value Equity Investments; AON Funds-- International Equity Fund; and The Republic Funds--Republic Equity Fund. Pursuant to its investment advisory agreements (the "Agreements") with the Trust on behalf of each Series, Brinson Partners is entitled to receive a monthly fee at various annual percentage rates of the Series' average daily net assets, as described below, for providing investment advisory services. Brinson Partners is responsible for paying its own expenses and has agreed to waive that portion of its advisory fee equal to the total expenses of a Series for any fiscal year which exceeds the permissible limits applicable to the Series in any state in which its shares are then qualified for sale. Brinson Partners has also agreed irrevocably to waive its fees and reimburse certain expenses so that total operating expenses with the exception of 12b-1 expenses of each Series will not exceed the percentages set forth in footnote 1 to the "Annual Fund Operating Expenses" table. Pursuant to its advisory agreements, Brinson Partners is authorized, at its own expense, to obtain statistical and other factual information and advice regarding economic factors and trends from its foreign subsidiaries, but it does not generally receive advice or recommendations regarding the purchase or sale of securities from such subsidiaries. For providing investment advisory services during the fiscal year ended June 30, 1996, Brinson Partners was entitled to receive, under the Agreements, a monthly fee at an annual rate as follows of the average daily net assets of the Funds: Brinson Global Fund................................................. 0.80% Brinson Global Equity Fund.......................................... 0.80 Brinson Global Bond Fund............................................ 0.75 Brinson U.S. Balanced Fund.......................................... 0.70 Brinson U.S. Equity Fund............................................ 0.70 Brinson U.S. Bond Fund.............................................. 0.50 Brinson Non-U.S. Equity Fund........................................ 0.80
The fee payable to Brinson Partners by the Brinson Global, Brinson Global Equity and Brinson Non-U.S. Equity Funds is higher than the advisory fees paid by most other mutual funds, but is comparable to those of other mutual funds with similar investment objectives. PORTFOLIO MANAGEMENT Investment decisions for the Series are made by an investment management team at Brinson Partners. No member of the investment management team is primarily responsible for making recommendations for portfolio purchases. 12 ADMINISTRATION OF THE TRUST THE UNDERWRITER Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, MA 02109, was engaged pursuant to an agreement dated February 5, 1997, for the limited purpose of acting as underwriter to facilitate the filing of notice regarding sale of the shares of the Trust under state securities laws and to assist in the sale of shares. The fee for such service is borne by the Advisor. THE ADMINISTRATOR ADMINISTRATIVE, ACCOUNTING, TRANSFER AGENCY AND CUSTODIAN SERVICES The Trust, on behalf of each Fund, has entered into a Multiple Services Agreement (the "Services Agreement") with Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn, New York 11201 ("MSTC"), pursuant to which MSTC is required to provide general administrative, accounting, portfolio valuation, transfer agency and custodian services to the Fund, including the coordination and monitoring of any third party service providers. Custody Services. MSTC provides custodian services for the securities and cash of the Fund. The custody fee schedule is based primarily on the net amount of assets held during the period for which payment is being made plus a per transaction fee for transactions during the period and out-of-pocket expenses. As authorized under the Services Agreement, MSTC has entered into a Mutual Funds Service Agreement (the "CGFSC Agreement") with Chase Global Funds Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank, under which CGFSC provides administrative, accounting, portfolio valuation and transfer agency services to the Fund. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts 02108-3913. Subject to the supervision of the Board of Trustees of the Trust, MSTC supervises and monitors such services provided by CGFSC. Pursuant to the CGFSC Agreement, CGFSC provides: (1) administrative services, including providing the necessary office space, equipment and personnel to perform administrative and clerical services; preparing, filing and distributing proxy materials, periodic reports to Investors, registration statements and other documents; and responding to Investor inquiries; (2) accounting and portfolio valuation services, including the daily calculation of the Fund's net asset value and the preparation of certain financial statements; and (3) transfer agency services, including the maintenance of each Investor's account records, responding to Investors' inquiries concerning accounts, processing purchases and redemptions of the Fund's shares, acting as dividend and distribution disbursing agent and performing other service functions. Shareholder inquiries should be made to the transfer agent at 1- 800-448-2430. Also as authorized under the Services Agreement, MSTC has entered into a sub-administration agreement (the "FDI Agreement") with Funds Distributor, Inc. ("FDI") under which FDI provides administrative assistance to the Fund with respect to (i) regulatory matters, including regulatory developments and examinations, (ii) all aspects of the Fund's day-to-day operations, (iii) office facilities, clerical and administrative services, and (iv) maintenance of books and records. FDI's business address is 60 State Street, Suite 1300, Boston, Massachusetts 02109. 13 For its administrative, accounting, transfer agency and custodian services, MSTC receives the following as compensation from the Trust on an annual basis: 0.0025% of the average daily U.S. assets of the Trust; 0.0525% of the average daily non-U.S. assets of the Trust; 0.3250% of the average daily emerging markets equity assets of the Trust; and 0.019% of the average daily emerging markets debt assets of the Trust. MSTC receives an additional fee of 0.075% of the average daily net assets of the Trust for administrative duties, the latter subject to the expense limitation applicable to the Trust. No fee (asset based or otherwise) is charged on any investments made by any fund into any other fund sponsored or managed by the Advisor and assets of a fund that are invested in another investment company or series thereof sponsored or managed by the Advisor will not be counted in determining the 0.075% administrative duties fee or the applicability of the expense limitation on such fee. The foregoing fees include all out-of-pocket expenses or transaction charges incurred by MSTC and any third party service provider in providing such services. Pursuant to the CGFSC Agreement and the FDI Agreement, MSTC pays CGFSC and FDI, respectively, for the services that CGFSC and FDI provide to MSTC in fulfilling MSTC's obligations under the Services Agreement. PURCHASE OF SHARES Shares of the Funds may be purchased directly from the Trust at the net asset value next determined after receipt of the order in proper form by the transfer agent. There is no sales load in connection with the purchase of Fund shares. The Trust reserves the right to reject any purchase order and to suspend the offering of shares of the Brinson--Class N or any Series. The Funds will not accept a check endorsed over by a third-party. The minimum initial investment for Fund shares is $1,000,000. The minimum initial investment for Individual Retirement Accounts ("IRAs") is $2,000. The Trust reserves the right to vary the initial investment minimum and impose minimums for additional investments in any of the Funds at any time. In addition, Brinson Partners may waive the minimum initial investment requirement for any investor. The Brinson Funds may be purchased through broker-dealers having sales agreements with FDI, or through financial institutions having agency agreements with FDI. There is no sales load or charge in connection with the purchase of shares. The Brinson Class N shares, however, are subject to annual 12b-1 plan expenses of 0.25% of the Funds' average daily net assets of such shares. The Brinson--Class N shares may also be marketed directly through the offices of Swiss Bank. Swiss Bank has been providing investment advisory services since its formation in 1872. Through its branches and subsidiaries, Swiss Bank conducts securities research, provides investment advisory services and manages mutual funds in major cities throughout the world, including Amsterdam, Basel, Geneva, Frankfurt, Hong Kong, London, Luxembourg, Monte Carlo, New York, Paris, Singapore, Sydney, Tokyo, Toronto and Zurich. Purchase orders for shares of the Funds which are received by the transfer agent in proper form prior to the close of regular trading hours (currently 4:00 p.m. Eastern time) on the New York Stock Exchange (the "NYSE") on any day that the Funds' net asset values per share are calculated, are priced according to the net asset value determined on that day. Purchase orders for shares of the Funds received after the close of the NYSE on a particular day are priced as of the time the net asset value per share is next determined. The Trust may accept telephone orders for Fund shares from broker-dealers or service organizations which have been previously approved by the Trust. It is the responsibility of such broker-dealers or service organizations to promptly forward purchase orders and payments for the same to the Fund. Shares of the Funds may be purchased through broker-dealers, banks and bank trust departments which may charge the investor a transaction fee or other fee for their services at the time of purchase. Such fees would not otherwise be charged if the shares were purchased directly from the Trust. 14 PURCHASES MAY BE MADE IN ONE OF THE FOLLOWING WAYS:
INITIAL INVESTMENT SUBSEQUENT INVESTMENTS ------------------------------- ------------------------------- MINIMUM $1,000,000 BY MAIL . Complete and sign the Account . Make your check payable [LOGO ENVELOPE] Application accompanying this to "Brinson ______ Fund--Class Prospectus. N." . Make your check payable to . Enclose the remittance "Brinson ______ Fund--Class portion of your account N." statement and include the amount of investment, the account name and number. . Mail to the address indicated . Mail to the address indicated on the Account Application. on your account statement or enclose in the envelope provided. BY WIRE . Call 1-800-448-2430 to [LOGO WIRE] arrange for a wire transaction. . Wire federal funds within 24 . Wire federal funds to: hours to: CHASE MANHATTAN BANK CHASE MANHATTAN BANK ABA#021000021 ABA#021000021 DDA#9102-783504 DDA#9102-783504 FOR: "BRINSON FUND--CLASS N" FOR: "BRINSON FUND--CLASS N" AND INCLUDE YOUR NAME AND AND INCLUDE YOUR NAME AND NEW ACCOUNT NUMBER. ACCOUNT NUMBER. . Complete and sign the Account Application and mail to the address indicated on the Account Application immediately following the initial wire transaction. BY TELEPHONE . Call 1-800-448-2430 to . Call 1-800-448-2430 to [LOGO TELEPHONE] arrange for a telephone arrange for a telephone transaction. transaction. PURCHASING BY EXCHANGES . You may open a new account by . You may purchase additional [LOGO ARROW] making an exchange from an shares by making an exchange existing Brinson--Class N from an existing Brinson-- account of any other Series of Class N account of any other the Trust. Exchanges may be Series of the Trust. Exchanges made by mail or telephone. may be made by mail or Call 1-800-448-2430 for telephone. Call 1-800-448-2430 assistance. for assistance. AUTOMATICALLY . Please refer to "Automatic . Please refer to "Automatic Investment Plan" under Investment Plan" under "Account Options" or call 1- "Account Options" or call 1- 800-448-2430 for assistance. 800-448-2430 for assistance.
15 ACCOUNT OPTIONS The following account options are available to shareholders. There are no charges for the programs noted below and an investor may change or terminate these plans at any time by written notice to the Trust. For information about participating in these account options, call the transfer agent at 1-800-448- 2430.
ACCOUNT OPTIONS INSTRUCTIONS ------------------------------ ----------------------------------------------- AUTOMATIC INVESTMENT PLAN . You may have money deducted directly from your checking, savings or bank money market accounts for investment in the Funds each month or quarter. . Complete the Automatic Investment Plan section on the Account Application accompanying this Prospectus and mail it to the address indicated. . The account must be opened first with the initial $1,000,000 minimum investment pursuant to the Automatic Investment Plan. . The account designated will be debited in the specified amount, on the date indicated, and Fund shares will be purchased. The Trust may alter or terminate the Automatic Investment Plan at any time. SYSTEMATIC WITHDRAWAL PLAN . A shareholder with a minimum account of $1,000,000 may direct the transfer agent to send the shareholder (or anyone the shareholder designates) regular, monthly, quarterly or semi- annual payments. Each payment under a Systematic Withdrawal Plan ("SWP") must be at least $100. Such payments are drawn from share redemptions. . Shareholders participating in the SWP must elect to have their dividends and distributions automatically reinvested in additional Fund shares. . The Trust may terminate any SWP for an account if the value of the account falls below $50,000 as a result of share redemptions or an exchange of shares of a Fund for Brinson--Class N Fund shares of another Series of the Trust. INDIVIDUAL RETIREMENT ACCOUNTS . An IRA is a tax-deferred retirement savings account that may be used by an individual under age 70 1/2 who has compensation or self-employment income and his or her unemployed spouse, or an individual who has received a qualified distribution from his or her employer's retirement plan. . The minimum purchase requirement for IRAs is $2,000.
REDEMPTION OF SHARES Shares of the Funds may be redeemed without charge on any business day that the NYSE is open. Redemptions will be effected at the net asset value per share next determined after the receipt by the transfer agent of a redemption request meeting the requirements described below. The Trust normally sends redemption proceeds on the next business day but, in any event, redemption proceeds are sent within five business days of receipt of a redemption request in proper form. Payment also may be made by wire directly to any bank previously designated by the shareholder in an Account Application. Please note that the shareholder's bank may impose a fee for wire service. The Trust will honor redemption requests of shareholders who recently purchased 16 shares by check, but will not mail the proceeds until it is reasonably satisfied that the purchase check has cleared, which may take up to fifteen days from the purchase date. Except as noted below, redemption requests received in proper form by the transfer agent prior to the close of regular trading hours on the NYSE on any business day that the Funds' net asset values per share are calculated are effected that day. Redemption requests received in proper form by the transfer agent after the close of the NYSE are effected as of the time the net asset value per share is next determined. No redemption will be processed until the transfer agent has received a completed application with respect to the account. Shares of the Funds may be redeemed through certain broker-dealers, banks and bank trust departments who may charge the investor a transaction fee or other fee for their services at the time of redemption. Such fees would not otherwise be charged if the shares were redeemed directly from the Trust. The Trust will satisfy redemption requests in cash to the fullest extent feasible, so long as such payments would not, in the opinion of Brinson Partners or the Board of Trustees, result in the necessity of a Series selling assets under disadvantageous conditions and to the detriment of the remaining shareholders of the Series. Pursuant to the Trust's Agreement and Declaration of Trust, payment for shares redeemed may be made either in cash or in-kind, or partly in cash and partly in-kind. However, the Trust has elected, pursuant to Rule 18f-1 under the Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of a Series, during any 90-day period for any one shareholder. Payments in excess of this limit will also be made wholly in cash unless the Board of Trustees believes that economic conditions exist which would make such a practice detrimental to the best interests of the Series. Any portfolio securities paid or distributed in-kind would be valued as described under "Net Asset Value." In the event that an in- kind distribution is made, a shareholder may incur additional expenses, such as the payment of brokerage commissions, on the sale or other disposition of the securities received from a Series. In-kind payments need not constitute a cross-section of a Series' portfolio. Where a shareholder has requested redemption of all or a part of the shareholder's investment and where a Series computes such redemption in-kind, the Series will not recognize gain or loss for federal tax purposes on the securities used to compute the redemption, but the shareholder will recognize gain or loss equal to the difference between the fair market value of the securities received and the shareholder's basis in the Fund shares redeemed. SHARES MAY BE REDEEMED IN ONE OF THE FOLLOWING WAYS: BY MAIL . Submit a written request for redemption with: [LOGO ENVELOPE] . The Fund's name; . Your Fund account number; . The dollar amount or number of shares to be redeemed; and . Signatures of all persons required to sign for transactions, exactly as their names appear on the Account Application. . A signature guarantee for the signature of each person in whose name the account is registered is required on all written redemption requests over $5,000. . Mail to the address indicated on the Account Application. Questions may be directed to the transfer agent at 1-800-448-2430. BY WIRE . This service must be elected either on the [LOGO WIRE] initial application or subsequently arranged in writing. . Shares may be redeemed by instructing the transfer agent by telephone at 1-800-448-2430. . Wire redemption requests must be received by the transfer agent before 4:00 p.m. Eastern time for money to be wired the next business day.
17 BY TELEPHONE 1-800-448-2430 . This service must be elected either on the [LOGO TELEPHONE] initial application or subsequently arranged in writing. . Shares may be redeemed by instructing the transfer agent by telephone at 1-800-448-2430. . Shares will be sold at the next share price calculated after the order is received and accepted. Share price is normally calculated at 4:00 p.m. Eastern time. AUTOMATICALLY . Please refer to "Systematic Withdrawal Plan" under "Account Options" or call 1-800-448-2430 for assistance.
- ---------- NOTE: The Trust reserves the right to refuse a wire or telephone redemption if it is believed advisable to do so. Procedures for redeeming shares of the Brinson Funds by wire or telephone may be modified or terminated at any time by the Trust. TELEPHONE TRANSACTIONS: Shareholders who wish to initiate purchase, exchange or redemption transactions by telephone must elect the option, as described above. With respect to such telephone transactions, the Funds will ensure that reasonable procedures are used to confirm that instructions communicated by telephone are genuine (including verification of the shareholder's social security number or mother's maiden name) and, if they do not, the Funds or the transfer agent may be liable for any losses due to unauthorized or fraudulent transactions. Written confirmation will be provided for all purchase, exchange and redemption transactions initiated by telephone. EXCHANGE OF SHARES: Fund shares may be exchanged for Brinson--Class N shares of any other Series within the Trust. Exchanges will not be permitted between the Brinson--Class N shares and either the SwissKey Fund class shares or the Brinson--Class I shares of a Series of the Trust. Fund shares may be exchanged by written request or by telephone if the shareholder has previously signed a telephone authorization on the Account Application. The telephone exchange may be difficult to implement during times of drastic economic or market changes. The Trust reserves the right to restrict the frequency of, or otherwise modify, condition, terminate or impose charges upon the exchange and/or telephone transfer privileges upon 60 days' prior written notice to shareholders. Exchanges will be made on the basis of the relative net asset value per share of the Brinson--Class N shares of the Fund from which, and the Fund into which, the exchange is made. Exchanges may be made only for shares of a Series and class then offering its shares for sale in your state of residence and are subject to the minimum initial investment requirement. For federal income tax purposes, an exchange of shares would be treated as if the shareholder had redeemed shares of one Series and reinvested in shares of another Series. Gains or losses on the shares exchanged are realized by the shareholder at the time of the exchange. Any shareholder wishing to make an exchange should first obtain and review a prospectus of the other Series. Requests for telephone exchanges must be received by the transfer agent by the close of regular trading hours (currently 4:00 p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular trading. TRANSFER OF SECURITIES: At the discretion of the Trust, investors may be permitted to purchase Fund shares by transferring securities to a Series that meet the Series' investment objective and policies. Securities transferred to a Series will be valued 18 in accordance with the same procedures used to determine the Fund's net asset value at the time of the next determination of net asset value after such acceptance. Shares issued by a Series in exchange for securities will be issued at net asset value per share of the Fund determined as of the same time. All dividends, interest, subscription, or other rights pertaining to such securities shall become the property of the Series and must be delivered to the Series by the investor upon receipt from the issuer. Investors who are permitted to transfer such securities will be required to recognize a gain or loss on such transfer and pay tax thereon, if applicable, measured by the difference between the fair market value of the securities and the investors' basis therein. Securities will not be accepted in exchange for shares of a Fund unless: (1) such securities are, at the time of the exchange, eligible to be included in the Series' portfolio and current market quotations are readily available for such securities; (2) the investor represents and warrants that all securities offered to be exchanged are not subject to any restrictions upon their sale by the Series under the Securities Act of 1933, as amended, or under the laws of the country in which the principal market for such securities exists, or otherwise; and (3) the value of any such security (except U.S. government securities) being exchanged, together with other securities of the same issuer owned by the Series, will not exceed 5% of the Series' net assets immediately after the transaction. NET ASSET VALUE The net asset value per share for each class of shares of the Series is computed by adding, with respect to each class of shares, the value of a Series' investments, cash and other assets attributable to that class, deducting liabilities of the class and dividing the result by the number of shares of that class outstanding. The public offering price of the shares of each classes' shares, all of which are sold on a continuous basis, is the net asset value of that class. The valuation of assets for determining the net asset value may be summarized as follows: Securities traded on securities exchanges are valued at the last available sale price. Securities that are not traded on a particular day or on an exchange are valued at either (a) the bid price or (b) a valuation within the range considered best to represent value in the circumstances. Price information on listed securities is generally taken from the closing price on the exchange where the security is primarily traded. Valuations of equity securities may be obtained from a pricing service and/or broker- dealers when such prices are believed to reflect fair value of such securities. Use of a pricing service and/or broker-dealers has been approved by the Board of Trustees. Futures contracts are valued at their daily quoted settlement price on the exchange on which they are traded. Forward foreign currency contracts are valued daily using the mean between the bid and asked forward points added to the current exchange rate and an unrealized gain or loss is recorded. The Series realizes a gain or loss upon settlement of the contracts. For valuation purposes, foreign securities initially expressed in foreign currency values will be converted into U.S. dollar values using WM/Reuters closing spot rates as of 4:00 p.m. London time. Securities with a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Fixed income securities having a remaining maturity of over 60 days are valued at market price. Debt securities are valued on the basis of prices provided by a pricing service, or at the bid price where readily available, as long as the bid price, in the opinion of the Advisor, continues to reflect the value of the security. Redeemable securities issued by open-end investment companies are valued using their respective net asset values for purchase orders placed at the close of the NYSE. Securities (including over-the-counter options) for which market quotations are not readily available and other assets are valued at their fair value as determined in good faith by or under the direction of the Trustees. Net asset value is determined on each day that the NYSE is open, as of the close of business of the regular session of the NYSE (currently 4:00 p.m. Eastern time). Investments and requests to exchange or redeem shares received by the Series in proper form before such close of business are effective, and will receive the price determined, on that day. Investment, exchange and redemption requests received after such close of business are effective, and will receive the share price determined, on the next business day. 19 Because of time zone differences, foreign exchanges and securities markets will usually be closed prior to the time of the closing of the NYSE and values of foreign futures and options and foreign securities will be determined as of the earlier closing of such exchanges and securities markets. However, events affecting the values of such foreign securities may occasionally occur between the earlier closings of such exchanges and securities markets and the closing of the NYSE which will not be reflected in the computation of the net asset value of a class of a Series. If an event materially affecting the value of such foreign securities occurs during such period, then such securities will be valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Where a foreign securities market remains open at the time that a Series values its portfolio securities, or closing prices of securities from that market may not be retrieved because of local time differences or other difficulties in obtaining such prices at that time, last sale prices in such market at a point in time most practicable to timely valuation of the Series may be used. The Series' portfolio securities from time to time may be listed primarily on foreign exchanges which trade on days when the NYSE is closed (such as Saturday). As a result, the net asset value of a class of a Fund may be significantly affected by such trading on days when shareholders have no access to the Fund. All of the Series' classes of shares will bear pro rata all of the expenses of that Series common to all classes. The net asset value of all outstanding shares of each class of the Series will be computed on a pro rata basis for each outstanding share based on the proportionate participation in the Series represented by the value of shares of that class. All income earned and expenses incurred by the Series will be borne on a pro rata basis by each outstanding share of a class, based on each class' proportionate participation in the Series represented by the value of shares of such class, except that the Brinson--Class N and SwissKey Fund class shares will bear 12b-1 expenses payable under their respective 12b-1 plans. Due to the specific distribution expenses and other costs that will be allocable to each class, the dividends paid to each class of the Series may vary. The per share net asset value of the Brinson--Class N shares and the SwissKey Fund class shares will generally be lower than that of the Brinson-- Class I shares of a Series because of the higher expenses borne by the SwissKey Fund class shares and the Brinson--Class N shares. It is expected, however, that the net asset value per share of the two classes will tend to converge immediately after the payment of dividends, which will differ by approximately the amount of the service and distribution expenses differential among the classes. DISTRIBUTION PLAN The Board of Trustees of the Trust has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Act for the Brinson--Class N shares. The Plan permits each Series to reimburse FDI, Brinson Partners and others from the assets of the Brinson--Class N shares a quarterly fee for services and expenses incurred in distributing and promoting sales of the Brinson-- Class N shares. These expenses include, but are not limited to, preparing and distributing advertisements and sales literature, printing prospectuses and reports used for sales purposes, and paying distribution and maintenance fees to brokers, dealers and others in accordance with a selling agreement with the Trust on behalf of the Brinson--Class N shares or FDI. In addition, each Series may make payments directly to FDI for payment to dealers or others, or directly to others, such as banks, who assist in the distribution of the SwissKey Funds or provide services with respect to the Brinson Funds. Swiss Bank, or one of its affiliates, pursuant to a selected dealer agreement, may provide additional compensation to securities dealers from its own resources in connection with sales of the Brinson--Class N shares of the Series. 20 The aggregate distribution fees paid by the Series from the assets of the respective Brinson--Class N shares to FDI and others under the Plan may not exceed 0.25% of a Fund's average daily net assets in any year. The Plan applies only to the Brinson--Class N shares of each Series. Shares of other classes are not included in calculating the Plan's fees and the Plan is not used to assist in the distribution and marketing of each Series' SwissKey Fund class or Brinson--Class I shares. All payments made by the Brinson--Class N shares of a Series pursuant to the Plan shall be made for the purpose of selling shares issued by the Brinson--Class N of the Series. Distribution expenses which are attributable to a particular class of a Series will be charged against the assets of that class of that Series. Distribution expenses which are attributable to more than one class or Series will be allocated among the classes or Series, in proportion to their relative net assets. The quarterly fees paid to FDI under the Plan are subject to the review and approval by the Trust's Trustees who are not "interested persons" of the Advisor of FDI (as defined in the Act) and who may reduce the fees or terminate the Plan at any time. DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS The Series will distribute their net investment income semi-annually in June and December. The Series will distribute annually in December substantially all of their net long-term capital gains and any undistributed net short-term capital gains realized during the one year period commencing November 1 (or date of the creation of the Series, if later) and ending October 31, and, at the same time, will distribute all of their net investment income earned through the end of December and not previously distributed as ordinary (not capital) income. Dividends and other distributions paid by a Series with respect to its Brinson--Class N, Brinson--Class I and SwissKey Fund class shares are calculated in the same manner and at the same time. The per share amount of any income dividends will generally differ among the classes only to the extent that the Brinson--Class N and SwissKey Fund class are subject to separate 12b-1 fees. The per share dividends on SwissKey Fund class shares and Brinson--Class N shares will be lower than the per share dividends on the Brinson--Class I shares of each Series as a result of the distribution and service fees applicable with respect to the SwissKey Fund class shares and Brinson--Class N shares. Income dividends and capital gain distributions are reinvested automatically in additional Fund shares of the Series at net asset value, unless the shareholder has notified the transfer agent, in writing, of the shareholder's election to receive them in cash. Distribution options may be changed at any time by requesting a change in writing. Any check in payment of dividends or other distributions which cannot be delivered by the Post Office or which remains uncashed for a period of more than one year may be reinvested in the shareholder's account at the then current net asset value and the dividend option may be changed from cash to reinvest. Dividends are reinvested on the ex dividend date (the "ex date") at the net asset value determined at the close of business on that date. Please note that shares purchased shortly before the record date for a dividend or distribution may have the effect of returning capital although such dividends and distributions are subject to taxes. TAXES Each Series has qualified, and intends to continue to qualify, for taxation as a "regulated investment company" under the Internal Revenue Code of 1986, as amended ("the Code"). Such qualification relieves a Series of liability for federal income taxes to the extent the Series' earnings are distributed in accordance with the Code. Each Series is treated as a separate corporate entity for federal tax purposes. Distributions of any net investment income and of any net realized short-term capital gains are taxable to shareholders as ordinary income. All distributions may be subject to state and local taxes. 21 Distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss) are taxable to shareholders as long-term capital gain regardless of how long a shareholder may have held shares of a Series. The tax treatment of distributions of ordinary income or capital gains will be the same whether the shareholder reinvests the distributions or elects to receive them in cash. A distribution will be treated as paid on December 31 of the current calendar year if it is declared in October, November or December with a record date in such a month and paid during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. Shareholders will be advised annually of the source and tax status of all distributions for federal income tax purposes. Further information regarding the tax consequences of investing in the Series is included in the Statement of Additional Information. The above discussion is intended for general information only. Investors should consult their own tax advisors for more specific information on the tax consequences of particular types of distributions. Redemptions of Series shares, and the exchange of shares between two Series of the Trust, are taxable events and, accordingly, shareholders may realize capital gains or losses on these transactions. Shareholders may be subject to back-up withholding on reportable dividend and redemption payments ("back-up withholding") if a certified taxpayer identification number is not on file with the Series, or if, to the Series' knowledge, an incorrect number has been furnished, or if the Series has been notified by the Internal Revenue Service that an account is subject to back-up withholding. An individual's taxpayer identification number is the individual's social security number. If more than 50% of a Series' total assets at the close of its taxable year consists of stock or securities in foreign corporations, the Series may elect to "pass-through" to shareholders for foreign tax credit purposes the amount of foreign income taxes paid by the Series with respect to its direct holdings of securities in foreign corporations. A Series will make such an election only if it deems such election to be in the best interests of its shareholders. If this election is made, shareholders of the Series will be required to include in their gross incomes their pro rata share of foreign taxes paid by the Series. However, shareholders will be able to treat their pro rata share of foreign taxes as either a deduction (itemized deduction in the case of individuals) or a foreign tax credit (but not both) against U.S. income taxes on their tax returns. GENERAL INFORMATION ORGANIZATION The Brinson Funds is a Delaware business trust organized pursuant to an Agreement and Declaration of Trust, dated December 1, 1993. The Trust was originally organized as a Maryland corporation on April 14, 1992. On December 1, 1993, the Trust reorganized as a Delaware business trust through a merger of the Maryland corporation into the Trust. The Trust is registered under the Act as an open-end management investment company, commonly known as a mutual fund and consists of seven different Series. The Trustees of the Trust may establish additional series or classes of shares without the approval of shareholders. All of the Series, except the Global Bond Fund, are diversified portfolios. The assets of each Series belong only to that Series, and the liabilities of each Series are borne solely by that Series and no other. DESCRIPTION OF SHARES Each Series is authorized to issue an unlimited number of shares of beneficial interest with a $0.001 par value per share. The Board of Trustees has the power to designate one or more series or sub-series/classes of shares of beneficial interest and to classify or reclassify only unissued shares with respect to such series. Shares 22 of each series represent equal proportionate interests in the assets of that series only and have identical voting, dividend, redemption, liquidation, and other rights, except that only shares of each Series' Brinson--Class N and SwissKey Fund classes shall have voting rights with respect to the Rule 12b-1 plan relating to such classes, respectively, as described below. All shares issued are fully paid and non-assessable, and shareholders have no preemptive or other right to subscribe to any additional shares and no conversion rights. Currently, the Trust offers seven investment portfolios or series--Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund. Three classes of shares are currently issued by the Trust for each Series, the Brinson--Class N, Brinson-- Class I and SwissKey Fund class. VOTING RIGHTS Each issued and outstanding full and fractional share of a Series is entitled to one full and fractional vote in the Series and all shares of each Series participate equally with regard to dividends, distributions, and liquidations with respect to that Series. Shareholders do not have cumulative voting rights. On any matter submitted to a vote of shareholders, shares of each Series will vote separately except when a vote of shareholders in the aggregate is required by law, or when the Trustees have determined that the matter affects the interests of more than one Series, in which case the shareholders of all such Series shall be entitled to vote thereon. Only the Brinson--Class N shareholders may vote on matters related to the Plan associated with that class and only the SwissKey Fund class shareholders may vote on matters related to the 12b-1 plan associated with that class and only the SwissKey Fund class shareholders may vote on matters related to the 12b-1 plan associated with that class. SHAREHOLDER MEETINGS The Trustees of the Trust do not intend to hold annual meetings of shareholders of the Series. The U.S. Securities and Exchange Commission, however, requires the Trustees to promptly call a meeting for the purpose of voting upon the question of removal of any Trustee when requested to do so by not less than 10% of the outstanding shareholders of the respective Series. In addition, subject to certain conditions, shareholders of each Series may apply to the Series to communicate with other shareholders to request a shareholders' meeting to vote upon the removal of a Trustee or Trustees. PORTFOLIO TURNOVER (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND) As a result of the investment policies of the Global Fund, Global Bond Fund, U.S. Balanced Fund and U.S. Bond Fund, their portfolio turnover rates may exceed 100%. High portfolio turnover (over 100%) may involve correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Series and ultimately by the Series' shareholders. In addition, high portfolio turnover may result in increased short-term capital gains, which, when distributed to shareholders, are treated as ordinary income. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS The Trust will attempt to obtain the best overall price and most favorable execution of transactions in portfolio securities. However, subject to policies established by the Board of Trustees of the Trust, a Series may pay a broker-dealer a commission for effecting a portfolio transaction for the Series in excess of the amount of commission another broker-dealer would have charged if Brinson Partners determines in good faith that the commission paid was reasonable in relation to the brokerage or research services provided by such broker-dealer, viewed in terms of that particular transaction or such firm's overall responsibilities with respect to the clients, including the Series, as to which it exercises investment discretion. In selecting and monitoring broker-dealers and negotiating commissions, consideration will be given to a broker-dealer's reliability, the quality of its execution services on a continuing basis and its financial condition. 23 When buying or selling securities, the Series may pay commissions to brokers who are affiliated with the Advisor or the Series. The Series may also purchase securities in certain underwritten offerings for which an affiliate of the Series or the Advisor may act as an underwriter. The Series may effect futures transactions through, and pay commissions to, futures commission merchants who are affiliated with the Advisor or the Series in accordance with procedures adopted by the Board of Trustees of the Trust. SHAREHOLDER REPORTS AND INQUIRIES Shareholders will receive semi-annual reports showing portfolio investments and other information as of December 31 and annual reports audited by independent auditors as of June 30. Shareholders with inquiries should call the Brinson Funds at 1-800-448-2430 or write to The Brinson Funds, 9th Floor, 73 Tremont Street, P.O. Box 2798, Boston, MA 02208-2798. PERFORMANCE INFORMATION From time to time, performance information, such as yield or total return, may be quoted in advertisements or in communications to present or prospective shareholders. Performance quotations represent the Funds' past performance and should not be considered as representative of future results. The current yield will be calculated by dividing the net investment income earned per share by a Fund during the period stated in the advertisement (based on the average daily number of shares entitled to receive dividends outstanding during the period) by the maximum net asset value per share on the last day of the period and annualizing the result on a semi-annual compounded basis. The Funds' total return may be calculated on an annualized and aggregate basis for various periods (which periods will be stated in the advertisement). Average annual return reflects the average percentage change per year in value of an investment in a Fund. Aggregate total return reflects the total percentage change over the stated period. To help investors better evaluate how an investment in the Brinson Funds might satisfy their investment objectives, advertisements regarding the Funds may discuss yield or total return as reported by various financial publications. Advertisements may also compare yield or total return to other investments, indices and averages. The following publications, benchmarks, indices and averages may be used: Lipper Mutual Fund Performance Analysis; Lipper Fixed Income Analysis; Lipper Mutual Fund Indices; Morgan Stanley Indices; Shearson Lehman Hutton Treasury Index; Salomon Brothers Indices; Dow Jones Composite Average or its component indices; Standard & Poor's 500 Stock Index or its component indices; Wilshire Indices; The New York Stock Exchange composite or component indices; CDA Mutual Fund Report; Weisenberger--Mutual Funds Panorama and Investment Companies; Mutual Fund Values and Mutual Fund Service Book, published by Morningstar, Inc.; comparable portfolios managed by the Advisor; and financial publications, such as Business Week, Kiplinger's Personal Finance, Financial World, Forbes, Fortune, Money Magazine, The Wall Street Journal, Barron's, et al., which rate fund performance over various time periods. The principal value of an investment in the Funds will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Any fees charged by banks or other institutional investors directly to their customer accounts in connection with investments in shares of the Funds will not be included in the Brinson Funds' calculations of yield or total return. Further information about the performance of the Funds is included in the Funds' Annual Report dated June 30, 1997, which may be obtained without charge by contacting the Trust at 1-800-448-2430. The performance of the Brinson--Class N shares, however, is not included in such Annual Report as such performance commenced after June 30, 1997. 24 APPENDIX A INVESTMENT POLICIES AND TECHNIQUES EQUITY SECURITIES (GLOBAL FUND, GLOBAL EQUITY FUND, U.S. BALANCED FUND, U.S. EQUITY FUND AND NON-U.S. EQUITY FUND): The Series may invest in a broad range of equity securities of U.S. and non-U.S. issuers, including common stocks of companies or closed-end investment companies, preferred stocks, debt securities convertible into or exchangeable for common stock, securities such as warrants or rights that are convertible into common stock and sponsored or unsponsored American, European and Global depository receipts ("Depository Receipts"). The issuers of unsponsored Depository Receipts are not obligated to disclose material information in the United States. The Series expect their U.S. equity investments to emphasize large and intermediate capitalization companies, although the Global Fund may also invest in small capitalization equity markets. The equity markets in the non-U.S. component of the Series will typically include available shares of larger capitalization companies. Capitalization levels are measured relative to specific markets, thus large, intermediate and small capitalization ranges vary country by country. The Global Fund may invest in equity securities of companies considered by the Advisor to be in their post-venture capital stage, or "post-venture capital companies." A post-venture capital company is a company that has received venture capital financing either (a) during the early stages of the company's existence or the early stages of the development of a new product or service, or (b) as part of a restructuring or recapitalization of the company. The Global Fund also may invest in open-end investment companies advised by Brinson Partners, in equity securities of issuers in emerging markets and in securities with respect to which the return is derived from the equity securities of issuers in emerging markets. FIXED INCOME SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND): The Series may invest in a broad range of fixed income securities of U.S. and non-U.S. issuers, including governments and governmental entities, supranational issuers as well as corporations and other business organizations. The Series may purchase U.S. dollar denominated securities that reflect a broad range of investment maturities, qualities and sectors. A majority of the fixed income securities in which the Series will invest will possess a minimum rating of BBB- by S&P or Baa3 by Moody's or, if unrated, will be determined to be of comparable quality by Brinson Partners. Such securities are considered to be investment grade. While securities rated BBB- or Baa3 are regarded as having an adequate capacity to pay principal and interest, such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics; and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher rated bonds. Securities rated lower than BBB- by S&P and Baa3 by Moody's are classified as non- investment grade securities (commonly referred to as "junk bonds"), carry a higher degree of risk and are considered to be speculative by the major credit rating agencies. Each Series currently intends to limit its aggregate investment in non-investment grade debt securities of its U.S. and non-U.S. dollar denominated fixed income assets to no more than 5% of its net assets. To the extent that a security held by a Series is downgraded to below investment grade, the Series will dispose of that or another non-investment grade security so that no more than 5% of its assets will be invested in below investment grade securities. Other fixed income securities in which the Series may invest include zero coupon securities, mortgage-backed securities, asset- backed securities and when-issued securities. The non-U.S. fixed income component of the Series will typically be invested in the securities of non-U.S. governments, governmental agencies and supranational issues. A supranational entity is an entity established or financially supported by the national governments of one or more countries to promote reconstruction or development. Examples of supranational entities include, among others: the World Bank, the European 25 Economic Community, the European Coal and Steel Community, the European Investment Bank, the Inter-American Development Bank, the Export-Import Bank and the Asian Development Bank. The Global Fund may invest in fixed income securities of emerging market issuers, including government and government-related entities (including participation in loans between governments and financial institutions), and of entities organized to restructure outstanding debt securities of developing countries' corporate issuers. CASH AND CASH EQUIVALENTS (ALL SERIES): The Series may invest a portion of their assets in short-term debt securities (including repurchase agreements and reverse repurchase agreements) of corporations, the U.S. government and its agencies and instrumentalities and banks and finance companies, which may be denominated in any currency. When unusual market conditions warrant, a Series may make substantial temporary defensive investments in cash equivalents up to a maximum of 100% of its net assets. Cash equivalent holdings may be in any currency (although such holdings may not constitute "cash or cash equivalents" for tax diversification purposes under the Code). When a Series invests for defensive purposes, it may affect the attainment of the Series' investment objective. ZERO COUPON SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND): Zero coupon securities are debt obligations which do not entitle the holder to any periodic payments of interest prior to maturity or a specified date when the securities begin paying current interest (the "cash payment date") and, therefore, are issued and traded at a discount from their value at maturity or par value. Such bonds carry an additional risk in that, unlike bonds which pay interest throughout the period to maturity, a Series investing in zero coupon securities will realize no cash until the cash payment date and, if the issuer defaults, a Series may obtain no return at all on its investment. The market price of zero coupon securities generally is more volatile than the market price of securities that pay interest periodically and are likely to be more responsive to changes in interest rates than non-zero coupon securities having similar maturities and credit qualities. For federal tax purposes, the Series will be required to include in income daily portions of original issue discount accrued and to distribute the same to shareholders annually, even if no payment is received before the distribution date. MORTGAGE- AND ASSET-BACKED SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED AND U.S. BOND FUND): Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, pools of mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by agencies or instrumentalities of the U.S. government. Other mortgage-backed securities are issued by private issuers, generally originators of and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities (collectively, "private lenders"). Mortgage- backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Asset-backed securities have structural characteristics similar to mortgage- backed securities. However, the underlying assets are not first-lien mortgage loans or interests therein; rather, they include assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property and receivables from credit card or other revolving credit arrangements. Payments or distributions of principal and interest on asset-backed securities may be supported by non-governmental credit enhancements similar to those utilized in connection with mortgage- backed securities. 26 The yield characteristics of mortgage- and asset-backed securities differ from those of traditional debt obligations. Among the principal differences are that interest and principal payments are made more frequently on mortgage- and asset-backed securities, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time. As a result, the rate of return on these securities may be affected by prepayments of principal on the underlying loans, which generally increase as interest rates decline. As a result, if a Series purchases these securities at a premium, a prepayment rate that is faster than expected will reduce yield to maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield to maturity. Conversely, if a Series purchases these securities at a discount, a prepayment rate that is faster than expected will increase yield to maturity, while a prepayment rate that is slower than expected will reduce yield to maturity. Accelerated prepayments on securities purchased by a Series at a premium also impose a risk of loss of principal because the premium may not have been fully amortized at the time the principal is prepaid in full. In addition, like other debt securities, the values of mortgage-related securities, including government and government-related mortgage pools, generally will fluctuate in response to market interest rates. The market for privately issued mortgage- and asset-backed securities is smaller and less liquid than the market for government sponsored mortgage-backed securities. WHEN-ISSUED SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED AND U.S. BOND FUND): The Series may purchase securities on a "when-issued" basis for payment and delivery at a later date. The price is generally fixed on the date of commitment to purchase. During the period between purchase and settlement, no interest accrues to a Series. At the time of settlement, the market value of the security may be more or less than the purchase price. The Series will establish a segregated account consisting of cash, U.S. government securities, equity securities and/or investment and non-investment grade debt securities in an amount equal to the amounts of their when-issued securities. The cash, U.S. government securities, equity securities, investment or non- investment grade debt securities and other assets held in any segregated account maintained by the Series with respect to any when-issued securities, options, futures, forward contracts or other derivative transactions shall be liquid, unencumbered and marked-to-market daily (the assets held in a segregated account are referred to in this Prospectus as "Segregated Assets"). FOREIGN CURRENCY TRANSACTIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND FUND AND NON-U.S. EQUITY FUND): The Series may conduct their foreign currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through entering into contracts to purchase or sell foreign currencies at a future date (i.e., a "forward foreign currency" contract or "forward" contract). A forward contract involves an obligation to purchase or sell a specific currency amount at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties at a price set at the time of the contract. The Series will convert currency on a spot basis from time to time and investors should be aware that changes in currency exchange rates and exchange control regulations may affect the costs of currency conversion. The Series may enter into forward contracts for hedging purposes as well as non-hedging purposes. For hedging purposes, a Series may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. It may also use contracts in a manner intended to protect foreign currency-denominated securities from declines in value due to unfavorable exchange rate movements. A Series may also enter into contracts with the intent of changing the relative exposure of the Series' portfolio of securities to different currencies to take advantage of anticipated changes in exchange rates. When a Series enters into forward contracts for non-hedging purposes, it will establish a segregated account with its custodian bank in which it will maintain Segregated Assets equal in value to its obligations with respect to their forward contracts for non-hedging purposes. 