-----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, G7PeLwT01UmSEC5PMetJgCIasja8UWrULCJd1zN0ymF7LNOyd7N5YOG+5NkKrRKc z9O2Z6xjhSmaD1O5G52xpw== 0000950131-98-005115.txt : 19980910 0000950131-98-005115.hdr.sgml : 19980910 ACCESSION NUMBER: 0000950131-98-005115 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980909 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: N-30D SEC ACT: SEC FILE NUMBER: 811-06637 FILM NUMBER: 98705705 BUSINESS ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 BUSINESS PHONE: 8001482430 MAIL ADDRESS: STREET 1: 209 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60604-1795 N-30D 1 BRINSON PARTNERS AND SWISSKEY ANNUAL REPORTS -------------------------- The Brinson Funds Brinson Global Fund Brinson Global Equity Fund Brinson Global Bond Fund Annual Report June 30, 1998 [ART] Institutional Asset Management -------------------------- Trustees and Officers [ART] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Chairman of the Board E. Thomas McFarlan President Thomas J. Digenan, CFA, CPA Vice President Debra L. Nichols Vice President Carolyn M. Burke, CPA Secretary and Treasurer Catherine E. Macrae Assistant Secretary The Funds' Advisor -- Brinson Partners, Inc. [ART] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory basis. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent and the flexibility to customize portfolios to meet unique requirements. 2 Table of Contents [ART] Shareholder Letter............................................................ 4 Global Economic and Market Highlights......................................... 5 Global Fund................................................................... 6 Schedule of Investments....................................................11 Financial Statements.......................................................21 Financial Highlights.......................................................25 Global Equity Fund............................................................28 Schedule of Investments....................................................33 Financial Statements.......................................................39 Financial Highlights.......................................................42 Global Bond Fund..............................................................45 Schedule of Investments....................................................49 Financial Statements.......................................................53 Financial Highlights.......................................................56 The Brinson Funds--Notes to Financial Statements..............................59 Report of Independent Auditors................................................64 3 Shareholder Letter [ART] August 22, 1998 Dear Shareholder: We are very pleased to present the June 30, 1998 Annual Report for the Global Fund, Global Equity Fund and Global Bond Fund. Within this Report, we focus on the current global economic outlook as well as our current strategies and performance updates for the three Global Funds. In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced their intention to merge, which included the integration of UBS Asset Management and SBC Brinson into the UBS Brinson Division. The merger was consummated on June 29, 1998. We are excited about the formation of the UBS Brinson Division and the additional resources we have brought together to further the tradition of delivering value-added investment performance and the highest level of professional client service. Brinson Global Fund Class I Since its inception on August 31, 1992, the Brinson Global Fund Class I has produced an annualized total return of 11.44% compared to the return of 13.81% of its benchmark, the Global Securities Markets Mutual Fund Index. The Brinson Global Fund Class I achieved this performance with a volatility of 5.36%, below the benchmark volatility of 6.86% and reflecting our cautious strategy at this time toward investment risk. Brinson Global Equity Fund Class I The Brinson Global Equity Fund Class I has provided an annualized return of 12.45% since its performance inception on January 31, 1994. This is compared to a 14.95% return for the benchmark, the MSCI World Equity (Free) Index. This performance was achieved with volatility of 8.80%, below the benchmark volatility of 10.35% and reflecting our cautious strategy at this time toward investment risk. Brinson Global Bond Fund Class I The Brinson Global Bond Fund Class I has provided an annualized return of 6.49% since its performance inception on July 31, 1993. Over the same period, the return of the Fund's benchmark, the Salomon World Government Bond Index, was 6.38%. This performance was achieved with volatility of 4.08%, below the 5.15% volatility of the benchmark and reflecting our cautious strategy at this time toward investment risk. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Gary P. Brinson Gary P. Brinson, CFA Chief Executive Officer Brinson Partners, Inc. 4 Global Economic and Market Highlights [ART] The economic situation in Japan remains bleak. With real GDP growth negative in the last two quarters, the country is officially in recession. The downturn in output has brought on the highest unemployment rate recorded in the post-war period, at just over 4%. In response to the news, the voters have delivered a severe rebuke to the ruling LDP, although it is not at all certain that this will result in the implementation of "solutions" proffered by Western governments and commentators. Many of Japan's problems are magnified elsewhere in Asia. Last year's financial and economic crisis has not diminished to any great extent. With financial systems straining under large amounts of defunct debts, and the IMF prescribing high interest rates in the interest of currency support and inflation control, real economic activity has slowed substantially. While Asia suffers from falling living standards, the crisis has been a partial benefit to the U.S. and Europe by keeping commodity and import prices in check, and by not augmenting strong domestic demand in those economies. Continental Europe's cyclical recovery is well under way, and is starting to have some beneficial effects on the high unemployment rate. Previously, output and profit growth were reasonably strong, but did not carry over into the labor market. Although unemployment has been reduced, the failure to address structural problems will almost certainly guarantee that the Continent's poor overall unemployment picture will persist for several years. The U.K.'s economic performance has been at odds with most of the rest of Europe. A series of Bank of England rate hikes has not prevented the headline inflation rate from rising above 4% this year. Now however, there are signs that these hikes, coupled with a strong pound, have started to cool the economy. The U.S. expansion is unabated; more than 7 years have elapsed since the recession at the start of the decade. However, the Federal Reserve's attempts to maintain a neutral policy stance, in light of the Asian crisis' effect on demand and costs, has resulted in substantial growth in the money supply. This could set the stage for a modest resurgence in inflation. Profit growth, which had reflected the strength of the domestic economy in prior years, is now showing signs of the fall-off in Asian demand and the strength of the dollar.
Global Environment 6 months 1 year 3 years 5 years 8/31/92* Major Markets ended ended ended ended to Total Return in U.S. Dollars 6/30/98 6/30/98 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------------------------------- U.S. Equity 15.47% 28.86% 28.13% 21.56% 21.91% Non-U.S. Equities (currency unhedged) 15.53 6.00 11.04 10.29 11.54 Non-U.S. Equities (currency hedged) 18.55 16.90 23.41 14.05 15.28 U.S. Bonds 8.97 10.59 7.88 6.91 7.40 Non-U.S. Bonds (currency unhedged) 2.09 0.89 0.44 6.36 5.93 Non-U.S. Bonds (currency hedged) 5.44 11.89 12.14 9.88 10.12 U.S. Cash Equivalents 2.38 4.87 4.99 4.58 4.32 - --------------------------------------------------------------------------------------------------------
6 months 1 year 3 years 5 years 8/31/92* Major Currencies ended ended ended ended to Percent Change Relative to U.S. Dollars 6/30/98 6/30/98 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------------------------------- Yen -6.31% -17.55% -15.11% -6.35% -2.01% Pound 1.41 0.25 1.60 2.81 -2.91 Deutschemark -0.39 -3.46 -8.47 -1.42 -4.18 Canadian Dollar -2.69 -6.19 -2.24 -3.36 -3.47 - --------------------------------------------------------------------------------------------------------
* Inception date of the Brinson Global Fund Class I All total returns in excess of 1 year are average annualized returns. 5 Global Fund [ART] The Global Fund is diversified across the equity and fixed income markets of the U.S. and a broad range of other countries. The Fund is actively managed within an asset allocation framework, involving value based market, currency, and individual security selection. Our senior asset allocation, equity and fixed income professionals form the investment team for the Fund, supported by a globally integrated market analysis system. Security selection with each market is based on the fundamental research of our analytical teams in our offices worldwide. Since its inception on August 31, 1992 the Brinson Global Fund Class I has produced an annualized return of 11.44%, compared to the return of 13.81% for its benchmark, the Global Securities Markets Mutual Fund Index. The Fund achieved this performance with a volatility of 5.36%, well-below the benchmark volatility of 6.86%. For the first half of 1998, the Brinson Global Fund Class I returned 6.21%, trailing the 10.16% return of the benchmark. The Global Fund market strategy centers on reducing the risk of exposure to the overpriced equity markets; most global bond markets are neutrally valued and, because they provide relative attraction, are the primary overweights. The Japanese bond market is an exception and is extremely overvalued at all points along the yield curve. Market allocation made a substantial negative contribution to Fund performance during the first half of 1998 as developed global equity markets, with a few Asian exceptions, were strong. Numerous developed equity markets provided double-digit returns in dollar-hedged terms. Developed bond markets provided positive returns but failed to match those of world equity markets. The strategy for emerging markets equities is neutral to the normal policy exposure of 3.0%. The emerging markets debt strategy mirrors the developed bond market overweight, with a 5.0% exposure relative to the 2.0% normal policy. A small underweight is carried in the U.S. high yield bond market. Active currency had little impact on the performance of the Fund. Current strategy involves yen and sterling underweights and Australian and U.S. dollar overweights. 6 Global Fund (ART)
Total Return 6 months 1 year 3 years 5 years 8/31/92* ended ended ended ended to 6/30/98 6/30/98 6/30/98 6/30/98 6/30/98 - ------------------------------------------------------------------------------------------------------------------------- Brinson Global Fund Class I 6.21% 8.28% 14.38% 11.17% 11.44% - ------------------------------------------------------------------------------------------------------------------------- GSMI Mutual Fund Index** 10.16 13.76 15.93 13.69 13.81 - -------------------------------------------------------------------------------------------------------------------------
* Inception date of the Brinson Global Fund Class I. ** An un-managed index compiled by the Advisor, constructed as follows: 40% Wilshire 5000 Index; 22% MSCI Non-U.S. Equity (Free) Index; 21% Salomon BIG Bond Index; 9% Salomon Non-U.S. Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable Index; and 3% High Yield Bond Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Fund Class I and the GSMI Mutual Fund Index if you had invested $1,000,000 on August 31, 1992, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Fund Class I vs. GSMI Mutual Fund Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] LABEL B A - -------------------------------------------------- Brinson Global Fund Class I GSMI - -------------------------------------------------- 8/31/92 1,000,000 1,000,000 - -------------------------------------------------- 12/31/92 1,032,925 1,030,790 - -------------------------------------------------- 6/30/93 1,107,567 1,119,316 - -------------------------------------------------- 12/31/93 1,148,054 1,179,801 - -------------------------------------------------- 6/30/94 1,116,140 1,164,819 - -------------------------------------------------- 12/31/94 1,126,372 1,196,582 - -------------------------------------------------- 6/30/95 1,256,423 1,364,548 - -------------------------------------------------- 12/31/95 1,398,239 1,500,615 - -------------------------------------------------- 6/30/96 1,462,269 1,583,964 - -------------------------------------------------- 12/31/96 1,595,424 1,688,579 - -------------------------------------------------- 6/30/97 1,736,975 1,869,036 - -------------------------------------------------- 12/31/97 1,770,868 1,930,073 - -------------------------------------------------- 6/30/98 1,880,791 2,126,253 - -------------------------------------------------- Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Global Fund - ------------------------------------------------------------------- [ART APPEARS HERE]
Total Return 6 months 6/30/97* ended to 6/30/98 6/30/98 - ------------------------------------------------------------------- Brinson Global Fund Class N 6.01% 7.90% - ------------------------------------------------------------------- GSMI Mutual Fund Index** 10.16 13.76 - -------------------------------------------------------------------
* Inception date of the Brinson Global Fund Class N. ** An un-managed index compiled by the Advisor, constructed as follows: 40% Wilshire 5000 Index; 22% MSCI Non-U.S. Equity (Free) Index; 21% Salomon BIG Bond Index; 9% Salomon Non-U.S. Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable Index; and 3% High Yield Bond Index. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Fund Class N and the GSMI Mutual Fund Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Fund Class N vs. GSMI Mutual Fund Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson Global Fund Class N GSMI Index Fund Index 6/30/97 $1,000,000 $1,000,000 9/30/97 1,035,796 1,045,072 12/31/97 1,017,857 1,032,657 3/31/98 1,090,861 1,128,321 6/30/98 1,079,019 1,137,621
Data through 6/30/98 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 8 Global Fund (ART)
Asset Allocation As of June 30, 1998 Current Benchmark Strategy - -------------------------------------------------------------------- U.S. Equity 40.0% 23.0% Global Equities Ex-U.S. 22.0 17.0 Emerging Markets Equities 3.0 3.0 Dollar Bonds 21.0 31.0 High Yield Bonds 3.0 2.5 Global Bonds Ex-U.S. 9.0 18.5 Emerging Markets Debt 2.0 5.0 Cash Equivalents 0.0 0.0 - -------------------------------------------------------------------- 100.0% 100.0% Top Ten U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - -------------------------------------------------------------------- 1. Xerox Corp. 1.36% 2. Lockheed Martin Corp. 1.35 3. Burlington Northern Santa Fe Corp. 1.25 4. Aon Corp. 0.96 5. FDX, Corp. 0.92 6. Philip Morris Companies, Inc. 0.91 7. CIGNA Corp. 0.76 8. Automatic Data Processing, Inc. 0.73 9. Goodyear Tire & Rubber Co. 0.70 10. Baxter International, Inc. 0.67 - -------------------------------------------------------------------- Currency Allocation As of June 30, 1998 Current Benchmark Strategy - -------------------------------------------------------------------- U.S. 66.0% 69.0% Japan 6.7 2.7 U.K. 5.6 2.3 Continental Europe 16.0 16.0 Canada 1.5 1.5 Emerging Markets 3.0 3.0 Other 1.2 5.5 - -------------------------------------------------------------------- 100.0% 100.0% Top Ten Non-U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - -------------------------------------------------------------------- 1. Glaxo Wellcome PLC 0.31% 2. Novartis AG (Reg.) 0.29 3. Nokia Oyj A Shares 0.26 4. British Petroleum Co. PLC 0.24 5. Royal Dutch Petroleum Co. 0.23 6. British Telecommunications PLC 0.23 7. Lloyds TSB Group PLC 0.22 8. CS Holdings AG (Reg.) 0.22 9. B.A.T. Industries PLC 0.20 10. Roche Holding AG (Gen.) 0.20 - --------------------------------------------------------------------
9 Global Fund [ART] Industry Diversification As a Percentage of Net Assets As of June 30, 1998
- -------------------------------------------------------------------------------- U.S. EQUITIES Energy.......................... 0.73% ------ Capital Investment Capital Goods.................. 3.02 Technology..................... 2.80 ------ 5.82 ------ Basic Industries Chemicals...................... 1.28 Housing/Paper.................. 2.26 Metals......................... 0.21 ------ 3.75 ------ Consumer Non-Durables................... 2.02 Retail/Apparel................. 1.30 Autos/Durables................. 0.87 Discretionary.................. 0.23 Health: Drugs.................. 2.17 Health: Non-Drugs.............. 1.60 ------ 8.19 ------ Financial Banks.......................... 2.07 Non-Banks...................... 2.09 ------ 4.16 ------ Utilities Electric....................... 1.72 Telephone...................... 0.26 ------ 1.98 ------ Transportation.................. 2.39 Services/Misc................... 1.85 Post Venture.................... 1.28 ------ Total U.S. Equities......... 30.15* ------ NON-U.S. EQUITIES Aerospace & Military............ 0.04% Airlines........................ 0.07 Appliances & Household.......... 0.26 Automobiles..................... 0.62 Banking......................... 2.05 Beverages & Tobacco............. 0.36 Broadcasting & Publishing....... 0.51 Building Materials.............. 0.29 Business & Public Service....... 0.48 Chemicals....................... 0.48 Construction.................... 0.11 Consumer........................ 0.24 Data Processing................. 0.09 Electric Components............. 0.14 Electronics..................... 0.69 Energy.......................... 1.30 Financial Services.............. 0.44 Food & House Products........... 0.69 Forest Products................. 0.21 Gold Mining..................... 0.01 Health: Drugs................... 0.63 Health: Non-Drugs............... 0.73 Housing/Paper................... 0.01 Industrial Components........... 0.23 Insurance....................... 1.06 Investment Companies............ 0.07 Leisure & Tourism............... 0.12 Machinery & Engineering......... 0.09 Merchandising................... 0.67 Metals--Steel................... 0.34 Miscellaneous Materials......... 0.01 Multi-Industry.................. 0.93 Non-Ferrous Metals.............. 0.30 Real Estate..................... 0.08 Recreation...................... 0.05 Retail/Apparel.................. 0.10 Telecommunications.............. 1.52 Textiles & Apparel.............. 0.05 Transportation.................. 0.15 Utilities....................... 0.58 Wholesale & International Trade. 0.09 ------ Total Non-U.S. Equities..... 16.89 ------ EMERGING MARKETS EQUITIES....... 3.38 ------ U.S. BONDS Corporate Bonds Aerospace & Military........... 0.74 Airlines....................... 0.03 Asset-Backed................... 0.33 Auto/Durables.................. 0.09 Banks.......................... 0.57 Broadcasting & Public Service.. 0.69 CMO............................ 1.85 Financial Services............. 1.80 Industrial Components.......... 0.37 Services/Miscellaneous......... 0.04 Telecommunications............. 0.20 Transportation................. 0.28 ------ 6.99 ------ U.S. Government Agencies........ 8.32 U.S. Government Obligations..... 4.18 International Dollar Bonds...... 3.57 ------ Total U.S. Bonds............ 23.06* ------ HIGH YIELD BONDS................ 2.51 ------ NON-U.S. BONDS Foreign Government Bonds....... 17.33 ------ EMERGING MARKETS DEBT........... 4.93 ------ SHORT TERM INVESTMENTS.......... 16.86* ------ TOTAL INVESTMENTS........... 115.11 LIABILITIES, LESS CASH AND OTHER ASSETS................... (15.11) ------ NET ASSETS.................. 100.00% ====== - --------------------------------------------------------------------------------
* The Fund held a long position in U.S. Treasury futures on June 30, 1998 which increased U.S. Bond exposure from 23.06% to 29.90%. The Fund held a short position in stock index futures on June 30, 1998 which reduced U.S. Equity exposure from 30.15% to 22.92%. These adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 16.86% to 17.25%. 10 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------------ ------------ Equities -- 50.42% U.S. EQUITIES -- 30.15% Aetna Inc............................................ 33,800 $ 2,573,025 Allergan, Inc........................................ 52,300 2,425,412 Alza Corp. (b)....................................... 53,300 2,305,225 American Home Products Corp.......................... 54,200 2,804,850 Aon Corp............................................. 95,399 6,701,745 Automatic Data Processing, Inc....................... 69,800 5,086,675 BankBoston Corp...................................... 38,800 2,158,250 Baxter International, Inc............................ 87,000 4,681,687 Beckman Coulter PLC.................................. 23,100 1,345,575 Bestfoods............................................ 46,600 2,705,712 Biogen, Inc.......................................... 20,900 1,024,100 Birmingham Steel Corp................................ 21,400 264,825 Brinson Post-Venture Fund (b)........................ 423,765 8,960,844 Burlington Northern Santa Fe Corp.................... 88,900 8,728,869 Champion Enterprises, Inc............................ 16,300 478,813 Champion International Corp.......................... 26,500 1,303,469 CIGNA Corp........................................... 77,000 5,313,000 Circuit City Stores--Circuit City Group.............. 78,700 3,689,062 Citicorp............................................. 1,700 253,725 CMS Energy Corp...................................... 68,800 3,027,200 Columbia/HCA Healthcare Corp......................... 14,100 410,663 Comerica, Inc........................................ 22,000 1,457,500 Commscope, Inc. (b).................................. 37,433 605,947 Comverse Technology, Inc. (b)........................ 24,360 1,263,675 Consolidated Stores Corp............................. 25,400 920,750 Corning, Inc......................................... 126,700 4,402,825 Covance, Inc. (b).................................... 26,872 604,620 Crown Cork & Seal Co., Inc........................... 25,300 1,201,750 Dial Corp............................................ 27,600 715,875 Eastman Chemical Co.................................. 29,400 1,830,150 EMC Corp. (b)........................................ 47,400 2,124,112 Enron Corp........................................... 58,900 3,184,281 Entergy Corp......................................... 151,000 4,341,250 FDX Corp. (b)........................................ 102,100 6,406,775 First American Corp. of Tennessee.................... 13,900 668,938 First Data Corp...................................... 128,830 4,291,649 First Security Corp.................................. 26,375 564,590 FirstEnergy Corp..................................... 10,805 332,254 Fleet Financial Group, Inc........................... 32,800 2,738,800 Fleetwood Enterprises, Inc........................... 1,200 48,000 Food Lion, Inc., Class A............................. 103,200 1,096,500 Forest Laboratories, Inc. Class A (b)................ 40,900 1,462,175 Fort James Corp...................................... 68,500 3,048,250 Gannett Co., Inc..................................... 23,100 1,641,544 General Instrument Corp. (b)......................... 121,500 3,303,281 General Semiconductor, Inc. (b)...................... 27,550 272,056 Genzyme Corp. (b).................................... 21,500 549,594 Geon Co.............................................. 14,700 337,181 Goodyear Tire & Rubber Co............................ 76,500 4,929,469 Great Lakes Chemical Corp............................ 15,100 595,506 Harnischfeger Industries, Inc........................ 37,200 1,053,225 Health Care and Retirement Corp. (b)................. 24,000 946,500 Hibernia Corp........................................ 29,600 597,550 IMC Global Inc....................................... 28,400 855,550 Informix Corp. (b)................................... 28,500 225,328
Interpublic Group of Companies, Inc.................. 22,250 $ 1,350,297 Kimberly Clark Corp.................................. 99,800 4,578,325 Lafarge Corp......................................... 15,500 609,344 Lear Corp. (b)....................................... 22,900 1,175,056 Lockheed Martin Corp................................. 89,223 9,446,485 Lyondell Petrochemical Co............................ 72,100 2,194,544 Manor Care, Inc...................................... 27,298 1,049,267 Martin Marietta Materials, Inc....................... 15,584 701,280 Masco Corp........................................... 62,100 3,757,050 Medusa Corp.......................................... 2,200 138,050 Nabisco Holdings Corp................................ 54,300 1,958,194 National Service Industries, Inc..................... 10,400 529,100 Nextel Communications, Inc. (b)...................... 74,400 1,850,700 Norfolk Southern Corp................................ 51,100 1,523,419 Peco Energy Co....................................... 149,100 4,351,856 Pentair, Inc......................................... 28,196 1,198,330 Philip Morris Companies, Inc......................... 161,900 6,374,813 Praxair, Inc......................................... 49,400 2,312,537 Raytheon Co., Class B................................ 73,200 4,327,950 Regions Financial Corp............................... 13,700 562,556 Reynolds & Reynolds Co............................... 17,600 320,100 Schering Plough Corp................................. 51,000 4,672,875 Seagate Technology, Inc. (b)......................... 47,600 1,133,475 Sears, Roebuck and Co................................ 55,000 3,358,437 Southdown, Inc....................................... 10,700 763,713 St. Jude Medical, Inc. (b)........................... 26,800 986,575 Timken Co............................................ 9,400 289,638 Tyson Foods, Inc., Class A........................... 108,498 2,353,050 Ultramar Diamond Shamrock Corp....................... 60,602 1,912,751 US Bancorp........................................... 68,380 2,940,340 Vencor, Inc. (b)..................................... 56,400 408,900 Ventas, Inc.......................................... 56,400 779,025 Viad Corp............................................ 52,200 1,448,550 Wells Fargo & Co..................................... 6,800 2,509,200 Westvaco Corp........................................ 12,698 358,719 Witco Corp........................................... 28,100 821,925 Xerox Corp........................................... 93,700 9,522,262 York International Corp.............................. 33,200 1,446,275 ------------ Total U.S. Equities.................................. 210,875,139 ------------ NON-U.S. EQUITIES -- 16.89% AUSTRALIA -- 0.86% Amcor Ltd............................................ 23,770 104,076 Boral Ltd............................................ 89,240 167,457 Brambles Industries Ltd.............................. 12,590 247,086 Broken Hill Proprietary Co., Ltd..................... 84,200 711,778 Coca-Cola Amatil Ltd................................. 14,270 95,444 CSR Ltd.............................................. 42,930 123,893 David Jones Ltd...................................... 182,010 208,529 Lend Lease Corp. Ltd................................. 11,596 234,472 Mayne Nickless Ltd................................... 42,000 222,390 National Australia Bank Ltd.......................... 58,467 771,242 News Corp., Ltd...................................... 110,549 902,340 News Corp. Ltd., Preferred........................... 27,886 197,566 Orica Ltd............................................ 18,700 110,597 Pacific Dunlop Ltd................................... 85,210 137,731 Qantas Airways Ltd................................... 83,587 125,790
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SHARES VALUE -------- ----------- Rio Tinto Ltd........................................ 19,845 $ 235,968 Santos Ltd........................................... 38,610 119,556 Telstra Corp., Ltd................................... 173,200 444,067 Westpac Bank Corp., Ltd.............................. 93,408 569,797 WMC Ltd.............................................. 70,040 210,806 Woolworth's Ltd...................................... 30,790 100,108 ----------- 6,040,693 ----------- BELGIUM -- 0.82% Delhaize-Le Lion S.A................................. 6,390 446,493 Electrabel S.A....................................... 3,490 989,506 Fortis AG............................................ 216 12 Fortis AG Strip (b).................................. 4,853 1,239,008 Groupe Bruxelles Lambert S.A. (b).................... 1,830 369,344 KBC Bancassurance Holding-Strip (b).................. 250 20 Kredietbank NV....................................... 8,650 774,106 Petrofina S.A........................................ 1,775 728,652 Solvay S.A., Class A................................. 5,220 413,840 Tractebel............................................ 4,065 595,384 Union Miniere S.A.................................... 3,105 191,924 ----------- 5,748,289 ----------- CANADA -- 0.57% Agrium, Inc.......................................... 9,500 118,540 Alcan Aluminum Ltd................................... 7,250 199,663 Bank of Montreal..................................... 5,290 291,371 Barrick Gold Corp.................................... 4,200 79,967 Canadian National Railway Co......................... 5,150 273,854 Canadian Pacific Ltd................................. 15,663 440,941 Extendicare Inc. (b)................................. 11,500 93,057 Hudson's Bay Co...................................... 6,800 155,828 Imasco, Ltd.......................................... 8,400 155,080 Imperial Oil Ltd..................................... 17,160 299,886 Magna International Inc., Class A.................... 2,200 150,646 Moore Corp., Ltd..................................... 8,100 107,405 Newbridge Networks Corp. (b)......................... 2,200 52,584 Noranda, Inc......................................... 7,440 128,503 NOVA Corp............................................ 19,520 223,658 Potash Corporation of Saskatchewan, Inc.............. 2,200 165,755 Royal Bank of Canada................................. 6,250 376,122 Seagram Co., Ltd..................................... 3,090 125,966 Shaw Communications Inc., Class B.................... 11,300 219,761 TransCanada Pipelines Ltd............................ 10,020 222,122 Westcoast Energy, Inc................................ 5,000 111,349 ----------- 3,992,058 ----------- DENMARK -- 0.06% Den Danske Bank Group................................ 1,900 227,934 Tele Danmark A/S..................................... 2,100 201,541 ----------- 429,475 ----------- FINLAND -- 0.43% Cultor Oyj........................................... 2,400 38,932 Merita Ltd., Class A................................. 49,350 325,612 Metsa Serla Oyj, Class B............................. 7,400 71,485 Nokia Oyj A Shares (b)............................... 25,100 1,845,958 Outokumpu Oyj, Class A............................... 9,680 123,503
Sampo Insurance Co., Ltd., Series A.................. 3,720 $ 176,287 UPM-Kymmene Corp..................................... 12,870 354,209 Valmet Oyj........................................... 5,800 100,005 ----------- 3,035,991 ----------- FRANCE -- 1.64% Air Liquide.......................................... 1,395 230,731 Alcatel Alsthom...................................... 2,632 535,890 AXA-UAP.............................................. 5,358 602,620 AXA-UAP Certificat de valeur guarantie............... 4,328 1,475 Banque Nationale de Paris............................ 5,909 482,805 Carrefour SA......................................... 600 379,590 Cie de Saint Gobain.................................. 2,967 550,117 Dexia France (b)..................................... 2,699 363,378 Elf Aquitaine S.A.................................... 4,394 617,747 Eridania Beghin-Say SA............................... 1,100 242,888 France Telecom S.A................................... 11,200 772,478 Groupe Danone........................................ 1,600 441,151 Lafarge S.A.......................................... 2,470 255,334 Lagardere S.C.A...................................... 8,300 345,536 Michelin, Class B.................................... 5,449 314,539 Paribas.............................................. 3,895 416,815 Pechiney S.A., Class A............................... 4,884 196,701 Peugeot S.A.......................................... 2,580 554,747 Pinault-Printemps-Redoute S.A........................ 390 326,398 Rhone-Poulenc, Class A............................... 9,644 543,931 SEITA................................................ 9,910 449,113 Societe Generale..................................... 2,295 477,144 Suez Lyonnaise des Eaux S.A. (b)..................... 4,071 670,047 Thomson CSF.......................................... 7,900 300,529 Total S.A., Class B.................................. 3,386 440,191 Usinor Sacilor....................................... 8,580 132,546 Vivendi.............................................. 3,844 820,808 Vivendi Warrants "01" (b)............................ 4,224 8,314 ----------- 11,473,563 ----------- GERMANY -- 1.93% Allianz AG........................................... 4,176 1,376,576 Allianz AG........................................... 122 39,878 BASF AG.............................................. 6,130 290,368 Bayer AG............................................. 15,240 786,063 Bayerische Motoren Werke (BMW)....................... 117 116,352 Bayerische Motoren Werke AG.......................... 390 393,457 Commerzbank AG....................................... 3,390 129,590 Continental AG....................................... 10,550 328,482 Daimler-Benz AG...................................... 6,435 631,022 Deutsche Bank AG..................................... 10,061 851,980 Deutsche Telekom AG.................................. 42,280 1,140,740 Dresdner Bank AG..................................... 12,050 649,565 Hochtief AG.......................................... 3,500 167,729 Hoechst AG........................................... 5,110 255,075 M.A.N. AG............................................ 750 291,690 Mannesmann AG (b).................................... 6,470 656,320 Metro AG............................................. 8,458 513,103 Metro AG Right (b)................................... 8,458 328 Muenchener Rueckver AG............................... 2,115 1,048,712
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SHARES VALUE -------- ----------- Preussag AG.......................................... 1,172 $ 418,154 RWE AG............................................... 7,470 442,820 Schering AG.......................................... 3,805 448,379 Siemens AG........................................... 12,400 754,305 Thyssen AG........................................... 1,550 392,438 Veba AG.............................................. 8,839 602,325 Volkswagen AG........................................ 818 786,277 ----------- 13,511,728 ----------- HONG KONG -- 0.10% Cheung Kong Holdings Ltd............................. 26,000 127,842 Citic Pacific Ltd.................................... 14,000 24,753 CLP Holdings Ltd..................................... 14,500 66,057 Hang Seng Bank Ltd................................... 10,700 60,483 Hong Kong & China Gas Co., Ltd....................... 71,500 81,202 Hong Kong and China Gas Warrants "99" (b)............ 3,250 222 Hong Kong Telecommunications Ltd..................... 37,000 69,477 Hutchison Whampoa Ltd................................ 29,000 153,073 Johnson Electric Holdings Ltd........................ 14,000 51,855 South China Morning Post (Holdings) Ltd.............. 30,000 14,422 Sun Hung Kai Properties Ltd.......................... 13,000 55,197 ----------- 704,583 ----------- ITALY -- 0.74% Assicurazioni Generali............................... 16,800 546,280 Banca Commercial Italiana............................ 8,000 47,841 Credito Italiano S.p.A............................... 77,000 403,074 Danieli & Co. Savings (Risp)......................... 43,000 199,572 ENI ADR.............................................. 7,600 494,000 ENI S.p.A............................................ 102,000 668,504 Fiat S.p.A.-Priveleged Preferred..................... 128,600 320,134 INA-Istituto Nazionale delle Assicurazioni........... 13,000 36,933 Instituto Mobiliare Italiano S.p.A................... 18,800 296,138 Istituto Bancario San Paolo di Torino................ 18,000 259,740 Italgas S.p.A........................................ 6,800 27,697 La Rinascente S.p.A.................................. 25,740 256,307 Montedison S.p.A..................................... 250,700 310,986 Parmalat Finanziaria S.p.A........................... 93,000 189,657 Telecom Italia Mobile S.p.A.......................... 84,000 513,673 Telecom Italia Mobile S.p.A. RNC..................... 41,500 140,080 Telecom Italia S.p.A................................. 63,666 468,662 ----------- 5,179,278 ----------- JAPAN -- 1.59% Amada Co., Ltd....................................... 25,000 121,591 Bank of Tokyo-Mitsubishi, Ltd........................ 22,000 232,864 Canon Sales Co., Inc................................. 8,000 108,715 Canon, Inc........................................... 20,000 453,940 Citizen Watch Co., Ltd............................... 23,000 189,754 Dai Nippon Printing Co., Ltd......................... 22,000 351,119 Daiichi Pharmaceutical Co., Ltd...................... 20,000 263,717 Daikin Industries Ltd................................ 25,000 161,040 Daiwa House Industry Co., Ltd........................ 12,000 105,919 Denso Corp........................................... 20,000 331,448 Fanuc................................................ 10,000 345,859
Fuji Photo Film...................................... 1,000 $ 34,802 Fujitsu.............................................. 15,000 157,798 Hitachi Ltd.......................................... 47,000 306,481 Honda Motor Co....................................... 10,000 355,946 Hoya Corp............................................ 5,000 141,586 Inax................................................. 17,000 58,429 Ito Yokado Co., Ltd.................................. 9,000 423,461 Kaneka Corp.......................................... 23,000 120,978 Keio Teito Electric Railway.......................... 27,000 98,245 Kinki Nippon Railway................................. 28,000 131,138 Kirin Brewery Co., Ltd............................... 26,000 245,416 Kokuyo............................................... 8,000 135,461 Kuraray Co., Ltd..................................... 29,000 246,359 Kyocera Corp......................................... 3,000 146,558 Marui Co., Ltd....................................... 13,000 193,897 Matsushita Electric Industrial Co.................... 28,000 449,905 NGK Insulators....................................... 39,000 338,617 Nintendo Co., Ltd.................................... 1,900 175,920 Nippon Meat Packers, Inc............................. 16,000 195,871 Nippon Steel Co...................................... 19,000 33,404 Okumura Corp......................................... 24,000 84,217 Omron Corp........................................... 7,000 106,928 Osaka Gas Co......................................... 46,000 117,995 Sankyo Co., Ltd...................................... 18,000 409,843 Secom Co., Ltd....................................... 6,000 346,291 Sega Enterprises Ltd................................. 3,000 51,771 Seino Transportation................................. 16,000 88,770 Sekisui House Ltd.................................... 22,000 170,407 Shin-Etsu Chemical Co., Ltd.......................... 1,000 17,293 Sony Corp............................................ 5,200 447,743 Sumitomo Bank........................................ 4,000 38,909 Sumitomo Chemical Co................................. 28,000 86,349 Sumitomo Electric Industries......................... 19,000 192,074 Takeda Chemical Industries........................... 15,000 398,818 TDK Corp............................................. 4,000 295,421 Tokio Marine & Fire Insurance Co..................... 21,000 215,773 Tokyo Electric Power................................. 5,900 115,632 Tonen Corp........................................... 17,000 88,071 Toray Industries, Inc................................ 61,000 316,461 Toshiba Corp......................................... 56,000 228,786 Toyo Suisan Kaisha................................... 14,000 85,341 Toyota Motor Corp.................................... 17,000 439,745 Yamato Transport Co., Ltd............................ 2,000 22,409 Yamazaki Baking Co., Ltd............................. 9,000 79,764 ----------- 11,101,049 ----------- MALAYSIA -- 0.08% Berjaya Sports Toto Bhd.............................. 22,000 32,622 Kuala Lumpur Kepong Bhd.............................. 35,500 57,348 Malayan Banking Bhd.................................. 13,000 12,961 Malayan Banking Bhd.................................. 13,000 13,102 Malaysia International Shipping Bhd (Frgn.).......... 15,000 21,881 Nestle (Malaysia) Bhd................................ 13,000 58,927 Petronas Gas Bhd..................................... 22,000 40,844 Public Bank Bhd (Frgn.).............................. 22,000 6,631 Resorts World Bhd.................................... 30,000 32,984
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SHARES VALUE ------- ----------- Rothmans of Pall Mall Bhd............................ 11,000 $ 76,251 Sime Darby Bhd....................................... 8,000 5,517 Tanjong PLC.......................................... 14,000 19,409 Telekom Malaysia Bhd................................. 32,000 54,008 Tenaga Nasional Bhd.................................. 33,000 39,783 UMW Holdings Bhd..................................... 15,000 6,727 YTL Corp. Bhd........................................ 42,000 31,595 YTL Power International Bhd (b)...................... 19,400 10,571 ----------- 521,161 ----------- NETHERLANDS -- 0.93% ABN AMRO Holdings NV................................. 22,490 526,263 Akzo Nobel NV........................................ 760 168,947 Elsevier NV.......................................... 23,580 355,868 Heineken NV (b)...................................... 10,313 405,058 Hoogovens NV......................................... 2,441 105,598 ING Groep NV......................................... 13,090 857,137 KLM Royal Dutch Air Lines NV......................... 3,492 141,795 KPN NV............................................... 11,613 447,005 Philips Electronics NV............................... 6,850 575,828 PolyGram NV.......................................... 4,200 214,315 Royal Dutch Petroleum Co............................. 29,420 1,631,391 Royal Dutch Petroleum Co., NY Shares................. 700 38,369 TNT Post Group NV (b)................................ 11,613 296,862 Unilever NV.......................................... 9,600 761,695 ----------- 6,526,131 ----------- NEW ZEALAND -- 0.41% Brierley Investments Ltd............................. 756,530 377,006 Carter Holt Harvey Ltd............................... 261,110 227,711 Fletcher Challenge Building.......................... 86,775 108,108 Fletcher Challenge Energy............................ 95,405 227,814 Fletcher Challenge Forests Ltd....................... 185,585 104,044 Fletcher Challenge Paper............................. 171,640 190,671 Lion Nathan Ltd...................................... 75,100 166,853 Telecom Corp. of New Zealand Ltd..................... 326,830 1,347,081 Telecom Corp. of New Zealand Ltd. ADR................ 3,800 124,450 ----------- 2,873,738 ----------- NORWAY -- 0.04% Norsk Hydro ASA...................................... 5,000 219,913 Norske Skogindustrier ASA Class A.................... 1,800 55,594 ----------- 275,507 ----------- SINGAPORE -- 0.23% City Developments Ltd................................ 31,000 86,606 Creative Technology Ltd. (b)......................... 3,000 36,401 DBS Land Ltd......................................... 58,000 48,062 Development Bank of Singapore Ltd.................... 13,800 76,372 Elec & Eltek International Co., Ltd.................. 8,100 27,378 Fraser & Neave Ltd................................... 12,000 32,246 Keppel Corp., Ltd.................................... 33,000 49,612 Keppel Land Ltd...................................... 35,000 32,110 Oversea-Chinese Banking Corp., Ltd................... 34,000 115,715 Rothmans Industries Ltd.............................. 11,000 48,831
Singapore Airlines Ltd. (Frgn.)...................... 38,000 $ 177,686 Singapore Press Holdings Ltd......................... 31,036 207,580 Singapore Technologies Engineering Ltd. (b).......... 36,000 25,357 Singapore Telecommunications, Ltd.................... 266,000 377,863 United Overseas Bank Ltd. (Frgn.).................... 74,000 229,950 Venture Manufacturing (Singapore) Ltd................ 12,000 22,729 ----------- 1,594,498 ----------- SWEDEN -- 0.57% ABB AB, A Shares..................................... 16,400 232,379 Astra AB, A Shares................................... 21,800 445,573 Electrolux AB Series B............................... 9,600 164,917 Investor AB-B Shares................................. 8,000 466,965 Nordbanken Holding AB................................ 62,700 459,937 Skandia Forsakrings AB............................... 18,200 260,166 Skanska AB, B Shares................................. 5,600 251,389 Svenska Handelsbanken, A Shares...................... 6,300 292,292 Swedish Match AB..................................... 61,800 205,357 Telefonaktiebloaget LM Ericsson, B Shares............ 27,100 791,772 Volvo AB, B Shares................................... 12,900 384,174 ----------- 3,954,921 ----------- SWITZERLAND -- 1.28% ABB AG (Bearer)...................................... 275 406,118 CS Holdings AG (Reg.)................................ 7,016 1,561,116 Holderbank Financiere Glarus, B Shares............... 264 335,918 Julius Baer Holding AG............................... 122 381,652 Nestle S.A. (Reg.)................................... 565 1,209,118 Novartis AG (Reg.)................................... 1,214 2,020,132 Roche Holding AG (Gen.).............................. 144 1,414,082 Sairgroup............................................ 775 254,961 Saurer AG............................................ 270 275,910 Sulzer AG............................................ 277 218,598 Swiss Reinsurance Co. (Reg.)......................... 332 839,631 ----------- 8,917,236 ----------- UNITED KINGDOM -- 4.61% Abbey National PLC................................... 31,620 561,873 B.A.T. Industries PLC................................ 149,484 1,496,486 BOC Group PLC........................................ 18,500 252,031 BTR PLC (b).......................................... 49,904 141,550 Barclays PLC......................................... 36,500 1,052,358 Bass PLC............................................. 16,027 300,299 Billiton PLC......................................... 169,000 342,602 Booker PLC........................................... 91,220 372,892 British Petroleum Co. PLC............................ 115,667 1,686,738 British Sky Broadcasting PLC......................... 51,000 366,328 British Steel PLC.................................... 323,470 711,068 British Telecommunications PLC....................... 127,980 1,580,158 Cable & Wireless PLC................................. 30,000 364,401 Cadbury Schweppes PLC................................ 44,500 688,653 Charter PLC.......................................... 55,846 582,836 Coats Viyella PLC.................................... 312,860 383,676
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SHARES VALUE ---------- ------------ Diageo PLC........................................... 57,290 $ 678,673 FKI PLC.............................................. 181,500 523,901 General Electric Co. PLC............................. 101,550 875,139 Glaxo Wellcome PLC................................... 71,100 2,134,163 Greenalls Group PLC.................................. 56,000 484,933 HSBC Holdings PLC.................................... 38,104 967,000 Hanson PLC........................................... 64,102 389,581 Hillsdown Holdings PLC............................... 149,520 406,643 House of Fraser PLC.................................. 166,400 483,091 Inchcape PLC......................................... 79,470 250,606 Legal & General Group PLC............................ 13,400 142,979 Lloyds TSB Group PLC................................. 112,409 1,572,646 Marks & Spencer PLC.................................. 140,040 1,274,599 Mirror Group PLC..................................... 146,450 549,792 National Westminster Bank PLC........................ 25,380 453,532 Peninsular & Oriental Steam Navigation Co............ 59,420 855,599 Prudential Corp. PLC................................. 21,000 276,629 RJB Mining PLC....................................... 100,570 206,396 Reckitt & Colman PLC................................. 15,938 304,219 Reed International PLC............................... 64,000 578,770 Reuters Group PLC.................................... 10,659 121,829 Rio Tinto PLC........................................ 40,580 457,028 Royal & Sun Alliance Insurance Group PLC............. 42,943 443,875 Scottish Hydro-Electric PLC.......................... 45,480 403,700 Sears PLC............................................ 206,480 180,869 Sedgwick Group PLC................................... 133,360 289,265 SmithKline Beecham PLC............................... 109,180 1,332,552 Smurfit (Jefferson) Group PLC........................ 150,477 449,417 Tate & Lyle PLC...................................... 74,000 586,787 Tesco PLC............................................ 58,140 567,489 Thames Water PLC..................................... 39,210 713,754 The Great Universal Stores PLC....................... 4,000 52,725 Unilever PLC......................................... 88,040 937,190 United News & Media PLC.............................. 30,000 419,461 Vodafone Group PLC................................... 46,528 590,392 Williams PLC......................................... 50,010 321,251 Willis Corroon Group PLC............................. 26,000 65,939 ------------ 32,226,363 ------------ Total Non-U.S. Equities.............................. 118,106,262 ------------ EMERGING MARKETS EQUITIES -- 3.38% Brinson Emerging Markets Equity Fund (b)............. 2,926,942 23,662,860 ------------ Total Equities (Cost $297,790,589)................... 352,644,261 ------------
FACE AMOUNT VALUE ----------- ------------ Bonds -- 47.83% U.S. BONDS -- 23.06% U.S. CORPORATE BONDS -- 6.99% Aetna Services Inc., 6.970%, due 08/15/36............ $ 265,000 $ 273,999 Asset Securitization Corp., 7.210%, due 10/13/26..... 2,310,000 2,422,613 AT&T Corp., 8.250%, due 01/11/00..................... 945,000 976,400 Bellsouth Savings & Employee ESOP, 9.125%, 07/01/03.. 254,503 275,023 Capital One Bank, 6.830%, due 05/17/99............... 1,946,000 1,956,950 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02................................ 1,000,000 1,007,370 Chemical Master Credit Card Trust, 6.230%, due 06/15/03............................................ 1,430,000 1,445,101 Chesapeake & Potomac Telephone of Maryland, 8.000%, due 10/15/29........................................ 98,000 120,886 Chrysler Financial Corp., 7.400%, due 08/01/2097..... 252,000 271,991 Citicorp, Series F, 6.150%, due 03/15/02............. 500,000 500,933 Continental Airlines, Inc. 97-4A, 6.900%, due 01/02/18......................... 1,850,000 1,924,333 98-1B, 6.748%, due 09/15/18......................... 220,000 223,672 Countrywide Funding Corp., 93-12, Class A5, 6.000%, due 02/25/24........................................ 1,045,000 1,035,783 CS First Boston Mortgage Securities Corp., 97-C1, Class A1B, 7.150%, due 08/20/06..................... 1,465,000 1,540,081 Dayton Hudson Credit Card Master Trust, 95-1, Class A, 6.100%, due 02/25/02............................. 132,000 132,161 DLJ Mortgage Acceptance Corp., 6.500%, 08/19/28...... 1,545,000 1,525,687 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00............................................ 600,000 608,659 First National Bank of Chicago, Series E, 7.000%, due 05/08/00............................................ 1,000,000 1,014,173 Ford Credit Grantor Trust, 95-B, Class A, 5.900%, due 10/15/00............................................ 48,062 48,101 General Motors Acceptance Corp. 6.375%, due 12/01/01. 500,000 505,652 9.625%, due 12/15/01................................ 331,000 367,579 Lehman Brothers Holdings, 7.250%, due 04/15/03....... 1,250,000 1,302,437 Lockheed Martin Corp., 7.700%, due 06/15/08.......... 148,000 162,891 Lockheed Martin Corp., 6.550%, due 05/15/99.......... 5,000,000 5,026,005 MBNA Global Capital Securities FRN, 6.519%, due 02/01/27............................................ 1,100,000 1,022,417 Nationsbanc Asset Securities, Inc., 97-1, Class A1, 5.958%, due 10/20/27................................ 2,330,559 2,336,082
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FACE AMOUNT VALUE ------------ ------------ News America Holdings, 7.750%, due 12/01/45.......... $ 1,877,000 $ 2,014,359 Norwest Asset Securities, Corp., 96-2, Class A9, 7.000%, due 09/25/11................................ 520,000 528,888 Panamsat Corp., 144A, 6.000%, due 01/15/03........... 275,000 272,253 Premier Auto Trust 93-5, Class A2, 4.220%, due 03/02/99............... 3,292 3,279 96-3, Class A3, 6.500%, due 03/06/00................ 157,355 157,840 96-4, Class A4, 6.400%, due 10/06/01................ 455,000 458,394 Prudential Home Mortgage Securities 94-3, Class A10, 6.500%, due 02/25/24.............................. 1,000,000 969,040 Residential Asset Securitization Trust 97-A7, Class A1, 7.500%, due 09/25/27.......................... 797,106 805,837 97-A10, Class A5, 7.250%, due 12/25/27.............. 1,480,000 1,511,585 97-A11, Class A2, 7.000%, due 01/25/28.............. 200,000 201,280 Salomon, Inc. 6.500%, due 03/01/00................................ 2,520,000 2,539,628 6.750%, due 02/15/03................................ 550,000 563,378 SASCO LLC, 98-RF1, Class A, 8.712%, due 03/15/27..... 1,397,292 1,498,596 Standard Credit Card Trust, 95-1, Class A, 8.250%, due 01/01/07........................................ 500,000 562,590 Thrift Financial Corp., 11.250%, due 01/01/16........ 76,046 80,866 Time Warner, Inc. 8.375%, due 03/15/23................................ 1,206,000 1,411,929 7.570%, due 02/01/24................................ 2,165,000 2,343,998 Turner Broadcasting, 7.400%, due 02/01/04............ 1,000,000 1,044,941 UCFC Home Equity Loan FRN, 97-C, Class A8, 5.888%, due 09/15/27........................................ 1,413,172 1,414,755 Vendee Mortgage Trust, 98-2, Class 1G, 6.750%, due 06/15/28............................................ 2,400,000 2,429,250 ------------ 48,839,665 ------------ INTERNATIONAL DOLLAR BONDS -- 3.57% Abbey National PLC, 6.700%, Resettable Perpetual Pre- ferred.............................................. 230,000 230,980 ABN AMRO Bank NV (Chicago) 6.625%, due 10/31/01...... 250,000 254,740 Banca Commercial Italian, 8.250%, due 07/15/07....... 450,000 503,122 Banco Santiago S.A., 7.000%, due 07/18/07............ 2,000,000 2,007,880 Banque Centrale de Tunisie, 8.250%, due 09/19/27..... 1,750,000 1,647,357 Banque Paribas, Sub. Notes, 6.875%, due 03/01/09..... 175,000 179,427
Credit Suisse London, 144A, 7.900%, Resettable Perpet- ual Preferred........................................ $ 2,600,000 $ 2,779,881 Den Danske Bank, 144A, Step Coupon Bond, 6.375%, due 06/15/08............................................. 2,570,000 2,576,428 DR Investments, 144A, 7.450%, due 05/15/07............ 320,000 341,583 Empressa Nacional Electric, 7.875%, due 02/01/27...... 231,000 231,109 International Telecom Satellite, 8.125%, due 02/28/05. 335,000 371,568 Japanese Development Bank, 8.375%, due 02/15/01....... 970,000 1,026,443 Korea Development Bank, 7.125%, due 09/17/01.......... 200,000 176,260 Pan Pacific Industry PLC, 144A, 4.047%, due 04/28/07.. 2,130,000 745,500 Petroliam Nasional, 144A, 7.125%, due 08/15/05........ 420,000 370,211 Poland Non-U.S. Global Registered FRN, 6.688%, due 10/27/24............................................. 300,000 293,625 Province of Quebec, 7.500%, due 07/15/23.............. 1,325,000 1,473,042 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14................................. 1,910,000 1,906,965 Repsol International Finance, 7.000%, due 08/01/05.... 735,000 779,402 Republic of South Africa Debenture, 9.625%, due 12/15/99............................................. 1,079,000 1,122,160 Royal Bank of Scotland, 7.375%, Resettable Perpetual Preferred............................................ 690,000 734,775 Skandinaviska Enskilda Banken, 144A, 6.625%, Resettable Perpetual Preferred....................... 500,000 502,700 Sociedad Quimica y Minera de Chiles S.A., 144A, 7.700%, due 09/15/06................................. 1,500,000 1,546,503 Southern Investments UK, 6.800%, due 12/01/06......... 1,625,000 1,683,680 United Utilities, 6.450%, due 04/01/08................ 1,485,000 1,506,235 ------------ 24,991,576 ------------ U.S. GOVERNMENT AGENCIES -- 8.32% Aid-Israel, Series 10Z, 0.000%, due 02/15/03.......... 6,720,000 5,196,845 Federal Home Loan Mortgage Corp. 6.200%, due 08/15/07................................. 700,000 697,585 7.000%, due 10/15/13................................. 2,275,469 2,345,785 8.500%, due 07/15/21................................. 831,287 863,589 6.950%, due 04/15/22................................. 2,400,000 2,453,887 7.500%, due 01/15/23................................. 823,105 881,887 7.240%, due 05/01/26................................. 227,170 235,073 Federal Home Loan Mortgage Corp. Gold 8.000%, due 11/01/22................................. 118,252 122,169 8.000%, due 05/01/23................................. 1,238,385 1,279,406 9.000%, due 03/01/24................................. 863,675 925,013 Federal National Mortgage Assoc. 5.000%, due 06/01/01................................. 1,211,785 1,172,074 6.540%, due 09/18/02................................. 4,690,000 4,760,106
- -------------------------------------------------------------------------------- 16 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE -------------- ------------ 6.220%, due 03/13/06...............................$ 1,700,000 $ 1,754,181 8.000%, due 02/25/07............................... 1,635,000 1,674,343 6.500%, due 05/01/08............................... 3,696,873 3,817,761 6.360%, due 06/01/08............................... 1,640,000 1,678,868 8.000%, due 03/01/11............................... 1,481,440 1,528,199 6.000%, due 12/01/12 TBA........................... 1,470,000 1,453,455 8.000%, due 05/25/21............................... 1,610,000 1,665,793 9.000%, due 08/01/21............................... 244,512 261,733 8.000%, due 05/01/22............................... 115,815 119,796 8.500%, due 07/01/22............................... 533,209 563,752 7.500%, due 07/25/22............................... 2,250,686 2,392,335 8.000%, due 11/01/23............................... 1,525,009 301,517 6.500%, due 12/25/23............................... 4,610,000 4,629,274 9.000%, due 04/25/25............................... 36,864 38,677 6.500%, due 12/01/27 TBA........................... 3,500,000 3,484,663 7.500%, due 01/01/28............................... 1,765,720 1,810,940 6.000%, due 03/01/28............................... 2,436,930 2,371,913 3.500%, due 05/01/28............................... 1,313,554 1,128,184 Federal National Mortgage Assoc. Strips 0.000%, due 04/01/27 principal only............................ 1,481,065 1,253,146 Government National Mortgage Assoc. 10.000%, due 09/15/00.............................. 2,535 2,706 10.000%, due 05/15/01.............................. 3,577 3,819 9.000%, due 11/15/04............................... 10,061 10,602 9.000%, due 11/15/04............................... 5,376 5,665 8.000%, due 08/15/22............................... 444,049 460,008 8.000%, due 11/15/22............................... 361,577 376,325 8.000%, due 12/15/22............................... 1,253,454 1,304,582 7.500%, due 12/15/23............................... 844,929 867,902 7.500%, due 11/15/24............................... 2,242,403 2,306,155 ------------ 58,199,713 ------------ U.S. GOVERNMENT OBLIGATIONS 4.18% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00............................... 12,325,000 12,321,155 6.625%, due 07/31/01............................... 4,050,000 4,171,500 6.250%, due 08/31/02............................... 4,635,000 4,755,223 3.625%, due 01/15/08............................... 1,558,975 1,541,436 8.000%, due 11/15/21............................... 2,760,000 3,557,814 6.000%, due 02/15/26............................... 2,750,000 2,860,861 ------------ 29,207,989 ------------ Total U.S. Bonds.................................... 161,238,943 ------------ HIGH YIELD BONDS -- 2.51% SHARES ------------ Brinson High Yield Fund (b)......................... 1,231,792 17,562,145 ------------ FACE NON-U.S. BONDS 17.33% AMOUNT ------------ AUSTRALIA -- 1.19% Government of Australia 9.750%, due 03/15/02............................AUD 1,700,000 1,207,781 9.000%, due 09/15/04............................... 3,800,000 2,790,161 Queensland Treasury Global Notes 8.000%, due 05/14/03........................................... 6,350,000 4,330,716 ------------ 8,328,658 ------------
CANADA -- 1.77% Government of Canada 7.500%, due 09/01/00............................CAD 1,880,000 $ 1,334,690 6.500%, due 06/01/04............................... 500,000 359,734 8.750%, due 12/01/05............................... 2,600,000 2,131,219 7.000%, due 12/01/06............................... 4,270,000 3,223,551 4.250%, due 12/01/21............................... 6,790,000 5,345,751 ----------- 12,394,945 ----------- DENMARK -- 1.76% Kingdom of Denmark 9.000%, due 11/15/00............................DKK 13,600,000 2,178,136 6.000%, due 11/15/02............................... 10,000,000 1,534,390 7.000%, due 12/15/04............................... 9,900,000 1,612,331 8.000%, due 03/15/06............................... 40,000,000 6,962,338 ----------- 12,287,195 ----------- FRANCE -- 2.19% Government of France (BTAN) 5.750%, due 03/12/01............................FRF 24,000,000 4,125,571 Government of France (OAT) 9.500%, due 01/25/01............................... 20,300,000 4,924,347 7.500%, due 04/25/05............................... 13,000,000 3,791,393 8.500%, due 12/26/12............................... 22,000,000 2,505,822 ----------- 15,347,133 ----------- GERMANY -- 3.77% Bundesrepublik Deutschland 8.500%, due 08/21/00............................DEM 2,180,000 1,315,609 9.000%, due 01/22/01............................... 2,500,000 1,545,291 8.375%, due 05/21/01............................... 3,080,000 1,897,826 6.750%, due 04/22/03............................... 4,900,000 2,985,064 6.750%, due 07/15/04............................... 6,300,000 3,889,596 6.250%, due 01/04/24............................... 5,000,000 3,121,884 7.000%, due 09/20/99............................... 13,700,000 7,869,341 Treuhandanstalt 6.250%, due 03/04/04................ 6,200,000 3,727,213 ----------- 26,351,824 ----------- ITALY -- 0.95% Republic of Italy (BTP) 10.500%, due 04/01/00...........................ITL 995,000,000 614,280 12.000%, due 09/01/02.............................. 1,700,000,000 1,215,358 9.000%, due 10/01/03............................... 900,000,000 604,894 8.500%, due 04/01/04............................... 4,600,000,000 3,061,922 9.500%, due 12/01/99............................... 1,900,000,000 1,136,547 ----------- 6,633,001 ----------- NETHERLANDS -- 1.45% Government of Netherlands 8.500%, due 03/15/01............................NLG 5,600,000 3,048,864 8.750%, due 09/15/01............................... 700,000 389,195 6.500%, due 04/15/03............................... 1,600,000 854,587 7.250%, due 10/01/04............................... 3,200,000 1,796,480 8.250%, due 02/15/07............................... 4,815,000 2,938,660 7.500%, due 04/15/10............................... 1,800,000 1,085,292 ----------- 10,113,078 -----------
- -------------------------------------------------------------------------------- 17 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ----------- ------------ SPAIN -- 1.14% Kingdom of Spain 6.750%, due 04/15/00..............................ESP 415,000,000 $ 2,827,389 7.900%, due 02/28/02................................. 140,000,000 1,018,519 8.000%, due 05/30/04................................. 300,000,000 2,287,772 10.000%, due 02/28/05................................ 30,000,000 253,007 7.350%, due 03/31/07................................. 85,000,000 648,369 6.150%, due 01/31/13................................. 130,000,000 927,807 ------------ 7,962,863 ------------ SWEDEN -- 0.43% Kingdom of Sweden 5.500%, due 04/12/02..............................SEK 3,500,000 453,962 10.250%, due 05/05/03................................ 16,300,000 2,539,807 ------------ 2,993,769 ------------ UNITED KINGDOM -- 2.68% UK Treasury 8.000%, due 06/10/03..............................GBP 2,190,000 3,908,659 6.750%, due 11/26/04................................. 380,000 658,996 8.500%, due 12/07/05................................. 4,570,000 8,709,242 8.500%, due 07/16/07................................. 1,200,000 2,355,716 7.250%, due 12/07/07................................. 1,200,000 2,204,925 8.750%, due 08/25/17................................. 390,000 881,720 ------------ 18,719,258 ------------ Total Non-U.S. Bonds.................................. 121,131,724 ------------ SHARES ----------- EMERGING MARKETS DEBT -- 4.93% Brinson Emerging Markets Debt Fund (b)............................................. 1,692,314 34,515,928 ------------ Total Bonds (Cost $322,004,943)....................... 334,448,740 ------------ FACE AMOUNT ----------- Short-Term Investments -- 16.86% U.S. CORPORATE BONDS -- 0.78% Bank of America, 5.730%, due 09/24/98 FRN............................. $ 2,000,000 1,999,728 Texas Utilities, 5.750%, due 07/01/98................................. 2,500,000 2,500,000 Union Oil of California Ser B, 5.730%, due 07/27/98................................. 1,000,000 1,009,505 ------------ 5,509,233 ------------ U.S. GOVERNMENT OBLIGATIONS -- 0.34% U.S. Treasury Bill 5.125%, due 11/27/98................................. 2,400,000 2,350,135 ------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.17% Government of Netherlands 6.250%, due 07/15/98................................ $ 1,400,000 $ 688,575 Kingdom of Denmark 9.000%, due 11/15/98................................ 3,200,000 472,857 ------------ 1,161,432 ------------ CERTIFICATE OF DEPOSIT -- 0.86% Canadian Imperial Bank, 5.940%, due 10/23/98................................ 3,000,000 2,999,462 Societe General Yankee, 5.940%, due 10/20/98................................ 3,000,000 2,999,129 ------------ 5,998,591 ------------ COMMERCIAL PAPER -- 14.71% ARCO Chemical, 5.730%, due 07/10/98.................. 5,000,000 4,992,837 American Stores, 5.720%, due 08/03/98................ 5,000,000 4,973,783 Bausch & Lomb, 5.750%, due 07/08/98................................ 2,500,000 2,497,205 5.700%, due 07/13/98................................ 5,000,000 4,990,500 Cincinnati Bell Inc. 5.850%, due 07/01/98................................ 2,000,000 2,000,000 5.850%, due 07/13/98................................ 2,000,000 1,996,100 5.900%, due 07/17/98................................ 1,500,000 1,496,067 Crown, Cork & Seal, 5.690%, due 07/13/98................................ 4,321,000 4,312,805 5.680%, due 07/23/98................................ 5,000,000 4,982,644 CVS Corp., 5.750%, due 07/10/98................................ 5,000,000 4,992,813 Dayton Hudson, 5.600%, due 07/15/98................................ 3,000,000 2,993,467 Excel Paralubes, 5.800%, due 07/07/98................................ 4,070,000 4,066,066 Hilton Hotels Corp., 5.720%, due 07/15/98................................ 1,500,000 1,496,663 5.750%, due 10/01/98................................ 5,000,000 4,926,528 5.780%, due 10/13/98................................ 2,500,000 2,458,256 IMC Global, 5.720%, due 07/30/98................................ 4,261,000 4,241,366 ITT Industries, 5.720%, due 07/09/98................................ 5,000,000 4,993,644 NGC Corp., 6.750%, due 07/01/98................................ 2,307,000 2,307,000 Occidental Petroleum, 5.700%, due 07/06/98................................ 5,000,000 4,996,042 PG & E Gas, 6.000%, due 07/10/98................................ 1,000,000 998,500 Raytheon Co., 6.998%, due 07/01/98................................ 2,200,000 2,200,000 5.700%, due 07/20/98................................ 5,000,000 4,984,959 Sprint Capital, 5.720%, due 07/07/98................................ 6,643,000 6,636,668 Tenneco Inc., 5.750%, due 07/17/98................................ 2,000,000 1,994,889
- -------------------------------------------------------------------------------- 18 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ------------ Texas Utilities Co., 5.730%, due 07/17/98................................ $2,500,000 $ 2,493,633 6.100%, due 07/17/98................................ 1,000,000 997,289 5.750%, due 08/21/98................................ 5,000,000 4,959,271 Union Pacific Resources, 5.730%, due 07/27/98................................ 5,000,000 4,979,308 Union Pacific Resources, 5.760%, due 10/30/98................................ 3,000,000 2,941,920 ------------ 102,900,223 ------------ Total Short-Term Investments (Cost $118,077,052)..... 117,919,614 ------------ Total Investments (Cost $737,872,584) -- 115.11% (a)........................ 805,012,615 ------------ Liabilities, less cash and other assets -- (15.11%).................................. (105,669,892) ------------ Net Assets -- 100%................................... $699,342,723 ============
See accompanying notes to Schedule of Investments. - -------------------------------------------------------------------------------- 19 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $737,872,584; and net unrealized appreciation consisted of: Gross unrealized appreciation............................... $ 94,882,489 Gross unrealized depreciation............................... (27,742,458) ------------ Net unrealized appreciation.............................. $ 67,140,031 ============
(b) Linked to Canada's retail price index. Reset semi-annually FRN: Floating Rate Note MTN: Medium term note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $11,042,024 or 1.58% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ------------- ----------- ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Australian Dollar........... 8/05/98 28,500,000 $17,658,102 $(1,350,708) Canadian Dollar............. 8/05/98 1,900,000 1,292,948 541 Danish Krone................ 8/05/98 9,000,000 1,310,734 252 French Franc................ 7/06/98 62,281,506 10,305,195 6,475 French Franc................ 8/05/98 22,200,000 3,679,956 17,436 German Mark................. 8/05/98 4,600,000 2,554,094 (2,456) Japanese Yen................ 8/05/98 1,260,000,000 9,127,544 (1,041,517) Netherlands Guilder......... 8/05/98 3,700,000 1,822,956 (422) Spanish Peseta.............. 8/05/98 825,000,000 5,395,923 14,143 Swiss Franc................. 8/05/98 7,700,000 5,095,019 (247,751) FORWARD FOREIGN CURRENCY SALE CONTRACTS Australian Dollar........... 7/06/98 1,233,770 764,143 832 British Pound............... 7/06/98 1,400,000 2,335,124 1,336 British Pound............... 8/05/98 21,700,000 36,132,943 (905,057) Canadian Dollar............. 7/06/98 1,604,844 1,091,441 (512) Canadian Dollar............. 8/05/98 11,300,000 7,689,638 88,191 Danish Kroner............... 7/06/98 7,653,250 1,113,166 (144) Danish Kroner............... 8/05/98 78,600,000 11,447,080 (44,221) French Franc................ 8/05/98 62,300,000 10,327,085 (7,390) German Mark................. 7/06/98 4,600,000 2,549,451 2,560 German Mark................. 8/05/98 34,000,000 18,878,086 (43,109) Netherlands Guilder......... 7/06/98 2,202,850 1,083,317 282 Netherlands Guilder......... 8/05/98 15,200,000 7,488,902 9,307 Spanish Peseta.............. 7/06/98 116,852,795 763,461 (1,113) Spanish Peseta.............. 8/05/98 825,000,000 5,395,923 (36,344) Swedish Krona............... 7/06/98 3,135,011 393,207 (38) ----------- Total...................... $(3,539,427) ===========
FUTURES CONTRACTS The Global Fund had the following open futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN/(LOSS) -------------- ----------- ----------- ----------- FUTURES BUY CONTRACTS 5 year U.S. Treasury Note, 340 contracts............ September 1998 $37,072,972 $37,293,750 $ 220,778 10 year U.S. Treasury Note, 66 contracts....... September 1998 7,421,886 7,513,688 91,802 30 year U.S. Treasury Bonds, 25 contracts...... September 1998 2,976,555 3,089,844 113,289 INDEX FUTURES SALES CON- TRACTS Standard & Poor's 500, 177 contracts................ September 1998 49,204,572 50,577,750 (1,373,178) ----------- Total.................... $ (947,309) ===========
The market value of investments pledged to cover margin requirements for the open futures positions at June 30, 1998 was $2,350,135. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Note 1): Unaffiliated issuers (Cost $659,099,950)....................... $720,310,838 Affiliated issuers (Cost $78,772,634).......................... 84,701,777 Cash........................................................... 15,353 Foreign currency, at value (Cost $2,688,302).................... 2,672,795 Receivables: Investment securities sold..................................... 17,512,017 Dividends...................................................... 850,203 Interest....................................................... 5,067,092 Fund shares sold............................................... 524,097 Variation margin............................................... 442,309 Other assets.................................................... 55,119 ------------ TOTAL ASSETS................................................. 832,151,600 ------------ LIABILITIES: Payables: Securities loaned.............................................. 104,946,044 Investment securities purchased................................ 23,236,470 Fund shares redeemed........................................... 416,119 Investment advisory fees....................................... 461,215 Accrued expenses............................................... 209,602 Net unrealized depreciation on forward foreign currency con- tracts......................................................... 3,539,427 ------------ TOTAL LIABILITIES............................................ 132,808,877 ------------ NET ASSETS....................................................... $699,342,723 ============ NET ASSETS CONSIST OF: Paid in capital................................................. $618,908,532 Accumulated distribution in excess of net investment income..... (845,490) Accumulated net realized gain................................... 18,624,289 Net unrealized appreciation..................................... 62,655,392 ------------ NET ASSETS................................................... $699,342,723 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $667,744,541 and 52,298,571 shares is- sued and outstanding)......................................... $ 12.77 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,162,613 and 91,194 shares issued and outstanding).......... $ 12.75 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $30,435,569 and 2,395,337 shares is- sued and outstanding)......................................... $ 12.71 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 21 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest (net of $19,403 for foreign taxes withheld; including securities lending income of $256,807).......................... $18,386,739 Dividends (net of $339,731 for foreign taxes withheld)........... 6,105,294 ----------- TOTAL INCOME.................................................. 24,492,033 ----------- EXPENSES: Advisory......................................................... 5,378,141 Administration................................................... 464,398 Distribution..................................................... 191,376 Custodian........................................................ 151,260 Other............................................................ 350,006 ----------- TOTAL EXPENSES................................................ 6,535,181 ----------- NET INVESTMENT INCOME ........................................ 17,956,852 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 40,696,600 Futures contracts............................................... (4,402,062) Foreign currency transactions................................... 3,479,537 ----------- Net realized gain............................................. 39,774,075 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency................................ 3,727,996 Futures contracts............................................... (654,367) Forward contracts............................................... (9,657,319) Translation of other assets and liabilities denominated in for- eign currency.................................................. 37,869 ----------- Change in net unrealized appreciation or depreciation......... (6,545,821) ----------- Net realized and unrealized gain................................. 33,228,254 ----------- Net increase in net assets resulting from operations............. $51,185,106 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1998 CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES: Proceeds from sales of investments............................. $ 559,718,591 Purchases of investments....................................... (623,990,589) Net increase in short term investments......................... (91,292,986) Net realized gain on foreign currency transactions............. 3,479,537 Net realized loss on futures contracts......................... (4,066,409) Interest and dividend income received.......................... 23,974,925 Expenses paid.................................................. (6,458,212) ------------- Net cash used in investing and operating activities........... (138,635,143) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net capital share transactions................................. 36,501,192 Net increase from securities lending........................... 104,946,044 Cash distributions paid........................................ (3,851,296) ------------- Net cash provided by financing activities..................... 137,595,940 ------------- Net decrease in cash............................................ (1,039,203) ------------- CASH AT BEGINNING OF YEAR....................................... 1,054,556 ------------- CASH AT END OF YEAR............................................. $ 15,353 ============= RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH USED IN INVESTING AND OPERATING ACTIVITIES: Net investment income.......................................... $ 17,956,852 Proceeds from sale of investments.............................. 559,718,591 Purchase of investments........................................ (623,990,589) Net increase in short term investments......................... (91,292,986) Net realized gain on foreign currency transactions............. 3,479,537 Net realized loss on futures contracts......................... (4,066,409) Net decrease in receivables pertaining to investing and operat- ing activities................................................. 271,165 Net increase in payables pertaining to investing and operating activities..................................................... 115,429 (Accretion)/amortization of premium/discount................... (826,733) ------------- Net cash used in investing and operating activities........... $(138,635,143) ============= SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Reinvestment of distributions.................................. $ 64,950,197 =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 23 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 17,956,852 $ 16,194,760 Net realized gain................................. 39,774,075 43,268,043 Change in net unrealized appreciation or depreciation..................................... (6,545,821) 35,756,888 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 51,185,106 95,219,691 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income........... (28,265,915) (24,660,333) Distributions in excess of net investment income... (5,070,122) -- Distributions from net realized gain............... (35,465,456) (26,428,094) ------------ ------------ Total distributions to shareholders*.............. (68,801,493) (51,088,427) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 256,422,880 192,297,100 Shares issued on reinvestment of distributions.... 64,950,197 49,580,585 Shares redeemed................................... (217,384,769) (145,001,283) ------------ ------------ Net increase in net assets resulting from capital share transactions............................... 103,988,308 96,876,402 ------------ ------------ TOTAL INCREASE IN NET ASSETS................... 86,371,921 141,007,666 ------------ ------------ NET ASSETS: Beginning of year................................. 612,970,802 471,963,136 ------------ ------------ End of year (including accumulated distribution in excess of net investment income of $845,490 and $964,704, respectively).......................... $699,342,723 $612,970,802 ============ ============ *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I................................... (32,129,657) (25,579,684) Brinson Class N................................... (9,572) -- SwissKey Class.................................... (1,196,808) (848,410) Distributions from net realized gain Brinson Class I................................... (33,973,096) (23,918,105) Brinson Class N................................... (53) -- SwissKey Class.................................... (1,492,307) (742,228) ------------ ------------ Total distributions to shareholders................ $(68,801,493) $(51,088,427) ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 GLOBAL FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, ------------------------------------------------ BRINSON CLASS I 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------- Net asset value, beginning of year........................ $ 13.13 $ 12.22 $ 11.35 $ 10.43 $ 10.87 -------- -------- -------- -------- -------- Income from investment oper- ations: Net investment income...... 0.37 0.38 0.44 0.43 0.33 Net realized and unrealized gain (loss)............... 0.62 1.79 1.37 0.86 (0.23) -------- -------- -------- -------- -------- Total income from invest- ment operations......... 0.99 2.17 1.81 1.29 0.10 -------- -------- -------- -------- -------- Less distributions: Distributions from and in excess of net investment income.................... (0.65) (0.61) (0.62) (0.27) (0.27) Distributions from and in excess of net realized gain...................... (0.70) (0.65) (0.32) (0.10) (0.27) -------- -------- -------- -------- -------- Total distributions...... (1.35) (1.26) (0.94) (0.37) (0.54) -------- -------- -------- -------- -------- Net asset value, end of year. $ 12.77 $ 13.13 $ 12.22 $ 11.35 $ 10.43 ======== ======== ======== ======== ======== Total return................. 8.28% 18.79% 16.38% 12.57% 0.77% Ratios/Supplemental data Net assets, end of year (in 000s)...................... $667,745 $586,667 $457,933 $365,678 $278,859 Ratio of expenses to average net assets: Before expense reimburse- ment...................... 0.94% 0.99% 1.04% 1.09% 1.14% After expense reimburse- ment...................... N/A N/A N/A N/A 1.10% Ratio of net investment in- come to average net assets: Before expense reimburse- ment...................... 2.70% 3.03% 3.69% 4.27% 3.21% After expense reimburse- ment...................... N/A N/A N/A N/A 3.25% Portfolio turnover rate..... 88% 150% 142% 238% 231% Average commission rate paid per share.................. $ 0.0274 $ 0.0326 $ 0.0291 N/A N/A
N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 GLOBAL FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED JUNE 30, BRINSON CLASS N 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of year................................... $ 13.13 ------- Income from investment operations: Net investment income.............................................. 0.63 Net realized and unrealized gain................................... 0.32 ------- Total income from investment operations.......................... 0.95 ------- Less distributions: Distributions from and in excess of net investment income.......... (0.63) Distributions from net realized gain............................... (0.70) ------- Total distributions.............................................. (1.33) ------- Net asset value, end of year......................................... $ 12.75 ======= Total return......................................................... 7.90% Ratios/Supplemental Data: Net assets, end of year (in 000s)................................... $ 1,163 Ratio of expenses to average net assets............................. 1.19% Ratio of net investment income to average net assets................ 2.45% Portfolio turnover rate............................................. 88% Average commission rate paid per share.............................. $0.0274
* Commencement of Brinson Class N was June 30, 1997. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 GLOBAL FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR YEAR JULY 31, 1995* ENDED ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 13.05 $ 12.18 $ 11.60 ------- ------- ------- Income from investment operations: Net investment income............. 0.30 0.34 0.39 Net realized and unrealized gain.. 0.61 1.75 1.10 ------- ------- ------- Total income from investment op- erations....................... 0.91 2.09 1.49 ------- ------- ------- Less distributions: Distributions from and in excess of net investment income......... (0.55) (0.57) (0.59) Distributions from net realized gain............................. (0.70) (0.65) (0.32) ------- ------- ------- Total distributions............. (1.25) (1.22) (0.91) ------- ------- ------- Net asset value, end of period...... $ 12.71 $ 13.05 $ 12.18 ======= ======= ======= Total return (non-annualized)....... 7.60% 18.13% 13.24% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $30,436 $26,303 $14,030 Ratio of expenses to average net assets............................ 1.59% 1.64% 1.69%** Ratio of net investment income to average net assets................ 2.05% 2.38% 3.04%** Portfolio turnover rate............ 88% 150% 142% Average commission rate paid per share............................. $0.0274 $0.0326 $0.0291
* Commencement of SwissKey Class ** Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 27 Global Equity Fund [ART] The Global Equity Fund is actively managed, providing a fully integrated approach to the primary equity markets across the world. Market selection and currency strategies are managed within a global asset allocation framework. Industry strategies and individual security selections are based on the fundamental research of our analytical teams in our offices worldwide. The Brinson Global Equity Fund Class I has provided an annualized return of 12.45% since its inception on January 31, 1994, compared to the 14.95% return for the benchmark, the MSCI World Equity (Free) Index. This performance was achieved with a volatility of 8.80%, well-below the 10.35% volatility of the benchmark. Year-to-date, the Brinson Global Equity Fund Class I has risen 10.86%, lagging the index's unhedged return of 16.76%. Most major global equity markets have experienced strikingly strong performance year-to-date, in response to EMU euphoria, consolidation and improving economies, led by star performer Finland (67%), with Belgium, Spain and France up 40% or more. While strong, the U.S. market somewhat lagged the others, rising 18%, with much of its excellent performance concentrated in the top 25 stocks with respect to market capitalization. Japan has been a relative underperformer, gaining only 5.7% in hedged terms. Adding back the currency effect of -7.8%, which combines both the decline of the yen and the very low Japanese cash rates, Japan's unhedged mid- year return was only -2.6%. Early in the year, Germany was reduced and France increased, bringing these positions into closer alignment. In February, the position in Spain was eliminated, with proceeds split between Finland and Switzerland; Spain's strong performance in anticipation of monetary union led that market to become overpriced. In April the U.K. was modestly increased and Malaysia reduced to neutral. Italy was reduced in early June, with funds added to several Scandinavian markets. As with the elimination of Spain, this move reflected a shift out of the expensive southern European markets into the more attractively priced northern European markets. One currency strategy change took place. An Australian dollar overweight was established, paired with the yen, allowing us to take advantage of a strong positive interest rate differential in favor of the Australian currency. Market allocation was negatively impacted by strategic cash, offsetting the positive benefits from the Japan and Hong Kong underweights and the overweight to several European markets. Currency management was hurt by the overweight of the Australian and New Zealand dollars and the pound sterling underweight. Security selection had an important negative impact due to the underperformance of U.S. stock selection. Returns were hurt by the underweight of size and overweight of cyclicals. Japan stock selection added value. 28 Global Equity Fund [ART] Total Return 6 months 1 year 3 years 1/31/94* ended ended ended to 6/30/98 6/30/98 6/30/98 6/30/98 - ------------------------------------------------------------------------------ Brinson Global Equity Fund Class I 10.86% 8.99% 18.41% 12.45% - ------------------------------------------------------------------------------ MSCI World Equity (Free) Index 16.76 17.18 19.56 14.95 - ------------------------------------------------------------------------------ *Performance inception date of the Brinson Global Equity Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Equity Fund Class I and the MSCI World Equity (Free) Index if you had invested $1,000,000 on January 31, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Equity Fund Class I vs. MSCI World Equity (Free) Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] DATE BRINSON GLOBAL MSCI WORD EQUITY 01/31/94 1,000,000 1,000,000 06/30/94 953,025 974,101 12/31/94 956,520 989,551 06/30/95 1,010,802 1,082,851 12/31/95 1,166,324 1,200,236 06/30/96 1,270,202 1,287,765 12/31/96 1,367,688 1,367,286 06/30/97 1,540,253 1,579,321 12/31/97 1,514,304 1,584,937 06/30/98 1,678,772 1,850,637 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. ================================================================================ 29 Global Equity Fund [ART APPEARS HERE] Total Return
6 months 6/30/97* ended to 6/30/98 6/30/98 - ------------------------------------------------------------------------------- Brinson Global Equity Fund Class N 10.66% 8.60% - ------------------------------------------------------------------------------- MSCI World Equity (Free) Index 16.76 17.18 - -------------------------------------------------------------------------------
*Inception date of the Brinson Global Equity Fund Class N. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Equity Fund Class N and the MSCI World Equity (Free) Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Equity Fund Class N vs. MSCI World Equity (Free) Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson Global MSCI World Date Equity Fund Class N Equity (Free) Index - ---- ------------------- ------------------- 06/30/97 1000000 1000000 07/31/97 1032915 1046155 08/31/97 984326 975353 09/30/97 1026646 1028381 10/31/97 970219 974399 11/30/97 969436 991441 12/31/97 981339 1003556 01/31/98 996889 1031710 02/28/98 1058222 1101493 03/31/98 1101415 1147852 04/30/98 1098823 1159076 05/31/98 1096232 1145012 06/30/98 1085985 1171793
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 30 Global Equity Fund (ART)
Market Allocation As of June 30, 1998 Current Benchmark Strategy - ----------------------------------------------------------------- U.S. 49.6% 34.1% Australia 1.1 2.5 Austria 0.2 0.0 Belgium 0.9 2.2 Canada 2.3 1.4 Denmark 0.5 0.2 Finland 0.5 1.3 France 4.6 4.5 Germany 5.5 5.2 Hong Kong 0.8 0.1 Ireland 0.2 0.0 Italy 2.2 1.7 Japan 9.9 3.9 Malaysia 0.2 0.1 Netherlands 2.8 2.4 New Zealand 0.2 1.9 Norway 0.3 0.2 Portugal 0.3 0.0 Singapore 0.3 0.7 Spain 1.6 0.0 Sweden 1.5 1.6 Switzerland 3.8 3.3 United Kingdom 10.7 12.7 Cash Reserves 0.0 20.0 - ----------------------------------------------------------------- 100.0% 100.0%
Currency Allocation As of June 30, 1998 Current Benchmark Strategy - ----------------------------------------------------------------- U.S. 49.6% 52.7% Australia 1.1 5.1 Austria 0.2 0.2 Belgium 0.9 0.9 Canada 2.3 2.3 Denmark 0.5 0.5 Finland 0.5 0.5 France 4.6 4.6 Germany 5.5 5.5 Hong Kong 0.8 0.0 Japan 9.9 5.9 Ireland 0.2 0.2 Italy 2.2 2.2 Malaysia 0.2 0.2 Netherlands 2.8 2.8 New Zealand 0.2 1.9 Norway 0.3 0.3 Portugal 0.3 0.3 Singapore 0.3 0.3 Spain 1.6 1.6 Sweden 1.5 1.5 Switzerland 3.8 3.8 United Kingdom 10.7 6.7 - ----------------------------------------------------------------- 100.0% 100.0%
Top Ten U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - ----------------------------------------------------------------- 1. Xerox Corp. 2.48% 2. Lockheed Martin Corp. 2.44 3. Burlington Northern Santa Fe Corp. 2.25 4. Aon Corp. 1.73 5. FDX, Corp. 1.66 6. Philip Morris Companies, Inc. 1.64 7. CIGNA Corp. 1.42 8. Automatic Data Processing, Inc. 1.31 9. Goodyear Tire & Rubber Co. 1.28 10. Entergy Corp. 1.21 - -----------------------------------------------------------------
Top Ten Non-U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - ----------------------------------------------------------------- 1. Telecom Corp. of New Zealand Ltd. 0.90% 2. Novartis AG (Reg.) 0.89 3. Glaxo Wellcome PLC 0.77 4. Nokia Oyj, A Shares 0.77 5. Royal Dutch Petroleum Co. 0.65 6. British Petroleum Co. PLC 0.64 7. Roche Holding AG (Gen.) 0.61 8. British Telecommunications PLC 0.58 9. B.A.T. Industries PLC 0.57 10. Lloyds TSB Group PLC 0.57 - -----------------------------------------------------------------
31 Global Equity Fund [ART] Industry Diversification As a Percent of Net Assets As of June 30, 1998
U.S. EQUITIES Energy............................ 1.32% Capital Investment Capital Goods.................... 5.43 Technology....................... 5.06 ------ 10.49 Basic Industries Chemicals........................ 2.26 Housing/Paper.................... 4.09 Metals........................... 0.38 ------ 6.73 ------ Consumer Non-Durables..................... 3.64 Retail/Apparel................... 2.33 Autos/Durables................... 1.58 Descretionary.................... 0.43 Health: Drugs.................... 3.91 Health: Non-Drugs................ 2.91 ------ 14.80 Financial Banks............................ 3.70 Non-Banks........................ 3.82 ------ 7.52 Utilities Electric......................... 3.19 Telephone........................ 0.47 ------ 3.66 Transportation.................... 4.31 Services/Misc..................... 3.36 ------ Total U.S. Equities........... 52.19 ------ NON-U.S. EQUITIES Aerospace & Military.............. 0.13 Airplanes......................... 0.22 Appliances & Household............ 0.57 Autos/Durables.................... 1.63 Banking........................... 5.34 Beverages and Tobacco............. 1.27 Broadcasting & Publishing......... 1.38 Building Materials................ 0.81 Business & Public Service......... 1.27 Chemicals......................... 1.04 Construction...................... 0.29 Consumer.......................... 0.01 Data Processing................... 0.19 Electric Components............... 0.28 Electronics....................... 2.03 Energy............................ 3.69 Financial Services................ 1.34 Food & House Products............. 2.31 Forest Products................... 0.72 Gold Mining....................... 0.03 Health: Drugs..................... 1.66 Health: Non-Drugs................. 2.13 Housing/Paper..................... 0.05 Industrial Components............. 0.45 Insurance......................... 3.19 Investment Companies.............. 0.19 Leisure & Tourism................. 0.33 Machinery & Engineering........... 0.20 Merchandising..................... 1.77 Metals--Steel..................... 0.93 Miscellaneous Materials........... 0.12 Multi-Industry.................... 2.65 Non-Ferrous Metals................ 0.83 Real Estate....................... 0.21 Recreation........................ 0.15 Retail & Apparel.................. 0.19 Shipping.......................... 0.01 Technology........................ 0.01 Telecommunications................ 4.76 Textiles & Apparel................ 0.15 Transportation.................... 0.32 Utilities......................... 1.56 Wholesale & International Trade... 0.24 ------ Total Non-U.S. Equities....... 46.65 ------ SHORT-TERM INVESTMENTS............ 0.97 ------ TOTAL INVESTMENTS............. 99.81 ------ CASH AND OTHER ASSETS, LESS LIABILITIES................. 0.19 ------ NET ASSETS.................... 100.00% ======
- -------------------------------------------------------------------------------- * The Fund held a short position in stock index futures on June 30, 1998 which reduced U.S. Equity exposure from 52.19% to 34.04%. This adjustment results in an increase in the Fund's exposure to Short-Term Investments from 0.97% to 19.12%. 32 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ------------ Equities -- 98.84% U.S. EQUITIES -- 52.19% Aetna Inc.................................................. 7,100 $ 540,488 Allergan, Inc.............................................. 11,000 510,125 Alza Corp. (b)............................................. 11,200 484,400 American Home Products Corp................................ 11,100 574,425 Aon Corp................................................... 20,150 1,415,538 Automatic Data Processing, Inc............................. 14,700 1,071,262 BankBoston Corp............................................ 7,800 433,875 Baxter International, Inc.................................. 18,400 990,150 Beckman Coulter Inc........................................ 4,900 285,425 Bestfoods.................................................. 9,800 569,012 Biogen, Inc. (b)........................................... 4,400 215,600 Birmingham Steel Corp...................................... 4,500 55,687 Burlington Northern Santa Fe Corp.......................... 18,800 1,845,925 Champion Enterprises, Inc. (b)............................. 3,400 99,875 Champion International Corp................................ 5,600 275,450 CIGNA Corp................................................. 16,900 1,166,100 Circuit City Stores-Circuit City Group..................... 16,600 778,125 Citicorp................................................... 500 74,625 CMS Energy Corp............................................ 14,500 638,000 Columbia/HCA Healthcare Corp............................... 3,300 96,112 Comerica, Inc.............................................. 4,600 304,750 Commscope, Inc. (b)........................................ 7,933 128,415 Comverse Technology, Inc. (b).............................. 5,125 265,859 Consolidated Stores Corp................................... 5,300 192,125 Corning, Inc............................................... 26,800 931,300 Covance, Inc. (b).......................................... 5,700 128,250 Crown Cork & Seal Co., Inc................................. 5,400 256,500 Dial Corp.................................................. 5,800 150,437 Eastman Chemical Co........................................ 6,200 385,950 EMC Corp. (b).............................................. 10,000 448,125 Enron Corp................................................. 12,400 670,375 Entergy Corp............................................... 34,500 991,875 FDX Corp. (b).............................................. 21,600 1,355,400 First American Corp. of Tennessee.......................... 2,900 139,563 First Data Corp............................................ 27,204 906,233 First Security Corp........................................ 5,550 118,805 FirstEnergy Corp........................................... 2,327 71,555 Fleet Financial Group, Inc................................. 6,900 576,150 Fleetwood Enterprises, Inc................................. 900 36,000 Food Lion, Inc., Class A................................... 21,800 231,625 Forest Laboratories, Inc. Class A (b)...................... 8,900 318,175 Fort James Corp............................................ 14,400 640,800 Gannett Co., Inc........................................... 4,900 348,206 General Instrument Corp. (b)............................... 25,600 696,000 General Semiconductor, Inc. (b)............................ 5,825 57,522 Genzyme Corp. (b).......................................... 4,500 115,031 Geon Co.................................................... 3,100 71,106 Goodyear Tire & Rubber Co.................................. 16,200 1,043,888 Great Lakes Chemical Corp.................................. 2,200 86,762 Harnischfeger Industries, Inc.............................. 7,800 220,837 Health Care and Retirement Corp. (b)....................... 5,050 199,159 Hibernia Corp.............................................. 6,200 125,162 IMC Global Inc............................................. 6,000 180,750 Informix Corp. (b)......................................... 6,000 47,437 Interpublic Group of Companies, Inc........................ 4,650 282,197
Kimberly Clark Corp........................................ 21,100 $ 967,962 Lafarge Corp............................................... 3,300 129,731 Lear Corp. (b)............................................. 4,800 246,300 Lockheed Martin Corp....................................... 18,851 1,995,850 Lyondell Petrochemical Co.................................. 15,500 471,781 Manor Care, Inc............................................ 5,800 222,937 Martin Marietta Materials, Inc............................. 3,335 150,075 Masco Corp................................................. 13,100 792,550 Medusa Corp................................................ 200 12,550 Nabisco Holdings Corp...................................... 11,500 414,719 National Service Industries, Inc........................... 2,200 111,925 Nextel Communications, Inc................................. 15,700 390,537 Norfolk Southern Corp...................................... 10,800 321,975 Peco Energy Co............................................. 31,300 913,569 Pentair, Inc............................................... 5,900 250,750 Philip Morris Companies, Inc............................... 34,200 1,346,625 Praxair, Inc............................................... 10,400 486,850 Raytheon Co., Class B...................................... 15,300 904,612 Regions Financial Corp..................................... 2,900 119,081 Reynolds & Reynolds Co..................................... 4,900 89,119 Schering Plough Corp....................................... 10,800 989,550 Seagate Technology, Inc.................................... 10,000 238,125 Sears, Roebuck and Co...................................... 11,600 708,325 Southdown, Inc............................................. 2,200 157,025 St. Jude Medical, Inc...................................... 5,700 209,831 Timken Co.................................................. 2,000 61,625 Tyson Foods, Inc., Class A................................. 22,900 496,644 Ultramar Diamond Shamrock Corp............................. 12,852 405,641 US Bancorp................................................. 14,463 621,909 Vencor, Inc................................................ 11,900 86,275 Ventas, Inc................................................ 11,900 164,369 Viad Corp.................................................. 11,000 305,250 Wells Fargo & Co........................................... 1,400 516,600 Westvaco Corp.............................................. 2,650 74,862 Witco Corp................................................. 5,900 172,575 Xerox Corp................................................. 20,000 2,032,500 York International Corp.................................... 7,000 304,937 ----------- Total U.S. Equities........................................ 42,728,064 ----------- NON-U.S. EQUITIES -- 46.65% AUSTRALIA -- 2.68% Amcor Ltd.................................................. 10,300 45,098 Boral Ltd.................................................. 30,600 57,420 Brambles Industries Ltd.................................... 5,000 98,128 Broken Hill Proprietary Co., Ltd........................... 29,050 245,572 Coca-Cola Amatil Ltd....................................... 6,200 41,468 CSR Ltd.................................................... 19,000 54,833 David Jones Ltd............................................ 65,200 74,700 Lend Lease Corp. Ltd....................................... 4,697 94,974 Mayne Nickless Ltd......................................... 14,500 76,778 National Australia Bank Ltd................................ 21,075 278,002 News Corp. Ltd., Preferred................................. 12,700 89,977 News Corp., Ltd............................................ 37,940 309,680 Orica Ltd.................................................. 6,400 37,852 Pacific Dunlop Ltd......................................... 31,200 50,431 Qantas Airways Ltd......................................... 31,577 47,520
- -------------------------------------------------------------------------------- 33 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ------------ Rio Tinto Ltd.............................................. 6,863 $ 81,605 Santos Ltd................................................. 13,000 40,254 Telstra Corp., Ltd......................................... 59,500 152,552 Westpac Bank Corp., Ltd.................................... 33,945 207,068 WMC Ltd.................................................... 24,200 72,837 Woolworth's Ltd............................................ 12,000 39,016 ----------- 2,195,765 ----------- BELGIUM -- 2.35% Delhaize-Le Lion S.A. (b).................................. 2,110 147,433 Electrabel S.A............................................. 1,180 334,561 Fortis AG.................................................. 88 5 Fortis AG Strip (b)........................................ 1,588 405,429 Groupe Bruxelles Lambert S.A. (b).......................... 620 125,133 KBC Bancassurance Holding-Strip (b)........................ 110 9 Kredietbank NV (b)......................................... 2,860 255,947 Petrofina S.A.............................................. 620 254,515 Solvay S.A., Class A....................................... 1,720 136,361 Tractebel.................................................. 1,380 202,123 Union Miniere S.A. (b)..................................... 1,032 63,789 ----------- 1,925,305 ----------- CANADA -- 1.63% Agrium, Inc................................................ 3,100 38,681 Alcan Aluminum Ltd......................................... 2,500 68,849 Bank of Montreal........................................... 1,700 93,635 Barrick Gold Corp.......................................... 1,500 28,560 Canadian National Railway Co............................... 1,700 90,398 Canadian Pacific Ltd....................................... 5,216 146,840 Extendicare Inc. (b)....................................... 4,000 32,368 Hudson's Bay Co............................................ 2,300 52,706 Imasco, Ltd................................................ 2,800 51,693 Imperial Oil Ltd........................................... 6,000 104,855 Magna International Inc., Class A.......................... 700 47,933 Moore Corp., Ltd........................................... 2,700 35,802 Newbridge Networks Corp. (b)............................... 800 19,121 Noranda, Inc............................................... 2,500 43,180 NOVA Corp.................................................. 6,900 79,060 Potash Corporation of Saskatchewan, Inc.................... 700 52,740 Royal Bank of Canada....................................... 2,000 120,359 Seagram Co., Ltd........................................... 1,100 44,842 Shaw Communications Inc., Class B.......................... 3,900 75,847 TransCanada Pipelines Ltd.................................. 3,400 75,371 Westcoast Energy, Inc...................................... 1,600 35,632 ----------- 1,338,472 ----------- DENMARK -- 0.25% Den Danske Bank Group...................................... 800 95,972 Tele Danmark A/S........................................... 1,100 105,569 ----------- 201,541 ----------- FINLAND -- 1.26% Cultor Oyj................................................. 900 14,599 Merita Ltd., Class A....................................... 17,800 117,445
Metsa Serla Oyj, Class B................................... 3,700 $ 35,742 Nokia Oyj Class A Preferred................................ 8,600 632,480 Outokumpu Oyj, Class A..................................... 2,500 31,896 Sampo Insurance Co., Ltd., Series A........................ 1,300 61,606 UPM-Kymmene Corp........................................... 4,000 110,088 Valmet Oyj................................................. 1,400 24,139 ----------- 1,027,995 ----------- FRANCE -- 4.42% Air Liquide................................................ 438 72,445 Alcatel Alsthom............................................ 816 166,142 AXA-UAP.................................................... 1,681 189,064 Banque Nationale de Paris.................................. 1,810 147,890 Carrefour SA............................................... 200 126,530 Cie de Saint Gobain........................................ 916 169,837 Dexia France (b)........................................... 857 115,382 Elf Aquitaine S.A.......................................... 1,392 195,700 Eridania Beghin-Say SA..................................... 340 75,074 France Telecom S.A......................................... 3,510 242,089 Groupe Danone.............................................. 510 140,617 Lafarge Corp............................................... 777 80,322 Lagardere S.C.A............................................ 2,600 108,240 Michelin, Class B.......................................... 1,711 98,766 Paribas.................................................... 1,233 131,947 Pechiney S.A., Class A..................................... 1,635 65,849 Peugeot S.A................................................ 812 174,595 Pinault-Printemps-Redoute S.A.............................. 120 100,430 Rhone-Poulenc, Class A..................................... 3,020 170,331 SEITA...................................................... 2,990 135,504 Societe Generale........................................... 773 160,711 Suez Lyonnaise des Eaux S.A. (b)........................... 1,297 213,449 Thomson CSF................................................ 2,475 94,153 Total S.A., Class B........................................ 1,079 140,274 Usinor Sacilor............................................. 2,520 38,930 Vivendi.................................................... 1,208 257,944 Vivendi Warrants "01" (b).................................. 1,771 3,486 ----------- 3,615,701 ----------- GERMANY -- 5.30% Allianz AG................................................. 1,335 440,069 Allianz AG (b)............................................. 45 14,709 BASF AG.................................................... 2,000 94,737 Bayer AG................................................... 4,890 252,221 Bayerische Motoren Werke (BMW) AG.......................... 33 32,817 Bayerische Motoren Werke AG................................ 110 110,975 Commerzbank AG............................................. 1,050 40,139 Continental AG............................................. 3,400 105,861 Daimler-Benz AG............................................ 2,060 202,006 Deutsche Bank AG........................................... 3,250 275,215 Deutsche Telekom AG........................................ 13,560 365,857 Dresdner Bank AG........................................... 4,050 218,319 Hochtief AG................................................ 1,160 55,590 Hoechst AG................................................. 1,550 77,371 M.A.N. AG.................................................. 260 101,119 Mannesmann AG.............................................. 2,100 213,025 Metro AG................................................... 2,718 164,887
- -------------------------------------------------------------------------------- 34 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- Metro AG Right (b)......................................... 2,718 $ 105 Muenchener Rueckver AG..................................... 680 337,175 Preussag AG................................................ 390 139,147 RWE AG..................................................... 2,420 143,457 Schering AG................................................ 1,210 142,586 Siemens AG................................................. 4,020 244,541 Thyssen AG................................................. 450 113,934 Veba AG.................................................... 2,860 194,892 Volkswagen AG.............................................. 269 258,568 ---------- 4,339,322 ---------- HONG KONG -- 0.18% Cheung Kong Holdings Ltd................................... 5,000 24,585 Citic Pacific Ltd.......................................... 3,000 5,304 CLP Holdings Ltd........................................... 2,500 11,389 Hang Seng Bank Ltd......................................... 1,800 10,175 Hong Kong & China Gas Co., Ltd............................. 13,200 14,991 Hong Kong and China Gas Warrants "99 " (b)................. 1,100 75 Hong Kong Telecommunications Ltd........................... 10,000 18,778 Hutchison Whampoa Ltd...................................... 6,000 31,670 Johnson Electric Holdings Ltd.............................. 3,000 11,112 South China Morning Post (Holdings) Ltd.................... 10,000 4,807 Sun Hung Kai Properties Ltd................................ 3,000 12,738 ---------- 145,624 ---------- ITALY -- 2.13% Assicurazioni Generali..................................... 5,700 185,345 Credito Italiano S.p.A..................................... 27,000 141,338 Danieli & Co. Savings (Risp)............................... 16,400 76,116 ENI ADR (c)................................................ 1,700 110,500 ENI S.p.A.................................................. 44,000 288,374 Fiat S.p.A.-Preferred...................................... 42,300 105,301 INA-Istituto Nazionale delle Assicurazioni................. 6,000 17,046 Instituto Mobiliare Italiano S.p.A......................... 6,700 105,539 Istituto Bancario San Paolo di Torino...................... 6,000 86,580 La Rinascente S.p.A........................................ 8,875 88,373 Montedison S.p.A........................................... 81,560 101,173 Parmalat Finanziaria S.p.A................................. 32,000 65,258 Telecom Italia Mobile S.p.A................................ 27,000 165,109 Telecom Italia Mobile S.p.A. RNC........................... 14,000 47,256 Telecom Italia S.p.A....................................... 22,111 162,765 ---------- 1,746,073 ---------- JAPAN -- 3.51% Amada Co., Ltd............................................. 6,000 29,182 Bank of Tokyo-Mitsubishi, Ltd.............................. 6,000 63,508 Canon Sales Co., Inc....................................... 2,000 27,179 Canon, Inc................................................. 5,000 113,485 Citizen Watch Co., Ltd..................................... 6,000 49,501 Dai Nippon Printing Co., Ltd............................... 6,000 95,760 Daiichi Pharmaceutical Co., Ltd............................ 5,000 65,929 Daikin Industries Ltd...................................... 6,000 38,650 Daiwa House Industry Co., Ltd.............................. 3,000 26,480
Denso Corp................................................. 5,000 $ 82,862 Fanuc...................................................... 2,400 83,006 Fuji Photo FIlm............................................ 1,000 34,802 Fujitsu.................................................... 4,000 42,079 Hitachi Ltd................................................ 12,000 78,251 Honda Motor Co............................................. 3,000 106,784 Hoya Corp.................................................. 1,000 28,317 Inax....................................................... 4,000 13,748 Ito Yokado Co., Ltd........................................ 2,000 94,102 Kaneka Corp................................................ 6,000 31,560 Keio Teito Electric Railway................................ 7,000 25,471 Kinki Nippon Railway....................................... 7,000 32,785 Kirin Brewery Co., Ltd..................................... 7,000 66,073 Kokuyo..................................................... 2,000 33,865 Kuraray Co., Ltd........................................... 7,000 59,466 Kyocera Corp............................................... 1,200 58,623 Marui Co., Ltd............................................. 3,000 44,745 Matsushita Electric Industrial Co.......................... 7,000 112,476 NGK Insulators............................................. 10,000 86,825 Nintendo Co., Ltd.......................................... 800 74,071 Nippon Meat Packers, Inc................................... 4,000 48,968 Nippon Steel Co............................................ 5,000 8,791 Okumura Corp............................................... 6,000 21,054 Omron Corp................................................. 2,000 30,551 Osaka Gas Co............................................... 12,000 30,781 Sankyo Co., Ltd............................................ 4,000 91,076 Secom Co., Ltd............................................. 1,000 57,715 Sega Enterprises Ltd....................................... 1,000 17,257 Seino Transportation....................................... 4,000 22,193 Sekisui House Ltd.......................................... 6,000 46,475 Shin-Etsu Chemical Co., Ltd................................ 2,000 34,586 Sony Corp.................................................. 1,000 86,104 Sumitomo Chemical Co....................................... 7,000 21,587 Sumitomo Electric Industries............................... 5,000 50,546 Takeda Chemical Industries................................. 4,000 106,352 TDK Corp................................................... 1,000 73,855 Tokio Marine & Fire Insurance Co........................... 6,000 61,649 Tokyo Electric Power....................................... 1,300 25,478 Tonen Corp................................................. 4,000 20,723 Toray Industries, Inc...................................... 16,000 83,006 Toshiba Corp............................................... 14,000 57,196 Toyo Suisan Kaisha......................................... 3,000 18,287 Toyota Motor Corp.......................................... 4,000 103,469 Yamato Transport Co., Ltd.................................. 3,000 33,613 Yamazaki Baking Co., Ltd................................... 3,000 26,588 ---------- 2,877,485 ---------- MALAYSIA -- 0.22% Berjaya Sports Toto Bhd.................................... 8,000 11,863 Kuala Lumpur Kepong Bhd.................................... 14,000 22,616 Malayan Banking Bhd Bonus Issue............................ 4,600 4,586 Malayan Banking Bhd........................................ 4,600 4,636 Malaysia International Shipping Bhd (Frgn.)................ 5,000 7,294 Nestle (Malaysia) Bhd...................................... 3,000 13,599 Petronas Gas Bhd........................................... 8,000 14,852 Public Bank Bhd (Frgn.).................................... 7,999 2,411
- -------------------------------------------------------------------------------- 35 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- Resorts World Bhd.......................................... 10,000 $ 10,995 Rothmans of Pall Mall Bhd.................................. 4,000 27,728 Sime Darby Bhd............................................. 3,000 2,069 Tanjong PLC................................................ 5,000 6,932 Telekom Malaysia Bhd....................................... 10,500 17,722 Tenaga Nasional Bhd........................................ 11,000 13,261 UMW Holdings Bhd........................................... 6,000 2,691 YTL Corp. Bhd.............................................. 15,000 11,284 YTL Power International Bhd (b)............................ 7,800 4,250 ---------- 178,789 ---------- NETHERLANDS -- 2.55% ABN AMRO Holdings NV....................................... 7,201 168,502 Akzo Nobel NV.............................................. 200 44,460 Elsevier NV................................................ 7,300 110,171 Heineken NV................................................ 3,593 141,127 Koninklijke Hoogovens NV................................... 813 35,171 ING Groep NV............................................... 4,102 268,600 KLM Royal Dutch Air Lines NV............................... 1,118 45,397 Koninklijke KPN NV......................................... 3,583 137,916 Philips Electronics NV..................................... 2,237 188,048 PolyGram NV................................................ 1,500 76,541 Royal Dutch Petroleum Co................................... 9,575 530,951 TNT Post Group NV.......................................... 3,583 91,592 Unilever NV................................................ 3,100 245,964 ---------- 2,084,440 ---------- NEW ZEALAND -- 1.73% Brierley Investments Ltd................................... 379,200 188,969 Carter Holt Harvey Ltd..................................... 131,500 114,680 Fletcher Challenge Building................................ 43,450 54,132 Fletcher Challenge Energy.................................. 47,850 114,259 Fletcher Challenge Forests Ltd............................. 63,695 35,709 Fletcher Challenge Paper................................... 86,200 95,757 Lion Nathan Ltd............................................ 33,400 74,206 Telecom Corp. of New Zealand Ltd........................... 179,500 739,837 ---------- 1,417,549 ---------- NORWAY -- 0.14% Norsk Hydro ASA............................................ 2,200 96,762 Norske Skogindustrier ASA Class A.......................... 600 18,531 ---------- 115,293 ---------- SINGAPORE -- 0.64% City Developments Ltd...................................... 7,000 19,556 Creative Technology Ltd.................................... 1,000 12,134 DBS Land Ltd............................................... 14,000 11,601 Development Bank of Singapore Ltd.......................... 4,700 26,011 Elec & Eltek International Co., Ltd........................ 2,200 7,436 Fraser & Neave Ltd......................................... 3,000 8,062 Keppel Corp., Ltd.......................................... 11,750 17,665 Keppel Land Ltd............................................ 9,000 8,257 Oversea-Chinese Banking Corp., Ltd......................... 10,600 36,076 Rothmans Industries Ltd.................................... 4,000 17,757
Singapore Airlines Ltd. (Frgn.)............................ 13,000 $ 60,787 Singapore Press Holdings Ltd. (Frgn.)...................... 9,828 65,733 Singapore Technologies Engineering Ltd..................... 23,000 16,200 Singapore Telecommunications Ltd........................... 94,000 133,531 United Overseas Bank Ltd. (Frgn.).......................... 24,000 74,578 Venture Manufacturing (Singapore) Ltd...................... 3,000 5,682 ---------- 521,066 ---------- SWEDEN -- 1.76% ABB AB, A Shares........................................... 6,310 89,409 Astra AB, A Shares......................................... 9,030 184,565 Electrolux AB Series B..................................... 3,600 61,844 Investor AB-B Shares....................................... 2,600 151,764 Nordbanken Holding AB...................................... 20,840 152,872 Skandia Forsakrings AB..................................... 6,000 85,769 Skanska AB, B Shares....................................... 1,870 83,946 Svenska Handelsbanken, A Shares............................ 2,060 95,575 Swedish Match AB........................................... 26,610 88,423 Telefonaktiebloaget LM Ericsson, B Shares.................. 10,600 309,697 Volvo AB, B Shares......................................... 4,530 134,908 ---------- 1,438,772 ---------- SWITZERLAND -- 3.69% ABB AG (Bearer)............................................ 96 141,772 CS Holdings AG (Reg.)...................................... 1,866 415,200 Holderbank Financiere Glarus, B Shares..................... 91 115,790 Julius Baer Holding AG..................................... 41 128,260 Nestle S.A. (Reg.)......................................... 204 436,566 Novartis AG (Reg.)......................................... 436 725,517 Roche Holding AG (Gen.).................................... 51 500,821 Sairgroup.................................................. 270 88,825 Saurer AG.................................................. 91 92,992 Sulzer AG.................................................. 96 75,759 Swiss Reinsurance Co. (Reg.)............................... 120 303,481 ---------- 3,024,983 ---------- UNITED KINGDOM -- 12.21% Abbey National PLC......................................... 9,750 173,253 B.A.T. Industries PLC...................................... 46,750 468,015 Barclays PLC............................................... 12,000 345,981 Bass PLC................................................... 5,446 102,043 Billiton PLC............................................... 52,000 105,416 BOC Group PLC.............................................. 6,000 81,740 Booker PLC................................................. 27,870 113,928 British Petroleum Co. PLC.................................. 35,671 520,180 British Sky Broadcasting PLC............................... 15,500 111,335 British Steel PLC.......................................... 100,750 221,474 British Telecommunications PLC............................. 38,520 475,603 BTR PLC (b)................................................ 14,875 42,192 Cable & Wireless PLC....................................... 8,500 103,247 Cadbury Schweppes PLC...................................... 13,000 201,180 Charter PLC................................................ 17,422 181,824 Coats Viyella PLC.......................................... 97,250 119,262 Diageo PLC................................................. 16,630 197,005 FKI PLC.................................................... 54,405 157,040
- -------------------------------------------------------------------------------- 36 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE -------- ------------ General Electric Co. PLC................................... 30,820 $ 265,601 Glaxo Wellcome PLC......................................... 21,120 633,945 Greenalls Group PLC........................................ 17,000 147,212 Hanson PLC................................................. 19,750 120,031 Hillsdown Holdings PLC..................................... 46,000 125,104 House of Fraser PLC........................................ 50,250 145,885 HSBC Holdings PLC.......................................... 12,201 309,636 Inchcape PLC............................................... 25,000 78,837 Legal & General Group PLC.................................. 4,250 87,562 Lloyds TSB Group PLC....................................... 33,220 464,761 Marks & Spencer PLC........................................ 46,120 419,769 Mirror Group PLC........................................... 44,000 165,182 National Westminster Bank PLC.............................. 7,350 131,342 Peninsular & Oriental Steam Navigation Co.................. 17,475 251,626 Prudential Corp. PLC....................................... 6,000 79,037 Reckitt & Colman PLC....................................... 4,635 88,471 Reed International PLC..................................... 20,000 180,866 Reuters Group PLC.......................................... 3,400 37,284 Rio Tinto PLC.............................................. 13,020 146,636 RJB Mining PLC............................................. 27,500 56,437 Royal & Sun Alliance Insurance Group PLC................... 13,779 142,425 Scottish Hydro-Electric PLC................................ 14,650 130,040 Sears PLC.................................................. 68,250 59,785 Sedgwick Group PLC......................................... 43,000 93,269 SmithKline Beecham PLC..................................... 35,850 437,553 Smurfit (Jefferson) Group PLC.............................. 51,196 152,903 Tate & Lyle PLC............................................ 24,000 190,309 Tesco PLC.................................................. 17,750 173,253 Thames Water PLC........................................... 12,500 227,542 Unilever PLC............................................... 26,000 276,771 United News & Media PLC.................................... 9,000 125,838 Vodafone Group PLC......................................... 15,825 200,803 Williams PLC............................................... 16,750 107,598 Willis Corroon Group PLC................................... 10,000 25,361 ----------- 9,999,392 ----------- Total Non-U.S. Equities.................................... 38,193,567 ----------- Total Equities (Cost $65,038,146).......................... 80,921,631 -----------
FACE AMOUNT VALUE -------- ------------ Short-Term Investments -- 0.97% U.S. GOVERNMENT OBLIGATIONS -- 0.72% U.S. Treasury Bills 5.125%, due 11/27/98...................$600,000 $ 587,534 ----------- COMMERCIAL PAPER -- 0.25% NGC Corp. 6.640%, due 07/01/98...................................... 209,000 209,000 ----------- Total Short-Term Investments (Cost $796,358)........................................... 796,534 ----------- Total Investments (Cost $65,834,504) -- 99.81% (a).......................... 81,718,165 ----------- Cash and other assets, less liabilities -- 0.19%...................................... 153,843 ----------- Net Assets -- 100%......................................... $81,872,008 ===========
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 37 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $65,834,504; and net unrealized appreciation consisted of: Gross unrealized appreciation................................ $19,727,697 Gross unrealized depreciation................................ (3,844,036) ----------- Net unrealized appreciation.............................. $15,883,661 ===========
(b) Non-income producing security. (c) Denominated in U.S. dollars. RNC: Non-Convertible Savings Shares FORWARD FOREIGN CURRENCY CONTRACTS The Global Equity Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ----------- ---------- ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Belgian Franc................... 12/03/98 44,000,000 $1,192,967 $ 14,166 British Pound................... 12/03/98 3,300,000 5,456,800 (94,960) Danish Krone.................... 12/03/98 3,000,000 439,340 (2,125) Finnish Markka.................. 12/03/98 2,800,000 514,632 6,201 Hong Kong Dollar................ 12/03/98 2,000,000 253,156 (87) Forward Foreign Currency Sale Contracts Australian Dollar............... 12/03/98 3,800,000 2,358,286 6,846 British Pound................... 12/03/98 400,000 661,430 13,910 Canadian Dollar................. 12/03/98 1,150,000 784,052 (8,970) Danish Krone.................... 12/03/98 3,000,000 439,340 (5,797) Hong Kong Dollar................ 12/03/98 1,000,000 126,578 1,483 Japanese Yen.................... 12/03/98 205,000,000 1,511,998 3,702 Spanish Peseta.................. 12/03/98 222,000,000 1,459,422 (18,164) -------- Total....................... $(83,795) ========
FUTURES CONTRACTS The Global Equity Fund had the following open index futures contracts as of June 30, 1998:
SETTLEMENT CURRENT UNREALIZED DATE PROCEEDS VALUE LOSS -------------- ------------ ------------ ---------- INDEX FUTURES SALE CON- TRACTS Standard & Poor's 500, 52 contracts................. September 1998 $ 14,283,386 $ 14,859,000 $ 575,614 =========
The segregated cash and aggregate market value of investments pledged to cover margin requirements for the open positions at June 30, 1998 were $10,000 and $587,534, respectively. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 38 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $65,834,504)......................... $81,718,165 Cash............................................................. 15,710 Foreign currency, at value (Cost $321,710)....................... 322,019 Receivables: Investment securities sold...................................... 694,723 Dividends....................................................... 218,500 Fund shares sold................................................ 29,324 Variation margin................................................ 110,500 Other assets..................................................... 2,603 ----------- TOTAL ASSETS.................................................. 83,111,544 ----------- LIABILITIES: Payables: Investment securities purchased................................. 836,123 Fund shares redeemed............................................ 182,327 Investment advisory fees........................................ 54,145 Accrued expenses................................................ 83,146 Net unrealized depreciation on forward foreign currency con- tracts........................................................... 83,795 ----------- TOTAL LIABILITIES............................................. 1,239,536 ----------- NET ASSETS........................................................ $81,872,008 =========== NET ASSETS CONSIST OF: Paid in capital.................................................. $66,347,204 Accumulated undistributed net investment income.................. 377,184 Accumulated net realized loss.................................... (78,467) Net unrealized appreciation...................................... 15,226,087 ----------- NET ASSETS.................................................... $81,872,008 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $22,724,003 and 1,811,660 shares issued and outstanding)............................................... $ 12.54 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,090 and 87 shares issued and outstanding)................... $ 12.53 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $59,146,915 and 4,727,806 shares issued and outstanding)............................................... $ 12.51 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 39 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends (net of $147,165 for foreign taxes withheld)........... $ 1,778,109 Interest......................................................... 298,325 ----------- TOTAL INCOME.................................................. 2,076,434 ----------- EXPENSES: Advisory......................................................... 719,439 Distribution..................................................... 500,537 Custodian........................................................ 15,731 Other............................................................ 185,256 ----------- TOTAL EXPENSES................................................ 1,420,963 Expenses waived by Advisor.................................... (21,898) ----------- NET EXPENSES.................................................. 1,399,065 ----------- NET INVESTMENT INCOME ........................................ 677,369 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 9,912,136 Futures contracts............................................... (2,561,807) Foreign currency transactions................................... (446,626) ----------- Net realized gain............................................. 6,903,703 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency................................ (927,168) Futures contracts............................................... (272,124) Forward contracts............................................... (82,521) Translation of other assets and liabilities denominated in for- eign currency.................................................. (1,175) ----------- Change in net unrealized appreciation or depreciation......... (1,282,988) ----------- Net realized and unrealized gain.................................. 5,620,715 ----------- Net increase in net assets resulting from operations.............. $ 6,298,084 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 40 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 677,369 $ 960,262 Net realized gain................................. 6,903,703 5,232,778 Change in net unrealized appreciation or depreciation..................................... (1,282,988) 10,619,517 ----------- ------------ Net increase in net assets resulting from opera- tions............................................ 6,298,084 16,812,557 ----------- ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................... (242,673) (425,929) Brinson Class N................................... (11) -- SwissKey Class.................................... (397,017) (253,945) Distributions from net realized gain: Brinson Class I................................... (1,266,777) (3,076,886) Brinson Class N................................... (82) -- SwissKey Class.................................... (5,307,194) (3,396,000) ----------- ------------ Total distributions to shareholders............... (7,213,754) (7,152,760) ----------- ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 40,216,740 42,520,630 Shares issued on reinvestment of distributions.... 6,378,677 6,711,937 Shares redeemed................................... (73,542,587) (9,295,598) ----------- ------------ Net increase (decrease) in net assets resulting from capital share transactions.................. (26,947,170) 39,936,969 ----------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS........ (27,862,840) 49,596,766 ----------- ------------ NET ASSETS: Beginning of year................................. 109,734,848 60,138,082 ----------- ------------ End of year (including accumulated undistributed net investment income of $377,184 and $336,561, respectively).................................... $81,872,008 $109,734,848 =========== ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 41 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, JANUARY 28, 1994* ---------------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - ------------------------------------------------------------------------------- Net asset value, begin- ning of period.......... $ 12.76 $ 11.57 $ 9.93 $ 9.49 $ 10.00 ------- ------- ------- ------- ------- Income from investment operations: Net investment income.. 0.22 0.16 0.18 0.18 0.07 Net realized and unrealized gain (loss)................ 0.78 2.14 2.29 0.39 (0.54) ------- ------- ------- ------- ------- Total income (loss) from investment operations.......... 1.00 2.30 2.47 0.57 (0.47) ------- ------- ------- ------- ------- Less distributions: Distributions from net investment income..... (0.17) (0.12) (0.14) (0.04) (0.04) Distributions from and in excess of net realized gain......... (1.05) (0.99) (0.69) (0.09) -- ------- ------- ------- ------- ------- Total distributions.. (1.22) (1.11) (0.83) (0.13) (0.04) ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 12.54 $ 12.76 $ 11.57 $ 9.93 $ 9.49 ======= ======= ======= ======= ======= Total return (non- annualized)............. 8.99% 21.26% 25.66% 6.06% (4.70)% Ratios/Supplemental data Net assets, end of pe- riod (in 000s)......... $22,724 $48,054 $27,126 $20,706 $20,642 Ratio of expenses to average net assets: Before expense reimbursement......... 1.02% 1.25% 1.77% 2.06% 2.65%** After expense reimbursement......... 1.00% 1.00% 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reimbursement......... 1.29% 1.35% 0.57% 0.71% 0.24%** After expense reimbursement......... 1.31% 1.60% 1.34% 1.77% 1.89%** Portfolio turnover rate. 46% 32% 74% 36% 21% Average commission rate paid per share......... $0.0254 $0.0246 $0.0288 N/A N/A