27 At the maturity of a forward contract, a Series may either sell a portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract with the same currency trader, obligating it to purchase, on the same maturity date, the same amount of the foreign currency. A Series may realize a gain or loss from currency transactions. OPTIONS ON CURRENCIES (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND FUND AND NON-U.S. EQUITY FUND): The Series also may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or over- the-counter markets) to manage the respective portfolio's exposure to changes in currency exchange rates. Call options on foreign currency written by a Series will be "covered," which means that the Series will own an equal amount of, or an offsetting position in, the underlying foreign currency. With respect to put options on foreign currency written by a Series, the Series will establish a segregated account with its custodian bank consisting of Segregated Assets equal in value to the amount the Series would be required to deliver upon exercise of the put. FUTURES CONTRACTS (ALL SERIES): The Series may enter into contracts for the future purchase or sale of securities and indices. The Global Funds and the Non-U.S. Equity Fund also may enter into contracts for the future purchase or sale of foreign currencies. A financial futures contract is an agreement between two parties to buy or sell a specified debt security at a set price on a future date. An index futures contract is an agreement to take or make delivery of an amount of cash based on the difference between the value of the index at the beginning and at the end of the contract period. A futures contract on a foreign currency is an agreement to buy or sell a specified amount of a currency for a set price on a future date. A Series may enter into a futures contract to the extent that not more than 5% of its assets are required as futures contract margin deposits and its obligations relating to such futures transactions represent not more than 25% of the Series' assets. The Series may also effect futures transactions through futures commission merchants who are affiliated with the Advisor or the Series in accordance with procedures adopted by the Board of Trustees. The Global Fund, Global Equity Fund, Global Bond Fund and Non-U.S. Equity Fund will enter into such futures transactions on domestic exchanges and, to the extent such transactions have been approved by the Commodity Futures Trading Commission for sale to customers in the United States, on foreign exchanges. OPTIONS (ALL SERIES): The Series may purchase and write put and call options on foreign or U.S. securities and indices and enter into related closing transactions. A Series' may use options traded on U.S. exchanges and, to the extent permitted by law, options traded over-the-counter and recognized foreign exchanges. It is the position of the U.S. Securities and Exchange Commission that over-the-counter options are illiquid. Accordingly, a Series will invest in such options only to the extent consistent with its 15% limit on investment in illiquid securities. REPURCHASE AGREEMENTS (ALL SERIES): The Series may enter into repurchase agreements with banks or broker-dealers. Repurchase agreements are considered under the Act to be collateralized loans by a Series to the seller secured by the securities transferred to the Series. Repurchase agreements under the Act will be fully collateralized by securities which the Series may invest in directly. Such collateral will be marked-to-market daily. If the seller of the underlying security under the repurchase agreement should default on its obligation to repurchase the underlying security, the Series may experience delay or difficulty in recovering its cash. To the extent that, in the meantime, the value of the security purchased had decreased, the Series could experience a loss. No more than 15% of a Series' net assets will be invested in illiquid securities, including repurchase agreements which have a maturity of longer than seven days. The Series must treat each repurchase agreement as a security for tax diversification purposes and not as cash, a cash equivalent or as a receivable. BORROWING (ALL SERIES): Each Series is authorized, within specified limits, to borrow money as a temporary defensive measure for extraordinary purposes and to pledge its assets in connection with such borrowings. 28 LOANS OF PORTFOLIO SECURITIES (ALL SERIES): Each Series may loan its portfolio securities to broker-dealers and other institutional investors pursuant to agreements requiring that the loans be continuously secured by collateral equal at all times in value to at least the market value of the securities loaned. The major risk to which a Series would be exposed on a loan transaction is the risk that the borrower would become bankrupt at a time when the value of the security goes up. Therefore, a Series will only enter into loan arrangements after a review of all pertinent factors by Brinson Partners, subject to overall supervision by the Board of Trustees, including the creditworthiness of the borrowing broker-dealer or institution and then only if the consideration to be received from such loans would justify the risk. Creditworthiness will be monitored on an ongoing basis by Brinson Partners. RULE 144A AND ILLIQUID SECURITIES (ALL SERIES): Each Series may invest up to 15% of its net assets in illiquid securities. Illiquid securities are those securities that are not readily marketable, including restricted securities and repurchase obligations that mature in more than seven days. Certain restricted securities that may be resold to institutional investors pursuant to Rule 144A under the Securities Act of 1933 may be determined to be liquid under guidelines adopted by the Trust's Board of Trustees. INVESTMENT COMPANY SECURITIES (GLOBAL FUND): The Trust has received an exemptive order (the "Exemptive Order") from the U.S. Securities and Exchange Commission which permits each Series to invest its assets in certain portfolios of Brinson Relationship Funds, another registered investment company advised by Brinson Partners. Currently, only the Global Fund intends to invest in the portfolios of Brinson Relationship Funds and only to the extent consistent with Brinson Partners' investment process of allocating assets to specific asset classes. The Global Fund will invest in the portfolios of Brinson Relationship Funds to obtain exposure to the following asset classes: (1) equity and fixed income securities of issuers located in emerging market countries ("Emerging Market Securities"); (2) equity securities issued by companies with relatively small overall market capitalizations ("Small Cap Securities"); and (3) high yield securities ("High Yield Securities"). The Global Fund will invest in corresponding portfolios of Brinson Relationship Funds only to the extent the Advisor determines that such investments are a more efficient means for the Global Fund to gain exposure to the asset classes identified above than by investing directly in individual securities. Thus, to gain exposure to Emerging Market Securities, the Global Fund will invest in the Brinson Emerging Markets Equity Fund and the Brinson Emerging Markets Debt Fund portfolios of Brinson Relationship Funds. To gain exposure to Small Cap Securities and High Yield Securities, the Global Fund will invest in the Brinson Post-Venture Fund and the Brinson High Yield Fund portfolios, respectively, of Brinson Relationship Funds. Each portfolio of Brinson Relationship Funds in which the Global Fund may invest is permitted to invest in the same securities of a particular asset class in which the Global Fund is permitted to invest directly, and with similar risks. RUSSIAN SECURITIES (GLOBAL FUND) The Series may invest in securities of Russian companies. The registration, clearing and settlement of securities transactions in Russia are subject to significant risks not normally associated with securities transactions in the United States and other more developed markets. Ownership of shares of Russian companies is evidenced by entries in a company's share register (except where shares are held through depositories that meet the requirements of the Investment Company Act) and the issuance of extracts from the register or, in certain limited cases, by formal share certificates. However, Russian share registers are frequently unreliable and the Series could possibly lose its registration through oversight, negligence or fraud. Moreover, Russia lacks a centralized registry to record securities transactions and registrars located throughout Russia or the companies themselves maintain share registers. Registrars are under no obligation to provide extracts to potential purchasers in a timely manner or at all and are not necessarily subject to state supervision. In addition, while registrars are liable under law for 29 losses resulting from their errors, it may be difficult for the Series to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. Although Russian companies with more than 1,000 shareholders are required by law to employ an independent company to maintain share registers, in practice, such companies have not always followed this law. Because of this lack of independence of registrars, management of a Russian company may be able to exert considerable influence over who can purchase and sell the company's shares by illegally instructing the registrar to refuse to record transactions on the share register. Furthermore, these practices may prevent the Series from investing in the securities of certain Russian companies deemed suitable by the Advisor and could cause a delay in the sale of Russian securities by the Fund if the company deems a purchaser unsuitable, which may expose the Fund to potential loss on its investment. In light of the risks described above, the Board of Trustees of the Series has approved certain procedures concerning the Series' investments in Russian securities. Among these procedures is a requirement that the Series will not invest in the securities of a Russian company unless that issuer's registrar has entered into a contract with the Series' sub-custodian containing certain protective conditions including, among other things, the sub-custodian's right to conduct regular share confirmations on behalf of the Series. This requirements will likely have the effect of precluding investments in certain Russian companies that the Series would otherwise make. 30 FOR IRA ACCOUNTS ONLY TO: CHASE MANHATTAN BANK, CUSTODIAN FOR THE BRINSON FUNDS INDIVIDUAL RETIREMENT ACCOUNT APPLICATION 1. REGISTRATION: (PLEASE PRINT - ONE NAME ONLY) -------------------------------------------------------------------------- First Name Middle Initial Last Name -------------------------------------------------------------------------- Address ----------------------------------------- ----- ------------ - --------- City State Zip Code ------------------------- --------------- Social Security Number Date of Birth Telephone Number: (Home) -------------------- (Business) -------------------- 2. TYPE OF ACCOUNT: (CHECK ONE AS APPLICABLE) [_] Regular IRA$_________ [_] Current Year [_] Prior Year [_] Spousal IRA$_________ [_] Current Year [_] Prior Year [_] Rollover IRA$________ (Do not combine with Regular IRA) [_] IRA Transfer$________ (Please attach separate transfer form) [_] SEP IRA $____________ (Please include Employer name and address) -------------------------------------------------------------------------- Employer Name -------------------------------------------------------------------------- Employer Address 3. CONTRIBUTION: (MAKE CHECK PAYABLE TO THE FUND) INITIAL MINIMUM ($1,000,000) Your IRA Contribution may be invested in one or a combination of: the Brinson Global, Brinson Global Equity, Brinson Global Bond, Brinson Non-U.S. Equity, Brinson U.S. Equity, Brinson U.S. Balanced or Brinson U.S. Bond Funds. FUND FUND ------------------ $ ________ ------------------ $ ________ ------------------ $ ________ ------------------ $ ________ 4. DIVIDEND DISTRIBUTIONS: (ALL DIVIDENDS AND CAPITAL GAINS ARE REINVESTED) 5. DESIGNATION OF BENEFICIARY: PRIMARY BENEFICIARY ------------------------------------------------------ ----------------- Name Relationship -------------------------------------------------------------------------- Address ------------------------- ----------------- Social Security Number Date of Birth SECONDARY BENEFICIARY(IES) ------------------------------------------------------ ----------------- Name Relationship -------------------------------------------------------------------------- Address ------------------------- ----------------- Social Security Number Date of Birth 6. SIGNATURE AND CERTIFICATION: The undersigned hereby acknowledges receipt of and has read the Custodial Agreement, Disclosure Statement and Prospectus of the Fund(s) and hereby appoints the institution named at the top of this application as Custodian; consents to Custodian's fees and terms of the Custodial Agreement. THE FOLLOWING IS REQUIRED BY FEDERAL TAX LAW TO AVOID 31% BACKUP WITHHOLDING: "BY SIGNING BELOW, I CERTIFY UNDER PENALTIES OF PERJURY THAT THE SOCIAL SECURITY NUMBER OR TAX I.D. NUMBER ENTERED ABOVE IS CORRECT (OR I AM WAITING FOR A NUMBER TO BE ISSUED) AND THAT I HAVE NOT BEEN NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING UNLESS I HAVE CHECKED THE BOX." [_] THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION TO AVOID BACKUP WITHHOLDING. --------------------------------------------------- ----------------- Signature Date 7. ACCEPTANCE: Plan acceptance by the Custodian is evidenced by the statement confirmation issued by Chase Global Funds Services Company reflecting the investment of your monies in the selected Fund(s). MAIL TO: CHASE GLOBAL FUNDS SERVICES COMPANY, P.O. BOX 2798, BOSTON, MA 02208- 2798 FOR INVESTMENT DEALER ONLY -------------------------------------------------------------------------- Firm Name -------------------------------------------------------------------------- Street Address ----------------------------------------- ----- ------------ - --------- City State Zip Code ---------- ------------------------- ------------------------------ Rep # Rep's Last Name Authorized Signature ACCOUNT APPLICATION MAIL TO: THE BRINSON FUNDS--CLASS N c/o Chase Global Funds Services Company 73 Tremont Street--9th Floor P.O. Box 2798 Boston, MA 02208-2798 1-800-448-2430 [LOGO THE BRINSON FUNDS] The Brinson Funds 1. ACCOUNT REGISTRATION If you have another Brinson Fund account with the same registration and tax ID as this Account and would like to keep the same account number, please provide the existing Account Number ________ Name of Fund ___________________ . [_] INDIVIDUAL ACCOUNT - -------------------------------------------------------------------------------- Name Social Security Number - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
[_] JOINT ACCOUNT - -------------------------------------------------------------------------------- Name Social Security Number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Name Social Security Number - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(Joint Account will be Joint Account with rights of survivorship unless oth- erwise specified). [_] CUSTODIAL ACCOUNT/GIFT TO MINOR - -------------------------------------------------------------------------------- Minor's Name Custodian's Name - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Minor's Social Security Number Minor's State of Residence - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
[_] TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY (Please include a copy of the corporate resolution form) - -------------------------------------------------------------------------------- Name of Legal Entity Taxpayer I.D. Number - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Name of Fiduciary (if to be included in registration) Date of Trust Document - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
2. MAILING ADDRESS - -------------------------------------------------------------------------------- Street Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- City, State, Zip Code Daytime Phone - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
3. FUND INVESTMENT Please make check payable to the appropriate Fund(s). ($1,000,000 minimum initial investment per Fund) - ----------------------------------------------------------------------------------------
FUND NAME AMOUNT FUND NAME AMOUNT - ---------------------------------------------------------------------------------------- Brinson Global Fund $ Brinson U.S. Balanced Fund $ - ---------------------------------------------------------------------------------------- Brinson Global Equity Fund Brinson U.S. Equity Fund - ---------------------------------------------------------------------------------------- Brinson Global Bond Fund Brinson U.S. Bond Fund - ---------------------------------------------------------------------------------------- Brinson Non-U.S. Equity Fund - ----------------------------------------------------------------------------------------
4. DISTRIBUTION OPTIONS Check one--if no box is checked, all dividends and capital gains will be reinvested in additional shares of the Fund. [_] Reinvest all dividends and [_] Pay all dividends in cash and reinvest capital gains capital gains [_] Pay all capital gains in cash [_] Pay all dividends and capital gains in and reinvest dividends cash 5. FUND INVESTMENT OPTIONS This application confirms prior purchase made by [_] telephone or [_] wire. The following account number was assigned ____________________________________ (See accompanying prospectus for telephone or wire instructions.) Do you wish to be able to redeem shares by telephone? [_] Yes [_] No Do you wish to be able to exchange shares between Funds by telephone? [_] Yes [_] No Do you wish to be able to wire redemption proceeds to your bank account designated? [_] Yes [_] No If no boxes are marked, you will not have the privileges specified. FOR WIRE REDEMPTIONS, COMPLETE INFORMATION BELOW. - ----------------------------------------------------------------------------------------------------------------------- Bank Name Bank ABA# Your Shareholder Account Number - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Bank Street Address Bank City, State, Zip Code - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
A VOIDED CHECK FROM THIS BANK ACCOUNT MUST BE ATTACHED TO THIS DOCUMENT. NOTE: Be sure that your bank accepts wire transfers. 6. AUTOMATIC INVESTMENT PLAN [_] Automatic Investment Plan ($1,000,000 minimum) I (we) have read the description of the Automatic Investment Plan in the Prospectus. Please debit my account on the [_] 10th [_] 15th [_] 20th (choose one). (If no date is specified, your account will be debited the 20th of each month) ($1,000,000 minimum initial investment) Fund: ____________________ Monthly Dollar Amount: ____________________ I agree that your rights with respect to such debit shall be the same as if it were a check drawn upon you and signed personally by me. This authority shall remain in effect until you receive written notice from me changing the terms or revoking it. I agree that you shall be fully protected in honoring any such debit. I further agree that if any debit be dishonored, whether with or without cause or whether intentionally or inadvertently, you shall be under no liability whatsoever. I (we) understand that my automatic clearing house (ACH) debit will be dated on the day of each month indicated above. If that day falls on a day in which the NYSE is not open for business, the debit will occur on the next available business day. I (we) agree that if such debit is not honored, Chase Global Funds Services Company reserves the right to discontinue this service and any share purchase made upon such deposit will be cancelled. I (we) further agree that if the net asset value of shares purchased is less when said purchase is cancelled than when the purchase was made, Chase Global Funds Services Company shall be authorized to liquidate other shares or fractions thereof held in my (our) account to make up the deficiency. This Automatic Investment Plan may be discontinued by Chase Global Funds Services Company upon 30 days written notice or at any time by the investor by written notice to Chase Global Funds Services Company which is received not later than 5 business days prior to the above designated investment date. - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Signature(s) Date - -----------------------------------------------------------------------------------------------------
A VOIDED CHECK FROM THIS BANK ACCOUNT MUST BE ATTACHED TO THIS DOCUMENT. 7. SIGNATURE CERTIFICATION This order is subject to acceptance by the Fund(s). Receipt of the current prospectus(es) is hereby acknowledged. I(we) am of legal age in my state of residence. I (we) agree that The Brinson Funds will not be liable for any loss or damage for acting in good faith upon instructions received by telephone and believed to be genuine. I (we) understand all telephone conversations with The Brinson Funds' representatives are tape-recorded so you can compare actions taken with original instructions should clarification be necessary and hereby consent to such recording. THE FOLLOWING IS REQUIRED BY FEDERAL TAX LAW TO AVOID 31% BACKUP WITHHOLDING: "BY SIGNING BELOW, I CERTIFY UNDER PENALTIES OF PERJURY THAT THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER ENTERED ABOVE IS CORRECT (OR I AM WAITING FOR A NUMBER TO BE ISSUED), AND THAT I HAVE NOT BEEN NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING UNLESS I HAVE CHECKED THE BOX." IF BASED ON THE FOREGOING YOU ARE SUBJECT TO BACKUP WITHHOLDING, CHECK BOX [_] [_] U.S. CITIZEN [_] RESIDENT ALIEN [_] NONRESIDENT ALIEN, COUNTRY ___________________ THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION TO AVOID BACKUP WITHHOLDING. - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Signature of: [_] Owner [_] Trustee [_] Custodian Date - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Signature of Joint Owner (if any) Date - --------------------------------------------------------------------------------------------------------
8. FOR INVESTMENT DEALER INFORMATION ONLY - ------------------------------------------------------------------------------------------------------------- Firm Name Branch/Branch # - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Branch Address City, State, Zip Code - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Representative # Representative's Last Name - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
[LOGO THE BRINSON FUNDS] THE BRINSON FUNDS For Additional Information about Brinson Funds, call: 1-800-448-2430 [LOGO THE BRINSON FUNDS] THE BRINSON FUNDS PROSPECTUS JUNE 30, 1997 BRINSON GLOBAL FUND BRINSON GLOBAL EQUITY FUND BRINSON GLOBAL BOND FUND BRINSON U.S. BALANCED FUND BRINSON U.S. EQUITY FUND BRINSON U.S. BOND FUND BRINSON NON-U.S. EQUITY FUND THE BRINSON FUNDS [LOGO OF BRINSON FUNDS] GLOBAL FUND U.S. EQUITY FUND GLOBAL EQUITY FUND U.S. BOND FUND GLOBAL BOND FUND NON-U.S. EQUITY FUND U.S. BALANCED FUND STATEMENT OF ADDITIONAL INFORMATION June 30, 1997 The Brinson Funds (the "Trust") currently offers seven separate series, each with its own investment objective and policies. The Trust also offers three classes of shares for each series - the Brinson-Class I, the Brinson-Class N and the SwissKey Fund class. Information concerning the Brinson-Class I of each series is provided in the following three separate Prospectuses: the Brinson Global Fund, Brinson Global Equity Fund and Brinson Global Bond Fund Prospectus; the Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund and Brinson U.S. Bond Fund Prospectus; and the Brinson Non-U.S. Equity Fund Prospectus, each dated October 28, 1996, as revised February 5, 1997 and supplemented June 30, 1997. Information concerning the Brinson-Class N of each Series is included in a separate Prospectus dated October 28, 1996, as revised February 5, 1997 and supplemented June 30, 1997. Information concerning the SwissKey Fund class of each series is included in a separate Prospectus for the SwissKey Funds dated October 28, 1996, as revised February 5, 1997 and supplemented June 30, 1997. This Statement of Additional Information is not a Prospectus, but should be read in conjunction with the current Prospectuses of the Trust. Much of the information contained herein expands upon subjects discussed in the Prospectuses. No investment in shares should be made without first reading the applicable Prospectus. A copy of each Prospectus may be obtained without charge from the Trust at the addresses and telephone numbers below. UNDERWRITER: ADVISOR: Funds Distributor, Inc. Brinson Partners, Inc. 60 State Street 209 South LaSalle Street Suite 1300 Chicago, IL 60604-1295 Boston, MA 02109 1-800-448-2430 (Brinson-Class I and 1-800-448-2430 (Brinson-Class I and Brinson-Class N) Brinson-Class N) 1-800-SWISSKEY (SwissKey Fund class) 1-800-SWISSKEY (SwissKey Fund class) TABLE OF CONTENTS
PAGE ---- THE BRINSON FUNDS.................................................................................. INVESTMENT STRATEGIES.............................................................................. INVESTMENTS RELATING TO ALL FUNDS................................................................. Repurchase Agreements........................................................................... Reverse Repurchase Agreements.................................................................. Borrowing...................................................................................... Loans of Portfolio Securities.................................................................. Swaps.......................................................................................... Futures........................................................................................ Options........................................................................................ Index Options.................................................................................. Special Risks of Options on Indices............................................................ Rule 144A Securities........................................................................... Other Investments.............................................................................. INVESTMENTS RELATING TO THE GLOBAL FUNDS AND THE NON-U.S. EQUITY FUND.............................. Foreign Securities............................................................................. Forward Foreign Currency Contracts............................................................. Options on Foreign Currencies.................................................................. INVESTMENTS RELATING TO THE GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND... Lower Grade Debt Securities................................................................... Convertible Securities........................................................................ When-Issued Securities........................................................................ Mortgage-Backed Securities and Mortgage Pass-Through Securities............................... Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage......................... Investment Conduits ("REMICs")........................................................... Other Mortgage-Backed Securities.............................................................. Asset-Backed Securities....................................................................... Zero Coupon Securities........................................................................ INVESTMENTS RELATING TO THE GLOBAL FUND............................................................ Emerging Markets Investments.................................................................. Risks of Investing in Emerging Markets........................................................ Investments in Affiliated Investment Companies............................................... INVESTMENT RESTRICTIONS............................................................................ MANAGEMENT OF THE TRUST............................................................................ Trustees and Officers......................................................................... Compensation Table............................................................................ CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................................ INVESTMENT ADVISORY AND OTHER SERVICES............................................................. Advisor........................................................................................ Administrator................................................................................... Underwriter..................................................................................... Distribution Plan............................................................................... Code of Ethics.................................................................................. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................................................... Portfolio Turnover.............................................................................. SHARES OF BENEFICIAL INTEREST...................................................................... PURCHASES.......................................................................................... Exchanges of Shares............................................................................. Net Asset Value................................................................................. REDEMPTIONS........................................................................................ Taxation........................................................................................
PERFORMANCE CALCULATIONS..................................................................... Total Return.............................................................................. Yield..................................................................................... FINANCIAL STATEMENTS......................................................................... CORPORATE DEBT RATINGS --- APPENDIX A........................................................
THE BRINSON FUNDS The Brinson Funds (the "Trust"), 209 South LaSalle Street, Chicago, Illinois 60604-1295, is an open-end management investment company which currently offers shares of seven series representing separate portfolios of investments: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (collectively referred to as the "Series," or individually as a "Series"). The Global Fund, Global Equity Fund and Global Bond Fund are referred to herein collectively as the "Global Funds" or individually as the "Global Fund" and the U.S. Balanced Fund, U.S. Equity Fund and U.S. Bond Fund are referred to herein as the "U.S. Funds." The Trust currently offers three classes of shares for each Series: the Brinson-Class I, Brinson-Class N and SwissKey Fund class. The Brinson-Class I shares of each Series, which are designed primarily for institutional investors, have no sales charges and are not subject to annual 12b-1 plan expenses. The Brinson-Class N shares, which are available exclusively to 401(k) participants, have no sales charges, but are subject to annual 12b-1 plan expenses of 0.25% of average daily net assets of the respective Series. The SwissKey Fund class shares of each Series have no sales charges, but are subject to annual 12b-1 expenses of up to a maximum of 0.90% of average daily net assets of the respective Series. INVESTMENT STRATEGIES The following discussion of investment techniques and instruments supplements and should be read in conjunction with the investment objectives and policies set forth in the Prospectuses of the Funds. The investment practices described below, except for the discussion of percentage limitations with respect to portfolio loan transactions and borrowing, are not fundamental and may be changed by the Board of Trustees without the approval of the shareholders. INVESTMENTS RELATING TO ALL FUNDS The following discussion applies to all Series. REPURCHASE AGREEMENTS - --------------------- When a Series enters into a repurchase agreement, it purchases securities from a bank or broker-dealer which simultaneously agrees to repurchase the securities at a mutually agreed upon time and price, thereby determining the yield during the term of the agreement. As a result, a repurchase agreement provides a fixed rate of return insulated from market fluctuations during the term of the agreement. The term of a repurchase agreement generally is short, possibly overnight or for a few days, although it may extend over a number of months (up to one year) from the date of delivery. Repurchase agreements will be fully collateralized and the collateral will be marked-to-market daily. A Series may not enter into a repurchase agreement having more than seven days remaining to maturity if, as a result, such agreement, together with any other illiquid securities held by the Series, would exceed 15% of the value of the net assets of the Series. In the event of bankruptcy or other default by the seller of the security under a repurchase agreement, a Series may suffer time delays and incur costs or possible losses in connection with the disposition of the collateral. In such event, instead of the contractual fixed rate of return, the rate of return to a Series would be dependent upon intervening fluctuations of the market value of the underlying security and the accrued interest on the security. Although a Series would have rights against the seller for breach of contract with respect to any losses arising from market fluctuations following the failure of the seller to perform, the ability of a Series to recover damages from a seller in bankruptcy or otherwise in default would be reduced. Repurchase agreements are securities for purposes of the tax diversification requirements that must be met for pass-through treatment under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, each Series will limit the value of its repurchase agreements on each of the quarterly testing dates to ensure compliance with Subchapter M of the Code. 4 REVERSE REPURCHASE AGREEMENTS - ----------------------------- Reverse repurchase agreements involve sales of portfolio securities of a Series to member banks of the Federal Reserve System or securities dealers believed creditworthy, concurrently with an agreement by the Series to repurchase the same securities at a later date at a fixed price which is generally equal to the original sales price plus interest. A Series retains record ownership and the right to receive interest and principal payments on the portfolio securities involved. In connection with each reverse repurchase transaction, a Series will direct its custodian bank to place cash, U.S. government securities, equity securities and/or investment and non-investment grade debt securities in a segregated account of the Series in an amount equal to the repurchase price. Any assets held in any segregated accounts maintained by a Series with respect to any reverse repurchase agreements, when-issued securities, options, futures, forward contracts or other derivative transactions shall be liquid, unencumbered and marked-to-market daily (any such assets held in a segregated account are referred to in this Statement of Additional Information as "Segregated Assets"). A reverse repurchase agreement involves the risk that the market value of the securities retained by a Series may decline below the price of the securities the Series has sold but is obligated to repurchase under the agreement. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Series' use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Series' obligation to repurchase the securities. Reverse repurchase agreements are considered borrowings by the Series and as such, are subject to the same investment limitations. BORROWING - --------- The Series may borrow money as a temporary measure for extraordinary purposes or to facilitate redemptions. A Series will not borrow money in excess of 33 1/3% of the value of its total assets. A Series has no intention of increasing its net income through borrowing. Any borrowing will be done from a bank with the required asset coverage of at least 300%. In the event that such asset coverage shall at any time fall below 300%, a Series shall, within three days thereafter (not including Sundays or holidays), or such longer period as the U.S. Securities and Exchange Commission (the "SEC") may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowings shall be at least 300%. A Series will not pledge more than 10% of its net assets, or issue senior securities as defined in the Investment Company Act of 1940, as amended (the "Act"), except for notes to banks and reverse repurchase agreements. Investment securities will not be purchased while a Series has an outstanding borrowing that exceeds 5% of a Series' net assets. LOANS OF PORTFOLIO SECURITIES - ----------------------------- The Series may lend portfolio securities to qualified broker-dealers and financial institutions provided: (1) the loan is secured continuously by collateral marked-to-market daily and maintained in an amount at least equal to the current market value of the securities loaned; (2) a Series may call the loan at any time and receive the securities loaned; (3) a Series will receive any interest or dividends paid on the loaned securities; and (4) the aggregate market value of securities loaned will not at any time exceed 33 1/3% of the total assets of the Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund, respectively. Collateral will consist of U.S. and non-U.S. securities, cash equivalents or irrevocable letters of credit. Loans of securities involve a risk that the borrower may fail to return the securities or may fail to maintain the proper amount of collateral. Therefore, a Series will only enter into portfolio loans after a review of all pertinent factors by Brinson Partners, Inc. ("Brinson Partners" or the "Advisor") under the supervision of the Board of Trustees, including the creditworthiness of the borrower. Creditworthiness will be monitored on an ongoing basis by the Advisor. SWAPS - ----- The Series (except for the Global Equity Fund, U.S. Equity Fund and Non-U.S. Equity Fund) may engage in swaps, including but not limited to interest rate, currency and index swaps and the purchase or sale of related caps, floors, collars and other derivative instruments. The Series expect to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of the portfolio's duration, to protect against any increase in the price of securities the Series anticipates purchasing at a later date, or to gain exposure to certain markets in the most economical way possible. 5 The use of swaps involves investment techniques and risks different from those associated with ordinary portfolio security transactions. If Brinson Partners is incorrect in its forecast of market values, interest rates and other applicable factors, the investment performance of the Series will be less favorable than it would have been if this investment technique was never used. Thus, if the other party to a swap defaults, a Series' risk of loss consists of the net amount of interest payments that the Series is contractually entitled to receive. Under Internal Revenue Service rules, any lump sum payment received or due under the notional principal contract must be amortized over the life of the contract. FUTURES - ------- The Series may enter into contracts for the purchase or sale for future delivery of securities. The Global Funds and the Non-U.S. Equity Fund may also enter into contracts for the purchase or sale for future delivery of foreign currencies. A purchase of a futures contract means the acquisition of a contractual right to obtain delivery to a Series of the securities or foreign currency called for by the contract at a specified price during a specified future month. When a futures contract is sold, a Series incurs a contractual obligation to deliver the securities or foreign currency underlying the contract at a specified price on a specified date during a specified future month. A Series may enter into futures contracts and engage in options transactions related thereto to the extent that not more than 5% of the Series' assets are required as futures contract margin deposits and premiums on options, and may engage in such transactions to the extent that obligations relating to such futures and related options on futures transactions represent not more than 25% of a Series' assets. When a Series enters into a futures transaction, it must deliver to the futures commission merchant selected by a Series an amount referred to as "initial margin." This amount is maintained by the futures commission merchant in a segregated account at the custodian bank. Thereafter, a "variation margin" may be paid by the Series to, or drawn by the Series from, such account in accordance with controls set for such accounts, depending upon changes in the price of the underlying securities subject to the futures contract. The Series will enter into futures transactions on domestic exchanges and, to the extent such transactions have been approved by the Commodity Futures Trading Commission for sale to customers in the United States, on foreign exchanges. In addition, all of the Series except the Global Bond Fund and U.S. Bond Fund may sell stock index futures in anticipation of or during a market decline to attempt to offset the decrease in market value of their common stocks that might otherwise result; and they may purchase such contracts in order to offset increases in the cost of common stocks that they intend to purchase. Unlike other futures contracts, a stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract. While futures contracts provide for the delivery of securities, deliveries usually do not occur. Contracts are generally terminated by entering into offsetting transactions. The Series may enter into futures contracts to protect against the adverse affects of fluctuations in security prices, interest or foreign exchange rates without actually buying or selling the securities or foreign currency. For example, if interest rates are expected to increase, a Series might enter into futures contracts for the sale of debt securities. Such a sale would have much the same effect as selling an equivalent value of the debt securities owned by the Series. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the futures contracts to the Series would increase at approximately the same rate, thereby keeping the net asset value of the Series from declining as much as it otherwise would have. Similarly, when it is expected that interest rates may decline, futures contracts may be purchased to hedge in anticipation of subsequent purchases of securities at higher prices. Since the fluctuations in the value of futures contracts should be similar to those of debt securities, the Series could take advantage of the anticipated rise in value of debt securities without actually buying them until the market had stabilized. At that time, the futures contracts could be liquidated and the Series could then buy debt securities on the cash market. To the extent that market prices move in an unexpected direction, a Series may not achieve the anticipated benefits of futures contracts or may realize a loss. For example, if a Series is hedged against the possibility of an increase in interest rates which would adversely affect the price of securities held in its portfolio and interest rates decrease instead, the Series would lose part or all of the benefit of the increased value which it has because it would have offsetting losses 6 in its futures position. In addition, in such situations, if the Series had insufficient cash, it may be required to sell securities from its portfolio to meet daily variation margin requirements. Such sales of securities may, but will not necessarily, be at increased prices which reflect the rising market. A Series may be required to sell securities at a time when it may be disadvantageous to do so. OPTIONS - ------- The Series may purchase and write call or put options on securities but will only engage in option strategies for non-speculative purposes. The U.S. Funds may invest in options that are listed on U.S. exchanges or traded over-the-counter and the Global Funds and the Non-U.S. Equity Fund may invest in options that are either listed on U.S. or recognized foreign exchanges or traded over-the-counter. Certain over-the-counter options may be illiquid. Thus, it may not be possible to close options positions and this may have an adverse impact on a Series' ability to effectively hedge its securities. The Series have been notified by the SEC that it considers over-the-counter options to be illiquid. Accordingly, a Series will only invest in such options to the extent consistent with its 15% limit on investments in illiquid securities. PURCHASING CALL OPTIONS - The Series may purchase call options on securities to the extent that premiums paid by a Series do not aggregate more than 20% of the Series' total assets. When a Series purchases a call option, in return for a premium paid by the Series to the writer of the option, the Series obtains the right to buy the security underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium upon writing the option, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. The advantage of purchasing call options is that a Series may alter portfolio characteristics and modify portfolio maturities without incurring the cost associated with transactions. A Series may, following the purchase of a call option, liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. The Series will realize a profit from a closing sale transaction if the price received on the transaction is more than the premium paid to purchase the original call option; the Series will realize a loss from a closing sale transaction if the price received on the transaction is less than the premium paid to purchase the original call option. Although the Series will generally purchase only those call options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange may exist. In such event, it may not be possible to effect closing transactions in particular options, with the result that a Series would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of such options and upon the subsequent disposition of the underlying securities acquired through the exercise of such options. Further, unless the price of the underlying security changes sufficiently, a call option purchased by a Series may expire without any value to the Series, in which event the Series would realize a capital loss which will be short-term unless the option was held for more than one year. COVERED CALL WRITING - A Series may write covered call options from time to time on such portions of its portfolio, without limit, as Brinson Partners determines is appropriate in seeking to achieve the Series' investment objective. The advantage to a Series of writing covered calls is that the Series receives a premium which is additional income. However, if the security rises in value, the Series may not fully participate in the market appreciation. During the option period, a covered call option the writer may be assigned an exercise notice by the broker-dealer through whom such call option was sold, requiring the writer to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option or upon entering a closing purchase transaction. A closing purchase transaction, in which a Series, as writer of an option, terminates its obligation by purchasing an option of the same series as the option previously written, cannot be effected with respect to an option once the option writer has received an exercise notice for such option. Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security or to enable a Series to write another 7 call option on the underlying security with either a different exercise price or expiration date or both. A Series may realize a net gain or loss from a closing purchase transaction depending upon whether the net amount of the original premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be partially or entirely offset by the premium received from a sale of a different call option on the same underlying security. Such a loss may also be wholly or partially offset by unrealized appreciation in the market value of the underlying security. Conversely, a gain resulting from a closing purchase transaction could be offset in whole or in part by a decline in the market value of the underlying security. If a call option expires unexercised, the Series will realize a short-term capital gain in the amount of the premium on the option less the commission paid. Such a gain, however, may be offset by depreciation in the market value of the underlying security during the option period. If a call option is exercised, a Series will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security and the proceeds of the sale of the security plus the amount of the premium on the option less the commission paid. The Series will write call options only on a covered basis, which means that a Series will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, a Series would be required to continue to hold a security which it might otherwise wish to sell or deliver a security it would want to hold. The exercise price of a call option may be below, equal to or above the current market value of the underlying security at the time the option is written. PURCHASING PUT OPTIONS - The Series may only purchase put options to the extent that the premiums on all outstanding put options do not exceed 20% of a Series' total assets. A Series will, at all times during which it holds a put option, own the security covered by such option. With regard to the writing of put options, each Series will limit the aggregate value of the obligations underlying such put options to 50% of its total net assets. The purchase of the put on substantially identical securities held will constitute a short sale for tax purposes, the effect of which is to create short-term capital gain on the sale of the security and to suspend running of its holding period (and treat it as commencing on the date of the closing of the short sale) or that of a security acquired to cover the same if, at the time the put was acquired, the security had not been held for more than one year. A put option purchased by a Series gives it the right to sell one of its securities for an agreed price up to an agreed date. The Series intend to purchase put options in order to protect against a decline in the market value of the underlying security below the exercise price less the premium paid for the option ("protective puts"). The ability to purchase put options will allow the Series to protect unrealized gains in an appreciated security in their portfolios without actually selling the security. If the security does not drop in value, a Series will lose the value of the premium paid. A Series may sell a put option which it has previously purchased prior to the sale of the securities underlying such option. Such sale will result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option which is sold. The Series may sell a put option purchased on individual portfolio securities. Additionally, the Series may enter into closing sale transactions. A closing sale transaction is one in which a Series, when it is the holder of an outstanding option, liquidates its position by selling an option of the same series as the option previously purchased. WRITING PUT OPTIONS - The Series may also write put options on a secured basis which means that a Series will maintain in a segregated account with its custodian Segregated Assets in an amount not less than the exercise price of the option at all times during the option period. The amount of Segregated Assets held in the segregated account will be adjusted on a daily basis to reflect changes in the market value of the securities covered by the put option written by the Series. Secured put options will generally be written in circumstances where Brinson Partners wishes to purchase the underlying security for a Series' portfolio at a price lower than the current market price of the security. In such event, a Series would write a secured put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. 8 Following the writing of a put option, a Series may wish to terminate the obligation to buy the security underlying the option by effecting a closing purchase transaction. This is accomplished by buying an option of the same series as the option previously written. The Series may not, however, effect such a closing transaction after it has been notified of the exercise of the option. INDEX OPTIONS - ------------- The Series may purchase exchange-listed call options on stock and fixed income indices depending upon whether a Series is an equity or bond series and sell such options in closing sale transactions for hedging purposes. A Series may purchase call options on broad market indices to temporarily achieve market exposure when the Series is not fully invested. A Series may also purchase exchange-listed call options on particular market segment indices to achieve temporary exposure to a specific industry. In addition, the Series may purchase put options on stock and fixed income indices and sell such options in closing sale transactions for hedging purposes. A Series may purchase put options on broad market indices in order to protect its fully invested portfolio from a general market decline. Put options on market segments may be bought to protect a Series from a decline in value of heavily weighted industries in the Series' portfolio. Put options on stock and fixed income indices may also be used to protect a Series' investments in the case of a major redemption. The Series may also write (sell) put and call options on stock and fixed income indices. While the option is open, a Series will maintain a segregated account with its custodian in an amount equal to the market value of the option. Options on indices are similar to regular options except that an option on an index gives the holder the right, upon exercise, to receive an amount of cash if the closing level of the index upon which the option is based is greater than (in the case of a call) or lesser than (in the case of a put) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple (the "multiplier"). The indices on which options are traded include both U.S. and non-U.S. markets. SPECIAL RISKS OF OPTIONS ON INDICES - ----------------------------------- The Series' purchases of options on indices will subject them to the risks described below. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular security, whether a Series will realize gain or loss on the purchase of an option on an index depends upon movements in the level of prices in the market generally or in an industry or market segment rather than movements in the price of a particular security. Accordingly, successful use by a Series of options on indices is subject to Brinson Partners' ability to predict correctly the direction of movements in the market generally or in a particular industry. This requires different skills and techniques than predicting changes in the prices of individual securities. Index prices may be distorted if trading of a substantial number of securities included in the index is interrupted causing the trading of options on that index to be halted. If a trading halt occurred, a Series would not be able to close out options which it had purchased and the Series may incur losses if the underlying index moved adversely before trading resumed. If a trading halt occurred and restrictions prohibiting the exercise of options were imposed through the close of trading on the last day before expiration, exercises on that day would be settled on the basis of a closing index value that may not reflect current price information for securities representing a substantial portion of the value of the index. If a Series holds an index option and exercises it before final determination of the closing index value for that day, it runs the risk that the level of the underlying index may change before closing. If such a change causes the exercised option to fall "out-of-the-money," the Series will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer. Although a Series may be able to minimize this risk by withholding exercise instructions until just before the daily cutoff time or by selling rather than exercising the option when the index level is close to the exercise price, it may not be possible to eliminate this risk entirely because the cutoff times for index options may be earlier than those fixed for other types of options and may occur before definitive closing index values are announced. 