* Commencement of investment operations ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 42 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED JUNE 30, BRINSON CLASS N 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of year................................... $ 12.76 ------- Income from investment operations: Net investment income.............................................. 0.13 Net realized and unrealized gain................................... 0.82 ------- Total income from investment operations.......................... 0.95 ------- Less distributions: Distributions from net investment income........................... (0.13) Distributions from net realized gain............................... (1.05) ------- Total distributions.............................................. (1.18) ------- Net asset value, end of year......................................... $ 12.53 ======= Total return......................................................... 8.60% Ratios/Supplemental data Net assets, end of year (in 000s)................................... $ 1 Ratio of expenses to average net assets: Before expense reimbursement....................................... 1.27% After expense reimbursement........................................ 1.25% Ratio of net investment income to average net assets: Before expense reimbursement....................................... 1.04% After expense reimbursement........................................ 1.06% Portfolio turnover rate............................................. 46% Average commission rate paid per share.............................. $0.0254
* Commencement of Brinson Class N was June 30, 1997. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 43 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR YEAR JULY 31, 1995* ENDED ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 12.73 $ 11.57 $ 10.35 ------- ------- ------- Income from investment operations: Net investment income (loss)...... 0.07 0.08 (0.01) Net realized and unrealized gain.. 0.83 2.13 1.93 ------- ------- ------- Total income from investment op- erations....................... 0.90 2.21 1.92 ------- ------- ------- Less distributions: Distributions from net investment income........................... (0.07) (0.06) (0.01) Distributions from net realized gain............................. (1.05) (0.99) (0.69) ------- ------- ------- Total distributions............. (1.12) (1.05) (0.70) ------- ------- ------- Net asset value, end of period...... $ 12.51 $ 12.73 $ 11.57 ======= ======= ======= Total return (non-annualized)....... 8.15% 20.34% 19.25% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $59,147 $61,680 $33,012 Ratio of expenses to average net assets: Before expense reimbursement...... 1.78% 2.00% 2.53%** After expense reimbursement....... 1.76% 1.75% 1.76%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement...... 0.53% 0.60% (0.19)%** After expense reimbursement....... 0.55% 0.85% 0.58%** Portfolio turnover rate............ 46% 32% 74% Average commission rate paid per share............................. $0.0254 $0.0246 $0.0288
* Commencement of SwissKey Class ** Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 44 Global Bond Fund [ART] The Global Bond Fund is actively managed, providing a fully integrated treatment of the U.S. and other major fixed income markets across the world. This global approach takes full advantage of relationships both within and across markets, based on consistent analysis of macroeconomic and market conditions. Market and currency strategies are developed on a global asset allocation framework, in conjunction with senior fixed income professionals in our offices worldwide. The Brinson Global Bond Fund Class I has provided an annualized return of 6.49% since its inception on July 31, 1993. Over the same time period, the return of the fund's benchmark was 6.38%. This performance was achieved with volatility of 4.08%, below the 5.15% volatility of the benchmark. During the first half of 1998, the Fund returned 1.68% compared to the index return of 2.78% on an unhedged basis. On a dollar-hedged basis, the index returned 5.03%, with individual market returns ranging from 7.89% in Sweden down to 4.16% in Switzerland and 4.20% in U.S. Treasuries. Yields continued to decline, in many markets to record low levels, in a low inflation environment. The Asian crisis contributed to lower inflation but also supported government bonds by encouraging a "flight to quality". Market allocation made a minor positive contribution to the Fund's performance relative to the benchmark in the first six months of the year. The Fund benefited from being overweight in Denmark, while the overweight in U.S. bonds detracted slightly from relative performance. Currency allocation made virtually no net contribution to relative performance for the period. The Fund suffered from being underweight in the U.K. pound, but benefited from the offsetting overweight in the U.S. dollar. Similarly the "paired" overweight of the Australian dollar and underweight of the Japanese yen netted to a wash. While the yen was relatively weak, so too was the Australian dollar, which suffered (as did the Canadian dollar) from weakening commodity prices in the wake of the Asian crisis. Bond management was the largest detractor from relative performance. Although the Fund benefited from being overweight in Canadian Real Return bonds, overall short duration strategies hurt performance. This was particularly true in Japan, where the worsening economic situation drove down the compound yield on ten year JGBs to just 1.45% in early June. At present, the average duration of holdings is equal to the market index average in Denmark and the U.S., 0.95 times average in Australia, and 0.9 times average in the other countries in the Fund. 45 Global Bond Fund [ART] Total Return
6 months 1 year 3 years 7/31/93* ended ended ended to 6/30/98 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------- Brinson Global Bond Fund Class I 1.68% 2.69% 7.23% 6.49% - -------------------------------------------------------------------------------- Salomon World Government Bond Index 2.78 4.32 2.84 6.38 - --------------------------------------------------------------------------------
*Performance inception date of the Brinson Global Bond Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Bond Fund Class I and the Salomon World Government Bond Index if you had invested $1,000,000 on July 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Bond Fund Class I vs. Salomon World Government Bond Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson Global Salomon World Date Bond Fund Class I Gov't Bond Index - ---- ----------------- --------------- 07/31/93 1000000 1000000 12/31/93 1038591 1041929 06/30/94 992146 1048832 12/31/94 1002296 1066185 06/30/95 1104638 1245919 12/31/95 1206119 1269184 06/30/96 1231653 1250502 12/31/96 1318299 1315287 06/30/97 1326556 1299088 12/31/97 1339835 1318469 06/30/98 1362306 1355150
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 46 Global Bond Fund [ART] Total Return
6 months 6/30/97* ended to 6/30/98 6/30/98 - ------------------------------------------------------------------------------- Brinson Global Bond Fund Class N 1.54% 2.37% - ------------------------------------------------------------------------------- Salomon World Government Bond Index 2.78 4.32 - -------------------------------------------------------------------------------
*Inception date of the Brinson Global Bond Fund Class N. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Global Bond Fund Class N and the Salomon World Government Bond Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Global Bond Fund Class N vs. Salomon World Government Bond Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson Global Salomon World Date Bond Fund Class N Gov't Bond Index - ---- ----------------- --------------- 06/30/97 $1,000,000 $1,000,000 09/30/97 1,011,411 1,012,726 12/31/97 1,008,216 1,014,920 03/31/98 1,011,454 1,022,838 06/30/98 1,023,719 1,043,156
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 47 Global Bond Fund [ART] Asset Allocation As of June 30, 1998
Current Benchmark Strategy - ------------------------------------------------ U.S. 33.4% 39.4% Australia 0.8 4.0 Austria 0.9 0.0 Belgium 2.4 0.0 Canada 3.3 6.1 Denmark 1.6 6.3 Finland 0.6 0.0 France 7.4 7.6 Germany 9.2 13.3 Ireland 0.4 0.0 Italy 7.2 3.6 Japan 18.3 0.0 Netherlands 3.0 5.3 Spain 3.0 3.9 Sweden 1.5 1.5 Switzerland 0.5 0.0 U.K. 6.5 9.0 - ------------------------------------------------ 100.0% 100.0%
Currency Allocation As of June 30, 1998
Current Benchmark Strategy - ------------------------------------------------ U.S. 33.4% 36.9% Australia 0.8 4.7 Austria 0.9 0.9 Belgium 2.4 2.4 Canada 3.3 3.3 Denmark 1.6 1.6 Finland 0.6 0.6 France 7.4 7.4 Germany 9.2 9.2 Ireland 0.4 0.4 Italy 7.2 7.2 Japan 18.3 14.3 Netherlands 3.0 3.0 Spain 3.0 3.0 Sweden 1.5 1.5 Switzerland 0.5 0.5 U.K. 6.5 3.1 - ------------------------------------------------ 100.0% 100.0%
Industry Diversification
As a Percent of Net Assets As of June 30, 1998 - ------------------------------------------------ U.S. BONDS Corporate Bonds Aerospace &Military..................... 0.14% Asset-Backed............................ 2.28 Banking................................. 0.21 CMO..................................... 5.02 Consumer................................ 1.23 Financial Services...................... 1.56 Food and Housing Products............... 0.52 Industrial Components................... 1.16 Services/Miscellaneous.................. 0.32 Telecommunications...................... 0.92 Transportation.......................... 0.77 ------ 14.13 ------ International Dollar Bonds.............. 2.33 U.S. Government Agencies................ 9.38 U.S. Government Obligations............ 8.61 ------ Total U.S. Bonds.................... 34.45 ------ NON-U.S. BONDS Foreign Financial Bonds................. 14.04 Foreign Government Bonds................ 44.34 ------ Total Non-U.S. Bonds................ 58.38 ------ SHORT-TERM INVESTMENTS.................. 13.44 ------ TOTAL INVESTMENTS................... 106.27 LIABILITIES, LESS CASH AND OTHER ASSETS........................... (6.27) ------ NET ASSETS.......................... 100.00% ======
48 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- Bonds -- 92.83% U.S. BONDS -- 34.45% U.S. CORPORATE BONDS -- 14.13% Archer Daniels, 6.950%, due 12/15/2097.................. $ 500,000 $ 533,778 Bear Stearns Mortgage Securities, Inc., 96-7, Class A4, 6.000%, due 01/28/09................................... 200,000 197,182 Capital One Bank, 6.830%, due 05/17/99.................. 200,000 201,125 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02................................... 125,000 125,921 Continental Airlines, Inc., 6.900%, due 01/02/18................................... 710,000 738,528 Countrywide Capital, Inc., 8.000%, due 12/15/26................................... 250,000 264,901 DLJ Mortgage Acceptance Corp., 98-3, Class A, 6.500%, due 08/19/28........................................... 620,000 612,250 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00... 375,000 380,412 First Bank Corporate Card Master Trust, 97-1, Class A, 6.400%, due 02/15/03................................... 240,000 244,322 First Union-Lehman Brothers Commercial Mortgage, 97-C2, Class A2, 6.600%, due 05/18/07......................... 240,000 244,920 Ford Credit Grantor Trust, 95-B, Class A, 5.900%, due 10/15/00.................... 25,233 25,253 GE Capital Mortgage Services, Inc., 93-7F, Class FA3, 6.500%, due 09/25/08................................... 383,524 384,444 Kroger Co., 6.000%, due 07/01/00........................ 500,000 498,888 Lockheed Martin Corp., 7.700%, due 06/15/08................................... 125,000 137,577 Merrill Lynch & Co., Series B, 5.930%, due 03/23/01................................... 550,000 549,690 Metlife Capital Equipment Loan Trust, 97-A, Class A, 6.850%, due 05/20/08.................... 225,000 232,973 News America Holdings, 7.750%, due 12/01/45................................... 775,000 831,715 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24................... 190,000 197,362 Premier Auto Trust, 96-3, Class A4, 6.750%, due 11/06/00................... 475,000 479,888 Prudential Home Mortgage Securities 93-43, Class A9, 6.750%, due 10/25/23.................. 215,869 216,776 96-7, Class A4, 6.750%, due 06/25/11................... 150,000 151,989 Residential Asset Securitization Trust 97-A7, Class A1, 7.500%, due 09/25/27.................. 245,263 247,950 97-A10, Class A5, 7.250%, due 12/25/27................. 335,000 342,149 97-A11, Class A6, 7.000%, due 01/25/28................. 430,000 435,688 97-A11, Class A2, 7.000%, due 01/25/28................. 260,000 261,664 98-A1, Class A1, 7.000%, due 03/25/28.................. 252,863 254,492 Salomon, Inc. 6.500%, due 03/01/00...................... 300,000 302,337 SASCO LLC, 98-RF1, Class A, 8.712%, due 03/15/27.................. 289,264 310,236 Structured Mortgage Asset Residential Trust, 93-5C, Class CI, 7.150%, due 03/25/23......................... 925,000 943,881
The Money Store, 94-A, Class A3, 5.525%, due 09/15/18.................... $ 58,553 $ 58,049 Time Warner, Inc., 7.570%, due 02/01/24.................. 315,000 341,044 U.S. West Capital Funding Inc., 6.875%, due 07/15/28.................................... 375,000 376,801 USA Waste Services, 7.000%, due 10/01/04................. 300,000 309,331 UCFC Home Equity Loan FRN, 97-C, Class A8, 5.888%, due 09/15/27.................... 153,606 153,778 USX Corp., 8.125%, due 07/15/23.......................... 500,000 571,971 Vanderbilt Mortgage Finance, 98-B, Class 1A2, 6.120%, due 05/07/09................... 600,000 602,238 World Omni Automobile Lease Securitization Trust, 97-A, Class A3, 6.850%, due 06/25/03.......................... 254,868 257,129 Worldcom Inc., Series *, 8.875%, due 01/15/06............ 465,000 503,363 ---------- 13,521,995 ---------- INTERNATIONAL DOLLAR BONDS -- 2.33% Banco Santiago S.A., 7.000%, due 07/18/07................ 400,000 401,576 Banque Centrale de Tunisie, 8.250%, due 09/19/27.................................... 400,000 376,539 DR Investments, 144A, 7.450%, due 05/15/07.................................... 455,000 485,688 Pan Pacific Industry PLC, 144A, 0.000%, due 04/28/07.............................. 715,000 250,250 Province of Quebec, 7.500%, due 07/15/23................. 235,000 261,257 Republic of South Africa, 9.625%, due 12/15/99.................................... 125,000 130,000 Royal Bank of Scotland, 7.375%, Resettable Perpetual Preferred.................. 300,000 319,467 ---------- 2,224,777 ---------- U.S. GOVERNMENT AGENCIES -- 9.38% Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13.................................... 68,215 70,323 7.500%, due 01/15/23.................................... 82,460 88,349 7.238%, due 05/01/26.................................... 38,619 39,962 Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23.................................... 77,152 79,707 9.000%, due 03/01/24.................................... 216,460 231,833 Federal National Mortgage Assoc. 6.220%, due 03/13/06.................................... 150,000 154,781 6.820%, due 10/01/07.................................... 480,108 503,970 6.361%, due 06/01/08.................................... 390,000 399,243 8.000%, due 03/01/11.................................... 124,028 127,942 6.000%, due 12/01/12 TBA................................ 300,000 296,624 9.000%, due 08/01/21.................................... 21,590 23,111 8.500%, due 07/01/22.................................... 15,054 15,916 8.000%, due 11/01/23.................................... 224,266 44,341 7.000%, due 12/18/24.................................... 700,000 706,124 9.000%, due 04/25/25.................................... 17,462 18,321 7.500%, due 05/18/25.................................... 250,000 257,380 7.890%, due 04/01/26.................................... 267,300 276,762 6.500%, due 12/01/27 TBA................................ 3,400,000 3,385,101 3.500%, due 05/01/28.................................... 328,389 282,046 Federal National Mortgage Assoc. Strips 0.000%, due 04/01/27 principal only................................. 218,262 184,674 Government National Mortgage Assoc. 7.500%, due 08/15/23.................................... 95,868 98,475 7.500%, due 12/15/23.................................... 141,583 145,432 7.500%, due 01/15/24.................................... 98,868 101,556
- -------------------------------------------------------------------------------- 49 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- 7.375%, due 06/20/24................................... $ 129,621 $ 132,848 7.000%, due 08/15/24................................... 470,983 479,677 7.000%, due 07/15/25................................... 65,462 66,565 Jordan Aid, 8.750%, due 09/01/19........................ 193,941 243,842 Tennessee Valley Authority 6.375%, due 06/15/05................................... 500,000 519,105 ----------- 8,974,010 ----------- U.S. GOVERNEMENT OBLIGATIONS -- 8.61% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................... 4,550,000 4,548,580 6.625%, due 07/31/01................................... 1,765,000 1,817,950 6.250%, due 08/31/02................................... 240,000 246,225 7.000%, due 07/15/06................................... 260,000 284,050 3.625%, due 01/15/08................................... 346,998 343,094 8.000%, due 11/15/21................................... 425,000 547,852 6.000%, due 02/15/26................................... 430,000 447,335 ----------- 8,235,086 ----------- Total U.S. Bonds........................................ 32,955,868 ----------- NON-U.S. BONDS -- 58.38% AUSTRALIA -- 3.92% Government of Australia 9.750%, due 03/15/02................................AUD 1,500,000 1,065,689 9.000%, due 09/15/04................................... 1,200,000 881,103 New South Wales Treasury Corp., 7.000%, due 04/01/04.... 1,000,000 657,231 Queensland Treasury Corp.-Global Note 8.000%, due 05/14/03............................................... 980,000 668,363 6.500%, due 06/14/05................................... 730,000 472,188 ----------- 3,744,574 ----------- AUSTRIA -- 1.81% Republic of Austria, 5.500%, due 01/18/04............................... FRF 10,000,000 1,728,250 ----------- CANADA -- 5.93% British Columbia, 7.750%, due 06/16/03............................... CAD 1,540,000 1,149,345 Government of Canada 9.000%, due 12/01/04................................... 400,000 325,337 4.250%, due 12/01/21 (b)............................... 3,300,000 2,598,082 Province of Ontario-Global Bond 7.500%, due 01/19/06................................... 2,100,000 1,601,132 ----------- 5,673,896 ----------- CHILE -- 0.49% Embot Andina S.A., 7.875%, due 10/01/97............................... USD 500,000 470,003 ----------- DENMARK -- 5.90% City of Copenhagen, 6.250%, due 03/15/01............................... DKK 2,400,000 363,385 Great Belt, 7.000%, due 09/02/03........................ 10,650,000 1,696,729 Kingdom of Denmark 8.000%, due 11/15/01................................... 8,000,000 1,288,352 7.000%, due 12/15/04................................... 10,500,000 1,710,048 7.000%, due 11/15/07................................... 1,400,000 234,419 7.000%, due 11/10/24................................... 2,000,000 352,857 ----------- 5,645,790 -----------
FACE AMOUNT VALUE ------ ----- FINLAND -- 1.49% Republic of Finland, 9.000%, due 08/13/03............................ FRF 7,200,000 $ 1,429,044 ----------- FRANCE -- 2.66% Government of France (BTAN) 7.750%, due 04/12/00................................ 4,000,000 703,143 Government of France (OAT) 9.500%, due 01/25/01................................ 1,800,000 336,183 7.500%, due 04/25/05................................ 5,600,000 1,079,431 8.500%, due 04/25/23................................ 1,800,000 426,421 ----------- 2,545,178 ----------- GERMANY -- 10.82% Bundesobligation Ser 114, 6.500%, due 03/15/00............................ DEM 2,900,000 1,672,199 Bundesrepublik Deutschland 8.000%, due 07/22/02................................ 3,800,000 2,387,579 6.000%, due 07/04/07................................ 1,000,000 602,936 6.250%, due 01/04/24................................ 700,000 437,064 International Bank Reconstruction & Development, 7.125%, due 04/12/05................................ 2,250,000 1,415,443 European Economic Community, 6.500%, due 03/10/00................................ 1,910,000 1,098,911 KFW International Finance, 6.625%, due 04/15/03................................ 2,800,000 1,688,920 LKB Baden-Wuerttemberg Finance, 6.500%, due 09/15/08. 1,300,000 800,886 Treuhandanstalt, 7.125%, due 01/29/03................ 400,000 246,116 ----------- 10,350,054 ----------- IRELAND -- 1.87% Republic of Ireland, 7.250%, due 03/18/03................................ 2,900,000 1,790,609 ----------- ITALY -- 3.46% Bayerische Landesbank, 10.750%, due 03/01/03............................ITL 750,000,000 524,774 International Bank for Reconstruction & Development 5.000%, due 10/16/00................................ 1,000,000,000 568,905 LKB Baden-Wuerttemberg Finance, 10.750%, due 04/14/03............................................ 650,000,000 457,547 Republic of Italy (BTP) 7.750%, due 09/15/01................................ 200,000,000 123,080 9.000%, due 10/01/03................................ 1,800,000,000 1,209,789 9.500%, due 02/01/06................................ 300,000,000 216,855 9.000%, due 11/01/23................................ 250,000,000 207,842 ----------- 3,308,792 ----------- NETHERLANDS -- 5.02% Government of Netherlands 5.750%, due 09/15/02............................ NLG 250,000 129,154 7.250%, due 10/01/04................................ 3,000,000 1,684,200 8.500%, due 06/01/06................................ 1,750,000 1,071,490 7.500%, due 11/15/99................................ 1,850,000 950,828 International Nederland GRP Verzekeringen, 6.250%, due 12/28/05........................................ 1,800,000 962,914 ----------- 4,798,586 ----------- PORTUGAL -- 1.28% Republic of Portugal, 5.625%, due 04/03/07............................ FRF 7,000,000 1,221,369 -----------
- -------------------------------------------------------------------------------- 50 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ----------- ------------ SPAIN -- 3.72% Kingdom of Spain 6.750%, due 04/15/00.............................. ESP 100,000,000 $ 681,299 7.900%, due 02/28/02.................................. 100,000,000 727,513 8.000%, due 05/30/04.................................. 100,000,000 762,591 10.000%, due 02/28/05................................. 70,000,000 590,764 7.350%, due 03/31/07.................................. 105,000,000 800,926 ------------ 3,563,093 ------------ SWEDEN -- 1.35% Kingdom of Sweden 6.000%, due 02/09/05...............................SEK 3,000,000 402,182 10.250%, due 05/05/03................................. 5,700,000 888,153 ------------ 1,290,335 ------------ UNITED KINGDOM -- 8.66% Abbey National PLC, 8.750%, due 05/24/04...............................GBP 350,000 635,074 British Gas PLC, 8.125%, due 03/31/03.................. 545,000 945,707 European Investment Bank, 7.625%, due 12/07/06.................................. 1,460,000 2,627,849 UK Treasury 10.000%, due 09/08/03................................. 600,000 1,159,400 7.750%, due 09/08/06.................................. 555,000 1,028,459 9.000%, due 10/13/08.................................. 340,000 702,377 8.000%, due 09/27/13.................................. 580,000 1,183,351 ------------ 8,282,217 ------------ Total Non-U.S. Bonds................................... 55,841,790 ------------ Total Bonds (Cost $88,760,827)......................... 88,797,658 ------------ Short-Term Investments -- 13.44% COMMERCIAL PAPER -- 13.44% ARCO Chemical Co., 5.770%, due 07/06/98.................................. $ 1,000,000 999,199 Cincinnati Bell Inc. 5.850%, due 07/13/98.................................. 1,000,000 998,050 5.900%, due 07/17/98.................................. 1,000,000 997,378 Hilton Hotels Corp., 5.720%, due 07/15/98.................................. 1,407,000 1,403,870 NGC Corp., 6.750%, due 07/01/98........................ 3,000,000 3,000,000 Raytheon Co., 6.998%, due 07/01/98..................... 2,466,000 2,466,000 Tenneco Inc., 5.750%, due 07/17/98..................... 1,500,000 1,496,167 Texas Utilities Co., 6.100%, due 07/17/98.............. 1,500,000 1,495,933 ------------ Total Short-Term Investments (Cost $12,856,597)........ 12,856,597 ------------ Total Investments (Cost $101,617,424) --106.27% (a).... 101,654,255 ------------ Liabilities, less cash and other assets -- (6.27%)..... (5,994,046) ------------ Net Assets -- 100%..................................... $ 95,660,209 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 51 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $101,617,424; and net unrealized appreciation consisted of: Gross unrealized appreciation................................. $1,669,877 Gross unrealized depreciation................................. (1,633,046) ---------- Net unrealized appreciation............................... $ 36,831 ==========
(b) Linked to Canada's retail price index. Reset semi-annually FRN: Floating Rate Note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $745,938 or 0.77% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Bond Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ------------- ---------- ---------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Australian Dollar............. 7/06/98 562,392 $ 348,321 $ (379) Australian Dollar............. 11/30/98 1,200,000 744,689 (12,031) Austrian Schilling............ 11/30/98 10,100,000 802,238 (13,396) Belgian Franc................. 11/30/98 77,000,000 2,087,336 (33,292) British Pound................. 7/06/98 299,393 499,370 (286) Canadian Dollar............... 7/06/98 637,068 433,264 203 Danish Krone.................. 7/06/98 2,319,532 337,376 44 Finnish Markka................ 11/30/98 2,800,000 514,549 (7,352) French Franc.................. 7/06/98 3,539,078 585,581 368 French Franc.................. 11/30/98 25,400,000 4,238,724 (64,028) German Mark................... 7/06/98 1,849,674 1,025,142 (1,029) Italian Lira.................. 7/06/98 880,703,379 495,505 32 Italian Lira.................. 11/30/98 5,600,000,000 3,163,489 (49,086) Japanese Yen.................. 5/28/98 1,900,000,000 14,007,272 (337,064) Netherlands Guilder........... 7/06/98 811,598 399,128 (104) Spanish Peseta................ 7/06/98 53,443,173 349,173 509 FORWARD FOREIGN CURRENCY SALE CONTRACTS British Pound................. 11/30/98 3,400,000 5,623,181 (113,891) Canadian Dollar............... 11/30/98 3,600,000 2,454,289 38,268 Danish Kroner................. 11/30/98 30,200,000 4,422,083 57,285 French Franc.................. 11/30/98 26,000,000 4,338,851 82,850 German Mark................... 11/30/98 6,900,000 3,856,882 54,810 Netherlands Guilder........... 11/30/98 4,000,000 1,984,452 32,287 Spanish Peseta................ 11/30/98 97,000,000 637,597 8,898 --------- Total..................... $(356,384) =========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 52 GLOBAL BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $101,617,424)....................... $101,654,255 Cash............................................................ 12,764 Foreign currency, at value (Cost $551,655)...................... 545,899 Receivables: Investment securities sold..................................... 1,145,929 Interest....................................................... 1,953,602 Fund shares sold............................................... 1,153,887 Other assets.................................................... 40,817 ------------ TOTAL ASSETS................................................. 106,507,153 ------------ LIABILITIES: Payables: Investment securities purchased................................ 10,384,748 Investment advisory fees....................................... 53,440 Accrued expenses............................................... 52,372 Net unrealized depreciation on forward foreign currency con- tracts.......................................................... 356,384 ------------ TOTAL LIABILITIES............................................ 10,846,944 ------------ NET ASSETS....................................................... $95,660,209 ============ NET ASSETS CONSIST OF: Paid in capital................................................. $ 96,506,368 Accumulated undistributed net investment income................. 1,003,399 Accumulated net realized loss................................... (1,521,835) Net unrealized depreciation..................................... (327,723) ------------ NET ASSETS................................................... $ 95,660,209 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $91,274,483 and 9,698,203 shares issued and outstanding)...... $ 9.41 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $8,965 and 954 shares issued and outstanding)................. $ 9.40 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $4,376,761 and 466,193 shares issued and outstanding)......... $ 9.39 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 53 GLOBAL BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest (net of $18,306 for foreign taxes withheld).............. $3,631,663 ---------- TOTAL INCOME................................................... 3,631,663 ---------- EXPENSES: Advisory.......................................................... 500,982 Custodian......................................................... 21,709 Professional...................................................... 45,990 Distribution...................................................... 20,731 Other............................................................. 75,917 ---------- TOTAL EXPENSES................................................. 665,329 ---------- Expenses waived by Advisor..................................... (43,502) ---------- NET EXPENSES................................................... 621,827 ---------- NET INVESTMENT INCOME.......................................... 3,009,836 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments...................................................... 1,085,343 Futures contracts................................................ 21,780 Foreign currency transactions.................................... (2,221,924) ---------- Net realized loss............................................... (1,114,801) ---------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency................................. 224,905 Futures contracts................................................ (12,019) Forward contracts................................................ (493,663) Translation of other assets and liabilities denominated in for- eign currency................................................... 4,151 ---------- Change in net unrealized appreciation or depreciation........... (276,626) ---------- Net realized and unrealized loss.................................. (1,391,427) ---------- Net increase in net assets resulting from operations.............. $1,618,409 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 54 GLOBAL BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE JUNE 30, 1998 30, 1997 ------------- ----------- OPERATIONS: Net investment income.............................. $ 3,009,836 $ 2,426,764 Net realized gain (loss)........................... (1,114,801) 1,723,264 Change in net unrealized appreciation or deprecia- tion ............................................. (276,626) (381,459) ----------- ----------- Net increase in net assets resulting from opera- tions............................................. 1,618,409 3,768,569 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income........... (2,183,342) (3,479,707) Distributions in excess of net investment income... -- (340,005) Distributions from net realized gain............... (1,041,855) (769,789) ----------- ----------- Total distributions to shareholders*............... (3,225,197) (4,589,501) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares sold........................................ 46,034,839 23,164,253 Shares issued on reinvestment of distributions..... 2,230,731 3,667,961 Shares redeemed.................................... (9,266,587) (12,462,273) ----------- ----------- Net increase in net assets resulting from capital share transactions................................ 38,998,983 14,369,941 ----------- ----------- TOTAL INCREASE IN NET ASSETS.................... 37,392,195 13,549,009 ----------- ----------- NET ASSETS: Beginning of year.................................. 58,268,014 44,719,005 ----------- ----------- End of year (including accumulated undistributed net investment income of $1,003,399 and $489,146, respectively)..................................... $95,660,209 $58,268,014 =========== =========== *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I................................... $(2,070,571) $(3,503,032) Brinson Class N................................... (98) -- SwissKey Class.................................... (112,673) (316,680) Distributions from net realized gain Brinson Class I................................... (969,902) (704,236) Brinson Class N................................... (18) -- SwissKey Class.................................... (71,935) (65,553) ----------- ----------- Total distributions to shareholders................ $(3,225,197) $(4,589,501) =========== ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 55 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, JULY 30, 1993* ------------------------------------ THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - -------------------------------------------------------------------------------- Net asset value, beginning of period................ $ 9.64 $ 10.04 $ 10.39 $ 9.55 $ 10.00 ------- ------- ------- ------- ------- Income (loss) from in- vestment operations: Net investment income .. 0.43*** 0.67 0.84 0.50 0.45 Net realized and unrealized gain (loss). (0.18) 0.08 0.31 0.58 (0.52) ------- ------- ------- ------- ------- Total income (loss) from investment oper- ations............... 0.25 0.75 1.15 1.08 (0.07) ------- ------- ------- ------- ------- Less distributions: Distributions from and in excess of net investment income...... (0.31) (0.96) (1.40) (0.24) (0.28) Distributions from net realized gain.......... (0.17) (0.19) (0.10) -- (0.10) ------- ------- ------- ------- ------- Total distributions... (0.48) (1.15) (1.50) (0.24) (0.38) ------- ------- ------- ------- ------- Net asset value, end of period................... $ 9.41 $ 9.64 $ 10.04 $ 10.39 $ 9.55 ======= ======= ======= ======= ======= Total return (non- annualized).............. 2.69 % 7.71% 11.50% 11.34% (0.79)% Ratios/Supplemental data Net assets, end of period (in 000s)............... $91,274 $54,157 $41,066 $51,863 $36,849 Ratio of expenses to av- erage net assets: Before expense reim- bursement.............. 0.96% 1.32% 1.65% 1.43% 1.78%** After expense reimburse- ment................... 0.90% 0.90% 0.90% 0.90% 0.90%** Ratio of net investment income to average net assets: Before expense reim- bursement.............. 4.47% 4.90% 4.98% 5.53% 4.03%** After expense reimburse- ment................... 4.53% 5.32% 5.73% 6.06% 4.91%** Portfolio turnover rate.. 151% 235% 184% 199% 189%
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 56 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED JUNE 30, BRINSON CLASS N 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of year................................... $ 9.64 ------ Income from investment operations: Net investment income.............................................. 0.42** Net realized and unrealized loss................................... (0.20) ------ Total income from investment operations.......................... 0.22 ------ Less distributions: Distributions from and in excess of net investment income.......... (0.29) Distributions from net realized gain............................... (0.17) ------ Total distributions.............................................. (0.46) ------ Net asset value, end of year......................................... $ 9.40 ====== Total return......................................................... 2.37% Ratios/Supplemental Data: Net assets, end of year (in 000s)................................... $ 9 Ratio of expenses to average net assets: Before expense reimbursement....................................... 1.21% After expense reimbursement........................................ 1.15% Ratio of net investment income to average net assets: Before expense reimbursement....................................... 4.22% After expense reimbursement........................................ 4.28% Portfolio turnover rate............................................. 151%
* Commencement of Brinson Class N was June 30, 1997. ** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 57 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR YEAR JULY 31, 1995* ENDED ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 9.61 $10.02 $10.56 ------ ------ ------ Income from investment operations: Net investment income............. 0.38*** 0.62 0.78 Net realized and unrealized gain (loss)........................... (0.18) 0.10 0.15 ------ ------ ------ Total income from investment op- erations....................... 0.20 0.72 0.93 ------ ------ ------ Less distributions: Distributions from and in excess of net investment income......... (0.25) (0.94) (1.37) Distributions from net realized gain............................. (0.17) (0.19) (0.10) ------ ------ ------ Total distributions............. (0.42) (1.13) (1.47) ------ ------ ------ Net asset value, end of period...... $ 9.39 $ 9.61 $10.02 ====== ====== ====== Total return (non-annualized)....... 2.28% 7.20% 9.17% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $4,377 $4,110 $3,653 Ratio of expenses to average net assets: Before expense reimbursement...... 1.45% 1.81% 2.14%** After expense reimbursement....... 1.39% 1.39% 1.39%** Ratio of net investment income to average net assets: Before expense reimbursement...... 3.98% 4.41% 4.49%** After expense reimbursement....... 4.04% 4.83% 5.24%** Portfolio turnover rate............ 151% 235% 184%
* Commencement of SwissKey Class ** Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 58 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1.SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eight series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Fund," collectively the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the Global Fund, Global Equity Fund and Global Bond Fund in the preparation of their financial statements. A.INVESTMENT VALUATION: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. U.S. equity securities traded over the counter are priced at the most recent bid price. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B.FOREIGN CURRENCY TRANSLATION: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate on the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C.INVESTMENT TRANSACTIONS: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D.INVESTMENT INCOME: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E.FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 1998, therefore, no federal income tax provision was required. F.DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex- dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. Amounts equal to 10.37% and 44.43% of the amount taxable as ordinary income qualify for dividends received deduction available to corporate shareholders for the Global Fund and the Global Equity Fund, respectively. - -------------------------------------------------------------------------------- 59 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- G.INCOME AND EXPENSE ALLOCATION: All income earned and expenses incurred by each Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I shares will not incur any of the distribution expenses of the Brinson Class N nor the SwissKey Class. H.USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, the Funds pay the Advisor a monthly fee based on each Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent that total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions with affiliates, for the year ended June 30, 1998, were as follows:
ADVISORY BRINSON CLASS I BRINSON CLASS N SWISSKEY CLASS ADVISORY FEES FEE EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES WAIVED -------- --------------- --------------- -------------- ---------- ------- Global Fund............. 0.80% 1.10% 1.35% 1.75% $5,378,141 $ -- Global Equity Fund...... 0.80 1.00 1.25 1.76 719,439 21,898 Global Bond Fund........ 0.75 0.90 1.15 1.39 500,982 43,502
Certain officers of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the year ended June 30, 1998 were $11,680, $4,745 and $4,380 for the Global Fund, Global Equity Fund and Global Bond Fund, respectively. The Global Fund invests in shares of certain affiliated investment companies also sponsored by the Advisor. These investments represented 12.11% of the Fund's total net assets at June 30, 1998. Activity for the year ended June 30, 1998 was as follows:
NET NET SALES REALIZED UNREALIZED AFFILIATES PURCHASES PROCEEDS GAINS GAINS/(LOSSES) VALUE - ---------- ----------- -------- -------- -------------- ----------- Brinson Post-Venture Fund................... $ -- $ -- -- $ 1,712,136 $ 8,960,844 Brinson High Yield Fund. 3,000,000 -- -- 1,234,705 17,562,145 Brinson Emerging Markets Equity Fund............ 17,300,000 -- -- (10,234,783) 23,662,860 Brinson Emerging Markets Debt Fund.............. 12,000,000 -- -- 2,146,849 34,515,928 ----------- ----- ----- ----------- ----------- $32,300,000 $ -- $ -- $(5,141,093) $84,701,777 =========== ===== ===== =========== ===========
3.INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 1998, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ------------ ------------ Global Fund........................................... $623,122,331 $565,947,059 Global Equity Fund.................................... 39,788,298 67,808,003 Global Bond Fund...................................... 129,422,765 93,539,341
- -------------------------------------------------------------------------------- 60 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4.FORWARD FOREIGN CURRENCY CONTRACTS The Funds may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Funds realize a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts at and for the year ended June 30, 1998, was the Funds' custodian or an affiliate of the Funds' custodian. 5.FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 6.SECURITY LENDING The Global Fund loaned securities to certain brokers, with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. Securities loaned are recorded at the amount of cash collateral received. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 102% of the value of domestic securities loaned and 105% of the value of non-U.S. securities loaned. The cash collateral received is invested in short-term investments. The value of loaned securities and related collateral outstanding at June 30, 1998 were as follows:
VALUE OF LOANED VALUE OF SECURITIES COLLATERAL --------------- ------------ Global Fund........................................ $98,984,231 $104,946,044 =========== ============
7.DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940 as amended for the Brinson Class N and the SwissKey Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of the Global Fund, Global Equity Fund and Global Bond Fund. Annual fees under the SwissKey Plan, which include a 0.25% service fee, total 0.65%, 0.76% and 0.49% of the average daily net assets of the SwissKey Class of the Global Fund, Global Equity Fund and Global Bond Fund, respectively. 8.LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated at an annual rate of the Federal Funds Rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized amount of the line of credit. During the year ended June 30, 1998 the Funds had no borrowings under the agreement. - -------------------------------------------------------------------------------- 61 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9.CAPITAL TRANSACTIONS Capital stock transactions were as follows:
GLOBAL FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I............... 18,850,057 $244,898,004 14,513,488 $180,787,534 Brinson Class N............... 90,370 1,177,290 76 1,000 SwissKey Class................ 803,666 10,347,586 932,414 11,508,566 ---------- ------------ ---------- ------------ Total Sales................ 19,744,093 $256,422,880 15,445,978 $192,297,100 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I............... 5,179,618 $ 62,332,662 4,022,259 $ 48,025,771 Brinson Class N............... 769 9,625 -- -- SwissKey Class................ 217,810 2,607,910 130,547 1,554,814 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 5,398,197 $ 64,950,197 4,152,806 $ 49,580,585 ========== ============ ========== ============ Redemptions: Brinson Class I............... 16,402,396 $209,137,318 11,346,380 $142,532,012 Brinson Class N............... 21 276 -- -- SwissKey Class................ 641,736 8,247,175 198,888 2,469,271 ---------- ------------ ---------- ------------ Total Redemptions.......... 17,044,153 $217,384,769 11,545,268 $145,001,283 ========== ============ ========== ============ GLOBAL EQUITY FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I............... 1,466,054 $ 17,934,645 1,338,623 $ 15,816,109 Brinson Class N............... -- -- 78 1,000 SwissKey Class................ 1,779,376 22,282,095 2,271,465 26,703,521 ---------- ------------ ---------- ------------ Total Sales................ 3,245,430 $ 40,216,740 3,610,166 $ 42,520,630 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I............... 126,859 $ 1,426,171 308,273 $ 3,485,504 Brinson Class N............... 9 93 -- -- SwissKey Class................ 442,472 4,952,413 286,226 3,226,433 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 569,340 $ 6,378,677 594,499 $ 6,711,937 ========== ============ ========== ============ Redemptions: Brinson Class I............... 3,546,702 $ 44,596,092 225,435 $ 2,683,391 Brinson Class N............... -- -- -- -- SwissKey Class................ 2,339,080 28,946,495 565,431 6,612,207 ---------- ------------ ---------- ------------ Total Redemptions.......... 5,885,782 $ 73,542,587 790,866 $ 9,295,598 ========== ============ ========== ============
- -------------------------------------------------------------------------------- 62 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
GLOBAL BOND FUND ------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 --------------------- --------------------- SHARES VALUE SHARES VALUE --------- ----------- --------- ----------- Sales: Brinson Class I.................... 4,561,105 $43,233,367 2,335,856 $22,155,311 Brinson Class N.................... 860 8,169 104 1,000 SwissKey Class..................... 293,533 2,793,303 103,968 1,007,942 --------- ----------- --------- ----------- Total Sales..................... 4,855,498 $46,034,839 2,439,928 $23,164,253 ========= =========== ========= =========== Dividend Reinvestment: Brinson Class I.................... 220,347 $ 2,058,040 348,609 $ 3,318,757 Brinson Class N.................... 12 115 -- -- SwissKey Class..................... 18,525 172,576 36,719 349,204 --------- ----------- --------- ----------- Total Dividend Reinvestment..... 238,884 $ 2,230,731 385,328 $ 3,667,961 ========= =========== ========= =========== Redemptions: Brinson Class I.................... 699,882 $ 6,667,104 1,159,373 $11,665,371 Brinson Class N.................... 22 210 -- -- SwissKey Class..................... 273,680 2,599,273 77,300 796,902 --------- ----------- --------- ----------- Total Redemptions............... 973,584 $ 9,266,587 1,236,673 $12,462,273 ========= =========== ========= ===========
- -------------------------------------------------------------------------------- 63 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders The Brinson Funds -- Global Fund Global Equity Fund Global Bond Fund We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Brinson Funds--Global Fund, Global Equity Fund and Global Bond Fund as of June 30, 1998, the related statements of operations and cash flows (Global Fund only) for the year then ended and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--Global Fund, Global Equity Fund and Global Bond Fund at June 30, 1998, the results of their operations and cash flows (Global Fund only) for the year then ended and the changes in their net assets and the financial highlights for the periods indicated therein in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois August 7, 1998 - -------------------------------------------------------------------------------- 64 DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC. 60 STATE STREET BOSTON, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. - -------------------------------------------------------------------------------- [ART] The Brinson Funds - -------------------------------------------------------------------------------- Chicago . Bahrain . Basel . Frankfurt . Geneva . Hong Kong . London . Melbourne New York . Paris . Rio de Janiero . Singapore . Sydney . Tokyo . Zurich 209 South LaSalle Street . Chicago, Illinois 60604-1295 . Tel: (800) 448-2430 ---------------------------- The Brinson Funds Brinson U.S. Balanced Fund Brinson U.S. Equity Fund Brinson U.S. Large Capitalization Equity Fund Brinson U.S. Bond Fund Annual Report June 30, 1998 [ARTWORK APPEARS HERE] Institutional Asset Management ---------------------------- Trustees and Officers [ART] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Chairman of the Board E. Thomas McFarlan President Thomas J. Digenan, CFA, CPA Vice President Debra L. Nichols Vice President Carolyn M. Burke, CPA Secretary and Treasurer Catherine E. Macrae Assistant Secretary 1 The Funds' Advisor -- Brinson Partners, Inc. [ART] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory basis. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent and the flexibility to customize portfolios to meet unique requirements. 2
Table of Contents [ART] Shareholder Letter............................................... 4 U.S. Economic and Market Highlights.............................. 6 U.S. Balanced Fund............................................... 7 Schedule of Investments...................................... 11 Financial Statements......................................... 14 Financial Highlights......................................... 17 U.S. Equity Fund................................................. 20 Schedule of Investments...................................... 24 Financial Statements......................................... 26 Financial Highlights......................................... 29 U.S. Large Capitalization Equity Fund............................ 32 Schedule of Investments...................................... 36 Financial Statements......................................... 38 Financial Highlights......................................... 41 U.S. Bond Fund................................................... 44 Schedule of Investments...................................... 47 Financial Statements......................................... 49 Financial Highlights......................................... 52 The Brinson Funds--Notes to Financial Statements................. 55 Report of Independent Auditors................................... 59
Shareholder Letter [ART] August 22, 1998 Dear Shareholder: We are very pleased to present the June 30, 1998 Annual Report for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund. Within this Report, we focus on the current domestic economic outlook as well as our current strategies and performance updates for the four Domestic Funds. In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced their intention to merge, which included the integration of UBS Asset Management and SBC Brinson into the UBS Brinson Division. The merger was consummated on June 29, 1998. UBS Brinson is managed today by the same senior management that has led the business over the past decades with a consistently applied investment philosophy and process. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. The UBS Brinson Division employs over 1,500 people in fifteen different cities throughout the world. We are excited about the formation of the UBS Brinson Division and the additional resources we have brought together to further the tradition of delivering value-added investment performance and the highest level of professional client service. Brinson U.S. Balanced Fund Since its performance inception on December 31, 1994, the Brinson U.S. Balanced Fund Class I has produced an annualized total return of 15.90% compared to the return of 22.71% of its benchmark, the U.S. Balanced Mutual Fund Index. This performance was achieved with a volatility of 4.93%, well below the benchmark volatility of 7.52% and reflecting our cautious strategy at this time toward investment risk. 4 Shareholder Letter [ART] Brinson U.S. Equity Fund The Brinson U.S. Equity Fund Class I has provided an annualized return of 23.11% since its performance inception on February 28, 1994. This is compared to a 23.38% return for the benchmark, the Wilshire 5000 Index. This performance was achieved with volatility of 11.42%, compared to the benchmark volatility of 11.04%. The Fund operates with a fully invested policy. Brinson U.S. Large Capitalization Equity Fund The Brinson U.S. Large Capitalization Equity Fund Class I has provided a return of -0.13% since its performance inception on April 30, 1998. This is compared to a 2.25% return for the benchmark, the S&P 500 Index. The Fund operates with a fully invested policy. Brinson U.S. Bond Fund The Brinson U.S. Bond Fund Class I has provided an annualized return of 7.97% since its inception on August 31, 1995. This is compared to a 8.01% return for the benchmark, the Salomon Brothers BIG Bond Index. The U.S. Bond Fund achieved this performance with a volatility of 4.16% compared to the benchmark volatility of 3.46%. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Gary P. Brinson Gary P. Brinson, CFA Chief Executive Officer Brinson Partners, Inc. 5 U.S. Economic and Market Highlights [ARTWORK APPEARS HERE] The Federal Reserve's latest signals lean more toward tightening than at any other time in the last year and a half. Despite the weakness in Asia and its impact on import prices and export demand, rapid growth in monetary aggregates and strength in labor markets and employment costs has increased concern at the Fed that inflationary biases are increasing in magnitude. While an actual move to tighten monetary policy may not be imminent, the prospects for a looser stance and rate reduction have diminished. Reported economic growth in the U.S. is likely to be much slower in the second quarter due to the strike at General Motors, a reduction in some of the inventory build-up from earlier in the year, and the unabated Asian situation. However, domestic demand has not yet shown signs of substantial cooling. This is a major factor in the 4.5% unemployment rate and in the rising wage and salary pressures since 1995. The pattern of consumer price inflation, both recently and in the last few years, contrasts sharply with the concerns voiced by the Fed. Twelve-month changes in the CPI continue to run well under 2%. However, this spectacular performance has occurred largely because of declines in the volatile food and energy components of the index. Measures of the core CPI inflation have not fallen in step with the headline inflation rate, but have flattened out around 2 1/4%. This can be taken as a sign that the underlying disinflation trend has been interrupted, and may turn up in the future as strong money supply growth starts to have an impact. U.S. Environment
Major Markets Year to date June 30, Total Return - ------------------------------------ U.S. Cash Equivalents 2.38 U.S. Bonds 3.97 U.S. Equities 15.47
Salomon U.S. Treasury Benchmark Returns Year to date June 30, 1998 Maturity (Years) Total Return - -------------------------------------------- 1 5.95 2 6.60 3 7.75 5 9.13 10 13.19 30 22.96
Top Ten Industry Returns Relative to S&P 500 Year to date June 30, 1998 - ------------------------------------------------- Coal & Uranium 28.04 Forest Products 17.34 Trucking, Freight 14.16 Misc. Finance 13.61 Retail (Other) 11.97 Motor Vehicles 9.14 Media 6.76 Drugs, Medicine 6.65 Construction 4.61 Services 4.20
Source: BARRA
Bottom Ten Industry Returns Relative to S&P 500 Year to date June 30, 1998 - ------------------------------------------------- Precious Metals -14.07 Oil Refining, Dist. -14.31 Railroads -14.39 Electronics -14.50 Photographic -14.60 Containers -15.70 Tire & Rubber -16.32 Dom. Petroleum Res. -18.00 Oil Service -27.60 Tobacco -33.63
Source: BARRA 6 U.S. Balanced Fund [ARTWORK APPEARS HERE] The U.S. Balanced Fund is an actively managed portfolio that applies our value- based asset allocation process to U.S. stocks, bonds and cash. The Fund's investment strategy is developed in the context of our global asset allocation process and is based on analysis of long-term economic and market conditions. The Brinson U.S. Balanced Fund Class I has provided an annualized return of 15.90% since its performance inception on December 31, 1994. Over the same period, the return on the U.S. Balanced Mutual Fund Index was 22.71%. The volatility of the Fund, 4.93% annualized over this period, was considerably below the benchmark's volatility of 7.52%. For the first six months of 1998, the return on the Fund was 5.95%, compared to the benchmark return of 11.42%. The first half of 1998 continued what can only be characterized as an extraordinary period of U.S. risky asset returns. The U.S. equity market has provided extremely high returns, protracting an annualized gain of 29.09% in the prior two years, as measured by the Wilshire 5000, with a 15.47% return in the first half of 1998. U.S. fixed income assets returned 3.77% in the first half of the year, extending annualized gains of 9.52% in the prior two years. The Fund strategy centers on reducing the risk of exposure to the overpriced equity assets, maintaining a significant underweight to the overvalued U.S. equity market and an overweight to the U.S. bond market. Consequently, asset allocation decisions provided a substantial detraction from the performance of the Fund relative to its benchmark. The strategic cash allocation relative to a benchmark weight of zero also detracted from the performance of the U.S. Balanced Fund. Security selection in the U.S. equity segment of the Fund was a contributor to the underperformance of the Fund relative to the benchmark. An underweighting of large capitalization stocks was an important contributor to this underperformance. The U.S. Balanced Fund maintains a 5% risk hedge in this environment of extremely overvalued equity assets and neutrally valued fixed income assets. 7 U.S. Balanced Fund [ART] Total Return
6 months 1 year 3 years 12/31/94* ended ended ended to 6/30/98 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------- Brinson U.S. Balanced Fund Class I 5.95% 12.19% 13.72% 15.90% - -------------------------------------------------------------------------------- U.S. Balanced Mutual Fund Index** 11.42 22.38 20.83 22.71 - --------------------------------------------------------------------------------
* Performance inception date of the Brinson U.S. Balanced Fund Class I. ** An un-managed index compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index and 35% Salomon Brothers Broad Investment Grade Bond Index. Total return includes reinvestment of all capital gain and income distributions. Total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Balanced Fund Class I and the U.S. Balanced Mutual Fund Index if you had invested $1,000,000 on December 31, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Balanced Fund Class I vs. U.S. Balanced Mutual Fund Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson U.S. Balanced U.S. Balanced Mutual Date Fund Class I Fund Index - ---- --------------------- -------------------- 12/31/94 1,000,000 1,000,000 6/30/95 1,139,086 1,160,041 12/31/95 1,254,813 1,294,523 6/30/96 1,293,124 1,374,034 12/31/96 1,396,859 1,487,401 6/30/97 1,493,510 1,672,330 12/31/97 1,581,464 1,836,885 6/30/98 1,675,623 2,046,664
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 8 - ------------------------------------------------------------------------------ U.S. Balanced Fund - ------------------------------------------------------------------------------ [ART] - ------------------------------------------------------------------------------ Total Return - ------------------------------------------------------------------------------
6 months 6/30/97* ended to 6/30/98 6/30/98 - ------------------------------------------------------------------------------ Brinson U.S. Balanced Fund Class N 6.09% 12.15% - ------------------------------------------------------------------------------ U.S. Balanced Mutual Fund Index** 11.42 22.38 - ------------------------------------------------------------------------------
* Inception date of the Brinson U.S. Balanced Fund Class N. ** An un-managed index compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index and 35% Salomon Brothers Broad Investment Grade Bond Index. Total return includes reinvestment of all capital gain and income distributions. - ------------------------------------------------------------------------------ Illustration of an Assumed Investment of $1,000,000 - ------------------------------------------------------------------------------ This chart shows the growth in the value of an investment in the Brinson U.S. Balanced Fund Class N and the U.S. Balanced Mutual Fund Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Balanced Fund Class N vs. U.S. Balanced Mutual Fund Index Wealth Value with Dividends Reinvested [LINE GRAPH APPEARS HERE] [PLOT POINTS FOR LINE GRAPH]
BRINSON U.S. U.S. BALANCED BALANCED FUND MUTUAL FUND DATE CLASS N INDEX ------------------------------------------------ 6/30/97 $1,000,000 $1,000,000 8/31/97 1,023,962 1,030,382 10/31/97 1,035,144 1,057,307 12/31/97 1,057,159 1,098,399 2/28/98 1,095,359 1,159,358 4/30/98 1,114,903 1,210,087 6/30/98 1,121,533 1,223,840
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 9
U.S. Balanced Fund Industry Diversification As a Percent of Net Assets As of June 30, 1998 - -------------------------------------------------------------------------------- U.S. EQUITIES Energy................................................................. 2.19% Capital Investment Capital Goods......................................................... 4.77 Technology............................................................ 4.54 ------ 9.31 Basic Industries Chemicals............................................................. 1.84 Housing/Paper......................................................... 3.60 Metals................................................................ 0.34 ------ 5.78 Consumer Non-Durables.......................................................... 3.41 Retail/Apparel........................................................ 2.06 Autos/Durables........................................................ 1.39 Discretionary......................................................... 0.38 Health: Drugs......................................................... 3.49 Health: Non-Drugs..................................................... 2.56 ------ 13.29 Financial Banks................................................................. 3.27 Non-Banks............................................................. 3.39 ------ 6.66 Utilities Electric.............................................................. 1.75 Telephone............................................................. 0.42 ------ 2.17 Transportation......................................................... 3.77 Services/Misc.......................................................... 3.13 ------ Total U.S. Equities................................................ 46.30* ------ U.S. BONDS Corporate Bonds Autos/Durables........................................................ 1.15 Airlines.............................................................. 1.60 Banks................................................................. 2.68 Consumer.............................................................. 2.34 Financial Services.................................................... 1.04 Industrial Components................................................. 1.29 Services/Miscellaneous................................................ 0.88 Utilities............................................................. 0.62 ------ 11.60 International Dollar Bonds............................................. 4.82 Mortgage-Backed Securities............................................. 8.98 U.S. Government Agencies............................................... 17.04 U.S. Government Obligations............................................ 2.89 ------ Total U.S. Bonds................................................... 45.33* ------ SHORT-TERM INVESTMENTS................................................. 12.58* ------ TOTAL INVESTMENTS.................................................. 104.21 LIABILITIES, LESS CASH AND OTHER ASSETS...................................................... (4.21) ------ NET ASSETS............................................................. 100.00% ====== - --------------------------------------------------------------------------------
* The Fund held a long position in U.S. Treasury futures on June 30, 1998 which increased U.S. bond exposure from 45.33% to 59.76%. The Fund also held a short position in stock index futures which reduced U.S. equity exposure from 46.30% to 29.32%. These two adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 12.58% to 15.13%.