9 RULE 144A SECURITIES - -------------------- The Series may invest in securities that are exempt under Rule 144A from the registration requirements of the Securities Act of 1933. Those securities purchased under Rule 144A are traded among qualified institutional investors. The Board of Trustees of the Trust has instructed Brinson Partners to consider the following factors in determining the liquidity of a security purchased under Rule 144A: (i) the frequency of trades and trading volume for the security; (ii) whether at least three dealers are willing to purchase or sell the security and the number of potential purchasers; (iii) whether at least two dealers are making a market in the security; and (iv) the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Although having delegated the day-to-day functions, the Board of Trustees will continue to monitor and periodically review the Advisor's selection of Rule 144A securities, as well as the Advisor's determinations as to their liquidity. Investing in securities under Rule 144A could have the effect of increasing the level of a Series' illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. After the purchase of a security under Rule 144A, however, the Board of Trustees and Brinson Partners will continue to monitor the liquidity of that security to ensure that each Series has no more than 15% of its total assets in illiquid securities. The Series will limit investments in securities of issuers which the Series are restricted from selling to the public without registration under the Securities Act of 1933 to no more than 15% of the Series' total assets, excluding restricted securities eligible for resale pursuant to Rule 144A that have been determined to be liquid pursuant a policy and procedures adopted by the Trust's Board of Trustees which includes continuing oversight by the Board of Trustees. If Brinson Partners determines that a security purchased in reliance on Rule 144A which was previously determined to be liquid, is no longer liquid and, as a result, the Series' holdings of illiquid securities exceed the Series' 15% limit on investment in such securities, Brinson Partners will determine what action shall be taken to ensure that the Series continue to adhere to such limitation, including disposing of illiquid assets which may include such Rule 144A securities. OTHER INVESTMENTS - ----------------- The Board of Trustees may, in the future, authorize a Series to invest in securities other than those listed in this Statement of Additional Information and in the Prospectuses, provided such investment would be consistent with that Series' investment objective and that it would not violate any fundamental investment policies or restrictions applicable to that Series. INVESTMENTS RELATING TO THE GLOBAL FUNDS AND THE NON-U.S. EQUITY FUND The following discussion of strategies, techniques and policies applies only to the Global Fund, Global Equity Fund, Global Bond Fund and the Non-U.S. Equity Fund. FOREIGN SECURITIES - ------------------ Investors should recognize that investing in foreign issuers involves certain considerations, including those set forth in the Series' Prospectuses, which are not typically associated with investing in U.S. issuers. Since the stocks of foreign companies are frequently denominated in foreign currencies, and since the Series may temporarily hold uninvested reserves in bank deposits in foreign currencies, the Series will be affected favorably or unfavorably by changes in currency rates and in exchange control regulations and may incur costs in connection with conversions between various currencies. The investment policies of the Series permit them to enter into forward foreign currency exchange contracts, futures, options and interest rate swaps (in the case of the Global Funds) in order to hedge portfolio holdings and commitments against changes in the level of future currency rates. There has been in the past, and there may be again in the future, an interest equalization tax levied by the United States in connection with the purchase of foreign securities such as those purchased by the Series. Payment of an interest equalization tax, if imposed, would reduce the Series' rates of return on investment. Dividends paid by foreign issuers may be subject to withholding and other foreign taxes which may decrease the net return on such investments as compared to dividends paid to the Series by U.S. corporations. The Series' ability to "pass through" the foreign taxes paid for tax credit or deduction purposes will be determined by the composition of the Series' portfolios. More than 50% 10 of a Series must be invested in stock or securities of foreign corporations for "pass through" to be possible in the first instance. Special rules govern the federal income tax treatment of certain transactions denominated in terms of a currency other than the U.S. dollar or determined by reference to the value of one or more currencies other than the U.S. dollar. The types of transactions covered by the special rules generally include the following: (i) the acquisition of, or becoming the obligor under, a bond or other debt instrument (including, to the extent provided in the Treasury Regulations, preferred stock); (ii) the accruing of certain trade receivables and payables; and (iii) the entering into or acquisition of any forward contract, futures contract and similar financial instruments other than any "regulated futures contract" or "non-equity option" which would be marked-to-market under the rules of Section 1256 of the Code if held at the end of the tax year. The disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to the special currency rules. However, foreign currency- related regulated futures contracts and non-equity options are generally not subject to these special currency rules. If subject, they are or would be treated as sold for their fair market value at year-end under the marked-to- market rules applicable to other futures contracts, unless an election is made to have such currency rules apply. With respect to transactions covered by the special rules, foreign currency gain or loss is calculated separately from any gain or loss on the underlying transaction and is normally taxable gain or loss. A taxpayer may elect to treat as capital gain or loss foreign currency gain or loss arising from certain identified forward contracts, futures contracts and options that are capital assets in the hands of the taxpayer and which are not part of a straddle. Certain transactions subject to the special currency rules that are part of a "section 988 hedging transaction" (as defined in the Code and the Treasury Regulations) will be integrated and treated as a single transaction or otherwise treated consistently for purposes of the Code. The income tax effects of integrating and treating a transaction as a single transaction are generally to create a synthetic debt instrument that is subject to the original discount provisions. It is anticipated that some of the non-U.S. dollar denominated investments and foreign currency contracts the Series may make or enter into will be subject to the special currency rules described above. FORWARD FOREIGN CURRENCY CONTRACTS - ---------------------------------- The Series may purchase or sell currencies and/or engage in forward foreign currency transactions in order to expedite settlement of portfolio transactions and to manage currency risk. Forward foreign currency contracts are traded in the inter-bank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement and no commissions are charged at any stage for trades. The Series will account for forward contracts by marking-to-market each day at current forward contract values. A Series will only enter into forward contracts to sell, for a fixed amount of U.S. dollars or other appropriate currency, an amount of foreign currency, to the extent that the value of the short forward contract is covered by the underlying value of securities denominated in the currency being sold. Alternatively, when a Series enters into a forward contract to sell an amount of foreign currency, the Series' custodian or sub-custodian will place Segregated Assets in a segregated account of the Series in an amount not less than the value of the Series' total assets committed to the consummation of such forward contracts. If the additional Segregated Assets placed in the segregated account decline, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Series' commitments with respect to such contracts. OPTIONS ON FOREIGN CURRENCIES - ----------------------------- The Series also may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to manage the Series' exposure to changes in currency exchange rates. The Series may purchase and write options on foreign currencies for hedging purposes in a manner similar to that in which futures contracts on foreign currencies, or forward contracts, will be utilized. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of portfolio securities, the Series may purchase put options on the foreign currency. If the dollar price of the currency does decline, a Series will have the right to sell such currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted. Conversely, where a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the dollar price of such securities, the Series may purchase call options on such currency. 11 The purchase of such options could offset, at least partially, the effects of the adverse movement in exchange rates. As in the case of other types of options, however, the benefit to the Series to be derived from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, a Series could sustain losses on transactions in foreign currency options which would require it to forego a portion or all of the benefits of advantageous changes in such rates. The Series may write options on foreign currencies for the same types of hedging purposes. For example, where a Series anticipates a decline in the dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised, and the diminution in the value of portfolio securities will be offset by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against an anticipated increase in the dollar cost of securities to be acquired, a Series could write a put option on the relevant currency which, if rates move in the manner projected, will expire unexercised and allow the Series to hedge such increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Series would be required to purchase or sell the underlying currency at a loss which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, a Series also may be required to forego all or a portion of the benefit which might otherwise have been obtained from favorable movements in exchange rates. The Series may write covered call options on foreign currencies. A call option written on a foreign currency by a Series is "covered" if the Series owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by the custodian bank) upon conversion or exchange of other foreign currency held in its portfolio. A call option is also covered if a Series has a call on the same foreign currency and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written, or (b) is greater than the exercise price of the call written if the difference is maintained by the Series in Segregated Assets in a segregated account with its custodian bank. With respect to writing put options, at the time the put is written, a Series will establish a segregated account with its custodian bank consisting of Segregated Assets in an amount equal in value to the amount the Series will be required to pay upon exercise of the put. The account will be maintained until the put is exercised, has expired, or the Series has purchased a closing put of the same series as the one previously written. INVESTMENTS RELATING TO THE GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND The following discussion applies to the Global Fund, Global Bond Fund, U.S. Balanced Fund and U.S. Bond Fund. LOWER RATED DEBT SECURITIES - ---------------------------- Fixed income securities rated lower than Baa by Moody's Investors Services, Inc. or BBB by Standard & Poor's Ratings Group are considered to be of poor standing and predominantly speculative. Such securities ("lower rated securities") are commonly referred to as "junk bonds" and are subject to a substantial degree of credit risk. Lower rated securities may be issued as a consequence of corporate restructurings, such as leveraged buy-outs, mergers, acquisitions, debt recapitalizations or similar events. Also, lower rated securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal. The risks posed by securities issued under such circumstances are substantial. In the past, the high yields from lower rated securities have more than compensated for the higher default rates on such securities. However, there can be no assurance that diversification will protect the Series from widespread bond defaults 12 brought about by a sustained economic downturn, or that yields will continue to offset default rates on lower rated securities in the future. Issuers of these securities are often highly leveraged, so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. In addition, such issuers may not have more traditional methods of financing available to them and may be unable to repay debt at maturity by refinancing. Further, an economic recession may result in default levels with respect to such securities in excess of historic averages. The value of lower-rated securities will be influenced not only by changing interest rates, but also by the bond market's perception of credit quality and the outlook for economic growth. When economic conditions appear to be deteriorating, lower rated securities may decline in market value due to investors' heightened concern over credit quality, regardless of prevailing interest rates. Especially at such times, trading in the secondary market for lower rated securities may become thin and market liquidity may be significantly reduced. Even under normal conditions, the market for lower rated securities may be less liquid than the market for investment grade corporate bonds. There are fewer securities dealers in the high yield market and purchasers of lower rated securities are concentrated among a smaller group of securities dealers and institutional investors. In periods of reduced market liquidity, lower rated securities prices may become more volatile. Besides credit and liquidity concerns, prices for lower rated securities may be affected by legislative and regulatory developments. For example, from time to time, Congress has considered legislation to restrict or eliminate the corporate tax deduction for interest payments or to regulate corporate restructurings such as takeovers or mergers. Such legislation may significantly depress the prices of outstanding lower rated securities. A description of various corporate debt ratings appears in Appendix A to this Statement of Additional Information. CONVERTIBLE SECURITIES - ---------------------- The Series may invest in convertible securities which generally offer lower interest or dividend yields than non-convertible debt securities of similar quality. The value of convertible securities may reflect changes in the value of the underlying common stock. Convertible securities entail less credit risk than the issuer's common stock because they rank senior to common stock. Convertible securities entitle the holder to exchange the securities for a specified number of shares of common stock, usually of the same company, at specified prices within a certain period of time and to receive interest or dividends until the holder elects to convert. The provisions of any convertible security determine its ranking in a company's capital structure. In the case of subordinated convertible debentures, the holder's claims on assets and earnings are subordinated to the claims of other creditors and are senior to the claims of preferred and common shareholders. In the case of preferred stock and convertible preferred stock, the holder's claim on assets and earnings are subordinated to the claims of all creditors but are senior to the claims of common shareholders. WHEN-ISSUED SECURITIES - ---------------------- The Series may purchase securities offered on a "when-issued" or "forward delivery" basis. When so offered, the price, which is generally expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment for the when-issued or forward delivery securities take place at a later date. During the period between purchase and settlement, no payment is made by the purchaser to the issuer and no interest on the when- issued or forward delivery security accrues to the purchaser. While when-issued or forward delivery securities may be sold prior to the settlement date, it is intended that a Series will purchase such securities with the purpose of actually acquiring them unless a sale appears desirable for investment reasons. At the time a Series makes the commitment to purchase a security on a when- issued or forward delivery basis, it will record the transaction and reflect the value of the security in determining its net asset value. The market value of when-issued or forward delivery securities may be more or less than the purchase price. The Advisor does not believe that a Series' net asset value or income will be adversely affected by its purchase of securities on a when-issued or forward delivery basis. The Series will establish a segregated account in which it will maintain Segregated Assets equal in value to commitments for when- issued or forward delivery securities. MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES - --------------------------------------------------------------- The Series may also invest in mortgage-backed securities, which are interests in pools of mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Pools of 13 mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations as further described below. The Series may also invest in debt securities which are secured with collateral consisting of mortgage-backed securities (see "Collateralized Mortgage Obligations") and in other types of mortgage-related securities. The timely payment of principal and interest on mortgage-backed securities issued or guaranteed by the Government National Mortgage Association ("GNMA") is backed by GNMA and the full faith and credit of the U.S. government. These guarantees, however, do not apply to the market value of Series shares. Also, securities issued by GNMA and other mortgage-backed securities may be purchased at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and would be lost if prepayment occurs. Mortgage-backed securities issued by U.S. government agencies or instrumentalities other than GNMA are not "full faith and credit" obligations. Certain obligations, such as those issued by the Federal Home Loan Bank are supported by the issuer's right to borrow from the U.S. Treasury, while others such as those issued by the Federal National Mortgage Association ("FNMA"), are supported only by the credit of the issuer. Unscheduled or early payments on the underlying mortgages may shorten the securities' effective maturities and reduce returns. The Series may agree to purchase or sell these securities with payment and delivery taking place at a future date. A decline in interest rates may lead to a faster rate of repayment of the underlying mortgages and expose the Series to a lower rate of return upon reinvestment. To the extent that such mortgage-backed securities are held by a Series, the prepayment right of mortgagors may limit the increase in net asset value of the Series because the value of the mortgage-backed securities held by the Series may not appreciate as rapidly as the price of noncallable debt securities. A decline in interest rates may lead to a faster rate of repayment of the underlying mortgages and expose a Series to a lower rate of return upon reinvestment. To the extent that such mortgage-backed securities are held by a Series, the prepayment right will tend to limit to some degree the increase in net asset value of the Series because the value of the mortgage-backed securities held by the Series may not appreciate as rapidly as the price of noncallable debt securities. For federal tax purposes other than diversification under Subchapter M, mortgage-backed securities are not considered to be separate securities but rather "grantor trusts" conveying to the holder an individual interest in each of the mortgages constituting the pool. Interests in pools of mortgage-backed securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be incurred. Some mortgage-backed securities (such as securities issued by the GNMA) are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payments dates regardless of whether or not the mortgagor actually makes the payment. Any discount enjoyed on the purchases of a pass-through type mortgage-backed security will likely constitute market discount. As a Series receives principal payments, it will be required to treat as ordinary income an amount equal to the lesser of the amount of the payment or the "accrued market discount." Market discount is to be accrued either under a constant rate method or a proportional method. Pass-through type mortgage-backed securities purchased at a premium to face will be subject to a similar rule requiring recognition of an offset to ordinary interest income, an amount of premium attributable to the receipt of principal. The amount of premium recovered is to be determined using a method similar to that in place for market discount. A Series may elect to accrue market discount or amortize premium notwithstanding the amount of principal received but such election will apply to all bonds held and thereafter acquired unless permission is granted by the Commissioner of the Internal Revenue Service to change such method. The principal governmental guarantor of mortgage-related securities is GAMA, which is a wholly-owned U. S. government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) 14 and backed by pools of mortgages which are insured by the Federal Housing Authority or guaranteed by the Veterans Administration. These guarantees, however, do not apply to the market value or yield of mortgage-backed securities or to the value of Series shares. Also, GNMA securities often are purchased at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and should be viewed as an economic offset to interest to be earned. If prepayments occur, less interest will be earned and the value of the premium paid will be lost. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. government) include FNMA and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation of the Secretary of Housing and Urban Development. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. government. FHLMC is a corporate instrumentality of the U.S. government and was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. government. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass- through pools of conventional mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non- governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance guarantees are issued by governmental entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets a Series' investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee or guarantees, even if through an examination of the loan experience and practices of the originators/servicers and poolers, the Advisor determines that the securities meet the Series' quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE INVESTMENT - -------------------------------------------------------------------------------- CONDUITS ("REMICS") - ------------------- A CMO is a debt security on which interest and prepaid principal are paid, in most cases, semi-annually. CMOs may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA and their income streams. Privately-issued CMOs tend to be more sensitive to interest rates than Government-issued CMOs. CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payments of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially guarded against a sooner than desired return of principal because of the sequential payments. In a typical CMO transaction, a corporation issues multiple series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a third party trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B and C Bonds all bear current interest. Interest 15 on the Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bond currently being paid off. When the Series A, B and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios. REMICs are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities. Most if not all newly-issued debt securities backed by pools of real estate mortgages will be issued as regular and residual interests in REMICs because, as of January 1, 1992, new CMOs which do not make REMIC elections will be treated as "taxable mortgage pools," a wholly undesirable tax result. Under certain transition rules, CMOs in existence on December 31, 1991 are unaffected by this change. The Series will purchase only regular interests in REMICs. REMIC regular interests are treated as debt of the REMIC and income/discount thereon must be accounted for on the "catch-up method," using a reasonable prepayment assumption under the original issue discount rules of the Code. CMOs and REMICs issued by private entities are not government securities and are not directly guaranteed by any government agency. They are secured by the underlying collateral of the private issuer. Yields on privately-issued CMOs, as described above, have been historically higher than yields on CMOs issued or guaranteed by U.S. government agencies. However, the risk of loss due to default on such instruments is higher since they are not guaranteed by the U.S. government. Such instruments also tend to be more sensitive to interest rates than U.S. government-issued CMOs. The Series will not invest in subordinated privately-issued CMOs. For federal income tax purposes, the Series will be required to accrue income on CMOs and REMIC regular interests using the "catch- up" method, with an aggregate prepayment assumption. OTHER MORTGAGE-BACKED SECURITIES - -------------------------------- The Advisor expects that governmental, government-related or private entities may create mortgage loan pools and other mortgage-related securities offering mortgage pass-through and mortgage-collateralized investments in addition to those described above. The mortgages underlying these securities may include alternative mortgage instruments, that is, mortgage instruments whose principal or interest payments may vary or whose terms to maturity may differ from customary long-term fixed rate mortgages. As new types of mortgage-related securities are developed and offered to investors, the Advisor will, consistent with a Series' investment objective, policies and quality standards, consider making investments in such new types of mortgage-related securities. The Advisor will not purchase any such other mortgage-backed securities until the Series' Prospectuses and this Statement of Additional Information have been supplemented. ASSET-BACKED SECURITIES - ----------------------- The Series may invest a portion of its assets in debt obligations known as "asset-backed securities." Asset-backed securities are securities that represent a participation in, or are secured by and payable from, a stream of payments generated by particular assets, most often a pool or pools of similar assets (e.g., receivables on home equity and credit loans and receivables regarding automobile, credit card, mobile home and recreational vehicle loans, wholesale dealer floor plans and leases). Such receivables are securitized in either a pass-through or a pay-through structure. Pass-through securities provide investors with an income stream consisting of both principal and interest payments in respect of the receivables in the underlying pool. Pay-through asset-backed securities are debt obligations issued usually by a special purpose entity, which are collateralized by the various receivables and in which the payments on the underlying receivables provide that the Series pay the debt service on the debt obligations issued. The Series may invest in these and other types of asset-backed securities that may be developed in the future. The credit quality of these securities depends primarily upon the quality of the underlying assets and the level of credit support and/or enhancement provided. Such asset-backed securities are subject to the same prepayment risks as mortgage-backed securities. For federal income tax purposes, the Series will be required to accrue income on pay-through asset-backed securities using the "catch-up" method, with an aggregate prepayment assumption. 16 The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit support provided to the securities. The rate of principal payment on asset-backed securities generally depends on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any asset-backed security is difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Asset-backed securities may be classified as "pass-through certificates" or "collateralized obligations." Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payment, such securities may contain elements of credit support. Such credit support falls into two categories: (i) liquidity protection; and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments due on the underlying pool is timely. Protection against losses resulting from ultimate default enhances the likelihood of payments of the obligations on at least some of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Series will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security. Due to the shorter maturity of the collateral backing such securities, there is less of a risk of substantial prepayment than with mortgage-backed securities. Such asset-backed securities do, however, involve certain risks not associated with mortgage-backed securities, including the risk that security interests cannot be adequately, or in many cases, ever, established. In addition, with respect to credit card receivables, a number of state and federal consumer credit laws give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the outstanding balance. In the case of automobile receivables, there is a risk that the holders may not have either a proper or first security interest in all of the obligations backing such receivables due to the large number of vehicles involved in a typical issuance and technical requirements under state laws. Therefore, recoveries on repossessed collateral may not always be available to support payments on the securities. Examples of credit support arising out of the structure of the transaction include "senior-subordinated securities" (multiple class securities with one or more classes subordinate to other classes as to the payment of principal thereof and interest thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class), creation of "reserve funds" (where cash or investments, sometimes funded from a portion of the payments on the underlying assets, are held in reserve against future losses) and "over collateralization" (where the scheduled payments on, or the principal amount of, the underlying assets exceeds that required to make payments of the securities and pay any servicing or other fees). The degree of credit support provided for each issue is generally based on historical information respecting the level of credit information respecting the level of credit risk associated with the underlying assets. Delinquencies or losses in excess of those anticipated could adversely affect the return on an investment in such issue. ZERO COUPON AND DELAYED INTEREST SECURITIES - ------------------------------------------- The Series may invest in zero coupon or delayed interest securities which pay no cash income until maturity or a specified date when the securities begin paying current interest (the "cash payment date") and are sold at substantial discounts from their value at maturity. When held to maturity or cash payment date, the entire income of such securities, which consists of accretion of discount, comes from the difference between the purchase price and their value at maturity or cash payment date. The discount varies depending on the time remaining until maturity or cash payment date, prevailing interest rates, liquidity of the security and the perceived credit quality of the issuer. The discount, in the absence of financial difficulties of the issuer, decreases as the final maturity or cash payment date of the security approaches. The market prices of zero coupon and delayed interest securities are generally more volatile and more likely to respond to changes in interest rates than the market prices of securities having similar maturities and credit qualities that pay interest periodically. Current federal income tax law requires that a holder of a zero coupon security report as income each year the portion of the original issue discount on such security (other than tax-exempt original issue discount from a zero coupon security) that accrues that year, even though the holder receives no cash payments of interest during the year. The Series will be required to distribute such income to shareholders to comply with Subchapter M of the Code and avoid excise taxes, even though the Series have not received any cash from the issue. 17 Zero coupon securities are subject to greater market value fluctuations from changing interest rates than debt obligations of comparable maturities which make current distributions of interest (cash). Zero coupon convertible securities offer the opportunity for capital appreciation as increases (or decreases) in market value of such securities closely follow the movements in the market value of the underlying common stock. Zero coupon convertible securities generally are expected to be less volatile than the underlying common stocks as they usually are issued with short maturities (15 years or less) and are issued with options and/or redemption features exercisable by the holder of the obligation entitling the holder to redeem the obligation and receive a defined cash payment. Zero coupon securities include securities issued directly by the U.S. Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons and receipts for their underlying principal ("coupons") which have been separated by their holder, typically a custodian bank or investment brokerage firm. A holder will separate the interest coupons from the underlying principal (the "corpus") of the U.S. Treasury security. A number of securities firms and banks have stripped the interest coupons and receipts and then resold them in custodial receipt programs with a number of different names, including "Treasury Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in book-entry form at the Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered securities which are owned ostensibly by the bearer or holder thereof), in trust on behalf of the owners thereof. Counsel to the underwriters of these certificates or other evidences of ownership of the U.S. Treasury securities has stated that for federal tax and securities purposes, in its opinion, purchasers of such certificates, such as the Series, most likely will be deemed the beneficial holder of the underlying U.S. government securities. The Series understand that the staff of the SEC no longer considers such privately stripped obligations to be U.S. government securities, as defined in the Act; therefore, the Series intends to adhere to this staff position and will not treat such privately stripped obligations to be U.S. government securities for the purpose of determining if the Series is "diversified," or for any other purpose, under the Act. The U.S. Treasury has facilitated transfers of ownership of zero coupon securities by accounting separately for the beneficial ownership of particular interest coupon and corpus payments on Treasury securities through the Federal Reserve book-entry record-keeping system. The Federal Reserve program as established by the U.S. Treasury Department is known as "STRIPS" or "Separate Trading of Registered Interest and Principal of Securities." Under the STRIPS program, a Series will be able to have its beneficial ownership of zero coupon securities recorded directly in the book-entry record-keeping system in lieu of having to hold certificates or other evidences of ownership of the underlying U.S. Treasury securities. When U.S. Treasury obligations have been stripped of their unmatured interest coupons by the holder, the principal or corpus is sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest (cash) payments. Once stripped or separated, the corpus and coupons may be sold separately. Typically, the coupons are sold separately or grouped with other coupons with like maturity dates and sold in such bundled form. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the zero coupon securities that the U.S. Treasury sells itself. These stripped securities are also treated as zero coupon securities with original issue discount for tax purposes. INVESTMENTS RELATING TO THE GLOBAL FUND EMERGING MARKETS INVESTMENTS (Global Fund only). - ---------------------------- The Series may invest up to 10% of its assets in equity and debt securities of emerging market issuers, or securities with respect to which the return is derived from the equity or debt securities of issuers in emerging markets. The Series may invest in equity securities of issuers in emerging markets, or securities with respect to which the return is derived from the equity securities of issuers in emerging markets. The Series also may invest in fixed income securities of emerging market issuers, including government and government-related entities (including participation in loans between governments and financial institutions), and of entities organized to restructure outstanding debt of such issuers. The Series also may invest in debt securities of corporate issuers in developing countries. The Series' investments in emerging market government and government-related securities may consist of (i) debt securities or obligations issued or guaranteed by governments, governmental agencies or instrumentalities and political subdivisions located in emerging countries (including participation in loans between governments and financial 18 institutions), (ii) debt securities or obligations issued by government owned, controlled or sponsored entities located in emerging countries and (iii) interests in issuers organized and operated for the purpose of restructuring the investment characteristics of instruments issued by any of the entities described above. The Series' investments in the fixed income securities of emerging market issuers may include investments in Brady Bonds, Structured Securities, Loan Participation and Assignments (as such capitalized terms are defined below), and certain non-publicly traded securities. Brady Bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (but primarily the U.S. dollar), and are actively traded in over-the-counter secondary markets. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the bonds. Structured Securities are issued by entities organized and operated solely for the purpose of restructuring the investment characteristics of sovereign debt obligations. This type of restructuring involves the deposit with, or purchase by, an entity, such as a corporation or trust, of specified instruments (such as commercial bank loans or Brady Bonds) and the issuance by that entity of one or more classes of securities ("Structured Securities") backed by, or representing interests in, the underlying instruments. The Series may invest in fixed rate and floating rate loans ("Loans") arranged through private negotiations between an issuer of sovereign debt obligations and one or more financial institutions ("Lenders"). The Series' investments in Loans are expected in most instances to be in the form of a participation in loans ("Participation") and assignments of all or a portion of Loans ("Assignments") from third parties. The Series will have the right to receive payments of principal, interest and any fees to which they are entitled only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In the event of the insolvency of the Lender selling a Participation, the Series may be treated as a general creditor of the Lender and may not benefit from any set-off between the Lender and the borrower. When a Series purchases Assignments from Lenders, it will acquire direct rights against the borrower on the Loan. However, because Assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Series as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender. The Series also may invest in securities that are neither listed on a stock exchange nor traded over-the-counter, including privately placed securities and limited partnerships. Investing in such unlisted emerging market equity securities, including investments in new and early stage companies, may involve a high degree of business and financial risk that can result in substantial losses. As a result of the absence of a public trading market for these securities, they may be less liquid than publicly traded securities. The Series' investments in emerging market securities will at all times be limited by the Series' prohibition on investing more than 15% of its net assets in illiquid securities. RISKS OF INVESTING IN EMERGING MARKETS - -------------------------------------- Compared to the United States and other developed countries, emerging countries may have relatively unstable governments, economies based on only a few industries, and securities markets that trade only a small number of securities and employ settlement procedures different from those used in the United States. Prices on these exchanges tend to be volatile and, in the past, securities in these countries have offered greater potential for gain (as well as loss) than securities of companies located in developed countries. Further, investments by foreign investors are subject to a variety of restrictions in many emerging countries. Countries such as those in which the Series may invest have historically experienced and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations or currency depreciation, large amounts of external debt, balance of payments and trade difficulties and 19 extreme poverty and unemployment. Additional factors which may influence the ability or willingness to service debt include, but are not limited to, a country's cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the relative size of its debt service burden to the economy as a whole, its government's policy towards the International Monetary Fund, the World Bank and other international agencies and the political constraints to which a government debtor may be subject. The ability of a foreign government or government-related issuer to make timely and ultimate payments on its external debt obligations will be strongly influenced by the issuer's balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and the extent of its foreign reserves. A country whose exports are concentrated in a few commodities or whose economy depends on certain strategic imports could be vulnerable to fluctuations in international prices of these commodities or imports. To the extent that a country receives payment for its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected. If a foreign government or government-related issuer cannot generate sufficient earnings from foreign trade to service its external debt, it may need to depend on continuing loans and aid from foreign governments, commercial banks, and multilateral organizations, and inflows of foreign investment. The commitment on the part of these foreign governments, multilateral organizations and others to make such disbursements may be conditioned on the government's implementation of economic reforms and/or economic performance and the timely service of its obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may curtail the willingness of such third parties to lend funds, which may further impair the issuer's ability or willingness to service its debts in a timely manner. The cost of servicing external debt will also generally be adversely affected by rising international interest rates, because many external debt obligations bear interest at rates which are adjusted based upon international interest rates. The ability to service external debt will also depend on the level of the relevant government's international currency reserves and its access to foreign exchange. Currency devaluations may affect the ability of a governmental issuer to obtain sufficient foreign exchange to service its external debt. As a result of the foregoing, a governmental issuer may default on its obligations. If such a default occurs, the Series may have limited effective legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts of the defaulting country itself, and the ability of the holder of foreign government and government-related debt securities to obtain recourse may be subject to the political climate in the relevant country. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of other foreign government and government-related debt obligations in the event of default under their commercial bank loan agreements. The issuers of the government and government-related debt securities in which the Series expects to invest have in the past experienced substantial difficulties in servicing their external debt obligations, which has led to defaults on certain obligations and the restructuring of certain indebtedness. Restructuring arrangements have included, among other things, reducing and rescheduling interest and principal payments by negotiating new or amended credit agreements or converting outstanding principal and unpaid interest to Brady Bonds, and obtaining new credit to finance interest payments. Holders of certain foreign government and government-related debt securities may be requested to participate in the restructuring of such obligations and to extend further loans to their issuers. There can be no assurance that the Brady Bonds and other foreign government and government-related debt securities in which the Series may invest will not be subject to similar defaults or restructuring arrangements which may adversely affect the value of such investments. Furthermore, certain participants in the secondary market for such debt may be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other market participants. Payments to holders of the high yield, high risk, foreign debt securities in which the Series may invest may be subject to foreign withholding and other taxes. Although the holders of foreign government and government-related debt securities may be entitled to tax gross-up payments from the issuers of such instruments, there is no assurance that such payments will be made. INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES - ---------------------------------------------- The Series may invest in securities issued by other registered investment companies advised by Brinson Partners 20 pursuant to exemptive relief granted by the SEC. Currently, the Global Fund is the only Series of the Trust that intends to invest in portfolios of Brinson Relationship Funds, another investment company which is advised by Brinson Partners, and only to the extent consistent with the Advisor's investment process of allocating assets to specific asset classes. The Global Fund will invest in corresponding portfolios of Brinson Relationship Funds only to the extent that the Advisor determines that such investments are a more efficient means for the Global Fund to gain exposure to the asset classes referred to below than by investing directly in individual securities. To gain exposure to equity and fixed income securities of issuers located in emerging market countries, the Global Fund may invest that portion of its assets allocated to emerging markets investments in the Brinson Emerging Markets Equity Fund portfolio and the Brinson Emerging Markets Debt Fund portfolio of Brinson Relationship Funds. The investment objective of the Brinson Emerging Markets Equity Fund and the Brinson Emerging Markets Debt Fund is to maximize total U.S. dollar return, consisting of capital appreciation and current income, while controlling risk. Under normal circumstances, at least 65% of the total assets of the Brinson Emerging Markets Equity Fund is invested in the equity securities of issuers in emerging markets or securities with respect to which the return is derived from the equity securities of issuers in emerging markets. At least 65% of the total assets of the Brinson Emerging Markets Debt Fund is invested in the debt securities issued by governments, government-related entities (including participations in loans between governments and financial institutions), corporations and entities organized to restructure outstanding debt of issuers in emerging markets, or debt securities the return on which is derived primarily from other emerging markets instruments. The Brinson Emerging Markets Equity Fund and Brinson Emerging Markets Debt Fund are permitted to invest in the same types of securities as the Global Fund may invest in directly. In lieu of investing directly in certain high yield, higher risk securities, the Global Fund may invest a portion of its assets in the Brinson High Yield Fund portfolio (the "High Yield Fund") of Brinson Relationship Funds. The investment objective of the High Yield Fund is to maximize total U.S. dollar return, consisting of capital appreciation and current income, while controlling risk. The High Yield Fund maintains a high yield portfolio and as such, at least 65% of its assets are invested in high yield securities. The Global Fund currently intends to limit its investment in non-investment grade debt securities to no more than 5% of its net assets. Any investment in the High Yield Fund will be considered within this limitation. In lieu of investing directly in equity securities issued by companies with relatively small overall market capitalizations, the Global Fund may invest a portion of its assets in the Brinson Post-Venture Fund (the "Post-Venture Fund") portfolio of Brinson Relationship Funds. The investment objective of the Post- Venture Fund is to maximize total U.S. dollar return, consisting of capital appreciation and current income, while controlling risk. The Post-Venture Fund invests primarily in publicly- traded companies representing the lower 5% of the Wilshire 5000 Index, and, as such, at least 65% of its assets are invested in small capitalization equity securities. Each portfolio of Brinson Relationship Funds in which the Global Fund may invest is permitted to invest in the same securities of a particular asset class in which the Global Fund is permitted to invest directly, and with similar risks. Pursuant to undertakings with the SEC, the Global Fund will not be subject to the imposition of double management or administration fees with respect to its investments in Brinson Relationship Funds. INVESTMENT RESTRICTIONS The investment restrictions set forth below are fundamental policies and may not be changed as to a Series, without the approval of a majority of the outstanding voting securities (as defined in the Act) of the Series. Unless otherwise indicated, all percentage limitations listed below apply to the Series only at the time of the transaction. Accordingly, if a percentage restriction is adhered to at the time of investment, a later increase or decrease in the percentage which results from a relative change in values or from a change in a Series' total assets will not be considered a violation. Except as set forth under "Investment Objectives and Policies" and "Investment Considerations and Risks" in each Prospectus, or "Investment Strategies" in this Statement of Additional Information, each Series may not: (i) As to 75% of the total assets of each Series, purchase the securities of any one issuer, other than securities issued by the U.S. government or its agencies or instrumentalities, if 21 immediately after such purchase more than 5% of the value of the total assets of a Series would be invested in securities of such issuer (this does not apply to the Global Bond Fund); (ii) Invest in real estate or interests in real estate (This will not prevent a Series from investing in publicly-held real estate investment trusts or marketable securities of companies which may represent indirect interests in real estate.), interests in oil, gas and/or mineral exploration or development programs or leases; (iii) Purchase or sell commodities or commodity contracts, but may enter into futures contracts and options thereon in accordance with its Prospectus. Additionally, each Series may engage in forward foreign currency contracts for hedging and non-hedging purposes; (iv) Make investments in securities for the purpose of exercising control over or management of the issuer; (v) Purchase the securities of any one issuer if, immediately after such purchase, a Series would own more than 10% of the outstanding voting securities of such issuer; (vi) Sell securities short or purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions. For this purpose, the deposit or payment by a Series for initial or maintenance margin in connection with futures contracts is not considered to be the purchase or sale of a security on margin; (vii) Make loans, except that this restriction shall not prohibit (a) the purchase and holding of a portion of an issue of publicly distributed or privately placed debt securities, (b) the lending of portfolio securities, or (c) entry into repurchase agreements with banks or broker-dealers; (viii) Borrow money in excess of 33 1/3% of the value of its assets except as a temporary measure for extraordinary or emergency purposes to facilitate redemptions or issue senior securities. All borrowings will be done from a bank and to the extent that such borrowing exceeds 5% of the value of a Series' assets, asset coverage of at least 300% is required. A Series will not purchase securities when borrowings exceed 5% of that Series' total assets; (ix) Purchase the securities of issuers conducting their principal business activities in the same industry, other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, if immediately after such purchase, the value of a Series' investments in such industry would exceed 25% of the value of the total assets of the Series across several countries; (x) Act as an underwriter of securities, except that, in connection with the disposition of a security, a Series may be deemed to be an "underwriter" as that term is defined in the Securities Act of 1933; (xi) Invest in securities of any open-end investment company, except that (i) a Series may purchase securities of money market mutual funds, (ii) the Global Fund and Global Equity Fund may each invest in the securities of closed-end investment companies at customary brokerage commission rates in accordance with the limitations imposed by the Act and the rules thereunder, and (iii) in accordance with any exemptive order obtained from the SEC which permits investment by a Series in other Series or other investment companies or series thereof advised by the Advisor. In addition, each Series may acquire securities of other investment companies if the securities are acquired pursuant to a merger, consolidation, acquisition, plan of reorganization or a SEC approved offer of exchange; (xii) Invest in puts, calls, straddles or combinations thereof except to the extent disclosed in a Series' Prospectus; and 22 (xiii) Invest more than 5% of its total assets in securities of companies less than three years old. Such three year periods shall include the operation of any predecessor company or companies. MANAGEMENT OF THE TRUST TRUSTEES AND OFFICERS
POSITION WITH NAME AND ADDRESS AGE THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ---------------- --- --------- ------------------------------------------- Walter E. Auch 76 Trustee Retired; formerly Chairman and CEO of Chicago Board of 6001 N. 62nd Place Options Exchange (1979-1986); Trustee of the Trust since Paradise Valley, AZ May, 1994; Trustee, Brinson Relationship Funds since 85253 December, 1994; Director, Thomsen Asset Management Corp. since 1987; Director, Fort Dearborn Income Securities, Inc. 1987 to 1995; Director, Geotek Industries, Inc. since 1989; Director, Smith Barney VIP Fund since 1991; Director, SB Advisers since 1992; Director, SB Trak since 1992; Director, Banyan Realty Trust since 1987; Director, Banyan Land Fund II since 1988; Director, Banyan Mortgage Investment Fund since 1989; and Director, Express America Holdings Corp. since 1992, and Nicholas/Applegate, Legend Properties, Inc. Frank K. Reilly 61 Chairman and Professor, University of Notre Dame since 1982; Trustee College of Business Trustee of the Trust since December, 1993; Trustee, Brinson Administration Relationship Funds since September, 1994; Director of The University of Brinson Funds, Inc. 1992-1993; Trustee, Brinson Trust Notre Dame Company, 1992-July, 1993; Director, Fort Dearborn 208 Hurley Building Income Securities, Inc. since 1993; Director, First Interstate Notre Dame, IN 46556 Bank of Wisconsin from January, 1989 through March, 1990; Director, Greenwood Trust Company since 1993; and Director, Dean Witter Trust, FSB, since 1996. Edward M. Roob 62 Trustee Retired; prior thereto, Senior Vice President, Daiwa 841 Woodbine Lane Securities America Inc. (1986-1993); Trustee of the Trust Northbrook, IL 60002 since January, 1995; Trustee, Brinson Relationship Funds since January 1995; Director, Fort Dearborn Income Securities, Inc. since 1993; Director, Brinson Trust Company since 1993; Committee Member, Chicago Stock Exchange since 1993; Member of Board of Governors, Midwest Stock Exchange (1987-1991).
23 OTHER OFFICERS
POSITION WITH THE OFFICER NAME AGE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ---- --- -------- ------- ----------------------------------------------------- E. Thomas McFarlan 53 President 1993 Managing Partner, Brinson Partners, Inc. since 1991; and President and Director of The Brinson Funds, Inc. 1992- Treasurer 1993; Trustee, Brinson Trust Company since 1991; prior thereto, Executive Vice President of Washington Mutual Savings Bank. Bruce G. Leto 35 Secretary 1995 Partner, Stradley, Ronon, Stevens & Young, LLP since 1994; prior thereto, Senior Associate. Thomas J. Digenan 33 Assistant 1993 Partner, Brinson Partners, Inc. since 1993; Assistant Treasurer Secretary The Brinson Funds, Inc. 1993 - 1995; prior thereto, Senior Manager, KPMG Peat Marwick. Debra L. Nichols 31 Assistant 1993 Partner, Brinson Partners, Inc. since 1995; Associate, Secretary Brinson Partners, Inc. from 1991 to 1995; Assistant Secretary, The Brinson Funds, Inc. 1992-1993; prior thereto, private investor. Catherine E. Macrae 39 Assistant 1995 Associate, Brinson Partners, Inc, since 1992; prior thereto, Secretary Economic Analyst, Chicago Mercantile Exchange. Carolyn M. Burke 30 Assistant 1995 Partner, Brinson Partners, Inc., since January 1977; Secretary prior thereto, Associate, Brinson Partners, Inc. from 1995 to 1997; Financial Analyst, Van Kampen American Capital Investment Advisory Corp. 1992-1995; Senior Accountant, KPMG Peat Marwick 1989-1992.
COMPENSATION TABLE TRUSTEES AND OFFICERS
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FROM TRUST FOR FISCAL YEAR TRUST AND FUND COMPLEX NAME AND POSITION HELD ENDED JUNE 30, 1996 PAID TO TRUSTEES/1/ - ---------------------- -------------------------- ----------------------- Walter E. Auch, Trustee $12,600 $26,200 6001 N. 62nd Place Paradise Valley, AZ 85253 Frank K. Reilly, Trustee $12,600 $23,700 College of Business Administration University of Notre Dame 208 Hurley Building Notre Dame, IN 46556 Edward M. Roob, Trustee $12,600 $26,200 841 Woodbine Lane Northbrook, IL 60002
/1/ This amount represents the aggregate amount of compensation paid to the Trustees for (a) service on the Board of Trustees for the Trust's most recently completed fiscal year; and (b) service on the Board of Directors of two other investment companies managed by Brinson Partners for the calendar year ending December 31, 1995. 24 No officer or Trustee of the Trust who is also an officer or employee of Brinson Partners receives any compensation from the Trust for services to the Trust. The Trust pays each Trustee who is not affiliated with Brinson Partners a fee of $6,000 per year, plus $300 per Series per meeting, and reimburses each Trustee and officer for out-of-pocket expenses in connection with travel and attendance at Board meetings. The Board of Trustees has an Audit Committee which has the responsibility, among other things, to (i) recommend the selection of the Trust's independent auditors, (ii) review and approve the scope of the independent auditors' audit activity, (iii) review the financial statements which are the subject of the independent auditors' certification, and (iv) review with such independent auditors the adequacy of the Series' basic accounting system and the effectiveness of the Series' internal accounting controls. The Audit Committee met once during the fiscal year ended June 30, 1996. There is no separate nominating or investment committee. Items pertaining to these committees are submitted to the full Board of Trustees. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of April 8, 1997, the officers and Trustees, as a group, owned beneficially 138,077.809 outstanding voting shares of the Global Fund, 3,736.560 shares of the Global Bond Fund and 1,937.142 shares of the U.S. Equity Fund, which in the aggregate amount to 2,078,956.369 shares of the Trust. As of April 8, 1997, the following persons owned of record or beneficially more than 5% of the outstanding voting shares of the Brinson Fund class, SwissKey Fund class or the Series, as applicable: GLOBAL FUND
Percentage of Percentage of Name & Address of Beneficial Owners Class Series - ----------------------------------- ------------- ------------- BRINSON FUND CLASS - ------------------ First Alabama Bank 10.95% 10.51% Mobile, AL Polk Bros. Foundation 7.50% 7.20% Evanston, IL NationsBank of Georgia NA Trustee 6.80% 6.53% Dallas, TX Northern Trust Company 5.08% ----- Chicago, IL SWISSKEY FUND CLASS - ------------------- *Swiss Bank Corporation 76.20% ----- New York, NY
25 GLOBAL EQUITY FUND
Percentage of Percentage of Name & Address of Beneficial Owners Class Series - ----------------------------------- ------------- ------------- BRINSON FUND CLASS - ------------------ *+United States Japan Foundation 76.78% 35.63% New York, NY Wachovia Bank of North Carolina Winston Salem, NC 9.45% ----- SWISSKEY FUND CLASS - ------------------- *Swiss Bank Corporation 40.84% 21.88% New York, NY Schweizerischer Bankverin Zurich, Switzerland 23.40% 12.54% GLOBAL BOND FUND BRINSON FUND CLASS - ------------------ *+Baptist Health Systems, Inc. 33.06% 30.35% Birmingham, AL *Munson Williams Proctor Institute 25.62% 23.53% Utica, NY Charles Schwab & Co. 9.47% 8.70% San Francisco, CA Ripon College 9.06% 8.32% Ripon, WI Wilmington Trust Co. Wilmington, DE 8.46% 7.77% SWISSKEY FUND CLASS - ------------------- *Swiss Bank Corporation 59.99% ----- New York, NY Schweizerischer Bankverein 7.65% ----- Zurich, Switzerland U.S. BALANCED FUND BRINSON FUND CLASS - ------------------ *+Bankers Trust Co. 74.29% 73.83% Jersey City, NJ MAC & Co. 11.78% 11.71% Pittsburgh, PA Mitra & Co 5.81% 5.78% Milwaukee, WI SWISSKEY FUND CLASS - ------------------- *Swiss Bank Corp. 48.63% ----- New York, NY *Blush & Co. New York, NY 28.99% -----
26
Percentage of Percentage of Name & Address of Beneficial Owners Class Series - ----------------------------------- ------------- ------------- SWISSKEY FUND CLASS (CON'T) - ------------------- Schweizerischer Bankverien 12.29% ----- Zurich, Switzerland Schweizerischer Bankverien 7.26% ----- Zurich, Switzerland U.S. EQUITY FUND BRINSON FUND CLASS - ------------------ Wachovia Bank Trust-Swiss Bank Corp. 24.42% 22.15% Winston Salem, NC Wachovia Bank Trust 10.37% 9.41% Winston Salem, NC Charles Schwab & Co. 6.45% 5.86% San Francisco, CA American Institute of Physics 5.20% ----- College Park, MD SWISSKEY FUND CLASS - ------------------- *Schweizerischer Bankverien 37.92% ----- Zurich, Switzerland *Schweizerischer Bankverien 28.12% ----- Zurich, Switzerland Swiss Bank Corporation 17.18% ----- New York, NY Fox & Co. 14.43% ----- New York, NY U.S. BOND FUND BRINSON FUND CLASS - ------------------ *+Wachovia Bank of North Carolina 40.64% 38.22% Winston Salem, NC *+Lafayette College Endowment 30.86% 29.02% F M Kirby Easton, PA Lafayette College Endowment 11.86% 11.15% Easton, PA Lafayette College Endowment 8.53% 8.03% A P Kirby Easton, PA
27
Percentage of Percentage of Name & Address of Beneficial Owners Class Series - ----------------------------------- ------------- ------------- SwissKey Fund Class ------------------- *Schweizerischer Bankverien 40.54% ------ Zurich, Switzerland *Schweizerischer Bankverien 36.17% ------ Zurich, Switzerland Swiss Bank Corp. 18.68% ------ New York, NY Non U.S. Equity Fund Brinson Fund Class ------------------ *Northern Trust 27.33% 26.92% Chicago, IL SwissKey Fund Class ------------------- *Schweizerischer Bankverien 59.90% ------ Zurich, Switzerland Schweizerischer Bankverien* 28.56% ------ Zurich, Switzerland Blush & Co. 5.54% ------ New York, NY
* Person deemed to control the class within the meaning of the Act. Note that such persons possess the ability to control the outcome of matters submitted for the vote of shareholders of that class. + Person deemed to control the Series within the meaning of the Act. Note that such persons possess the ability to control the outcome of matters submitted for the vote of shareholders of that Series. As of April 8, 1997, the following persons owned of record or beneficially more than 5% of the outstanding voting shares of the Trust: Name & Address of Beneficial Owners Percentage of Trust - ----------------------------------- ------------------- Bankers Trust Co. 12.40% Jersey City, NJ Northern Trust 6.63% Chicago, IL INVESTMENT ADVISORY AND OTHER SERVICES ADVISOR - ------- Brinson Partners, a Delaware corporation, is an investment management firm managing, as of December 31, 1996, approximately $119 billion, primarily for institutional pension and profit sharing funds. Brinson Partners was organized in 1989 when it acquired the institutional asset management business of The First National Bank of Chicago and First 28 Chicago Investment Advisors, N.A. Brinson Partners and its predecessor entities have managed domestic and international investment assets since 1974 and global investment assets since 1982. Brinson Partners has offices in Basel, London, Melbourne, New York, Paris, Singapore, Sydney and Tokyo, in addition to its principal office at 209 South LaSalle Street, Chicago, IL 60604-1295. Brinson Partners is an indirect wholly-owned subsidiary of Swiss Bank Corporation ("Swiss Bank"). Swiss Bank, with headquarters in Basel, Switzerland, is an internationally diversified organization with operations in many aspects of the financial services industry. Brinson Partners also serves as the investment advisor to nine other investment companies: Brinson Relationship Funds, which includes six investment portfolios (series); Enterprise Accumulation Trust; Enterprise International Growth Portfolio; Fort Dearborn Income Securities, Inc.; The Hirtle Callaghan International Trust - International Equity Portfolio; John Hancock Variable Series Trust I - International Balanced Fund; Managed Account Services Portfolio Trust - Pace Large Company Value Equity Investments. Pursuant to its investment advisory agreements (the "Agreements") with the Trust, on behalf of each Series, Brinson Partners receives from each Series a monthly fee at an annual rate (as described in each Series' Prospectus and below) multiplied by the average daily net assets of that Series for providing investment advisory services. Brinson Partners is responsible for paying its expenses. Under the Agreements, each Series pays the following expenses: (1) the fees and expenses of the Trust's disinterested Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with Brinson Partners; (3) interest expenses; (4) taxes and governmental fees; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) auditing and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's custodian, administrative and transfer agent and any related services; (10) expenses of obtaining quotations of the Series' portfolio securities and of pricing the Series' shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of reports, proxies and prospectuses; and (13) fees and expenses of membership in industry organizations. Under the Agreements, the Advisor is entitled to a monthly fee of the respective Series' average daily net assets as follows: annual rates of 0.80% for the Global Fund, Global Equity Fund and Non-U.S. Equity Fund; 0.75% for the Global Bond Fund; 0.70% for the U.S. Balanced Fund and U.S. Equity Fund; and 0.50% for the U.S. Bond Fund. The Advisor has agreed irrevocably to waive its fees and reimburse expenses to the extent that total operating expenses exceed the following rates of the respective Series' average daily net assets as follows, without regard to 12b-1 Plan expenses for the SwissKey Fund class or the Brinson - Class N of each Series: 1.10% for the Global Fund; 1.00% for the Global Equity Fund and the Non-U.S. Equity Fund; 0.90% for the Global Bond Fund; 0.80% for the U.S. Balanced Fund and the U.S. Equity Fund; and 0.60% for the U.S. Bond Fund. Advisory fees accrued to Brinson Partners were as follows:
A. FISCAL YEAR ENDED JUNE 30, 1994* - ------------------------------------------------------------------------------------------- SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR - ------------------------------------------------------------------------------------------- GLOBAL FUND $1,951,309 $1,860,397 $ 30,946 - ------------------------------------------------------------------------------------------- GLOBAL EQUITY FUND $ 68,151 $ 0.00 $ 82,834 - ------------------------------------------------------------------------------------------- GLOBAL BOND FUND $ 189,136 $ 0.00 $149,667 - ------------------------------------------------------------------------------------------- U.S. BALANCED FUND NA NA NA - ------------------------------------------------------------------------------------------- U.S. EQUITY FUND $ 14,819 $ 0.00 $ 63,834 - ------------------------------------------------------------------------------------------- U.S. BOND FUND NA NA NA - ------------------------------------------------------------------------------------------- NON-U.S. EQUITY FUND $ 300,928 $ 74,698 $136,835 - -------------------------------------------------------------------------------------------
* The Global Equity Fund commenced investment operations on January 28, 1994; Global Bond Fund commenced investment operations on July 30, 1993; U.S. Balanced Fund commenced investment operations on December 30, 1994; U.S. Equity Fund commenced investment operations on February 22, 1994; U.S. Bond Fund commenced 29 investment operations on August 31, 1995; and Non-U.S. Equity Fund commenced investment operations on August 31, 1993.
B. FISCAL YEAR ENDED JUNE 30, 1995 - ------------------------------------------------------------------------------------------- SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR - ------------------------------------------------------------------------------------------- GLOBAL FUND $2,681,392 $2,681,392 $ 0.00 - ------------------------------------------------------------------------------------------- GLOBAL EQUITY FUND $ 163,038 $ 0.00 $216,658 - ------------------------------------------------------------------------------------------- GLOBAL BOND FUND $ 329,156 $ 95,216 $233,940 - ------------------------------------------------------------------------------------------- U.S. BALANCED FUND $ 441,419 $ 275,707 $165,712 - ------------------------------------------------------------------------------------------- U.S. EQUITY FUND $ 154,258 $ 0.00 $199,708 - ------------------------------------------------------------------------------------------- U.S. BOND FUND NA NA NA - ------------------------------------------------------------------------------------------- NON-U.S. EQUITY FUND $ 933,521 $ 666,061 $267,460 - -------------------------------------------------------------------------------------------
C. FISCAL YEAR ENDED JUNE 30, 1996 - ------------------------------------------------------------------------------------------- SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR - ------------------------------------------------------------------------------------------- GLOBAL FUND $3,415,057 $3,415,057 $ 0.00 - ------------------------------------------------------------------------------------------- GLOBAL EQUITY FUND $ 390,824 $ 12,198 $378,626 - ------------------------------------------------------------------------------------------- GLOBAL BOND FUND $ 310,066 $ 158 $309,908 - ------------------------------------------------------------------------------------------- U.S. BALANCED FUND $1,465,283 $1,015,531 $449,752 - ------------------------------------------------------------------------------------------- U.S. EQUITY FUND $ 638,063 $ 326,322 $311,741 - ------------------------------------------------------------------------------------------- U.S. BOND FUND $ 37,868 $ 0.00 $230,216 - ------------------------------------------------------------------------------------------- NON-U.S. EQUITY FUND $1,403,109 $1,050,199 $352,910 - -------------------------------------------------------------------------------------------
General expenses of the Trust (such as costs of maintaining corporate existence, legal fees, insurances, etc.) will be allocated among the Series in proportion to their relative net assets. Expenses which relate exclusively to a particular Series, such as certain registration fees, brokerage commissions and other portfolio expenses, will be borne directly by that Series. ADMINISTRATOR - ------------- Administrative, Accounting, Transfer Agency and Custodian Services Effective May 10, 1997, the Trust, on behalf of each Fund, has entered into a Multiple Services Agreement (the "Services Agreement") with Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn, New York 11201 ("MSTC"), pursuant to which MSTC is required to provide general administrative, accounting, portfolio valuation, transfer agency and custodian services to the Fund, including the coordination and monitoring of any third party service providers. Custody Services. MSTC provides custodian services for the securities and cash of the Fund. The custody fee schedule is based primarily on the net amount of assets held during the period for which payment is being made plus a per transaction fee for transactions during the period and out-of-pocket expenses. As authorized under the Services Agreement, MSTC has entered into a Mutual Funds Service Agreement (the "CGFSC Agreement") with Chase Global Funds Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank, under which CGFSC provides administrative, accounting, portfolio valuation and transfer agency services to the Fund. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts 02108-3913. Pursuant to the CGFSC Agreement, CGFSC provides: (1) administrative services, including providing the necessary office space, equipment and personnel to perform administrative and clerical services; preparing, filing and distributing proxy materials, periodic reports to Investors, registration statements and other documents; and responding to Investor inquiries; (2) accounting and portfolio valuation services, including the daily calculation of the Fund's net asset value and the preparation of certain financial statements; and (3) transfer agency services, including the maintenance of each Investor's account records, responding to Investors' inquiries concerning accounts, processing purchases and redemptions of the Fund's shares, acting as dividend and distribution disbursing agent and performing other service functions. Shareholder inquiries should be made to the transfer agent at 1-800-448-2430 (for the Brinson-Class N and Brinson-Class I) or 1-800-SWISSKEY (for The SwissKey Funds). Also as authorized under the Services Agreement, MSTC has entered into a sub-administration agreement (the "FDI Agreement") with Funds Distributor, Inc. ("FDI") under which FDI provides administrative assistance to the Fund with respect to (i) regulatory matters, including regulatory developments and examinations, (ii) all aspects of the Fund's day-to-day operations, (iii) office facilities, clerical and administrative services, and (iv) maintenance of books and records. FDI's business address is 60 State Street, Suite 1300, Boston, Massachusetts 02109. Pursuant to the CGFSC Agreement and the FDI Agreement, MSTC pays CGFSC and FDI, respectively, for the services that CGFSC and FDI provide to MSTC in fulfilling MSTC's obligations under the Services Agreement. Until May 9, 1997, FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406-0903 ("FPS"), provided certain administrative services to the Trust pursuant to an administration agreement (the "Administration Agreement"). 30 As compensation for services performed under the Administration Agreement, FPS received a fee payable monthly at an annual rate multiplied by the average daily net assets of the Trust. Administration fees paid to FPS were as follows:
- ------------------------------------------------------------------------------- SERIES FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 - ------------------------------------------------------------------------------- GLOBAL FUND $186,897 $211,243 $293,601 - ------------------------------------------------------------------------------- GLOBAL EQUITY FUND $ 6,064 $ 15,062 $ 32,468 - ------------------------------------------------------------------------------- GLOBAL BOND FUND $ 19,968 $ 28,889 $ 29,216 - ------------------------------------------------------------------------------- U.S. BALANCED FUND NA $ 39,523 $140,841 - ------------------------------------------------------------------------------- U.S. EQUITY FUND $ 3,482 $ 15,362 $ 58,286 - ------------------------------------------------------------------------------- U.S. BOND FUND NA NA $ 58,286 - ------------------------------------------------------------------------------- NON-U.S. EQUITY FUND $ 23,597 $ 72,350 $119,433 - -------------------------------------------------------------------------------
UNDERWRITER - ----------- Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, MA 02109, acts as an underwriter of the Series' continuous offer of shares for the purpose of facilitating the filing of notices regarding sale of the shares of the Series under state securities laws and to assist in sales of shares pursuant to an underwriting agreement (the "Underwriting Agreement") approved by the Board of Trustees. In this regard, FDI has agreed at its own expense to qualify as a broker-dealer under all applicable federal or state laws in those states which the Trust shall from time to time identify to FDI as states in which it wishes to offer the Series' shares for sale, in order that state filings may be maintained for the Series. FDI does not receive any compensation under the Underwriting Agreement. FDI is a broker-dealer registered with the SEC and a member in good standing of the National Association of Securities Dealers, Inc. The Trust does not impose any sales loads or redemption fees. Each Series shall continue to bear the expense of all filing fees incurred in connection with the filing of notices regarding sale of shares under state securities laws. The Underwriting Agreement may be terminated by either party upon sixty (60) days' prior written notice to the other party, and if so terminated, the pro rata portion of the unearned fee will be returned to the Trust. 31 DISTRIBUTION PLAN - ----------------- The Board of Trustees of the Trust has adopted a distribution plan (the "SwissKey Plan") pursuant to Rule 12b-1 under the Act, for each Series' SwissKey Fund class shares and a separate distribution plan (the "Class N Plan") pursuant to Rule 12b-1 under the Act for each Series' Brinson-Class N shares (the SwissKey Plan and the Class N Plan together, the "Plans"). The Plans permit each Series to reimburse FDI, Brinson Partners and others from the assets of the SwissKey Fund class and Brinson-Class N shares with a quarterly fee for services and expenses incurred in distributing and promoting sales of SwissKey Fund class shares and Brinson-Class N Shares, respectively. The aggregate fees paid by the SwissKey Fund class and Brinson-Class N shares to FDI, and others under the Plan may not exceed 0.90% of a SwissKey Fund classes' average daily net assets and 0.25% of a Brinson-Class N's average daily net assets, respectively, in any year. The SwissKey Plan does not apply to the Brinson-Class I or the Brinson-Class N shares of each Series and those shares are not included in calculating the SwissKey Plan's fees. Amounts spent on behalf of each SwissKey Fund class pursuant to the SwissKey Plan during the fiscal year ended June 30, 1996 are set forth below.
- ------------------------------------------------------------------------------------------------------------------------------------ FUND PRINTING DISTRIBUTION COMPENSATION COMPENSATION COMPENSATION TO ADVERTISING OTHER SERVICES TO TO SWISS BANK SALES UNDERWRITERS* DEALERS PERSONNEL - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey Global $ 554.54 $857.14 $714.29 $0.00 $ 9,160.75 $685.45 $357.98 Fund - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey Global $8,010.38 $857.14 $714.29 $0.00 $92,602.80 $685.45 $357.98 Equity Fund - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey Global $ 530.12 $857.14 $714.29 $0.00 $ 3,074.92 $685.45 $357.98 Bond Fund - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey U.S. $ 52.56 $857.14 $714.29 $0.00 $ 319.48 $685.45 $357.98 Balanced Fund - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey U.S. $ 66.50 $857.14 $714.29 $0.00 $ 1,498.85 $685.45 $357.98 Equity Fund - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey U.S. $ 41.80 $857.14 $714.29 $0.00 $ 380.59 $685.45 $357.98 Bond Fund - ------------------------------------------------------------------------------------------------------------------------------------ SwissKey Non- $ 88.10 $857.14 $714.29 $0.00 $ 1,399.14 $685.45 $357.98 U.S. Equity Fund - ------------------------------------------------------------------------------------------------------------------------------------
* Prior to February 5, 1997, FPS Broker Services, Inc. served as underwriter to the Trust. The Brinson--Class N shares commenced operations on June 30, 1997, and therefore, no 12b-1 fees were accrued or expended under the Class N Plan on behalf of the Brinson--Class N shares during the periods reported. CODE OF ETHICS - -------------- The Trust has adopted a Code of Ethics which establishes standards by which certain access persons of the Trust, which include officers of the Advisor and officers and Trustees of the Trust, must abide relating to personal securities trading conduct. Under the Code of Ethics, access persons are prohibited from engaging in certain conduct, including, but not limited to: 1) investing in companies in which the Series invest unless the securities have a broad public market and are registered on a national securities exchange or are traded in the over-the- counter markets; 2) making or maintaining an investment in any corporation or business with which the Series have business relationships if the investment might create, or give the appearance of creating, a conflict of interest; 3) participating in an initial public offering; 4) entering into a securities transaction when the access person knows or should know that such activity will anticipate, parallel or counter any securities transaction of a Series; 5) entering into any securities transaction, without prior approval, in connection with any security which has been designated as restricted; 6) entering into a net short position with respect to any security held by a Series; 7) entering into any derivative transaction when a direct transaction in the underlying security would be a violation; and 8) engaging in self-dealing or other transactions benefiting the access person at the expense of the Series or its shareholders. In addition, access persons are required to receive advance approval prior to purchasing or selling a restricted security, and may not buy or sell certain prohibited securities. The Advisor will identify for access persons prohibited securities, which include securities that are being considered for purchase or sale by any account or fund managed by the Advisor, 32 and provide a list of such securities to all access persons. Access persons are required to file quarterly reports of security investment transactions. Trustees or officers who are not "interested persons" of the Trust, as defined in the 1940 Act, need only report a transaction in a security if such Trustee or officer, at the time of the transaction, knew or should have known, in the ordinary course of fulfilling his or her official duties as a Trustee or officer, that, during the 15-day period immediately preceding or after the date of the transaction by the Trustee or officer, such security was purchased or sold by a Series, or was being considered for purchase by a Series. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS Brinson Partners is responsible for decisions to buy and sell securities for the Series and for the placement of the Series' portfolio business and the negotiation of commissions, if any, paid on such transactions. Fixed income securities in which the Series invest are traded in the over-the-counter market. These securities are generally traded on a net basis with dealers acting as principal for their own accounts without a stated commission, although the bid/ask spread quoted on securities includes an implicit profit to the dealers. In over-the-counter transactions, orders are placed directly with a principal market-maker unless a better price and execution can be obtained by using a broker. Brokerage commissions are paid on transactions in listed securities, futures contracts and options thereon. Brinson Partners is responsible for effecting portfolio transactions and will do so in a manner deemed fair and reasonable to the Series. Under its advisory agreements with the Global Funds and the Non-U.S. Equity Fund, Brinson Partners is authorized to utilize the trading desk of its foreign subsidiaries to execute foreign securities transactions, but monitors the selection by such subsidiaries of brokers and dealers used to execute transactions for those Series. The primary consideration in all portfolio transactions will be prompt execution of orders in an efficient manner at the most favorable price. In selecting and monitoring broker-dealers and negotiating commissions, Brinson Partners considers the firm's reliability, the quality of its execution services on a continuing basis and its financial condition. When more than one firm is believed to meet these criteria, preference may be given to brokers who provide research or statistical material or other services to the Series or to Brinson Partners. Such services include advice, both directly and in writing, as to the value of the securities; the advisability of investing in, purchasing or selling securities; and the availability of securities, or purchasers or sellers of securities, as well as analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. This allows Brinson Partners to supplement its own investment research activities and obtain the views and information of others prior to making investment decisions. Brinson Partners is of the opinion that, because this material must be analyzed and reviewed by its staff, its receipt and use does not tend to reduce expenses but may benefit the Series by supplementing the Advisor's research. Brinson Partners effects portfolio transactions for other investment companies and advisory accounts. Research services furnished by dealers through whom the Series effect its securities transactions may be used by Brinson Partners in servicing all of its accounts; not all such services may be used in connection with the Series. In the opinion of Brinson Partners, it is not possible to measure separately the benefits from research services to each of the accounts (including the Series). Brinson Partners will attempt to equitably allocate portfolio transactions among the Series and others whenever concurrent decisions are made to purchase or sell securities by the Series and another. In making such allocations between the Series and others, the main factors to be considered are the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held and the opinions of the persons responsible for recommending investments to the Series and the others. In some cases, this procedure could have an adverse effect on the Series. In the opinion of Brinson Partners, however, the results of such procedures will, on the whole, be in the best interest of each of the clients. The Series incurred brokerage commissions as follows:
- ------------------------------------------------------------------------------- SERIES FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 - ------------------------------------------------------------------------------- GLOBAL FUND $141,430 $196,381 $329,191 - ------------------------------------------------------------------------------- GLOBAL EQUITY FUND $ 45,153 $ 34,283 $123,467 - ------------------------------------------------------------------------------- GLOBAL BOND FUND $ 0.00 $ 0.00 $ 0.00 - -------------------------------------------------------------------------------
33
- ------------------------------------------------------------------------------- SERIES FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 - ------------------------------------------------------------------------------- U.S. BALANCED FUND NA $ 88,904 $ 99,554 - ------------------------------------------------------------------------------- U.S. EQUITY FUND $ 8,431 $ 53,830 $105,887 - ------------------------------------------------------------------------------- U.S. BOND FUND NA $ 0.00 $ 0.00 - ------------------------------------------------------------------------------- NON-U.S. EQUITY FUND $156,842 $172,829 $322,915 - -------------------------------------------------------------------------------
For the fiscal year ended June 30, 1996 the Trust and the Advisor had no agreements or understandings with a broker or otherwise causing brokerage transactions or commissions for research services. PORTFOLIO TURNOVER - ------------------ The Series are free to dispose of their portfolio securities at any time, subject to complying with the Code and the Act, when changes in circumstances or conditions make such a move desirable in light of the respective investment objective. The Series will not attempt to achieve or be limited to a predetermined rate of portfolio turnover, such a turnover always being incidental to transactions undertaken with a view to achieving that Series' investment objective. The Series do not intend to use short-term trading as a primary means of achieving their investment objectives. The rate of portfolio turnover shall be calculated by dividing (a) the lesser of purchases and sales of portfolio securities for the particular fiscal year by (b) the monthly average of the value of the portfolio securities owned by that Series during the particular fiscal year. Such monthly average shall be calculated by totaling the values of the portfolio securities as of the beginning and end of the first month of the particular fiscal year and as of the end of each of the succeeding eleven months and dividing the sum by 13. Under normal circumstances, the portfolio turnover rate for the Global Equity Fund, U.S. Equity Fund, and Non-U.S. Equity Fund is not expected to exceed 100%. The portfolio turnover rates for the Global Fund, Global Bond Fund, U.S. Balanced Fund and U.S. Bond Fund, however, may exceed 100% and in some years 200%. High portfolio turnover rates (over 100%) may involve correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Series and ultimately by that Series' shareholders. In addition, high portfolio turnover may result in increased short-term capital gains, which, when distributed to shareholders, are treated as ordinary income. With respect to the Global Fund, for the fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996, respectively, the portfolio turnover rate of the Series was 149%, 231%, 238% and 142%, respectively. With respect to the Global Bond Fund, for the period July 30, 1993 (commencement of operations) to June 30, 1994 and the fiscal years ended June 30, 1995 and June 30, 1996 the portfolio turnover rate of the Series was 189%, 199%, and 184%, respectively. With respect to the U.S. Balanced Fund, for the fiscal year ended June 30, 1996, the portfolio turnover rate of the Series was 240%. With respect to the U.S. Bond Fund, for the period from August 31, 1995 (commencement of operations) to June 30, 1996, the portfolio turnover rate of the Series was 363%. The significant variation in portfolio turnover rates over such periods was due to an increase in the assets of the Series which caused the Series, to reposition their portfolio holdings in order to meet their investment objectives and policies. SHARES OF BENEFICIAL INTEREST The Trust presently offers seven Series of shares of beneficial interest, each of which offers three classes of shares. Each share of beneficial interest represents an equal proportionate interest in the assets and liabilities of the applicable Series and has the same voting and other rights and preferences as the other class of that Series, except that only shares of the SwissKey Fund class may vote on any matter affecting only the SwissKey Plan under Rule 12b-1. Similarly, only shares of the Brinson--Class N may vote on matters that affect only the Class N Plan. No class may vote on matters that affect only another class. Under Delaware law, the Trust does not normally hold annual meetings of shareholders. Shareholders' meetings may be held from time to time to consider certain matters including changes to a Series' fundamental investment objective and fundamental investment policies, changes to the Trust's investment advisory agreement and the election of Trustees when required by the Act. When matters are submitted to shareholders for a vote, shareholders are entitled to one vote per share with proportionate voting 34 for fractional shares. The shares of the Series do not have cumulative voting rights or any preemptive or conversion rights, and the Trustees have authority from time to time to divide or combine the shares of the Series into a greater or lesser number of shares so affected. In the case of a liquidation of a Series, each shareholder of the Series will be entitled to share, based upon the shareholder's percentage share ownership, in the distribution out of assets, net of liabilities, of the Series. No shareholder is liable for further calls or assessment by the Series. On any matters affecting only one Series or class, only the shareholders of that Series or class are entitled to vote. On matters relating to the Trust but affecting the Series differently, separate votes by the Series or class are required. With respect to the submission to shareholder vote of a matter requiring separate voting by a Series or class, the matter shall have been effectively acted upon with respect to any Series or class if a majority of the outstanding voting securities of that Series or class votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other Series or class; and (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. PURCHASES Shares of each class of each Series are sold at the net asset value next determined after the receipt of a purchase application in proper form by the transfer agent. The minimum for initial investments with respect to the Brinson--Class I for each Series is $1,000,000; subsequent investment minimums are $2,500. Effective March 1, 1997, the minimum for initial investments with respect to the Brinson Fund class for each Series is $1,000,000. The minimum for initial investments with respect to the SwissKey Fund class for each Series is $1,000; subsequent investment minimums are $50. The minimum for initial investment with respect to the Brinson--Class N for each Series is $1,000,000. A more detailed description of methods of purchase is included in the Prospectuses. Certificates representing shares purchased are not issued. However, such purchases are confirmed to the investor and credited to the shareholder's account on the books maintained by the Trust's transfer agent. The investor will have the same rights of ownership with respect to such shares as if certificates had been issued. EXCHANGES OF SHARES - ------------------- Shares of one class of a Series may only be exchanged for the same class of another Series of the Trust. Exchanges will not be permitted between the different classes. Each qualifying exchange will be made on the basis of the relative net asset values per share of both the Series from which, and the Series into which, the exchange is made, that is next computed following receipt of the exchange order in proper form by the Trust's transfer agent. Exchanges may be made by telephone if the shareholder's Account Application Form includes specific authorization for telephone exchanges. The telephone exchange privilege may be difficult to implement during times of drastic economic or market changes. The transactions described above will result in a taxable gain or loss for federal income tax purposes. Generally, any such taxable gain or loss will be a capital gain or loss (long-term or short-term, depending on the holding period of the shares) in the amount of the difference between the net asset value of the shares surrendered and the shareholder's tax basis for those shares. Each investor should consult his or her tax adviser regarding the tax consequences of an exchange transaction. Any shareholder who wishes to make an exchange should first obtain and review the Prospectus of the Series to be acquired in the exchange. Requests for telephone exchanges must be received prior to the close of regular trading on the New York Stock Exchange ("NYSE") on any day on which the NYSE is open for regular trading. At the discretion of the Trust, this exchange privilege may be terminated or modified at any time for any of the participating Series upon 60 days' prior written notice to shareholders. Contact the transfer agent for details about a particular exchange. NET ASSET VALUE - --------------- The net asset value per share is calculated separately for each class of each Series. The net asset value per share of a Series is computed by dividing the value of the assets of the Series, less its liabilities, by the number of shares of the Series outstanding. 35 Each class of a Series will bear pro rata all of the common expenses of that Series. The net asset values of all outstanding shares of each class of a Series will be computed on a pro rata basis for each outstanding share based on the proportionate participation in the Series represented by the value of shares of that Series. All income earned and expenses incurred by a Series will be borne on a pro rata basis by each outstanding share of a class, based on each class' percentage in the Series represented by the value of such shares of such classes, except that none of the shares of a class will incur any of the expenses under the 12b-1 plan of another class. Portfolio securities are valued and net asset value per share is determined as of the close of regular trading on the NYSE which currently is 4:00 p.m. Eastern time on each day the NYSE is open for trading. The NYSE is open for trading on every day except Saturdays, Sundays and the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day (day observed), Independence Day, Labor Day, Thanksgiving and Christmas and on the preceding Friday or subsequent Monday when any of these holidays falls on a Saturday or Sunday, respectively. Portfolio securities listed on a national or foreign securities exchange are valued on the basis of the last sale on the date the valuation is made. Securities that are not traded on a particular day or an exchange, are valued at either (a) the bid price or (b) a valuation within the range considered best to represent value in the circumstances. Price information on listed securities is generally taken from the closing price on the exchange where the security is primarily traded. Other portfolio securities which are traded in the over-the- counter market are valued at the bid price as long as the bid price, in the opinion of the Advisor, continues to reflect the value of the security. Valuations of fixed income and equity securities may be obtained from a pricing service and/or broker-dealers when such prices are believed to reflect the fair value of such securities. Use of a pricing service and/or broker-dealers has been approved by the Board of Trustees. Futures contracts are valued at their daily quoted settlement price on the exchange on which they are traded. Forward foreign currency contracts are valued daily using the mean between the bid and asked forward points added to the current exchange rate and an unrealized gain or loss is recorded. A Series realizes a gain or loss upon settlement of the contracts. Swaps will be priced at fair value based on (1) swap prices provided by broker-dealers; (2) values, or estimates of values, of the applicable equity indices and foreign rates underlying the contracts; and (3) consideration of other relevant factors. A Series' obligation under a swap agreement will be accrued daily (offset by any amounts owing to the portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of Segregated Assets. For valuation purposes, foreign securities initially expressed in foreign currency values will be converted into U.S. dollar values using WM/Reuters closing spot rates as of 4:00 p.m. London time. Securities with a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Fixed income securities having a remaining maturity of over 60 days are valued at market price. Debt securities are valued on the basis of prices provided by a pricing service, or at the bid price where readily available, as long as the bid price, in the opinion of FPS and the Advisor, continues to reflect the value of the security. Redeemable securities issued by open-end investment companies are valued using their respective net asset values for purchase orders placed at the close of the NYSE. Securities (including over-the-counter options) for which market quotations are not readily available and other assets are valued at their fair value as determined in good faith by or under the direction of the Trustees. Because of time zone differences, foreign exchanges and securities markets will usually be closed prior to the time of the closing of the NYSE and values of foreign futures and options and foreign securities will be determined as of the earlier closing of such exchanges and securities markets. However, events affecting the values of such foreign securities may occasionally occur between the earlier closings of such exchanges and securities markets and the closing of the NYSE which will not be reflected in the computation of the net asset value of a Series. If an event materially affecting the value of such foreign securities occurs during such period, then such securities will be valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Where a foreign securities market remains open at the time that a Series values its portfolio securities, or closing prices of securities from that market may not be retrieved because of local time differences or other difficulties in obtaining such prices at that time, last sale prices in such market at a point in time most practicable to timely valuation of the Series may be used. REDEMPTIONS Under normal circumstances shareholders may redeem their shares at any time without a fee. The redemption price will be based upon the net asset value per share next determined after receipt of the redemption request, provided it has been submitted in the manner described below. The redemption price may be more or less than the original cost, depending upon the net asset value per share at the time of redemption. 