Asset Allocation As of June 30, 1998 Current Benchmark Strategy - -------------------------------------------------------------------------------- U.S. Equity 65% 30% U.S. Bonds 35 65 Cash Equivalents 0 5 - -------------------------------------------------------------------------------- 100% 100% Top Ten U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - -------------------------------------------------------------------------------- 1. Xerox Corp. 2.23% 2. Lockheed Martin Corp. 2.13% 3. Burlington Northern Santa Fe Corp. 1.97% 4. Aon Corp. 1.54% 5. FDX Corp. 1.46% 6. Philip Morris Companies, Inc. 1.45% 7. CIGNA Corp. 1.26% 8. Automatic Data Processing, Inc. 1.16% 9. Goodyear Tire & Rubber Co. 1.13% 10. Baxter International, Inc. 1.08% - --------------------------------------------------------------------------------
10 U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- U.S. Equities -- 46.30% Aetna Life & Casualty Co.................................... 6,400 $ 487,200 Allergan, Inc............................................... 10,300 477,662 Alza Corp. (b).............................................. 10,000 432,500 American Home Products Corp................................. 10,000 517,500 Aon Corp.................................................... 18,100 1,271,525 Automatic Data Processing, Inc.............................. 13,100 954,663 BankBoston Corp............................................. 6,200 344,875 Baxter International, Inc................................... 16,500 887,906 Beckman Coulter Inc......................................... 4,300 250,475 Bestfoods................................................... 8,800 510,950 Biogen, Inc. (b)............................................ 3,900 191,100 Birmingham Steel Corp....................................... 4,000 49,500 Burlington Northern Santa Fe Corp........................... 16,500 1,620,094 Champion Enterprises, Inc. (b).............................. 3,200 94,000 Champion International Corp................................. 5,000 245,937 CIGNA Corp.................................................. 15,000 1,035,000 Circuit City Stores-Circuit City Group...................... 14,800 693,750 Citicorp.................................................... 300 44,775 CMS Energy Corp............................................. 12,900 567,600 Columbia/HCA Healthcare Corp................................ 2,500 72,813 Comerica, Inc............................................... 4,200 278,250 Commscope, Inc. (b)......................................... 7,666 124,093 Comverse Technology, Inc. (b)............................... 4,620 239,663 Consolidated Stores Corp.................................... 4,700 170,375 Corning, Inc................................................ 23,800 827,050 Covance, Inc. (b)........................................... 5,075 114,188 Crown Cork & Seal Co., Inc.................................. 4,800 228,000 Dial Corp................................................... 5,200 134,875 Eastman Chemical Co......................................... 5,500 342,375 EMC Corp. (b)............................................... 9,000 403,313 Enron Corp.................................................. 11,100 600,094 Entergy Corp................................................ 29,100 836,625 FDX Corp. (b)............................................... 19,200 1,204,800 First American Corp. of Tennessee........................... 2,600 125,125 First Data Corp............................................. 24,258 808,095 First Security Corp......................................... 4,925 105,426 FirstEnergy Corp............................................ 2,075 63,806 Fleet Financial Group, Inc.................................. 6,100 509,350 Fleetwood Enterprises, Inc.................................. 900 36,000 Food Lion, Inc., Class A.................................... 19,400 206,125 Forest Laboratories, Inc. Class A (b)....................... 7,900 282,425 Fort James Corp............................................. 12,900 574,050 Gannett Co., Inc............................................ 4,400 312,675 General Instrument Corp. (b)................................ 22,800 619,875 General Semiconductor, Inc. (b)............................. 5,150 50,856 Genzyme Corp. (b)........................................... 4,000 102,250 Geon Co..................................................... 2,800 64,225 Goodyear Tire & Rubber Co................................... 14,400 927,900 Great Lakes Chemical Corp................................... 2,500 98,594 Harnischfeger Industries, Inc............................... 7,600 215,175 Health Care and Retirement Corp. (b)........................ 4,550 179,441 Hibernia Corp............................................... 5,600 113,050 IMC Global Inc.............................................. 5,300 159,663 Informix Corp. (b).......................................... 5,300 41,903 Interpublic Group of Companies, Inc......................... 4,150 251,853 Kimberly Clark Corp......................................... 18,500 848,687
SHARES VALUE ---------- ----------- Lafarge Corp............................................ 2,900 $ 114,006 Lear Corp. (b).......................................... 4,300 220,644 Lockheed Martin Corp.................................... 16,571 1,754,455 Lyondell Petrochemical Co............................... 13,800 420,037 Manor Care, Inc......................................... 5,100 196,031 Martin Marietta Materials, Inc.......................... 2,936 132,120 Masco Corp.............................................. 11,700 707,850 Medusa Corp............................................. 700 43,925 Nabisco Holdings Corp................................... 10,200 367,837 National Service Industries, Inc........................ 2,000 101,750 Nextel Communications, Inc. (b)......................... 14,000 348,250 Norfolk Southern Corp................................... 9,600 286,200 Peco Energy Co.......................................... 28,100 820,169 Pentair, Inc............................................ 5,300 225,250 Philip Morris Companies, Inc............................ 30,400 1,197,000 Praxair, Inc............................................ 9,400 440,038 Raytheon Co., Class B................................... 13,500 798,187 Regions Financial Corp.................................. 2,600 106,762 Reynolds & Reynolds Co.................................. 9,900 180,056 Schering Plough Corp.................................... 9,600 879,600 Seagate Technology, Inc. (b)............................ 8,900 211,931 Sears, Roebuck and Co................................... 10,300 628,944 Southdown, Inc.......................................... 2,000 142,750 St. Jude Medical, Inc. (b).............................. 5,000 184,062 Timken Co............................................... 1,800 55,462 Tyson Foods, Inc., Class A.............................. 20,400 442,425 Ultramar Diamond Shamrock Corp.......................... 11,390 359,497 US Bancorp.............................................. 12,759 548,637 Vencor, Inc. (b)........................................ 10,600 76,850 Ventas, Inc............................................. 10,600 146,413 Viad Corp............................................... 9,800 271,950 Wells Fargo & Co........................................ 1,300 479,700 Westvaco Corp........................................... 2,350 66,388 Witco Corp.............................................. 5,300 155,025 Xerox Corp.............................................. 18,100 1,839,412 York International Corp................................. 6,200 270,088 ----------- Total U.S. Equities (Cost $31,626,718).................. 38,169,776 ----------- FACE AMOUNT VALUE ---------- ----------- Bonds -- 45.33% U.S. CORPORATE BONDS -- 11.60% Archer Daniels, 6.950%, due 12/15/2027.................. $ 995,000 $ 1,062,217 Capital One Bank, 6.830%, due 05/17/99.................. 2,000,000 2,011,254 Chrysler Corp., 7.400%, due 08/01/2097.................. 880,000 949,810 Continental Airlines, Inc., 974A, 6.900%, due 01/02/18.. 950,000 988,171 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00... 840,000 852,122 Enron Corp., 6.750%, due 08/01/09....................... 500,000 511,639 MBNA Global Capital Securities FRN, 6.519%, due 02/01/27 ....................................................... 215,000 199,836 News America Holdings, 7.750%, due 12/01/45............. 1,000,000 1,073,180 PanAmSat Corp., 144A, 6.000%, due 01/15/03.............. 335,000 331,654
- -------------------------------------------------------------------------------- 11 U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ---------- Time Warner, Inc., 7.570%, due 02/01/24.................. $ 790,000 $ 855,316 USA Waste Services, 6.500%, due 12/15/02................. 720,000 724,262 ---------- 9,559,461 ---------- INTERNATIONAL DOLLAR BONDS -- 4.82% Credit Suisse London, 144A, 7.900%, Resettable Perpetual Preferred............................................... 1,170,000 1,250,946 LKB Baden-Wuerttemberg Finance NV, 8.125%, due 01/27/00.. 280,000 289,049 Montell Finance Co., 144A, 8.100%, due 03/15/27.......... 610,000 732,450 Ras Laffan Liquefied Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14............................................ 735,000 733,832 Southern Investments UK 6.800%, due 12/01/06.................................... 930,000 963,583 ---------- 3,969,860 ---------- MORTGAGE-BACKED SECURITIES -- 8.98% Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02............................................ 1,360,000 1,370,023 First Security Auto Grantor Trust, 98-A, Class A, 5.970%, due 04/15/04............................................ 641,609 642,937 GE Capital Mortgage Services, Inc., 93-7F, Class FA3, 6.500%, due 09/25/08.................................... 1,425,922 1,429,344 Prudential Home Mortgage Securities, 93-43, Class A9, 6.750%, due 10/25/23.................................... 1,358,707 1,364,413 Residential Asset Securitization Trust, 97-A11, Class A2, 7.000%, due 01/25/28.................. 280,000 281,792 UCFC Home Equity Loan FRN , 97-C, Class A8, 5.888%, due 09/15/27................................................ 1,110,350 1,111,593 Morgan Stanley Capital, Inc., 97-WF1, Class A1, 6.830%, due 10/15/06............................................ 1,168,264 1,201,560 ---------- 7,401,662 ---------- U.S. GOVERNMENT AGENCIES -- 17.04% Federal Home Loan Mortgage Corp. 8.000%, due 08/15/22.................................... 1,980,000 2,119,077 Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23.................................... 593,475 613,134 9.000%, due 03/01/24.................................... 283,051 303,153 Federal National Mortgage Association 0.000%, due 09/25/22.................................... 403,557 370,833 7.000%, due 02/25/22.................................... 702,093 737,267 6.959%, due 08/01/07.................................... 1,066,955 1,127,131 6.789%, due 11/01/07.................................... 501,822 525,032 8.000%, due 12/18/11.................................... 1,000,000 1,064,263 6.500%, due 06/01/28.................................... 250,000 248,925 Government National Mortgage Association 8.000%, due 08/15/22.................................... 738,633 765,179 7.500%, due 08/15/23.................................... 910,746 935,509 7.500%, due 09/15/23.................................... 961,998 988,155 7.500%, due 12/15/23.................................... 805,637 820,299 7.375%, due 06/20/24.................................... 491,583 503,818
FACE AMOUNT VALUE ---------- ----------- Jordan Aid, 8.750%, due 09/01/19........................ $2,327,295 $ 2,926,108 ----------- 14,047,883 ----------- U.S. GOVERNMENT OBLIGATIONS -- 2.89% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................... 1,600,000 1,599,501 6.625%, due 07/31/01................................... 400,000 412,000 3.625%, due 01/15/08................................... 377,171 372,928 ----------- 2,384,429 ----------- Total U.S. Bonds (Cost $36,367,398)..................... 37,363,295 ----------- Short-Term Investments -- 12.58% U.S. GOVERNMENT OBLIGATIONS -- 0.66% U.S. Treasury Bill 5.236%, due 11/27/98................. 555,000 543,469 ----------- COMMERCIAL PAPER -- 11.92% Cincinnati Bell Inc., 6.601%, due 07/01/98.............. 2,000,000 2,000,000 NGC Corp., 6.751%, due 07/01/98......................... 3,332,000 3,332,000 Raytheon Co., 6.998%, due 07/01/98...................... 3,000,000 3,000,000 Tenneco Inc., 5.765%, due 07/17/98...................... 1,500,000 1,496,168 ----------- 9,828,168 ----------- Total Short-Term Investments (Cost $10,371,394)..................................... 10,371,637 ----------- Total Investments (Cost $78,365,510)--104.21% (a)........................ 85,904,708 ----------- Liabilities, less cash and other assets--(4.21%)........................................ (3,467,537) ----------- Net Assets--100%........................................ $82,437,171 ===========
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 12 U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $78,365,510; and net unrealized appreciation consisted of: Gross unrealized appreciation................................ $ 8,712,737 Gross unrealized depreciation................................ (1,173,539) ----------- Net unrealized appreciation................................ $ 7,539,198 ===========
(b) Non-income producing security FRN: Floating rate note--The rate disclosed is that in effect at June 30, 1998. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $3,048,882, or 3.70% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FUTURES CONTRACTS The U.S. Balanced Fund had the following open futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN/(LOSS) -------------- ---------- ---------- ----------- INTEREST RATE FUTURES BUY CONTRACTS 5 Year U.S. Treasury Note, 83 contracts..... September 1998 $9,057,919 $9,104,062 $ 46,143 10 Year U.S. Treasury Note, 17 contracts..... September 1998 1,915,893 1,935,344 19,451 30 Year U.S. Treasury Bond, 7 contracts...... September 1998 842,576 865,156 22,580 INDEX FUTURES SALE CON- TRACTS Standard & Poor's 500, 49 contracts........... September 1998 13,860,157 14,001,750 (141,593) -------- Total................. $(53,419) ========
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 1998 was $543,469. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 U.S. BALANCED FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $78,365,510).......................... $85,904,708 Cash.............................................................. 68,056 Receivables: Investment securities sold....................................... 4,246,178 Dividends........................................................ 60,929 Interest......................................................... 421,102 Fund shares sold................................................. 66,040 Variation margin................................................. 120,790 Other assets...................................................... 7,933 ----------- TOTAL ASSETS................................................... 90,895,736 ----------- LIABILITIES: Payables: Investment securities purchased.................................. 1,470,055 Fund shares redeemed............................................. 6,907,290 Investment advisory fees......................................... 45,525 Accrued expenses................................................. 35,695 ----------- TOTAL LIABILITIES.............................................. 8,458,565 ----------- NET ASSETS......................................................... $82,437,171 =========== NET ASSETS CONSIST OF: Paid in capital................................................... $40,373,749 Accumulated undistributed net investment income................... 1,337,239 Accumulated net realized gain..................................... 33,240,404 Net unrealized appreciation....................................... 7,485,779 ----------- NET ASSETS..................................................... $82,437,171 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $80,555,719 and 6,578,813 shares issued and outstanding)................................................ $ 12.24 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,117 and 91 shares issued and outstanding).................... $ 12.27 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,880,335 and 154,261 shares issued and outstanding)........... $ 12.19 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 U.S. BALANCED FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest......................................................... $ 9,614,198 Dividends........................................................ 1,594,329 ------------ TOTAL INCOME.................................................. 11,208,527 ------------ EXPENSES: Advisory......................................................... 1,674,661 Administration................................................... 79,503 Distribution..................................................... 8,818 Other............................................................ 179,045 ------------ TOTAL EXPENSES................................................ 1,942,027 Expenses waived by Advisor.................................... (19,097) ------------ NET EXPENSES.................................................. 1,922,930 ------------ NET INVESTMENT INCOME ........................................ 9,285,597 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 47,884,782 Futures contracts............................................... (4,490,965) ------------ Net realized gain............................................. 43,393,817 ------------ Change in net unrealized appreciation or depreciation on: Investments .................................................... (20,526,001) Futures contracts............................................... 1,138,171 ------------ Change in net unrealized appreciation or depreciation......... (19,387,830) ------------ Net realized and unrealized gain................................. 24,005,987 ------------ Net increase in net assets resulting from operations............. $ 33,291,584 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 U.S. BALANCED FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 9,285,597 $ 9,809,363 Net realized gain................................. 43,393,817 16,067,241 Change in net unrealized appreciation or deprecia- tion............................................. (19,387,830) 10,534,773 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 33,291,584 36,411,377 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I.................................. (11,202,072) (7,953,731) Brinson Class N.................................. (62) -- SwissKey Class................................... (96,209) (43,714) Distributions from net realized gain: Brinson Class I.................................. (20,202,719) (10,324,917) Brinson Class N.................................. (75) -- SwissKey Class................................... (121,168) (65,778) ------------ ------------ Total distributions to shareholders................ (31,622,305) (18,388,140) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 58,797,856 80,528,530 Shares issued on reinvestment of distributions.... 31,535,417 18,312,423 Shares redeemed................................... (294,075,195) (60,962,669) ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions .................................... (203,741,922) 37,878,284 ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS........ (202,072,643) 55,901,521 ------------ ------------ NET ASSETS: Beginning of year................................. 284,509,814 228,608,293 ------------ ------------ End of year (including accumulated undistributed net investment income of $1,337,239 and $3,271,123, respectively)........................ $ 82,437,171 $284,509,814 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, DECEMBER 30, 1994* ----------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 JUNE 30, 1995 - -------------------------------------------------------------------------------- Net asset value, beginning of period...................... $ 12.53 $ 11.71 $ 11.23 $ 10.00 ------- -------- -------- -------- Income from investment oper- ations: Net investment income...... 0.49*** 0.47 0.44 0.23 Net realized and unrealized gain...................... 0.93 1.29 1.04 1.16 ------- -------- -------- -------- Total income from invest- ment operations......... 1.42 1.76 1.48 1.39 ------- -------- -------- -------- Less distributions: Distributions from net in- vestment income........... (0.77) (0.40) (0.43) (0.16) Distributions from net re- alized gain............... (0.94) (0.54) (0.57) -- ------- -------- -------- -------- Total distributions...... (1.71) (0.94) (1.00) (0.16) ------- -------- -------- -------- Net asset value, end of peri- od.......................... $ 12.24 $ 12.53 $ 11.71 $ 11.23 ======= ======== ======== ======== Total return (non- annualized)................. 12.19% 15.50% 13.52% 13.91% Ratios/Supplemental Data: Net assets, end of period (in 000s).................. $80,556 $282,860 $227,829 $157,724 Ratio of expenses to average net assets: Before expense reimburse- ment...................... 0.81% 0.88% 1.01% 1.06%** After expense reimburse- ment...................... 0.80% 0.80% 0.80% 0.80%** Ratio of net investment in- come to average net assets: Before expense reimburse- ment...................... 3.88% 3.78% 3.76% 4.36%** After expense reimburse- ment...................... 3.89% 3.86% 3.97% 4.63%** Portfolio turnover rate..... 194% 329% 240% 196% Average commission rate paid per share.................. $0.0549 $0.0441 $ 0.0481 N/A
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 17 U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR* ENDED BRINSON CLASS N JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period.............................. $ 12.53 ------- Income from investment operations: Net investment income........................................... 0.47** Net realized and unrealized gain................................ 0.94 ------- Total income from investment operations....................... 1.41 ------- Less distributions: Distributions from net investment income........................ (0.73) Distributions from net realized gain............................ (0.94) ------- Total distributions........................................... (1.67) ------- Net asset value, end of period.................................... $ 12.27 ======= Total return...................................................... 12.15% Ratios/Supplemental Data: Net assets, end of period (in 000s).............................. $ 1 Ratio of expenses to average net assets: Before expense reimbursement.................................... 1.06% After expense reimbursement..................................... 1.05% Ratio of net investment income to average net assets: Before expense reimbursement.................................... 3.63% After expense reimbursement..................................... 3.64% Portfolio turnover rate.......................................... 194% Average commission rate paid per share........................... $0.0549
*Commencement of Brinson Class N was June 30, 1997. **The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
JULY 31, 1995* YEAR ENDED YEAR ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 12.46 $ 11.67 $ 11.38 ------- ------- ------- Income from investment operations: Net investment income............. 0.42*** 0.38 0.42 Net realized and unrealized gain.. 0.95 1.31 0.86 ------- ------- ------- Total income from investment op- erations....................... 1.37 1.69 1.28 ------- ------- ------- Less distributions: Distributions from net investment income........................... (0.70) (0.36) (0.42) Distributions from net realized gain............................. (0.94) (0.54) (0.57) ------- ------- ------- Total distributions............. (1.64) (0.90) (0.99) ------- ------- ------- Net asset value, end of period...... $ 12.19 $ 12.46 $ 11.67 ======= ======= ======= Total return (non-annualized)....... 11.79% 14.99% 11.54% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $ 1,880 $ 1,649 $ 779 Ratio of expenses to average net assets: Before expense reimbursement...... 1.31% 1.38% 1.51%** After expense reimbursement....... 1.30% 1.30% 1.30%** Ratio of net investment income to average net assets: Before expense reimbursement...... 3.38% 3.28% 3.26%** After expense reimbursement....... 3.39% 3.36% 3.47%** Portfolio turnover rate............ 194% 329% 240% Average commission rate paid per share............................. $0.0549 $0.0441 $0.0481
*Commencement of SwissKey Class **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 19 ================================================================================ U.S. Equity Fund ================================================================================ [ART] The U.S. Equity Fund is an actively managed fund invested in common stocks of U.S. corporations. The Fund is diversified by issue and industry; it is typically 70% invested in large capitalization stocks, with the remaining 30% in intermediate and small capitalization stocks. Investment strategies emphasize stock selection with attention to the management of factor and industry exposures. Since its performance inception on February 28, 1994, the Brinson U.S. Equity Fund Class I has provided an annualized return of 23.11% compared to 23.38% for the Wilshire 5000 Equity Index. This performance was achieved at an annualized volatility of 11.42%, only slightly above the index volatility of 11.04%. For the first six months of 1998, the total return of the Brinson U.S. Equity Fund Class I was 13.67%, 180 basis points behind the 15.47% return for the Wilshire 5000 Equity Index. The following paragraphs review the sources of Fund underperformance in the first half of the year. Market exposure (average beta of .95) detracted modestly from the Fund relative performance in the strong equity market environment which characterized the first half of 1998. Factor weightings generally subtracted from results. The most significant negative factor positions were the underweighting in the relative strength and size measures. The largest capitalization stocks continued to dominate market performance. Most of these stocks are perceived as high quality companies with predictable, sustainable growth rates, attributes that have been highly favored in an environment with increasing economic uncertainty exacerbated by Southeast Asian problems. The Fund has minimal exposure to these largest stocks because they appear to be relatively overvalued. Some positive benefit to Fund performance was derived from an underweighting in the price volatility and growth factors. Industry weightings had the largest negative impact on active returns in the first half. The overweight in the tobacco industry detracted from performance as the industry continues to struggle with political and legal issues. Other negative industry positions were the overweights in the railroad, tire and rubber and paper industries, and the underweights in miscellaneous finance and retail industries. The non-health related consumer sector, especially the retail industry, was very strong in the first half of 1998 due to high employment levels combined with low inflation and the positive wealth effect associated with the strong stock market. However, our valuation work continues to suggest that consumer stock valuations already reflect this positive outlook and are not attractive, while many of the basic industries appear much more undervalued. A partial offset to these negative contributions were several positive industry positions including the underweights in energy, producer goods, and electronics. Stock selection had a positive effect on the Fund for the first six months. Among large capitalization issues, the best performers were EMC Corp., Xerox, and Enron while the worst were Federal Express, Lockheed Martin and Corning. In the intermediate capitalization segment of the Fund, the most positive contributors were General Instrument, Comverse Technology and Peco Energy while the weakest were Nabisco Holdings, Harnischfeger and Nextel Communications. 20 U.S. Equity Fund [ART] Total Return
6 months 1 year 3 years 2/28/94* ended ended ended to 6/30/98 6/30/98 6/30/98 6/30/98 - ----------------------------------------------------------------------------- Brinson U.S. Equity Fund Class I 13.67% 21.48% 27.86% 23.11% - ----------------------------------------------------------------------------- Wilshire 5000 Index 15.47% 28.86% 28.13% 23.38% - -----------------------------------------------------------------------------
* Performance inception date of the Brinson U.S. Equity Fund Class I. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Equity Fund Class I and the Wilshire 5000 Index if you had invested $1,000,000 on February 28, 1994, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Equity Fund Class I vs. Wilshire 5000 Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] Brinson U.S. Equity Fund Class I Wilshire 5000 Index 6/30/94 $ 970,003 $ 947,285 12/31/94 983,676 991,086 6/30/95 1,178,023 1,181,470 12/31/95 1,382,877 1,352,348 6/30/96 1,538,200 1,491,254 12/31/96 1,737,594 1,639,211 6/30/97 2,028,487 1,928,453 12/31/97 2,167,878 2,152,123 6/30/98 2,461,722 2,484,991 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 21 U.S. Equity Fund - -------------------------------------------------------------------------------- [ART] Total Return - --------------------------------------------------------------------------------
6 months 6/30/97* ended to 6/30/98 6/30/98 - -------------------------------------------------------------------------------- Brinson U.S. Equity Fund Class N 13.46% 21.10% - -------------------------------------------------------------------------------- Wilshire 5000 Index 15.47% 28.86% - --------------------------------------------------------------------------------
*Inception date of the Brinson U.S. Equity Fund Class N. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 - -------------------------------------------------------------------------------- This chart shows the growth in the value of an investment in the Brinson U.S. Equity Fund Class N and the Wilshire 5000 Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Equity Fund Class N vs. Wilshire 5000 Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson U.S. Equity Fund Class N Wilshire 5000 Index 6/30/97 1,000,000 1,000,000 8/31/97 1,034,580 1,036,400 10/31/97 1,023,243 1,060,998 12/31/97 1,067,291 1,115,985 2/28/98 1,168,071 1,203,729 4/30/98 1,222,103 1,278,979 6/30/98 1,210,968 1,288,593
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 22
U.S. Equity Fund [ART APPEARS HERE] Industry Diversification As a Percent of Net Assets As of June 30, 1998 - -------------------------------------------------------------------------------- U.S. EQUITIES Energy................................................................ 2.48% Capital Investment Capital Goods........................................................ 10.20 Technology........................................................... 9.49 ------ 19.69 Basic Industries Chemicals............................................................ 4.35 Housing/Paper........................................................ 7.66 Metals............................................................... 0.71 ------ 12.72 Consumer Non-Durables......................................................... 6.84 Retail/Apparel....................................................... 4.38 Autos/Durables....................................................... 2.96 Discretionary........................................................ 0.77 Health: Drugs........................................................ 7.34 Health: Non-Drugs.................................................... 5.43 ------ 27.72 Financial Banks................................................................ 7.00% Non-Banks............................................................ 7.00 ------ 14.00 Utilities Electric............................................................. 5.95 Telephone............................................................ 0.90 ------ 6.85 Transportation........................................................ 8.05 Services/Misc......................................................... 6.33 ------ Total U.S. Equities............................................... 97.84* ------ SHORT-TERM INVESTMENTS................................................ 1.49* ------ TOTAL INVESTMENTS................................................. 99.33 ------ CASH AND OTHER ASSETS, LESS LIABILITIES..................................................... 0.67 ------ NET ASSETS............................................................ 100.00% ======
- ------------------------------------------------------------------------------- * The Fund held a long position in stock index futures on June 30, 1998 which increased U.S. Equity exposure from 97.84% to 99.40% and reduced exposure to Short-Term Investments from 1.49% to -0.07%
Top Ten U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - ------------------------------------------------------- 1. Xerox Corp. 4.64% 2. Lockheed Martin Corp. 4.58 3. Burlington Northern Santa Fe Corp. 4.23 4. Aon Corp. 3.24 5. FDX Corp. 3.11 6. Philip Morris Companies, Inc. 3.09 7. CIGNA Corp. 2.50 8. Automatic Data Processing, Inc. 2.47 9. Goodyear Tire & Rubber Co. 2.39 10. Baxter International, Inc. 2.27 - -------------------------------------------------------
23 U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ---------- U.S. Equities -- 97.84% Aetna Life & Casualty Co..................................... 108,500 $8,259,562 Allergan, Inc................................................ 167,600 7,772,450 Alza Corp. (b)............................................... 170,750 7,384,937 American Home Products Corp.................................. 168,300 8,709,525 Aon Corp..................................................... 305,200 21,440,300 Automatic Data Processing, Inc............................... 223,800 16,309,425 BankBoston Corp.............................................. 127,600 7,097,750 Baxter International, Inc.................................... 279,000 15,013,687 Beckman Coulter PLC.......................................... 73,900 4,304,675 Bestfoods.................................................... 149,500 8,680,344 Biogen, Inc. (b)............................................. 66,950 3,280,550 Birmingham Steel Corp........................................ 68,350 845,831 Burlington Northern Santa Fe Corp............................ 284,900 27,973,619 Champion Enterprises, Inc. (b)............................... 51,900 1,524,562 Champion International Corp.................................. 85,100 4,185,856 CIGNA Corp................................................... 239,950 16,556,550 Circuit City Stores-Circuit City Group....................... 252,200 11,821,875 Citicorp..................................................... 4,900 731,325 CMS Energy Corp.............................................. 220,450 9,699,800 Columbia/HCA Healthcare Corp................................. 44,900 1,307,712 Comerica, Inc................................................ 70,450 4,667,312 Commscope, Inc. (b).......................................... 120,399 1,948,959 Comverse Technology, Inc. (b)................................ 78,065 4,049,622 Consolidated Stores Corp..................................... 79,900 2,896,375 Corning, Inc................................................. 406,100 14,111,975 Covance, Inc. (b)............................................ 85,850 1,931,625 Crown Cork & Seal Co., Inc................................... 81,200 3,857,000 Dial Corp.................................................... 88,300 2,290,281 Eastman Chemical Co.......................................... 94,050 5,854,612 EMC Corp. (b)................................................ 152,550 6,836,147 Enron Corp................................................... 189,400 10,239,437 Entergy Corp................................................. 510,100 14,665,375 FDX Corp. (b)................................................ 327,300 20,538,075 First American Corp. of Tennessee............................ 44,700 2,151,188 First Data Corp.............................................. 413,030 13,759,062 First Security Corp.......................................... 84,500 1,808,828 FirstEnergy Corp............................................. 34,605 1,064,104 Fleet Financial Group, Inc................................... 104,400 8,717,400 Fleetwood Enterprises, Inc................................... 3,800 152,000 Food Lion, Inc., Class A..................................... 331,100 3,517,937 Forest Laboratories, Inc. Class A (b)........................ 128,500 4,593,875 Fort James Corp.............................................. 219,200 9,754,400 Gannett Co., Inc............................................. 71,200 5,059,650 General Instrument Corp. (b)................................. 389,350 10,585,453 General Semiconductor, Inc. (b).............................. 88,175 870,728 Genzyme Corp. (b)............................................ 68,950 1,762,534 Geon Co...................................................... 47,050 1,079,209 Goodyear Tire & Rubber Co.................................... 245,200 15,800,075 Great Lakes Chemical Corp.................................... 49,600 1,956,100 Harnischfeger Industries, Inc................................ 119,150 3,373,434 Health Care and Retirement Corp. (b)......................... 76,850 3,030,772 Hibernia Corp................................................ 94,850 1,914,784 IMC Global Inc............................................... 91,300 2,750,413 Informix Corp. (b)........................................... 91,000 719,469 Interpublic Group of Companies, Inc.......................... 71,600 4,345,225 Kimberly Clark Corp.......................................... 314,850 14,443,744 Lafarge Corp................................................. 49,700 1,953,831 Lear Corp. (b)............................................... 73,550 3,774,034 Lockheed Martin Corp......................................... 286,076 30,288,297 Lyondell Petrochemical Co.................................... 231,750 7,053,891 Manor Care, Inc.............................................. 87,500 3,363,281 Martin Marietta Materials, Inc............................... 50,107 2,254,815
SHARES VALUE ---------- ------------ Masco Corp.......................................... 199,100 $ 12,045,550 Medusa Corp......................................... 8,000 502,000 Nabisco Holdings Corp............................... 174,000 6,274,875 National Service Industries, Inc.................... 33,300 1,694,138 Nextel Communications, Inc. (b)..................... 238,550 5,933,931 Norfolk Southern Corp............................... 160,400 4,781,925 Peco Energy Co...................................... 476,500 13,907,844 Pentair, Inc........................................ 90,300 3,837,750 Philip Morris Companies, Inc........................ 519,150 20,441,531 Praxair, Inc........................................ 158,100 7,401,056 Raytheon Co., Class B............................... 233,750 13,820,469 Regions Financial Corp.............................. 43,800 1,798,538 Reynolds & Reynolds Co.............................. 57,450 1,044,872 Schering Plough Corp................................ 163,400 14,971,525 Seagate Technology, Inc. (b)........................ 152,450 3,630,216 Sears, Roebuck and Co............................... 176,050 10,750,053 Southdown, Inc...................................... 37,300 2,662,288 St. Jude Medical, Inc. (b).......................... 84,700 3,118,019 Timken Co........................................... 30,050 925,916 Tyson Foods, Inc., Class A.......................... 347,550 7,537,491 Ultramar Diamond Shamrock Corp...................... 194,218 6,130,006 US Bancorp.......................................... 218,841 9,410,163 Vencor, Inc. (b).................................... 180,900 1,311,525 Ventas, Inc......................................... 180,900 2,498,681 Viad Corp........................................... 167,450 4,646,738 Wells Fargo & Co.................................... 21,700 8,007,300 Westvaco Corp....................................... 40,800 1,152,600 Witco Corp.......................................... 90,050 2,633,963 Xerox Corp.......................................... 301,550 30,645,019 York International Corp............................. 106,400 4,635,050 ------------ Total U.S. Equities (Cost $530,151,977)................................ 646,836,695 ------------ FACE AMOUNT VALUE ---------- ------------ Short-Term Investments -- 1.49% U.S. GOVERNMENT OBLIGATIONS -- 0.08% U.S. Treasury Bill 5.165%, due 11/27/98............................... $ 500,000 $ 489,612 ------------ COMMERCIAL PAPER -- 1.41% Cincinnati Bell Inc. 6.660%, due 07/01/98............................... 2,730,000 2,730,000 NGC Corp. 6.7500%, due 07/01/98.............................. 2,924,000 2,924,000 Raytheon Co. 7.000%, due 07/01/98............................... 3,000,000 3,000,000 Texas Utilities Co. 6.1000%, due 07/17/98.............................. 675,000 673,170 ------------ 9,327,170 ------------ Total Short-Term Investments (Cost $9,816,564).................................. 9,816,782 ------------ Total Investments (Cost $539,968,541) -- 99.33% (a).................. 656,653,477 ------------ Cash and other assets, less liabilities -- 0.67%.......................... 4,445,373 ------------ Net Assets -- 100%.................................. $661,098,850 ============
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 24 U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $539,968,541; and net unrealized appreciation consisted of: Gross unrealized appreciation............................... $131,931,680 Gross unrealized depreciation............................... (15,246,744) ------------ Net unrealized appreciation............................... $116,684,936 ============
(b) Non-income producing security FUTURES CONTRACTS The U.S. Equity Fund had the following open index futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN -------------- ----------- ----------- ---------- INDEX FUTURES BUY CON- TRACTS Standard & Poor's 500, 36 contracts........... September 1998 $10,190,052 $10,287,000 $96,948 =======
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 1998 was $489,612. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $539,968,541) ....................... $656,653,477 Cash............................................................. 211,911 Receivables: Investment securities sold...................................... 2,290,931 Dividends....................................................... 1,036,060 Fund shares sold................................................ 4,436,998 Other assets..................................................... 19,339 ------------ TOTAL ASSETS.................................................. 664,648,716 ------------ LIABILITIES: Payables: Investment securities purchased................................. 1,521,040 Fund shares redeemed............................................ 1,505,921 Investment advisory fees ....................................... 372,011 Accrued expenses................................................ 74,394 Variation margin ............................................... 76,500 ------------ TOTAL LIABILITIES............................................. 3,549,866 ------------ NET ASSETS........................................................ $661,098,850 ============ NET ASSETS CONSIST OF: Paid in capital ................................................. $515,109,561 Accumulated undistributed net investment income.................. 1,242,787 Accumulated net realized gain.................................... 27,964,618 Net unrealized appreciation...................................... 116,781,884 ------------ NET ASSETS.................................................... $661,098,850 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $605,767,723 and 30,426,776 shares is- sued and outstanding) ......................................... $ 19.91 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $268,269 and 13,497 shares issued and outstanding) ............ $ 19.88 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $55,062,858 and 2,776,912 shares issued and outstanding) .............................................. $ 19.83 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends........................................................ $ 9,615,819 Interest......................................................... 766,543 ------------ TOTAL INCOME.................................................. 10,382,362 ------------ EXPENSES: Advisory ........................................................ 3,792,120 Administration................................................... 247,167 Distribution .................................................... 254,241 Other............................................................ 297,092 ------------ TOTAL EXPENSES................................................ 4,590,620 ------------ NET INVESTMENT INCOME......................................... 5,791,742 ------------ NET REALIZED AND UNREALIZED GAIN: Net realized gain on: Investments..................................................... 41,062,216 Futures contracts............................................... 3,068,863 ------------ Net realized gain ............................................ 44,131,079 ------------ Change in net unrealized appreciation or depreciation on: Investments .................................................... 58,415,670 Futures contracts .............................................. (137,787) ------------ Change in net unrealized appreciation or depreciation......... 58,277,883 ------------ Net realized and unrealized gain ................................ 102,408,962 ------------ Net increase in net assets resulting from operations............. $108,200,704 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 27 U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 1998 30, 1997 ------------ ------------ OPERATIONS: Net investment income............................. $ 5,791,742 $ 2,268,618 Net realized gain ................................ 44,131,079 21,580,018 Change in net unrealized appreciation or deprecia- tion ............................................ 58,277,883 40,886,740 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 108,200,704 64,735,376 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................. (4,978,081) (1,717,943) Brinson Class N................................. (832) -- SwissKey Class.................................. (249,586) (87,137) Distributions from net realized gain: Brinson Class I................................. (28,383,478) (12,393,329) Brinson Class N................................. (64) -- SwissKey Class.................................. (2,678,143) (838,501) ------------ ------------ Total distributions to shareholders............... (36,290,184) (15,036,910) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 346,081,960 212,394,882 Shares issued on reinvestment of distributions.... 33,981,329 14,138,565 Shares redeemed................................... (163,864,419) (34,971,198) ------------ ------------ Net increase in net assets resulting from capital share transactions .............................. 216,198,870 191,562,249 ------------ ------------ TOTAL INCREASE IN NET ASSETS................... 288,109,390 241,260,715 ------------ ------------ NET ASSETS: Beginning of year................................. 372,989,460 131,728,745 ------------ ------------ End of year (including accumulated undistributed net investment income of $1,242,787 and $679,544, respectively).................................... $661,098,850 $372,989,460 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 28 U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, FEBRUARY 22, 1994* ------------------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - ----------------------------------------------------------------------------------- Net asset value, begin- ning of period......... $ 17.64 $ 14.59 $ 11.53 $ 9.65 $10.00 -------- -------- -------- ------- ------ Income from investment operations: Net investment income. 0.19 0.15 0.17 0.16 0.05 Net realized and unrealized gain (loss)............... 3.39 4.27 3.31 1.89 (0.36) -------- -------- -------- ------- ------ Total income (loss) from investment operations......... 3.58 4.42 3.48 2.05 (0.31) -------- -------- -------- ------- ------ Less distributions: Distributions from net investment income.... (0.18) (0.14) (0.17) (0.14) (0.04) Distributions from net realized gain........ (1.13) (1.23) (0.25) (0.03) -- -------- -------- -------- ------- ------ Total distributions. (1.31) (1.37) (0.42) (0.17) (0.04) -------- -------- -------- ------- ------ Net asset value, end of period................. $ 19.91 $ 17.64 $ 14.59 $ 11.53 $ 9.65 ======== ======== ======== ======= ====== Total return (non- annualized)............ 21.48% 31.87% 30.57% 21.45% (3.10)% Ratios/Supplemental data Net assets, end of pe- riod (in 000s)........ $605,768 $337,949 $126,342 $42,573 $8,200 Ratio of expenses to average net assets: Before expense reim- bursement............ 0.80% 0.89% 1.14% 1.70% 5.40% ** After expense reim- bursement............ N/A 0.80% 0.80% 0.80% 0.80% ** Ratio of net investment income to average net assets: Before expense reim- bursement............ 1.12% 1.06% 1.13% 1.09% (2.82)%** After expense reim- bursement............ N/A 1.15% 1.47% 1.99% 1.78% ** Portfolio turnover rate.................. 42% 43% 36% 33% 9% Average commission rate paid per share........ $ 0.0469 $ 0.0422 $ 0.0457 N/A N/A
*Commencement of investment operations **Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 29 U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED BRINSON CLASS N JUNE 30, 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $ 17.64 ------- Income from investment operations: Net investment income.......................................... 0.15 Net realized and unrealized gain............................... 3.37 ------- Total income from investment operations...................... 3.52 ------- Less distributions: Distributions from net investment income....................... (0.15) Distributions from net realized gain........................... (1.13) ------- Total distributions.......................................... (1.28) ------- Net asset value, end of period................................... $ 19.88 ======= Total return..................................................... 21.10% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $ 268 Ratio of expenses to average net assets......................... 1.05% Ratio of net investment income to average net assets............ 0.87% Portfolio turnover rate......................................... 42% Average commission rate paid per share.......................... $0.0469
*Commencement of Brinson Class N was June 30, 1997 See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 30 U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
JULY 31, 1995* YEAR ENDED YEAR ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 17.59 $ 14.58 $ 11.94 ------- ------- ------- Income from investment operations: Net investment income............. 0.09 0.11 0.10 Net realized and unrealized gain.. 3.38 4.22 2.92 ------- ------- ------- Total income from investment op- erations....................... 3.47 4.33 3.02 ------- ------- ------- Less distributions: Distributions from net investment income........................... (0.10) (0.09) (0.13) Distributions from net realized gain............................. (1.13) (1.23) (0.25) ------- ------- ------- Total distributions............. (1.23) (1.32) (0.38) ------- ------- ------- Net asset value, end of period...... $ 19.83 $ 17.59 $ 14.58 ======= ======= ======= Total return (non-annualized)....... 20.80% 31.28% 25.70% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $55,063 $35,039 $ 5,387 Ratio of expenses to average net assets: Before expense reimbursement...... 1.32% 1.41% 1.66%** After expense reimbursement....... N/A 1.32% 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement...... 0.60% 0.54% 0.61%** After expense reimbursement....... N/A 0.63% 0.95%** Portfolio turnover rate............ 42% 43% 36% Average commission rate paid per share............................. $0.0469 $0.0422 $0.0457
*Commencement of SwissKey Class **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 31 ================================================================================ U.S. Large Capitalization Equity Fund ================================================================================ [ART] The U.S. Large Capitalization Equity Fund is an actively managed portfolio that invests in common stocks of the largest U.S. corporations. Issues are selected from a universe of less than 300 of the largest capitalization domestic stocks collectively comprising 65% of the value of the U.S. equity market. Since its performance inception on April 30, 1998, the Brinson U.S. Large Capitalization Equity Fund Class I has provided an annualized return of -0.13% compared to 2.25% for its benchmark, the S&P 500 Equity Index. The discussion below focuses on Brinson's management of Large Capitalization Equities during the first half of 1998. Please note that the Fund's commencement of operations was during the second quarter of 1998. Market exposure (average beta of .98) modestly detracted from relative performance in the strong equity market environment which characterized the first half of 1998. Other broad factor positions had a negative effect on performance. The most significant negative factor position was the underweighting in relative strength (price momentum) and the size measure. The strongest relative performance within the stock market was posted by the largest capitalization companies. The Fund has minimal exposure to these largest companies because they appear to be relatively overvalued. The Fund benefited from an underweight in the price volatility and growth factors. Industry weightings were a negative contributor to relative results year-to- date. The Fund was negatively impacted by an overweight in tobacco stocks, which have been impacted by adverse legislative and litigation developments, and in chemicals, which have suffered from cyclical earnings problems. Fund results were also hurt by the overweight in the railroad industry which has been hurt by Union Pacific operational snafus and the resultant threat of punitive regulatory actions. These negative influences were only partially offset by the positive impact of the underweight in energy, where our analysis continues to produce lackluster value rankings for most stocks despite the dramatic declines in oil prices. The Fund was also positively impacted by an underweight in producer goods and electronics, particularly PC-related technology. Stock selection had a positive effect on the Fund for the first six months. The best performers were EMC Corp., Xerox, Enron, Schering Plough and Burlington Northern, while the worst were Federal Express, Lockheed Martin, Corning, Kimberly Clark and Baxter. 32 U.S. Large Capitalization Equity Fund [ART] Total Return 4/30/98* to 6/30/98 - -------------------------------------------------------------------------------- Brinson U.S. Large Capitalization Equity Fund Class I -0.13% - -------------------------------------------------------------------------------- S&P 500 Equity Index 2.25 - -------------------------------------------------------------------------------- * Performance inception date of the Brinson U.S. Large Capitalization Equity Fund Class I. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Large Capitalization Equity Fund Class I and the S&P 500 Equity Index if you had invested $1,000,000 on April 30, 1998, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Large Capitalization Equity Fund Class I vs. S&P 500 Equity Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] Brinson U.S. Large Capitalization Equity Fund Class I S&P 500 Index 4/30/98 1000000 1000000 5/31/98 983723 982610 6/30/98 998652 1022524 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 33 U.S. Large Capitalization Equity Fund [ART] Total Return
4/30/98* to 6/30/98 - ------------------------------------------------------------------- Brinson U.S. Large Capitalization Equity Fund Class N -0.37% - ------------------------------------------------------------------- S&P 500 Equity Index 2.25 - -------------------------------------------------------------------
* Performance inception date of the Brinson U.S. Large Capitalization Equity Fund Class N. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Large Capitalization Equity Fund Class N and the S&P 500 Equity Index if you had invested $1,000,000 on April 30, 1998, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Large Capitalization Equity Fund Class N vs. S&P 500 Equity Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] Brinson U.S. Large Capitalization Equity Fund-N S&P 500 Equity Index 4/30/98 1,000,000 1,000,000 5/31/98 983,723 982,610 6/30/98 996,297 1,022,524 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 34 U.S. Large Capitalization Equity Fund [ART APPEARS HERE] Industry Diversification As a Percent of Net Assets As of June 30, 1998 U.S. EQUITIES Basic Industries Chemicals......................... 1.65% Housing/Paper..................... 5.95 Metals............................ 0.85 ------ 8.45 Capital Investment Capital Goods..................... 9.66 Technology........................ 9.17 ------ 18.83 Consumer Autos/Durables.................... 3.50 Discretionary..................... 0.97 Health: Drugs..................... 8.42 Health: Non-Drugs................. 4.09 Non-Durables...................... 6.46 Retail/Apparel.................... 2.38 ------ 25.82 Energy............................. 2.27% Financial Banks............................. 8.42 Non-Banks......................... 9.98 ------ 18.40 Transportation..................... 11.85 Services/Miscellaneous............. 6.65 Utilities Electric.......................... 2.52 ------ Total U.S. Equities............. 94.79* SHORT-TERM INVESTMENTS............. 5.09* ------ TOTAL INVESTMENTS............... 99.88 CASH AND OTHER ASSETS, LESS LIABILITIES.................. 0.12 ------ NET ASSETS......................... 100.00% ======
* The Fund held a long position in stock index futures on June 30, 1998 which increased U.S. equity exposure from 94.79% to 98.32% and reduced exposure to short-term investments from 5.09% to 1.56%. Top 10 U.S. Equity Holdings As of June 30, 1998
Percent of Net Assets - ---------------------------------------------------- 1. Xerox Corp. 6.84% 2. Lockheed Martin Corp. 6.74 3. Burlington Northern Santa Fe Corp. 6.19 4. Aon Corp. 4.77 5. FDX Corp. 4.57 6. Philip Morris Companies, Inc. 4.52 7. Automatic Data Processing, Inc. 3.60 8. Goodyear Tire & Rubber Co. 3.50 9. CIGNA Corp. 3.37 10. Schering Plough Corp. 3.34 - ----------------------------------------------------
35 U.S. LARGE CAPITALIZATION EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- U.S. Equities -- 94.79% Aetna Life & Casualty Co.................................... 3,900 $ 296,888 American Home Products Corp................................. 6,100 315,675 Aon Corp.................................................... 11,000 772,750 Automatic Data Processing, Inc.............................. 8,000 583,000 BankBoston Corp............................................. 3,600 200,250 Baxter International, Inc................................... 10,000 538,125 Bestfoods................................................... 5,400 313,538 Burlington Northern Santa Fe Corp........................... 10,200 1,001,512 CIGNA Corp.................................................. 7,900 545,100 Citicorp.................................................... 300 44,775 Columbia/HCA Healthcare Corp................................ 1,900 55,338 Comerica, Inc............................................... 2,500 165,625 Corning, Inc................................................ 14,600 507,350 Covance, Inc. (b)........................................... 3,100 69,750 Crown Cork & Seal Co., Inc.................................. 2,900 137,750 EMC Corp. (b)............................................... 5,500 246,469 Enron Corp.................................................. 6,800 367,625 Entergy Corp................................................ 14,200 408,250 FDX Corp. (b)............................................... 11,800 740,450 First Data Corp............................................. 14,800 493,025 Fleet Financial Group, Inc.................................. 3,800 317,300 Gannett Co., Inc............................................ 2,200 156,338 Goodyear Tire & Rubber Co................................... 8,800 567,050 Kimberly Clark Corp......................................... 11,500 527,562 Lockheed Martin Corp........................................ 10,300 1,090,512 Masco Corp.................................................. 7,200 435,600 Norfolk Southern Corp....................................... 5,900 175,894 Philip Morris Companies, Inc................................ 18,600 732,375 Praxair, Inc................................................ 5,700 266,831 Raytheon Co., Class B....................................... 8,000 473,000 Schering Plough Corp........................................ 5,900 540,587 Seagate Technology, Inc. (b)................................ 5,500 130,969 Sears, Roebuck and Co....................................... 6,300 384,694 US Bancorp.................................................. 7,900 339,700 Wells Fargo & Co............................................ 800 295,200 Xerox Corp.................................................. 10,900 1,107,712 ----------- Total U.S. Equities Stock (Cost $15,532,291)................ 15,344,569 -----------
FACE AMOUNT VALUE -------- ----------- Short-Term Investments -- 5.09% COMMERCIAL PAPER -- 5.09% NGC Corp., 6.750%, due 07/01/98........................... $424,000 $ 424,000 Raytheon Co., 7.000%, due 07/01/98........................ 400,000 400,000 ----------- Total Short-Term Investments (Cost $824,000).......................................... 824,000 ----------- Total Investments (Cost $16,356,291) -- 99.88% (a)......................... 16,168,569 ----------- Cash and other assets, less liabilities -- 0.12%..................................... 18,804 ----------- Net Assets -- 100%........................................ $16,187,373 ===========
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 36 U.S. LARGE CAPITALIZATION EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $16,356,291; and net unrealized depreciation consisted of: Gross unrealized appreciation................................. $ 317,890 Gross unrealized depreciation................................. (505,612) --------- Net unrealized depreciation................................. $(187,722) =========
(b) Non-income producing security FUTURES CONTRACTS The U.S. Large Capitalization Equity Fund had the following open futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN -------------- -------- -------- ---------- INDEX FUTURES BUY CONTRACTS Standard & Poor's 500, 2 con- tracts...................... September 1998 $562,464 $571,500 $9,036 ======
The segregated cash pledged to cover margin requirements for the open futures positions at June 30, 1998 was $20,100. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 37 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $16,356,291)......................... $16,168,569 Cash............................................................. 25,077 Receivables: Dividends....................................................... 26,247 Due from Advisor................................................ 2,759 Fund shares sold................................................ 41,691 Other assets..................................................... 35,562 ----------- TOTAL ASSETS.................................................. 16,299,905 ----------- LIABILITIES: Payables: Investment securities purchased................................. 56,256 Variation margin................................................ 4,250 Accrued expenses................................................ 52,026 ----------- TOTAL LIABILITIES............................................. 112,532 ----------- NET ASSETS........................................................ $16,187,373 =========== NET ASSETS CONSIST OF: Paid in capital.................................................. $16,423,723 Accumulated undistributed net investment income.................. 11,637 Accumulated net realized loss.................................... (69,301) Net unrealized depreciation...................................... (178,686) ----------- NET ASSETS.................................................... $16,187,373 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $153,503 and 15,666 shares issued and outstanding)................................................... $ 9.80 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $16,032,852 and 1,638,635 shares issued and outstanding)....... $ 9.78 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,018 and 104 shares issued and outstanding).................. $ 9.79 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 38 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1998* INVESTMENT INCOME: Dividends.......................................................... $ 49,557 Interest........................................................... 14,677 --------- TOTAL INCOME.................................................... 64,234 --------- EXPENSES: Advisory........................................................... 21,230 Professional....................................................... 10,880 Distribution....................................................... 7,537 Other.............................................................. 16,142 --------- TOTAL EXPENSES.................................................. 55,789 Expenses waived and reimbursed by Advisor....................... (23,989) --------- NET EXPENSES.................................................... 31,800 --------- NET INVESTMENT INCOME .......................................... 32,434 --------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments....................................................... (71,182) Futures contracts................................................. 1,881 --------- Net realized loss............................................... (69,301) --------- Change in net unrealized appreciation or depreciation on: Investments....................................................... (187,722) Futures contracts................................................. 9,036 --------- Change in net unrealized appreciation or depreciation.............. (178,686) --------- Net realized and unrealized loss................................... (247,987) --------- Net decrease in net assets resulting from operations............... $(215,553) =========
*The Fund commenced operations on April 6, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 39 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
APRIL 6, 1998* THROUGH JUNE 30, 1998 OPERATIONS: ------------- Net investment income........................................... $ 32,434 Net realized loss............................................... (69,301) Change in net unrealized appreciation or depreciation........... (178,686) ----------- Net decrease in net assets resulting from operations............ (215,553) ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................................ (191) Brinson Class N................................................ (20,605) SwissKey Class................................................. (1) ----------- Total distributions to shareholders............................. (20,797) ----------- CAPITAL SHARE TRANSACTIONS: Shares sold..................................................... 16,922,491 Shares issued on reinvestment of distributions.................. 20,775 Shares redeemed................................................. (519,553) ----------- Net increase in net assets resulting from capital share transactions................................................... 16,423,713 ----------- TOTAL INCREASE IN NET ASSETS................................. 16,187,363 ----------- NET ASSETS: Beginning of period............................................. 10 ----------- End of period (including accumulated undistributed net invest- ment income of $11,637)............................................. $16,187,373 ===========