36 (iii) for such other periods as the SEC may by order permit for the protection of shareholders of the Series. Under unusual circumstances, when the Board of Trustees deems it in the best interest of the Series' shareholders, the Trust may make payment for shares repurchased or redeemed in whole or in part in securities of the Series taken at current values. With respect to such redemptions in kind, the Trust has made an election pursuant to Rule 18f-1 under the Act. This will require the Trust to redeem in cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of the Series' net asset value at the beginning of each 90 day period during which such redemptions are in effect, if that amount is less than $250,000), during any 90-day period for any one shareholder. Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. TAXATION - -------- Each of the Series has qualified, and intends to continue to qualify each year, as a regulated investment company under Subchapter M of the Code. In order to so qualify, a mutual fund must, among other things, (i) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (ii) derive less than 30% of its gross income from the sale or other disposition of stock or securities or certain futures and options thereon held for less than three months ("short-short gains"); (iii) distribute at least 90% of its dividend, interest and certain other taxable income each year; and (iv) at the end of each fiscal quarter maintain at least 50% of the value of its total assets in cash, government securities, securities of other regulated investment companies and other securities of issuers which represent, with respect to each issuer, no more than 5% of the value of a fund's total assets and 10% of the outstanding voting securities of such issuer, and with no more than 25% of its assets invested in the securities (other than those of the government or other regulated investment companies) of any one issuer or of two or more issuers which the fund controls and which are engaged in the same, similar or related trades and businesses. To the extent each of the Series qualifies for treatment as a regulated investment company, they will not be subject to federal income tax on income and net capital gains paid to shareholders in the form of dividends or capital gains distributions. An excise tax at the rate of 4% will be imposed on the excess, if any, of each Series' "required distributions" over actual distributions in any calendar year. Generally, the "required distribution" is 98% of a Series' ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31 plus undistributed amounts from prior years. The Series intend to make distributions sufficient to avoid imposition of the excise tax. Distributions declared by the Series during October, November or December to shareholders of record during such month and paid by January 31 of the following year will be taxable to shareholders in the calendar year in which they are declared, rather than the calendar year in which they are received. Gains or losses attributable to fluctuations in exchange rates which occur between the time a Series accrues interest or other receivables or accrues expenses or liabilities denominated in a foreign currency and the time the Series actually collects such receivables, or pays such liabilities, are generally treated as ordinary income or loss. Similarly, a portion of the gains or losses realized on disposition of debt securities denominated in a foreign currency may also be treated as ordinary gain or loss. These gains, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of a Series' investment company taxable income to be distributed to its shareholders, rather than increasing or decreasing the amount of the Series' capital gains or losses. When a Series writes a call, or purchases a put option, an amount equal to the premium received or paid by it is included in the Series' assets and liabilities as an asset and as an equivalent liability. In writing a call, the amount of the liability is subsequently "marked-to- market" to reflect the current market value of the option written. The current market value of a written option is the last sale price on the principal Exchange on which such option is traded or, in the absence of a sale, the mean between the last bid and asked prices. If an option which a Series has written expires on its stipulated expiration date, the Series recognizes a short-term capital gain. If a Series enters into a closing purchase transaction with respect to an option which the Series has written, the Series realizes a short- term gain (or loss if the cost of the closing transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which a Series has written is exercised, the Series realizes a capital gain or loss from the 37 sale of the underlying security and the proceeds from such sale are increased by the premium originally received. The premium paid by a Series for the purchase of a put option is recorded in the Series' assets and liabilities as an investment and subsequently adjusted daily to the current market value of the option. For example, if the current market value of the option exceeds the premium paid, the excess would be unrealized appreciation and, conversely, if the premium exceeds the current market value, such excess would be unrealized depreciation. The current market value of a purchased option is the last sale price on the principal Exchange on which such option is traded or, in the absence of a sale, the mean between the last bid and asked prices. If an option which a Series has purchased expires on the stipulated expiration date, the Series realizes a short-term or long-term capital loss for Federal income tax purposes in the amount of the cost of the option. If a Series exercises a put option, it realizes a capital gain or loss (long-term or short-term, depending on the holding period of the underlying security) from the sale which will be decreased by the premium originally paid. Accounting for options on certain stock indices will be in accordance with generally accepted accounting principles. The amount of any realized gain or loss on closing out such a position will result in a realized gain or loss for tax purposes. Such options held by a Series at the end of each fiscal year on a broad-based stock index will be required to be "marked-to-market" for Federal income tax purposes. Sixty percent of any net gain or loss recognized on such deemed sales or on any actual sales will be treated as long-term capital gain or loss and the remainder will be treated as short-term capital gain or loss. Certain options, futures contracts and options on futures contracts utilized by the Series are "Section 1256 contracts." Any gains or losses on Section 1256 contracts held by a Series at the end of each taxable year (and on October 31 of each year for purposes of the 4% excise tax) are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as a 60/40 gain or loss. Shareholders will be subject to federal income taxes on distributions made by the Series whether received in cash or additional shares of the Series. Distributions of net investment income and net short-term capital gains, if any, will be taxable to shareholders as ordinary income. Distributions of net long-term capital gains, if any, will be taxable to shareholders as long-term capital gains, without regard to how long a shareholder has held shares of the Series. A loss on the sale of shares held for twelve months or less will be treated as a long- term capital loss to the extent of any long-term capital gain dividend paid to the shareholder with respect to such shares. Dividends eligible for designation under the dividends received deduction and paid by a Series may qualify in part for the 70% dividends received deduction for corporations provided, however, that those shares have been held for at least 45 days. The Series will notify shareholders each year of the amount of dividends and distributions, including the amount of any distribution of long-term capital gains and the portion of its dividends which may qualify for the 70% deduction. Each class of shares of a Series will share proportionately in the investment income and expenses of that Series, except that the respective SwissKey Fund class and Brinson-Class N for each Series will incur distribution fees under their respective 12b-1 Plans. It is expected that certain dividends and interest received by the Global Funds and the Non-U.S. Equity Fund will be subject to foreign withholding taxes. If more than 50% in value of the total assets of a fund at the close of any taxable year consists of stocks or securities of foreign corporations, such fund may elect to treat any foreign taxes paid by it as if paid by its shareholders. These Series will notify shareholders in writing each year whether it has made the election and the amount of foreign taxes it has elected to have treated as paid by the shareholders. If a Series makes the election, its shareholders will be required to include in gross income their proportionate share of the amount of foreign taxes paid by the Series and will be entitled to claim either a credit or deduction for their share of the taxes in computing their U.S. federal income tax subject to certain limitations. No deduction for foreign taxes may be claimed by shareholders who do not itemize deductions. Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, the source of each Series' income flows through to its shareholders. Gains from the sale of securities will be treated as derived from U.S. sources and certain currency fluctuation gains, including fluctuation gains from foreign currency denominated debt securities, receivables and payables, will be treated income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income (as defined for purposes of foreign tax credit), such as foreign source passive income received from the respective Series. Because of changes made by the Code, shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by the Series. 38 The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and Regulations. The Code and Regulations are subject to change by legislative or administrative action at any time and retroactively. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state and local taxes as well as the application of the foreign tax credit. The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Series, including the possibility that distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding provided by treaty). PERFORMANCE CALCULATIONS Performance information for the SwissKey Fund class and Brinson Fund class shares of each Series will vary due to the effect of expense ratios on the performance calculations. TOTAL RETURN - ------------ Current yield and total return quotations used by the Series (and classes of shares) are based on standardized methods of computing performance mandated by rules adopted by the SEC. As the following formula indicates, the average annual total return is determined by multiplying a hypothetical initial purchase order of $1,000 by the average annual compound rate of return (including capital appreciation/depreciation and dividends and distributions paid and reinvested) for the stated period less any fees charged to all shareholder accounts and annualizing the result. The calculation assumes that all dividends and distributions are reinvested at the net asset value on the reinvestment dates during the period. The quotation assumes the account was completely redeemed at the end of each period and deduction of all applicable charges and fees. According to the SEC formula: P(1+T)/n/=ERV where: P = a hypothetical initial payment of $1,000, T = average annual total return, n = number of years, ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year periods (or fractional portion thereof). Based upon the foregoing calculations, the average annual total return for the Brinson-Class I (previously Brinson Fund class) shares of: (i) the Global Fund for the one and three year periods ended June 30, 1996 and the period August 31, 1992 (commencement of operations) through June 30, 1996 was 16.38%, 9.69% and 10.42%, respectively; (ii) the Global Equity Fund for the one year period ended June 30, 1996 and the period January 28,1994 (commencement of operations) through June 30, 1996 was 25.66% and 10.42%, respectively; (iii) the Global Bond Fund for the one year period ended June 30, 1996 and the period July 30, 1993 (commencement of operations) through June 30, 1996 was 11.50% and 7.40%, respectively; (iv) the U.S. Balanced Fund for the one year period ended June 30, 1996 and the period December 30, 1994 (commencement of operations) through June 30, 1996 was 13.52% and 18.71%, respectively; (v) the U.S. Equity Fund for the one year period ended June 30, 1996 and the period February 22, 1994 (commencement of operations) through June 30, 1996 was 30.57% and 20.23%, respectively; (vi) the U.S. Bond Fund for the period August 31, 1995 (commencement of operations) through June 30, 1996 was 3.60%; (vii); and the Non-U.S. Equity Fund for the one year period ended June 30, 1996 and the period August 31, 1993 (commencement of operations) through June 30, 1996 was 23.64% and 6.80%, respectively. Based upon the foregoing calculations, the average annual total return for the SwissKey Fund class shares of: the Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund and Non U.S. Equity Fund for the period July 31, 1995 (commencement of operations) through June 30, 1996 was 13.24%, 19.25%, 9.17%, 11.54%, 25.70% and 15.78%, respectively; and the U.S. Bond Fund for the period August 31, 1995 (commencement of operations) through June 30, 1996 was 3.24%. The Brinson-Class N shares of each Series commenced operations on June 30, 1997, and therefore, the average annual total return for prior periods is not available. 39 YIELD - ----- As indicated below, current yield is determined by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period and annualizing the result. Expenses accrued for the period include any fees charged to all shareholders during the 30-day base periods. According to the SEC formula: Yield = 2[(a-b + 1)/6/ - 1] ------------------- cd where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The yield of a Series may be calculated by dividing the net investment income per share earned by the particular Series during a 30-day (or one month) period by the net asset value per share on the last day of the period and annualizing the result on a semi-annual basis. A Series' net investment income per share earned during the period is based on the average daily number of shares outstanding during the period entitled to receive dividends and includes dividends and interest earned during the period minus expenses accrued for the period, net of reimbursements. FINANCIAL STATEMENTS The Financial Statements contained in the Series' Annual Report dated June 30, 1996 and the Series' Semi-Annual Report dated December 31, 1996 are incorporated herein by reference. 40 CORPORATE DEBT RATINGS APPENDIX A Moody's Investors Service, Inc. describes classifications of corporate bonds as follows: Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds which are rated Aa are judged to be of high-quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds which are rated Baa are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's also supplies numerical indicators 1, 2, and 3 to rating categories. The modifier 1 indicates the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking toward the lower end of the category. Standard & Poor's Ratings Group describes classifications of corporate bonds as follows: AAA - This is the highest rating assigned by Standard & Poor's Ratings Group to a debt obligation and indicates an extremely strong capacity to pay principal and interest. AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong and in the majority of instances they differ from the AAA issues only in small degree. A - Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more 41 susceptible to the adverse effects of changes in circumstances and economic conditions. BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category. BB - Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lend to inadequate capacity to meet timely interest and principal payments. B - Debt rated B has a greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness to pay interest and repay principal. CCC - Debt rated CCC has a current identifiable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payments of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest or repay principal. CC - The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC rating. C - The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC rating. CI - The rating CI is reserved for income bonds on which no interest is being paid. D - Debt rated D is in default, or is expected to default upon maturity or payment date. Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. 42 The Brinson Funds Form N-1A Part C Other Information THE BRINSON FUNDS FORM N-1A PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. ---------------------------------- (a) Financial Statements. Included in Part A: Financial Highlights BRINSON GLOBAL FUND, BRINSON GLOBAL EQUITY FUND, BRINSON GLOBAL BOND FUND, BRINSON U.S. EQUITY FUND, BRINSON U.S. BALANCED FUND, BRINSON U.S. BOND FUND, AND BRINSON NON-U.S. EQUITY FUND. SWISSKEY GLOBAL FUND, SWISSKEY GLOBAL EQUITY FUND, SWISSKEY GLOBAL BOND FUND, SWISSKEY U.S. BALANCED FUND, SWISSKEY U.S. EQUITY FUND, SWISSKEY U.S. BOND FUND, SWISSKEY NON-U.S. EQUITY FUND. The Brinson-Class N Shares commenced operations on June 30, 1997. Included in Part B: GLOBAL FUND ----------- (1) Report of Independent Auditors;/1/ (2) Schedule of Investments as of June 30, 1996 (audited)/1/; (3) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (4) Statement of Operations for the year ended June 30, 1996 (audited)/1/; (5) Statements of Changes in Net Assets for the two years ended June 30, 1996 and June 30, 1995 and for the period August 31, 1992 (commencement of operations) to June 30, 1993 (audited)/1/; (6) Financial Highlights for the two years ended June 30, 1996 and June 30, 1995 and for the period August 31, 1992 (commencement of operations) to June 30, 1993 (audited)/1/; (7) Notes to Financial Statements dated June 30, 1996 (audited)/1/. (8) Schedules of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996, the three years ended June 30, 1996, June 30, 1995, and June 30, 1994 and for the period August 31, 1992 (commencement of operations) to June 30, 1993 (unaudited)./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the three years ended June 30, 1996, June 30, 1995 and June 30, 1994 and for the period August 31, 1992 (commencemnt of operations) to June 30, 1993 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ GLOBAL EQUITY FUND ------------------- (1) Report of Independent Auditors/1/; (2) Schedule of Investments as of June 30, 1996 (audited)/1/; (3) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (4) Statement of Operations for the year ended June 30, 1996 (audited)/1/; (5) Statements of Changes in Net Assets for the years ended June 30, 1996 and June 30, 1995 and for the period January 28, 1994 (commencement of operations) to June 30, 1994 (audited)/1/; (6) Financial Highlights for the years ended June 30, 1996 and June 30, 1995 and for the period January 28, 1994 (commencement of operations) to June 30, 1994 (audited)/1/ ; (7) Notes to Financial Statements dated June 30, 1996 (audited)/1/. (8) Schedule of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996 and the year ended June 30, 1996 (unaudited)./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the two years ended June 30, 1996, June 30, 1995 and for the period January 28, 1994 (commencement of operations) to June 30, 1994 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ GLOBAL BOND FUND ----------------- (1) Report of Independent Auditors/1/; (2) Schedule of Investments as of June 30, 1996 (audited)/1/; (3) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (4) Statement of Operations for the year ended June 30, 1996 (audited)/1/; (5) Statements of Changes in Net Assets for the years ended June 30, 1996 and June 30, 1995 and for the period July 30, 1993 (commencement of operations) to June 30, 1994 (audited)/1/; (6) Financial Highlights for the years ended June 30, 1996 and June 30, 1995 and for the period July 30, 1993 (commencement of operations) to June 30, 1994 (audited)/1/; (7) Notes to Financial Statements dated June 30, 1996 (audited)/1/. (8) Schedule of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996 and the year ended June 30, 1996 (unaudited)./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the two years ended June 30, 1996, June 30, 1995 and for the period July 30, 1993 (commencement of operations) to June 30, 1994 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ U.S. BALANCED FUND ------------------- (1) Report of Independent Auditors/1/; (2) Schedule of Investments as of June 30, 1996 (audited)/1/; (3) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (4) Statement of Operations for the year ended June 30, 1996 (audited)/1/; (5) Statement of Changes in Net Assets for the year ended June 30, 1996, and period December 30, 1994 (commencement of operations) to June 30, 1995 (audited)/1/; (6) Financial Highlights for the year ended June 30, 1996, and period December 30, 1994 commencement of operations) to June 30, 1995 (audited)/1/; (7) Notes to Financial Statements dated June 30, 1996/1/. (8) Schedule of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996 and the year ended June 30, 1996 (unaudited)./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the two years ended June 30, 1996, June 30, 1995 and for the period December 30, 1994 (commencement of operations) to June 30, 1994 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ U.S. EQUITY FUND ----------------- (1) Report of Independent Auditors/1/; (2) Schedule of Investments as of June 30, 1996 (audited)/1/; (3) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (4) Statement of Operations for the year ended June 30, 1996 (audited)/1/; (5) Statements of Changes in Net Assets for the years ended June 30, 1996 and June 30, 1995 and for the period February 22, 1994 (commencement of operations) to June 30, 1994 (audited)/1/. (6) Financial Highlights for the years ended June 30, 1996 and June 30, 1995 and for the period February 22, 1994 (commencement of operations) to June 30, 1994 (audited)/1/; (7) Notes to Financial Statements dated June 30, 1996 (audited)/1/. (8) Schedule of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996 and the year ended June 30, 1996 (unaudited )./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the two years ended June 30, 1996, June 30, 1995 and for the period February 22, 1994 (commencement of operations) to June 30, 1994 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ NON-U.S. EQUITY FUND --------------------- (1) Report of Independent Auditors/1/; (2) Schedule of Investments as of June 30, 1996 (audited)/1/; (3) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (4) Statement of Operations for the year ended June 30, 1996 (audited)/1/; (5) Statements of Changes in Net Assets for the years ended June 30, 1996 and June 30, 1995 and for the period August 31, 1993 (commencement of operations) to June 30, 1994. (audited)/1/; (6) Financial Highlights for the year ended June 30, 1996, June 30, 1995 and for the period August 31, 1993 (commencement of operations) to June 30, 1994 (audited)/1/; (7) Notes to Financial Statements dated June 30, 1996 (audited)/1/. (8) Schedule of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996 and the year ended June 30, 1996 (unaudited )./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the two years ended June 30, 1996, June 30, 1995 and for the period August 31, 1993 (commencement of operations) to June 30, 1994 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ U.S. BOND FUND --------------- (1) Schedule of Investments as of June 30, 1996 (audited)/1/; (2) Statement of Assets and Liabilities at June 30, 1996 (audited)/1/; (3) Statement of Operations for the period August 31, 1995 (commencement of operations) to June 30, 1996 (audited)/1/; (4) Statement of Changes in Net Assets for the period August 31, 1995 (commencement of operations) to June 30, 1996 (audited)/1/; (5) Financial Highlights for the period August 31, 1995 (commencement of operations) to June 30, 1996 (audited)/1/; (6) Notes to Financial Statements dated June 30, 1996 (audited)/1/; (8) Schedule of Investments as of December 31, 1996 (unaudited)./2/ (9) Statement of Assets and Liabilities at December 31, 1996 (unaudited)./2/ (10) Statement of Operations for the six months ended December 31, 1996 (unaudited)./2/ (11) Statements of Changes in Net Assets for the six months ended December 31, 1996 and the year ended June 30, 1996 (unaudited )./2/ (12)(a) Financial Highlights for the Brinson Fund Class for the six months ended December 31, 1996, the two years ended June 30, 1996, June 30, 1995 and for the period February 22, 1994 (commencement of operations) to June 30, 1994 (unaudited)./2/ (b) Financial Highlights for the SwissKey Fund Class for the six months ended December 31, 1996 and for the period July 31, 1995 (commencement of operations) to June 30, 1996 (unaudited)./2/ (13) Notes to Financial Statements dated December 31, 1996 (unaudited)./2/ /1/ Incorporated by reference to the Trust's Financial Statements in the Annual Report dated June 30, 1996 and filed electronically on August 29, 1996. /2/ Incorporated by reference to the Trust's Financial Statements in the Semi-Annual Report dated December 31, 1996 and filed electronically on February 28, 1997. (b) Exhibits: Exhibits filed pursuant to Form N-1A: (1) Certificate of Trust and Agreement and Declaration of Trust of The Brinson Funds is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 6 to Registrant's Registration Statement No. 33-47287, Exhibit No. (1) as filed on October 5, 1993. (2) By-Laws of The Brinson Funds is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 6 to Registrant's Registration Statement No. 33-47287, Exhibit No. (2) as filed on October 5, 1993. (3) Not Applicable. (4) Specimen Share Certificate of The Brinson Funds is incorporated herein by reference to Post-Effective Amendment No. 9 to Registrant's Registration Statement No. 33-47287, Exhibit No. (4) as filed on July 21, 1994. (5) (a) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson Global Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (5)(a) as filed on September 20, 1995. (b) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson Global Bond Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No.(5)(b) as filed on September 20, 1995. (c) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson Non-U.S. Equity Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No.(5)(c) as filed on September 20, 1995. (d) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson Global Equity Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33- 4787, Exhibit No.(5)(d) as filed on September 20, 1995. (e) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson U.S. Equity Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33- 4787, Exhibit No.(5)(e) as filed on September 20, 1995. (f) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson U.S. Balanced Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33- 4787, Exhibit No.(5)(f) as filed on September 20, 1995. (g) Investment Advisory Agreement between Brinson Partners, Inc. and the Registrant on behalf of Brinson U.S. Bond Fund of The Brinson Funds, dated April 25, 1995, is filed herewith electronically, previously incorporated by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No.(5)(g) as filed on September 20, 1995. (6) (a) Underwriting Agreement between Fund/Plan Broker Services, Inc. and the Registrant on behalf of each of the series of The Brinson Funds dated November 20, 1996 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (6)(a) to Item 24 as electronically filed on February 15, 1996. (b) Amendment to Underwriting Agreement between Fund/Plan Broker Services, Inc. and the Registrant on behalf of each of the series of The Brinson Funds dated August 21, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (6)(b) to Item 24 as electronically filed on February 15, 1996. (c) Underwriting Agreement between Fund/Plan Broker Services, Inc. and the Registrant on behalf of each of the series of The Brinson Funds dated April 25, 1995 is incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (6)(a) to Item 24 as filed on September 20, 1995 (d) Underwriting Agreement between Fund/Plan Broker Services, Inc. and the Registrant on behalf of each of the series of The Brinson Funds dated September 1, 1994 is incorporated herein by reference to Post-Effective Amendment No. 10 to Registrant's Registration Statement No. 33-47287 Exhibit No. (6)(a) to Item 24 as filed on September 15, 1994. (e) Underwriting Agreement between Fund/Plan Broker Services, Inc. and the Registrant on behalf of each of the series of The Brinson Funds is incorporated herein by reference to Post-Effective Amendment No. 9 to Registrant's Registration Statement No. 33-47287, Exhibit No. (6) as filed on July 21, 1994. (f) Distribution Agreement dated February 24, 1997 between Funds Distributor, Inc. and the Registrant on behalf of each Series of The Brinson Funds is filed electronically herewith. (7) Not Applicable. (8) (a) Amendment to the Custodian Agreement between the Registrant and Bankers Trust Company to the Agreement dated June 18, 1992 is incorporated herein by reference to Post-Effective Amendment No. 12 to Registrant's Registration Statement No. 33-47287 as filed on May 31, 1995 as Exhibit (8)(a) to Item 24. (b) Custodian Agreement between the Registrant and Bankers Trust Company is incorporated herein by reference to Post- Effective Amendment No. 9 to Registrant's Registration Statement No. 33-47287, Exhibit No. (8)(a) as filed on July 21, 1994. (c) Amendments to the Custodian Agreement between the Registrant and Bankers Trust Company is incorporated herein by reference to Post-Effective Amendment No. 9 to Registrant's Registration Statement No. 33-47287, Exhibit No. (8)(b) as filed on July 21, 1994. (d) Form of Multiple Services Agreement dated _________, 1997 between Morgan Stanley Trust Company and the Registrant on behalf of each Series of The Brinson Funds filed electronically herewith. (9)(a)(i) Shareholder Services Agreement between Fund/Plan Services, Inc. and the Registrant dated November 20, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (9)(a) to Item 24 as electronically filed on February 15, 1996. (a)(ii) Amendment to the Shareholder Services Agreement between Fund/Plan Services, Inc. and the Registrant dated August 21, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (9)(a) to Item 24 as electronically filed on February 15, 1996. (a)(iii) Shareholder Services Agreement between Fund/Plan Services, Inc. and the Registrant dated April 25, 1995 is incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (9)(a) to Item 24 as filed on September 20, 1995. (a)(iv) Shareholder Services Agreement between the Registrant and Fund/Plan Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 9 to the Registrant's Registration Statement No. 33-47287, Exhibit No. (9)(a) as filed on July 21, 1994. (b)(i) Administration Agreement between Fund/Plan Services, Inc. and the Registrant dated November 20, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (9)(b) to Item 24 as electronically filed on February 15, 1996. (b)(ii) Amendment to the Administrative Services Agreement between Fund/Plan Services, Inc. and the Registrant dated August 21, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (9)(b) to Item 24 as electronically filed on February 15, 1996. (b)(iii) Administrative Services Agreement between Fund/Plan Services, Inc. and the Registrant dated April 25, 1995 is incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (9)(b) to Item 24 as filed on September 20, 1995. (b)(iv) Administrative Services Agreement between the Registrant and Fund/Plan Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 9 to the Registrant's Registration Statement No. 33- 47287, Exhibit No. (9)(b) as filed on July 21, 1994. (c)(i) Accounting Services Agreement between Fund/Plan Services, Inc. and the Registrant dated November 20, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (9)(c) to Item 24 as electronically filed on February 15, 1996. (c)(ii) Amendment to the Accounting Services Agreement between Fund/Plan Services, Inc. and the Registrant dated August 21, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (9)(c) to Item 24 as electronically filed on February 15, 1996. (c)(iii) Accounting Services Agreement between Fund/Plan Services, Inc. and the Registrant dated April 25, 1995 is incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (9)(c) to Item 24 as filed on September 20, 1995. (c)(iv) Accounting Services Agreement between the Registrant and Fund/Plan Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 9 to the Registrant's Registration Statement No. 33-47287, Exhibit No. (9)(c) as filed on July 21, 1994. (c)(v) Amendment to Accounting Services Agreement between the Registrant and Fund/Plan Services, Inc. is incorporated herein by reference to Post-Effective Amendment No. 9 to Registrant's Registration Statement No. 33-47287, Exhibit No. (9)(d) as filed on July 21, 1994. (10) Opinion and Consent of Counsel. (a) Incorporated herein by reference to Registrant's Notice pursuant to Rule 24f-2 filed with the U.S. Securities and Exchange Commission on August 28, 1996. (11) Other Opinions and Consents. (a) Consent of Ernst & Young LLP, independent auditors to the Trust. Filed herewith electronically as Exhibit (11)(a). (12) Not Applicable. (13) Letter of Understanding relating to initial capital is incorporated herein by reference to Pre-Effective Amendment No. 1 to Registrant's Registration Statement No. 33-47287, Exhibit No. (13) as filed on July 9, 1992. (14) Not Applicable. (15) (a) Distribution Plan relating to the SwissKey Class Shares on behalf of each Series of The Brinson Funds dated November 20, 1995 is incorporated herein by reference to Post Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, as Exhibit No. (15)(a) as electronically filed on February 15, 1996. (15) (b) Distribution Plan relating to the SwissKey Class Shares on behalf of each Series of The Brinson Funds dated July 31, 1995 is incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (15) as filed September 20, 1995. (15) (c) Form of Distribution Plan relating to the Brinson-Class N Shares on behalf of each series of The Brinson Funds is filed electronically herewith. (16) (a) Schedule for Computation of Performance Quotations on behalf of Brinson Global Fund, Brinson Global Equity Fund, Brinson Global Bond Fund, Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund and Brinson Non-U.S. Equity Fund is incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement No. 33-4787, Exhibit No. (16) as filed on September 20, 1995. (16) (b) Schedule for Computation of Performance Quotations on behalf of the U.S. Bond Fund is incorporated herein by reference to Post-Effective Amendment No. 16 to Registrant's Registration Statement No. 33-4787, Exhibit No. (16) as electronically filed on February 15, 1996. (17) Not Applicable. (18) (a) Form of Multiple Class Plan relating to the Brinson Class and Swiss Key Class Shares on behalf of each Series of The Brinson Funds as presented to the Board of Trustees is incorporated herein by reference to Post-Effective No. 12/13 to Registrant's Registration (18) (b) Form of Revised Multiple Class Plan Pursuant to Rule 18f-3 on behalf of each Series of The Brinson Funds is filed electronically herewith. Statement No. 33-47287. (19) Powers of Attorney are incorporated herein by reference to Post- Effective No. 11/12 to Registrants' Registration Statement No. 33-47287, Exhibit No. (18) as filed on March 17, 1995. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. -------------------------------------------------------------- None. ----- ITEM 26. NUMBER OF HOLDERS OF SECURITIES. -------------------------------- NUMBER OF RECORD HOLDERS TITLE OF CLASS AS OF APRIL 8, 1997 -------------- ------------------------ Shares of Beneficial Interest par value $0.001 of: 1513 BRINSON CLASS OF THE BRINSON FUNDS ----------------------------------
Brinson Global Fund 450 Brinson Global Equity Fund 119 Brinson Global Bond Fund 40 Brinson U.S. Balanced Fund 31 Brinson U.S. Equity Fund 175 Brinson U.S. Bond Fund 21 Brinson Non-U.S. Equity Fund 125 SWISSKEY CLASS OF THE BRINSON FUNDS ----------------------------------- SwissKey Global Fund 80 SwissKey Global Equity Fund 383 SwissKey Global Bond Fund 30 SwissKey U.S. Balanced Fund 9 SwissKey U.S. Equity Fund 22 SwissKey U.S. Bond Fund 6 SwissKey Non-U.S. Equity Fund 22 BRINSON--CLASS N OF THE BRINSON FUNDS ------------------------------------- There are no shares outstanding of the Brinson--Class N of The Brinson Funds and therefore, there are no shareholders of record.
ITEM 27. INDEMNIFICATION. ---------------- Article VII, Sections 2 and 3 of Registrant's Agreement and Declaration of Trust provide: Section 2. Indemnification and Limitation of Liability. The Trustees shall not be responsible or liable in any event for any neglect or wrong-doing of any officer, agent, employee, Manager or Principal Underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, and, subject to the provisions of the Bylaws, the Trust out of its assets may indemnify and hold harmless each and every Trustee and officer of the Trust from and against any and all claims, demands, costs, losses, expenses, and damages whatsoever arising out of or related to such Trustee's performance of his or her duties as a Trustee or officer of the Trust; provided that nothing herein contained shall indemnify, hold harmless or protect any Trustee or officer from or against any liability to the Trust or any Shareholder to which he or she would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever issued, executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been issued, executed or done only in or with respect to their or his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety. The exercise by the Trustees of their powers hereunder shall be binding upon everyone interested in or dealing with the Trust. A Trustee shall be liable to the Trust and to any Shareholder solely for his or her own wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust and shall be under no liability for any act or omission in accordance with such advice nor for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. Section 4. Insurance. The Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Trust assets insurance for liability and for all expenses, reasonably incurred or paid or expected to be paid by a Trustee or officer in connection with any claim, action, suit or proceeding in which he or she becomes involved by virtue of his or her capacity or former capacity with the Trust, whether or not the Trust would have the power to indemnify him or her against such liability under the provisions of this Article. Indemnification of Registrant's custodian, transfer agent, accounting services provider, administrator and distributor against certain stated liabilities is provided for the following documents until May 9, 1997: (a) Section 12 of Accounting Services Agreement, between the Registrant and Fund/Plan Services, Inc., incorporated herein by reference to Post Effective No. 16 to Registrant's Registration Statement No. 33-47287, Exhibit 9(c) as filed on February 15, 1996 (b) Section 8 of Administration Agreement between the Registrant and Fund/Plan Services, Inc., incorporated herein by reference to Post Effective No. 16 to Registrant's Registration Statement No. 33-47287, Exhibit 9(b) as filed on February 15, 1996 (c) Section 14 of Custodian Agreement between the Registrant and Bankers Trust Company, incorporated herein by reference to Post Effective No. 13 to Registrant's Registration No. 33- 47287, Exhibit Nos. 8(a) and 8(b) as filed on September 20, 1995 (d) Section 19 of Shareholder Services Agreement between Registrant and Fund/Plan Services, Inc., incorporated herein by reference to Post Effective No. 16 to Registrant's Registration Statement No. 33-47287, Exhibit 9(a) as filed on February 15, 1996. (e) Section 8 of the Underwriting Agreement between Registrant and Fund/Plan Broker Services, Inc. are incorporated herein by reference to Post Effective No. 16 to Registrant's Registration Statement No. 33-47287, Exhibit No. (6) as filed on February 15, 1996. Effective May 10, 1997, indemnification of Registrant's custodian, transfer agent, accounting services provider, administrator and distributor against certain stated liabilities is provided for in the following documents: (a) Section III of the Multiple Services Agreement between Morgan Stanley Trust Company and the Registrant on behalf of each of the Series of The Brinson Funds, filed electronically herewith. (b) Section 1.10 of the Distribution Agreement between Funds Distributor, Inc. and the Registrant on behalf of each Series of The Brinson Funds, filed electronically herewith. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF ADVISOR. ------------------------------------------ Brinson Partners, Inc. provides investment advisory services consisting of portfolio management for a variety of individuals and institutions and as of December 31, 1996 had approximately $119 billion in assets under management. It presently acts as investment advisor to nine other investment companies, Brinson Relationship Funds, which includes six investment portfolios (series); Enterprise Accumulation Trust - International Growth Portfolio; Enterprise Group of Funds, Inc. - International Growth Portfolio; Fort Dearborn Income Securities, Inc.; The Hirtle Callaghan International Trust; John Hancock Variable Series Trust - International Balanced Portfolio; Managed Account Services Portfolio Trust - Pace Large Company Value Equity Investments; AON Funds - International Equity Fund; and The Republic Funds - Republic Equity Fund. For information as to any other business, vocation or employment of a substantial nature in which each Trustee or officer of the Registrant's investment advisor is or has been engaged for his own account or in the capacity of Trustee, officer, employee, partner or trustee, reference is made to the Form ADV (File #34910) filed by it under the Investment Advisers Act of 1940, as amended. ITEM 29. PRINCIPAL UNDERWRITER. ---------------------- (a) Funds Distributor, Inc. (the "Distributor") acts as principal underwriter for the following investment companies. BJB Investment Funds Burridge Funds Fremont Mutual Funds, Inc. Harris Insight Funds Trust HT Insight Funds, Inc. d/b/a Harris Insight Funds The JPM Institutional Funds The JPM Pierpont Funds The JPM Series Trust The JPM Series Trust II LKCM Fund Monetta Fund, Inc. Monetta Trust The Munder Framlington Funds Trust The Munder Funds Trust The Munder Funds, Inc. The PanAgora Institutional Funds RCM Capital Funds, Inc. RCM Equity Funds, Inc. St. Clair Money Market Fund, Inc. The Skyline Funds Waterhouse Investors Cash Management Fund, Inc. WEBS Index Fund, Inc. Funds Distributor is registered with the Securities and Exchange Commission as a broker-dealer and is a member of the National Association of Securities Dealers. Funds Distributor is an indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company all of whose outstanding shares are owned by key employees. (b) The following is a list of the executive officers of Funds Distributor, Inc. President and Chief Executive Officer -Marie E. Connolly Executive Vice President -Richard W. Ingram Executive Vice President -Donald R. Roberson Senior Vice President, General Counsel, Secretary and Clerk -John E. Pelletier Senior Vice President -Michael S. Petrucelli Senior Vice President, Treasurer and Chief Financial Officer -Joseph F. Tower, III Senior Vice President -Paula R. David Senior Vice President -Bernard A. Whalen Senior Vice President -David A. Wrubel (c) Inapplicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS. --------------------------------- All records described in Section 31(a) of the 1940 Act and the Rules 17 CFR 270.31a-1 to 31a-31 promulgated thereunder, are maintained by the Trust's Investment Advisor, Brinson Partners, Inc., 209 South LaSalle Street, Chicago, IL 60604-1295, except for those maintained until May 9, 1997, by the Fund's Custodian, Bankers Trust Company, c/o BTNY Services, Inc., 34 Exchange Place, Jersey City, NJ 07302 and the Fund's Administrator, Transfer, Redemption, Dividend Disbursing and Accounting Agent, FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406-0903. Effective May 9, 1997, Morgan Stanley Trust Company ("MSTC"), One Pierrepont Plaza, Brooklyn, New York 11201, will provide general administrative, accounting, portfolio valuation, transfer agency and custodian services to the Trust, including the coordination and monitoring of any third party service providers, and together with any third party service providers, will maintain certain records on behalf of the Trust that had been previously maintained by Bankers Trust Company and FPS Services, Inc. ITEM 31. MANAGEMENT SERVICES. -------------------- There are no management-related service contracts not discussed in Part A or Part B. ITEM 32. UNDERTAKINGS. ------------- (a) Inapplicable. (b) The Registrant hereby undertakes to furnish each person to whom a Prospectus for one or more series of the Registrant is delivered with a copy of the relevant latest annual report to shareholders, upon request and without charge. (c) The Registrant hereby undertakes to promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any Trustee when requested in writing to do so by the record holders of not less than 10 percent of the Registrant's outstanding shares and to assist its shareholders in accordance with the requirements of Section 16(c) of the Investment Company Act of 1940, as amended, relating to shareholder communications. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this registration statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post- Effective Amendment No. 18 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of King of Prussia and the Commonwealth of Pennsylvania, on the 30th day of April, 1997. THE BRINSON FUNDS By: E. Thomas McFarlan* President, Treasurer, and Principal Accounting Officer* Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 18 to Registrant's Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated.
E. THOMAS MCFARLAN* E. Thomas McFarlan April 30, 1997 President, Treasurer, Principal Accounting Officer WALTER E. AUCH* Walter E. Auch April 30, 1997 Trustee EDWARD M. ROOB* Edward M. Roob April 30, 1997 Trustee FRANK K. REILLY* Frank K. Reilly April 30, 1997 Trustee
- -------------------------- *By: /s/ Carolyn F. Mead, -------------------- as Attorney-in-Fact and Agent pursuant to Power of Attorney REGISTRATION NO. 33-47287 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 18 TO THE REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AND THE SECURITIES ACT OF 1933 ON FORM N-1A THE BRINSON FUNDS THE BRINSON FUNDS & INDEX TO EXHIBITS TO FORM N-1A Exhibit Description of Sequentially Number Exhibit Numbered Page (99.B6(f)) Distribution Agreement between Funds Distributor, Inc. and the Registrant on behalf of each Series of the Trust (99.B8(d)) Form of Multiple Services Agreement between Morgan Stanley Trust Company and Registrant on behalf of each Series of the Trust (99.B11(a)) Consent of Ernst & Young LLP (99.B15(c)) Form of Distribution Plan relating to the Brinson- Class N shares on behalf of each Series of the Trust (99.B18(b)) Form of Revised Multiple Class Plan Pursuant to Rule 18f-3 on behalf of each Series of the Trust (99.B27) Financial Data Schedules on behalf of each Series of the Trust EX-99.B.6.(F) 2 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT THE BRINSON FUNDS 209 South LaSalle Street Chicago, Il 60604-1295 February 24, 1997 Funds Distributor, Inc. 60 State Street Suite 1300 Boston, Massachusetts 02109 Dear Sirs: This is to confirm that, in consideration of the agreements hereinafter contained, the above-named investment company (the "Fund") has agreed that you shall be, for the period of this agreement, the distributor of (a) shares of each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be revised from time to time (each, a "Series"). For purposes of this agreement the term "Shares" shall mean the authorized shares of each of the relevant Series of the Fund. 1. Services as Distributor 1.1 You will act as agent for the distribution of Shares covered by, and in accordance with, the Fund's registration statement and prospectus and statement of additional information then in effect under the Securities Act of 1933, as amended, and will transmit promptly any orders received by you for purchase or redemption of Shares to the Transfer Agent for the Fund of which the Fund has notified you in writing from time to time. 1.2 You agree to use your best efforts to solicit orders for the sale of Shares. It is contemplated that you may appoint sub-agents and enter into sales or servicing agreements with securities dealers, financial institutions and other industry professionals, such as investment advisers, accountants and estate planning firms, and in so doing you will act only on your own behalf as principal and not as principal for the Fund. This Agreement shall not be construed as authorizing any securities dealer or other person to accept orders for sale or repurchase on our behalf or otherwise act as our agent for any purpose. However, the Fund and each Series retain the right to make direct sales of Shares consistent with the terms of the prospectus and statement of additional information relating to the Shares then in effect under the Securities Act of 1933, as amended, and applicable law, and to engage in other legally authorized transactions in Shares which do not involve the sale of Shares to the general public. Such other transactions may 1 include, without limitation, transactions between the Fund or any Series or class and its shareholders only, transactions involving the reorganization of the Fund or any Series, and transactions involving the merger or combination of the Fund or any Series with another corporation or trust. 1.3 You shall act as distributor of Shares in compliance with all applicable laws, rules and regulations, including, without limitations, the Investment Company Act of 1940, as amended, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the National Association of Securities Dealers, Inc.'s (the "NASD") Rules of Fair Practice, Constitution and By-Laws. You represent and warrant that you are a broker-dealer registered with the Securities and Exchange Commission and that you are registered with the relevant securities regulatory agencies in all fifty states, the District of Columbia and Puerto Rico. You also represent and warrant that you are a member in good standing of the NASD and that you will maintain registration and membership for the life of the agreement. 1.4 Other than our prospectus and statement of additional information relating to the Shares then in effect under the Securities Act of 1933, as amended, you will not issue any sales material or statements except literature or advertising which conforms to the requirements of Federal and State securities laws and regulations and which have been filed, where necessary, with the appropriate regulatory authorities. You shall file Fund advertisements, sales literature and other marketing and sales related materials with the appropriate regulatory agencies and shall obtain such approvals for their use as may be required by the Securities and Exchange Commission, the NASD and/or state securities administrators. 1.5 The Fund may decline to accept any orders for, or make any sales of, any Shares until such time as it deems it advisable to accept such orders and to make such sales and the Fund shall advise you promptly of any such determination. 1.6 The Fund agrees to pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933, as amended, and all expenses in connection with maintaining facilities for the issue and transfer of Shares and for supplying information, prices and other data to be furnished by the Fund hereunder, and all expenses in connection with the preparation and printing of the Fund's prospectuses and statements of additional information for regulatory purposes and for their distribution to shareholders; provided however, that the Fund shall not pay any of the costs of advertising or promotion for the sale of Shares pursuant to this agreement. You shall also be entitled to compensation for your services as provided in any Distribution Plan adopted as to any Series and class of the Fund's Shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. 1.7 The Fund agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions which may be reasonably necessary in the discretion of the Fund's officers in connection with the registration and/or qualification, as applicable, of Shares for sale in such states as you may designate to the Fund and the Fund may 2 approve, and the Fund agrees to pay all reasonable expenses which may be incurred in connection with such qualification or registration. You shall pay all expenses connected with your own qualification as a dealer under state or Federal laws and, except as otherwise specifically provided in this agreement, all other expenses incurred by you in connection with the sale of Shares as contemplated in this agreement. 1.8 The Fund shall furnish you from time to time, for use in connection with the sale of Shares, such information with respect to the Fund or any relevant Series and the Shares as you may reasonably request, all of which shall be signed by one or more of the Fund's duly authorized officers; and the Fund warrants that the statements contained in any such information, when so signed by the Fund's officers, shall be true and correct. The Fund also shall furnish you upon request with: (a) semi-annual reports and annual audited reports of the Fund's books and accounts made by independent public accountants regularly retained by the Fund, (b) semi-annual financial statements prepared by us; (c) registration statements; and (d) from time to time such additional information regarding the Fund's financial condition as you may reasonably request. 1.9 The Fund represents to you that all registration statements and prospectuses filed by the Fund with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and under the Investment Company Act of 1940, as amended, with respect to the Shares and the Fund have been prepared in conformity with the requirements of said Acts and rules and regulations of the Securities and Exchange Commission thereunder. As used in this agreement the terms "registration statement" and "prospectus" shall mean any registration statement and prospectus, including the statement of additional information incorporated by reference therein, filed with the Securities and Exchange Commission and any amendments and supplements thereto which at any time shall have been filed with said Commission. The Fund represents and warrants to you that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with said Acts and the rules and regulations of said Commission; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement becomes effective; and that neither any registration statement nor any prospectus when such registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Fund may, but shall not be obligated to, propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus as, in the light of future developments, may, in the opinion of the Fund's counsel, be necessary or advisable. If the Fund shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Fund of a written request from you to do so, you may, at your option, terminate this agreement or decline to make offers of the Fund's securities until such amendments are made. The Fund shall not file any amendment to any registration statement or supplement to any prospectus without giving you reasonable notice thereof in advance; provided, however, that nothing contained in this agreement shall in any way limit the Fund's right to file 3 at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional. 1.10 The Fund authorizes you and any dealers with whom you have entered into dealer agreements to use any currently effective prospectus in the form furnished by the Fund in connection with the sale of Shares. The Fund agrees to indemnify, defend and hold you, your several officers and directors, and any person who controls you within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the reasonable cost of investigating or defending such claims, demands or liabilities and any reasonable counsel fees incurred in connection therewith) which you, your officers and directors, or any such controlling persons, may incur under the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, or common law or otherwise, arising out of or on the basis of any untrue statement, or alleged untrue statement, of a material fact required to be stated in either any registration statement or any prospectus or any statement of additional information, or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in any registration statement, any prospectus or any statement of additional information or necessary to make the statements in any of the aforementioned documents not misleading, except that the Fund's agreement to indemnify you, your officers or directors, and any such controlling person will not be deemed to cover any such claim, demand, liability or expense to the extent that it arises out of or is based upon any such untrue statement, alleged untrue statement, omission or alleged omission made in any registration statement, any prospectus or any statement of additional information in reliance upon information furnished by you, your officers, directors or any such controlling person to the Fund or a person that you reasonably believe is a person designated by the Fund for use in the preparation thereof, and except that the Fund's agreement to indemnify you and the Fund's representations and warranties set out in paragraph 1.9 of this Agreement will not be deemed to cover any liability to the Funds or their shareholders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties, or by reason of your reckless disregard in the performance of your obligations and duties under this Agreement ("Disqualifying Conduct"). The Fund's agreement to indemnify you, your officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Fund's being notified of any action brought against you, your officers or directors, or any such controlling person, such notification to be given by letter, by facsimile or by telegram addressed to the Fund at its address set forth above promptly after the summons or other first legal process shall have been served. The failure to so notify the Fund of any such action shall not relieve the Fund from any liability which the Fund may have to the person against whom such action is brought by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of the Fund's indemnity agreement contained in this paragraph 1.10. The Fund will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Fund and approved by you. In the event the Fund elects to assume the defense of any such suit and retain counsel of good standing 4 approved by you, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Fund does not elect to assume the defense of any such suit, the Fund will reimburse you, your officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the reasonable fees and expenses of any counsel retained by you or them. The Fund's indemnification agreement contained in this paragraph 1.10 and the Fund's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you, your officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to your benefit, to the benefit of your several officers and directors, and their respective estates, and to the benefit of any controlling persons and their successors. The Fund agrees promptly to notify you of the commencement of any litigation or proceedings against the Fund or any of its officers or Board members in connection with the issue and sale of Shares. 1.11 You agree to indemnify, defend and hold the Fund, its several officers and Board members, and any person who controls the Fund within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the reasonable cost of investigating or defending such claims, demands or liabilities and any reasonable counsel fees incurred in connection therewith) which the Fund, its officers or Board members, or any such controlling person, may incur under the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, or under common law or otherwise, but only to the extent that such liability or expense incurred by the Fund, its officers or Board members, or such controlling person resulting from such claims or demands, (a) shall arise out of or be based upon any Disqualifying Conduct, or (b) shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished in writing by you to the Fund specifically for use in the Fund's registration statement and used in the answers to any of the items of the registration statement or in the corresponding statements made in the prospectus or statement of additional information, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished in writing by you to the Fund and required to be stated in such answers or necessary to make such information not misleading. Your agreement to indemnify the Fund, its officers and Board members, and any such controlling person, as aforesaid, is expressly conditioned upon your being notified of any action brought against the Fund, its officers or Board members, or any such controlling person, such notification to be given by letter, by facsimile or by telegram addressed to you at your address set forth above promptly after the summons or other first legal process shall have been served. The failure so to notify you of any such action shall not relieve you from any liability which you may have to the person against whom such action is brought by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of your indemnity agreement contained in this paragraph 1.11. You will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by you and approved by the Fund. In the event you elect to assume the defense of any such suit and retain counsel of good standing approved by 5 the Fund, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in the case you do not elect to assume the defense of any such suit, you will reimburse the Fund, the Fund's officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the reasonable fees and expenses of any counsel retained by the Fund or them. Your indemnification agreement contained in this paragraph 1.11 and your representations and warranties in this agreement shall remain operative and in full force and effect regardless of any investigation made by you or on behalf of you, your officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to the Fund's benefit, to the benefit of the Fund's officers and Board members, and their respective estates, and to the benefit of any controlling persons and their successors. You agree promptly to notify the Fund of the commencement of any litigation or proceedings against you or any of your officers or directors in connection with the issue and sale of Shares. 1.12 No Shares shall be offered by either you or the Fund under any of the provisions of this agreement and no orders for the purchase or sale of such Shares hereunder shall be accepted by the Fund if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act of 1933, as amended, or if and so long as a current prospectus as required by Section 10 of said Act, as amended, is not on file with the Securities and Exchange Commission or if the Fund or its Transfer Agent has notified you that Shares are not registered and/or qualified for sale in a given state or jurisdiction; provided, however, that nothing contained in this paragraph 1.12 shall in any way restrict or have an application to or bearing upon the Fund's obligation to repurchase any Shares from any shareholder in accordance with the provisions of the Fund's prospectus or charter documents. 6 1.13 The Fund agrees to advise you promptly in writing: (a) of any request by the Securities and Exchange Commission for amendments to the registration statement or prospectus then in effect or of additional information that materially affects you; (b) in the event of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or the initiation of any proceeding for that purpose; (c) of the happening of any event which makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; and (d) of all actions of the Securities and Exchange Commission with respect to any amendments to any registration statement or prospectus which may from time to time be filed with the Securities and Exchange Commission. 2. Offering Price Shares of any class of the Fund offered for sale by you shall be offered at a price per share (the "offering price") equal to (a) the net asset value (determined in the manner set forth in the Fund's charter documents) plus (b) a sales charge, if any and except to those persons set forth in the then-current prospectus, which shall be the percentage of the offering price of such Shares as set forth in the Fund's then-current prospectus. All Shares will be sold in the manner set forth in the Fund's then current prospectus and statement of additional information, and in compliance with applicable law. The offering price, if not an exact multiple of one cent, shall be adjusted to the nearest cent. In addition, Shares of any class of the Fund offered for sale by you may be subject to a contingent deferred sales charge as set forth in the Fund's then-current prospectus. Any payments to dealers shall be governed by a separate agreement between you and such dealer and the Fund's then-current prospectus. 3. Orders for and Sales of Shares Orders for shares shall be directed to the Fund's Transfer Agent for acceptance on behalf of the Fund. Sales of Shares shall be deemed to be made when and where accepted by the Fund's Transfer Agent. 4. Term 7 This Agreement shall become effective with respect to the Fund as of the date hereof and will continue for an initial one-year term and will continue thereafter so long as such continuance is specifically approved at least annually (i) by the Fund's Board or (ii) by a vote of a majority of the Shares of the Fund or the relevant Series, as the case may be, provided that in either event its continuance also is approved by a majority of the Board members who are not "interested persons" of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement is terminable with respect to the Fund, without penalty, on not less than sixty days' notice, by the Fund's Board of Trustees, by vote of a majority of the outstanding voting securities of such Fund, or by you. This Agreement will automatically and immediately terminate in the event of its "assignment." (As used in this Agreement, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meanings as such terms have in the Investment Company Act of 1940, as amended). You agree to notify the Fund immediately upon the event of your expulsion or suspension by the NASD. This Agreement will automatically and immediately terminate in the event of your expulsion or suspension by the NASD. 5. Miscellaneous 5.1 The Fund recognizes that, except to the extent otherwise agreed to by the parties hereto, your directors, officers and employees may from time to time serve as directors, trustees, officers and employees of corporations and business trusts (including other investment companies), and that you or your affiliates may enter into distribution or other agreements with such other corporations and trusts. 5.2 No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 5.3 This Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts without giving effect to principles of conflicts of laws. 5.4 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. Please confirm that the foregoing is in accordance with your understanding and indicate your acceptance hereof by signing below, whereupon it shall become a binding Agreement between us. Very truly yours, THE BRINSON FUNDS 8 By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 9 Accepted: FUNDS DISTRIBUTOR, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 10 EXHIBIT A Series of the Funds ------------------- THE BRINSON FUNDS* Global Fund Global Equity Fund Global Bond Fund U.S. Balanced Fund U.S. Equity Fund U.S. Bond Fund Non-U.S. Equity Fund *Each Series above offers two separate classes of shares - the SwissKey Fund class and the Brinson Fund class. 11 EX-99.B.6.(D) 3 FORM OF MULTIPLE SERVICES AGREEMENT FORM OF MULTIPLE SERVICES AGREEMENT This AGREEMENT is effective May 9, 1997, and is between Morgan Stanley Trust Company, a New York state chartered trust company (the "Bank"), and The Brinson Funds, a Delaware business trust (the "Customer") on behalf of its separate series of shares representing interests in separate portfolios which are listed on Schedule B1, as may be amended from time to time ("Series"). WHEREAS, Customer is an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act") as an open-end investment company; and WHEREAS, the Customer desires to enter into one agreement providing for the furnishing of global custody, administrative, accounting and transfer agency services to the Series; and WHEREAS, the Bank desires to furnish such services to the Customer or to arrange for the furnishing of such services through the use of certain agents; NOW, THEREFORE, IT IS AGREED AS FOLLOWS I. GLOBAL CUSTODY SERVICES The Customer hereby appoints the Bank as its global custodian to the Series, and the Bank hereby accepts such appointment. This Section I. of this Multiple Services Agreement (the "Agreement") relates solely to the provision of global custody services to the Customer. 1. CUSTOMER ACCOUNTS. The Bank agrees to establish and maintain the following accounts ("Accounts"): Separate custody accounts for each Series in the name of the Customer on behalf of each such Series as listed in Schedule B1 for any and all stocks, shares, bonds, debentures, notes, mortgages or other obligations for the payment of money, bullion, coin and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe to the same or evidencing or representing any other rights or interests therein and other similar property whether certificated or uncertificated as may be received by the Bank or its Subcustodian (as defined in Sub-section 3 of this Section I.) for the account of the Customer on behalf of a Series ("Securities") and any and all cash equivalents. Prior to the delivery of any Assets (as defined hereinafter) by the Customer to the Bank, the Customer shall deliver to the Bank each applicable document or other item listed in Schedule B2, which schedule may be amended from time to time by the Customer and the Bank. The Customer warrants its authority to: 1) deposit the cash and Securities ("Assets") received in the Accounts and 2) give Instructions (as defined in Sub-section 11 of this Section I.) concerning the Accounts. Such Instructions shall specifically indicate to which Series such Assets belong or, if such Assets belong to more than one Series, shall allocate such Assets to the appropriate Series. The Bank may deliver securities of the same type and class in place of those deposited in the Accounts. Upon receipt of Instructions and appropriate documentation, the Bank shall establish additional Accounts, which shall be separately accounted for as additional Accounts under the terms of this Agreement. The procedures the Bank and the Customer will use in performing activities in connection with this Agreement are set forth in a client services guide provided to the Customer by the Bank, as such guide may be amended from time to time by the Bank (the "Client Services Guide") with the consent of the Customer; provided, however, that any customer enhancement or amendments deemed -------- ------- necessary by the Bank in order to comply with existing or new rules, regulations or market practices, in any jurisdiction, may be made by the Custodian without the consent of the Customer. Any Customer specific procedures which are included in the Client Services Guide must be agreed to or changed in writing by both parties and such Customer specific procedures shall be deemed to be a part of this Agreement. 2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS. Unless Instructions specifically require another location, securities will be held in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for payment or where such Securities are acquired. 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Subject to the provisions of Sub-section 2 above of this Section I., the Assets held for each Series may be held in custody and deposit accounts that have been established by the Bank (i) with one or more domestic or foreign banks or other institutions as listed on Schedule A1 (the "Subcustodians"), as such Schedule may be amended from time to time by the Bank by ninety (90) days' written notice to the Customer, or (ii) through the facilities of one or more securities depositories or clearing agencies as listed on Schedule A2, as such Schedule may be amended from time to time by the Bank by sixty (60) days' prior written notice to the Customer. (The parties agree that, for so long as required by the 1940 Act and the rules thereunder, including Rule 17f-5, any new securities depositories or clearing agencies are subject to approval or ratification by the Customer's Board of Trustees.) Any 2 Subcustodian may hold Assets of the Customer in a securities depository and may utilize a clearing agency. Each of the entities listed on Schedule A1 are "Eligible Foreign Custodians" (as such term is defined in Rule 17f-5(c)(2) of the Investment Company Act of 1940 (the "1940 Act")), except as otherwise noted on Schedule A1. Each of the entities listed on Schedule A2 are "Eligible Foreign Custodians" or "Securities Depositories" as such term is defined in Rule 17f-4(a) and (b) of the 1940 Act, or have been so qualified by exemptive order, rule or other appropriate action of the SEC, except as otherwise noted on Schedule A2; provided, however, that although the Bank is of the opinion that -------- ------- each of the securities depositories used by it does operate either a central system for handling securities in their respective countries or a transnational system for the central handling of securities or equivalent book-entries, the determination that a securities depository operates a central system absent any official proclamation by the SEC is a factual one and the Bank shall not be liable for any future determination by the SEC that any such securities depository does not in fact operate such a central system. The Customer will be given reasonable notice by the Bank of any amendment to Schedule A1 or A2. Upon request by the Customer, the Bank will identify the name, address and principal place of business of any Subcustodian of the Customer's Assets and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian. 4. USE OF SUBCUSTODIAN. (a) The Bank will identify the Assets on its books as belonging to the Customer on behalf of a particular Series. (b) A Subcustodian will hold such Assets together with assets belonging to other customers of the Bank in accounts identified on such Subcustodian's books as custody accounts for the exclusive benefit of customers of the Bank. In the event the Subcustodian holds Assets in a securities depository, such Subcustodian shall be required by its agreement with the Bank to identify on its books such Assets as being held for the account of the Bank as custodian for its customers or in such other manner as is required by local law or market practice. (c) Any Assets in the Accounts held by a Subcustodian will be subject only to the instructions of the Bank or its agent. Any Securities held in a securities depository for the account of a Subcustodian will be subject only to the instructions of such Subcustodian or its agent. (d) Any agreement the Bank enters into with a Subcustodian for holding the Customer's Assets shall provide that: (i) the Account will be adequately indemnified and its assets adequately insured in the event of a loss; (ii) the Assets are not subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or its creditors except a claim of payment for their safe custody or administration; (iii) beneficial 3 ownership of such Assets will be freely transferable without the payment of money or value other than for safe custody or administration; (iv) adequate records will be maintained identifying the Assets held pursuant to such Agreement as belonging to the Bank on behalf of Customer; (v) the independent public accountants of or designated by, the Customer, will be given access to or confirmation of the contents of the books and records of such Subcustodian relating to its actions under its agreement pertaining to any Assets held by it thereunder; and (vi) Customer will receive periodic reports with respect to the safekeeping of the Assets, including notification of any transfer to or from the Customer's account. (e) The Bank shall deliver to the Customer annually documents stating: (i) the identity of each Subcustodian then acting on behalf of the Bank and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian; (ii) the countries in which each Subcustodian is located; and (iii) so long as Rule 17f-5 of the 1940 Act requires the Customer's Board of Trustees to directly approve its foreign custody arrangements, such other information relating to such Subcustodians as may reasonably be requested by the Customer to ensure Customer's compliance with Rule 17f-5 of the 1940 Act. The Bank shall furnish annually to the Customer information concerning such Subcustodians similar in kind and scope as that furnished to the Customer in connection with the initial approval of this Agreement. Bank agrees to provide Customer with notice of any material adverse changes in the facts or circumstances upon which such information is based as soon as practicable after it becomes aware of any such material adverse changes in the normal course of its custodian activities. 5. CASH TRANSACTIONS. (a) All cash received by the Bank for each of the Accounts shall be held by the Bank as a short-term credit balance in favor of the Customer on behalf of the Series to which the Account relates and, because the Bank and the Customer have agreed in writing in advance that such credit balances shall bear interest, the relevant Series shall earn interest at the rates and times as agreed between the Bank and the Customer. The Customer acknowledges that any such credit balances shall not be accompanied by the benefit of any governmental insurance. (b) The Bank or its Subcustodians will make cash payments from the Account upon receipt of Instructions. (c) In the event that any payment to be made under this Sub-section 5 exceeds the funds available in an Account, the Bank, in its discretion, may advance the Customer on behalf of the relevant Series whose Assets are held in such Account such excess amount which shall be deemed a short-term credit extension which is (i) necessary in connection with payment and clearance of securities and foreign exchange transactions or (ii) pursuant to an agreed schedule, as and if set forth in the Client Services Guide, of credits for dividends and interest payments on the Assets. Such credit extensions shall be payable on demand, bearing 4 interest at the rate customarily charged by the Bank on similar loans and consistent with the fee schedule set forth on Schedule F. (d) If the Bank credits an Account on a payable date, or at any time prior to actual collection and reconciliation to the Account, with interest, dividends, redemptions or any other amount due, the Customer on behalf of and from the Assets of the Series to which the Account relates will promptly return any such amount upon written notification: (i) that such amount has not been received in the ordinary course of business, or (ii) that such amount was incorrectly credited. If the Customer on behalf of and from the Assets of the Series to which the Account relates does not promptly return any amount upon such notification, the Bank shall be entitled, upon written notification to the Customer, to reverse such credit by debiting the Account for the amount previously credited. The Bank shall be entitled to charge the Customer on behalf of the Assets of the Series in the Account interest for any such credit extension at rates to be agreed upon from time to time or, if such credit is arranged by the Bank with a third party on behalf of the Series, the Customer out of the Series' assets shall reimburse the Bank for any interest charge. In addition to any other remedies available, with respect to the extension of credit to a particular Series, the Bank shall be entitled to a right of set-off against the Assets of such Series to satisfy the repayment of such credit extension and the payment of, or reimbursement for, accrued interest thereon. (e) The Bank shall provide the Customer, in a format mutually agreed upon by both parties, the Customer's short-term credit balances in the Account by no later than 9:00 a.m. Eastern Time and securities lending collateral by no later than 11:00 a.m. and updated at 1:00 p.m., on each business day that the Bank is open or authorized to transact business in the State of New York and the Customer shall be entitled to rely on such short-term credit balance calculations. The Bank shall provide the Customer with a five day cash projection report, on each business day that the Bank is open or authorized to transact business in the State of New York. The short-term credit balance and cash projection report shall include Class level shareholder activity from the previous day as reported by each Series' transfer agent. 6. CUSTODY ACCOUNT TRANSACTIONS. (a) Securities will be transferred, exchanged or delivered by the Bank or its Subcustodian upon receipt by the Bank of Instructions. Settlement and payment for Securities received for, and delivery of Securities out of, the Accounts may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs. Under all circumstances, Bank shall use its reasonable efforts to make delivery of Securities to a purchaser, dealer or their agents only against payment subject to local custom and regulations. Delivery of Securities out of an Account may also be made in any other manner specifically required by Instructions. 5 (b) The Bank, upon receipt of Instructions, will credit or debit an Account on a contractual settlement date, if consistent with applicable law, with cash or Securities with respect to any sale, exchange or purchase of Securities. Otherwise, such transactions will be credited or debited to an Account on the date cash or Securities are actually received by the Bank and reconciled to such Account. 7. ACTIONS OF THE BANK. The Bank shall follow Instructions received regarding assets held in the Accounts. However, until it receives Instructions to the contrary, the Bank will: (a) Present for payment any Securities which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation, to the extent that the Bank or Subcustodian is actually aware of such opportunities. (b) Execute in the name of the Customer such ownership and other certificates as may be required to obtain payments in respect of Securities. (c) Exchange interim receipts or temporary Securities for definitive Securities. (d) Issue statements to the Customer, at times mutually agreed upon, identifying the Assets in the Accounts. (e) Receive and collect all income and principal with respect to Securities and to credit cash receipts to the Accounts. (f) Take non-discretionary action on mandatory corporate actions. (g) Pay or cause to be paid, from the Accounts, any and all taxes and levies of any nature imposed on the Assets by any governmental authority in connection with custody of and transactions in such Assets. (h) In general, attend to all nondiscretionary details in connection with the custody, sale, purchase, transfer and other dealings with the Assets held in the Accounts. The Bank will send the Customer an advice or notification of any transfers of Assets to or from the Accounts. Such statements, advices or notifications shall indicate the identity of the entity having custody of the Assets. Unless the Customer sends the Bank a written exception or objection to any Bank statement within ninety (90) days of receipt, the Customer shall be deemed to have approved such statement. All collections of funds or other property paid or distributed in respect of Securities in the Accounts shall be made at the risk of the Customer. The Bank shall have 6 no liability for any loss occasioned by delay in the actual receipt of notice by the Bank or by its Subcustodians of any payment, redemption or other transaction regarding Securities in the Accounts in respect of which the Bank has agreed to take any action under this Agreement. 8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS. (a) Corporate Actions. Whenever the Bank receives information concerning ----------------- the Securities which requires discretionary action by the beneficial owner of the Securities (other than a proxy), such as subscription rights, bonus issues, stock repurchase plans and rights offerings, or legal notices or other material intended to be transmitted to securities holders ("Corporate Actions"), the Bank will give the Customer notice of such Corporate Actions to the extent that the Bank's central corporate actions department has actual knowledge of a Corporate Action in time to notify its customers. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar Corporate Action is received which bears an expiration date, the Bank will endeavor to obtain Instructions, as defined in Sub-section 11 of this Section I., but if Instructions are not received in time for the Bank to take timely action, or actual notice of such Corporate Action was received too late to seek Instructions, the Bank is authorized to act in accordance with the default option provided by local market practice and/or the issuer of the Securities. Fractional interests resulting from Corporate Action activity shall be treated in accordance with local market practices. The Bank shall be held harmless for any such action provided such action was made in good faith. The indemnification provision of this Sub-section 8(a) will survive the termination of this Agreement. (b) Proxy Voting. The Bank will provide proxy voting services only ------------ pursuant to the Client Services Guide. Proxy voting services may be provided by the Bank or, in whole or in part, by one or more third parties appointed by the Bank (which may be affiliates of the Bank). (c) Tax Reclaims. ------------ (i) Subject to the provisions hereof and the receipt of Instructions as described in the Client Services Guide, the Bank will timely apply for or facilitate the application for a reduction of withholding tax and any refund of any tax paid or tax credits which apply in each applicable market in respect of income payments on Securities for the benefit of the Customer which the Bank believes may be available to such Customer. The Bank shall notify the Customer that it is making such application for a reduction of withholding tax and refund of any tax paid or tax credits which apply in each applicable market in respect of income payments on Securities for the benefit of Customer. 7 (ii) The provisions of tax reclaim services by the Bank is conditional upon the Bank receiving from the beneficial owner of Securities (A) a declaration of its identity and place of residence and (B) certain other documentation (pro forma copies of which are available from the Bank). The Bank --- ----- shall use reasonable means to notify Customer of the declarations, documentation and information which the Customer is to provide to Bank in order for the Bank to perform the tax reclaim services described herein. The Customer acknowledges that, if the Bank does not receive such information, additional United Kingdom taxation will be deducted from all income received in respect of Securities issued outside the United Kingdom and that U.S. non-resident alien tax or U.S. backup withholding tax will be deducted from U.S. source income. The Customer shall provide to the Bank such documentation and information as it may require in connection with taxation, and warrants that, when given, this information shall be true and correct in every respect, not misleading in any way, and contain all material information. The Customer undertakes to notify the Bank immediately if any such information requires updating or amendment. (iii) The Bank shall not be liable to the Customer or any third party for any tax, fines or penalties payable by the Bank or the Customer, and shall be indemnified accordingly, whether these result from the inaccurate completion of documents by the Customer or any third party, or as a result of the provision to the Bank or any third party of inaccurate or misleading information or the withholding of material information by the Customer or any other third party, or as a result of any delay of any revenue authority or any other matter beyond the control of the Bank. The provisions of this Sub-section 8(c)(iii) shall survive the termination of this Agreement. (iv) The Customer confirms that the Bank is authorized to deduct from any cash received or credited to the Accounts any taxes or levies required by any revenue or governmental authority for whatever reason in respect of the Accounts. (v) The Bank shall perform tax reclaim services only with respect to taxation levied by the revenue authorities of the countries notified to the Customer from time to time and, upon Instructions as described in the Client Services Guide, the Bank may, if the Bank offers tax reclaim services in new markets, supplement or amend the markets in which the tax reclaim services are offered. Other than as expressly provided in this sub-clause and to the extent that the Bank acts in accordance with the information provided on Schedule B2, the Bank shall have no responsibility with regard to the Customer's tax position or status in any jurisdiction. (vi) The Customer confirms that the Bank is authorized to disclose any information requested by any revenue authority or any governmental body in relation to the Customer or the Securities and/or Cash held for the Customer for the purpose of obtaining tax reclaims only. This provision does not authorize any other disclosure to any revenue authority or any governmental body without the prior written consent of Customer. 8 (vii) Tax reclaim services may be provided by the Bank or, in whole or in part, by one or more third parties appointed by the Bank (which may be affiliates of the Bank); provided that the Bank shall be liable for the performance of any such third party to the same extent as the Bank would have been if it performed such services itself. (viii) The Bank shall monitor tax reclaims and report on such reclaims on a monthly basis. 9. NOMINEES. Securities which are ordinarily held in registered form may be registered in the name of the Bank, Subcustodian or securities depository or any of their nominees, as the case may be. The Bank may without notice to the Customer cause any such Securities to cease to be registered in the name of any such nominee and to be registered in the name of the Customer. Under no circumstances, shall any of the Securities be registered in the name of Brinson Partners, Inc. unless the Bank has been instructed otherwise. In the event that any Securities registered in a nominee name are called for partial redemption by the issuer, the Bank may allot the called portion to the respective beneficial holders of such class of security in any manner the Bank deems to be fair and equitable. Where the Bank has been instructed by the Customer to hold any Securities in the name of any person or entity other than the Bank, its Subcustodian or any such entity's nominee, the Bank shall not be responsible for any failure to collect such dividends or other income or participate in any such corporate action with respect to such Securities. 10. AUTHORIZED PERSONS. As used in this Agreement, the term "Authorized Person" means persons as have been designated on Schedule B3, or entities as have been designated on Schedule B4, as such Schedules may be amended from time to time by written notice from the Customer or its designated agent to act on behalf of the Customer under this Agreement. Such persons or entities shall continue to be Authorized Persons until such time as the Bank receives Instructions that any such person or entity is no longer an Authorized Person. Prior to the delivery of the Assets to the Bank, the Bank shall provide to Customer a list of designated system user ID numbers and passwords that the Customer shall be responsible for assigning to Authorized Persons. The Bank shall assume that an electronic transmission received and identified by a system user ID number and password was sent by an Authorized Person. The Bank agrees to provide additional designated system user ID numbers and passwords as needed by the Customer. The Customer authorizes the Bank to issue new system user ID numbers upon the request of a previously existing Authorized Person. Upon the issuance of additional system user ID numbers by the Bank to the Customer, Schedule B4 shall be deemed automatically amended accordingly. The Customer authorizes and instructs the Bank to assume that a facsimile transmission received which sets forth only the typed name of an Authorized Person is an Instruction sent by an Authorized Person. The Customer authorizes 9 the Bank to receive, act and rely upon any Instructions received by the Bank which have been issued, or purport to have been issued, by an Authorized Person. Any Authorized Person may cancel/correct or otherwise amend any Instruction received by the Bank, but the Customer agrees to indemnify the Bank for any liability, loss or expense incurred by the Bank and its Subcustodians as a result of their having relied upon or acted in good faith on any prior Instruction. The Bank will use its reasonable efforts to process trades once the trades have settled, upon receipt of an amendment or cancellation of an Instruction to deliver or receive any security or funds with respect to such trades. 11. INSTRUCTIONS. The term "Instructions" for purposes of Section I. of this Agreement means instructions of any Authorized Person received by the Bank, via telex, facsimile transmission, bank wire, SWIFT or other teleprocess or electronic instruction or trade information system acceptable to the Bank which the Bank reasonably believes in good faith to have been given by Authorized Persons or by such other means as may be agreed in writing by Bank and Customer or which are transmitted with proper testing or authentication pursuant to terms and conditions which the Bank may specify and provided that such Instructions are timely received by the Bank. Unless otherwise expressed, Instructions shall continue in full force and effect until canceled or superseded. The Customer shall be responsible for safeguarding any testkeys, identification codes or other security devices which the Bank shall make available to the Customer or its Authorized Persons. II. ADMINISTRATIVE, ACCOUNTING AND TRANSFER AGENCY SERVICES The Customer hereby appoints the Bank as its administrative, accounting services and transfer agent to the Series, and the Bank hereby accepts such appointment. This Section II. of this Agreement relates solely to the provision of administrative, accounting and transfer agency services to the Customer and its Series. For purposes of this Section II., the term "Bank" shall include the Bank and its agents. A. ADMINISTRATIVE SERVICES ----------------------- 1. SERVICES. Subject to the succeeding provisions of this section and subject to the direction and supervision of the Board of Trustees of the Customer, Bank shall provide to Customer and each of the Series administrative services as set forth in Schedule C attached hereto and incorporated by reference into this Agreement. In addition to the obligations set forth in Schedule C, the Bank, in its capacity as administrator for the Customer and each of the 10 Series ("Administrator"), shall: (i) provide its own office space, facilities, equipment and personnel for the performance of its duties under this Section II.A. of this Agreement; and (ii) take all actions the Bank deems necessary to properly execute administration on behalf of the Series. 2. COOPERATION OF OTHER PARTIES. So that the Bank may perform its duties under the terms of this Agreement, the Board of Trustees of the Customer shall direct the officers, investment adviser, legal counsel, independent accountants and other agents of the Customer to cooperate with the Bank in performing administrative services hereunder and, upon request of the Bank, to provide such information, documents and advice as is within the possession or knowledge of such persons provided that no such person need provide any information to the Bank if to do so would result in the loss of any privilege with respect to such information unless the Customer elects to waive such privilege. In the event that the Customer does not elect to waive such privilege, the Bank shall not be liable for and shall be indemnified against any losses directly resulting from the failure to deliver such information, documents or advice. In connection with its duties hereunder, the Bank shall be entitled to rely, and shall be held harmless by the Customer when acting in reliance upon the instruction, advice or any documents relating to the Customer as provided to the Bank by any of the aforementioned persons provided that such reliance is reasonable. The indemnification provisions of this Sub-section 2 of this Section II.A. shall survive the termination of the Agreement. 3. COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS. Any activities performed by the Bank under this Section II.A. of this Agreement shall conform to the requirements of: (a) the provisions of the 1940 Act and of any rules or regulations in force thereunder; (b) any other applicable provision of state and Federal law; (c) the provisions of the Declaration of Trust and the By-Laws of the Customer, as amended from time to time; (d) any policies and determinations of the Board of Trustees of the Customer provided to the Bank in writing; and (e) the fundamental policies of the Series as reflected in the Customer's registration statement on Form N-1A ("Form N-1A") under the 1940 Act and the Securities Act of 1933 (the "1933 Act") and any amendments thereto. 