*Commencement of investment operations See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 40 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
APRIL 6, 1998* THROUGH BRINSON CLASS I JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $ 10.00 ------- Income from investment operations: Net investment income.......................................... 0.02 Net realized and unrealized loss............................... (0.20) ------- Total loss from investment operations........................ (0.18) ------- Less distributions: Distributions from net investment income....................... (0.02) Distributions from net realized gain........................... -- ------- Total distributions.......................................... (0.02) ------- Net asset value, end of period................................... $ 9.80 ======= Total return (non-annualized).................................... (1.83)% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $154 Ratio of expenses to average net assets: Before expense reimbursement................................... 1.59%** After expense reimbursement.................................... 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement................................... 0.52%** After expense reimbursement.................................... 1.31%** Portfolio turnover rate......................................... 12% Average commission rate paid per share.......................... $0.0350
*Commencement of investment operations **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 41 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
APRIL 6, 1998* THROUGH BRINSON CLASS N JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period.............................. $ 10.00 ------- Income from investment operations: Net investment income........................................... 0.02 Net realized and unrealized loss................................ (0.23) ------- Total loss from investment operations......................... (0.21) ------- Less distributions: Distributions from net investment income........................ (0.01) Distributions from net realized gain............................ -- ------- Total distributions........................................... (0.01) ------- Net asset value, end of period.................................... $ 9.78 ======= Total return (non-annualized)..................................... (2.02)% Ratios/Supplemental Data: Net assets, end of period (in 000s).............................. $16,033 Ratio of expenses to average net assets: Before expense reimbursement.................................... 1.84%** After expense reimbursement..................................... 1.05%** Ratio of net investment income to average net assets: Before expense reimbursement.................................... 0.27%** After expense reimbursement..................................... 1.06%** Portfolio turnover rate.......................................... 12% Average commission rate paid per share........................... $0.0350
*Commencement of investment operations. **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 42 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
APRIL 6, 1998* THROUGH SWISSKEY CLASS JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $ 10.00 ------- Income from investment operations: Net investment income.......................................... 0.02 Net realized and unrealized loss............................... (0.22) ------- Total loss from investment operations........................ (0.20) ------- Less distributions: Distributions from net investment income....................... (0.01) Distributions from net realized gain........................... -- ------- Total distributions.......................................... (0.01) ------- Net asset value, end of period................................... $ 9.79 ======= Total return (non-annualized).................................... (2.06)% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $ 1 Ratio of expenses to average net assets: Before expense reimbursement................................... 2.11%** After expense reimbursement.................................... 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement................................... 0.00%** After expense reimbursement.................................... 0.79%** Portfolio turnover rate......................................... 12% Average commission rate paid per share.......................... $0.0350
*Commencement of investment operations **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 43 U.S. Bond Fund [ART] The U.S. Bond Fund is an actively managed diversified portfolio of U.S. dollar- denominated investment-grade fixed income securities. Macroeconomic and monetary analysis are the key elements in our strategy. We develop expectations about the returns on U.S. bonds based on the divergence of current market yields from our estimates of equilibrium yields. Relative value analysis serves as the basis of both our sector and individual security selection. The first half of 1998 in U.S. fixed income markets was characterized by unusually low volatility, stable short-term interest rates and modestly declining long-term interest rates. The Federal Reserve's overnight funds target rate has not changed in the past fifteen months. Inflation has remained stable at historically low levels despite robust economic growth and a tight labor market. Higher domestic productivity and lower import prices due to a strong dollar and troubled foreign economies has allowed the U.S. economy to continue to grow without an acceleration in inflation. The Brinson U.S. Bond Fund Class I has produced an annualized return of 7.97% since its inception on August 31, 1995, compared to an 8.01% return for the Salomon Brothers Broad Investment Grade Bond Index. The annualized volatility of returns for the Fund was 4.16% compared to 3.46% for the index. In the most recent six month period the Fund returned 3.77% relative to a 3.97% return for the index. Industry Diversification As a Percent of Net Assets As of June 30, 1998 - -------------------------------------------------------------------------------- U.S. BONDS Corporate Bonds Airlines.......................................................... 0.18% Asset-Backed...................................................... 5.50 Banks............................................................. 1.35 Business and Public Service....................................... 0.97 CMO............................................................... 8.78 Consumer.......................................................... 0.50 Energy............................................................ 1.40 Financial Services................................................ 4.27 Industrial Components............................................. 4.25 Real Estate....................................................... 0.54 Telecommunications................................................ 1.38 ------- Total U.S. Corporate Bonds..................................... 29.12 U.S. Government Agencies........................................... 25.30 U.S. Government Obligations........................................ 25.05 International Dollar Bonds......................................... 7.10 ------- Total U.S. Bonds............................................... 86.57 ------- SHORT-TERM INVESTMENTS............................................. 11.58 ------- TOTAL INVESTMENTS.............................................. 98.15 CASH AND OTHER ASSETS, LESS LIABILITIES............................ 1.85 ------- NET ASSETS......................................................... 100.00% ======= - -------------------------------------------------------------------------------- 44 U.S. Bond Fund [ART]
Total Return 6 months 1 year Annualized ended ended 8/31/95* to 6/30/98 6/30/98 6/30/98 - ------------------------------------------------------------------------------------- Brinson U.S. Bond Fund Class I 3.77% 10.60% 7.97% - ------------------------------------------------------------------------------------- Salomon Brothers Broad Investment Grade (BIG) Bond Index 3.97 10.59 8.01 - -------------------------------------------------------------------------------------
* Inception date of the Brinson U.S. Bond Fund Class I. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Bond Fund Class I and the Salomon Brothers Broad Investment Grade (BIG) Bond Index if you had invested $1,000,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Bond Fund Class I vs. Salomon Brothers BIG Bond Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] BRINSON U.S. BOND SALOMON BROTHERS FUND CLASS I BIG BOND INDEX 8/31/95 1,000,000 1,000,000 12/31/95 1,054,932 1,053,220 6/30/96 1,035,997 1,040,029 12/31/96 1,092,169 1,091,411 6/30/97 1,123,558 1,124,790 12/31/97 1,197,458 1,196,413 6/30/98 1,242,614 1,243,892 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 45 U.S. Bond Fund [ART APPEARS HERE] Total Return
6 months 6/30/97 ended to 6/30/98 6/30/98 - -------------------------------------------------------------------------------- Brinson U.S. Bond Fund Class N 3.55% 10.30% - -------------------------------------------------------------------------------- Salomon Brothers Broad Investment Grade (BIG) Bond Index 3.97 10.59 - --------------------------------------------------------------------------------
* Inception date of the Brinson U.S. Bond Fund Class N. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson U.S. Bond Fund Class N and the Salomon Brothers Broad Investment Grade (BIG) Bond Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson U.S. Bond Fund Class N vs. Salomon Brothers BIG Bond Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Brinson U.S. Bond Fund Salomon Brothers BIG Class N Bond Index - -------------------------------------------------------------------------------- 6/30/97 $1,000,000 $1,000,000 8/31/97 1,021,484 1,018,267 10/31/97 1,049,805 1,048,011 12/31/97 1,065,178 1,063,676 2/28/98 1,076,488 1,076,644 4/30/98 1,084,714 1,086,463 6/30/98 1,103,029 1,105,887 - --------------------------------------------------------------------------------
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 46 U.S. BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- Bonds -- 86.57% U.S. CORPORATE BONDS -- 29.12% Aetna Services Inc., 6.970%, due 08/15/36............... $ 235,000 $ 242,980 Bellsouth Savings & Employee ESOP, 9.125%, due 07/01/03. 81,528 88,101 Capital One Bank, 6.830%, due 05/17/99.................. 359,000 361,020 Chase Mortgage Finance Corp., 93-J1, Class 1A5, 6.625%, due 08/25/09........................................... 65,055 64,776 Chemical Mortgage Securities, Inc., 93-1, Class A5, 7.450%, due 02/25/23................................... 785,000 794,925 Chesapeake & Potomac Telephone of Maryland, 8.000%, due 10/15/29............................................... 87,000 107,317 Chrysler Corp., 7.400%, due 08/01/97.................... 223,000 240,690 Citicorp Mortgage Securities, Inc., 94-9, Class A8, 5.750%, due 06/25/09................................... 97,953 93,170 Comcast Cable Communications, 8.500%, due 05/01/27................................... 300,000 361,420 Con Edison, 6.450%, due 12/01/07........................ 300,000 306,595 Continental Airlines Inc., 98-1B, 6.748%, due 09/15/18................................... 75,000 76,252 Countrywide Funding Corp. FRN, 5.880%, due 12/01/03................................... 250,000 248,125 CS First Boston Mortgage Securities Corp., 7.150%, due 08/20/06............................................... 245,000 257,556 Dayton Hudson Credit Card Master Trust, 95-1, Class A, 6.100%, due 02/25/02................................... 218,000 218,266 DLJ Mortgage Acceptance Corp., 98-2, 6.500%, due 08/19/28............................................... 520,000 513,500 First Bank Corporate Card Master Trust, 97-1, Class A, 6.400%, due 02/15/03................................... 155,000 157,791 GE Capital Mortgage Services, Inc., 97-HE4, Class A7, 6.735%, due 12/25/28................................... 410,000 417,552 General Motors Acceptance Corp., 6.375%, due 12/01/01................................... 400,000 404,522 General Motors Acceptance Corp., 9.625%, due 12/15/01................................... 294,000 326,490 GreenTree Financial Corp., 94-5, Class A5, 8.300%, due 11/15/19............................................... 320,000 352,659 Interamer Development Bank, 6.800%, due 10/15/25................................... 100,000 111,784 Lehman Brothers Holdings, 7.250%, due 04/15/03................................... 225,000 234,439 Lockheed Martin Corp., 7.700%, due 06/15/08................................... 282,000 310,374 MBNA Global Capital Securities FRN, 6.519%, due 02/01/27............................................... 90,000 83,652 Mid-America Energy, 6.375%, due 06/15/06................................... 275,000 273,749 News America Holdings, 7.750%, due 12/01/45................................... 358,000 384,198
FACE AMOUNT VALUE ---------- ----------- PanAmSat Corp. 144A, 6.000%, due 01/15/03................................... $ 375,000 $ 371,254 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24........................................... 215,000 223,330 Premier Auto Trust 96-3, Class A3, 6.500%, due 03/06/00................... 139,058 139,486 96-4, Class A4, 6.400%, due 10/06/01................... 350,000 352,611 Prudential Home Mortgage Securities 93-43, Class A9, 6.750%, due 10/25/23................................... 287,826 289,035 94-3, Class A10, 6.500%, due 02/25/24.................. 170,000 164,737 Residential Accredit Loans, Inc., 96-QS4, Class AI10, 7.900%, due 08/25/26................................... 275,000 285,092 Salomon, Inc., 6.750%, due 02/15/03..................... 300,000 307,297 SASCO LLC, 98-RF1, Class A, 8.712%, due 03/15/27................................... 539,306 578,405 The Money Store Home Equity Trust, 98-A, Class AF5, 6.370%, due 12/15/23................................... 465,000 467,269 Thrift Financing Corp., A, Class 4, 11.250%, due 01/01/16.................................. 43,328 46,075 Time Warner Entertainment, Inc., 8.375%, due 03/15/23................................... 94,000 110,051 Time Warner, Inc., 7.570%, due 02/01/24................. 90,000 97,441 UCFC Home Equity Loan FRN, 97-C, Class A8, 5.888%, due 09/15/27............................................... 166,772 166,959 USA Waste Services, 6.500%, due 12/15/02................................... 400,000 402,368 USX Corp., 8.125%, due 07/15/23......................... 400,000 457,576 Vendee Mortgage Trust, 92-1, Class 2Z, 7.750%, due 05/15/22............................................... 492,787 540,023 ----------- 12,030,912 ----------- INTERNATIONAL DOLLAR BONDS -- 7.10% Banco Santiago S.A., 7.000%, due 07/18/07................................... 380,000 381,497 Empressa Nacional Electric, 7.875%, due 02/01/27................................... 394,000 394,187 Den Danske Bank, 144A, 6.375%, due 06/15/08................................... 560,000 561,401 Province of Quebec, 7.500%, due 07/15/23................................... 200,000 222,346 Repsol International Finance, 7.000%, due 08/01/05................................... 200,000 212,082 Republic of South Africa, 9.625%, due 12/15/99................................... 71,000 73,840 Royal Bank of Scotland, 7.375%, Resettable Perpetual Preferred.............................................. 80,000 85,191 Skandinaviska Enskilda Banken, 144A, Resettable Perpet- ual Preferred.......................................... 305,000 306,647 Tyco International Group, 6.250%, due 06/15/03................................... 700,000 697,913 ----------- 2,935,104 -----------
- -------------------------------------------------------------------------------- 47 U.S. BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- U.S. GOVERNMENT AGENCIES -- 25.30% Aid-Israel, Series 10 Z, 0.000%, due 02/15/03........... $ 805,000 $ 622,539 Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13................................... 492,125 507,333 8.500%, due 07/15/21................................... 102,207 106,179 7.500%, due 01/15/23................................... 151,427 162,242 7.238%, due 05/01/26................................... 27,260 28,209 Federal Home Loan Mortgage Corp. Gold 6.000%, due 06/01/03................................... 90,031 89,806 8.000%, due 11/01/22................................... 156,826 162,021 9.000%, due 03/01/24................................... 121,218 129,826 Federal National Mortgage Assoc. 6.959%, due 08/01/07................................... 486,332 513,762 6.361%, due 06/01/08................................... 430,000 440,191 8.000%, due 12/18/11................................... 100,000 106,426 6.000%, due 12/01/12 TBA............................... 160,000 158,199 8.000%, due 05/25/21................................... 260,000 269,010 9.000%, due 08/01/21................................... 25,369 27,155 8.500%, due 07/01/22................................... 17,764 18,781 9.500%, due 08/01/22................................... 111,949 119,400 8.000%, due 11/01/23................................... 210,810 41,680 7.000%, due 12/18/24................................... 300,000 302,625 9.000%, due 04/25/25................................... 227,003 238,170 6.000%, due 12/01/27 TBA............................... 2,000,000 1,945,610 7.500%, due 01/01/28................................... 377,668 387,340 6.000%, due 03/01/28................................... 741,026 721,255 Federal National Mortgage Assoc. Strips 0.000%, due 09/25/22 principal only.................... 526,998 484,264 7.500%, due 05/01/23 interest only..................... 150,875 34,289 0.000%, due 04/01/27 principal only.................... 346,881 293,500 3.500%, due 05/01/28 interest only..................... 293,559 252,132 Government National Mortgage Assoc. 10.000%, due 09/15/00.................................. 2,234 2,385 10.000%, due 05/15/01.................................. 3,149 3,362 9.000%, due 11/15/04................................... 8,857 9,333 9.000%, due 11/15/04................................... 4,759 5,015 9.000%, due 12/15/17................................... 48,048 51,917 8.000%, due 08/15/22................................... 66,477 68,866 7.500%, due 12/15/22................................... 320,163 329,825 7.500%, due 12/15/23................................... 383,643 394,075 7.500%, due 01/15/24................................... 86,110 88,452 7.000%, due 02/16/24................................... 150,000 151,857 7.375%, due 06/20/24................................... 303,265 310,813 7.500%, due 06/15/25................................... 107,318 110,290 7.000%, due 07/15/25................................... 111,670 113,551 Jordan Aid, 8.750%, due 09/01/19........................ 517,177 650,246 ----------- 10,451,931 -----------
FACE AMOUNT VALUE ---------- ----------- U.S. GOVERNMENT OBLIGATIONS-- 25.05% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................... $4,735,000 $ 4,733,523 6.625%, due 07/31/01................................... 2,875,000 2,961,250 6.250%, due 08/31/02................................... 360,000 369,338 3.625%, due 01/15/08................................... 357,056 353,039 8.000%, due 11/15/21................................... 1,060,000 1,366,407 6.000%, due 02/15/26................................... 545,000 566,971 ----------- 10,350,528 ----------- Total U.S. Bonds (Cost $35,235,550)..................... 35,768,475 ----------- Short-Term Investments-- 11.58% COMMERCIAL PAPER -- 11.58% ARCO Chemical, 5.770%, due 07/06/98..................... 1,000,000 999,199 Cincinnati Bell Inc., 6.599%, due 07/01/98.............. 270,000 270,000 NGC Corp., 6.750%, due 07/01/98......................... 500,000 500,000 PG & E Gas Transmission, 5.670%, due 07/02/98................................... 521,000 520,918 Raytheon Co., 6.996%, due 07/01/98...................... 500,000 500,000 Tenneco Inc., 5.750%, due 07/17/98...................... 1,000,000 997,604 Texas Utilities Co., 6.100%, due 07/17/98............... 1,000,000 997,289 ----------- Total Short-Term Investments (Cost $4,785,010)...................................... 4,785,010 ----------- Total Investments (Cost $40,020,560) -- 98.15% (a)....................... 40,553,485 ----------- Cash and other assets, less liabilities -- 1.85%........ 764,939 ----------- Net Assets -- 100%...................................... $41,318,424 ===========
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $40,020,560; and net unrealized appreciation consisted of: Gross unrealized ap- preciation........... $613,576 Gross unrealized de- preciation........... (80,651) -------- Net unrealized ap- preciation........... $532,925 ========
FRN: Floating rate note -- The rate disclosed is that in effect at June 30, 1998. TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $1,239,302, or 3.00% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 48 U.S. BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $40,020,560).......................... $40,553,485 Cash.............................................................. 14,172 Receivables: Investment securities sold....................................... 2,352,284 Fund shares sold................................................. 2,732,416 Interest......................................................... 427,521 Other assets...................................................... 10,252 ----------- TOTAL ASSETS................................................... 46,090,130 ----------- LIABILITIES: Payables: Investment securities purchased.................................. 4,712,267 Fund shares redeemed............................................. 6,893 Investment advisory fees......................................... 11,802 Accrued expenses................................................. 40,744 ----------- TOTAL LIABILITIES.............................................. 4,771,706 ----------- NET ASSETS......................................................... $41,318,424 =========== NET ASSETS CONSIST OF: Paid in capital................................................... $40,134,461 Accumulated undistributed net investment income................... 300,973 Accumulated net realized gain..................................... 350,065 Net unrealized appreciation....................................... 532,925 ----------- NET ASSETS..................................................... $41,318,424 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $38,873,821 and 3,674,422 shares issued and outstanding)................................................ $ 10.58 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,100 and 104 shares issued and outstanding)................... $ 10.58 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $2,443,503 and 231,723 shares issued and outstanding)........... $ 10.54 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 49 U.S. BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest........................................................... $1,818,237 ---------- TOTAL INCOME.................................................... 1,818,237 ---------- EXPENSES: Advisory........................................................... 142,474 Professional....................................................... 37,230 Registration....................................................... 17,245 Distribution....................................................... 9,160 Other.............................................................. 41,928 ---------- TOTAL EXPENSES.................................................. 248,037 Expenses waived by Advisor...................................... (67,848) ---------- NET EXPENSES.................................................... 180,189 ---------- NET INVESTMENT INCOME .......................................... 1,638,048 ---------- NET REALIZED AND UNREALIZED GAIN: Net realized gain.................................................. 801,133 Change in net unrealized appreciation or depreciation.............. 335,673 ---------- Net realized and unrealized gain................................... 1,136,806 ---------- Net increase in net assets resulting from operations............... $2,774,854 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 50 U.S. BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 OPERATIONS: ------------- ----------- Net investment income.............................. $ 1,638,048 $ 836,232 Net realized gain (loss)........................... 801,133 (36,166) Change in net unrealized appreciation or deprecia- tion.............................................. 335,673 343,515 ----------- ----------- Net increase in net assets resulting from opera- tions............................................. 2,774,854 1,143,581 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................... (1,526,152) (598,393) Brinson Class N................................... (54) -- SwissKey Class.................................... (103,513) (31,712) Distributions from net realized gain: Brinson Class I................................... (335,742) (675) Brinson Class N................................... (14) -- SwissKey Class.................................... (25,812) (39) ----------- ----------- Total distributions to shareholders................ (1,991,287) (630,819) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares sold........................................ 21,794,978 16,583,813 Shares issued on reinvestment of distributions..... 1,174,894 461,917 Shares redeemed.................................... (6,255,720) (3,420,321) ----------- ----------- Net increase in net assets resulting from capital share transactions................................ 16,714,152 13,625,409 ----------- ----------- TOTAL INCREASE IN NET ASSETS.................... 17,497,719 14,138,171 ----------- ----------- NET ASSETS: Beginning of year.................................. 23,820,705 9,682,534 ----------- ----------- End of year (including accumulated undistributed net investment income of $300,973 and $271,841, respectively).... $41,318,424 $23,820,705 =========== ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 51 U.S. BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
AUGUST 31, 1995* YEAR ENDED YEAR ENDED THROUGH BRINSON CLASS I JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of pe- riod............................. $ 10.24 $ 9.93 $10.00 ------- ------- ------ Income from investment opera- tions: Net investment income........... 0.53 0.51*** 0.50 Net realized and unrealized gain (loss)......................... 0.53 0.32 (0.14) ------- ------- ------ Total income from investment operations................... 1.06 0.83 0.36 ------- ------- ------ Less distributions: Distributions from net invest- ment income.................... (0.58) (0.52) (0.40) Distributions in excess of net realized gain.................. (0.14) -- (0.03) ------- ------- ------ Total distributions........... (0.72) (0.52) (0.43) ------- ------- ------ Net asset value, end of period.... $ 10.58 $ 10.24 $ 9.93 ======= ======= ====== Total return (non-annualized)..... 10.60% 8.45% 3.60% Ratios/Supplemental Data: Net assets, end of period (in 000s)........................... $38,874 $22,421 $9,047 Ratio of expenses to average net assets: Before expense reimbursement.... 0.84% 1.65% 3.63%** After expense reimbursement..... 0.60% 0.60% 0.60%** Ratio of net investment income to average net assets: Before expense reimbursement.... 5.61% 5.14% 3.00%** After expense reimbursement..... 5.85% 6.19% 6.03%** Portfolio turnover rate.......... 198% 410% 363%
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 52 U.S. BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED BRINSON CLASS N JUNE 30, 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $10.24 ------ Income from investment operations: Net investment income.......................................... 0.61 Net realized and unrealized gain............................... 0.42 ------ Total income from investment operations...................... 1.03 ------ Less distributions: Distributions from net investment income....................... (0.55) Distributions from net realized gain........................... (0.14) ------ Total distributions.......................................... (0.69) ------ Net asset value, end of period................................... $10.58 ====== Total return (non-annualized).................................... 10.30% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $ 1 Ratio of expenses to average net assets: Before expense reimbursement................................... 1.09% After expense reimbursement.................................... 0.85% Ratio of net investment income to average net assets: Before expense reimbursement................................... 5.36% After expense reimbursement.................................... 5.60% Portfolio turnover rate......................................... 198%
*Commencement of Brinson Class N was June 30, 1997. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 53 U.S. BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
AUGUST 31, 1995* YEAR ENDED YEAR ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of pe- riod............................. $10.22 $ 9.92 $10.00 ------ ------ ------ Income from investment opera- tions: Net investment income........... 0.50 0.46*** 0.46 Net realized and unrealized gain (loss)......................... 0.49 0.32 (0.13) ------ ------ ------ Total income from investment operations................... 0.99 0.78 0.33 ------ ------ ------ Less distributions: Distributions from net invest- ment income.................... (0.53) (0.48) (0.38) Distributions in excess of net realized gain.................. (0.14) -- (0.03) ------ ------ ------ Total distributions........... (0.67) (0.48) (0.41) ------ ------ ------ Net asset value, end of period.... $10.54 $10.22 $ 9.92 ====== ====== ====== Total return (non-annualized)..... 9.97% 7.91% 3.24% Ratios/Supplemental Data: Net assets, end of period (in 000s)........................... $2,444 $1,399 $ 636 Ratio of expenses to average net assets: Before expense reimbursement.... 1.31% 2.12% 4.10%** After expense reimbursement..... 1.07% 1.07% 1.07%** Ratio of net investment income to average net assets: Before expense reimbursement.... 5.14% 4.67% 2.53%** After expense reimbursement..... 5.38% 5.72% 5.56%** Portfolio turnover rate.......... 198% 410% 363%
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 54 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1.SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eight series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund in the preparation of their financial statements. A.INVESTMENT VALUATION: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Equity securities traded over-the-counter are valued at the most recent bid price. Securities for which the most recent bid price or market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B.INVESTMENT TRANSACTIONS: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. C.INVESTMENT INCOME: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. D.FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 1998, therefore, no federal income tax provision was required. E.DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex- dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Differences in dividends per share between the classes are due to distribution expenses. Amounts equal to 10.72%, 35.30% and 100% of the amount taxable as ordinary income qualify for the dividends received deduction available to corporate shareholders for the U.S. Balanced Fund, U.S. Equity Fund and U.S. Large Capitalization Equity Fund, respectively. F.INCOME AND EXPENSE ALLOCATIONS: All income earned and expenses incurred by the Funds will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the SwissKey Class. G.USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. - -------------------------------------------------------------------------------- 55 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, each Fund pays the Advisor a monthly fee based on the Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions with affiliates for the year ended June 30, 1998, were as follows:
FEES WAIVED ADVISORY BRINSON CLASS I BRINSON CLASS N SWISSKEY CLASS ADVISORY AND/OR FEE EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES REIMBURSED -------- --------------- --------------- -------------- ---------- ---------- U.S. Balanced Fund...... 0.70% 0.80% 1.05% 1.30% $1,674,661 $19,097 U.S. Equity Fund........ 0.70 0.80 1.05 1.32 3,792,120 -- U.S. Large Capitaliza- tion Equity Fund....... 0.70 0.80 1.05 1.32 21, 230 23,989 U.S. Bond Fund.......... 0.50 0.60 0.85 1.07 142,474 67,848
Certain officers of the Funds are also officers of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the year ended June 30, 1998 were $7,665, $9,205, $1,785 and $4,015 for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund, respectively. 3.INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 1998, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ------------ ------------ U.S. Balanced Fund................................... $415,621,140 $630,096,518 U.S. Equity Fund..................................... 413,499,173 218,951,890 U.S. Large Capitalization Equity Fund................ 17,063,797 1,460,325 U.S. Bond Fund....................................... 65,711,529 52,607,836
4.FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 5.DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the SwissKey Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund. Annual fees under the SwissKey Plan, which include a 0.25% service fee, total 0.50%, 0.52%, 0.52% and 0.47% of the average daily net assets of the SwissKey Class of the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund, respectively. 6.LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated at an annual rate of the Federal Funds rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized balance of the line of credit. During the year ended June 30, 1998, the Funds had no borrowings under the agreement. - -------------------------------------------------------------------------------- 56 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6.CAPITAL TRANSACTIONS Capital stock transactions were as follows:
U.S. BALANCED FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I.............. 4,720,912 $ 58,173,143 6,578,157 $ 78,728,712 Brinson Class N.............. -- -- 80 1,000 SwissKey Class............... 49,659 624,713 148,317 1,798,818 ---------- ------------ ---------- ------------ Total Sales................ 4,770,571 $ 58,797,856 6,726,554 $ 80,528,530 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I.............. 2,662,862 $ 31,359,575 1,541,262 $ 18,266,191 Brinson Class N.............. 11 136 -- -- SwissKey Class............... 14,933 175,706 3,904 46,232 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 2,677,806 $ 31,535,417 1,545,166 $ 18,312,423 ========== ============ ========== ============ Redemptions: Brinson Class I.............. 23,388,425 $293,534,522 4,988,208 $ 59,912,281 Brinson Class N.............. -- -- -- -- SwissKey Class............... 42,682 540,673 86,625 1,050,388 ---------- ------------ ---------- ------------ Total Redemptions.......... 23,431,107 $294,075,195 5,074,833 $ 60,962,669 ========== ============ ========== ============ U.S. EQUITY FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I.............. 16,875,765 $314,205,812 11,551,336 $183,660,431 Brinson Class N.............. 13,398 269,368 57 1,000 SwissKey Class............... 1,697,355 31,606,780 1,834,556 28,733,451 ---------- ------------ ---------- ------------ Total Sales................ 18,586,518 $346,081,960 13,385,949 $212,394,882 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I.............. 1,861,660 $ 32,092,717 907,559 $ 13,745,444 Brinson Class N.............. 47 896 -- -- SwissKey Class............... 110,158 1,887,716 25,905 393,121 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 1,971,865 $ 33,981,329 933,464 $ 14,138,565 ========== ============ ========== ============ Redemptions: Brinson Class I.............. 7,470,182 $144,565,891 1,959,184 $ 31,250,336 Brinson Class N.............. 5 100 -- -- SwissKey Class............... 1,023,014 19,298,428 237,473 3,720,862 ---------- ------------ ---------- ------------ Total Redemptions.......... 8,493,201 $163,864,419 2,196,657 $ 34,971,198 ========== ============ ========== ============ U.S. LARGE CAPITALIZATION EQUITY FUND* ----------------------- PERIOD ENDED JUNE 30, 1998* ----------------------- SHARES VALUE ---------- ------------ Sales: Brinson Class I.............. 16,662 $ 163,328 Brinson Class N.............. 1,688,092 16,758,163 SwissKey Class............... 104 1,000 ---------- ------------ Total Sales................ 1,704,858 $ 16,922,491 ========== ============ Dividend Reinvestment: Brinson Class I.............. 18 $ 168 Brinson Class N.............. 2,204 20,606 SwissKey Class............... -- 1 ---------- ------------ Total Dividend Reinvest- ment...................... 2,222 $ 20,775 ========== ============ Redemptions: Brinson Class I.............. 1,015 $ 9,875 Brinson Class N.............. 51,661 509,678 SwissKey Class............... -- -- ---------- ------------ Total Redemptions.......... 52,676 $ 519,553 ========== ============
*The Fund commenced operations on April 6, 1998. - -------------------------------------------------------------------------------- 57 THE BRINSON FUNDS -- NOTES TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
U.S. BOND FUND -------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ---------------------- --------------------- SHARES VALUE SHARES VALUE --------- ------------ --------- ----------- Sales: Brinson Class I.................. 1,926,960 $ 20,378,131 1,521,821 $15,371,166 Brinson Class N.................. -- -- 98 1,000 SwissKey Class................... 134,362 1,416,847 119,951 1,211,647 --------- ------------ --------- ----------- Total Sales.................... 2,061,322 $ 21,794,978 1,641,870 $16,583,813 ========= ============ ========= =========== Dividend Reinvestment: Brinson Class I.................. 107,565 $ 1,114,591 44,351 $ 449,362 Brinson Class N.................. 6 68 -- -- SwissKey Class................... 5,825 60,235 1,239 12,555 --------- ------------ --------- ----------- Total Dividend Reinvestment.... 113,396 $ 1,174,894 45,590 $ 461,917 ========= ============ ========= =========== Redemptions: Brinson Class I.................. 549,381 $ 5,780,080 288,064 $ 2,929,252 Brinson Class N.................. -- -- -- -- SwissKey Class................... 45,413 475,640 48,365 491,069 --------- ------------ --------- ----------- Total Redemptions.............. 594,794 $ 6,255,720 336,429 $ 3,420,321 ========= ============ ========= ===========
- -------------------------------------------------------------------------------- 58 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders The Brinson Funds -- U.S. Balanced Fund U.S. Equity Fund U.S. Large Capitalization Equity Fund U.S. Bond Fund We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Brinson Funds--U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund as of June 30, 1998, the related statements of operations for the period then ended and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund at June 30, 1998, the results of their operations for the period then ended and the changes in their net assets and the financial highlights for the periods indicated therein in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois August 7, 1998 - -------------------------------------------------------------------------------- 59 DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC. 60 STATE STREET BOSTON, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. - -------------------------------------------------------------------------------- [The Brinson Funds Logo] Chicago . Bahrain . Basel . Frankfurt . Geneva . Hong Kong . London . Melbourne . New York . Paris . Rio de Janeiro . Singapore . Sydney . Tokyo . Zurich 209 South LaSalle Street . Chicago, Illinois 60604-1295 . Tel: (800) 448-2430 -------------------------------- The Brinson Funds Brinson Non-U.S. Equity Fund Annual Report June 30, 1998 [ART] Institutional Asset Management -------------------------------- Trustees and Officers [ART] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Chairman of the Board E. Thomas McFarlan President Thomas J. Digenan, CFA, CPA Vice President Debra L. Nichols Vice President Carolyn M. Burke, CPA Secretary and Treasurer Catherine E. Macrae Assistant Secretary 1 The Fund's Advisor -- Brinson Partners, Inc. [ART] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory basis. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent and the flexibility to customize portfolios to meet unique requirements. 2 Table of Contents [ART] Shareholder Letter.......................... 4 Global Economic and Market Highlights....... 5 Non-U.S. Equity Fund........................ 6 Schedule of Investments.....................10 Financial Statements........................15 Financial Highlights........................18 Notes to Financial Statements...............21 Report of Independent Auditors..............24
3 Shareholder Letter [ART] August 22, 1998 Dear Shareholder: We are very pleased to present the June 30, 1998 Annual Report for the Non-U.S. Equity Fund. Within this Report, we focus on the current global economic outlook as well as our current strategy and performance update for the Non-U.S. Equity Fund. In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced their intention to merge which included the integration of UBS Asset Management and SBC Brinson into the UBS Brinson Division. The merger was consummated on June 29, 1998. UBS Brinson is managed today by the same senior management that has led the business over the past decades with a consistently applied investment philosophy and process. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. The UBS Brinson Division employs over 1,500 people in fifteen different cities throughout the world. We are excited about the formation of the UBS Brinson Division and the additional resources we have brought together to further the tradition of delivering value-added investment performance and the highest level of professional client service. Brinson Non-U.S. Equity Fund Class I Since its inception on August 31, 1993, the Brinson Non-U.S. Equity Fund Class I has produced an annualized total return of 9.03% versus 8.75% for the Morgan Stanley Capital International Non-U.S. Equity (Free) Index benchmark. This return was achieved at an annualized volatility of 10.92%, below the benchmark volatility of 12.78% and reflecting our cautious strategy at this time toward investment risk. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Gary P. Brinson Gary P. Brinson, CFA Chief Investment Officer Brinson Partners, Inc. 4 Global Economic and Market Highlights [ART] The economic situation in Japan remains bleak. With real GDP growth negative in the last two quarters, the country is officially in a recession. The downturn in output has brought on the highest unemployment rate recorded in the post-war period, at just over 4%. In response to the news, the voters have delivered a severe rebuke to the ruling LDP, although it is not at all certain that this will result in the implementation of "Solutions" proffered by Western governments and commentators. Many of Japan's problems are magnified elsewhere in Asia. Last year's financial and economic crisis has not diminished to any great extent. With financial systems straining under large amounts of defunct debts, and the IMF prescribing high interest rates in the interest of currency support and inflation control, real economic activity has slowed substantially. While Asia suffers from falling living standards, the crisis has been a partial benefit to the U.S. and Europe by keeping commodity and import prices in check, and by not augmenting strong domestic demand in those economies. Continental Europe's cyclical recovery is well under way, and is starting to have some beneficial effects on the high unemployment rate. Previously, output and profit growth were reasonably strong, but did not carry over into the labor market. Although unemployment has been reduced, the failure to address structural problems will almost certainly guarantee that the Continent's poor overall unemployment picture will persist for several years. The U.K.'s economic performance has been at odds with most of the rest of Europe. A series of Bank of England rate hikes has not prevented the headline inflation rate from rising above 4% this year. Now however, there are signs that these hikes, coupled with a strong pound, have started to cool the economy. The U.S. expansion is unabated; more than 7 years have elapsed since the recession at the start of the decade. However, the Federal Reserve's attempts to maintain a neutral policy stance, in light of the Asian crisis' effect on demand and costs, has resulted in substantial growth in the money supply. This could set the stage for a modest resurgence in inflation. Profit growth, which had reflected the strength of the domestic economy in prior years, is now showing signs of the fall-off in Asian demand and the strength of the dollar.
Non-U.S. Equity Environment 6 months 1 year 3 years 8/31/93* Major Markets ended ended ended to Total Return in U.S. Dollar Hedged Terms 6/30/98 6/30/98 6/30/98 6/30/98 - ---------------------------------------------------------------------------------------------- MSCI Non-US Equity (Free) Index 18.55% 16.90% 23.41% 12.62% Japan 6.69 -12.84 9.66 0.27 U.K. 12.94 27.19 22.48 15.91 Germany 38.48 54.41 40.75 25.15 France 40.90 49.97 35.47 18.18 Canada 12.73 19.79 22.70 17.63 Netherlands 24.69 34.80 44.73 29.26 Australia 7.21 4.55 10.55 8.54 - ---------------------------------------------------------------------------------------------- 6 months 1 year 3 years 8/31/93* Major Currencies ended ended ended to Percent Change Relative to U.S. Dollars 6/30/98 6/30/98 6/30/98 6/30/98 - ---------------------------------------------------------------------------------------------- Yen -6.31% -17.55% -15.11% -5.66% Pound 1.41 -0.25 1.60 2.40 Deutschemark -0.39 -3.46 -8.47 -1.50 Canadian Dollar -2.69 -6.19 -2.24 -2.20 - ----------------------------------------------------------------------------------------------
*Inception date of the Non-U.S. Equity Fund Class I All total returns in excess of 1 year are average annualized total returns 5 Non-U.S. Equity Fund [ART] The Non-U.S. Equity Fund invests in the common stocks of companies headquartered outside the U.S. We believe that in a non-U.S. investment program the country allocation decision is the most important. Country assessments are jointly developed by the non-U.S. strategy team in our offices worldwide. Currency strategies are separately developed and coordinated with market allocations. Our industry strategies and individual security selections are determined by fundamental research conducted by our analysts worldwide. Since its inception on August 31, 1993, the Brinson Non-U.S. Equity Fund Class I has earned an annualized return of 9.03% versus 8.75% for the Morgan Stanley Capital International Non-U.S. Equity (Free) Index benchmark. This return was achieved at an annualized volatility of 10.92%, below the benchmark volatility of 12.78%. For the six months ended June 30, 1998, the Fund returned 13.10%, compared to the index return of 15.53%. During the first half of 1998, the aggregate non-U.S. markets outperformed, rising 17.45% in dollar-hedged terms. The continental European markets continued to set the pace, with the best performing markets in dollar-hedged terms. Finland, Belgium and Spain led the pack, followed by France, Germany and Italy, each growing in excess of 30%. In strong contrast, the Far East ex-Japan region lost 29%. All three Southeast Asian markets had steep declines, led by Singapore (-35%), Hong Kong, (-28%) and Malaysia, (-26%). New Zealand was also quite weak, losing almost 14%. While positive, Japan's 5.7% hedged return was the sixth weakest as of mid-year. Currency weakness, coupled with debt and banking problems were behind the first group's weakness, while Japan's very weak economy, troubled banking system and seeming inability to resolve these problems has kept the market down. During the first half of 1998 several strategy changes took place. France was increased and Germany decreased, bringing the two markets into closer alignment. In February, Spain was eliminated, with proceeds added to Finland and Switzerland. In mid-April Malaysia was reduced to neutral and the U.K. overweight was increased. In early June Italy was reduced, with funds added to Denmark, Norway and Sweden, as part of an ongoing shift away from overvalued southern European markets to more attractively priced northern European markets. One currency strategy change took place. An Australian dollar overweight was established, paired with the yen, allowing us to take advantage of a strong positive interest rate differential in favor of the Australian currency. Market allocation had a significant negative effect on returns, largely due to strategic cash. Value added from underweighting Japan and Hong Kong and from overweighting Belgium, Finland and Italy, was more than offset by holding strategic cash, overweighting New Zealand and Singapore and underweighting Spain. Currency management had a negative impact on performance. The value added by the yen and U.S. dollar strategies was reduced by the overweights of the weak Australian and New Zealand dollars and the underweight of the rising pound sterling. Overall stock selection was positive due to the solid value added by Japan stock selection, as well as contributions from France, Italy and Hong Kong. 6 Non-U.S. Equity Fund [ART] Total Return
6 months 1 year 3 years 8/31/93* ended ended ended to 6/30/98 6/30/98 6/30/98 6/30/98 - ------------------------------------------------------------------------------ Brinson Non-U.S. Equity Fund Class I 13.10% 4.78% 15.91% 9.03% MSCI Non-U.S. Equity (Free) Index** 15.53% 6.04% 11.04% 8.75% - ------------------------------------------------------------------------------
* Inception date of the Brinson Non-U.S. Equity Fund Class I ** Performance is net of withholding taxes on dividends. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Non- U.S. Equity Fund Class I and the MSCI Non-U.S. Equity (Free) Index if you had invested $1,000,000 on August 31, 1993, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Non-U.S. Equity Fund Class I vs. MSCI Non-U.S. Equity (Free) Index Wealth Value with Dividends Reinvested [CHART] Brinson MSCI 12/31/93 $ 965,500 $ 988,754 6/30/94 $ 975,547 $1,068,786 12/31/94 $ 974,540 $1,062,774 6/30/95 $ 974,540 $1,095,525 12/31/95 $1,126,103 $1,187,456 6/30/96 $1,204,891 $1,244,668 12/31/96 $1,269,637 $1,271,887 6/30/97 $1,449,115 $1,414,422 12/31/97 $1,342,509 $1,298,199 6/30/98 $1,518,353 $1,499,791 8/31/93 = $1,000,000 Data through 6/30/98 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Non-U.S. Equity Fund [ART] Total Return 6 months 6/30/97* ended to 6/30/98 6/30/98 - ---------------------------------------------------------- Brinson Non-U.S. Equity Fund Class N 12.97% 4.51% MSCI Non-U.S. Equity (Free) Index** 15.53% 6.04% - ---------------------------------------------------------- * Inception date of the Brinson Non-U.S. Equity Fund Class N ** Performance is net of withholding taxes on dividends. Total return includes reinvestment of all capital gain and income distributions. Illustration of an Assumed Investment of $1,000,000 This chart shows the growth in the value of an investment in the Brinson Non- U.S. Equity Fund Class N and the MSCI Non-U.S. Equity (Free) Index if you had invested $1,000,000 on June 30, 1997, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. Brinson Non-U.S. Equity Fund Class N vs. MSCI Non-U.S. Equity (Free) Index Wealth Value with Dividends Reinvested [GRAPH APEARS HERE] $1,045,088 ========= Brinson Non-U.S. Equity Fund Class N $1,060,356 --------- MSCI Non-U.S. Equity (Free) Index [PLOT POINTS] Brinson MSCI 6/30/97 $1,000,000 $1,000,000 9/30/97 $ 999,206 $ 994,869 12/31/97 $ 925,127 $ 917,830 3/31/98 $1,044,194 $1,052,548 6/30/98 $1,045,088 $1,060,356 6/30/97 = $1,000,000 Data through 6/30/98 Fund returns are net of all fees and costs, while the index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. Non-U.S. Equity Fund (ART) Industry Diversification As a Percent of Net Assets As of June 30, 1998 - --------------------------------------------------- NON-U.S. EQUITIES Aerospace & Military...................... 0.22% Airlines.................................. 0.37 Appliances & Household.................... 2.09 Autos/Durables............................ 3.65 Banking................................... 11.51 Beverages & Tobacco....................... 2.39 Broadcasting & Publishing................. 2.47 Building Materials........................ 1.50 Business & Public Service................. 3.41 Chemicals................................. 3.01 Construction.............................. 1.03 Data Processing........................... 0.82 Electric Components....................... 1.24 Electronics............................... 4.14 Energy.................................... 6.52 Financial Services........................ 1.71 Food & House Products..................... 4.53 Forest Products........................... 1.21 Gold Mining............................... 0.06 Health & Personal Care.................... 7.45 Housing/Paper............................. 0.04 Industrial Components..................... 1.57 Insurance................................. 4.99 Investment Companies...................... 0.36 Leisure & Tourism......................... 0.69 Machinery & Engineering................... 0.72 Merchandising............................. 3.88 Metals-Steel.............................. 1.74 Miscellaneous Materials................... 0.04 Multi-Industry............................ 4.76 Non-Ferrous Metals........................ 1.52 Real Estate............................... 0.44 Recreation................................ 0.55 Retail/Apparel............................ 0.24 Shipping.................................. 0.01 Shipping.................................. 0.02 Telecommunications........................ 7.53 Textiles & Apparel........................ 0.28 Transportation............................ 1.08 Utilities................................. 3.07 Wholesale & International Trade........... 0.46 ------ Total Non-U.S. Equities.............. 93.32 ------ SHORT-TERM INVESTMENTS.................... 7.58 ------ TOTAL INVESTMENTS.................... 100.90 LIABILITIES, LESS CASH AND OTHER ASSETS........................ (0.90) ------ NET ASSETS................................ 100.00%
Market and Currency Strategy As of June 30, 1998
Fund --------------------- Market Currency Strategy Strategy Index - --------------------------------------------------- U.S. Dollar 0.0% 2.1% 0.0% Australia 5.1 6.2 2.2 Austria 0.0 0.4 0.4 Belgium 4.5 1.8 1.8 Canada 2.9 4.6 4.6 Denmark 0.4 0.9 0.9 Finland 2.6 1.0 1.0 France 9.2 9.1 9.2 Germany 10.6 10.9 10.8 Hong Kong 0.2 0.0 1.6 Ireland 0.0 0.5 0.5 Italy 3.5 4.4 4.4 Japan 14.7 15.7 19.7 Malaysia 0.3 0.5 0.5 Netherlands 4.9 5.5 5.6 New Zealand 3.7 3.8 0.2 Norway 0.4 0.5 0.5 Portugal 0.0 0.6 0.6 Singapore 1.3 0.5 0.5 Spain 0.0 3.2 3.2 Sweden 3.3 3.1 3.1 Switzerland 6.8 7.4 7.4 U.K. 25.6 17.3 21.3 Cash Reserves 0.0 0.0 0.0 - --------------------------------------------------- 100.0% 100.0% 100.0%
Top Ten Non-U.S. Equity Holdings As of June 30, 1998
Percent of Net Assets - ----------------------------------------------------------- 1. Novartis AG (Reg.) 1.50% 2. Glaxo Wellcome PLC 1.49 3. Nokia Oyj. Class A Preferred 1.28 4. British Petroleum Co. PLC 1.21 5. Royal Dutch Petroleum Co. 1.16 6. CS Holdings AG 1.13 7. British Telecommunications PLC 1.09 8. B.A.T. Industries PLC 1.08 9. Telecom Corp. of New Zealand Ltd. 1.04 10. Roche Holding AG (Gen.) 1.04 - -----------------------------------------------------------
9 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ------------ Non-U.S. Equities -- 93.32% AUSTRALIA -- 4.46% Amcor Ltd................................................. 91,600 $ 401,065 Boral Ltd................................................. 270,300 507,211 Brambles Industries Ltd................................... 43,600 855,675 Broken Hill Proprietary Co., Ltd.......................... 267,270 2,259,347 Coca-Cola Amatil Ltd...................................... 52,100 348,467 CSR Ltd................................................... 166,200 479,642 David Jones Ltd........................................... 579,500 663,935 Lend Lease Corp. Ltd...................................... 39,978 808,359 Mayne Nickless Ltd........................................ 133,100 704,765 National Australia Bank Ltd............................... 189,848 2,504,296 News Corp., Ltd........................................... 335,121 2,735,377 News Corp., Ltd., Preferred............................... 112,061 793,927 Orica Ltd................................................. 61,200 361,955 Pacific Dunlop Ltd........................................ 278,200 449,674 Qantas Airways Ltd........................................ 278,668 419,366 Rio Tinto Ltd............................................. 65,010 773,004 Santos Ltd................................................ 119,900 371,270 Telstra Corp., Ltd........................................ 567,600 1,455,267 Westpac Bank Corp., Ltd................................... 306,251 1,868,159 WMC Ltd................................................... 223,300 672,086 Woolworth's Ltd........................................... 117,200 381,054 ------------ 19,813,901 ------------ BELGIUM -- 4.18% Delhaize-Le Lion S.A. (b)................................. 20,650 1,442,892 Electrabel S.A............................................ 11,285 3,199,590 Fortis AG (b)............................................. 623 34 Fortis AG Strip (b)....................................... 15,673 4,001,438 Groupe Bruxelles Lambert S.A. (b)......................... 5,860 1,182,709 KBC Bancassurance Holding-Strip (b)....................... 660 53 KBC Bancassurance Holding (b)............................. 27,760 2,484,300 Petrofina S.A............................................. 5,810 2,385,051 Solvay S.A., Class A...................................... 16,860 1,336,657 Tractebel................................................. 13,200 1,933,351 Union Miniere S.A.(b)..................................... 9,990 617,495 ------------ 18,583,570 ------------ CANADA -- 2.83% Agrium, Inc............................................... 29,500 368,098 Alcan Aluminum Ltd........................................ 22,400 616,891 Bank of Montreal.......................................... 17,100 941,861 Barrick Gold Corp......................................... 13,700 260,846 Canadian National Railway Co.............................. 15,500 824,222 Canadian Pacific Ltd...................................... 51,294 1,444,017 Extendicare Inc. (b)...................................... 38,300 309,921 Hudson's Bay Co........................................... 20,300 465,191 Imasco, Ltd............................................... 26,500 489,239 Imperial Oil Ltd.......................................... 55,300 966,415 Magna International Inc., Class A......................... 6,800 465,633 Moore Corp., Ltd.......................................... 25,200 334,149 Newbridge Networks Corp. (b).............................. 7,000 167,313 Noranda, Inc.............................................. 23,100 398,980 NOVA Corp................................................. 62,800 719,557 Potash Corporation of Saskatchewan, Inc................... 6,800 512,335 Royal Bank of Canada...................................... 20,000 1,203,590 Seagram Co., Ltd.......................................... 9,400 383,197 Shaw Communications Inc., Class B......................... 36,200 704,012 TransCanada Pipelines Ltd................................. 30,500 676,119 Westcoast Energy, Inc..................................... 15,300 340,728 ------------ 12,592,314 ------------
SHARES VALUE ------- ------------ DENMARK -- 0.34% Den Danske Bank Group..................................... 6,700 $ 803,766 Tele Danmark A/S.......................................... 7,400 710,194 ------------ 1,513,960 ------------ FINLAND -- 2.12% Cultor Oyj................................................ 7,600 123,285 Merita Ltd., Class A...................................... 161,510 1,065,645 Metsa Serla Oyj, Class B.................................. 31,590 305,162 Nokia Oyj Class A, Preferred (b).......................... 77,260 5,682,021 Outokumpu Oyj, Class A.................................... 29,620 377,909 Sampo Insurance Co., Ltd., Class A........................ 11,360 538,340 UPM-Kymmene Corp.......................................... 36,830 1,013,639 Valmet Oyj................................................ 19,000 327,604 ------------ 9,433,605 ------------ FRANCE -- 8.36% Air Liquide............................................... 4,483 741,399 Alcatel Alsthom........................................... 8,405 1,711,306 AXA-UAP................................................... 17,402 1,957,221 AXA-UAP Certificate de Valeur Guarantie (b)............... 9,002 3,067 Banque Nationale de Paris................................. 18,610 1,520,566 Carrefour SA.............................................. 2,000 1,265,299 Cie de Saint Gobain....................................... 9,443 1,750,844 Dexia France (b).......................................... 8,840 1,190,169 Elf Aquitaine S.A......................................... 14,214 1,998,329 Eridania Beghin-Say SA.................................... 3,600 794,906 France Telecom S.A........................................ 36,300 2,503,655 Groupe Danone............................................. 5,220 1,439,256 Lafarge S.A............................................... 7,964 823,272 Lagardere S.C.A........................................... 26,760 1,114,041 Michelin, Class B......................................... 17,993 1,038,630 Paribas (b)............................................... 12,643 1,352,964 Pechiney S.A., Class A.................................... 17,685 712,256 Peugeot S.A............................................... 8,160 1,754,548 Pinault-Printemps-Redoute S.A............................. 1,260 1,054,515 Rhone-Poulenc, Class A.................................... 31,130 1,755,761 SEITA..................................................... 31,430 1,424,383 Societe Generale.......................................... 7,913 1,645,161 Suez Lyonnaise des Eaux S.A. (b).......................... 12,942 2,129,886 Thomson CSF............................................... 25,590 973,487 Total S.A., Class B....................................... 11,025 1,433,286 Usinor Sacilor............................................ 25,980 401,345 Vivendi................................................... 12,434 2,655,027 Vivendi Warrants "01" (b)................................. 12,664 24,926 ------------ 37,169,505 ------------ GERMANY -- 9.83% Allianz AG (b)............................................ 436 142,515 Allianz AG................................................ 13,530 4,460,028 BASF AG................................................... 19,940 944,526 Bayer AG.................................................. 49,400 2,548,000 Bayerische Motoren Werke (BMW) (b)........................ 402 399,773 Bayerische Motoren Werke AG............................... 1,240 1,250,992 Commerzbank AG............................................ 10,830 414,000 Continental AG............................................ 34,500 1,074,183 Daimler-Benz AG........................................... 20,792 2,038,883 Deutsche Bank AG.......................................... 32,917 2,787,459 Deutsche Telekom AG....................................... 137,010 3,696,613 Dresdner Bank AG.......................................... 39,800 2,145,451 Hochtief AG............................................... 11,690 560,213
- -------------------------------------------------------------------------------- 10 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ------------ GERMANY (CONTINUED) Hoechst AG................................................ 15,610 $ 779,203 M.A.N. AG................................................. 2,500 972,299 Mannesmann AG (b)......................................... 20,470 2,076,486 Metro AG.................................................. 27,353 1,659,365 Metro AG Right (b)........................................ 27,353 1,061 Muenchener Rueckver AG.................................... 6,820 3,381,662 Preussag AG............................................... 3,719 1,326,890 RWE AG.................................................... 24,300 1,440,499 Schering AG............................................... 12,622 1,487,368 Siemens AG................................................ 39,520 2,404,042 Thyssen AG................................................ 4,850 1,227,950 Veba AG................................................... 28,708 1,956,279 Volkswagen AG............................................. 2,621 2,519,355 ------------ 43,695,095 ------------ HONG KONG -- 0.57% Cheung Kong Holdings Ltd.................................. 95,000 467,117 Citic Pacific Ltd......................................... 49,000 86,635 CLP Holdings Ltd.......................................... 53,500 243,728 Hang Seng Bank Ltd........................................ 38,400 217,061 Hong Kong & China Gas Co., Ltd............................ 258,700 293,803 Hong Kong & China Gas Warrants "99" (b)................... 11,850 811 Hong Kong Telecommunications Ltd.......................... 111,600 209,558 Hutchison Whampoa Ltd..................................... 103,000 543,672 Johnson Electric Holdings Ltd............................. 54,000 200,010 South China Morning Post (Holdings) Ltd................... 100,000 48,073 Sun Hung Kai Properties Ltd............................... 49,000 208,050 ------------ 2,518,518 ------------ ITALY -- 3.67% Assicurazioni Generali.................................... 54,446 1,770,402 Banca Commercial Italiana................................. 21,000 125,583 Credito Italiano S.p.A.................................... 241,500 1,264,188 Danieli & Co. Savings (Risp).............................. 129,100 599,181 Edison S.p.A.............................................. 6,000 48,151 ENI ADR................................................... 18,500 1,202,500 ENI S.p.A................................................. 369,000 2,418,413 Fiat S.p.A.-Privileged Preferred.......................... 399,220 993,811 INA-Istituto Nazionale delle Assicurazioni................ 33,100 94,037 Instituto Mobiliare Italiano S.p.A........................ 62,000 976,625 Istituto Bancario San Paolo di Torino..................... 56,000 808,079 Italgas S.p.A............................................. 14,000 57,022 La Rinascente S.p.A....................................... 79,140 788,039 Montedison S.p.A.......................................... 833,280 1,033,660 Parmalat Finanziaria S.p.A................................ 295,000 601,601 Telecom Italia Mobile S.p.A............................... 270,000 1,651,093 Telecom Italia Mobile S.p.A. RNC.......................... 121,000 408,427 Telecom Italia S.p.A...................................... 202,666 1,491,876 ------------ 16,332,688 ------------ JAPAN -- 16.02% Amada Co., Ltd............................................ 150,000 729,546 Bank of Tokyo-Mitsubishi, Ltd............................. 139,000 1,471,276 Canon Sales Co., Inc...................................... 56,000 761,005 Canon, Inc................................................ 115,000 2,610,152 Citizen Watch Co., Ltd.................................... 136,000 1,122,023 Dai Nippon Printing Co., Ltd.............................. 142,000 2,266,311 Daiichi Pharmaceutical Co., Ltd........................... 139,000 1,832,835 Daikin Industries Ltd..................................... 159,000 1,024,217