11 4. NON-EXCLUSIVITY. Nothing in this Agreement shall prevent the Bank or any officer or employee thereof from acting as administrator for or with any other person, firm, corporation or trust. While the administrative services supplied to the Customer and the Series may be different than those supplied to other persons, firms, corporations or trusts, the Bank shall provide the Customer and the Series equitable treatment in supplying services. The Bank agrees to maintain the records and all other information of the Customer and the Series as required by the 1940 Act and shall not use such information for any purpose other than the performance of the Bank's duties under this Agreement. B. ACCOUNTING SERVICES ------------------- 1. SERVICES. The Bank, in its capacity as accounting services agent for the Customer and the Series ("Accounting Agent"), will in addition to the duties and functions listed below, perform accounting services listed in Schedule D attached hereto. 2. INSTRUCTIONS. For purposes of this Section II.B. of this Agreement: (a) Oral Instructions shall mean an authorization, instruction, ----------------- approval, item or set of data, or information of any kind transmitted to the Bank in person or by telephone, telegram, telecopy, or other mechanical or documentary means lacking a signature, by an Authorized Person, as defined in Sub-section 10 of Section I. of this Agreement or by any of the Customer's officers, employees, shareholders or other agents reasonably believed by Bank to be authorized to give such Oral Instructions. (b) Written Instructions shall mean an authorization, instruction, -------------------- approval, item or set of data or information of any kind transmitted to the Bank in original writing containing original signatures or a copy of such document transmitted by telecopy or facsimile transmission including transmission of such signature reasonably identified to the Bank to be the signature of an Authorized Person, as defined in Sub-section 10 of Section I. of this Agreement or by any of the Customer's officers, employees, shareholders or other agents reasonably believed by Bank to be authorized to give such Written Instructions. 3. MAINTENANCE OF ACCOUNTS AND RECORDS. To the extent the Bank receives the necessary information from the Customer or its agents by Written or Oral Instructions, the Bank shall maintain and keep current the following Accounts and Records relating to the Customer's business in such form as may be mutually agreed upon between the Customer and the Bank: 12 (a) Net Asset Value Calculation Reports; (b) cash Receipts Journal; (c) cash Disbursements Journal; (d) dividends Paid and Payable Schedule; (e) purchase and Sales Journals - Portfolio Securities; (f) security Ledgers - Transaction Report and Tax Lot Holdings Report; (g) broker Ledger - Commission Report; (h) daily Expense Accruals; (i) daily Interest Accruals; (j) daily Trial Balance; (k) portfolio Interest Receivable and Income Journal; (l) portfolio Dividend Receivable and Income Register; (m) listing of Portfolio Holdings - showing cost, market value and percentage of portfolio comprised of each security; (n) average daily net assets provided on monthly basis; and (o) daily accounting reports as agreed to by the parties. The necessary information to perform the above functions and the calculation of each Series' net asset value as provided below, is to be furnished by Written or Oral Instructions to the Bank daily (in accordance with the time frame identified in Sub-section 7 of this Section II.B.). 4. CALCULATION OF NET ASSET VALUE. The Bank shall perform the calculations necessary to calculate each Series' net asset value daily, in accordance with: (i) the Customer's Advisory Agreements and Declaration of Trust; (ii) the provisions of the Customer's Form N-1A; and (iii) any other procedures approved by the Board of Trustees of the Customer and supplied to the Bank by the Customer in writing. Portfolio items for which market quotations are available by the Bank's use of automated financial information services which shall be authorized by the 13 Customer in writing to the Bank ("Services") shall be based on the closing prices of such Services except where the Customer has given or caused to be given specific Written Instructions to utilize a different value. Restricted securities and other securities requiring valuation not readily ascertainable solely by such Services shall be given values as the Customer provides by Written Instructions. The Bank shall not have any responsibility or liability for: (i) the accuracy of prices quoted by any of the Services; (ii) the accuracy of any information supplied by the Customer; or (iii) for any loss, liability, damage, or cost arising out of any inaccuracy, delay or omissions from such data provided by the Services or the Customer. The Bank shall have no responsibility or duty to include information or valuations to be provided by the Customer in any computation unless and until it is timely supplied to the Bank in usable form. The Bank shall record corporate action information of which it has become aware in its capacity as Custodian for Customer or from the Services or the Customer. The Bank shall not have any duty to gather or record corporate action information not supplied by these sources. The Bank will not be responsible for any losses, damages or costs to the Customer, the Series or its shareholders for any price errors caused by: the Customer, the Series, its advisers, corporate action and dividend information, or any other party other than the Bank itself. 5. AUTHORITY TO ACT UPON RECEIPT OF INSTRUCTIONS. For all purposes under Section II.B. of this Agreement, the Bank is authorized to act upon receipt of any Written or Oral Instruction. The Customer agrees to provide Written Instructions to the Bank with respect to trade confirmation and cash instruction. The Bank shall be entitled to rely on any Oral or Written Instruction received. For any act or omission undertaken in compliance with such Oral or Written Instruction received, the Bank shall be free of liability and fully indemnified and held harmless by the Customer, provided, however, that in the event an Oral or Written Instruction received by the Bank is countermanded by a timely later Oral or Written Instruction received by the Bank prior to acting upon such countermanded Instruction, the Bank shall act upon such later Oral or Written Instruction. The indemnification provisions of this Sub-section 5 shall survive termination of this Agreement. 6. PROVISION OF REPORTS. The Bank shall promptly supply daily and periodic reports to the Customer as requested by the Customer and agreed upon by the Bank. 7. PROVISION OF INFORMATION BY THE CUSTOMER. The Customer shall provide to the Bank or shall cause to be provided to the Bank as of the close of each business day or on such other schedule as the Bank determines is necessary, Oral or Written Instructions containing any additional data or information 14 necessary for the Bank to maintain the Customer's and the Series' Accounts and Records. Such Oral or Written Instructions shall be delivered to the Bank no later than 11:00 a.m., Eastern time the following business day. 8. ADOPTION OF ADDITIONAL PROCEDURES. In connection with and in furtherance of the rendering of services under this Section II.B., the Bank and the Customer may from time to time adopt such procedures as agreed upon in writing, and the Bank may conclusively assume that any procedure approved by the Customer or direction by the Customer does not conflict with or violate any requirements of the Customer's Declaration of Trust, By-Laws, or any rule or regulation of any regulatory body or governmental agency. C. TRANSFER AGENCY SERVICES ------------------------ 1. SERVICES. The Bank, in its capacity as transfer agent to the Customer and the Series ("Transfer Agent") will, in addition to the duties and functions listed below, perform the duties and functions of a transfer agent for an open-end investment company as listed in Schedule E attached hereto. The terms as defined in this Section II.C. wherever used in this Section II.C., or in any amendment or supplement with respect to this Section II.C., shall have the meanings herein specified unless the context otherwise requires. Share Certificates shall mean the certificates representing shares of ------------------ beneficial interest of the Series. Shareholders shall mean the registered owners of the Shares of the ------------ Series in accordance with the share registry records maintained by the Bank. Shares shall mean the issued and outstanding shares of the Series. ------ Signature Guarantee shall mean the guarantee of signatures by an ------------------- "eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Broker-dealers guaranteeing signatures must be members of a clearing corporation or maintain net capital of at least $100,000. Signature guarantees will be accepted from any eligible guarantor institution which participates in a signature guarantee program. 15 2. ISSUANCE OF SHARES. The Bank, as Transfer Agent, shall make original issuances of Shares in accordance with Sub-sections 7 and 8 of this Section II.C. of this Agreement and with the Customer's Declaration of Trust upon the written request of the Customer and upon being furnished with: (i) a certified copy of a resolution or resolutions of the Board of Trustees of the Customer authorizing such; and (ii) necessary funds for the payment of any original issue tax applicable to such additional Shares. 3. TRANSFER OF SHARES. Transfers of Shares shall be registered and new Shares issued by the Bank upon redemption of outstanding Shares: (a) in the form deemed by the Bank to be properly endorsed for transfer; (b) with all necessary endorser's signatures as required to be guaranteed in accordance with the Customer's Form N-1A; (c) upon receipt of such assurances as the Bank shall deem necessary or appropriate to evidence the genuineness and effectiveness of each necessary endorsement; and (d) upon receipt of satisfactory evidence of compliance with all applicable laws relating to the payment or collection of taxes. 4. RELIANCE ON APPLICABLE LAW. In registering transfers, the Bank, as Transfer Agent, will comply with applicable law relating to its activities as Transfer Agent for the Customer. 5. MAINTENANCE OF RECORDS. The Bank will maintain records in the usual form in which it will note the issuance, transfer and redemption of Shares. The Bank is responsible for providing reports of Share purchases, redemptions and total Shares outstanding on the next business day after each net asset value calculation. The Bank is authorized to keep records, which will be part of the transfer records, in which it will note the names and registered address of Shareholders and the number of Shares and fractions thereof held by them. 6. RELIANCE UPON LISTS, INSTRUCTIONS OR OTHER INSTRUMENTS. The Bank, as Transfer Agent, may rely conclusively and act without further investigation upon any list, instruction, certification, authorization or other instrument or paper believed by it in good faith to be genuine and unaltered, and to have been signed, 16 countersigned, or executed by a duly authorized person or persons, or upon the instructions of any officer of the Customer, or upon the advice of counsel for the Customer or for the Bank. The Bank may record any transfer of Shares which is reasonably believed by it to have been duly authorized or may refuse to record any transfer of Shares if in good faith, the Bank, in its capacity as Transfer Agent, deems such refusal necessary in order to avoid any liability on the part of either the Series or the Bank. The Customer agrees to indemnify and hold the Bank harmless from and against any and all losses, costs, claims, and liability which it may suffer or incur by reason of so relying or acting or refusing to act, except for actions taken pursuant to advice of the Bank's counsel and actions resulting from the Bank's negligence or lack of good faith. The Bank shall maintain and reconcile all operating bank accounts necessary to facilitate all transfer agency processes; including, but not limited to, distribution disbursements, redemptions and payment clearance accounts. The indemnification provisions of this Sub-section II.C.6. shall survive the termination of this Agreement. 7. PROCESSING OF PURCHASE ORDERS. Prior to the daily determination of net asset value in accordance with the Customer's Declaration of Trust and Form N-1A, the Bank shall process all purchase orders received since the last determination of each Series' net asset value. The Bank shall place a purchase order daily with the appropriate Series for the proper number of Shares and fractional Shares to be purchased and confirm such number to the Customer in writing. 8. ISSUANCE AND CREDITING OF SHARES. The proper number of Shares and fractional Shares shall then be issued daily and credited by the Bank to the Shareholder Registration Records. The Shares and fractional Shares purchased for each Shareholder will be credited by the Bank to that Shareholder's account. The Bank shall mail to each Shareholder a confirmation of each purchase, with copies to the Customer as requested by the Customer. Such confirmations will show the prior Share balance, the new Share balance, the amount invested and the price paid for the newly purchased Shares. 9. DAILY PROCESSING OF REDEMPTION REQUESTS. The Bank shall, prior to the daily determination of net asset value in accordance with the Customer's Declaration of Trust and Form N-1A, process all requests from Shareholders to redeem Shares and determine the number of Shares required to be redeemed to make monthly payments, automatic payments or the like. Thereupon, the Bank shall advise the Customer of total number of Shares available for redemption and the number of Shares and fractional Shares requested to be redeemed. The Bank shall furnish the Customer with an appropriate confirmation of the redemption and process the redemption by 17 making the proper distribution and application of the redemption proceeds in accordance with the Customer's Declaration of Trust and Form N-1A then in effect. The registry books recording outstanding Shares, the Shareholder Registration Records and the individual account of the Shareholder shall be properly debited. 10. REDEMPTIONS AFTER RECENT PURCHASE. With respect to redemption of Shares which have been purchased within fifteen (15) calendar days of a redemption request, the Customer shall provide the Bank, from time to time, with Written Instructions concerning the time within which such requests may be honored. III. GENERAL PROVISIONS ------------------ 1. STANDARD OF CARE; LIABILITIES - SECTION I. (a) With respect to Section I. of this Agreement, the Bank shall be responsible for the performance of only such duties as are set forth in Section I. of this Agreement or expressly contained in Instructions which are consistent with the provisions of Section I. of this Agreement as follows: (i) The Bank will use reasonable care with respect to its obligations under this Agreement and the safekeeping of Assets. The Bank shall be liable to the Customer for any loss which shall occur as the result of the negligence or willful misconduct of the Bank or a Subcustodian with respect to the safekeeping of such Assets. In the event of any loss to the Customer or Series by reason of the failure of the Bank or its Subcustodian to utilize reasonable care, the Bank shall be liable to the Customer and the Series only to the extent of the Customer's actual damages. (ii) The Bank will not be responsible for any act, omission, default or the solvency of any agent which it or a Subcustodian uses unless such use was made negligently or in bad faith. (iii) The Customer and the Series shall be indemnified by, and without liability to, the Bank for any action taken or omitted by the Bank within the scope of this Agreement as a result of the Bank's negligence or willful misconduct. (iv) The Bank and its nominees shall be indemnified by, and without liability to, the Customer, the Series, or the Shareholders for any action taken or omitted by the Bank whether pursuant to or in reliance upon Instructions for any losses arising out of the Bank's performance hereunder, arising out of its nominees acting as a nominee or holder of record of the Securities, or for any action or omission otherwise within the scope of this Agreement if such act or omission was in good faith, without negligence. In performing its 18 obligations under this Agreement, the Bank may rely on the genuineness of any document which it reasonably believes in good faith to have been validly executed. (v) The Customer agrees to pay for and hold the Bank harmless from any liability or loss resulting from the imposition or assessment of any taxes or other governmental charges, and any related expenses with respect to income from or Assets in the Accounts. (vi) The Bank shall be entitled to rely, and may act, upon the advice of counsel for the Customer on all matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice. (vii) Without limiting the foregoing, the Bank shall not be liable for any loss which results from: 1) the general risk of investing, or 2) investing or holding Assets in a particular country including, but not limited to, losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of Assets provided, however, that where the Bank is required to provide information to the Customer as part of its services herewith, the Bank shall be responsible for obtaining and relaying such information in accordance with the standard of care described in this Section III.1. (viii) In no event shall the Bank be liable to the Customer or the Series for any indirect, incidental, special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if the Bank has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) Consistent with and without limiting the first paragraph of this Sub- section 1 of this Section III. of this Agreement, it is specifically acknowledged that the Bank shall have no duty or responsibility to: (i) supervise or make recommendations with respect to investments or the retention of Securities; (ii) advise the Customer or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Sub-section 5(c) of Section I. of this Agreement; (iii) evaluate or report to the Customer or an Authorized Person regarding the financial condition of any broker, agent or other party to which Securities are delivered or payments are made pursuant to this Agreement. Nothing contained in this clause shall limit the Bank's responsibilities pursuant to Section I.4 of this Agreement; 19 (iv) review or reconcile trade confirmations received from brokers. The Customer or its Authorized Persons (as defined in Sub-section 10 of Section I. of this Agreement) issuing Instructions shall bear any responsibility to review such confirmations against Instructions issued to and statements issued by the Bank; (v) The Bank hereby warrants to the Customer that in its opinion, after due inquiry, the established procedures to be followed by each of its branches, each branch of a qualified U.S. bank, each eligible foreign custodian and each eligible foreign securities depository holding the Customer's Securities pursuant to this Agreement afford reasonable protection for such Securities given prevailing practices, procedures and controls available in that market; and (vi) The provisions of this Section III.1 shall survive the termination of this Agreement. 2. STANDARD OF CARE; LIABILITIES - SECTION II. (a) For purposes of Section II. of this Agreement, the Bank shall not be liable for any error of judgment or mistake of law or for any loss or expense suffered by the Bank or the Customer, the Series, or the Shareholders in connection with the matters to which this Agreement relates, except for a loss or expense to the extent caused by or resulting from willful misfeasance, bad faith or negligence on the Bank's part in the performance of its duties or from reckless disregard by the Bank of its obligations and duties under this Agreement. In the performance of its services, however, the Bank shall be obligated to exercise the due care and diligence of an open-end fund administrative, accounting and transfer agent. In no event shall the Bank be liable for any indirect, incidental, special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if the Bank has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) Subject to Section 2(a) above, the Bank shall not be responsible for, and the Customer shall indemnify and hold the Bank harmless from and against, any and all losses, damages, costs, reasonable attorneys' fees and expenses, payments, expenses and liabilities incurred by the Bank, any of its agents, or the Customer's agents in the performance of its/their duties hereunder, including but not limited to those arising out of or attributable to: (i) any and all actions of the Bank or its officers or agents required to be taken pursuant to this Agreement; (ii) the reasonable reliance on or use by the Bank or its officers or agents of information, records, or documents which are received by the Bank or its officers or agents and furnished to it or them by or on behalf of the Customer, and which have been prepared or maintained by the Customer or any third party on behalf of the Customer; 20 (iii) the Customer's refusal or failure to comply with the material terms of this Agreement or the Customer's lack of good faith, or its actions, or lack thereof, involving negligence or willful misfeasance; (iv) the breach of any material representation or warranty of the Customer hereunder; (v) the taping or other form of recording of telephone conversations or other forms of electronic communications with investors and shareholders, or reliance by the Bank, its officers or agents on telephone or other electronic instructions of any person acting on behalf of a shareholder or shareholder account for which telephone or other electronic services have been authorized, provided the Bank, its officers or agents complies with all laws relating to the taping or other form of recording of telephone conversations; (vi) the reliance on or the carrying out by the Bank or its officers or agents of any proper instructions reasonably believed to be duly authorized, or requests of the Customer or recognition by the Bank or its officers or agents of any share certificates which are reasonably believed to bear the proper signatures of the officers of the Customer and the proper countersignature of any transfer agent or registrar of the Customer; (vii) any delays, inaccuracies or omissions from information or data provided to the Bank or its officers or agents by data services, corporate action services, Services or securities brokers and dealers; (viii) the offer or sale of shares by the Customer in violation of any requirement under the Federal securities laws or regulations or the securities laws or regulations of any state, or in violation of any stop order or other determination or ruling by any Federal agency or any state agency with respect to the offer or sale of such shares in such state (1) resulting from activities, actions or omissions by the Customer or its other service providers and agents, or (2) existing or arising out of activities, actions or omissions by or on behalf of the Customer prior to the effective date of this Agreement; (ix) any failure of the Customer's registration statement to materially comply with the 1933 Act and the 1940 Act (including the rules and regulations thereunder) and any other applicable laws, or any untrue statement of a material fact or omission of a material fact necessary to make any statement therein not misleading in a Customer's prospectus; and (x) the actions taken by the Customer, and its investment advisers, in compliance with applicable securities, tax, commodities and other laws, rules and regulations, or the failure to so comply. (c) In performing the services required under Section II. hereof, the Bank shall be entitled to rely on any Oral or Written Instructions, notices or other communications, 21 including electronic transmissions, from the Customer and its officers and trustees, investors, agents and other service providers which the Bank or its agents reasonably believes to be genuine, valid and authorized, and shall be indemnified by the Customer for any loss or expense caused by such reliance. The Bank shall also be entitled to consult with and rely on the advice and opinions of outside legal counsel retained by the Customer, as necessary or appropriate. (d) The Bank shall indemnify and hold the Customer and the Series harmless from and against any and all losses, damages, costs, charges, reasonable attorneys' fees and expenses, payments, expenses and liabilities arising out of or attributable to the Bank's refusal or failure to comply with the material terms of this Agreement; the Bank's breach of any material representation made by it herein; or the Bank's lack of good faith or acts involving negligence, willful misfeasance or reckless disregard of its duties under this Agreement. (e) The provisions of this Section III.2. shall survive the termination of this Agreement. 3. INDEMNIFICATION. (a) In connection with any indemnification required under this Section III., the party seeking indemnification ("Indemnified Party") shall give written notice within a reasonable period of time to the other party ("Indemnifying Party") of a written assertion or claim of any threatened or pending legal proceeding which may be subject to this indemnification. The failure to so notify the Indemnifying Party of such written assertion or claim shall not, however, operate in any manner whatsoever to relieve the Indemnifying Party of any liability arising from this Section III. or otherwise, except to the extent failure to give notice prejudices the Indemnifying Party. (b) For any legal proceeding giving rise to indemnification under this Agreement, the Indemnifying Party shall be entitled to defend or prosecute any claim in the name of the Indemnified Party at its own expense and through counsel of its own choosing if it gives written notice to the Indemnified Party within fifteen (15) business days of receiving notice of such claim. Notwithstanding the foregoing, the Indemnified Party may participate in the litigation at its own expense through counsel of its own choosing. If the Indemnifying Party chooses to defend or prosecute such claim, then the parties shall cooperate in the defense or prosecution thereof and shall furnish such records and other information as are reasonably necessary. (c) The provisions of this Sub-section 3 shall survive the termination of this Agreement. 22 4. USE OF OTHER PARTIES BY THE BANK. (a) In furnishing the services required to be provided under Section II. of this Agreement, the Bank may, upon prior written approval of Customer, sub- contract with other parties ("Other Parties") for the provision of all or such part of those services as Bank deems appropriate. In the event that the Bank utilizes the services of Other Parties in performing the functions required to be performed by it as set forth in Section II. of this Agreement, the Bank shall be responsible for the actions of such Other Parties to the same extent as if the Bank performed such functions. Termination of such Other Parties may be made only upon prior written approval of Customer. (b) To the extent the Bank contracts with Other Parties to perform services required by Section II., of this Agreement, Bank is authorized to make representations in writing to such Other Parties concerning the Customer only (i) to the same extent as the Customer makes representations and warranties to the Bank in this Agreement; and (ii) concerning the obligations of Customer set forth in Sub-section 4(c) of this Agreement. (c) The Customer and the Bank agree that to the extent the Bank utilizes Other Parties to perform certain functions called for by Section II. of this Agreement, the Customer may communicate directly with such Other Parties and agrees to pay the direct Customer expenses set forth in Schedule F. (d) To the extent the Bank contracts with Other Parties to perform any of the functions required under Section II. of this Agreement and is required pursuant to contracts with such Other Parties to supply documents to such Other Parties relating to the Customer, the Customer shall supply such documents to the Bank upon reasonable request. 5. REPRESENTATIONS AND WARRANTIES OF CUSTOMER. The Customer represents and warrants to Bank that: (a) the Customer is a business trust duly organized and existing and in good standing under the laws of the State of Delaware; (b) the Customer is an open-end investment company properly registered under the 1940 Act; and (c) all records and regulatory filings of the Customer have been properly maintained or made in accordance with applicable laws. 23 6. REPRESENTATIONS OF BANK The Bank represents and warrants to the Customer that: (a) the Bank is a New York State Chartered Trust Company duly organized and existing and in good standing under the laws of New York; (b) the Bank is empowered under applicable laws and by its Charter Document and By-Laws to enter into and perform this Agreement; (c) all requisite proceedings have been taken to authorize the Bank to enter into and perform this Agreement; (d) the Bank is not a party to any pending or threatened legal proceedings which would impair its ability to perform the duties and obligations called for by this Agreement; and (e) the Bank will only sub-contract with an Other Party to perform services under this Agreement if such Other Party: (i) is duly organized, existing and in good standing under the laws of its state of organization; (ii) is duly qualified to carry on its business wherever it is legally required to be so qualified; (iii) is empowered under applicable laws and by its charter documents and By-Laws to perform the functions required under Section II. of this Agreement which the Bank has contracted with it to provide; (iv) has and will continue to have access to the facilities, personnel and equipment required to fully perform the functions which the Bank has contracted with it to provide; and (v) is not a party to any pending or threatened legal proceedings which would impair such Other Party's ability to perform the duties and obligations which the Bank has contracted with it to provide. 7. FEES AND EXPENSES. (a) The Customer agrees to pay the Bank or its agents for all services to be provided under this Agreement such amount as may be agreed upon in writing and as set forth on Schedule F. For any amount of fees that has not been contested in accordance with Sub-section (e) of this Section III.7., the Bank shall have a lien on and is authorized to 24 charge the Account of any Series for any amount owing to the Bank by Customer on behalf of such Series under any provision of this Agreement. The fee schedule agreed to and as set forth on Schedule F shall be fixed for a period of three years from the date hereof. (b) The Bank is, and any Subcustodians are, authorized to charge the Account of any Series for such items and the Bank shall have a lien, charge and security interest on any and all Assets of such Series for any amount owing to the Bank with respect to such Series from time to time under this Agreement. (c) The Customer may from time to time request additional services, additional processing, or special reports. The Customer shall submit such requests in writing together with such specifications and requirements documentation as may be reasonably required by the Bank. If the Bank elects to provide such services or arrange for their provision, it shall be entitled to additional fees and expenses at its customary rates and charges. The Bank's agreement to perform such additional services shall not be unreasonably withheld. (d) The Bank will render, after the close of each month in which services have been furnished, a statement reflecting all of the charges for such month. Undisputed charges remaining unpaid after sixty (60) days shall bear interest in finance charges equivalent to, in the aggregate, the Prime Rate (as determined by the Bank) plus two percent per year and all costs and expenses of effecting collection of any such sums, including reasonable attorney's fees, shall be paid by the Customer to the Bank. (e) In the event that the Customer is more than ninety (90) days delinquent in its payments of monthly billings in connection with this Agreement (with the exception of specific amounts which may be reasonably contested by the Customer), this Agreement may be terminated upon sixty (60) days' written notice to the Customer by the Bank. The Customer must notify the Bank in writing of any contested amounts within thirty (30) days of receipt of a billing for such amounts. Disputed amounts are not due and payable while they are being investigated. 8. RECORDS; PROPRIETARY NATURE; DUTY TO MAINTAIN; ACCESS AND INSPECTION; REPORT ON INTERNAL ACCOUNTING CONTROLS. (a) Proprietary Nature. The Bank agrees that all accounts, books and ------------------ records of the Bank relating thereto, in its capacity as Custodian under this Agreement, are the property of the Bank. The Bank agrees that all accounts, books and records of the Customer maintained in its capacity as Administrative, Accounting Services and Transfer Agent pursuant to Section 31 of the 1940 Act and Rule 31a-1 and 31a-2 are the property of the Customer. All books and records maintained in accordance with this Agreement shall be open to inspection and audit at all reasonable times during normal business hours by any person designated by the Customer. All such accounts, books and records shall be maintained and preserved in the form acceptable to and the periods prescribed by the Customer and in accordance with and for the periods prescribed by the 1940 Act and the 25 Rules and Regulations thereunder, including, without limitation, Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. (b) Access and Inspection. The Bank shall assist the Customer, the --------------------- Customer's independent auditors, or, upon approval of the Customer, any regulatory body, in any requested review of the Customer's or Series' accounts, books and records maintained by the Bank in its capacity as Custodian, Administrative, Accounting or Transfer Agent. The Bank shall be reimbursed by the Customer for all reasonable expenses incurred in connection with any such review, other than routine and normal periodic reviews and audits. Bank, in its capacity as Accounting Agent, will supply the necessary data for the Customer's or an independent auditor's completion of any necessary tax returns, questionnaires, periodic reports to shareholders and such other reports and information requests as the Customer and the Bank shall agree upon from time to time. In case of any other request or demand for the inspection of any accounts, books or records maintained by the Bank on Customer's behalf, the Bank shall not permit such inspection except upon prior written approval of Customer, which approval shall not be unreasonably withheld. (c) Records of Subcustodians. Subject to restrictions under applicable ------------------------ law, the Bank shall also obtain from each Subcustodian an undertaking to permit the Customer's independent public accountants reasonable access to the records of each Subcustodian which has physical possession of any Assets, as may be required in connection with the examination of the Customer's books and records. (d) Report on Internal Accounting Controls. Upon reasonable request from -------------------------------------- the Customer, the Bank shall furnish the Customer such reports (or portions thereof) of the Bank's system of internal accounting controls (SAS-70) applicable to the Bank's duties under this Agreement. The Bank shall use its reasonable efforts to obtain and furnish the Customer with such similar reports as it may reasonably request with respect to each Subcustodian and securities depository holding the Customer's assets. 9. MISCELLANEOUS. (a) Foreign Exchange Transactions. To facilitate the administration of the ----------------------------- Customer's trading and investment activity, the Bank is authorized to enter into spot or forward foreign exchange contracts with the Customer or an Authorized Person for the Customer on behalf of a Series on a principal and agency basis and may also provide foreign exchange through its subsidiaries, affiliates, Subcustodians or third parties. Instructions, including standing instructions, may be issued with respect to such contracts but the Bank may establish rules or limitations concerning any foreign exchange facility made available. In all cases where the Bank, its subsidiaries, affiliates or Subcustodians enter into a foreign exchange contract related to Accounts, the terms and conditions of the then current foreign exchange contract of the Bank, its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent, this Agreement shall apply to such transaction. 26 (b) Certification of Residency, etc. The Customer certifies that it is a -------------------------------- resident of the United States and agrees to notify the Bank of any changes in residency. The Bank may rely upon this certification or the certification of such other facts as may be required to administer the Bank's obligations under this Agreement. The Customer will indemnify the Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications. The indemnification provisions of this Sub-section 9(b) shall survive termination of this Agreement. (c) Governing Law; Successors and Assign. This Agreement shall be ------------------------------------ governed by the laws of the State of New York and shall not be assignable by either party, but shall bind the successors in interest of the Customer and the Bank. (d) Entire Agreement; Applicable Riders. This Agreement consists ----------------------------------- exclusively of this document together with Schedule A1, Schedule A2, Schedules B1, B2, B3, B4, Schedule C, Schedule D, Schedule E, and Schedule F. There are no other provisions of this Agreement, and this Agreement supersedes any other agreements, whether written or oral, between the parties. Any amendment to this Agreement must be in writing, executed by both parties. With respect to the services required to be provided under Section II. of this Agreement, the Bank and the Customer may from time to time adopt such procedures to facilitate the provision of such services, as agreed upon in writing. (e) Severability. In the event that one or more provisions of this ------------ Agreement are held invalid, illegal or unenforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions will not in any way be affected or impaired. (f) Waiver. Except as otherwise provided in this Agreement, no failure or ------ delay on the part of either party in exercising any power or right under this Agreement operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision of this Agreement, or waiver of any breach or default, is effective unless in writing and signed by the party against whom the waiver is to be enforced. (g) Notices. All notices under this Agreement shall be effective when ------- actually received. Any notices or other communications which may be required under this Agreement are to be sent to the parties at the following addresses or such other addresses as may subsequently be furnished to the other party in writing by certified or registered mail, unless otherwise specified in this Agreement or in the Client Services Guide: 27 Bank: Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, NY 11201 Attention: President or facsimile: (718) 754-6160 Customer: The Brinson Funds 209 South LaSalle Street Chicago, IL 60604-1295 Attention: President or facsimile: (312) 554-3935 (h) Term and Termination. -------------------- (i) This Agreement shall become effective on the date first written above and shall continue in effect for an initial three year period. The Agreement may be terminated in its entirety or as to Section I. or Section II. only prior to the expiration of the initial term only if a party commits a material breach of any term or condition hereof and any such breach is not cured or rectified within ninety (90) calendar days after the party claiming the breach shall have given written notice of such to the other party ("Curable Breach") except that neither party shall have a right to cure a material breach resulting from willful misconduct, reckless disregard or intentional misconduct ("Non-curable Breach"). In the event that a Curable Breach is not cured within such ninety (90) day period, the party claiming a material breach shall have thirty (30) days to notify the party committing the breach of its intention to terminate this Agreement in accordance with subparagraph (ii) of Section III.9.(h). (ii) The Customer or the Bank may give notification of termination to the other party following a Non-Curable Breach or following a Curable Breach which has not been cured or after the initial three year period by giving ninety (90) days written notice to the other, provided that such notice to the Bank shall specify the names of the persons to whom the Bank shall deliver the Assets in the Accounts; and further provided that, if Bank is the terminating party (other than on account of a material breach hereof by Customer) Customer may extend the termination period by up to an additional sixty (60) days by sending prompt written notice ("Extension Notice") to Bank of its intent to do so (including the number of additional days). If notice of termination is given by the Bank, the Customer shall, within ninety (90) days (or such other amount of days as is contemplated by the Extension Notice) following receipt of the notice, deliver to the Bank Instructions specifying the names of the persons to whom the Bank shall deliver the Assets. In either case the Bank will deliver the Assets to the persons so specified, after deducting any amounts which the Bank determines in good faith to be owed to it under Sub-section 7 of Section III. of this Agreement. 28 If within ninety (90) days following receipt of a notice of termination by the Bank, the Bank does not receive Instructions from the Customer specifying the names of the persons to whom the Bank shall deliver the Assets, the Bank, at its election, may deliver the Assets to a bank or trust company doing business in any State within the United States to be held and disposed of pursuant to the provisions of this Agreement, or to Authorized Persons, or may continue to hold the Assets until Instructions are provided to the Bank; provided, however, that the Bank shall have no obligation to settle -------- ------- any transactions in securities for the Accounts following the expiration of the ninety (90) day period referred to in this sentence except those transactions which remained open prior to the expiration of such ninety (90) day period. (iii) Termination as to One or More Series. This Agreement may be ------------------------------------ terminated as to one or more Series (but less than all of the Series) by delivery of an amended Schedule B1 deleting such Series, in which case termination as to such deleted Series shall take effect sixty (60) days after the date of such delivery. The execution and delivery of an amended Schedule B1 which deletes one or more Series shall constitute a termination of this Agreement only with respect to such deleted Series, shall be governed by the preceding provisions of this Sub-section 9(h) of Section III. of this Agreement as to the identification of a successor custodian and the delivery of Assets of the Series so deleted to such successor custodian, and shall not affect the obligations of the Bank and the Customer hereunder with respect to the other Series set forth in Schedule B1, as amended from time to time. (i) Several Obligations of the Series. With respect to any obligations of --------------------------------- the Customer on behalf of the Series and their related Accounts arising out of this Agreement, the Bank shall look for payment or satisfaction of any obligation solely to the assets and property of the Series and such Accounts to which such obligation relates as though the Customer had separately contracted with the Custodian by separate written instrument with respect to each Series and its related Accounts. (j) Representations and Warranties. (A) The Customer represents and ------------------------------ warrants that (i) the execution, delivery and performance of this agreement (including, without limitation, the ability to obtain the short-term extensions of credit in accordance with Section I.5.) are within the Customer's and the Series' power and authority and have been duly authorized by all requisite action (corporate or otherwise) of the Customer, and (ii) this Agreement and each extension of short-term credit extended to or arranged for the benefit of any Series in accordance with Section I.5. shall at all times constitute a legal, valid and binding obligation of the Customer on behalf of and solely from the assets attributable to such Series and be enforceable against the Customer on behalf of and solely from the assets attributable to such Series in accordance with their respective terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law). 29 (k) The Bank represents and warrants that (i) the execution, delivery and performance of this Agreement are within the Bank's power and authority and have been duly authorized by all requisite action (corporate or otherwise) of the Bank and (ii) this Agreement constitutes the legal, valid and binding obligation of the Bank enforceable against the Bank in accordance with its terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law). (l) Force Majeure. Subject to reasonable compliance with the Bank's then- ------------- existing disaster recovery plans, the Bank shall not be liable for any harm, loss or damage suffered by the Customer, its investors, or other third parties or for any failure or delay in performance of the Bank's obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond the Bank's control. In the event of a force majeure, any resulting harm, loss, damage, failure or delay by the Bank will not give the Customer the right to terminate this Agreement. (m) Confidentiality. --------------- (i) Except to the extent necessary to perform the functions required under this Agreement, the Bank, its agents and employees shall maintain the confidentiality of information concerning any Assets held under this Agreement, including in dealings with affiliates of the Bank. In the event the Bank or any Subcustodian is requested or required to disclose any confidential information concerning any such Assets, the Bank shall, to the extent practicable and legally permissible, promptly notify the Customer of such request or requirement so that the Bank may seek a protective order or waive any objection to the Bank's or such Subcustodian's compliance with this Sub-section 9(m). In the absence of such a waiver, if the Bank or such Subcustodian is compelled, in the opinion of its counsel, to disclose any confidential information, the Bank or such Subcustodian may disclose such information to such persons as, in the opinion of counsel, is so required. (ii) The Customer shall maintain the confidentiality of, and not provide to any third parties absent the written permission of the Bank, any computer software, hardware or communications facilities made available to the Customer or its agents by the Bank. (iii) Neither the Bank nor any Other Party may create written or other promotional materials and/or distribute such promotional materials to the public or to prospective customers or clients which state that it is providing services to the Customer or any of its affiliates in connection with this Agreement without the prior verbal or written consent of the Customer, which consent will not be unreasonably withheld. For purposes of Sub-section 9(m) of this Agreement, the term "written or other promotional materials" shall mean any (A) material prepared in connection with the solicitation of prospective or existing customers; and (B) material published, or designed for use in, a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or 30 billboards, motion pictures, telephone directories (other than routine listings), electronic or other public media. THE BRINSON FUNDS By:________________________________ Title: Date: MORGAN STANLEY TRUST COMPANY By:________________________________ Title: Date: 31 STATE OF ILLINOIS ) : SS. COUNTY OF COOK ) On this ___________ day of ___________________________, 19__, before me personally came ______________________________, to me known, who being by me duly sworn, did depose and say that he/she resides in ________________________ at _________________________ that he/she is _______________________ of ______________________________, the entity described in and which executed the foregoing instrument; that he/she knows the seal of said entity, that the seal affixed to said instrument is such seal, that it was so affixed by order of said entity, and that he/she signed his/her name thereto by like order. ___________________________________ Sworn to before me this ___________ day of _________________, 19__. ___________________________________ Notary 32 STATE OF NEW YORK ) : SS. COUNTY OF KINGS ) On this ___________ day of ___________________________, 19__, before me personally came ______________________________, to me known, who being by me duly sworn, did depose and say that he/she resides in ________________________ at _________________________; that he/she is a Vice President of _______________________ the corporation described in and which executed the foregoing instrument; that he/she knows the seal of said corporation, that the seal affixed to said instrument is such corporate seal, that it was so affixed by order of the Board of Trustees of said corporation, and that he/she signed his/her name thereto by like order. ___________________________________ Sworn to before me this ___________ day of _________________, 19__. ___________________________________ Notary 33 SCHEDULE A1 ----------- LIST OF SUBCUSTODIANS ---------------------
COUNTRY SUB-CUSTODIAN ------- ------------- Argentina Citibank N.A. Australia Westpac Banking Corporation Austria Creditanstalt-Bankverein Bangladesh Standard Chartered Bank Belgium Bank Brussels Lambert S.A. Botswana Barclays Bank of Botswana Ltd. Brazil Banco de Boston Canada The Toronto-Dominion Bank Canada Royal Bank of Canada* Chile Citibank N.A. China Hongkong and Shanghai Banking Corporation Colombia Cititrust S.A. Cote d'Ivoire Societe Generale Cyprus Barclays Bank PLC Czech Republic ING Bank N.V. Denmark Den Danske Bank Ecuador Citibank N.A. Egypt Citibank N.A. Estonia Hansabank** Finland Merita Bank France Banque Indosuez Germany Dresdner Bank AG Ghana Barclays Bank of Ghana Ltd. Greece Citibank N.A. Hong Kong Hongkong and Shanghai Banking Corporation Hungary Citibank Budapest Rt. India Standard Chartered Bank India Hongkong and Shanghai Banking Corporation India State Bank of India/Stock Holding Corporation of India Limited India MSTC Mumbai Branch Indonesia Hongkong and Shanghai Banking Corporation Ireland Allied Irish Banks plc Israel Bank Leumi Italy Citibank N.A. Japan The Bank of Tokyo-Mitsubishi Limited
*Effective May 23, 1997 **Not an eligible foreign custodian under Rule 17f-5 34 LIST OF SUBCUSTODIANS ---------------------
COUNTRY SUB-CUSTODIAN ------- ------------- Japan Morgan Stanley Japan Limited** Jordan Arab Bank plc Kenya Barclays Bank of Kenya Ltd. Luxembourg Bank Brussels Lambert S.A. Malaysia OCBC Bank (Malaysia) Berhad Mauritius Hongkong and Shanghai Banking Corporation Mexico Citibank Mexico S.A. Morocco Banque Commerciale du Maroc Netherlands ABN AMRO Bank N.V. New Zealand ANZ Banking Group (New Zealand) Limited Norway Den Norske Bank Pakistan Standard Chartered Bank Papua New Guinea Westpac Banking Corporation Peru Citibank N.A. Philippines Hongkong and Shanghai Banking Corporation Poland Citibank Poland S.A. Portugal Banco Comercial Portugues Russia Credit Suisse (Moscow) Ltd. Singapore Oversea-Chinese Banking Corporation Limited Slovakia ING Bank N.V. South Africa First National Bank of Southern Africa, Ltd. South Korea Standard Chartered Bank Spain Banco Santander Sri Lanka Hongkong and Shanghai Banking Corporation Swaziland Barclays Bank of Swaziland Ltd. Sweden Svenska Handelsbanken Switzerland Bank Leu Limited Taiwan Hongkong and Shanghai Banking Corporation Thailand Standard Chartered Bank Tunisia Banque Internationale Arabe de Tunisie** Turkey Citibank N.A. UK Barclays Bank PLC USA Chase Manhattan Bank Uruguay Citibank N.A. Venezuela Citibank N.A. Zambia Barclays Bank of Zambia Ltd. Zimbabwe Barclays Bank of Zimbabwe Ltd.