SHARES VALUE ------- ------------ Daiwa House Industry Co., Ltd............................. 85,000 $ 750,261 Denso Corp................................................ 118,000 1,955,543 Fanuc..................................................... 57,700 1,995,605 Fuji Photo Film........................................... 11,000 382,822 Fujitsu................................................... 89,000 936,268 Hitachi Ltd............................................... 286,000 1,864,971 Honda Motor Co............................................ 61,000 2,171,272 Hoya Corp................................................. 34,000 962,784 Inax...................................................... 121,000 415,874 Ito Yokado Co., Ltd....................................... 56,000 2,634,867 Kaneka Corp............................................... 162,000 852,109 Keio Teito Electric Railway............................... 178,000 647,693 Kinki Nippon Railway...................................... 178,000 833,664 Kirin Brewery Co., Ltd.................................... 168,000 1,585,762 Kokuyo.................................................... 51,000 863,566 Kuraray Co., Ltd.......................................... 181,000 1,537,623 Kyocera Corp.............................................. 18,300 894,001 Marui Co., Ltd............................................ 82,000 1,223,043 Matsushita Electric Industrial Co......................... 166,000 2,667,291 NGK Insulators............................................ 259,000 2,248,766 Nintendo Co., Ltd......................................... 14,500 1,342,544 Nippon Meat Packers, Inc.................................. 99,000 1,211,954 Nippon Steel Co........................................... 142,000 249,652 Okumura Corp.............................................. 157,000 550,917 Omron Corp................................................ 46,000 702,670 Osaka Gas Co.............................................. 285,000 731,059 Sankyo Co., Ltd........................................... 148,000 3,369,817 Secom Co., Ltd............................................ 37,000 2,135,461 Sega Enterprises Ltd...................................... 19,000 327,881 Seino Transportation...................................... 123,000 682,423 Sekisui House Ltd......................................... 141,000 1,092,157 Shin-Etsu Chemical Co., Ltd............................... 12,000 207,515 Sony Corp................................................. 30,500 2,626,184 Sumitomo Bank............................................. 14,000 136,182 Sumitomo Chemical Co...................................... 203,000 626,033 Sumitomo Electric Industries.............................. 125,000 1,263,645 Takeda Chemical Industries................................ 94,000 2,499,262 TDK Corp.................................................. 26,000 1,920,236 Tokio Marine & Fire Insurance Co.......................... 148,000 1,520,683 Tokyo Electric Power...................................... 37,000 725,150 Tonen Corp................................................ 110,000 569,874 Toray Industries, Inc..................................... 385,000 1,997,334 Toshiba Corp.............................................. 387,000 1,581,072 Toyo Suisan Kaisha........................................ 79,000 481,565 Toyota Motor Corp......................................... 103,000 2,664,337 Yamato Transport Co., Ltd................................. 24,000 268,905 Yamazaki Baking Co., Ltd.................................. 56,000 496,307 ------------ 71,221,969 ------------ MALAYSIA -- 0.39% Berjaya Sports Toto Bhd................................... 71,000 105,280 Kuala Lumpur Kepong Bhd................................... 118,000 190,621 Malayan Banking Bhd A Shares (b).......................... 47,000 46,858 Malayan Banking Bhd....................................... 39,000 39,306 Malaysia International Shipping Bhd (Frgn.)............... 47,000 68,559 Nestle (Malaysia) Bhd..................................... 38,000 172,248 Petronas Gas Bhd.......................................... 73,000 135,527 Public Bank Bhd (Frgn.)................................... 71,000 21,398 Resorts World Bhd......................................... 100,000 109,946 Rothmans of Pall Mall Bhd................................. 37,000 256,480
- -------------------------------------------------------------------------------- 11 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE --------- ------------ MALAYSIA (CONTINUED) Sime Darby Bhd.......................................... 25,000 $ 17,239 Tanjong PLC............................................. 46,000 63,773 Telekom Malaysia Bhd (b)................................ 104,000 175,527 Tenaga Nasional Bhd..................................... 110,000 132,610 UMW Holdings Bhd........................................ 58,000 26,011 YTL Corp. Bhd........................................... 162,000 121,866 YTL Power International Bhd (b)......................... 64,900 35,364 ------------ 1,718,613 ------------ NETHERLANDS -- 4.55% ABN AMRO Holdings NV.................................... 69,730 1,631,672 Akzo Nobel NV........................................... 2,230 495,726 Elsevier NV............................................. 74,910 1,130,536 Heineken NV (b)......................................... 32,062 1,259,342 Hoogovens NV............................................ 7,303 315,930 ING Groep NV............................................ 39,998 2,619,081 KLM Royal Dutch Air Lines NV............................ 10,150 412,147 KPN NV.................................................. 36,890 1,419,962 Philips Electronics NV.................................. 21,070 1,771,198 PolyGram NV............................................. 13,400 683,768 Royal Dutch Petroleum Co................................ 92,660 5,138,161 TNT Post Group NV (b)................................... 36,890 943,014 Unilever NV............................................. 30,660 2,432,663 ------------ 20,253,200 ------------ NEW ZEALAND -- 2.28% Brierley Investments Ltd................................ 2,683,400 1,337,236 Carter Holt Harvey Ltd.................................. 929,700 810,781 Fletcher Challenge Building............................. 307,650 383,283 Fletcher Challenge Energy............................... 339,250 810,082 Fletcher Challenge Forests Ltd.......................... 626,593 351,286 Fletcher Challenge Paper................................ 609,800 677,411 Lion Nathan Ltd......................................... 256,600 570,101 Telecom Corp. of New Zealand Ltd........................ 1,122,800 4,627,796 Telecom Corp. of New Zealand Ltd. ADR................... 17,600 576,400 ------------ 10,144,376 ------------ NORWAY -- 0.21% Norsk Hydro ASA......................................... 17,000 747,703 Norske Skogindustrier ASA Class A....................... 6,300 194,579 ------------ 942,282 ------------ SINGAPORE -- 1.13% City Developments Ltd................................... 89,000 248,642 Creative Technology Ltd. (b)............................ 10,000 121,338 DBS Land Ltd............................................ 168,000 139,213 Development Bank of Singapore Ltd....................... 43,200 239,077 Elec & Eltek International Co., Ltd..................... 26,100 88,218 Fraser & Neave Ltd...................................... 35,000 94,051 Keppel Corp., Ltd....................................... 109,750 164,999 Keppel Land Ltd......................................... 105,000 96,330 Oversea-Chinese Banking Corp., Ltd...................... 112,400 382,539 Rothmans Industries Ltd................................. 22,000 97,662 Singapore Airlines Ltd. (Frgn.)......................... 125,000 584,492 Singapore Press Holdings Ltd............................ 99,972 668,650 Singapore Technologies Engineering Ltd. (b). 111,000 78,183 Singapore Telecommunications, Ltd....................... 870,000 1,235,869 United Overseas Bank Ltd. (Frgn.)....................... 241,000 748,890 Venture Manufacturing (Singapore) Ltd. (b).............. 27,000 51,139 ------------ 5,039,292 ------------
SHARES VALUE --------- ------------ SWEDEN -- 2.97% ABB AB, A Shares........................................ 64,400 $ 912,513 Astra AB, A Shares...................................... 64,800 1,324,455 Electrolux AB Series B.................................. 29,400 505,060 Ericsson, B Shares...................................... 93,700 2,737,602 Investor AB-B Shares.................................... 27,300 1,593,518 Nordbanken Holding AB................................... 205,700 1,508,915 Skandia Forsakrings AB.................................. 60,800 869,127 Skanska AB, B Shares.................................... 18,600 834,970 Svenska Handelsbanken, A Shares......................... 20,900 969,667 Swedish Match AB........................................ 169,100 561,907 Volvo AB, B Shares...................................... 46,100 1,372,901 ------------ 13,190,635 ------------ SWITZERLAND -- 6.55% ABB AG (Bearer)......................................... 892 1,317,300 CS Holdings AG (Reg.)................................... 22,671 5,044,477 Holderbank Financiere Glarus, B Shares.................. 840 1,068,829 Julius Baer Holding AG.................................. 377 1,179,368 Nestle S.A. (Reg.)...................................... 1,875 4,012,559 Novartis AG (Reg.)...................................... 4,020 6,689,399 Roche Holding AG (Gen.)................................. 470 4,615,407 Sairgroup............................................... 2,475 814,231 Saurer AG............................................... 845 863,496 Sulzer AG............................................... 886 699,197 Swiss Reinsurance Co. (Reg.)............................ 1,109 2,804,670 ------------ 29,108,933 ------------ UNITED KINGDOM -- 22.86% Abbey National PLC...................................... 91,400 1,624,137 B.A.T. Industries PLC................................... 477,800 4,783,262 Barclays PLC............................................ 116,900 3,370,427 Bass PLC................................................ 49,407 925,753 Billiton PLC............................................ 554,300 1,123,694 BOC Group PLC........................................... 62,100 846,008 Booker PLC.............................................. 283,200 1,157,673 British Petroleum Co. PLC............................... 368,294 5,370,724 British Sky Broadcasting PLC............................ 164,400 1,180,869 British Steel PLC....................................... 1,060,800 2,331,905 British Telecommunications PLC.......................... 391,600 4,835,052 BTR PLC (b)............................................. 177,306 502,920 Cable & Wireless PLC.................................... 92,200 1,119,925 Cadbury Schweppes PLC................................... 134,200 2,076,793 Charter PLC............................................. 182,218 1,901,715 Coats Viyella PLC....................................... 997,900 1,223,774 Diageo PLC.............................................. 165,135 1,956,249 FKI PLC................................................. 551,925 1,593,136 General Electric Co. PLC................................ 320,400 2,761,147 Glaxo Wellcome PLC...................................... 220,300 6,612,602 Greenalls Group PLC..................................... 177,200 1,534,468 Hanson PLC.............................................. 205,712 1,250,219 Hillsdown Holdings PLC.................................. 489,700 1,331,817 House of Fraser PLC..................................... 517,200 1,501,532 HSBC Holdings PLC....................................... 125,251 3,178,609 Inchcape PLC............................................ 275,100 867,519 Legal & General Group PLC............................... 58,800 627,400 Lloyds TSB Group PLC.................................... 318,285 4,452,931 Marks & Spencer PLC..................................... 453,600 4,128,521 Mirror Group PLC........................................ 489,000 1,835,769 National Westminster Bank PLC........................... 81,600 1,458,164
- -------------------------------------------------------------------------------- 12 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ------------ UNITED KINGDOM (CONTINUED) Peninsular & Oriental Steam Navigation Co................. 179,260 $ 2,581,196 Prudential Corp. PLC...................................... 65,800 866,772 Reckitt & Colman PLC...................................... 49,646 947,626 Reed International PLC.................................... 210,000 1,899,089 Reuters Group PLC......................................... 46,353 529,780 Rio Tinto PLC............................................. 129,800 1,461,858 RJB Mining PLC............................................ 325,800 668,625 Royal & Sun Alliance Insurance Group PLC.................. 137,714 1,423,463 Scottish Hydro-Electric PLC............................... 145,600 1,292,408 Sears PLC................................................. 702,600 615,452 Sedgwick Group PLC........................................ 412,300 894,300 SmithKline Beecham PLC.................................... 351,200 4,286,428 Smurfit (Jefferson) Group PLC............................. 496,729 1,483,540 Tate & Lyle PLC........................................... 242,000 1,918,953 Tesco PLC................................................. 179,300 1,750,100 Thames Water PLC.......................................... 121,500 2,211,708 Unilever PLC.............................................. 273,600 2,912,484 United News & Media PLC................................... 94,100 1,315,711 Vodafone Group PLC........................................ 148,327 1,882,115 Williams PLC.............................................. 162,000 1,040,645 Willis Corroon Group PLC.................................. 89,100 225,969 ------------ 101,672,936 ------------ Total Non-U.S. Equities (Cost $354,901,674)...................................... 414,945,392 ------------
FACE AMOUNT VALUE ---------- ------------ Short-Term Investments -- 7.58% UNITED STATES -- 7.58% ARCO Chemical Co. 5.770%, due 07/06/98.................................. $2,894,000 $ 2,891,681 Cincinnati Bell Inc. 6.600%, due 07/01/98.................................. 3,000,000 3,000,000 5.850%, due 07/13/98.................................. 2,000,000 1,996,100 5.900%, due 07/17/98.................................. 3,500,000 3,490,822 Hilton Hotels Corp. 5.720%, due 07/15/98.................................. 1,500,000 1,496,663 NGC Corp. 6.750%, due 07/01/98.................................. 2,304,000 2,304,000 PG & E Gas Transmission 5.670%, due 07/02/98.................................. 2,000,000 1,999,685 Raytheon Co. 7.000%, due 07/01/98.................................. 3,599,000 3,599,000 5.700%, due 07/09/98.................................. 4,000,000 3,994,933 Tenneco Inc. 5.750%, due 07/17/98.................................. 5,000,000 4,987,222 Union Pacific Resources Inc. 5.740%, due 08/31/98.................................. 2,000,000 1,981,090 5.750%, due 08/31/98.................................. 2,000,000 1,981,090 ------------ Total Short-Term Investments (Cost $33,721,297).................................... 33,722,286 ------------ Total Investments (Cost $388,622,971) -- 100.90% (a).................... 448,667,678 ------------ Liabilities, less cash and other assets--(0.90%)....... (4,018,530) ------------ Net Assets -- 100%..................................... $444,649,148 ============
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 13 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $388,622,971; and net unrealized appreciation consisted of: Gross unrealized appreciation................................ $94,020,292 Gross unrealized depreciation................................ (33,975,585) ----------- Net unrealized appreciation................................ $60,044,707 ===========
(b) Non-income producing security. (c) Denominated in U.S. dollars. FORWARD FOREIGN CURRENCY CONTRACTS The Non-U.S. Equity Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- -------------- ----------- ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Australian Dollar.......... 8/19/98 10,350,000 $ 6,382,807 $ (510,975) Canadian Dollar............ 8/19/98 9,200,000 6,262,423 (126,466) Danish Krone............... 8/19/98 29,900,000 4,357,171 349 French Franc............... 8/19/98 13,000,000 2,156,781 179 German Mark................ 8/19/98 5,800,000 3,223,135 (2,671) Hong Kong Dollar........... 8/19/98 6,500,000 835,044 962 Italian Lira............... 8/19/98 12,690,000,000 7,144,834 (7,706) Japanese Yen............... 8/19/98 1,110,000,000 8,057,759 (996,074) Malaysian Ringgit.......... 8/19/98 11,800,000 2,779,466 (165,013) Netherlands Guilder........ 8/19/98 7,900,000 3,895,636 (4,058) Norwegian Krona............ 8/19/98 15,700,000 2,048,360 (40,795) Spanish Peseta............. 8/19/98 2,270,000,000 14,854,400 19,808 Swedish Krona.............. 8/19/98 24,900,000 3,128,687 38,590 Swiss Franc................ 8/19/98 13,600,000 9,011,815 (498,675) FORWARD FOREIGN CURRENCY SALE CONTRACTS Belgian Franc.............. 8/19/98 455,000,000 12,262,773 (23,501) British Pound.............. 8/19/98 20,700,000 34,440,876 (649,116) Finnish Markka............. 8/19/98 29,300,000 5,355,628 56,243 Hong Kong Dollar........... 8/19/98 27,500,000 3,532,879 2,053 Italian Lira............... 8/19/98 3,550,000,000 1,998,752 (18,587) Malaysian Ringgit.......... 8/19/98 11,800,000 2,779,466 214,318 Singapore Dollar........... 8/19/98 6,300,000 3,716,529 26,786 Swedish Krona.............. 8/19/98 24,900,000 3,128,687 (12,214) Swiss Franc................ 8/19/98 6,700,000 4,439,644 227,069 ----------- Total.................... $(2,469,494) ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $388,622,971)....................... $448,667,678 Cash............................................................ 26,932 Receivables: Investment securities sold..................................... 7,890,263 Dividends...................................................... 1,342,491 Interest....................................................... 32,326 Fund shares sold............................................... 63,095 Other assets.................................................... 475 ------------ TOTAL ASSETS................................................. 458,023,260 ------------ LIABILITIES: Payables: Investment securities purchased................................ 5,994,611 Fund shares sold............................................... 3,978,248 Investment advisory fees....................................... 313,798 Accrued expenses............................................... 617,961 Net unrealized depreciation on forward foreign currency con- tracts......................................................... 2,469,494 ------------ TOTAL LIABILITIES............................................ 13,374,112 ------------ NET ASSETS....................................................... $444,649,148 ============ NET ASSETS CONSIST OF: Paid in capital................................................. $385,674,481 Accumulated undistributed net investment income................. 1,437,308 Accumulated net realized loss................................... (65,467) Net unrealized appreciation..................................... 57,602,826 ------------ NET ASSETS................................................... $444,649,148 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $439,328,830 and 36,163,586 shares is- sued and outstanding)......................................... $ 12.15 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $10,772 and 887 shares issued and outstanding)................ $ 12.14 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $5,309,546 and 440,453 shares issued and outstanding).............................................. $ 12.05 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends (net of $1,314,183 for foreign taxes withheld)......... $ 9,245,122 Interest (including securities lending income of $82,824)........ 1,703,252 ----------- TOTAL INCOME.................................................. 10,948,374 ----------- EXPENSES: Advisory......................................................... 3,475,953 Administrative................................................... 305,643 Custodian........................................................ 228,877 Distribution..................................................... 67,597 Other............................................................ 331,206 ----------- TOTAL EXPENSES................................................ 4,409,276 ----------- NET INVESTMENT INCOME ........................................ 6,539,098 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 11,812,215 Futures contracts............................................... (1,031,399) Foreign currency transactions................................... 1,443,040 ----------- Net realized gain............................................. 12,223,856 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency ............................... 10,352,717 Translation of other assets and liabilities denominated in for- eign currency.................................................. (107,626) Futures contracts .............................................. (3,327,266) Forward contracts............................................... (42,714) ----------- Change in net unrealized appreciation or depreciation......... 6,875,111 ----------- Net realized and unrealized gain.................................. 19,098,967 ----------- Net increase in net assets resulting from operations.............. $25,638,065 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 6,539,098 $ 5,529,755 Net realized gain................................. 12,223,856 24,421,499 Change in net unrealized appreciation or deprecia- tion ............................................ 6,875,111 35,391,730 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 25,638,065 65,342,984 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I ................................. (6,380,973) (4,371,883) Brinson Class N.................................. (58) -- SwissKey Class................................... (51,271) (40,369) Distributions from net realized gain: Brinson Class I.................................. (25,288,399) (12,209,010) Brinson Class N.................................. (59) -- SwissKey Class................................... (521,640) (94,152) ------------ ------------ Total distributions to shareholders............... (32,242,400) (16,715,414) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 317,039,181 232,045,893 Shares issued on reinvestment of distributions.... 31,189,854 16,204,754 Shares redeemed................................... (325,627,875) (81,854,223) ------------ ------------ Net increase in net assets resulting from capital share transactions............................... 22,601,160 166,396,424 ------------ ------------ TOTAL INCREASE IN NET ASSETS.................... 15,996,825 215,023,994 ------------ ------------ NET ASSETS: Beginning of year................................. 428,652,323 213,628,329 ------------ ------------ End of year (including accumulated undistributed net investment income of $1,437,308 and $1,777,930, respectively)........................ $444,649,148 $428,652,323 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 17 NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, AUGUST 31, 1993* ---------------------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - ------------------------------------------------------------------------------------ Net asset value, begin- ning of period......... $ 12.59 $ 11.17 $ 9.68 $ 9.69 $ 10.00 -------- -------- -------- -------- ------- Income from investment operations: Net investment income. 0.18 0.18 0.18 0.15 0.10 Net realized and unrealized gain (loss)............... 0.30 1.97 2.05 (0.16) (0.34) -------- -------- -------- -------- ------- Total income (loss) from investment operations......... 0.48 2.15 2.23 (0.01) (0.24) -------- -------- -------- -------- ------- Less distributions: Distributions from in- vestment income...... (0.18) (0.17) (0.18) -- (0.07) Distributions from net realized gain........ (0.74) (0.56) (0.56) -- -- -------- -------- -------- -------- ------- Total distributions. (0.92) (0.73) (0.74) -- (0.07) -------- -------- -------- -------- ------- Net asset value, end of period................. $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69 ======== ======== ======== ======== ======= Total return (non- annualized)............ 4.78% 20.27% 23.64% (0.10)% (2.45)% Ratios/Supplemental da- ta: Net assets, end of pe- riod (in 000s)........ $439,329 $420,855 $212,366 $148,319 $71,544 Ratio of expenses to average net assets: Before expense reim- bursement............ 1.00% 1.00% 1.20% 1.23% 1.60%** After expense reim- bursement............ N/A N/A 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reim- bursement............ 1.52% 1.83% 1.67% 1.93% 1.28%** After expense reim- bursement............ N/A N/A 1.87% 2.16% 1.88%** Portfolio turnover rate.................. 49% 25% 20% 14% 12% Average commission rate paid per share........ $ 0.0221 $ 0.0245 $ 0.0219 N/A N/A
* Commencement of investment operations ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR* ENDED BRINSON CLASS N JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of year $ 12.59 ------- Income from investment operations: Net investment income........................................... 0.16 Net realized and unrealized gain................................ 0.29 ------- Total income from investment operations....................... 0.45 ------- Less distributions: Distributions from net investment income........................ (0.16) Distributions from net realized gain............................ (0.74) ------- Total distributions........................................... (0.90) ------- Net asset value, end of year $ 12.14 ======= Total return...................................................... 4.51% Ratios/Supplemental data: Net assets, end of year (in 000s)................................ $ 11 Ratio of expenses to average net assets: Before expense reimbursement.................................... 1.25% After expense reimbursement..................................... N/A Ratio of net investment income to average net assets: Before expense reimbursement.................................... 1.27% After expense reimbursement..................................... N/A Portfolio turnover rate.......................................... 49% Average commission rate paid per share........................... $0.0221
* Commencement of Brinson Class N was June 30, 1997. N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 19 NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, JULY 31, 1995* ----------------- THROUGH SWISSKEY CLASS 1998 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of period........ $ 12.49 $ 11.12 $ 10.26 ------- ------- ------- Income from investment operations: Net investment income..................... 0.08 0.11 0.12 Net realized and unrealized gain.......... 0.30 1.93 1.45 ------- ------- ------- Total income from investment operations. 0.38 2.04 1.57 ------- ------- ------- Less distributions: Distributions from net investment income.. (0.08) (0.11) (0.15) Distributions from net realized gain...... (0.74) (0.56) (0.56) ------- ------- ------- Total distributions..................... (0.82) (0.67) (0.71) ------- ------- ------- Net asset value, end of period.............. $ 12.05 $ 12.49 $ 11.12 ======= ======= ======= Total return (non-annualized)............... 3.90% 19.32% 15.78% Ratios/Supplemental data: Net assets, end of period (in 000s)........ $ 5,310 $ 7,797 $ 1,262 Ratio of expenses to average net assets: Before expense reimbursement.............. 1.84% 1.81% 2.04%** After expense reimbursement............... N/A N/A 1.84%** Ratio of net investment income to average net assets: Before expense reimbursement.............. 0.68% 1.02% 0.83%** After expense reimbursement............... N/A N/A 1.03%** Portfolio turnover rate.................... 49% 25% 20% Average commission rate paid per share..... $0.0221 $0.0245 $0.0219
* Commencement of SwissKey Class ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1.SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eight series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the Non-U.S. Equity Fund in the preparation of its financial statements. A.INVESTMENT VALUATION:Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B.FOREIGN CURRENCY TRANSLATION:Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate on the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C.INVESTMENT TRANSACTIONS:Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D.INVESTMENT INCOME:Interest income, which includes amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E.FEDERAL INCOME TAXES:It is the policy of the Fund to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. The Fund has met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 1998, therefore, no federal income tax provision was required. F.DISTRIBUTIONS TO SHAREHOLDERS:It is the policy of the Fund to distribute its net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing tax treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. G.INCOME AND EXPENSE ALLOCATION:All income earned and expenses incurred by the Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the SwissKey Class. - -------------------------------------------------------------------------------- 21 NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- H.USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Fund with investment management services. As compensation for these services, the Fund pays the Advisor a monthly fee based on the Fund's average daily net assets. The Advisor has agreed to waive its fees and reimburse the Fund to the extent total annualized expenses exceed a specified percentage of the Fund's average daily net assets. The expense cap is 1.00%, 1.25% and 1.84% of the average daily net assets of the Brinson Class I, Brinson Class N and SwissKey Class, respectively. Investment advisory fees and other transactions with affiliates for the year ended June 30, 1998, were as follows:
ADVISORY ADVISORY FEE FEES -------- ---------- Non-U.S. Equity Fund........................................ 0.80% $3,475,953
Certain officers of the Fund are also officers of the Advisor. All officers serve without direct compensation from the Fund. Trustees' fees paid to unaffiliated trustees for the year ended June 30, 1998 were $5,840. 3.INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 1998, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ------------ ------------ Non-U.S. Equity Fund.................................. $196,176,481 $198,897,969
4.FORWARD FOREIGN CURRENCY CONTRACTS The Fund engages in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to the Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Fund realizes a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts, at and for the year ended June 30, 1998, was the Fund's custodian or an affiliate of the Fund's custodian. 5.FUTURES CONTRACTS The Fund may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Fund to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Fund enters into such contracts to hedge a portion of its portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Fund, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. - -------------------------------------------------------------------------------- 22 NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6.SECURITY LENDING The Fund loaned securities to certain brokers with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. The Fund receives securities, which are not reflected in the statement of assets and liabilities, as collateral against the loaned securities. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 105% of the value of non-U.S. securities loaned. The value of loaned securities and related collateral at June 30, 1998 was $34,770,031 and $39,692,153, respectively. 7.DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the SwissKey Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of daily net assets of the Brinson Class N. Annual fees under the SwissKey Plan, which include a 0.25% service fee, shall not exceed 0.84% of the average daily net assets of the SwissKey Class. 8.LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed are calculated at the Federal Funds rate plus 0.50% per year. The Funds pay a commitment fee of 0.08% per year of the average daily unutilized amount of the line of credit. During the year ended June 30, 1998, the Non-U.S. Equity Fund had total borrowings of $32,600,000 outstanding for 1 day under the agreement. 9.CAPITAL TRANSACTIONS Capital stock transactions were as follows:
YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I............... 26,268,807 $312,436,986 19,910,853 $225,344,857 Brinson Class N............... 798 9,817 79 1,000 SwissKey Class................ 387,174 4,592,378 590,377 6,700,036 ---------- ------------ ---------- ------------ Total Sales................ 26,656,779 $317,039,181 20,501,309 $232,045,893 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I............... 2,849,536 $ 30,664,100 1,461,013 $ 16,110,105 Brinson Class N............... 10 117 -- -- SwissKey Class................ 49,433 525,637 8,477 94,649 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 2,898,979 $ 31,189,854 1,469,490 $ 16,204,754 ========== ============ ========== ============ Redemptions: Brinson Class I............... 26,391,131 $318,236,785 6,945,571 $ 80,838,515 Brinson Class N............... -- -- -- -- SwissKey Class................ 620,542 7,391,090 87,985 1,015,708 ---------- ------------ ---------- ------------ Total Redemptions.......... 27,011,673 $325,627,875 7,033,556 $ 81,854,223 ========== ============ ========== ============
- -------------------------------------------------------------------------------- 23 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders The Brinson Funds--Non-U.S. Equity Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Brinson Funds--Non-U.S. Equity Fund as of June 30, 1998, the related statements of operations for the year then ended and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--Non-U.S. Equity Fund at June 30, 1998, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods indicated therein in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois August 7, 1998 - -------------------------------------------------------------------------------- 24 DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC. 60 STATE STREET BOSTON, MA 02109 This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund's objectives, policies, expenses and other information. - -------------------------------------------------------------------------------- [ART] The Brinson Funds - -------------------------------------------------------------------------------- Chicago . Bahrain . Basel . Frankfurt . Geneva . Hong Kong . London . Melbourne New York . Rio de Janiero . Paris . Singapore . Sydney . Tokyo . Zurich 209 South LaSalle Street . Chicago, Illinois 60604-1295 . Tel: (800) 448-2430 [SWISSKEY FUNDS LOGO] SwissKey Global Fund SwissKey Global Equity Fund Swisskey Global Bond Fund Annual Report June 30, 1998 Your Key to Performance ----------------------- Trustees and Officers [SWISSKEY FUNDS LOGO] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Chairman of the Board E. Thomas McFarlan President Thomas J. Digenan, CFA, CPA Vice President Debra L. Nichols Vice President Carolyn M. Burke, CPA Secretary and Treasurer Catherine E. Macrae Assistant Secretary 1 The Funds' Advisor -- Brinson Partners, Inc. [SWISSKEY FUNDS LOGO] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory basis. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent and the flexibility to customize portfolios to meet unique requirements. 2 Table of Contents [SWISSKEY FUNDS LOGO] Shareholder Letter...................................... 4 Global Economic and Market Highlights................... 5 Global Fund............................................. 6 Schedule of Investments............................ 10 Financial Statements............................... 20 Financial Highlights............................... 24 Global Equity Fund...................................... 27 Schedule of Investments............................ 31 Financial Statements............................... 37 Financial Highlights............................... 40 Global Bond Fund........................................ 43 Schedule of Investments............................ 46 Financial Statements............................... 50 Financial Highlights............................... 53 The SwissKey Funds--Notes to Financial Statements....... 56 Report of Independent Auditors.......................... 61
3 Shareholder Letter [SWISS KEY FUND LOGO] August 22, 1998 Dear Shareholder: We are very pleased to present the June 30, 1998 Annual Report for the Global Fund, Global Equity Fund and Global Bond Fund. Within this Report, we focus on the current global economic outlook as well as our current strategies and performance updates for the three Global Funds. In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced their intention to merge, which included the integration of UBS Asset Management and SBC Brinson into the UBS Brinson Division. The merger was consummated on June 29, 1998. UBS Brinson is managed today by the same senior management that has led the business over the past decades with a consistently applied investment philosophy and process. We are excited about the formation of the UBS Brinson Division and the additional resources we have brought together to further the tradition of delivering value-added investment performance and the highest level of professional client service. SwissKey Global Fund Since its inception on July 31, 1995, the SwissKey Global Fund has produced an annualized total return of 13.30% compared to the return of 15.21% of its benchmark, the Global Securities Markets Mutual Fund Index. SwissKey Global Equity Fund The SwissKey Global Equity Fund has provided an annualized return of 16.26% since its performance inception on July 31, 1995. This is compared to an 18.18% return for the benchmark, the MSCI World Equity (Free) Index. SwissKey Global Bond Fund The SwissKey Global Bond Fund has provided an annualized return of 6.36% since its performance inception on July 31, 1995. Over the same period, the return of the Fund's benchmark, the Salomon World Government Bond Index, was 2.84%. We very much appreciate your continued trust and the confidence you have placed in The SwissKey Funds. Sincerely, /s/ Hanspeter A. Walder /s/ Raymond Simon - ----------------------- ------------------------ Hanspeter A. Walder Raymond Simon Executive Director Executive Director Private Banking Private Banking 4 Global Economic and Market Highlights [SWISS KEY FUND LOGO] The economic situation in Japan remains bleak. With real GDP growth negative in the last two quarters, the country is officially in recession. The downturn in output has brought on the highest unemployment rate recorded in the post-war period, at just over 4%. In response to the news, the voters have delivered a severe rebuke to the ruling LDP, although it is not at all certain that this will result in the implementation of "solutions" proffered by Western governments and commentators. Many of Japan's problems are magnified elsewhere in Asia. Last year's financial and economic crisis has not diminished to any great extent. With financial systems straining under large amounts of defunct debts, and the IMF prescribing high interest rates in the interest of currency support and inflation control, real economic activity has slowed substantially. While Asia suffers from falling living standards, the crisis has been a partial benefit to the U.S. and Europe by keeping commodity and import prices in check, and by not augmenting strong domestic demand in those economies. Continental Europe's cyclical recovery is well under way, and is starting to have some beneficial effects on the high unemployment rate. Previously, output and profit growth were reasonably strong, but did not carry over into the labor market. Although unemployment has been reduced, the failure to address structural problems will almost certainly guarantee that the Continent's poor overall unemployment picture will persist for several years. The U.K.'s economic performance has been at odds with most of the rest of Europe. A series of Bank of England rate hikes has not prevented the headline inflation rate from rising above 4% this year. Now however, there are signs that these hikes, coupled with a strong pound, have started to cool the economy. The U.S. expansion is unabated; more than 7 years have elapsed since the recession at the start of the decade. However, the Federal Reserve's attempts to maintain a neutral policy stance, in light of the Asian crisis' effect on demand and costs, has resulted in substantial growth in the money supply. This could set the stage for a modest resurgence in inflation. Profit growth, which had reflected the strength of the domestic economy in prior years, is now showing signs of the fall-off in Asian demand and the strength of the dollar. Global Environment
6 months 1 year 7/31/95* Major Markets ended ended to Total Return in U.S. Dollars 6/30/98 6/30/98 6/30/98 - ----------------------------------------------------------------------------- U.S. Equity 15.47% 28.86% 27.26 Non-U.S. Equities (currency unhedged) 15.53 6.04 9.15 Non-U.S. Equities (currency hedged) 18.55 16.90 21.22 U.S. Bonds 3.97 10.59 8.01 Non-U.S. Bonds (currency unhedged) 2.09 0.89 0.28 Non-U.S. Bonds (currency hedged) 5.44 11.89 12.05 U.S. Cash Equivalents 2.38 4.87 4.97 - ----------------------------------------------------------------------------- 6 months 1 year 7/31/95* Major Currencies ended ended to Percent Change Relative to U.S. Dollars 6/30/98 6/30/98 6/30/98 - ----------------------------------------------------------------------------- Yen -6.31% -17.55% -14.45% Pound 1.41 0.25 1.45 Deutschemark -0.39 -3.46 -8.78 Canadian Dollar -2.69 -6.19 -2.34 - -----------------------------------------------------------------------------
* Inception date of the SwissKey Global Fund All total returns in excess of 1 year are average annualized returns. 5 Global Fund [SWISS KEY FUND LOGO] The Global Fund is diversified across the equity and fixed income markets of the U.S. and a broad range of other countries. The Fund is actively managed within an asset allocation framework, involving value based market, currency, and individual security selection. Our senior asset allocation, equity and fixed income professionals form the investment team for the Fund, supported by a globally integrated market analysis system. Security selection with each market is based on the fundamental research of our analytical teams in our offices worldwide. Since its inception on July 31, 1995 the SwissKey Global Fund has produced an annualized return of 13.30%, compared to the return of 15.21% for its benchmark, the Global Securities Markets Mutual Fund Index. For the first half of 1998, the SwissKey Global Fund returned 5.92%, trailing the 10.16% return of the benchmark. The Global Fund market strategy centers on reducing the risk of exposure to the overpriced equity markets; most global bond markets are neutrally valued and, because they provide relative attraction, are the primary overweights. The Japanese bond market is an exception and is extremely overvalued at all points along the yield curve. Market allocation made a substantial negative contribution to Fund performance during the first half of 1998 as developed global equity markets, with a few Asian exceptions, were strong. Numerous developed equity markets provided double-digit returns in dollar-hedged terms. Developed bond markets provided positive returns but failed to match those of world equity markets. The strategy for emerging markets equities is neutral to the normal policy exposure of 3.0%. The emerging markets debt strategy mirrors the developed bond market overweight, with a 5.0% exposure relative to the 2.0% normal policy. A small underweight is carried in the U.S. high yield bond market. Active currency had little impact on the performance of the Fund. Current strategy involves yen and sterling underweights and Australian and U.S. dollar overweights. 6 Global Fund - -------------------------------------------------------------------------------- [SWISS KEY FUND LOGO] - -------------------------------------------------------------------------------- Total Return - --------------------------------------------------------------------------------
6 months 1 year 7/31/95* ended ended to 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------- SwissKey Global Fund 5.92% 7.60% 13.30% - -------------------------------------------------------------------------------- GSMI Mutual Fund Index** 10.16 13.76 15.21 - --------------------------------------------------------------------------------
* Inception date of the SwissKey Global Fund. ** An un-managed index compiled by the Advisor, constructed as follows: 40% Wilshire 5000 Index; 22% MSCI Non-U.S. Equity (Free) Index; 21% Salomon BIG Bond Index; 9% Salomon Non-U.S. Government Bond Index (unhedged); 2% JP Morgan EMBI+; 3% IFC Investable Index; and 3% High Yield Bond Index. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. - -------------------------------------------------------------------------------- Illustration of an Assumed Investment of $10,000 - -------------------------------------------------------------------------------- This chart shows the growth in the value of an investment in the SwissKey Global Fund and the GSMI Mutual Fund Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SwissKey Global Fund vs. GSMI Mutual Fund Index Wealth Value with Dividends Reinvested [LINE GRAPH APPEARS HERE] [PLOT POINTS FOR GRAPH]
GSMI SWISSKEY MUTUAL GLOBAL FUND DATE FUND INDEX ---------------------------------- 7/31/95 10,000 10,000 12/31/95 10,861 10,665 6/30/96 11,324 11,257 12/31/96 12,332 12,001 6/30/97 13,377 13,283 12/31/97 13,589 13,717 6/30/98 14,394 15,111
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. ================================================================================ 7 Global Fund [SWISSKEY FUNDS LOGO]
Asset Allocation As of June 30, 1998 Current Benchmark Strategy - ---------------------------------------------------------------- U.S. Equities 40.0% 23.0% Global Equities Ex-U.S. 22.0 17.0 Emerging Markets Equities 3.0 3.0 Dollar Bonds 21.0 31.0 High Yield Bonds 3.0 2.5 Global Bonds Ex-U.S. 9.0 18.5 Emerging Markets Debt 2.0 5.0 Cash Equivalents 0.0 0.0 - ---------------------------------------------------------------- 100.0% 100.0%
Currency Allocation As of June 30, 1998 Current Benchmark Strategy - ---------------------------------------------------------------- U.S. 66.0% 69.0% Japan 6.7 2.7 U.K. 5.6 2.3 Continental Europe 16.0 16.0 Canada 1.5 1.5 Emerging Markets 3.0 3.0 Other 1.2 5.5 - ---------------------------------------------------------------- 100.0% 100.0%
Top Ten U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - ---------------------------------------------------------------- 1. Xerox Corp. 1.36% 2. Lockheed Martin Corp. 1.35 3. Burlington Northern Santa Fe Corp. 1.25 4. Aon Corp. 0.96 5. FDX, Corp. 0.92 6. Philip Morris Companies, Inc. 0.91 7. CIGNA Corp. 0.76 8. Automatic Data Processing, Inc. 0.73 9. Goodyear Tire & Rubber Co. 0.70 10. Baxter International, Inc. 0.67 - ----------------------------------------------------------------
Top Ten Non-U.S. Equity Holdings As of June 30, 1998 Percent of Net Assets - ---------------------------------------------------------------- 1. Glaxo Wellcome PLC 0.31% 2. Novartis AG (Reg.) 0.29 3. Nokia Oyj A Shares 0.26 4. British Petroleum Co. PLC 0.24 5. Royal Dutch Petroleum Co. 0.23 6. British Telecommunications PLC 0.23 7. Lloyds TSB Group PLC 0.22 8. CS Holdings AG (Reg.) 0.22 9. B.A.T. Industries PLC 0.20 10. Roche Holding AG (Gen.) 0.20 - ----------------------------------------------------------------
8 Global Fund [SWISSKEY FUNDS LOGO] Industry Diversification As a Percentage of Net Assets As of June 30, 1998 U.S. EQUITIES Energy............................. 0.73% ------ Capital Investment Capital Goods..................... 3.02 Technology........................ 2.80 ------ 5.82 ------ Basic Industries Chemicals......................... 1.28 Housing/Paper..................... 2.26 Metals............................ 0.21 ------ 3.75 ------ Consumer Non-Durables...................... 2.02 Retail/Apparel.................... 1.30 Autos/Durables.................... 0.87 Discretionary..................... 0.23 Health: Drugs..................... 2.17 Health: Non-Drugs................. 1.60 ------ 8.19 ------ Financial Banks............................. 2.07 Non-Banks......................... 2.09 ------ 4.16 ------ Utilities Electric.......................... 1.72 Telephone......................... 0.26 ------ 1.98 ------ Transportation..................... 2.39 Services/Misc...................... 1.85 Post Venture....................... 1.28 ------ Total U.S. Equities............ 30.15* ------ NON-U.S. EQUITIES Aerospace & Military............... 0.04% Airlines........................... 0.07 Appliances & Household............. 0.26 Automobiles........................ 0.62 Banking............................ 2.05 Beverages & Tobacco................ 0.36 Broadcasting & Publishing.......... 0.51 Building Materials................. 0.29 Business & Public Service.......... 0.48 Chemicals.......................... 0.48 Construction....................... 0.11 Consumer........................... 0.24 Data Processing.................... 0.09 Electric Components................ 0.14 Electronics........................ 0.69 Energy............................. 1.30 Financial Services................. 0.44 Food & House Products.............. 0.69 Forest Products.................... 0.21 Gold Mining........................ 0.01 Health: Drugs...................... 0.63 Health: Non-Drugs.................. 0.73 Housing/Paper...................... 0.01 Industrial Components.............. 0.23 Insurance.......................... 1.06 Investment Companies............... 0.07 Leisure & Tourism.................. 0.12 Machinery & Engineering............ 0.09 Merchandising...................... 0.67 Metals--Steel...................... 0.34 Miscellaneous Materials............ 0.01 Multi-Industry..................... 0.93 Non-Ferrous Metals................. 0.30 Real Estate........................ 0.08 Recreation......................... 0.05 Retail/Apparel..................... 0.10 Telecommunications................. 1.52 Textiles & Apparel................. 0.05 Transportation..................... 0.15 Utilities.......................... 0.58 Wholesale & International Trade.... 0.09 ------ Total Non-U.S. Equities........ 16.89 ------ EMERGING MARKETS EQUITIES.......... 3.38 ------ U.S. BONDS Corporate Bonds Aerospace & Military.............. 0.74 Airlines.......................... 0.03 Asset-Backed...................... 0.33 Auto/Durables..................... 0.09 Banks............................. 0.57 Broadcasting & Public Service..... 0.69 CMO............................... 1.85 Financial Services................ 1.80 Industrial Components............. 0.37 Services/Miscellaneous............ 0.04 Telecommunications................ 0.20 Transportation.................... 0.28 ------ 6.99 ------ U.S. Government Agencies........... 8.32 U.S. Government Obligations........ 4.18 International Dollar Bonds......... 3.57 ------ Total U.S. Bonds............... 23.06* ------ HIGH YIELD BONDS................... 2.51 ------ NON-U.S. BONDS Foreign Government Bonds.......... 17.33 ------ EMERGING MARKETS DEBT.............. 4.93 ------ SHORT TERM INVESTMENTS............. 16.86* ------ TOTAL INVESTMENTS.............. 115.11 LIABILITIES, LESS CASH AND OTHER ASSETS...................... (15.11) ------ NET ASSETS..................... 100.00% ======
* The Fund held a long position in U.S. Treasury futures on June 30, 1998 which increased U.S. Bond exposure from 23.06% to 29.90%. The Fund held a short position in stock index futures on June 30, 1998 which reduced U.S. Equity exposure from 30.15% to 22.92%. These adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 16.86% to 17.25%. 9 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------------ ------------ Equities -- 50.42% U.S. EQUITIES -- 30.15% Aetna Inc............................................ 33,800 $ 2,573,025 Allergan, Inc........................................ 52,300 2,425,412 Alza Corp. (b)....................................... 53,300 2,305,225 American Home Products Corp.......................... 54,200 2,804,850 Aon Corp............................................. 95,399 6,701,745 Automatic Data Processing, Inc....................... 69,800 5,086,675 BankBoston Corp...................................... 38,800 2,158,250 Baxter International, Inc............................ 87,000 4,681,687 Beckman Coulter PLC.................................. 23,100 1,345,575 Bestfoods............................................ 46,600 2,705,712 Biogen, Inc.......................................... 20,900 1,024,100 Birmingham Steel Corp................................ 21,400 264,825 Brinson Post-Venture Fund (b)........................ 423,765 8,960,844 Burlington Northern Santa Fe Corp.................... 88,900 8,728,869 Champion Enterprises, Inc............................ 16,300 478,813 Champion International Corp.......................... 26,500 1,303,469 CIGNA Corp........................................... 77,000 5,313,000 Circuit City Stores--Circuit City Group.............. 78,700 3,689,062 Citicorp............................................. 1,700 253,725 CMS Energy Corp...................................... 68,800 3,027,200 Columbia/HCA Healthcare Corp......................... 14,100 410,663 Comerica, Inc........................................ 22,000 1,457,500 Commscope, Inc. (b).................................. 37,433 605,947 Comverse Technology, Inc. (b)........................ 24,360 1,263,675 Consolidated Stores Corp............................. 25,400 920,750 Corning, Inc......................................... 126,700 4,402,825 Covance, Inc. (b).................................... 26,872 604,620 Crown Cork & Seal Co., Inc........................... 25,300 1,201,750 Dial Corp............................................ 27,600 715,875 Eastman Chemical Co.................................. 29,400 1,830,150 EMC Corp. (b)........................................ 47,400 2,124,112 Enron Corp........................................... 58,900 3,184,281 Entergy Corp......................................... 151,000 4,341,250 FDX Corp. (b)........................................ 102,100 6,406,775 First American Corp. of Tennessee.................... 13,900 668,938 First Data Corp...................................... 128,830 4,291,649 First Security Corp.................................. 26,375 564,590 FirstEnergy Corp..................................... 10,805 332,254 Fleet Financial Group, Inc........................... 32,800 2,738,800 Fleetwood Enterprises, Inc........................... 1,200 48,000 Food Lion, Inc., Class A............................. 103,200 1,096,500 Forest Laboratories, Inc. Class A (b)................ 40,900 1,462,175 Fort James Corp...................................... 68,500 3,048,250 Gannett Co., Inc..................................... 23,100 1,641,544 General Instrument Corp. (b)......................... 121,500 3,303,281 General Semiconductor, Inc. (b)...................... 27,550 272,056 Genzyme Corp. (b).................................... 21,500 549,594 Geon Co.............................................. 14,700 337,181 Goodyear Tire & Rubber Co............................ 76,500 4,929,469 Great Lakes Chemical Corp............................ 15,100 595,506 Harnischfeger Industries, Inc........................ 37,200 1,053,225 Health Care and Retirement Corp. (b)................. 24,000 946,500 Hibernia Corp........................................ 29,600 597,550 IMC Global Inc....................................... 28,400 855,550 Informix Corp. (b)................................... 28,500 225,328
Interpublic Group of Companies, Inc.................. 22,250 $ 1,350,297 Kimberly Clark Corp.................................. 99,800 4,578,325 Lafarge Corp......................................... 15,500 609,344 Lear Corp. (b)....................................... 22,900 1,175,056 Lockheed Martin Corp................................. 89,223 9,446,485 Lyondell Petrochemical Co............................ 72,100 2,194,544 Manor Care, Inc...................................... 27,298 1,049,267 Martin Marietta Materials, Inc....................... 15,584 701,280 Masco Corp........................................... 62,100 3,757,050 Medusa Corp.......................................... 2,200 138,050 Nabisco Holdings Corp................................ 54,300 1,958,194 National Service Industries, Inc..................... 10,400 529,100 Nextel Communications, Inc. (b)...................... 74,400 1,850,700 Norfolk Southern Corp................................ 51,100 1,523,419 Peco Energy Co....................................... 149,100 4,351,856 Pentair, Inc......................................... 28,196 1,198,330 Philip Morris Companies, Inc......................... 161,900 6,374,813 Praxair, Inc......................................... 49,400 2,312,537 Raytheon Co., Class B................................ 73,200 4,327,950 Regions Financial Corp............................... 13,700 562,556 Reynolds & Reynolds Co............................... 17,600 320,100 Schering Plough Corp................................. 51,000 4,672,875 Seagate Technology, Inc. (b)......................... 47,600 1,133,475 Sears, Roebuck and Co................................ 55,000 3,358,437 Southdown, Inc....................................... 10,700 763,713 St. Jude Medical, Inc. (b)........................... 26,800 986,575 Timken Co............................................ 9,400 289,638 Tyson Foods, Inc., Class A........................... 108,498 2,353,050 Ultramar Diamond Shamrock Corp....................... 60,602 1,912,751 US Bancorp........................................... 68,380 2,940,340 Vencor, Inc. (b)..................................... 56,400 408,900 Ventas, Inc.......................................... 56,400 779,025 Viad Corp............................................ 52,200 1,448,550 Wells Fargo & Co..................................... 6,800 2,509,200 Westvaco Corp........................................ 12,698 358,719 Witco Corp........................................... 28,100 821,925 Xerox Corp........................................... 93,700 9,522,262 York International Corp.............................. 33,200 1,446,275 ------------ Total U.S. Equities.................................. 210,875,139 ------------ NON-U.S. EQUITIES -- 16.89% AUSTRALIA -- 0.86% Amcor Ltd............................................ 23,770 104,076 Boral Ltd............................................ 89,240 167,457 Brambles Industries Ltd.............................. 12,590 247,086 Broken Hill Proprietary Co., Ltd..................... 84,200 711,778 Coca-Cola Amatil Ltd................................. 14,270 95,444 CSR Ltd.............................................. 42,930 123,893 David Jones Ltd...................................... 182,010 208,529 Lend Lease Corp. Ltd................................. 11,596 234,472 Mayne Nickless Ltd................................... 42,000 222,390 National Australia Bank Ltd.......................... 58,467 771,242 News Corp., Ltd...................................... 110,549 902,340 News Corp. Ltd., Preferred........................... 27,886 197,566 Orica Ltd............................................ 18,700 110,597 Pacific Dunlop Ltd................................... 85,210 137,731 Qantas Airways Ltd................................... 83,587 125,790
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SHARES VALUE ------------ ------------ Rio Tinto Ltd........................................ 19,845 $ 235,968 Santos Ltd........................................... 38,610 119,556 Telstra Corp., Ltd................................... 173,200 444,067 Westpac Bank Corp., Ltd.............................. 93,408 569,797 WMC Ltd.............................................. 70,040 210,806 Woolworth's Ltd...................................... 30,790 100,108 ------------ 6,040,693 ------------ BELGIUM -- 0.82% Delhaize-Le Lion S.A................................. 6,390 446,493 Electrabel S.A....................................... 3,490 989,506 Fortis AG............................................ 216 12 Fortis AG Strip (b).................................. 4,853 1,239,008 Groupe Bruxelles Lambert S.A. (b).................... 1,830 369,344 KBC Bancassurance Holding-Strip (b).................. 250 20 Kredietbank NV....................................... 8,650 774,106 Petrofina S.A........................................ 1,775 728,652 Solvay S.A., Class A................................. 5,220 413,840 Tractebel............................................ 4,065 595,384 Union Miniere S.A.................................... 3,105 191,924 ------------ 5,748,289 ------------ CANADA -- 0.57% Agrium, Inc.......................................... 9,500 118,540 Alcan Aluminum Ltd................................... 7,250 199,663 Bank of Montreal..................................... 5,290 291,371 Barrick Gold Corp.................................... 4,200 79,967 Canadian National Railway Co......................... 5,150 273,854 Canadian Pacific Ltd................................. 15,663 440,941 Extendicare Inc. (b)................................. 11,500 93,057 Hudson's Bay Co...................................... 6,800 155,828 Imasco, Ltd.......................................... 8,400 155,080 Imperial Oil Ltd..................................... 17,160 299,886 Magna International Inc., Class A.................... 2,200 150,646 Moore Corp., Ltd..................................... 8,100 107,405 Newbridge Networks Corp. (b)......................... 2,200 52,584 Noranda, Inc......................................... 7,440 128,503 NOVA Corp............................................ 19,520 223,658 Potash Corporation of Saskatchewan, Inc.............. 2,200 165,755 Royal Bank of Canada................................. 6,250 376,122 Seagram Co., Ltd..................................... 3,090 125,966 Shaw Communications Inc., Class B.................... 11,300 219,761 TransCanada Pipelines Ltd............................ 10,020 222,122 Westcoast Energy, Inc................................ 5,000 111,349 ------------ 3,992,058 ------------ DENMARK -- 0.06% Den Danske Bank Group................................ 1,900 227,934 Tele Danmark A/S..................................... 2,100 201,541 ------------ 429,475 ------------ FINLAND -- 0.43% Cultor Oyj........................................... 2,400 38,932 Merita Ltd., Class A................................. 49,350 325,612 Metsa Serla Oyj, Class B............................. 7,400 71,485 Nokia Oyj A Shares (b)............................... 25,100 1,845,958 Outokumpu Oyj, Class A............................... 9,680 123,503
Sampo Insurance Co., Ltd., Series A.................. 3,720 $ 176,287 UPM-Kymmene Corp..................................... 12,870 354,209 Valmet Oyj........................................... 5,800 100,005 ------------ 3,035,991 ------------ FRANCE -- 1.64% Air Liquide.......................................... 1,395 230,731 Alcatel Alsthom...................................... 2,632 535,890 AXA-UAP.............................................. 5,358 602,620 AXA-UAP Certificat de valeur guarantie............... 4,328 1,475 Banque Nationale de Paris............................ 5,909 482,805 Carrefour SA......................................... 600 379,590 Cie de Saint Gobain.................................. 2,967 550,117 Dexia France (b)..................................... 2,699 363,378 Elf Aquitaine S.A.................................... 4,394 617,747 Eridania Beghin-Say SA............................... 1,100 242,888 France Telecom S.A................................... 11,200 772,478 Groupe Danone........................................ 1,600 441,151 Lafarge S.A.......................................... 2,470 255,334 Lagardere S.C.A...................................... 8,300 345,536 Michelin, Class B.................................... 5,449 314,539 Paribas.............................................. 3,895 416,815 Pechiney S.A., Class A............................... 4,884 196,701 Peugeot S.A.......................................... 2,580 554,747 Pinault-Printemps-Redoute S.A........................ 390 326,398 Rhone-Poulenc, Class A............................... 9,644 543,931 SEITA................................................ 9,910 449,113 Societe Generale..................................... 2,295 477,144 Suez Lyonnaise des Eaux S.A. (b)..................... 4,071 670,047 Thomson CSF.......................................... 7,900 300,529 Total S.A., Class B.................................. 3,386 440,191 Usinor Sacilor....................................... 8,580 132,546 Vivendi.............................................. 3,844 820,808 Vivendi Warrants "01" (b)............................ 4,224 8,314 ------------ 11,473,563 ------------ GERMANY -- 1.93% Allianz AG........................................... 4,176 1,376,576 Allianz AG........................................... 122 39,878 BASF AG.............................................. 6,130 290,368 Bayer AG............................................. 15,240 786,063 Bayerische Motoren Werke (BMW)....................... 117 116,352 Bayerische Motoren Werke AG.......................... 390 393,457 Commerzbank AG....................................... 3,390 129,590 Continental AG....................................... 10,550 328,482 Daimler-Benz AG...................................... 6,435 631,022 Deutsche Bank AG..................................... 10,061 851,980 Deutsche Telekom AG.................................. 42,280 1,140,740 Dresdner Bank AG..................................... 12,050 649,565 Hochtief AG.......................................... 3,500 167,729 Hoechst AG........................................... 5,110 255,075 M.A.N. AG............................................ 750 291,690 Mannesmann AG (b).................................... 6,470 656,320 Metro AG............................................. 8,458 513,103 Metro AG Right (b)................................... 8,458 328 Muenchener Rueckver AG............................... 2,115 1,048,712
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SHARES VALUE ------------ ------------ Preussag AG.......................................... 1,172 $ 418,154 RWE AG............................................... 7,470 442,820 Schering AG.......................................... 3,805 448,379 Siemens AG........................................... 12,400 754,305 Thyssen AG........................................... 1,550 392,438 Veba AG.............................................. 8,839 602,325 Volkswagen AG........................................ 818 786,277 ------------ 13,511,728 ------------ HONG KONG -- 0.10% Cheung Kong Holdings Ltd............................. 26,000 127,842 Citic Pacific Ltd.................................... 14,000 24,753 CLP Holdings Ltd..................................... 14,500 66,057 Hang Seng Bank Ltd................................... 10,700 60,483 Hong Kong & China Gas Co., Ltd....................... 71,500 81,202 Hong Kong and China Gas Warrants "99" (b)............ 3,250 222 Hong Kong Telecommunications Ltd..................... 37,000 69,477 Hutchison Whampoa Ltd................................ 29,000 153,073 Johnson Electric Holdings Ltd........................ 14,000 51,855 South China Morning Post (Holdings) Ltd.............. 30,000 14,422 Sun Hung Kai Properties Ltd.......................... 13,000 55,197 ------------ 704,583 ------------ ITALY -- 0.74% Assicurazioni Generali............................... 16,800 546,280 Banca Commercial Italiana............................ 8,000 47,841 Credito Italiano S.p.A............................... 77,000 403,074 Danieli & Co. Savings (Risp)......................... 43,000 199,572 ENI ADR.............................................. 7,600 494,000 ENI S.p.A............................................ 102,000 668,504 Fiat S.p.A.-Priveleged Preferred..................... 128,600 320,134 INA-Istituto Nazionale delle Assicurazioni........... 13,000 36,933 Instituto Mobiliare Italiano S.p.A................... 18,800 296,138 Istituto Bancario San Paolo di Torino................ 18,000 259,740 Italgas S.p.A........................................ 6,800 27,697 La Rinascente S.p.A.................................. 25,740 256,307 Montedison S.p.A..................................... 250,700 310,986 Parmalat Finanziaria S.p.A........................... 93,000 189,657 Telecom Italia Mobile S.p.A.......................... 84,000 513,673 Telecom Italia Mobile S.p.A. RNC..................... 41,500 140,080 Telecom Italia S.p.A................................. 63,666 468,662 ------------ 5,179,278 ------------ JAPAN -- 1.59% Amada Co., Ltd....................................... 25,000 121,591 Bank of Tokyo-Mitsubishi, Ltd........................ 22,000 232,864 Canon Sales Co., Inc................................. 8,000 108,715 Canon, Inc........................................... 20,000 453,940 Citizen Watch Co., Ltd............................... 23,000 189,754 Dai Nippon Printing Co., Ltd......................... 22,000 351,119 Daiichi Pharmaceutical Co., Ltd...................... 20,000 263,717 Daikin Industries Ltd................................ 25,000 161,040 Daiwa House Industry Co., Ltd........................ 12,000 105,919 Denso Corp........................................... 20,000 331,448 Fanuc................................................ 10,000 345,859