**Not an eligible foreign custodian under Rule 17f-5 35 SCHEDULE A2 ----------- LIST OF SECURITIES DEPOSITORIES OR CLEARING AGENCIES ----------------------------------------------------
COUNTRY CENTRAL DEPOSITORY ------- ------------------ Argentina Caja de Valores Australia CHESS Clearing House Electronic Subregister System Austria OKB OsterreicheKontrollbank Bangladesh None Belgium CIK Caisse Interprofessionelle de Depots et de Virements de Titres Botswana None Brazil BOVESPA Bolsa de Valores de Sao Paulo BVRJ Bolsa de Valores de Rio de Janeiro CETIP - fixed income Central de Custodia e Liquidacao Financeira de Titulos SELIC - fixed income Sistema Especial de Liquidacao e Custodia Canada CDS The Canadian Depository for Securities Chile Depositorio Central de Valores China SSCCRC Shanghai Securities Central Clearing and Registration Corporation SSCC Shenzhen Securities Central Clearing Company Ltd. Colombia DCV - central bank Deposito Central de Valores securities DECEVAL - fixed income securities Cote d'Ivoire None Cyprus None Czech Republic SCP Stredisko cennych papiru (Center for Securities) Denmark VP Vaerdipapircentralen Ecuador None Egypt None
36
COUNTRY CENTRAL DEPOSITORY ------- ------------------ Finland None France SICOVAM Societe Interprofessionelle pour la Compensation des Valeurs Mobilieres Germany DKV Deutscher Kassenverein AG Ghana None Greece Apothetirio Titlon A.E. Hong Kong CCASS Central Clearing and Settlement System Hungary KELER Kozponti Elszamolohas es Ertktar (Budapest) Rt. India National Securities National Securities Depository Depository Limited Limited Indonesia KDEI Kustodian Depositari Efek Indonesia Ireland CGO - gilts only Central Gilts Office Israel SECH (for securities Stock Exchange Clearing House listed on the Tel Aviv Stock Exchange) Italy Monte Titoli S.P.A. Banco d'Italia Japan JASDEC Japan Securities Depository Center Jordan None Kenya None South Korea KSD Korean Securities Depository Luxembourg None Malaysia MCD Malaysian Central Depository Mauritius None Mexico S.D. INDEVAL, S.A. Morocco None Netherlands NECIGEF Netherlands Central Institute for Giral Effectenclearing New Zealand NZCSD New Zealand Central Securities Depository Norway VPS Verdipapirsentralen Pakistan CDC Central Depository Company of Pakistan Papua New CHESS Clearing House Electronic Guinea Subregister System Peru Caja de Valores Caja de Valores de Lima
37
COUNTRY CENTRAL DEPOSITORY ------- ------------------ Philippines PCD Phillippine Central Depository Poland NDS National Depository of Securities Portugal CENTRAL Russia None Singapore CDP Central Depository Pte Ltd. Slovak Republic SCP Stredisko cennych papierov Slovenskej Republiky (Center for Securities) South Africa Central Depository Ltd. Spain SCLV Servicio de Compensacion y Liquidacion de Valores Sri Lanka CDS Central Depository System Pvt Ltd. Swaziland None Sweden VPS Vardipapperscentralen Switzerland SEGA Schweizerische EffektenGiro AG Taiwan TSCD Taiwan Securities Depository Co. Thailand SDC or TSD Thailand Securities Depository Center Tunisia Turkey None United Kingdom CGO - gilts only Central Gilts Office CREST United States DTC Depository Trust Company Uruguay None Venezuela None Zambia Lusaka Stock Exchange Depository Zimbabwe None
38 SCHEDULE B1 ----------- LIST OF SERIES OF THE BRINSON FUNDS ----------------------------------- Global Fund Global Equity Fund Global Bond Fund U.S. Balanced Fund U.S. Equity Fund U.S. Bond Fund Non-U.S. Equity Fund 39 SCHEDULE B2 ----------- LIST OF DOCUMENTS TO BE PROVIDED BY CUSTOMER TO BANK ---------------------------------------------------- REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES (INCLUDING TAX RECLAIMS): - --------------------------------------------------------------------------- CUSTODY AGREEMENT CLIENT SERVICES GUIDE (INCLUDING APPENDICES) FEE SCHEDULE/BILLING GUIDE GENERAL ACCOUNT INFORMATION US TAX AUTHORITY DOCUMENTATION LOCAL TAX OFFICE LETTER/APPLICATION LETTER (NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY) FORM 6166/REQUEST FOR FOREIGN CERTIFICATION FORM (UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY) CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL RESIDENCY, TAX STATUS AND TAX IDS TAX RECLAIM POWER OF ATTORNEY PREVIOUS TAX RECLAIM FILING INFORMATION (PREVIOUS FILERS, ONLY) UK TAX AUTHORITY DOCUMENTATION SOPHISTICATED INVESTOR (ACCREDITED INVESTOR LETTER) (UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY) 40 DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS TAX-EXEMPT BY ITS - ----------------------------------------------------------------------------- LOCAL TAX AUTHORITY: - ------------------- UK FORM 4338 (EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY) UK FORM 309A (EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY) FOREIGN EXEMPTION LETTERS/APPLICATION FOR AUSTRALIAN EXEMPTION LETTER (EXEMPT BENEFICIAL OWNERS, ONLY) DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN CERTAIN SECURITIES: - -------------------------------------------------------------------------- THAI AUTHORIZATION LETTER JGB INDEMNIFICATION LETTER KOREAN SECURITIES POWER OF ATTORNEY NEW ZEALAND "APPROVED ISSUER LEVY" LETTER SPANISH POWER OF ATTORNEY WITH APOSTILE ITALIAN GOVERNMENT BOND LETTER UK STAR LETTER 41 SCHEDULE B3 ----------- LIST OF AUTHORIZED PERSONS -------------------------- NAME SIGNATURE ---- --------- 42 SCHEDULE B4 ----------- DESIGNATED SYSTEM USER ID NUMBERS ---------------------------------
ACCOUNT ACCOUNT MNEMONIC NUMBER ACCOUNT NAME FUND TYPE 42 BMFD 00043006 U.S. Bond Mutual Fund Mutual Fund 43 MFB1 00043007 Segregated Segregated 44 MFB2 00043008 When Issued TBA Segregated 45 BMFE 00043009 U.S. Equity Mutual Fund Mutual Fund 46 MFE1 00043010 Segregated Segregated 47 BMFN 00043011 Non-U.S. Equity Mutual Fund Mutual Fund 48 MFN1 00043012 Segregated Segregated 49 MFN2 00043013 Secured Segregated 50 MFN3 00043014 Currency Segregated 51 BBMF 00043015 U.S. Balanced Mutual Fund Mutual Fund 52 BMF1 00043016 Segregated Segregated 53 BMF2 00043017 Segregated Segregated 54 BMF3 00043018 When Issued TBA's Segregated 55 BGEM 00043019 Global Equity Mutual Fund Mutual Fund 56 GEM1 00043020 Segregated Segregated 57 GEM2 00043021 Secured Segregated 58 GEM3 00043022 Currency Segregated 59 BGMM 00043023 Global Bond Mutual Fund Mutual Fund 60 GMM1 00043024 Segregated Segregated 61 GMM2 00043025 Secured Segregated 62 GMM3 00043026 When Issued TBA Segregated 63 GMM4 00043027 Currency Segregated 64 BGMF 00043028 Global Mutual Fund Mutual Fund 65 GMF1 00043029 Segregated Segregated 66 GMF2 00043030 Secured Segregated 67 GMF3 00043031 When Issued TBA's Segregated 68 GMF4 00043032 Currency Segregated
43 SCHEDULE C ---------- THE BRINSON FUNDS ----------------- GENERAL DESCRIPTION OF FUND ADMINISTRATIVE SERVICES --------------------------------------------------- I. REGULATORY COMPLIANCE --------------------- A. Compliance - Federal Investment Company Act of 1940 1. Review, report and renew a. Investment advisory contracts b. File and monitor compliance of fidelity bond c. Underwriting contract d. Distribution (12b-1) plans (class specific) e. Multiple Services Agreement 2. Filings a. N-SAR (semi-annual report and annual report) (series and class specific) b. Initial registration statement on Form N1-A, post-effective amendments on Form N-1A, and supplements ("stickers") c. Notice pursuant to Rule 24f-2 (registration of indefinite number of shares d. Filing fidelity bond under Rule 17g-1 e. Filing shareholders reports under Rule 30b2-1 f. Proxy statement, when necessary 3. Annual up-dates of biographical information and questionnaires for Trustees and Officers, coordinated with the Brinson Relationship Funds' questionnaire. B. Compliance - State "Blue Sky" (classes deemed separate funds for filing purposes) 1. Blue Sky (state registration) a. Registration shares (initial/renewal) b. Monitor sales shares c. Report shares sold d. Filing of federal registration statements and contracts e. Filing annual and semi-annual reports with states 44 SCHEDULE C ---------- C. Compliance - Prospectus 1. Analyze and review portfolio reports from Adviser regarding: a. compliance with investment objectives, although primary responsibility for such compliance will be with the investment adviser or investment manager. b. maximum investment by company/industry, although primary responsibility for such compliance will be with the investment adviser or investment manager. D. Compliance - Exemptive Orders and No-Action Letters 1. Monitor compliance with all exemptive orders and no-action letters, although primary responsibility for such compliance will be with the investment adviser or investment manager. II. CORPORATE BUSINESS AND SHAREHOLDER/PUBLIC INFORMATION ----------------------------------------------------- A. Trustees/Management 1. Preparation of meetings a. agendas and resolutions - all necessary items of compliance b. compile and distribute Board materials c. attend and record minutes of meetings d. keep attendance records e. maintain corporate records/minute book 2. Preparation and distribution of periodic operation reports to management B. Maintain Corporate Calendars and Files 1. General 2. Blue Sky C. Release Corporate Information 1. To shareholders 2. To financial and general press 3. To industry publications a. distributions (dividends and capital gains) b. tax information c. changes to prospectus d. letters from management 45 SCHEDULE C ---------- e. performance information (class specific) 4. Respond to: a. financial press, as authorized b. miscellaneous shareholder inquiries c. industry questionnaires 5. Prepare, maintain and update monthly information manual D. Communications to Shareholders 1. Coordinate printing and distribution of annual and semi-annual reports, proxy statements when applicable and prospectuses E. Shareholder Meetings 1. Assist with Preparation of proxy (matters to be voted on may be class specific) 2. Preparation of minutes and record ballot results III. FINANCIAL AND MANAGEMENT REPORTING ---------------------------------- A. Income and Expenses (class specific when applicable) 1. Preparation of monthly expense analysis (class specific) 2. Expense figures calculated and accrual levels set (class specific) 3. Monitoring of expenses paid and expense caps (monthly) 4. Approve and process the payment of authorized expenses 5. Checking Account Reconciliation (monthly) 6. Write checks to pay vendors 7. Calculation and payment of advisory fees B. Distributions to Shareholders (if applicable) 1. Projections of distribution amounts a. compliance with Sub-Chapter M income tax provisions b. compliance with excise tax provisions - schedules prepared 2. Compilation of distributions for tax reporting for shareholders' Form 1099 C. Financial Reporting 1. Liaison between fund management and auditors 46 SCHEDULE C ---------- 2. Preparation of unaudited and audited financial statements to shareholders (semi-annually) (class specific, when applicable) - Statement of Assets and Liabilities - shares, TNA and NAV at class level - Statement of Operations - prepared at fund level - Statement of Changes in Net Assets - distributions and capital stock at class level - Financial Highlights (class specific) - per share data/analysis (class specific) - Footnotes - Schedule of Investments 3. 60 day delivery to SEC and shareholders 4. Preparation of semi-annual and annual N-SARs and Financial Data Sheet (Financial Information) 5. Preparation of Post-effective financial statements (if applicable) 6. Provide work area for auditors D. Other Financial Analyses 1. Sales information, portfolio turnover (monthly) 2. Performance Calculations (monthly) (class specific) 3. 1099 Miscellaneous - prepared for Directors/Trustees (annually) 4. 1099 Dividend insert card prepared - coordinate printing and mailing (annually) 5. 1099-DIV Form - validate per share amounts and tax status (annually) E. Review and Monitoring Functions 1. Review accruals and reclassification entries (class specific) 2. Review Financial Reporting generated entries to ensure proper update by accounting, ensure proper money movement by reviewing daily bank statements, expense analysis. Review capital stock reconciliations. 3. Asset Diversification (Sub-Chapter M and 1940 Act) and Income Qualification Tests (Sub-Chapter M) 47 SCHEDULE C ---------- F. Preparation and distribution of monthly operational reports to management by 10th business day 1. Management Statistics (Recap) -when applicable a. portfolio (including top ten holdings) b. book gains/losses/per share c. net income, book income/per share d. share/shareholders e. distributions 2. Performance Analysis (per class) a. total return b. monthly, quarterly, year to date, average annually c. calculation of SEC yield 3. Short-Short Analysis a. short-short income b. gross income (components) 4. Portfolio Turnover a. market value b. cost of purchases c. net proceeds of sales d. average market value 5. Asset Diversification Test a. gross assets b. non-qualifying assets c. 5% issuers 6. Activity Summary a. shares sold, redeemed and reinvested b. change in investment c. change in price per share d. net sales 7. Expense Ratios - (per class) a. per quarter b. semi-annual c. annual G. Provide rating agencies with statistical data on a monthly and quarterly basis 48 SCHEDULE C ---------- H. For Money Market Funds -weekly Mark-to-Market review - 5% test - NAV variance IV. SPECIAL ISSUES RELATED TO FOREIGN INVESTMENTS --------------------------------------------- A. Financial Reporting 1. Review and monitor treatment of currency gain/loss and capital gain/loss a. section 988 transactions b. section 1256 contracts c. section 1092 deferrals d. maintain reconciliation of portfolio forward realized gains/losses B. Tax Reporting (work closely with the Funds' independent audit firm) 1. Determine tax treatment of foreign investments and their impact on taxable income and capital gains 2. Calculate distributions to shareholders (if applicable) a. monitor character and impact of realized currency gain/loss on distribution amount b. adherence to 988(a)(1)(b) election (if applicable) c. identify and compute book/tax difference d. preparation of distribution worksheet 3. Calculate income (reclaims) and expenses (tax withheld) by country in order to determine foreign tax credit available to shareholders (if appropriate) 4. Work with the advisor and independent audit firm in the identification of Passive Foreign Investment Companies (if appropriate), although primary responsibility will be with the investment adviser or investment manager 5. Calculate Dividend Received Deduction available to corporate shareholders and analyze domestic equity security holding periods 6. Preparation and maintenance of straddle schedules 7. Identification and compliance with the mark-to-market rules 49 SCHEDULE C ---------- 8. Prepare return of capital worksheet for financial statement presentation with auditor review/discussion, if necessary 9. Provide schedules to auditors for audit/tax review to enable the audit firm to prepare and file the necessary tax forms (1120, 8613, K-1, etc.) V. OTHER ADMINISTRATIVE SERVICES WHICH MAY BE PERFORMED BY OTHER PARTY ------------------------------------------------------------------- A. The provision of information to the Funds with respect to regulatory matters, including monitoring regulatory and legislative developments that may affect the Funds and assisting the Funds in routine regulatory examinations or investigations. B. Assistance in the Funds' operations and provision of customary administration services. C. In connection with the foregoing activities, maintenance of an office facility; and D. In connection with the foregoing activities, the furnishing of clerical services and internal executive and administrative services, and office supplies. 50 SCHEDULE D ---------- THE BRINSON FUNDS ----------------- DESCRIPTION OF FUND ACCOUNTING SERVICES --------------------------------------- DAILY ACCOUNTING SERVICES -------------------------- 1) Maintain the books and records of each Series and each Class within the ----------------------------------------------------------------------- Series. ------ 2) Calculate Net Asset Value (and Offering Price) Per Share, at both a Series -------------------------------------------------------------------------- level and on Class level: ------------------------ . Enter manual prices supplied by Customer and/or broker. . Review variance reporting on-line and in hard copy for price changes in individual securities using variance levels established by Customer. Verify US dollar security prices exceeding variance levels by notifying Customer and pricing sources, of noted variance. . Complete daily variance review on foreign exchange rates and local foreign prices. Notify Customer of changes exceeding established levels for the Customer's verification. 3) Reconcile and Record All Daily Expense Accruals; on a Series level and on ------------------------------------------------------------------------- Class level. ----------- 4) Verify and Record All Daily Income Accruals for Debt Issues, on a Series ------------------------------------------------------------------------ level and on Class level, if necessary. -------------------------------------- 5) Record Corporate Action, Cash Dividends and Capital changes on Securities, -------------------------------------------------------------------------- on a Series level and on Class level. ------------------------------------ 6) Record all Security Trades based on instruction from the Customer, on a ----------------------------------------------------------------------- Series level and Class level. ---------------------------- 7) Record All Series Share Transactions. ------------------------------------ 8) Review and Reconcile With Custodian Statements: ---------------------------------------------- . Track status of past due items and failed trades handled by the Custodian. 51 SCHEDULE D ---------- 9) Submission of Daily Accounting Reports as agreed to from time to time by ------------------------------------------------------------------------ Bank and Customer: ----------------- . Bank represents that all Customer Information, in whatever form, is the property of the Customer. MONTHLY ACCOUNTING SERVICES --------------------------- 1) For the Series, full Financial Statement Preparation (automated Statements -------------------------------------------------------------------------- of Assets and Liabilities, of Operations and of Changes in Net Assets) and -------------------------------------------------------------------------- submission to Customer by 10th Business Day. ------------------------------------------- . Class specific capital share activity and expenses will be disclosed also. 2) Submission of Monthly Reports Series Level: ------------------------------------------ . Security Purchase/Sales Journal. . Interest and Maturity Report. . Brokers Ledger (Commission Report). . Security Ledger Transaction Report with Realized Gains/Losses. . Security Ledger Tax Lot Holdings Report. . Additional reports available upon request. 3) Reconcile Accounting Asset Listing to Custodian Asset Listing: ------------------------------------------------------------- Series Level . Report any security balance discrepancies to the Custodian/Customer. 4) Provide Monthly Analysis and Reconciliation of Additional Trial Balance ----------------------------------------------------------------------- Accounts, such as: ----------------- Series Level . Security cost and realized gains/losses. . Interest/dividend receivable and income. . Payable/receivable for securities purchased and sold. . Unrealized and realized currency gains/losses. Series and Each Class . Payable/receivable for Fund shares; issued and redeemed . Expense payments and accruals analysis 52 SCHEDULE D ---------- ANNUAL (AND SEMI-ANNUAL) ACCOUNTING SERVICES -------------------------------------------- 1) Assist and supply auditors with schedules supporting securities and shareholder transactions, income and expense accruals, etc. for the Series and each Class during the year in accordance with standard audit assistance requirements. Provide reasonable space and necessary personnel to accommodate auditors. 2) Provide NSAR Reporting (Accounting Questions). --------------------------------------------- 3) If Appropriate, Prepare and Submit Annually During the Excise Reporting ----------------------------------------------------------------------- Period (October-December) to the Customer at the Series level: ------------------------------------------------------------- . Income by state reporting. . Standard Industry Code Valuation Report. . Alternative Minimum Tax Income segregation schedule. 53 SCHEDULE E ---------- THE BRINSON FUNDS ----------------- DESCRIPTION OF TRANSFER AGENCY ------------------------------ I. SHAREHOLDERS FILE 1. Establish new accounts and enter demographic data into shareholder base. Includes review and file maintenance for all NSCC originated registration and data changes for FundServ, Networking and ACTS accounts for compliance with Investar customer file requirements. 2. Create Combined Statement File to link accounts within the Fund and across funds within the Fund Group. Facilitates account maintenance, lead tracking, quality control, household mailings and combined statements. 3. Systematic linkage of shareholder accounts with exact matches on Social Security Number and address for the purpose of consolidated account history reporting. Monthly production of laser printed combined statements. 4. Production of mailing labels which enable the Fund to do special mailings to each address in the Fund Group rather than each account. 5. Maintain account and customer file records based on shareholder request and routine quality review. 6. Maintain tax ID certification and NRA records for each account, including backup withholding. 7. Produce shareholder statements for daily activity, dividends, on- request, third party and monthly mailings. 8. Produce shareholder lists, labels and ad hoc reports to Fund management as requested. 9. Automated processing of dividends and capital gains with daily, monthly, quarterly or annual distributions. Payment options include reinvestment, directed payment to another fund, cash via mail, Fed wire or ACH. 10. Coordination of registration of the Funds with the National Securities Clearing Corporation ("NSCC") and filing of required Fund/SERV reports with the NSCC. 54 SCHEDULE E ---------- II. SHAREHOLDER SERVICES 1. Answer shareholder calls: provide routine account information, transaction details including direct and wire purchases, redemptions, exchanges, systematic withdrawals, pre-authorized drafts, Fund SERV and wire order trades, problem solving and process telephone transactions. 2. Customized recording of fund prices daily after regular business hours for shareholder access. 3. Silent monitoring of shareholder class by the phone supervisor to ensure quality of customer service. 4. Record and maintain tape recordings of all shareholder calls for a six month period. 5. Systematic production of daily management reports of shareholder calls which track volumes, length of calls, average wait time and abandoned call rates to ensure quality service. 6. Customer inquiries received by letter or telephone are researched by a correspondence team member. These inquires include such items as, account/customer file information, complete historical account information, stop payments on checks, transaction details and lost certificates. III. INVESTMENT PROCESSING 1. Initial and subsequent investments by checks, Fed wire, or Automated Clearing House ("ACH"). 2. Pre-authorized investment (PAD) through ACH system. 3. Prepare and process daily bank deposit of shareholder investments. 4. NSCC - FundSERV and networking trades. IV. REDEMPTION PROCESSING 1. Process letter redemption requests. 2. Process telephone redemption transactions. 55 SCHEDULE E ---------- 3. Establish Systematic Withdrawal File and process automated transactions on monthly basis. 4. Issue checkbooks and process checkbook redemptions through agent bank. 5. Redemption proceeds distributed to shareholder by check, Fed wire or ACH processing. 6. Provide NSCC - FundSERV and networking trade processing. V. EXCHANGE & TRADE PROCESSING 1. Process legal transfers. 2. Issue and cancel certificates. 3. Replace certificates through surety bonds (separate charge to shareholder). 4. Process exchange transactions (letter and telephone request). 5. Process ACATS transfers. VI. RETIREMENT PLANS 1. Fund sponsored IRAs offered using Chase as custodian. Services include: a. Contribution processing b. Distribution processing c. Apply rollover transactions d. Process Transfer of Assets e. Letters of Acceptance to prior custodians f. Notify IRA holders of 70 1/2 requirements g. Calculate Required Minimum Distributions h. Maintain beneficiary information file i. Solicit birth date information 2. Fund sponsored SEP-IRA plans offered using Chase as custodian. Services include those listed under IRAs and: a. Identification of employer contributions 3. Fund sponsored Qualified plans (401(k) and 403(b) only) offered. a. Plan document available 56 SCHEDULE E ---------- b. Omnibus/master account processing only c. Produce annual statements d. Process contributions e. Process distributions f. Process rollover and Transfer of Assets transactions VII. SETTLEMENT & CONTROL 1. Daily review of processed shareholder transactions to assure input was processed correctly. Accurate trade activity figures passed to Fund's Accounting Agent by 10:00am EST. 2. Preparation of daily cash movement information to be passed to the Fund's Accounting Agent and Custodian Bank by 10:00am EST for use in determining Fund's daily cash availability. 3. Prepare a daily share reconcilement which balances the shares on the Transfer Agent system to those on the books of the Fund. 4. Resolve any outstanding share or cash issues that are not cleared. 5. Process shareholder adjustments to include the proper notification of any booking entries needed, as well as any necessary cash movement. 6. Settlement and review of Fund's declared dividends and capital gains to include the following: a. Review record date report for accuracy of shares. b. Preparation of dividend settlement report after dividend is posted. Verify the posting date shares, the rates used and the NAV price of reinvest date to ensure dividend was posted properly. c. Distribute copies to the Fund's Accounting Agent. d. Preparation of the checks prior to being mailed. e. Sending of any dividends via wires if requested. f. Preparation of cash movement information for each portion of the dividend payout on payable date. 7. Placement of stop payments on dividend and liquidation checks as well as the issuance of their replacements. 8. Maintain inventory control for stock certificates and dividend check form. 57 SCHEDULE E ---------- 9. Monthly deposits to the IRS of all taxes withheld from shareholder disbursements, distributions and foreign account distributions. Correspond with the IRS concerning any of the above issues. 10. Timely settlement and cash movement for all NSCC/FundSERV activity. VIII. YEAR END PROCESSING 1. Maintain shareholder records in accordance with IRS notices for under- reporting and invalid Tax Ids. This includes initiating 31% backup withholding and notifying shareholders of their tax status and the corrective action which is needed. 2. Conduct annual W-9 solicitation of all uncertified accounts. Update account tax status to reflect backup withholding or certified status depending upon responses. 3. Conduct periodic W-8 solicitation of all non-resident alien shareholder accounts. Update account tax status with updated shareholder information and treaty rates for NRA tax. 4. Review IRS Revenue Procedures for changes in transaction and distribution reporting and specifications for the production of forms to ensure compliance. 5. Coordinate year end activity with client. Activities include producing year end statement, scheduling record dates for year dividends and capital gains, production of combined statements, printing of inserts to be mailed with tax forms. 6. Distribute Dividend Letter to funds for them to sign off on all distributions paid year to date. Dates and rates must be authorized so that they can be used for reporting to the IRS. 7. Coordinate the ordering of form stock and envelopes from vendor in preparation of tax reporting. Review against IRS requirements to ensure accuracy. 8. Prepare form flashes for the microfiche or microfilm vendor. Test and oversee the production of fiche or film for year end statements and tax forms. 58 SCHEDULE E ---------- 9. Match and settle tax reporting totals to fund records and on-line data from Investar. 10. Produce forms 1099R, 1099B, 1099Div, 5498, 1042S and year end valuations. Quality assure forms before mailing to shareholders. 11. Monitor IRS deadlines and special events such as cross over dividends and prior year IRA contributions. 12. Prepare IRS magnetic tapes and appropriate forms for the filing of all reportable activity to the Internal Revenue Service. IX. CLIENT SERVICES 1. An Account Manager is assigned to each relationship. The Account Manager acts as the liaison between the Fund and the Transfer Agency staff. Responsibilities include scheduling of events, system enhancement implementation, special promotion/event implementation and follow-up, and constant fund interaction on daily operational issues. Specifically: a. Scheduling of dividends, proxies, report mailing and special mailings. b. Coordinate with the Fund the shipment of materials for scheduled mailings. c. Liaison between the Fund and support services for preparation of proofs and eventual printing of statement forms, certificates, proxy cards, envelopes. d. Handle all notification regarding proxy tabulation through the meeting. Coordinate scheduling of materials, including voted cards, tabulation letters, and shareholder list, to be available for the meeting. e. Order special reports, tapes, discs for special systems requests received. f. Implement new operational procedures, e.g., check writing feature, load discounts, minimum waivers, sweeps, telephone options, PAD promotions. g. Coordinate with systems, services and operations on special events, e.g., mergers, new fund start ups, small account liquidations, combined statements, household mailings, additional mail files. h. Prepare standard operating procedures and review prospectus for new funds and our current client base. Coordinate implementation of suggested changes with the Fund. 59 SCHEDULE E ---------- i. Liaison between the Fund and the transfer agency staff regarding all service and operational issues. 2. Proxy Processing a. Coordinate printing of cards with vendor. b. Coordinate mailing of cards with Account Manger and mailroom c. Provide daily report totals to Account Manager for client notification. d. Preparation of affidavit of mailing documents. e. Provide one shareholder list. f. Prepare final tabulation letter. 3. Blue Sky Processing a. Maintain file with additions, deletions, changes and updates at the Fund's direction. b. Provide daily and monthly reports to enable the Fund to do necessary state filings. 60 SCHEDULE F ---------- FEE SCHEDULE FOR THE BRINSON FUNDS ---------------------------------- ACCOUNTING, ADMINISTRATION, TRANSFER AGENCY AND CUSTODY SERVICES ANNUAL FEE SCHEDULE 61 EX-99.B.11.(A) 4 CONSENT OF ERNST & YOUNG LLP Exhibit 99.B11(a) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our reports dated August 9, 1996, in the Registration Statement (Form N-1A) and related Prospectus of The Brinson Funds, filed with the Securities and Exchange Commission in this Post-Effective Amendment No. 18 to the Registration Statement under the Securities Act of 1993 (Registration No. 33-47287) and in this Amendment No. 19 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-6637). /s/ Ernst & Young -------------------------------------- ERNST & YOUNG LLP Chicago, Illinois April 28, 1997 EX-99.B.15.(C) 5 DISTRIBUTION PLAN RELATING TO CLASS N SHARES DISTRIBUTION PLAN RELATING TO THE BRINSON-CLASS N SHARES OF THE BRINSON FUNDS The following Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), by The Brinson Funds (the "Trust") on behalf of the Brinson-Class N shares (each individually a "Class" and collectively, the "Classes") of each of the series of the Trust as listed on Schedule A attached hereto (which may be amended from time to time to add or delete series). Each series listed on Schedule A is referred to herein individually as a "Fund" or collectively as the "Funds"). The Plan is adopted for the use of Brinson-Class N shares of the Funds and any Brinson-Class N shares of separate series of the Trust hereinafter organized. The Plan has been approved by a majority of the Trust's Board of Trustees, including a majority of the trustees who are not interested persons of the Trust (as that term is defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of the Plan (the "non-interested trustees"), cast in person at a meeting called for the purpose of voting on such Plan. In reviewing the Plan, the Board of Trustees of the Trust determined that adoption of the Plan would be prudent and in the best interests of each Fund and its shareholders. Such approval included a determination by the trustees that in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit each Fund and its shareholders. The Plan has also been approved by a vote of the sole initial shareholder of the Brinson-Class N shares of each Fund. The provisions of the Plan are: 1. Each Class shall reimburse Brinson Partners, Inc. (the "Manager"), Funds Distributor, Inc. (the "Distributor") or others for all expenses incurred by such parties in the promotion and distribution of the shares of the Class, including but not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, as well as any distribution or service fees paid to securities dealers or others who have executed a servicing agreement with the Trust on behalf of the Class, the Manager on behalf of the Class, the Distributor, the Fund's transfer agent, shareholder servicing agent, administrator or sub-administrator on behalf of the Class, which form of agreement has been approved from time to time by the trustees, including the non-interested trustees. 2. The maximum aggregate amount which may be reimbursed by a Class to such parties pursuant to Paragraph 1 herein shall be 0.25% per annum of the average daily net assets of the Class. Said reimbursement shall be made quarterly by the Class to such parties. 3. The Manager and the Distributor shall collect and monitor the documentation of payments made under paragraphs 1 and 2 above, and shall furnish to the Board of Trustees of the Trust, for their review, on a quarterly basis, a written report of the monies reimbursed to them and others under the Plan as to a Fund's Class, and shall furnish the Board of Trustees of the Trust with such other information as the Board may reasonably request in connection with the payments made under the Plan as to a Fund's Class in order to enable the Board to make an informed determination of whether the Plan should be continued for such Class. 4. The Plan shall continue in effect for each Class for a period of more than one year only so long as such continuance is specifically approved at least annually by the Trust's Board of Trustees, including the non-interested trustees, cast in person at a meeting called for the purpose of voting on the Plan. 5. The Plan, or any agreements entered into pursuant to the Plan, may be terminated at any time, without penalty, by vote of a majority of the outstanding voting securities of a Class with respect to that Class, or by vote of a majority of the non-interested trustees, on not more than sixty (60) days' written notice, and shall terminate automatically in the event of any act that constitutes an assignment of the management agreement between the Trust on behalf of the relevant Funds of the Trust and the Manager. 6. The Plan and any agreements entered into pursuant to the Plan may not be amended to increase materially the amount to be spent by a Class for distribution pursuant to Paragraph 2 hereof without approval by a majority of the outstanding voting securities of the Class. 7. All material amendments to the Plan, and any agreements entered into pursuant to the Plan, shall be approved by the non-interested trustees cast in person at a meeting called for the purpose of voting on any such amendment or agreement. 8. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested trustees shall be committed to the discretion of such non-interested trustees. 9. This Plan shall take effect on the ___th day of _______, 1997. This Plan and the terms and provisions thereof are hereby accepted and agreed to by the Fund, the Manager and the Distributor as evidenced by their execution hereof. THE BRINSON FUNDS By: -------------------------------- BRINSON PARTNERS, INC. By: -------------------------------- FUNDS DISTRIBUTOR, INC. By: -------------------------------- Schedule "A" Series subject to the Distribution Plan relating to the Brinson - Class N Shares of The Brinson Funds: Series ------ Global Fund Global Equity Fund Global Bond Fund U.S. Balanced Fund U.S. Equity Fund U.S. Bond Fund Non - U.S. Equity Fund Date:____________________ , 1997 EX-99.B.18.(B) 6 FORM OF REVISED MULTIPLE CLASS PLAN THE BRINSON FUNDS REVISED MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3 The Brinson Funds (the "Trust") hereby adopts this plan pursuant to Rule 18f-3 (the "Plan") under the Investment Company Act of 1940, as amended (the "1940 Act"), which sets forth the separate distribution arrangements and expense allocations of each of the classes of the series of the Trust. The Plan is adopted by a majority of the Board of Trustees of the Trust, including a majority of the Trustees who are not interested persons of the Trust under the 1940 Act. The Board of Trustees of the Trust has determined that the Plan, including the allocation of expenses, is in the best interests of the Trust as a whole, each series of shares offered by the Trust and each class of shares offered by the Trust. To the extent that a subject matter set forth in the Plan is covered by the Trust's Agreement and Declaration of Trust ("Trust Agreement") or By-Laws, such Trust Agreement or By-Laws will control in the event of any inconsistences with descriptions contained in the Plan. Appendix A, as may be amended from time to time, to this Plan describes the classes to be issued by each series and identifies the names of such classes. CLASS CHARACTERISTICS Each class of shares of a series will represent an interest in the same portfolio of investments of a series of the Trust, and be identical in all respects to each other class, except as set forth below. BRINSON-CLASS I: Class I shares will not be subject to an initial sales charge, a contingent deferred sales charge or a Rule 12b-1 plan. Class I shares will be offered to investors with a minimum initial investment of $1 million. BRINSON-CLASS N: Class N shares will not be subject to an initial sales charge or a contingent deferred sales charge, but will have a Rule 12b-1 plan with a fee of 0.25% of average daily net assets per annum. Class N shares will be offered to investors with a minimum initial investment of $1 million. SWISSKEY CLASS: SwissKey Class shares will not be subject to an initial sales charge or a contingent deferred sales charge, but will have a Rule 12b-1 plan with an asset-based distribution fee of up to a maximum of 0.65% of average daily net assets per annum and a service fee of 0.25% of average daily net assets per annum. SwissKey Class shares will be offered to investors with a minimum initial investment of $1,000 and minimum subsequent investments of $50. The only differences among the various classes of shares of the same series of the Trust will relate solely to: (a) distribution fee payments associated with a Rule 12b-1 plan for a particular class of shares and any other costs relating to implementing or amending such plan (including obtaining shareholder approval of such plan or any amendment thereto), which will be borne solely by shareholders of such class or classes; (b) exchange privileges; (c) class names or designations; and (d) voting rights as described in the Plan. The Board of Trustees has the power to designate one or more series or sub- series/classes of shares of beneficial interest and to classify and reclassify only unissued shares with respect to such series. The assets of each series belong only to that series, and the liabilities of each series are borne solely by that series and no other. Shares of each series represent equal proportionate interests in the assets of that series only and have identical voting, dividend, redemption, liquidation and other rights. All shares issued are fully paid and nonassessable, and shareholders have no preemptive or other right to subscribe to any additional shares and no conversion rights. Each issued and outstanding full and fractional share of a series is entitled to one full and fractional vote in the series and all shares of each series participate equally with regard to dividends, distributions and liquidations with respect to that series. Shareholders do not have cumulative voting rights. On any matter submitted to a vote of shareholders, shares of each series will vote separately except when a vote of shareholders in the aggregate is required by law, or when the Trustees have determined that the matter affects the interests of more than one series, in which case the shareholders of all such series shall be entitled to vote thereon. Each class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its arrangement for shareholder services and the distribution of shares including its Rule 12b-1 plan, and shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class, and shall have in all respects the same rights and obligations as each other class. INCOME AND EXPENSE ALLOCATION The Trust shall allocate to each class of shares of a series any fees and expenses incurred by the Trust in connection with the distribution or servicing of such class of shares under a Rule 12b-1 plan, if any, adopted for such class. Except for Rule 12b-1 plan fees as described above, all expenses incurred by a series will be allocated to each class of shares of such series on the basis of the net asset value of each such class in relation to the net asset value of the series. DIVIDENDS AND DISTRIBUTIONS Income and realized and unrealized capital gains and losses of a series will be allocated to each class of such series on the basis of the net asset value of each such class in relation to the net asset value of the series. EXCHANGES AND CONVERSIONS Shares of any series of the Trust will be exchangeable with shares of the same class of shares of another series of the Trust to the extent such shares are available. Exchanges will comply with all applicable provisions of Rule 11a-3 under the 1940 Act. GENERAL Any distribution arrangement of the Trust, including distribution fees pursuant to Rule 12b-1 under the 1940 Act, will comply with Article III, Section 26 of the Conduct Rules of the National Association of Securities Dealers, Inc. Any material amendment to the Plan must be approved pursuant to Rule 18f-3 under the 1940 Act by a majority of the Board of Trustees of the Trust, including a majority of those trustees who are not interested persons of the Trust, as defined in the 1940 Act. Date:_________________ , 1997 APPENDIX "A" List of Series and Classes Series Classes - ------ ------- Global Fund Brinson Global Fund - Class I Brinson Global Fund - Class N SwissKey Global Fund Global Equity Fund Brinson Global Equity Fund - Class I Brinson Global Equity Fund - Class N SwissKey Global Equity Fund Global Bond Fund Brinson Global Bond Fund - Class I Brinson Global Bond Fund - Class N SwissKey Global Bond Fund U.S. Balanced Fund Brinson U.S. Balanced Fund - Class I Brinson U.S. Balanced Fund - Class N SwissKey U.S. Balanced Fund U.S. Equity Fund Brinson U.S. Equity Fund - Class I Brinson U.S. Equity Fund - Class N SwissKey U.S. Equity Fund U.S. Bond Fund Brinson U.S. Bond Fund - Class I Brinson U.S. Bond Fund - Class N SwissKey U.S. Bond Fund Non-U.S. Equity Fund Brinson Non-U.S. Equity Fund - Class I Brinson Non-U.S. Equity Fund - Class N SwissKey Non-U.S. Equity Fund EX-27.1 7 BRINSON GLOBAL FUND
6 0000886244 THE BRINSON FUNDS 1 BRINSON GLOBAL FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 435368559 469490835 9267248 17720 2961751 481737554 8505363 0 1269055 9774418 0 414032614 37481925 32208149 9848069 0 14638128 0 33444325 471963136 4265925 15935899 0 4482882 15718942 33576934 13188606 62484482 0 21444413 10892522 0 7972013 5330521 2632284 106285211 4495172 3277834 0 275888 3415057 0 4482882 426645917 11.35 .44 1.37 .62 .32 0 12.22 1.04 0 0
EX-27.2 8 BRINSON GLOBAL BOND FUND
6 0000886244 THE BRINSON FUNDS 2 BRINSON GLOBAL BOND FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 43593397 44083699 1534427 5848 1140560 46764534 1809805 0 235724 2045529 0 43137444 4091541 4991549 1052943 0 198256 0 330362 44719005 0 2733764 0 381954 2351810 4022906 (1992544) 4382172 0 4734956 338786 0 1094889 2369683 374786 (7143513) 1095344 (882418) 0 0 310066 0 381954 41242097 10.39 .84 .31 1.40 .10 0 10.04 .90 0 0
EX-27.3 9 BRINSON GLOBAL EQUITY FUND
6 0000886244 THE BRINSON FUNDS 3 BRINSON GLOBAL EQUITY FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 54150527 60005593 372337 6965 609684 60994579 663419 0 193078 856497 0 49837041 2343988 2085106 90547 0 4320936 0 5889558 60138082 1003890 139095 0 680381 462604 8259766 1258707 9981077 0 295340 1399995 0 285419 186600 160063 39432517 59734 (1011998) 0 198395 390824 0 1059007 48939901 9.93 .18 2.29 .14 .69 0 11.57 1.00 0 0
EX-27.4 10 BRINSON NON-U.S. EQUITY FUND
6 0000886244 THE BRINSON FUNDS 4 BRINSON NON-U.S. EQUITY FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 196010918 209275939 1457845 53522 3975549 214762855 853302 0 281224 1134525 0 189936001 19010079 15314850 785599 0 7570744 0 15335985 213628329 3856097 1167297 0 1757430 3265964 22260813 10918989 36445766 0 3057609 8632717 0 8044119 5347882 998992 65309793 632906 (6089654) 0 0 1403109 0 2110340 175304016 9.68 .18 2.05 .18 .56 0 11.17 1.00 0 0
EX-27.5 11 BRINSON U.S. EQUITY FUND
6 0000886244 THE BRINSON FUNDS 6 BRINSON U.S. EQUITY FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 112752165 130372201 1587909 53198 279476 132292784 472332 0 91707 564039 0 107348442 8659822 3692314 216006 0 6547036 0 17617261 131728745 1833948 234616 0 735393 1333171 7826393 13357238 22516802 0 1233245 1764213 0 5125613 380602 222497 89155284 133889 487467 0 0 638063 0 1047134 91305269 11.53 .17 3.31 .17 .25 0 14.59 .80 0 0
EX-27.6 12 BRINSON U.S. BALANCED FUND
6 0000886244 THE BRINSON FUNDS 7 BRINSON U.S. BALANCED FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 221129000 237403692 11411132 54849 0 248869673 19680997 0 580383 20261380 0 206237387 19452253 14040134 1459205 0 4572865 0 16338836 228608293 1870968 8113714 0 1675812 8308870 8233205 8676412 25218487 0 7711341 9885505 0 6944846 3073501 1540774 70884465 942216 6155398 0 0 1465283 0 2125564 209337697 11.23 .44 1.04 .43 .57 0 11.71 .80 0 0
EX-27.7 13 BRINSON U.S. BOND FUND
6 0000886244 THE BRINSON FUNDS 8 BRINSON U.S. BOND FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 10571434 10425171 570432 15501 46542 11057646 1311852 0 63260 1375110 0 9770407 911170 0 90190 0 (31800) 0 (146263) 9682534 0 503035 0 46804 456231 (11035) (146263) 298933 0 350335 23071 0 953454 84593 37309 9631534 0 0 0 0 37868 0 277020 9108927 10.00 .50 (.14) .40 .03 0 9.93 .60 0 0
EX-27.8 14 SWISSKEY GLOBAL FUND
6 0000886244 THE BRINSON FUNDS 11 SWISSKEY GLOBAL FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 435368559 469490835 9267248 17720 2961751 481737554 8505363 0 1269055 9774418 0 414032614 1151524 0 9848069 0 14638128 0 33444325 471963136 4265925 15935899 0 4482882 15718942 33576934 13188606 62484482 0 200446 45304 0 1155619 24583 20488 106285211 4495172 3277834 0 275888 3415057 0 4482882 426645917 11.60 .39 1.10 .59 .32 0 12.18 1.69 0 0
EX-27.9 15 SWISSKEY GLOBAL BOND FUND
6 0000886244 THE BRINSON FUNDS 12 SWISSKEY GLOBAL BOND FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 43593397 44083699 1534427 5848 1140560 46764534 1809805 0 235724 2045529 0 43137444 364428 0 1052943 0 198256 0 330362 44719005 0 2733764 0 381954 2351810 4022906 (1992544) 4382172 0 246430 16271 0 345211 4197 23414 (7143513) 1095344 (882418) 0 0 310066 0 381954 41242097 10.56 .78 .15 1.37 .10 0 10.02 1.39 0 0
EX-27.10 16 SWISSKEY GLOBAL EQUITY FUND
6 0000886244 THE BRINSON FUNDS 13 SWISSKEY GLOBAL EQUITY FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 54150527 60005593 372337 6965 609684 60994579 663419 0 193078 856497 0 49837041 2852778 0 90547 0 4320936 0 5889558 60138082 1003890 139095 0 680381 462604 8259766 1258707 9981077 0 41698 1621590 0 3220462 523404 155720 39432517 59734 (1011998) 0 198395 390824 0 1059007 48939901 10.35 (.01) 1.93 .01 .69 0 11.57 1.76 0 0
EX-27.11 17 SWISSKEY NON-U.S. EQUITY FUND
6 0000886244 THE BRINSON FUNDS 14 SWISSKEY NON-U.S. EQUITY FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 196010918 209275939 1457845 53522 3975549 214762855 853302 0 281224 1134526 0 189936001 113519 0 785599 0 7570744 0 15335985 213628329 3856097 1167297 0 1757430 3265964 22260813 10918989 36445766 0 8629 14731 0 125829 14352 2042 65309793 632906 (6089654) 0 0 1403109 0 2110340 175304016 10.26 .12 1.45 .15 .56 0 11.12 1.84 0 0
EX-27.12 18 SWISSKEY U.S. EQUITY FUND
6 0000886244 THE BRINSON FUNDS 16 SWISSKEY U.S. EQUITY FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 112752165 130372201 1587909 53198 279476 132292784 472332 0 91707 564039 0 107348442 369425 0 216006 0 6547036 0 17617261 131728745 1833948 234616 0 735393 1333171 7826393 13357238 22516802 0 17809 2611 0 375655 6874 644 89155284 133889 487467 0 0 638063 0 1047134 91305269 11.94 .10 2.92 .13 .25 0 14.58 1.32 0 0
EX-27.13 19 SWISSKEY U.S. BALANCED BUND
6 0000886244 THE BRINSON FUNDS 17 SWISSKEY US BALANCED FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 221129000 237403692 11411132 54849 0 248869673 19680997 0 580383 20261380 0 206237387 66755 0 1459205 0 4572865 0 16338836 228608293 1870968 8113714 0 1675812 8308870 8233205 8676412 25218487 0 9781 992 0 67290 957 422 70884465 942216 6155398 0 0 1465283 0 2125564 209337697 11.38 .42 .86 .42 .57 0 11.67 1.30 0 0
EX-27.14 20 SWISSKEY U.S. BOND FUND
6 0000886244 THE BRINSON FUNDS 18 SWISSKEY U.S. BOND FUND 1 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 10571434 10425171 570432 15501 46542 11057646 1311852 0 63260 1375110 0 9770407 64124 0 90190 0 (31800) 0 (146263) 9682534 0 503035 0 46804 456231 (11035) (146263) 298933 0 13132 268 0 63717 1055 1362 9631534 0 0 0 0 37868 0 277020 9108927 10.00 .46 (.13) .38 .03 0 9.92 1.07 0 0
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