Fuji Photo Film...................................... 1,000 $ 34,802 Fujitsu.............................................. 15,000 157,798 Hitachi Ltd.......................................... 47,000 306,481 Honda Motor Co....................................... 10,000 355,946 Hoya Corp............................................ 5,000 141,586 Inax................................................. 17,000 58,429 Ito Yokado Co., Ltd.................................. 9,000 423,461 Kaneka Corp.......................................... 23,000 120,978 Keio Teito Electric Railway.......................... 27,000 98,245 Kinki Nippon Railway................................. 28,000 131,138 Kirin Brewery Co., Ltd............................... 26,000 245,416 Kokuyo............................................... 8,000 135,461 Kuraray Co., Ltd..................................... 29,000 246,359 Kyocera Corp......................................... 3,000 146,558 Marui Co., Ltd....................................... 13,000 193,897 Matsushita Electric Industrial Co.................... 28,000 449,905 NGK Insulators....................................... 39,000 338,617 Nintendo Co., Ltd.................................... 1,900 175,920 Nippon Meat Packers, Inc............................. 16,000 195,871 Nippon Steel Co...................................... 19,000 33,404 Okumura Corp......................................... 24,000 84,217 Omron Corp........................................... 7,000 106,928 Osaka Gas Co......................................... 46,000 117,995 Sankyo Co., Ltd...................................... 18,000 409,843 Secom Co., Ltd....................................... 6,000 346,291 Sega Enterprises Ltd................................. 3,000 51,771 Seino Transportation................................. 16,000 88,770 Sekisui House Ltd.................................... 22,000 170,407 Shin-Etsu Chemical Co., Ltd.......................... 1,000 17,293 Sony Corp............................................ 5,200 447,743 Sumitomo Bank........................................ 4,000 38,909 Sumitomo Chemical Co................................. 28,000 86,349 Sumitomo Electric Industries......................... 19,000 192,074 Takeda Chemical Industries........................... 15,000 398,818 TDK Corp............................................. 4,000 295,421 Tokio Marine & Fire Insurance Co..................... 21,000 215,773 Tokyo Electric Power................................. 5,900 115,632 Tonen Corp........................................... 17,000 88,071 Toray Industries, Inc................................ 61,000 316,461 Toshiba Corp......................................... 56,000 228,786 Toyo Suisan Kaisha................................... 14,000 85,341 Toyota Motor Corp.................................... 17,000 439,745 Yamato Transport Co., Ltd............................ 2,000 22,409 Yamazaki Baking Co., Ltd............................. 9,000 79,764 ------------ 11,101,049 ------------ MALAYSIA -- 0.08% Berjaya Sports Toto Bhd.............................. 22,000 32,622 Kuala Lumpur Kepong Bhd.............................. 35,500 57,348 Malayan Banking Bhd.................................. 13,000 12,961 Malayan Banking Bhd.................................. 13,000 13,102 Malaysia International Shipping Bhd (Frgn.).......... 15,000 21,881 Nestle (Malaysia) Bhd................................ 13,000 58,927 Petronas Gas Bhd..................................... 22,000 40,844 Public Bank Bhd (Frgn.).............................. 22,000 6,631 Resorts World Bhd.................................... 30,000 32,984
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SHARES VALUE ------------ ------------ Rothmans of Pall Mall Bhd............................ 11,000 $ 76,251 Sime Darby Bhd....................................... 8,000 5,517 Tanjong PLC.......................................... 14,000 19,409 Telekom Malaysia Bhd................................. 32,000 54,008 Tenaga Nasional Bhd.................................. 33,000 39,783 UMW Holdings Bhd..................................... 15,000 6,727 YTL Corp. Bhd........................................ 42,000 31,595 YTL Power International Bhd (b)...................... 19,400 10,571 ------------ 521,161 ------------ NETHERLANDS -- 0.93% ABN AMRO Holdings NV................................. 22,490 526,263 Akzo Nobel NV........................................ 760 168,947 Elsevier NV.......................................... 23,580 355,868 Heineken NV (b)...................................... 10,313 405,058 Hoogovens NV......................................... 2,441 105,598 ING Groep NV......................................... 13,090 857,137 KLM Royal Dutch Air Lines NV......................... 3,492 141,795 KPN NV............................................... 11,613 447,005 Philips Electronics NV............................... 6,850 575,828 PolyGram NV.......................................... 4,200 214,315 Royal Dutch Petroleum Co............................. 29,420 1,631,391 Royal Dutch Petroleum Co., NY Shares................. 700 38,369 TNT Post Group NV (b)................................ 11,613 296,862 Unilever NV.......................................... 9,600 761,695 ------------ 6,526,131 ------------ NEW ZEALAND -- 0.41% Brierley Investments Ltd............................. 756,530 377,006 Carter Holt Harvey Ltd............................... 261,110 227,711 Fletcher Challenge Building.......................... 86,775 108,108 Fletcher Challenge Energy............................ 95,405 227,814 Fletcher Challenge Forests Ltd....................... 185,585 104,044 Fletcher Challenge Paper............................. 171,640 190,671 Lion Nathan Ltd...................................... 75,100 166,853 Telecom Corp. of New Zealand Ltd..................... 326,830 1,347,081 Telecom Corp. of New Zealand Ltd. ADR................ 3,800 124,450 ------------ 2,873,738 ------------ NORWAY -- 0.04% Norsk Hydro ASA...................................... 5,000 219,913 Norske Skogindustrier ASA Class A.................... 1,800 55,594 ------------ 275,507 ------------ SINGAPORE -- 0.23% City Developments Ltd................................ 31,000 86,606 Creative Technology Ltd. (b)......................... 3,000 36,401 DBS Land Ltd......................................... 58,000 48,062 Development Bank of Singapore Ltd.................... 13,800 76,372 Elec & Eltek International Co., Ltd.................. 8,100 27,378 Fraser & Neave Ltd................................... 12,000 32,246 Keppel Corp., Ltd.................................... 33,000 49,612 Keppel Land Ltd...................................... 35,000 32,110 Oversea-Chinese Banking Corp., Ltd................... 34,000 115,715 Rothmans Industries Ltd.............................. 11,000 48,831
Singapore Airlines Ltd. (Frgn.)...................... 38,000 $ 177,686 Singapore Press Holdings Ltd......................... 31,036 207,580 Singapore Technologies Engineering Ltd. (b).......... 36,000 25,357 Singapore Telecommunications, Ltd.................... 266,000 377,863 United Overseas Bank Ltd. (Frgn.).................... 74,000 229,950 Venture Manufacturing (Singapore) Ltd................ 12,000 22,729 ------------ 1,594,498 ------------ SWEDEN -- 0.57% ABB AB, A Shares..................................... 16,400 232,379 Astra AB, A Shares................................... 21,800 445,573 Electrolux AB Series B............................... 9,600 164,917 Investor AB-B Shares................................. 8,000 466,965 Nordbanken Holding AB................................ 62,700 459,937 Skandia Forsakrings AB............................... 18,200 260,166 Skanska AB, B Shares................................. 5,600 251,389 Svenska Handelsbanken, A Shares...................... 6,300 292,292 Swedish Match AB..................................... 61,800 205,357 Telefonaktiebloaget LM Ericsson, B Shares............ 27,100 791,772 Volvo AB, B Shares................................... 12,900 384,174 ------------ 3,954,921 ------------ SWITZERLAND -- 1.28% ABB AG (Bearer)...................................... 275 406,118 CS Holdings AG (Reg.)................................ 7,016 1,561,116 Holderbank Financiere Glarus, B Shares............... 264 335,918 Julius Baer Holding AG............................... 122 381,652 Nestle S.A. (Reg.)................................... 565 1,209,118 Novartis AG (Reg.)................................... 1,214 2,020,132 Roche Holding AG (Gen.).............................. 144 1,414,082 Sairgroup............................................ 775 254,961 Saurer AG............................................ 270 275,910 Sulzer AG............................................ 277 218,598 Swiss Reinsurance Co. (Reg.)......................... 332 839,631 ------------ 8,917,236 ------------ UNITED KINGDOM -- 4.61% Abbey National PLC................................... 31,620 561,873 B.A.T. Industries PLC................................ 149,484 1,496,486 BOC Group PLC........................................ 18,500 252,031 BTR PLC (b).......................................... 49,904 141,550 Barclays PLC......................................... 36,500 1,052,358 Bass PLC............................................. 16,027 300,299 Billiton PLC......................................... 169,000 342,602 Booker PLC........................................... 91,220 372,892 British Petroleum Co. PLC............................ 115,667 1,686,738 British Sky Broadcasting PLC......................... 51,000 366,328 British Steel PLC.................................... 323,470 711,068 British Telecommunications PLC....................... 127,980 1,580,158 Cable & Wireless PLC................................. 30,000 364,401 Cadbury Schweppes PLC................................ 44,500 688,653 Charter PLC.......................................... 55,846 582,836 Coats Viyella PLC.................................... 312,860 383,676
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SHARES VALUE ------------ ------------ Diageo PLC........................................... 57,290 $ 678,673 FKI PLC.............................................. 181,500 523,901 General Electric Co. PLC............................. 101,550 875,139 Glaxo Wellcome PLC................................... 71,100 2,134,163 Greenalls Group PLC.................................. 56,000 484,933 HSBC Holdings PLC.................................... 38,104 967,000 Hanson PLC........................................... 64,102 389,581 Hillsdown Holdings PLC............................... 149,520 406,643 House of Fraser PLC.................................. 166,400 483,091 Inchcape PLC......................................... 79,470 250,606 Legal & General Group PLC............................ 13,400 142,979 Lloyds TSB Group PLC................................. 112,409 1,572,646 Marks & Spencer PLC.................................. 140,040 1,274,599 Mirror Group PLC..................................... 146,450 549,792 National Westminster Bank PLC........................ 25,380 453,532 Peninsular & Oriental Steam Navigation Co............ 59,420 855,599 Prudential Corp. PLC................................. 21,000 276,629 RJB Mining PLC....................................... 100,570 206,396 Reckitt & Colman PLC................................. 15,938 304,219 Reed International PLC............................... 64,000 578,770 Reuters Group PLC.................................... 10,659 121,829 Rio Tinto PLC........................................ 40,580 457,028 Royal & Sun Alliance Insurance Group PLC............. 42,943 443,875 Scottish Hydro-Electric PLC.......................... 45,480 403,700 Sears PLC............................................ 206,480 180,869 Sedgwick Group PLC................................... 133,360 289,265 SmithKline Beecham PLC............................... 109,180 1,332,552 Smurfit (Jefferson) Group PLC........................ 150,477 449,417 Tate & Lyle PLC...................................... 74,000 586,787 Tesco PLC............................................ 58,140 567,489 Thames Water PLC..................................... 39,210 713,754 The Great Universal Stores PLC....................... 4,000 52,725 Unilever PLC......................................... 88,040 937,190 United News & Media PLC.............................. 30,000 419,461 Vodafone Group PLC................................... 46,528 590,392 Williams PLC......................................... 50,010 321,251 Willis Corroon Group PLC............................. 26,000 65,939 ------------ 32,226,363 ------------ Total Non-U.S. Equities.............................. 118,106,262 ------------ EMERGING MARKETS EQUITIES -- 3.38% Brinson Emerging Markets Equity Fund (b)............. 2,926,942 23,662,860 ------------ Total Equities (Cost $297,790,589)................... 352,644,261 ------------
FACE AMOUNT VALUE ------------ ------------ Bonds -- 47.83% U.S. BONDS -- 23.06% U.S. CORPORATE BONDS -- 6.99% Aetna Services Inc., 6.970%, due 08/15/36............ $ 265,000 $ 273,999 Asset Securitization Corp., 7.210%, due 10/13/26..... 2,310,000 2,422,613 AT&T Corp., 8.250%, due 01/11/00..................... 945,000 976,400 Bellsouth Savings & Employee ESOP, 9.125%, 07/01/03.. 254,503 275,023 Capital One Bank, 6.830%, due 05/17/99............... 1,946,000 1,956,950 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02................................ 1,000,000 1,007,370 Chemical Master Credit Card Trust, 6.230%, due 06/15/03............................................ 1,430,000 1,445,101 Chesapeake & Potomac Telephone of Maryland, 8.000%, due 10/15/29........................................ 98,000 120,886 Chrysler Financial Corp., 7.400%, due 08/01/2097..... 252,000 271,991 Citicorp, Series F, 6.150%, due 03/15/02............. 500,000 500,933 Continental Airlines, Inc. 97-4A, 6.900%, due 01/02/18......................... 1,850,000 1,924,333 98-1B, 6.748%, due 09/15/18......................... 220,000 223,672 Countrywide Funding Corp., 93-12, Class A5, 6.000%, due 02/25/24........................................ 1,045,000 1,035,783 CS First Boston Mortgage Securities Corp., 97-C1, Class A1B, 7.150%, due 08/20/06..................... 1,465,000 1,540,081 Dayton Hudson Credit Card Master Trust, 95-1, Class A, 6.100%, due 02/25/02............................. 132,000 132,161 DLJ Mortgage Acceptance Corp., 6.500%, 08/19/28...... 1,545,000 1,525,687 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00............................................ 600,000 608,659 First National Bank of Chicago, Series E, 7.000%, due 05/08/00............................................ 1,000,000 1,014,173 Ford Credit Grantor Trust, 95-B, Class A, 5.900%, due 10/15/00............................................ 48,062 48,101 General Motors Acceptance Corp. 6.375%, due 12/01/01. 500,000 505,652 9.625%, due 12/15/01................................ 331,000 367,579 Lehman Brothers Holdings, 7.250%, due 04/15/03....... 1,250,000 1,302,437 Lockheed Martin Corp., 7.700%, due 06/15/08.......... 148,000 162,891 Lockheed Martin Corp., 6.550%, due 05/15/99.......... 5,000,000 5,026,005 MBNA Global Capital Securities FRN, 6.519%, due 02/01/27............................................ 1,100,000 1,022,417 Nationsbanc Asset Securities, Inc., 97-1, Class A1, 5.958%, due 10/20/27................................ 2,330,559 2,336,082
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FACE AMOUNT VALUE ------------ ------------ News America Holdings, 7.750%, due 12/01/45.......... $ 1,877,000 $ 2,014,359 Norwest Asset Securities, Corp., 96-2, Class A9, 7.000%, due 09/25/11................................ 520,000 528,888 Panamsat Corp., 144A, 6.000%, due 01/15/03........... 275,000 272,253 Premier Auto Trust 93-5, Class A2, 4.220%, due 03/02/99............... 3,292 3,279 96-3, Class A3, 6.500%, due 03/06/00................ 157,355 157,840 96-4, Class A4, 6.400%, due 10/06/01................ 455,000 458,394 Prudential Home Mortgage Securities 94-3, Class A10, 6.500%, due 02/25/24.............................. 1,000,000 969,040 Residential Asset Securitization Trust 97-A7, Class A1, 7.500%, due 09/25/27.......................... 797,106 805,837 97-A10, Class A5, 7.250%, due 12/25/27.............. 1,480,000 1,511,585 97-A11, Class A2, 7.000%, due 01/25/28.............. 200,000 201,280 Salomon, Inc. 6.500%, due 03/01/00................................ 2,520,000 2,539,628 6.750%, due 02/15/03................................ 550,000 563,378 SASCO LLC, 98-RF1, Class A, 8.712%, due 03/15/27..... 1,397,292 1,498,596 Standard Credit Card Trust, 95-1, Class A, 8.250%, due 01/01/07........................................ 500,000 562,590 Thrift Financial Corp., 11.250%, due 01/01/16........ 76,046 80,866 Time Warner, Inc. 8.375%, due 03/15/23................................ 1,206,000 1,411,929 7.570%, due 02/01/24................................ 2,165,000 2,343,998 Turner Broadcasting, 7.400%, due 02/01/04............ 1,000,000 1,044,941 UCFC Home Equity Loan FRN, 97-C, Class A8, 5.888%, due 09/15/27........................................ 1,413,172 1,414,755 Vendee Mortgage Trust, 98-2, Class 1G, 6.750%, due 06/15/28............................................ 2,400,000 2,429,250 ------------ 48,839,665 ------------ INTERNATIONAL DOLLAR BONDS -- 3.57% Abbey National PLC, 6.700%, Resettable Perpetual Pre- ferred.............................................. 230,000 230,980 ABN AMRO Bank NV (Chicago) 6.625%, due 10/31/01...... 250,000 254,740 Banca Commercial Italian, 8.250%, due 07/15/07....... 450,000 503,122 Banco Santiago S.A., 7.000%, due 07/18/07............ 2,000,000 2,007,880 Banque Centrale de Tunisie, 8.250%, due 09/19/27..... 1,750,000 1,647,357 Banque Paribas, Sub. Notes, 6.875%, due 03/01/09..... 175,000 179,427
FACE AMOUNT VALUE ------------ ------------ Credit Suisse London, 144A, 7.900%, Resettable Perpet- ual Preferred........................................ $ 2,600,000 $ 2,779,881 Den Danske Bank, 144A, Step Coupon Bond, 6.375%, due 06/15/08............................................. 2,570,000 2,576,428 DR Investments, 144A, 7.450%, due 05/15/07............ 320,000 341,583 Empressa Nacional Electric, 7.875%, due 02/01/27...... 231,000 231,109 International Telecom Satellite, 8.125%, due 02/28/05. 335,000 371,568 Japanese Development Bank, 8.375%, due 02/15/01....... 970,000 1,026,443 Korea Development Bank, 7.125%, due 09/17/01.......... 200,000 176,260 Pan Pacific Industry PLC, 144A, 4.047%, due 04/28/07.. 2,130,000 745,500 Petroliam Nasional, 144A, 7.125%, due 08/15/05........ 420,000 370,211 Poland Non-U.S. Global Registered FRN, 6.688%, due 10/27/24............................................. 300,000 293,625 Province of Quebec, 7.500%, due 07/15/23.............. 1,325,000 1,473,042 Ras Laffan Liquified Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14................................. 1,910,000 1,906,965 Repsol International Finance, 7.000%, due 08/01/05.... 735,000 779,402 Republic of South Africa Debenture, 9.625%, due 12/15/99............................................. 1,079,000 1,122,160 Royal Bank of Scotland, 7.375%, Resettable Perpetual Preferred............................................ 690,000 734,775 Skandinaviska Enskilda Banken, 144A, 6.625%, Resettable Perpetual Preferred....................... 500,000 502,700 Sociedad Quimica y Minera de Chiles S.A., 144A, 7.700%, due 09/15/06................................. 1,500,000 1,546,503 Southern Investments UK, 6.800%, due 12/01/06......... 1,625,000 1,683,680 United Utilities, 6.450%, due 04/01/08................ 1,485,000 1,506,235 ------------ 24,991,576 ------------ U.S. GOVERNMENT AGENCIES -- 8.32% Aid-Israel, Series 10Z, 0.000%, due 02/15/03.......... 6,720,000 5,196,845 Federal Home Loan Mortgage Corp. 6.200%, due 08/15/07................................. 700,000 697,585 7.000%, due 10/15/13................................. 2,275,469 2,345,785 8.500%, due 07/15/21................................. 831,287 863,589 6.950%, due 04/15/22................................. 2,400,000 2,453,887 7.500%, due 01/15/23................................. 823,105 881,887 7.240%, due 05/01/26................................. 227,170 235,073 Federal Home Loan Mortgage Corp. Gold 8.000%, due 11/01/22................................. 118,252 122,169 8.000%, due 05/01/23................................. 1,238,385 1,279,406 9.000%, due 03/01/24................................. 863,675 925,013 Federal National Mortgage Assoc. 5.000%, due 06/01/01................................. 1,211,785 1,172,074 6.540%, due 09/18/02................................. 4,690,000 4,760,106
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FACE AMOUNT VALUE ------------ ------------ 6.220%, due 03/13/06................................ $ 1,700,000 $ 1,754,181 8.000%, due 02/25/07................................ 1,635,000 1,674,343 6.500%, due 05/01/08................................ 3,696,873 3,817,761 6.360%, due 06/01/08................................ 1,640,000 1,678,868 8.000%, due 03/01/11................................ 1,481,440 1,528,199 6.000%, due 12/01/12 TBA............................ 1,470,000 1,453,455 8.000%, due 05/25/21................................ 1,610,000 1,665,793 9.000%, due 08/01/21................................ 244,512 261,733 8.000%, due 05/01/22................................ 115,815 119,796 8.500%, due 07/01/22................................ 533,209 563,752 7.500%, due 07/25/22................................ 2,250,686 2,392,335 8.000%, due 11/01/23................................ 1,525,009 301,517 6.500%, due 12/25/23................................ 4,610,000 4,629,274 9.000%, due 04/25/25................................ 36,864 38,677 6.500%, due 12/01/27 TBA............................ 3,500,000 3,484,663 7.500%, due 01/01/28................................ 1,765,720 1,810,940 6.000%, due 03/01/28................................ 2,436,930 2,371,913 3.500%, due 05/01/28................................ 1,313,554 1,128,184 Federal National Mortgage Assoc. Strips 0.000%, due 04/01/27 principal only............................. 1,481,065 1,253,146 Government National Mortgage Assoc. 10.000%, due 09/15/00............................... 2,535 2,706 10.000%, due 05/15/01............................... 3,577 3,819 9.000%, due 11/15/04................................ 10,061 10,602 9.000%, due 11/15/04................................ 5,376 5,665 8.000%, due 08/15/22................................ 444,049 460,008 8.000%, due 11/15/22................................ 361,577 376,325 8.000%, due 12/15/22................................ 1,253,454 1,304,582 7.500%, due 12/15/23................................ 844,929 867,902 7.500%, due 11/15/24................................ 2,242,403 2,306,155 ------------ 58,199,713 ------------ U.S. GOVERNMENT OBLIGATIONS 4.18% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................ 12,325,000 12,321,155 6.625%, due 07/31/01................................ 4,050,000 4,171,500 6.250%, due 08/31/02................................ 4,635,000 4,755,223 3.625%, due 01/15/08................................ 1,558,975 1,541,436 8.000%, due 11/15/21................................ 2,760,000 3,557,814 6.000%, due 02/15/26................................ 2,750,000 2,860,861 ------------ 29,207,989 ------------ Total U.S. Bonds..................................... 161,238,943 ------------ HIGH YIELD BONDS -- 2.51% SHARES ------------ Brinson High Yield Fund (b).......................... 1,231,792 17,562,145 ------------ FACE NON-U.S. BONDS 17.33% AMOUNT ------------ AUSTRALIA -- 1.19% Government of Australia 9.750%, due 03/15/02.............................AUD 1,700,000 1,207,781 9.000%, due 09/15/04................................ 3,800,000 2,790,161 Queensland Treasury Global Notes 8.000%, due 05/14/03............................................ 6,350,000 4,330,716 ------------ 8,328,658 ------------
FACE AMOUNT VALUE ------------- ----------- CANADA -- 1.77% Government of Canada 7.500%, due 09/01/00.............................CAD 1,880,000 $ 1,334,690 6.500%, due 06/01/04................................ 500,000 359,734 8.750%, due 12/01/05................................ 2,600,000 2,131,219 7.000%, due 12/01/06................................ 4,270,000 3,223,551 4.250%, due 12/01/21................................ 6,790,000 5,345,751 ----------- 12,394,945 ----------- DENMARK -- 1.76% Kingdom of Denmark 9.000%, due 11/15/00.............................DKK 13,600,000 2,178,136 6.000%, due 11/15/02................................ 10,000,000 1,534,390 7.000%, due 12/15/04................................ 9,900,000 1,612,331 8.000%, due 03/15/06................................ 40,000,000 6,962,338 ----------- 12,287,195 ----------- FRANCE -- 2.19% Government of France (BTAN) 5.750%, due 03/12/01.............................FRF 24,000,000 4,125,571 Government of France (OAT) 9.500%, due 01/25/01................................ 20,300,000 4,924,347 7.500%, due 04/25/05................................ 13,000,000 3,791,393 8.500%, due 12/26/12................................ 22,000,000 2,505,822 ----------- 15,347,133 ----------- GERMANY -- 3.77% Bundesrepublik Deutschland 8.500%, due 08/21/00.............................DEM 2,180,000 1,315,609 9.000%, due 01/22/01................................ 2,500,000 1,545,291 8.375%, due 05/21/01................................ 3,080,000 1,897,826 6.750%, due 04/22/03................................ 4,900,000 2,985,064 6.750%, due 07/15/04................................ 6,300,000 3,889,596 6.250%, due 01/04/24................................ 5,000,000 3,121,884 7.000%, due 09/20/99................................ 13,700,000 7,869,341 Treuhandanstalt 6.250%, due 03/04/04................. 6,200,000 3,727,213 ----------- 26,351,824 ----------- ITALY -- 0.95% Republic of Italy (BTP) 10.500%, due 04/01/00............................ITL 995,000,000 614,280 12.000%, due 09/01/02............................... 1,700,000,000 1,215,358 9.000%, due 10/01/03................................ 900,000,000 604,894 8.500%, due 04/01/04................................ 4,600,000,000 3,061,922 9.500%, due 12/01/99................................ 1,900,000,000 1,136,547 ----------- 6,633,001 ----------- NETHERLANDS -- 1.45% Government of Netherlands 8.500%, due 03/15/01.............................NLG 5,600,000 3,048,864 8.750%, due 09/15/01................................ 700,000 389,195 6.500%, due 04/15/03................................ 1,600,000 854,587 7.250%, due 10/01/04................................ 3,200,000 1,796,480 8.250%, due 02/15/07................................ 4,815,000 2,938,660 7.500%, due 04/15/10................................ 1,800,000 1,085,292 ----------- 10,113,078 -----------
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FACE AMOUNT VALUE ----------- ------------ SPAIN -- 1.14% Kingdom of Spain 6.750%, due 04/15/00..............................ESP 415,000,000 $ 2,827,389 7.900%, due 02/28/02................................. 140,000,000 1,018,519 8.000%, due 05/30/04................................. 300,000,000 2,287,772 10.000%, due 02/28/05................................ 30,000,000 253,007 7.350%, due 03/31/07................................. 85,000,000 648,369 6.150%, due 01/31/13................................. 130,000,000 927,807 ------------ 7,962,863 ------------ SWEDEN -- 0.43% Kingdom of Sweden 5.500%, due 04/12/02..............................SEK 3,500,000 453,962 10.250%, due 05/05/03................................ 16,300,000 2,539,807 ------------ 2,993,769 ------------ UNITED KINGDOM -- 2.68% UK Treasury 8.000%, due 06/10/03..............................GBP 2,190,000 3,908,659 6.750%, due 11/26/04................................. 380,000 658,996 8.500%, due 12/07/05................................. 4,570,000 8,709,242 8.500%, due 07/16/07................................. 1,200,000 2,355,716 7.250%, due 12/07/07................................. 1,200,000 2,204,925 8.750%, due 08/25/17................................. 390,000 881,720 ------------ 18,719,258 ------------ Total Non-U.S. Bonds.................................. 121,131,724 ------------ SHARES ----------- EMERGING MARKETS DEBT -- 4.93% Brinson Emerging Markets Debt Fund (b)............................................. 1,692,314 34,515,928 ------------ Total Bonds (Cost $322,004,943)....................... 334,448,740 ------------ FACE AMOUNT ----------- Short-Term Investments -- 16.86% U.S. CORPORATE BONDS -- 0.78% Bank of America, 5.730%, due 09/24/98 FRN............................. $ 2,000,000 1,999,728 Texas Utilities, 5.750%, due 07/01/98................................. 2,500,000 2,500,000 Union Oil of California Ser B, 5.730%, due 07/27/98................................. 1,000,000 1,009,505 ------------ 5,509,233 ------------ U.S. GOVERNMENT OBLIGATIONS -- 0.34% U.S. Treasury Bill 5.125%, due 11/27/98................................. 2,400,000 2,350,135 ------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.17% Government of Netherlands 6.250%, due 07/15/98................................ $ 1,400,000 $ 688,575 Kingdom of Denmark 9.000%, due 11/15/98................................ 3,200,000 472,857 ------------ 1,161,432 ------------ CERTIFICATE OF DEPOSIT -- 0.86% Canadian Imperial Bank, 5.940%, due 10/23/98................................ 3,000,000 2,999,462 Societe General Yankee, 5.940%, due 10/20/98................................ 3,000,000 2,999,129 ------------ 5,998,591 ------------ COMMERCIAL PAPER -- 14.71% ARCO Chemical, 5.730%, due 07/10/98.................. 5,000,000 4,992,837 American Stores, 5.720%, due 08/03/98................ 5,000,000 4,973,783 Bausch & Lomb, 5.750%, due 07/08/98................................ 2,500,000 2,497,205 5.700%, due 07/13/98................................ 5,000,000 4,990,500 Cincinnati Bell Inc. 5.850%, due 07/01/98................................ 2,000,000 2,000,000 5.850%, due 07/13/98................................ 2,000,000 1,996,100 5.900%, due 07/17/98................................ 1,500,000 1,496,067 Crown, Cork & Seal, 5.690%, due 07/13/98................................ 4,321,000 4,312,805 5.680%, due 07/23/98................................ 5,000,000 4,982,644 CVS Corp., 5.750%, due 07/10/98................................ 5,000,000 4,992,813 Dayton Hudson, 5.600%, due 07/15/98................................ 3,000,000 2,993,467 Excel Paralubes, 5.800%, due 07/07/98................................ 4,070,000 4,066,066 Hilton Hotels Corp., 5.720%, due 07/15/98................................ 1,500,000 1,496,663 5.750%, due 10/01/98................................ 5,000,000 4,926,528 5.780%, due 10/13/98................................ 2,500,000 2,458,256 IMC Global, 5.720%, due 07/30/98................................ 4,261,000 4,241,366 ITT Industries, 5.720%, due 07/09/98................................ 5,000,000 4,993,644 NGC Corp., 6.750%, due 07/01/98................................ 2,307,000 2,307,000 Occidental Petroleum, 5.700%, due 07/06/98................................ 5,000,000 4,996,042 PG & E Gas, 6.000%, due 07/10/98................................ 1,000,000 998,500 Raytheon Co., 6.998%, due 07/01/98................................ 2,200,000 2,200,000 5.700%, due 07/20/98................................ 5,000,000 4,984,959 Sprint Capital, 5.720%, due 07/07/98................................ 6,643,000 6,636,668 Tenneco Inc., 5.750%, due 07/17/98................................ 2,000,000 1,994,889
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FACE AMOUNT VALUE ------------ ------------ Texas Utilities Co., 5.730%, due 07/17/98................................ $ 2,500,000 $ 2,493,633 6.100%, due 07/17/98................................ 1,000,000 997,289 5.750%, due 08/21/98................................ 5,000,000 4,959,271 Union Pacific Resources, 5.730%, due 07/27/98................................ 5,000,000 4,979,308 Union Pacific Resources, 5.760%, due 10/30/98................................ 3,000,000 2,941,920 ------------ 102,900,223 ------------ Total Short-Term Investments (Cost $118,077,052)..... 117,919,614 ------------ Total Investments (Cost $737,872,584) -- 115.11% (a)........................ 805,012,615 ------------ Liabilities, less cash and other assets -- (15.11%).................................. (105,669,892) ------------ Net Assets -- 100%................................... $699,342,723 ============
See accompanying notes to Schedule of Investments. - -------------------------------------------------------------------------------- 18 GLOBAL FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $737,872,584; and net unrealized appreciation consisted of: Gross unrealized appreciation............................... $ 94,882,489 Gross unrealized depreciation............................... (27,742,458) ------------ Net unrealized appreciation.............................. $ 67,140,031 ============
(b) Linked to Canada's retail price index. Reset semi-annually FRN: Floating Rate Note MTN: Medium term note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $11,042,024 or 1.58% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ------------- ----------- ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Australian Dollar........... 8/05/98 28,500,000 $17,658,102 $(1,350,708) Canadian Dollar............. 8/05/98 1,900,000 1,292,948 541 Danish Krone................ 8/05/98 9,000,000 1,310,734 252 French Franc................ 7/06/98 62,281,506 10,305,195 6,475 French Franc................ 8/05/98 22,200,000 3,679,956 17,436 German Mark................. 8/05/98 4,600,000 2,554,094 (2,456) Japanese Yen................ 8/05/98 1,260,000,000 9,127,544 (1,041,517) Netherlands Guilder......... 8/05/98 3,700,000 1,822,956 (422) Spanish Peseta.............. 8/05/98 825,000,000 5,395,923 14,143 Swiss Franc................. 8/05/98 7,700,000 5,095,019 (247,751) FORWARD FOREIGN CURRENCY SALE CONTRACTS Australian Dollar........... 7/06/98 1,233,770 764,143 832 British Pound............... 7/06/98 1,400,000 2,335,124 1,336 British Pound............... 8/05/98 21,700,000 36,132,943 (905,057) Canadian Dollar............. 7/06/98 1,604,844 1,091,441 (512) Canadian Dollar............. 8/05/98 11,300,000 7,689,638 88,191 Danish Kroner............... 7/06/98 7,653,250 1,113,166 (144) Danish Kroner............... 8/05/98 78,600,000 11,447,080 (44,221) French Franc................ 8/05/98 62,300,000 10,327,085 (7,390) German Mark................. 7/06/98 4,600,000 2,549,451 2,560 German Mark................. 8/05/98 34,000,000 18,878,086 (43,109) Netherlands Guilder......... 7/06/98 2,202,850 1,083,317 282 Netherlands Guilder......... 8/05/98 15,200,000 7,488,902 9,307 Spanish Peseta.............. 7/06/98 116,852,795 763,461 (1,113) Spanish Peseta.............. 8/05/98 825,000,000 5,395,923 (36,344) Swedish Krona............... 7/06/98 3,135,011 393,207 (38) ----------- Total...................... $(3,539,427) ===========
FUTURES CONTRACTS The Global Fund had the following open futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN/(LOSS) -------------- ----------- ----------- ----------- FUTURES BUY CONTRACTS 5 year U.S. Treasury Note, 340 contracts............ September 1998 $37,072,972 $37,293,750 $ 220,778 10 year U.S. Treasury Note, 66 contracts....... September 1998 7,421,886 7,513,688 91,802 30 year U.S. Treasury Bonds, 25 contracts...... September 1998 2,976,555 3,089,844 113,289 INDEX FUTURES SALES CON- TRACTS Standard & Poor's 500, 177 contracts................ September 1998 49,204,572 50,577,750 (1,373,178) ----------- Total.................... $ (947,309) ===========
The market value of investments pledged to cover margin requirements for the open futures positions at June 30, 1998 was $2,350,135. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 19 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Note 1): Unaffiliated issuers (Cost $659,099,950)....................... $720,310,838 Affiliated issuers (Cost $78,772,634).......................... 84,701,777 Cash........................................................... 15,353 Foreign currency, at value (Cost $2,688,302).................... 2,672,795 Receivables: Investment securities sold..................................... 17,512,017 Dividends...................................................... 850,203 Interest....................................................... 5,067,092 Fund shares sold............................................... 524,097 Variation margin............................................... 442,309 Other assets.................................................... 55,119 ------------ TOTAL ASSETS................................................. 832,151,600 ------------ LIABILITIES: Payables: Securities loaned.............................................. 104,946,044 Investment securities purchased................................ 23,236,470 Fund shares redeemed........................................... 416,119 Investment advisory fees....................................... 461,215 Accrued expenses............................................... 209,602 Net unrealized depreciation on forward foreign currency con- tracts......................................................... 3,539,427 ------------ TOTAL LIABILITIES............................................ 132,808,877 ------------ NET ASSETS....................................................... $699,342,723 ============ NET ASSETS CONSIST OF: Paid in capital................................................. $618,908,532 Accumulated distribution in excess of net investment income..... (845,490) Accumulated net realized gain................................... 18,624,289 Net unrealized appreciation..................................... 62,655,392 ------------ NET ASSETS................................................... $699,342,723 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $667,744,541 and 52,298,571 shares is- sued and outstanding)......................................... $ 12.77 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,162,613 and 91,194 shares issued and outstanding).......... $ 12.75 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $30,435,569 and 2,395,337 shares is- sued and outstanding)......................................... $ 12.71 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest (net of $19,403 for foreign taxes withheld; including securities lending income of $256,807).......................... $18,386,739 Dividends (net of $339,731 for foreign taxes withheld)........... 6,105,294 ----------- TOTAL INCOME.................................................. 24,492,033 ----------- EXPENSES: Advisory......................................................... 5,378,141 Administration................................................... 464,398 Distribution..................................................... 191,376 Custodian........................................................ 151,260 Other............................................................ 350,006 ----------- TOTAL EXPENSES................................................ 6,535,181 ----------- NET INVESTMENT INCOME ........................................ 17,956,852 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 40,696,600 Futures contracts............................................... (4,402,062) Foreign currency transactions................................... 3,479,537 ----------- Net realized gain............................................. 39,774,075 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency................................ 3,727,996 Futures contracts............................................... (654,367) Forward contracts............................................... (9,657,319) Translation of other assets and liabilities denominated in for- eign currency.................................................. 37,869 ----------- Change in net unrealized appreciation or depreciation......... (6,545,821) ----------- Net realized and unrealized gain................................. 33,228,254 ----------- Net increase in net assets resulting from operations............. $51,185,106 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 21 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1998 CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES: Proceeds from sales of investments............................. $ 559,718,591 Purchases of investments....................................... (623,990,589) Net increase in short term investments......................... (91,292,986) Net realized gain on foreign currency transactions............. 3,479,537 Net realized loss on futures contracts......................... (4,066,409) Interest and dividend income received.......................... 23,974,925 Expenses paid.................................................. (6,458,212) ------------- Net cash used in investing and operating activities........... (138,635,143) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net capital share transactions................................. 36,501,192 Net increase from securities lending........................... 104,946,044 Cash distributions paid........................................ (3,851,296) ------------- Net cash provided by financing activities..................... 137,595,940 ------------- Net decrease in cash............................................ (1,039,203) ------------- CASH AT BEGINNING OF YEAR....................................... 1,054,556 ------------- CASH AT END OF YEAR............................................. $ 15,353 ============= RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH USED IN INVESTING AND OPERATING ACTIVITIES: Net investment income.......................................... $ 17,956,852 Proceeds from sale of investments.............................. 559,718,591 Purchase of investments........................................ (623,990,589) Net increase in short term investments......................... (91,292,986) Net realized gain on foreign currency transactions............. 3,479,537 Net realized loss on futures contracts......................... (4,066,409) Net decrease in receivables pertaining to investing and operat- ing activities................................................. 271,165 Net increase in payables pertaining to investing and operating activities..................................................... 115,429 (Accretion)/amortization of premium/discount................... (826,733) ------------- Net cash used in investing and operating activities........... $(138,635,143) ============= SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Reinvestment of distributions.................................. $ 64,950,197 =============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 GLOBAL FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, 1998 JUNE 30, 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 17,956,852 $ 16,194,760 Net realized gain................................. 39,774,075 43,268,043 Change in net unrealized appreciation or depreciation..................................... (6,545,821) 35,756,888 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 51,185,106 95,219,691 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income........... (28,265,915) (24,660,333) Distributions in excess of net investment income... (5,070,122) -- Distributions from net realized gain............... (35,465,456) (26,428,094) ------------ ------------ Total distributions to shareholders*.............. (68,801,493) (51,088,427) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 256,422,880 192,297,100 Shares issued on reinvestment of distributions.... 64,950,197 49,580,585 Shares redeemed................................... (217,384,769) (145,001,283) ------------ ------------ Net increase in net assets resulting from capital share transactions............................... 103,988,308 96,876,402 ------------ ------------ TOTAL INCREASE IN NET ASSETS................... 86,371,921 141,007,666 ------------ ------------ NET ASSETS: Beginning of year................................. 612,970,802 471,963,136 ------------ ------------ End of year (including accumulated distribution in excess of net investment income of $845,490 and $964,704, respectively).......................... $699,342,723 $612,970,802 ============ ============ *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I................................... (32,129,657) (25,579,684) Brinson Class N................................... (9,572) -- SwissKey Class.................................... (1,196,808) (848,410) Distributions from net realized gain Brinson Class I................................... (33,973,096) (23,918,105) Brinson Class N................................... (53) -- SwissKey Class.................................... (1,492,307) (742,228) ------------ ------------ Total distributions to shareholders................ $(68,801,493) $(51,088,427) ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 23 GLOBAL FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, ------------------------------------------------ BRINSON CLASS I 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------- Net asset value, beginning of year........................ $ 13.13 $ 12.22 $ 11.35 $ 10.43 $ 10.87 -------- -------- -------- -------- -------- Income from investment oper- ations: Net investment income...... 0.37 0.38 0.44 0.43 0.33 Net realized and unrealized gain (loss)............... 0.62 1.79 1.37 0.86 (0.23) -------- -------- -------- -------- -------- Total income from invest- ment operations......... 0.99 2.17 1.81 1.29 0.10 -------- -------- -------- -------- -------- Less distributions: Distributions from and in excess of net investment income.................... (0.65) (0.61) (0.62) (0.27) (0.27) Distributions from and in excess of net realized gain...................... (0.70) (0.65) (0.32) (0.10) (0.27) -------- -------- -------- -------- -------- Total distributions...... (1.35) (1.26) (0.94) (0.37) (0.54) -------- -------- -------- -------- -------- Net asset value, end of year. $ 12.77 $ 13.13 $ 12.22 $ 11.35 $ 10.43 ======== ======== ======== ======== ======== Total return................. 8.28% 18.79% 16.38% 12.57% 0.77% Ratios/Supplemental data Net assets, end of year (in 000s)...................... $667,745 $586,667 $457,933 $365,678 $278,859 Ratio of expenses to average net assets: Before expense reimburse- ment...................... 0.94% 0.99% 1.04% 1.09% 1.14% After expense reimburse- ment...................... N/A N/A N/A N/A 1.10% Ratio of net investment in- come to average net assets: Before expense reimburse- ment...................... 2.70% 3.03% 3.69% 4.27% 3.21% After expense reimburse- ment...................... N/A N/A N/A N/A 3.25% Portfolio turnover rate..... 88% 150% 142% 238% 231% Average commission rate paid per share.................. $ 0.0274 $ 0.0326 $ 0.0291 N/A N/A
N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 GLOBAL FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED JUNE 30, BRINSON CLASS N 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of year................................... $ 13.13 ------- Income from investment operations: Net investment income.............................................. 0.63 Net realized and unrealized gain................................... 0.32 ------- Total income from investment operations.......................... 0.95 ------- Less distributions: Distributions from and in excess of net investment income.......... (0.63) Distributions from net realized gain............................... (0.70) ------- Total distributions.............................................. (1.33) ------- Net asset value, end of year......................................... $ 12.75 ======= Total return......................................................... 7.90% Ratios/Supplemental Data: Net assets, end of year (in 000s)................................... $ 1,163 Ratio of expenses to average net assets............................. 1.19% Ratio of net investment income to average net assets................ 2.45% Portfolio turnover rate............................................. 88% Average commission rate paid per share.............................. $0.0274
* Commencement of Brinson Class N was June 30, 1997. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 GLOBAL FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR YEAR JULY 31, 1995* ENDED ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 13.05 $ 12.18 $ 11.60 ------- ------- ------- Income from investment operations: Net investment income............. 0.30 0.34 0.39 Net realized and unrealized gain.. 0.61 1.75 1.10 ------- ------- ------- Total income from investment op- erations....................... 0.91 2.09 1.49 ------- ------- ------- Less distributions: Distributions from and in excess of net investment income......... (0.55) (0.57) (0.59) Distributions from net realized gain............................. (0.70) (0.65) (0.32) ------- ------- ------- Total distributions............. (1.25) (1.22) (0.91) ------- ------- ------- Net asset value, end of period...... $ 12.71 $ 13.05 $ 12.18 ======= ======= ======= Total return (non-annualized)....... 7.60% 18.13% 13.24% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $30,436 $26,303 $14,030 Ratio of expenses to average net assets............................ 1.59% 1.64% 1.69%** Ratio of net investment income to average net assets................ 2.05% 2.38% 3.04%** Portfolio turnover rate............ 88% 150% 142% Average commission rate paid per share............................. $0.0274 $0.0326 $0.0291
* Commencement of SwissKey Class ** Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 Global Equity Fund [SWISSKEY FUNDS LOGO] The Global Equity Fund is actively managed, providing a fully integrated approach to the primary equity markets across the world. Market selection and currency strategies are managed within a global asset allocation framework. Industry strategies and individual security selections are based on the fundamental research of our analytical teams in our offices worldwide. The SwissKey Global Equity Fund has provided an annualized return of 16.26% since its inception on July 31, 1995, compared to the 18.18% return for the benchmark, the MSCI World Equity (Free) Index. Year-to-date, the SwissKey Global Equity Fund has risen 10.48%, lagging the index's unhedged return of 16.76%. Most major global equity markets have experienced strikingly strong performance year-to-date, in response to EMU euphoria, consolidation and improving economies, led by star performer Finland (67%), with Belgium, Spain and France up 40% or more. While strong, the U.S. market somewhat lagged the others, rising 18%, with much of its excellent performance concentrated in the top 25 stocks with respect to market capitalization. Japan has been a relative underperformer, gaining only 5.7% in hedged terms. Adding back the currency effect of -7.8%, which combines both the decline of the yen and the very low Japanese cash rates, Japan's unhedged mid- year return was only -2.6%. Early in the year, Germany was reduced and France increased, bringing these positions into closer alignment. In February, the position in Spain was eliminated, with proceeds split between Finland and Switzerland; Spain's strong performance in anticipation of monetary union led that market to become overpriced. In April the U.K. was modestly increased and Malaysia reduced to neutral. Italy was reduced in early June, with funds added to several Scandinavian markets. As with the elimination of Spain, this move reflected a shift out of the expensive southern European markets into the more attractively priced northern European markets. One currency strategy change took place. An Australian dollar overweight was established, paired with the yen, allowing us to take advantage of a strong positive interest rate differential in favor of the Australian currency. Market allocation was negatively impacted by strategic cash, offsetting the positive benefits from the Japan and Hong Kong underweights and the overweight to several European markets. Currency management was hurt by the overweight of the Australian and New Zealand dollars and the pound sterling underweight. Security selection had an important negative impact due to the underperformance of U.S. stock selection. Returns were hurt by the underweight of size and overweight of cyclicals. Japan stock selection added value. 27 Global Equity Fund - -------------------------------------------------------------------------------- [SWISS KEY FUND LOGO] - -------------------------------------------------------------------------------- Total Return - --------------------------------------------------------------------------------
6 months 1 year 7/31/95* ended ended to 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------- SwissKey Global Equity Fund 10.48% 8.15% 16.26% - -------------------------------------------------------------------------------- MSCI World Equity (Free) Index 16.76 17.18 18.18 - --------------------------------------------------------------------------------
*Inception date of the SwissKey Global Equity Fund. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. - -------------------------------------------------------------------------------- Illustration of an Assumed Investment of $10,000 - -------------------------------------------------------------------------------- This chart shows the growth in the value of an investment in the SwissKey Global Equity Fund and the MSCI World Equity (Free) Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SwissKey Global Equity Fund vs. MSCI World Equity (Free) Index Wealth Value with Dividends Reinvested [LINE GRAPH APPEARS HERE] [PLOT POINTS FOR GRAPH]
SWISSKEY MSCI GLOBAL WORLD EQUITY DATE EQUITY FUND (FREE) INDEX ---------------------------------------- 7/31/95 10,000 10,000 12/31/95 10,993 10,556 6/30/96 11,925 11,325 12/31/96 12,787 12,025 6/30/97 14,328 13,889 12/31/97 14,048 13,939 6/30/98 15,519 16,276
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 28 Global Equity Fund [SWISS KEY FUND LOGO] Market Allocation As of June 30, 1998
Current Benchmark Strategy - ------------------------------------------------------------------ U.S. 49.6% 34.1% Australia 1.1 2.5 Austria 0.2 0.0 Belgium 0.9 2.2 Canada 2.3 1.4 Denmark 0.5 0.2 Finland 0.5 1.3 France 4.6 4.5 Germany 5.5 5.2 Hong Kong 0.8 0.1 Ireland 0.2 0.0 Italy 2.2 1.7 Japan 9.9 3.9 Malaysia 0.2 0.1 Netherlands 2.8 2.4 New Zealand 0.2 1.9 Norway 0.3 0.2 Portugal 0.3 0.0 Singapore 0.3 0.7 Spain 1.6 0.0 Sweden 1.5 1.6 Switzerland 3.8 3.3 United Kingdom 10.7 12.7 Cash Reserves 0.0 20.0 - ------------------------------------------------------------------ 100.0% 100.0%
Top Ten U.S. Equity Holdings As of June 30, 1998
Percent of Net Assets - ----------------------------------------------------------------- 1. Xerox Corp. 2.48% 2. Lockheed Martin Corp. 2.44 3. Burlington Northern Santa Fe Corp. 2.25 4. Aon Corp. 1.73 5. FDX, Corp. 1.66 6. Philip Morris Companies, Inc. 1.64 7. CIGNA Corp. 1.42 8. Automatic Data Processing, Inc. 1.31 9. Goodyear Tire & Rubber Co. 1.28 10. Entergy Corp. 1.21 - -----------------------------------------------------------------
Currency Allocation As of June 30, 1998
Current Benchmark Strategy - ----------------------------------------------------------------- U.S. 49.6% 52.7% Australia 1.1 5.1 Austria 0.2 0.2 Belgium 0.9 0.9 Canada 2.3 2.3 Denmark 0.5 0.5 Finland 0.5 0.5 France 4.6 4.6 Germany 5.5 5.5 Hong Kong 0.8 0.0 Japan 9.9 5.9 Ireland 0.2 0.2 Italy 2.2 2.2 Malaysia 0.2 0.2 Netherlands 2.8 2.8 New Zealand 0.2 1.9 Norway 0.3 0.3 Portugal 0.3 0.3 Singapore 0.3 0.3 Spain 1.6 1.6 Sweden 1.5 1.5 Switzerland 3.8 3.8 United Kingdom 10.7 6.7 - ----------------------------------------------------------------- 100.0% 100.0%
Top Ten Non-U.S. Equity Holdings As of June 30, 1998
Percent of Net Assets - --------------------------------------------------------------- 1. Telecom Corp. of New Zealand Ltd. 0.90% 2. Novartis AG (Reg.) 0.89 3. Glaxo Wellcome PLC 0.77 4. Nokia Oyj, A Shares 0.77 5. Royal Dutch Petroleum Co. 0.65 6. British Petroleum Co. PLC 0.64 7. Roche Holding AG (Gen.) 0.61 8. British Telecommunications PLC 0.58 9. B.A.T. Industries PLC 0.57 10. Lloyds TSB Group PLC 0.57 - ---------------------------------------------------------------
29 Global Equity Fund [SWISS KEY FUND LOGO] Industry Diversification As a Percent of Net Assets As of June 30, 1998 - ----------------------------------------- U.S. EQUITIES Energy........................... 1.32% Capital Investment Capital Goods................... 5.43 Technology...................... 5.06 ------ 10.49 Basic Industries Chemicals....................... 2.26 Housing/Paper................... 4.09 Metals.......................... 0.38 ------ 6.73 ------ Consumer Non-Durables.................... 3.64 Retail/Apparel.................. 2.33 Autos/Durables.................. 1.58 Descretionary................... 0.43 Health: Drugs................... 3.91 Health: Non-Drugs............... 2.91 ------ 14.80 Financial Banks........................... 3.70 Non-Banks....................... 3.82 ------ 7.52 Utilities Electric........................ 3.19 Telephone....................... 0.47 ------ 3.66 Transportation................... 4.31 Services/Misc.................... 3.36 ------ Total U.S. Equities.......... 52.19* ------ NON-U.S. EQUITIES Aerospace & Military............. 0.13 Airplanes........................ 0.22 Appliances & Household........... 0.57 Autos/Durables................... 1.63 Banking.......................... 5.34 Beverages and Tobacco............ 1.27 Broadcasting & Publishing........ 1.38 Building Materials............... 0.81 Business & Public Service........ 1.27 Chemicals........................ 1.04 Construction..................... 0.29 Consumer......................... 0.01 Data Processing.................. 0.19 Electric Components.............. 0.28 Electronics...................... 2.03 Energy........................... 3.69 Financial Services............... 1.34 Food & House Products............ 2.31 Forest Products.................. 0.72 Gold Mining...................... 0.03 Health: Drugs.................... 1.66 Health: Non-Drugs................ 2.13 Housing/Paper.................... 0.05 Industrial Components............ 0.45 Insurance........................ 3.19 Investment Companies............. 0.19 Leisure & Tourism................ 0.33 Machinery & Engineering.......... 0.20 Merchandising.................... 1.77 Metals--Steel.................... 0.93 Miscellaneous Materials.......... 0.12 Multi-Industry................... 2.65 Non-Ferrous Metals............... 0.83 Real Estate...................... 0.21 Recreation....................... 0.15 Retail & Apparel................. 0.19 Shipping......................... 0.01 Technology....................... 0.01 Telecommunications............... 4.76 Textiles & Apparel............... 0.15 Transportation................... 0.32 Utilities........................ 1.56 Wholesale & International Trade.. 0.24 ------ Total Non-U.S. Equities...... 46.65 ------ SHORT-TERM INVESTMENTS........... 0.97* ------ TOTAL INVESTMENTS............ 99.81 ------ CASH AND OTHER ASSETS, LESS LIABILITIES................ 0.19 ------ NET ASSETS................... 100.00% ======
- -------------------------------------------------------------------------------- * The Fund held a short position in stock index futures on June 30, 1998 which reduced U.S. Equity exposure from 52.19% to 34.04%. This adjustment results in an increase in the Fund's exposure to Short-Term Investments from 0.97% to 19.12%. 30 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- Equities -- 98.84% U.S. EQUITIES -- 52.19% Aetna Inc.................................................. 7,100 $ 540,488 Allergan, Inc.............................................. 11,000 510,125 Alza Corp. (b)............................................. 11,200 484,400 American Home Products Corp................................ 11,100 574,425 Aon Corp................................................... 20,150 1,415,538 Automatic Data Processing, Inc............................. 14,700 1,071,262 BankBoston Corp............................................ 7,800 433,875 Baxter International, Inc.................................. 18,400 990,150 Beckman Coulter Inc........................................ 4,900 285,425 Bestfoods.................................................. 9,800 569,012 Biogen, Inc. (b)........................................... 4,400 215,600 Birmingham Steel Corp...................................... 4,500 55,687 Burlington Northern Santa Fe Corp.......................... 18,800 1,845,925 Champion Enterprises, Inc. (b)............................. 3,400 99,875 Champion International Corp................................ 5,600 275,450 CIGNA Corp................................................. 16,900 1,166,100 Circuit City Stores-Circuit City Group..................... 16,600 778,125 Citicorp................................................... 500 74,625 CMS Energy Corp............................................ 14,500 638,000 Columbia/HCA Healthcare Corp............................... 3,300 96,112 Comerica, Inc.............................................. 4,600 304,750 Commscope, Inc. (b)........................................ 7,933 128,415 Comverse Technology, Inc. (b).............................. 5,125 265,859 Consolidated Stores Corp................................... 5,300 192,125 Corning, Inc............................................... 26,800 931,300 Covance, Inc. (b).......................................... 5,700 128,250 Crown Cork & Seal Co., Inc................................. 5,400 256,500 Dial Corp.................................................. 5,800 150,437 Eastman Chemical Co........................................ 6,200 385,950 EMC Corp. (b).............................................. 10,000 448,125 Enron Corp................................................. 12,400 670,375 Entergy Corp............................................... 34,500 991,875 FDX Corp. (b).............................................. 21,600 1,355,400 First American Corp. of Tennessee.......................... 2,900 139,563 First Data Corp............................................ 27,204 906,233 First Security Corp........................................ 5,550 118,805 FirstEnergy Corp........................................... 2,327 71,555 Fleet Financial Group, Inc................................. 6,900 576,150 Fleetwood Enterprises, Inc................................. 900 36,000 Food Lion, Inc., Class A................................... 21,800 231,625 Forest Laboratories, Inc. Class A (b)...................... 8,900 318,175 Fort James Corp............................................ 14,400 640,800 Gannett Co., Inc........................................... 4,900 348,206 General Instrument Corp. (b)............................... 25,600 696,000 General Semiconductor, Inc. (b)............................ 5,825 57,522 Genzyme Corp. (b).......................................... 4,500 115,031 Geon Co.................................................... 3,100 71,106 Goodyear Tire & Rubber Co.................................. 16,200 1,043,888 Great Lakes Chemical Corp.................................. 2,200 86,762 Harnischfeger Industries, Inc.............................. 7,800 220,837 Health Care and Retirement Corp. (b)....................... 5,050 199,159 Hibernia Corp.............................................. 6,200 125,162 IMC Global Inc............................................. 6,000 180,750 Informix Corp. (b)......................................... 6,000 47,437 Interpublic Group of Companies, Inc........................ 4,650 282,197
Kimberly Clark Corp........................................ 21,100 $ 967,962 Lafarge Corp............................................... 3,300 129,731 Lear Corp. (b)............................................. 4,800 246,300 Lockheed Martin Corp....................................... 18,851 1,995,850 Lyondell Petrochemical Co.................................. 15,500 471,781 Manor Care, Inc............................................ 5,800 222,937 Martin Marietta Materials, Inc............................. 3,335 150,075 Masco Corp................................................. 13,100 792,550 Medusa Corp................................................ 200 12,550 Nabisco Holdings Corp...................................... 11,500 414,719 National Service Industries, Inc........................... 2,200 111,925 Nextel Communications, Inc................................. 15,700 390,537 Norfolk Southern Corp...................................... 10,800 321,975 Peco Energy Co............................................. 31,300 913,569 Pentair, Inc............................................... 5,900 250,750 Philip Morris Companies, Inc............................... 34,200 1,346,625 Praxair, Inc............................................... 10,400 486,850 Raytheon Co., Class B...................................... 15,300 904,612 Regions Financial Corp..................................... 2,900 119,081 Reynolds & Reynolds Co..................................... 4,900 89,119 Schering Plough Corp....................................... 10,800 989,550 Seagate Technology, Inc.................................... 10,000 238,125 Sears, Roebuck and Co...................................... 11,600 708,325 Southdown, Inc............................................. 2,200 157,025 St. Jude Medical, Inc...................................... 5,700 209,831 Timken Co.................................................. 2,000 61,625 Tyson Foods, Inc., Class A................................. 22,900 496,644 Ultramar Diamond Shamrock Corp............................. 12,852 405,641 US Bancorp................................................. 14,463 621,909 Vencor, Inc................................................ 11,900 86,275 Ventas, Inc................................................ 11,900 164,369 Viad Corp.................................................. 11,000 305,250 Wells Fargo & Co........................................... 1,400 516,600 Westvaco Corp.............................................. 2,650 74,862 Witco Corp................................................. 5,900 172,575 Xerox Corp................................................. 20,000 2,032,500 York International Corp.................................... 7,000 304,937 ----------- Total U.S. Equities........................................ 42,728,064 ----------- NON-U.S. EQUITIES -- 46.65% AUSTRALIA -- 2.68% Amcor Ltd.................................................. 10,300 45,098 Boral Ltd.................................................. 30,600 57,420 Brambles Industries Ltd.................................... 5,000 98,128 Broken Hill Proprietary Co., Ltd........................... 29,050 245,572 Coca-Cola Amatil Ltd....................................... 6,200 41,468 CSR Ltd.................................................... 19,000 54,833 David Jones Ltd............................................ 65,200 74,700 Lend Lease Corp. Ltd....................................... 4,697 94,974 Mayne Nickless Ltd......................................... 14,500 76,778 National Australia Bank Ltd................................ 21,075 278,002 News Corp. Ltd., Preferred................................. 12,700 89,977 News Corp., Ltd............................................ 37,940 309,680 Orica Ltd.................................................. 6,400 37,852 Pacific Dunlop Ltd......................................... 31,200 50,431 Qantas Airways Ltd......................................... 31,577 47,520
- -------------------------------------------------------------------------------- 31 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- Rio Tinto Ltd.............................................. 6,863 $ 81,605 Santos Ltd................................................. 13,000 40,254 Telstra Corp., Ltd......................................... 59,500 152,552 Westpac Bank Corp., Ltd.................................... 33,945 207,068 WMC Ltd.................................................... 24,200 72,837 Woolworth's Ltd............................................ 12,000 39,016 ----------- 2,195,765 ----------- BELGIUM -- 2.35% Delhaize-Le Lion S.A. (b).................................. 2,110 147,433 Electrabel S.A............................................. 1,180 334,561 Fortis AG.................................................. 88 5 Fortis AG Strip (b)........................................ 1,588 405,429 Groupe Bruxelles Lambert S.A. (b).......................... 620 125,133 KBC Bancassurance Holding-Strip (b)........................ 110 9 Kredietbank NV (b)......................................... 2,860 255,947 Petrofina S.A.............................................. 620 254,515 Solvay S.A., Class A....................................... 1,720 136,361 Tractebel.................................................. 1,380 202,123 Union Miniere S.A. (b)..................................... 1,032 63,789 ----------- 1,925,305 ----------- CANADA -- 1.63% Agrium, Inc................................................ 3,100 38,681 Alcan Aluminum Ltd......................................... 2,500 68,849 Bank of Montreal........................................... 1,700 93,635 Barrick Gold Corp.......................................... 1,500 28,560 Canadian National Railway Co............................... 1,700 90,398 Canadian Pacific Ltd....................................... 5,216 146,840 Extendicare Inc. (b)....................................... 4,000 32,368 Hudson's Bay Co............................................ 2,300 52,706 Imasco, Ltd................................................ 2,800 51,693 Imperial Oil Ltd........................................... 6,000 104,855 Magna International Inc., Class A.......................... 700 47,933 Moore Corp., Ltd........................................... 2,700 35,802 Newbridge Networks Corp. (b)............................... 800 19,121 Noranda, Inc............................................... 2,500 43,180 NOVA Corp.................................................. 6,900 79,060 Potash Corporation of Saskatchewan, Inc.................... 700 52,740 Royal Bank of Canada....................................... 2,000 120,359 Seagram Co., Ltd........................................... 1,100 44,842 Shaw Communications Inc., Class B.......................... 3,900 75,847 TransCanada Pipelines Ltd.................................. 3,400 75,371 Westcoast Energy, Inc...................................... 1,600 35,632 ----------- 1,338,472 ----------- DENMARK -- 0.25% Den Danske Bank Group...................................... 800 95,972 Tele Danmark A/S........................................... 1,100 105,569 ----------- 201,541 ----------- FINLAND -- 1.26% Cultor Oyj................................................. 900 14,599 Merita Ltd., Class A....................................... 17,800 117,445
Metsa Serla Oyj, Class B................................... 3,700 $ 35,742 Nokia Oyj Class A Preferred................................ 8,600 632,480 Outokumpu Oyj, Class A..................................... 2,500 31,896 Sampo Insurance Co., Ltd., Series A........................ 1,300 61,606 UPM-Kymmene Corp........................................... 4,000 110,088 Valmet Oyj................................................. 1,400 24,139 ----------- 1,027,995 ----------- FRANCE -- 4.42% Air Liquide................................................ 438 72,445 Alcatel Alsthom............................................ 816 166,142 AXA-UAP.................................................... 1,681 189,064 Banque Nationale de Paris.................................. 1,810 147,890 Carrefour SA............................................... 200 126,530 Cie de Saint Gobain........................................ 916 169,837 Dexia France (b)........................................... 857 115,382 Elf Aquitaine S.A.......................................... 1,392 195,700 Eridania Beghin-Say SA..................................... 340 75,074 France Telecom S.A......................................... 3,510 242,089 Groupe Danone.............................................. 510 140,617 Lafarge Corp............................................... 777 80,322 Lagardere S.C.A............................................ 2,600 108,240 Michelin, Class B.......................................... 1,711 98,766 Paribas.................................................... 1,233 131,947 Pechiney S.A., Class A..................................... 1,635 65,849 Peugeot S.A................................................ 812 174,595 Pinault-Printemps-Redoute S.A.............................. 120 100,430 Rhone-Poulenc, Class A..................................... 3,020 170,331 SEITA...................................................... 2,990 135,504 Societe Generale........................................... 773 160,711 Suez Lyonnaise des Eaux S.A. (b)........................... 1,297 213,449 Thomson CSF................................................ 2,475 94,153 Total S.A., Class B........................................ 1,079 140,274 Usinor Sacilor............................................. 2,520 38,930 Vivendi.................................................... 1,208 257,944 Vivendi Warrants "01" (b).................................. 1,771 3,486 ----------- 3,615,701 ----------- GERMANY -- 5.30% Allianz AG................................................. 1,335 440,069 Allianz AG (b)............................................. 45 14,709 BASF AG.................................................... 2,000 94,737 Bayer AG................................................... 4,890 252,221 Bayerische Motoren Werke (BMW) AG.......................... 33 32,817 Bayerische Motoren Werke AG................................ 110 110,975 Commerzbank AG............................................. 1,050 40,139 Continental AG............................................. 3,400 105,861 Daimler-Benz AG............................................ 2,060 202,006 Deutsche Bank AG........................................... 3,250 275,215 Deutsche Telekom AG........................................ 13,560 365,857 Dresdner Bank AG........................................... 4,050 218,319 Hochtief AG................................................ 1,160 55,590 Hoechst AG................................................. 1,550 77,371 M.A.N. AG.................................................. 260 101,119 Mannesmann AG.............................................. 2,100 213,025 Metro AG................................................... 2,718 164,887
- -------------------------------------------------------------------------------- 32 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ----------- Metro AG Right (b)......................................... 2,718 $ 105 Muenchener Rueckver AG..................................... 680 337,175 Preussag AG................................................ 390 139,147 RWE AG..................................................... 2,420 143,457 Schering AG................................................ 1,210 142,586 Siemens AG................................................. 4,020 244,541 Thyssen AG................................................. 450 113,934 Veba AG.................................................... 2,860 194,892 Volkswagen AG.............................................. 269 258,568 ----------- 4,339,322 ----------- HONG KONG -- 0.18% Cheung Kong Holdings Ltd................................... 5,000 24,585 Citic Pacific Ltd.......................................... 3,000 5,304 CLP Holdings Ltd........................................... 2,500 11,389 Hang Seng Bank Ltd......................................... 1,800 10,175 Hong Kong & China Gas Co., Ltd............................. 13,200 14,991 Hong Kong and China Gas Warrants "99 " (b)................. 1,100 75 Hong Kong Telecommunications Ltd........................... 10,000 18,778 Hutchison Whampoa Ltd...................................... 6,000 31,670 Johnson Electric Holdings Ltd.............................. 3,000 11,112 South China Morning Post (Holdings) Ltd.................... 10,000 4,807 Sun Hung Kai Properties Ltd................................ 3,000 12,738 ----------- 145,624 ----------- ITALY -- 2.13% Assicurazioni Generali..................................... 5,700 185,345 Credito Italiano S.p.A..................................... 27,000 141,338 Danieli & Co. Savings (Risp)............................... 16,400 76,116 ENI ADR (c)................................................ 1,700 110,500 ENI S.p.A.................................................. 44,000 288,374 Fiat S.p.A.-Preferred...................................... 42,300 105,301 INA-Istituto Nazionale delle Assicurazioni................. 6,000 17,046 Instituto Mobiliare Italiano S.p.A......................... 6,700 105,539 Istituto Bancario San Paolo di Torino...................... 6,000 86,580 La Rinascente S.p.A........................................ 8,875 88,373 Montedison S.p.A........................................... 81,560 101,173 Parmalat Finanziaria S.p.A................................. 32,000 65,258 Telecom Italia Mobile S.p.A................................ 27,000 165,109 Telecom Italia Mobile S.p.A. RNC........................... 14,000 47,256 Telecom Italia S.p.A....................................... 22,111 162,765 ----------- 1,746,073 ----------- JAPAN -- 3.51% Amada Co., Ltd............................................. 6,000 29,182 Bank of Tokyo-Mitsubishi, Ltd.............................. 6,000 63,508 Canon Sales Co., Inc....................................... 2,000 27,179 Canon, Inc................................................. 5,000 113,485 Citizen Watch Co., Ltd..................................... 6,000 49,501 Dai Nippon Printing Co., Ltd............................... 6,000 95,760 Daiichi Pharmaceutical Co., Ltd............................ 5,000 65,929 Daikin Industries Ltd...................................... 6,000 38,650 Daiwa House Industry Co., Ltd.............................. 3,000 26,480
Denso Corp................................................. 5,000 $ 82,862 Fanuc...................................................... 2,400 83,006 Fuji Photo FIlm............................................ 1,000 34,802 Fujitsu.................................................... 4,000 42,079 Hitachi Ltd................................................ 12,000 78,251 Honda Motor Co............................................. 3,000 106,784 Hoya Corp.................................................. 1,000 28,317 Inax....................................................... 4,000 13,748 Ito Yokado Co., Ltd........................................ 2,000 94,102 Kaneka Corp................................................ 6,000 31,560 Keio Teito Electric Railway................................ 7,000 25,471 Kinki Nippon Railway....................................... 7,000 32,785 Kirin Brewery Co., Ltd..................................... 7,000 66,073 Kokuyo..................................................... 2,000 33,865 Kuraray Co., Ltd........................................... 7,000 59,466 Kyocera Corp............................................... 1,200 58,623 Marui Co., Ltd............................................. 3,000 44,745 Matsushita Electric Industrial Co.......................... 7,000 112,476 NGK Insulators............................................. 10,000 86,825 Nintendo Co., Ltd.......................................... 800 74,071 Nippon Meat Packers, Inc................................... 4,000 48,968 Nippon Steel Co............................................ 5,000 8,791 Okumura Corp............................................... 6,000 21,054 Omron Corp................................................. 2,000 30,551 Osaka Gas Co............................................... 12,000 30,781 Sankyo Co., Ltd............................................ 4,000 91,076 Secom Co., Ltd............................................. 1,000 57,715 Sega Enterprises Ltd....................................... 1,000 17,257 Seino Transportation....................................... 4,000 22,193 Sekisui House Ltd.......................................... 6,000 46,475 Shin-Etsu Chemical Co., Ltd................................ 2,000 34,586 Sony Corp.................................................. 1,000 86,104 Sumitomo Chemical Co....................................... 7,000 21,587 Sumitomo Electric Industries............................... 5,000 50,546 Takeda Chemical Industries................................. 4,000 106,352 TDK Corp................................................... 1,000 73,855 Tokio Marine & Fire Insurance Co........................... 6,000 61,649 Tokyo Electric Power....................................... 1,300 25,478 Tonen Corp................................................. 4,000 20,723 Toray Industries, Inc...................................... 16,000 83,006 Toshiba Corp............................................... 14,000 57,196 Toyo Suisan Kaisha......................................... 3,000 18,287 Toyota Motor Corp.......................................... 4,000 103,469 Yamato Transport Co., Ltd.................................. 3,000 33,613 Yamazaki Baking Co., Ltd................................... 3,000 26,588 ----------- 2,877,485 ----------- MALAYSIA -- 0.22% Berjaya Sports Toto Bhd.................................... 8,000 11,863 Kuala Lumpur Kepong Bhd.................................... 14,000 22,616 Malayan Banking Bhd Bonus Issue............................ 4,600 4,586 Malayan Banking Bhd........................................ 4,600 4,636 Malaysia International Shipping Bhd (Frgn.)................ 5,000 7,294 Nestle (Malaysia) Bhd...................................... 3,000 13,599 Petronas Gas Bhd........................................... 8,000 14,852 Public Bank Bhd (Frgn.).................................... 7,999 2,411
- -------------------------------------------------------------------------------- 33 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ----------- Resorts World Bhd.......................................... 10,000 $ 10,995 Rothmans of Pall Mall Bhd.................................. 4,000 27,728 Sime Darby Bhd............................................. 3,000 2,069 Tanjong PLC................................................ 5,000 6,932 Telekom Malaysia Bhd....................................... 10,500 17,722 Tenaga Nasional Bhd........................................ 11,000 13,261 UMW Holdings Bhd........................................... 6,000 2,691 YTL Corp. Bhd.............................................. 15,000 11,284 YTL Power International Bhd (b)............................ 7,800 4,250 ----------- 178,789 ----------- NETHERLANDS -- 2.55% ABN AMRO Holdings NV....................................... 7,201 168,502 Akzo Nobel NV.............................................. 200 44,460 Elsevier NV................................................ 7,300 110,171 Heineken NV................................................ 3,593 141,127 Koninklijke Hoogovens NV................................... 813 35,171 ING Groep NV............................................... 4,102 268,600 KLM Royal Dutch Air Lines NV............................... 1,118 45,397 Koninklijke KPN NV......................................... 3,583 137,916 Philips Electronics NV..................................... 2,237 188,048 PolyGram NV................................................ 1,500 76,541 Royal Dutch Petroleum Co................................... 9,575 530,951 TNT Post Group NV.......................................... 3,583 91,592 Unilever NV................................................ 3,100 245,964 ----------- 2,084,440 ----------- NEW ZEALAND -- 1.73% Brierley Investments Ltd................................... 379,200 188,969 Carter Holt Harvey Ltd..................................... 131,500 114,680 Fletcher Challenge Building................................ 43,450 54,132 Fletcher Challenge Energy.................................. 47,850 114,259 Fletcher Challenge Forests Ltd............................. 63,695 35,709 Fletcher Challenge Paper................................... 86,200 95,757 Lion Nathan Ltd............................................ 33,400 74,206 Telecom Corp. of New Zealand Ltd........................... 179,500 739,837 ----------- 1,417,549 ----------- NORWAY -- 0.14% Norsk Hydro ASA............................................ 2,200 96,762 Norske Skogindustrier ASA Class A.......................... 600 18,531 ----------- 115,293 ----------- SINGAPORE -- 0.64% City Developments Ltd...................................... 7,000 19,556 Creative Technology Ltd.................................... 1,000 12,134 DBS Land Ltd............................................... 14,000 11,601 Development Bank of Singapore Ltd.......................... 4,700 26,011 Elec & Eltek International Co., Ltd........................ 2,200 7,436 Fraser & Neave Ltd......................................... 3,000 8,062 Keppel Corp., Ltd.......................................... 11,750 17,665 Keppel Land Ltd............................................ 9,000 8,257 Oversea-Chinese Banking Corp., Ltd......................... 10,600 36,076 Rothmans Industries Ltd.................................... 4,000 17,757
Singapore Airlines Ltd. (Frgn.)............................ 13,000 $ 60,787 Singapore Press Holdings Ltd. (Frgn.)...................... 9,828 65,733 Singapore Technologies Engineering Ltd..................... 23,000 16,200 Singapore Telecommunications Ltd........................... 94,000 133,531 United Overseas Bank Ltd. (Frgn.).......................... 24,000 74,578 Venture Manufacturing (Singapore) Ltd...................... 3,000 5,682 ----------- 521,066 ----------- SWEDEN -- 1.76% ABB AB, A Shares........................................... 6,310 89,409 Astra AB, A Shares......................................... 9,030 184,565 Electrolux AB Series B..................................... 3,600 61,844 Investor AB-B Shares....................................... 2,600 151,764 Nordbanken Holding AB...................................... 20,840 152,872 Skandia Forsakrings AB..................................... 6,000 85,769 Skanska AB, B Shares....................................... 1,870 83,946 Svenska Handelsbanken, A Shares............................ 2,060 95,575 Swedish Match AB........................................... 26,610 88,423 Telefonaktiebloaget LM Ericsson, B Shares.................. 10,600 309,697 Volvo AB, B Shares......................................... 4,530 134,908 ----------- 1,438,772 ----------- SWITZERLAND -- 3.69% ABB AG (Bearer)............................................ 96 141,772 CS Holdings AG (Reg.)...................................... 1,866 415,200 Holderbank Financiere Glarus, B Shares..................... 91 115,790 Julius Baer Holding AG..................................... 41 128,260 Nestle S.A. (Reg.)......................................... 204 436,566 Novartis AG (Reg.)......................................... 436 725,517 Roche Holding AG (Gen.).................................... 51 500,821 Sairgroup.................................................. 270 88,825 Saurer AG.................................................. 91 92,992 Sulzer AG.................................................. 96 75,759 Swiss Reinsurance Co. (Reg.)............................... 120 303,481 ----------- 3,024,983 ----------- UNITED KINGDOM -- 12.21% Abbey National PLC......................................... 9,750 173,253 B.A.T. Industries PLC...................................... 46,750 468,015 Barclays PLC............................................... 12,000 345,981 Bass PLC................................................... 5,446 102,043 Billiton PLC............................................... 52,000 105,416 BOC Group PLC.............................................. 6,000 81,740 Booker PLC................................................. 27,870 113,928 British Petroleum Co. PLC.................................. 35,671 520,180 British Sky Broadcasting PLC............................... 15,500 111,335 British Steel PLC.......................................... 100,750 221,474 British Telecommunications PLC............................. 38,520 475,603 BTR PLC (b)................................................ 14,875 42,192 Cable & Wireless PLC....................................... 8,500 103,247 Cadbury Schweppes PLC...................................... 13,000 201,180 Charter PLC................................................ 17,422 181,824 Coats Viyella PLC.......................................... 97,250 119,262 Diageo PLC................................................. 16,630 197,005 FKI PLC.................................................... 54,405 157,040
- -------------------------------------------------------------------------------- 34 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ----------- General Electric Co. PLC................................... 30,820 $ 265,601 Glaxo Wellcome PLC......................................... 21,120 633,945 Greenalls Group PLC........................................ 17,000 147,212 Hanson PLC................................................. 19,750 120,031 Hillsdown Holdings PLC..................................... 46,000 125,104 House of Fraser PLC........................................ 50,250 145,885 HSBC Holdings PLC.......................................... 12,201 309,636 Inchcape PLC............................................... 25,000 78,837 Legal & General Group PLC.................................. 4,250 87,562 Lloyds TSB Group PLC....................................... 33,220 464,761 Marks & Spencer PLC........................................ 46,120 419,769 Mirror Group PLC........................................... 44,000 165,182 National Westminster Bank PLC.............................. 7,350 131,342 Peninsular & Oriental Steam Navigation Co.................. 17,475 251,626 Prudential Corp. PLC....................................... 6,000 79,037 Reckitt & Colman PLC....................................... 4,635 88,471 Reed International PLC..................................... 20,000 180,866 Reuters Group PLC.......................................... 3,400 37,284 Rio Tinto PLC.............................................. 13,020 146,636 RJB Mining PLC............................................. 27,500 56,437 Royal & Sun Alliance Insurance Group PLC................... 13,779 142,425 Scottish Hydro-Electric PLC................................ 14,650 130,040 Sears PLC.................................................. 68,250 59,785 Sedgwick Group PLC......................................... 43,000 93,269 SmithKline Beecham PLC..................................... 35,850 437,553 Smurfit (Jefferson) Group PLC.............................. 51,196 152,903 Tate & Lyle PLC............................................ 24,000 190,309 Tesco PLC.................................................. 17,750 173,253 Thames Water PLC........................................... 12,500 227,542 Unilever PLC............................................... 26,000 276,771 United News & Media PLC.................................... 9,000 125,838 Vodafone Group PLC......................................... 15,825 200,803 Williams PLC............................................... 16,750 107,598 Willis Corroon Group PLC................................... 10,000 25,361 ----------- 9,999,392 ----------- Total Non-U.S. Equities.................................... 38,193,567 ----------- Total Equities (Cost $65,038,146).......................... 80,921,631 -----------
FACE AMOUNT VALUE ---------- ----------- Short-Term Investments -- 0.97% U.S. GOVERNMENT OBLIGATIONS -- 0.72% U.S. Treasury Bills 5.125%, due 11/27/98................ $ 600,000 $ 587,534 ----------- COMMERCIAL PAPER -- 0.25% NGC Corp. 6.640%, due 07/01/98................................... 209,000 209,000 ----------- Total Short-Term Investments (Cost $796,358)........................................ 796,534 ----------- Total Investments (Cost $65,834,504) -- 99.81% (a)....................... 81,718,165 ----------- Cash and other assets, less liabilities -- 0.19%................................... 153,843 ----------- Net Assets -- 100%...................................... $81,872,008 ===========
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 35 GLOBAL EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $65,834,504; and net unrealized appreciation consisted of: Gross unrealized appreciation................................ $19,727,697 Gross unrealized depreciation................................ (3,844,036) ----------- Net unrealized appreciation.............................. $15,883,661 ===========
(b) Non-income producing security. (c) Denominated in U.S. dollars. RNC: Non-Convertible Savings Shares FORWARD FOREIGN CURRENCY CONTRACTS The Global Equity Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ----------- ---------- ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Belgian Franc................... 12/03/98 44,000,000 $1,192,967 $ 14,166 British Pound................... 12/03/98 3,300,000 5,456,800 (94,960) Danish Krone.................... 12/03/98 3,000,000 439,340 (2,125) Finnish Markka.................. 12/03/98 2,800,000 514,632 6,201 Hong Kong Dollar................ 12/03/98 2,000,000 253,156 (87) Forward Foreign Currency Sale Contracts Australian Dollar............... 12/03/98 3,800,000 2,358,286 6,846 British Pound................... 12/03/98 400,000 661,430 13,910 Canadian Dollar................. 12/03/98 1,150,000 784,052 (8,970) Danish Krone.................... 12/03/98 3,000,000 439,340 (5,797) Hong Kong Dollar................ 12/03/98 1,000,000 126,578 1,483 Japanese Yen.................... 12/03/98 205,000,000 1,511,998 3,702 Spanish Peseta.................. 12/03/98 222,000,000 1,459,422 (18,164) -------- Total....................... $(83,795) ========
FUTURES CONTRACTS The Global Equity Fund had the following open index futures contracts as of June 30, 1998:
SETTLEMENT CURRENT UNREALIZED DATE PROCEEDS VALUE LOSS -------------- ------------ ------------ ---------- INDEX FUTURES SALE CON- TRACTS Standard & Poor's 500, 52 contracts................. September 1998 $ 14,283,386 $ 14,859,000 $ 575,614 =========
The segregated cash and aggregate market value of investments pledged to cover margin requirements for the open positions at June 30, 1998 were $10,000 and $587,534, respectively. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 36 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $65,834,504)......................... $81,718,165 Cash............................................................. 15,710 Foreign currency, at value (Cost $321,710)....................... 322,019 Receivables: Investment securities sold...................................... 694,723 Dividends....................................................... 218,500 Fund shares sold................................................ 29,324 Variation margin................................................ 110,500 Other assets..................................................... 2,603 ----------- TOTAL ASSETS.................................................. 83,111,544 ----------- LIABILITIES: Payables: Investment securities purchased................................. 836,123 Fund shares redeemed............................................ 182,327 Investment advisory fees........................................ 54,145 Accrued expenses................................................ 83,146 Net unrealized depreciation on forward foreign currency con- tracts........................................................... 83,795 ----------- TOTAL LIABILITIES............................................. 1,239,536 ----------- NET ASSETS........................................................ $81,872,008 =========== NET ASSETS CONSIST OF: Paid in capital.................................................. $66,347,204 Accumulated undistributed net investment income.................. 377,184 Accumulated net realized loss.................................... (78,467) Net unrealized appreciation...................................... 15,226,087 ----------- NET ASSETS.................................................... $81,872,008 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $22,724,003 and 1,811,660 shares issued and outstanding)............................................... $ 12.54 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,090 and 87 shares issued and outstanding)................... $ 12.53 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $59,146,915 and 4,727,806 shares issued and outstanding)............................................... $ 12.51 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 37 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends (net of $147,165 for foreign taxes withheld)........... $ 1,778,109 Interest......................................................... 298,325 ----------- TOTAL INCOME.................................................. 2,076,434 ----------- EXPENSES: Advisory......................................................... 719,439 Distribution..................................................... 500,537 Custodian........................................................ 15,731 Other............................................................ 185,256 ----------- TOTAL EXPENSES................................................ 1,420,963 Expenses waived by Advisor.................................... (21,898) ----------- NET EXPENSES.................................................. 1,399,065 ----------- NET INVESTMENT INCOME ........................................ 677,369 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 9,912,136 Futures contracts............................................... (2,561,807) Foreign currency transactions................................... (446,626) ----------- Net realized gain............................................. 6,903,703 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency................................ (927,168) Futures contracts............................................... (272,124) Forward contracts............................................... (82,521) Translation of other assets and liabilities denominated in for- eign currency.................................................. (1,175) ----------- Change in net unrealized appreciation or depreciation......... (1,282,988) ----------- Net realized and unrealized gain.................................. 5,620,715 ----------- Net increase in net assets resulting from operations.............. $ 6,298,084 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 38 GLOBAL EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 677,369 $ 960,262 Net realized gain................................. 6,903,703 5,232,778 Change in net unrealized appreciation or depreciation..................................... (1,282,988) 10,619,517 ----------- ------------ Net increase in net assets resulting from opera- tions............................................ 6,298,084 16,812,557 ----------- ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................... (242,673) (425,929) Brinson Class N................................... (11) -- SwissKey Class.................................... (397,017) (253,945) Distributions from net realized gain: Brinson Class I................................... (1,266,777) (3,076,886) Brinson Class N................................... (82) -- SwissKey Class.................................... (5,307,194) (3,396,000) ----------- ------------ Total distributions to shareholders............... (7,213,754) (7,152,760) ----------- ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 40,216,740 42,520,630 Shares issued on reinvestment of distributions.... 6,378,677 6,711,937 Shares redeemed................................... (73,542,587) (9,295,598) ----------- ------------ Net increase (decrease) in net assets resulting from capital share transactions.................. (26,947,170) 39,936,969 ----------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS........ (27,862,840) 49,596,766 ----------- ------------ NET ASSETS: Beginning of year................................. 109,734,848 60,138,082 ----------- ------------ End of year (including accumulated undistributed net investment income of $377,184 and $336,561, respectively).................................... $81,872,008 $109,734,848 =========== ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 39 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, JANUARY 28, 1994* ---------------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - ------------------------------------------------------------------------------- Net asset value, begin- ning of period.......... $ 12.76 $ 11.57 $ 9.93 $ 9.49 $ 10.00 ------- ------- ------- ------- ------- Income from investment operations: Net investment income.. 0.22 0.16 0.18 0.18 0.07 Net realized and unrealized gain (loss)................ 0.78 2.14 2.29 0.39 (0.54) ------- ------- ------- ------- ------- Total income (loss) from investment operations.......... 1.00 2.30 2.47 0.57 (0.47) ------- ------- ------- ------- ------- Less distributions: Distributions from net investment income..... (0.17) (0.12) (0.14) (0.04) (0.04) Distributions from and in excess of net realized gain......... (1.05) (0.99) (0.69) (0.09) -- ------- ------- ------- ------- ------- Total distributions.. (1.22) (1.11) (0.83) (0.13) (0.04) ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 12.54 $ 12.76 $ 11.57 $ 9.93 $ 9.49 ======= ======= ======= ======= ======= Total return (non- annualized)............. 8.99% 21.26% 25.66% 6.06% (4.70)% Ratios/Supplemental data Net assets, end of pe- riod (in 000s)......... $22,724 $48,054 $27,126 $20,706 $20,642 Ratio of expenses to average net assets: Before expense reimbursement......... 1.02% 1.25% 1.77% 2.06% 2.65%** After expense reimbursement......... 1.00% 1.00% 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reimbursement......... 1.29% 1.35% 0.57% 0.71% 0.24%** After expense reimbursement......... 1.31% 1.60% 1.34% 1.77% 1.89%** Portfolio turnover rate. 46% 32% 74% 36% 21% Average commission rate paid per share......... $0.0254 $0.0246 $0.0288 N/A N/A
* Commencement of investment operations ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 40 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED JUNE 30, BRINSON CLASS N 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of year................................... $ 12.76 ------- Income from investment operations: Net investment income.............................................. 0.13 Net realized and unrealized gain................................... 0.82 ------- Total income from investment operations.......................... 0.95 ------- Less distributions: Distributions from net investment income........................... (0.13) Distributions from net realized gain............................... (1.05) ------- Total distributions.............................................. (1.18) ------- Net asset value, end of year......................................... $ 12.53 ======= Total return......................................................... 8.60% Ratios/Supplemental data Net assets, end of year (in 000s)................................... $ 1 Ratio of expenses to average net assets: Before expense reimbursement....................................... 1.27% After expense reimbursement........................................ 1.25% Ratio of net investment income to average net assets: Before expense reimbursement....................................... 1.04% After expense reimbursement........................................ 1.06% Portfolio turnover rate............................................. 46% Average commission rate paid per share.............................. $0.0254
* Commencement of Brinson Class N was June 30, 1997. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 41 GLOBAL EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR YEAR JULY 31, 1995* ENDED ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 12.73 $ 11.57 $ 10.35 ------- ------- ------- Income from investment operations: Net investment income (loss)...... 0.07 0.08 (0.01) Net realized and unrealized gain.. 0.83 2.13 1.93 ------- ------- ------- Total income from investment op- erations....................... 0.90 2.21 1.92 ------- ------- ------- Less distributions: Distributions from net investment income........................... (0.07) (0.06) (0.01) Distributions from net realized gain............................. (1.05) (0.99) (0.69) ------- ------- ------- Total distributions............. (1.12) (1.05) (0.70) ------- ------- ------- Net asset value, end of period...... $ 12.51 $ 12.73 $ 11.57 ======= ======= ======= Total return (non-annualized)....... 8.15% 20.34% 19.25% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $59,147 $61,680 $33,012 Ratio of expenses to average net assets: Before expense reimbursement...... 1.78% 2.00% 2.53%** After expense reimbursement....... 1.76% 1.75% 1.76%** Ratio of net investment income (loss) to average net assets: Before expense reimbursement...... 0.53% 0.60% (0.19)%** After expense reimbursement....... 0.55% 0.85% 0.58%** Portfolio turnover rate............ 46% 32% 74% Average commission rate paid per share............................. $0.0254 $0.0246 $0.0288
* Commencement of SwissKey Class ** Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 42 Global Bond Fund [SWISS KEY FUND LOGO] The Global Bond Fund is actively managed, providing a fully integrated treatment of the U.S. and other major fixed income markets across the world. This global approach takes full advantage of relationships both within and across markets, based on consistent analysis of macroeconomic and market conditions. Market and currency strategies are developed on a global asset allocation framework, in conjunction with senior fixed income professionals in our offices worldwide. The SwissKey Global Bond Fund has provided an annualized return of 6.36% since its inception on July 31, 1995. Over the same time period, the return of the Fund's benchmark was 2.84%. During the first half of 1998, the Fund returned 1.52% compared to the index return of 2.78% on an unhedged basis. On a dollar-hedged basis, the index returned 5.03%, with individual market returns ranging from 7.89% in Sweden down to 4.16% in Switzerland and 4.20% in U.S. Treasuries. Yields continued to decline, in many markets to record low levels, in a low inflation environment. The Asian crisis contributed to lower inflation but also supported government bonds by encouraging a "flight to quality". Market allocation made a minor positive contribution to the Fund's performance relative to the benchmark in the first six months of the year. The Fund benefited from being overweight in Denmark, while the overweight in U.S. bonds detracted slightly from relative performance. Currency allocation made virtually no net contribution to relative performance for the period. The Fund suffered from being underweight in the U.K. pound, but benefited from the offsetting overweight in the U.S. dollar. Similarly the "paired" overweight of the Australian dollar and underweight of the Japanese yen netted to a wash. While the yen was relatively weak, so too was the Australian dollar, which suffered (as did the Canadian dollar) from weakening commodity prices in the wake of the Asian crisis. Bond management was the largest detractor from relative performance. Although the Fund benefited from being overweight in Canadian Real Return bonds, overall short duration strategies hurt performance. This was particularly true in Japan, where the worsening economic situation drove down the compound yield on ten year JGBs to just 1.45% in early June. At present, the average duration of holdings is equal to the market index average in Denmark and the U.S., 0.95 times average in Australia, and 0.9 times average in the other countries in the Fund. 43 Global Bond Fund [SWISS KEY FUND LOGO] Total Return
6 months 1 year 7/31/95* ended ended to 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------- SwissKey Global Bond Fund 1.52% 2.28% 6.36% - -------------------------------------------------------------------------------- Salomon World Government Bond Index 2.78 4.32 2.84 - --------------------------------------------------------------------------------
*Inception date of the SwissKey Global Bond Fund. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the SwissKey Global Bond Fund and the Salomon World Government Bond Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SwissKey Global Bond Fund vs. Salomon World Government Bond Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
SwissKey Global Salomon World Date Bond Fund Gov't Bond Index - ---- --------------- ---------------- 07/31/95 10,000 10,000 12/31/95 10,722 10,162 06/30/96 10,917 10,013 12/31/96 11,654 10,531 06/30/97 11,703 10,402 12/31/97 11,791 10,557 06/30/98 11,970 10,851
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 44 Global Bond Fund [SWISS KEY FUND LOGO] Asset Allocation As of June 30, 1998
Current Benchmark Strategy - --------------------------------------------- U.S. 33.4% 39.4% Australia 0.8 4.0 Austria 0.9 0.0 Belgium 2.4 0.0 Canada 3.3 6.1 Denmark 1.6 6.3 Finland 0.6 0.0 France 7.4 7.6 Germany 9.2 13.3 Ireland 0.4 0.0 Italy 7.2 3.6 Japan 18.3 0.0 Netherlands 3.0 5.3 Spain 3.0 3.9 Sweden 1.5 1.5 Switzerland 0.5 0.0 U.K. 6.5 9.0 - --------------------------------------------- 100.0% 100.0%
Currency Allocation As of June 30, 1998
Current Benchmark Strategy - --------------------------------------------- U.S. 33.4% 36.9% Australia 0.8 4.7 Austria 0.9 0.9 Belgium 2.4 2.4 Canada 3.3 3.3 Denmark 1.6 1.6 Finland 0.6 0.6 France 7.4 7.4 Germany 9.2 9.2 Ireland 0.4 0.4 Italy 7.2 7.2 Japan 18.3 14.3 Netherlands 3.0 3.0 Spain 3.0 3.0 Sweden 1.5 1.5 Switzerland 0.5 0.5 U.K. 6.5 3.1 - --------------------------------------------- 100.0% 100.0%
Industry Diversification As a Percent of Net Assets As of June 30, 1998 - --------------------------------------------- U.S. BONDS Corporate Bonds Aerospace & Military............... 0.14% Asset-Backed....................... 2.28 Banking............................ 0.21 CMO................................ 5.02 Consumer........................... 1.23 Financial Services................. 1.56 Food and Housing Products.......... 0.52 Industrial Components.............. 1.16 Services/Miscellaneous............. 0.32 Telecommunications................. 0.92 Transportation..................... 0.77 ------ 14.13 ------ International Dollar Bonds......... 2.33 U.S. Government Agencies........... 9.38 U.S. Government Obligations........ 8.61 ------ Total U.S. Bonds................ 34.45 ------ NON-U.S. BONDS Foreign Financial Bonds............. 14.04 Foreign Government Bonds............ 44.34 ------ Total Non-U.S. Bonds............ 58.38 ------ SHORT-TERM INVESTMENTS.............. 13.44 ------ TOTAL INVESTMENTS............... 106.27 LIABILITIES, LESS CASH AND OTHER ASSETS....................... (6.27) ------ NET ASSETS...................... 100.00% ======
45 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- Bonds -- 92.83% U.S. BONDS -- 34.45% U.S. CORPORATE BONDS -- 14.13% Archer Daniels, 6.950%, due 12/15/2097.................. $ 500,000 $ 533,778 Bear Stearns Mortgage Securities, Inc., 96-7, Class A4, 6.000%, due 01/28/09................................... 200,000 197,182 Capital One Bank, 6.830%, due 05/17/99.................. 200,000 201,125 Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02................................... 125,000 125,921 Continental Airlines, Inc., 6.900%, due 01/02/18................................... 710,000 738,528 Countrywide Capital, Inc., 8.000%, due 12/15/26................................... 250,000 264,901 DLJ Mortgage Acceptance Corp., 98-3, Class A, 6.500%, due 08/19/28........................................... 620,000 612,250 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00... 375,000 380,412 First Bank Corporate Card Master Trust, 97-1, Class A, 6.400%, due 02/15/03................................... 240,000 244,322 First Union-Lehman Brothers Commercial Mortgage, 97-C2, Class A2, 6.600%, due 05/18/07......................... 240,000 244,920 Ford Credit Grantor Trust, 95-B, Class A, 5.900%, due 10/15/00.................... 25,233 25,253 GE Capital Mortgage Services, Inc., 93-7F, Class FA3, 6.500%, due 09/25/08................................... 383,524 384,444 Kroger Co., 6.000%, due 07/01/00........................ 500,000 498,888 Lockheed Martin Corp., 7.700%, due 06/15/08................................... 125,000 137,577 Merrill Lynch & Co., Series B, 5.930%, due 03/23/01................................... 550,000 549,690 Metlife Capital Equipment Loan Trust, 97-A, Class A, 6.850%, due 05/20/08.................... 225,000 232,973 News America Holdings, 7.750%, due 12/01/45................................... 775,000 831,715 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24................... 190,000 197,362 Premier Auto Trust, 96-3, Class A4, 6.750%, due 11/06/00................... 475,000 479,888 Prudential Home Mortgage Securities 93-43, Class A9, 6.750%, due 10/25/23.................. 215,869 216,776 96-7, Class A4, 6.750%, due 06/25/11................... 150,000 151,989 Residential Asset Securitization Trust 97-A7, Class A1, 7.500%, due 09/25/27.................. 245,263 247,950 97-A10, Class A5, 7.250%, due 12/25/27................. 335,000 342,149 97-A11, Class A6, 7.000%, due 01/25/28................. 430,000 435,688 97-A11, Class A2, 7.000%, due 01/25/28................. 260,000 261,664 98-A1, Class A1, 7.000%, due 03/25/28.................. 252,863 254,492 Salomon, Inc. 6.500%, due 03/01/00...................... 300,000 302,337 SASCO LLC, 98-RF1, Class A, 8.712%, due 03/15/27.................. 289,264 310,236 Structured Mortgage Asset Residential Trust, 93-5C, Class CI, 7.150%, due 03/25/23......................... 925,000 943,881
FACE AMOUNT VALUE ---------- ---------- The Money Store, 94-A, Class A3, 5.525%, due 09/15/18.................... $ 58,553 $ 58,049 Time Warner, Inc., 7.570%, due 02/01/24.................. 315,000 341,044 U.S. West Capital Funding Inc., 6.875%, due 07/15/28.................................... 375,000 376,801 USA Waste Services, 7.000%, due 10/01/04................. 300,000 309,331 UCFC Home Equity Loan FRN, 97-C, Class A8, 5.888%, due 09/15/27.................... 153,606 153,778 USX Corp., 8.125%, due 07/15/23.......................... 500,000 571,971 Vanderbilt Mortgage Finance, 98-B, Class 1A2, 6.120%, due 05/07/09................... 600,000 602,238 World Omni Automobile Lease Securitization Trust, 97-A, Class A3, 6.850%, due 06/25/03.......................... 254,868 257,129 Worldcom Inc., Series *, 8.875%, due 01/15/06............ 465,000 503,363 ---------- 13,521,995 ---------- INTERNATIONAL DOLLAR BONDS -- 2.33% Banco Santiago S.A., 7.000%, due 07/18/07................ 400,000 401,576 Banque Centrale de Tunisie, 8.250%, due 09/19/27.................................... 400,000 376,539 DR Investments, 144A, 7.450%, due 05/15/07.................................... 455,000 485,688 Pan Pacific Industry PLC, 144A, 0.000%, due 04/28/07.............................. 715,000 250,250 Province of Quebec, 7.500%, due 07/15/23................. 235,000 261,257 Republic of South Africa, 9.625%, due 12/15/99.................................... 125,000 130,000 Royal Bank of Scotland, 7.375%, Resettable Perpetual Preferred.................. 300,000 319,467 ---------- 2,224,777 ---------- U.S. GOVERNMENT AGENCIES -- 9.38% Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13.................................... 68,215 70,323 7.500%, due 01/15/23.................................... 82,460 88,349 7.238%, due 05/01/26.................................... 38,619 39,962 Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23.................................... 77,152 79,707 9.000%, due 03/01/24.................................... 216,460 231,833 Federal National Mortgage Assoc. 6.220%, due 03/13/06.................................... 150,000 154,781 6.820%, due 10/01/07.................................... 480,108 503,970 6.361%, due 06/01/08.................................... 390,000 399,243 8.000%, due 03/01/11.................................... 124,028 127,942 6.000%, due 12/01/12 TBA................................ 300,000 296,624 9.000%, due 08/01/21.................................... 21,590 23,111 8.500%, due 07/01/22.................................... 15,054 15,916 8.000%, due 11/01/23.................................... 224,266 44,341 7.000%, due 12/18/24.................................... 700,000 706,124 9.000%, due 04/25/25.................................... 17,462 18,321 7.500%, due 05/18/25.................................... 250,000 257,380 7.890%, due 04/01/26.................................... 267,300 276,762 6.500%, due 12/01/27 TBA................................ 3,400,000 3,385,101 3.500%, due 05/01/28.................................... 328,389 282,046 Federal National Mortgage Assoc. Strips 0.000%, due 04/01/27 principal only................................. 218,262 184,674 Government National Mortgage Assoc. 7.500%, due 08/15/23.................................... 95,868 98,475 7.500%, due 12/15/23.................................... 141,583 145,432 7.500%, due 01/15/24.................................... 98,868 101,556
- -------------------------------------------------------------------------------- 46 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- 7.375%, due 06/20/24................................... $ 129,621 $ 132,848 7.000%, due 08/15/24................................... 470,983 479,677 7.000%, due 07/15/25................................... 65,462 66,565 Jordan Aid, 8.750%, due 09/01/19........................ 193,941 243,842 Tennessee Valley Authority 6.375%, due 06/15/05................................... 500,000 519,105 ----------- 8,974,010 ----------- U.S. GOVERNEMENT OBLIGATIONS -- 8.61% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................... 4,550,000 4,548,580 6.625%, due 07/31/01................................... 1,765,000 1,817,950 6.250%, due 08/31/02................................... 240,000 246,225 7.000%, due 07/15/06................................... 260,000 284,050 3.625%, due 01/15/08................................... 346,998 343,094 8.000%, due 11/15/21................................... 425,000 547,852 6.000%, due 02/15/26................................... 430,000 447,335 ----------- 8,235,086 ----------- Total U.S. Bonds........................................ 32,955,868 ----------- NON-U.S. BONDS -- 58.38% AUSTRALIA -- 3.92% Government of Australia 9.750%, due 03/15/02................................AUD 1,500,000 1,065,689 9.000%, due 09/15/04................................... 1,200,000 881,103 New South Wales Treasury Corp., 7.000%, due 04/01/04.... 1,000,000 657,231 Queensland Treasury Corp.-Global Note 8.000%, due 05/14/03............................................... 980,000 668,363 6.500%, due 06/14/05................................... 730,000 472,188 ----------- 3,744,574 ----------- AUSTRIA -- 1.81% Republic of Austria, 5.500%, due 01/18/04............................... FRF 10,000,000 1,728,250 ----------- CANADA -- 5.93% British Columbia, 7.750%, due 06/16/03............................... CAD 1,540,000 1,149,345 Government of Canada 9.000%, due 12/01/04................................... 400,000 325,337 4.250%, due 12/01/21 (b)............................... 3,300,000 2,598,082 Province of Ontario-Global Bond 7.500%, due 01/19/06................................... 2,100,000 1,601,132 ----------- 5,673,896 ----------- CHILE -- 0.49% Embot Andina S.A., 7.875%, due 10/01/97............................... USD 500,000 470,003 ----------- DENMARK -- 5.90% City of Copenhagen, 6.250%, due 03/15/01............................... DKK 2,400,000 363,385 Great Belt, 7.000%, due 09/02/03........................ 10,650,000 1,696,729 Kingdom of Denmark 8.000%, due 11/15/01................................... 8,000,000 1,288,352 7.000%, due 12/15/04................................... 10,500,000 1,710,048 7.000%, due 11/15/07................................... 1,400,000 234,419 7.000%, due 11/10/24................................... 2,000,000 352,857 ----------- 5,645,790 -----------
FACE AMOUNT VALUE ------------- ----------- FINLAND -- 1.49% Republic of Finland, 9.000%, due 08/13/03............................ FRF 7,200,000 $ 1,429,044 ----------- FRANCE -- 2.66% Government of France (BTAN) 7.750%, due 04/12/00................................ 4,000,000 703,143 Government of France (OAT) 9.500%, due 01/25/01................................ 1,800,000 336,183 7.500%, due 04/25/05................................ 5,600,000 1,079,431 8.500%, due 04/25/23................................ 1,800,000 426,421 ----------- 2,545,178 ----------- GERMANY -- 10.82% Bundesobligation Ser 114, 6.500%, due 03/15/00............................ DEM 2,900,000 1,672,199 Bundesrepublik Deutschland 8.000%, due 07/22/02................................ 3,800,000 2,387,579 6.000%, due 07/04/07................................ 1,000,000 602,936 6.250%, due 01/04/24................................ 700,000 437,064 International Bank Reconstruction & Development, 7.125%, due 04/12/05................................ 2,250,000 1,415,443 European Economic Community, 6.500%, due 03/10/00................................ 1,910,000 1,098,911 KFW International Finance, 6.625%, due 04/15/03................................ 2,800,000 1,688,920 LKB Baden-Wuerttemberg Finance, 6.500%, due 09/15/08. 1,300,000 800,886 Treuhandanstalt, 7.125%, due 01/29/03................ 400,000 246,116 ----------- 10,350,054 ----------- IRELAND -- 1.87% Republic of Ireland, 7.250%, due 03/18/03................................ 2,900,000 1,790,609 ----------- ITALY -- 3.46% Bayerische Landesbank, 10.750%, due 03/01/03............................ITL 750,000,000 524,774 International Bank for Reconstruction & Development 5.000%, due 10/16/00................................ 1,000,000,000 568,905 LKB Baden-Wuerttemberg Finance, 10.750%, due 04/14/03............................................ 650,000,000 457,547 Republic of Italy (BTP) 7.750%, due 09/15/01................................ 200,000,000 123,080 9.000%, due 10/01/03................................ 1,800,000,000 1,209,789 9.500%, due 02/01/06................................ 300,000,000 216,855 9.000%, due 11/01/23................................ 250,000,000 207,842 ----------- 3,308,792 ----------- NETHERLANDS -- 5.02% Government of Netherlands 5.750%, due 09/15/02............................ NLG 250,000 129,154 7.250%, due 10/01/04................................ 3,000,000 1,684,200 8.500%, due 06/01/06................................ 1,750,000 1,071,490 7.500%, due 11/15/99................................ 1,850,000 950,828 International Nederland GRP Verzekeringen, 6.250%, due 12/28/05........................................ 1,800,000 962,914 ----------- 4,798,586 ----------- PORTUGAL -- 1.28% Republic of Portugal, 5.625%, due 04/03/07............................ FRF 7,000,000 1,221,369 -----------
- -------------------------------------------------------------------------------- 47 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ----------- ----------- SPAIN -- 3.72% Kingdom of Spain 6.750%, due 04/15/00.............................. ESP 100,000,000 $ 681,299 7.900%, due 02/28/02.................................. 100,000,000 727,513 8.000%, due 05/30/04.................................. 100,000,000 762,591 10.000%, due 02/28/05................................. 70,000,000 590,764 7.350%, due 03/31/07.................................. 105,000,000 800,926 ----------- 3,563,093 ----------- SWEDEN -- 1.35% Kingdom of Sweden 6.000%, due 02/09/05...............................SEK 3,000,000 402,182 10.250%, due 05/05/03................................. 5,700,000 888,153 ----------- 1,290,335 ----------- UNITED KINGDOM -- 8.66% Abbey National PLC, 8.750%, due 05/24/04...............................GBP 350,000 635,074 British Gas PLC, 8.125%, due 03/31/03.................. 545,000 945,707 European Investment Bank, 7.625%, due 12/07/06.................................. 1,460,000 2,627,849 UK Treasury 10.000%, due 09/08/03................................. 600,000 1,159,400 7.750%, due 09/08/06.................................. 555,000 1,028,459 9.000%, due 10/13/08.................................. 340,000 702,377 8.000%, due 09/27/13.................................. 580,000 1,183,351 ----------- 8,282,217 ----------- Total Non-U.S. Bonds................................... 55,841,790 ----------- Total Bonds (Cost $88,760,827)......................... 88,797,658 ----------- Short-Term Investments -- 13.44% COMMERCIAL PAPER -- 13.44% ARCO Chemical Co., 5.770%, due 07/06/98.................................. $ 1,000,000 999,199 Cincinnati Bell Inc. 5.850%, due 07/13/98.................................. 1,000,000 998,050 5.900%, due 07/17/98.................................. 1,000,000 997,378 Hilton Hotels Corp., 5.720%, due 07/15/98.................................. 1,407,000 1,403,870 NGC Corp., 6.750%, due 07/01/98........................ 3,000,000 3,000,000 Raytheon Co., 6.998%, due 07/01/98..................... 2,466,000 2,466,000 Tenneco Inc., 5.750%, due 07/17/98..................... 1,500,000 1,496,167 Texas Utilities Co., 6.100%, due 07/17/98.............. 1,500,000 1,495,933 ----------- Total Short-Term Investments (Cost $12,856,597)........ 12,856,597 ----------- Total Investments (Cost $101,617,424) --106.27% (a).... 101,654,255 ----------- Liabilities, less cash and other assets -- (6.27%)..... (5,994,046) ----------- Net Assets -- 100%..................................... $95,660,209 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 48 GLOBAL BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $101,617,424; and net unrealized appreciation consisted of: Gross unrealized appreciation................................. $1,669,877 Gross unrealized depreciation................................. (1,633,046) ---------- Net unrealized appreciation............................... $ 36,831 ==========
(b) Linked to Canada's retail price index. Reset semi-annually FRN: Floating Rate Note TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $745,938 or 0.77% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FORWARD FOREIGN CURRENCY CONTRACTS The Global Bond Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- ------------- ---------- ---------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Australian Dollar............. 7/06/98 562,392 $ 348,321 $ (379) Australian Dollar............. 11/30/98 1,200,000 744,689 (12,031) Austrian Schilling............ 11/30/98 10,100,000 802,238 (13,396) Belgian Franc................. 11/30/98 77,000,000 2,087,336 (33,292) British Pound................. 7/06/98 299,393 499,370 (286) Canadian Dollar............... 7/06/98 637,068 433,264 203 Danish Krone.................. 7/06/98 2,319,532 337,376 44 Finnish Markka................ 11/30/98 2,800,000 514,549 (7,352) French Franc.................. 7/06/98 3,539,078 585,581 368 French Franc.................. 11/30/98 25,400,000 4,238,724 (64,028) German Mark................... 7/06/98 1,849,674 1,025,142 (1,029) Italian Lira.................. 7/06/98 880,703,379 495,505 32 Italian Lira.................. 11/30/98 5,600,000,000 3,163,489 (49,086) Japanese Yen.................. 5/28/98 1,900,000,000 14,007,272 (337,064) Netherlands Guilder........... 7/06/98 811,598 399,128 (104) Spanish Peseta................ 7/06/98 53,443,173 349,173 509 FORWARD FOREIGN CURRENCY SALE CONTRACTS British Pound................. 11/30/98 3,400,000 5,623,181 (113,891) Canadian Dollar............... 11/30/98 3,600,000 2,454,289 38,268 Danish Kroner................. 11/30/98 30,200,000 4,422,083 57,285 French Franc.................. 11/30/98 26,000,000 4,338,851 82,850 German Mark................... 11/30/98 6,900,000 3,856,882 54,810 Netherlands Guilder........... 11/30/98 4,000,000 1,984,452 32,287 Spanish Peseta................ 11/30/98 97,000,000 637,597 8,898 --------- Total..................... $(356,384) =========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 49 GLOBAL BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $101,617,424)....................... $101,654,255 Cash............................................................ 12,764 Foreign currency, at value (Cost $551,655)...................... 545,899 Receivables: Investment securities sold..................................... 1,145,929 Interest....................................................... 1,953,602 Fund shares sold............................................... 1,153,887 Other assets.................................................... 40,817 ------------ TOTAL ASSETS................................................. 106,507,153 ------------ LIABILITIES: Payables: Investment securities purchased................................ 10,384,748 Investment advisory fees....................................... 53,440 Accrued expenses............................................... 52,372 Net unrealized depreciation on forward foreign currency con- tracts.......................................................... 356,384 ------------ TOTAL LIABILITIES............................................ 10,846,944 ------------ NET ASSETS....................................................... $95,660,209 ============ NET ASSETS CONSIST OF: Paid in capital................................................. $ 96,506,368 Accumulated undistributed net investment income................. 1,003,399 Accumulated net realized loss................................... (1,521,835) Net unrealized depreciation..................................... (327,723) ------------ NET ASSETS................................................... $ 95,660,209 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $91,274,483 and 9,698,203 shares issued and outstanding)...... $ 9.41 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $8,965 and 954 shares issued and outstanding)................. $ 9.40 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $4,376,761 and 466,193 shares issued and outstanding)......... $ 9.39 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 50 GLOBAL BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest (net of $18,306 for foreign taxes withheld).............. $3,631,663 ---------- TOTAL INCOME................................................... 3,631,663 ---------- EXPENSES: Advisory.......................................................... 500,982 Custodian......................................................... 21,709 Professional...................................................... 45,990 Distribution...................................................... 20,731 Other............................................................. 75,917 ---------- TOTAL EXPENSES................................................. 665,329 ---------- Expenses waived by Advisor..................................... (43,502) ---------- NET EXPENSES................................................... 621,827 ---------- NET INVESTMENT INCOME.......................................... 3,009,836 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments...................................................... 1,085,343 Futures contracts................................................ 21,780 Foreign currency transactions.................................... (2,221,924) ---------- Net realized loss............................................... (1,114,801) ---------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency................................. 224,905 Futures contracts................................................ (12,019) Forward contracts................................................ (493,663) Translation of other assets and liabilities denominated in for- eign currency................................................... 4,151 ---------- Change in net unrealized appreciation or depreciation........... (276,626) ---------- Net realized and unrealized loss.................................. (1,391,427) ---------- Net increase in net assets resulting from operations.............. $1,618,409 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 51 GLOBAL BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE JUNE 30, 1998 30, 1997 ------------- ----------- OPERATIONS: Net investment income.............................. $ 3,009,836 $ 2,426,764 Net realized gain (loss)........................... (1,114,801) 1,723,264 Change in net unrealized appreciation or deprecia- tion ............................................. (276,626) (381,459) ----------- ----------- Net increase in net assets resulting from opera- tions............................................. 1,618,409 3,768,569 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income........... (2,183,342) (3,479,707) Distributions in excess of net investment income... -- (340,005) Distributions from net realized gain............... (1,041,855) (769,789) ----------- ----------- Total distributions to shareholders*............... (3,225,197) (4,589,501) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares sold........................................ 46,034,839 23,164,253 Shares issued on reinvestment of distributions..... 2,230,731 3,667,961 Shares redeemed.................................... (9,266,587) (12,462,273) ----------- ----------- Net increase in net assets resulting from capital share transactions................................ 38,998,983 14,369,941 ----------- ----------- TOTAL INCREASE IN NET ASSETS.................... 37,392,195 13,549,009 ----------- ----------- NET ASSETS: Beginning of year.................................. 58,268,014 44,719,005 ----------- ----------- End of year (including accumulated undistributed net investment income of $1,003,399 and $489,146, respectively)..................................... $95,660,209 $58,268,014 =========== =========== *DISTRIBUTIONS BY CLASS: Distributions from and in excess of net investment income Brinson Class I................................... $(2,070,571) $(3,503,032) Brinson Class N................................... (98) -- SwissKey Class.................................... (112,673) (316,680) Distributions from net realized gain Brinson Class I................................... (969,902) (704,236) Brinson Class N................................... (18) -- SwissKey Class.................................... (71,935) (65,553) ----------- ----------- Total distributions to shareholders................ $(3,225,197) $(4,589,501) =========== ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 52 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, JULY 30, 1993* ------------------------------------ THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - -------------------------------------------------------------------------------- Net asset value, beginning of period................ $ 9.64 $ 10.04 $ 10.39 $ 9.55 $ 10.00 ------- ------- ------- ------- ------- Income (loss) from in- vestment operations: Net investment income .. 0.43*** 0.67 0.84 0.50 0.45 Net realized and unrealized gain (loss). (0.18) 0.08 0.31 0.58 (0.52) ------- ------- ------- ------- ------- Total income (loss) from investment oper- ations............... 0.25 0.75 1.15 1.08 (0.07) ------- ------- ------- ------- ------- Less distributions: Distributions from and in excess of net investment income...... (0.31) (0.96) (1.40) (0.24) (0.28) Distributions from net realized gain.......... (0.17) (0.19) (0.10) -- (0.10) ------- ------- ------- ------- ------- Total distributions... (0.48) (1.15) (1.50) (0.24) (0.38) ------- ------- ------- ------- ------- Net asset value, end of period................... $ 9.41 $ 9.64 $ 10.04 $ 10.39 $ 9.55 ======= ======= ======= ======= ======= Total return (non- annualized).............. 2.69 % 7.71% 11.50% 11.34% (0.79)% Ratios/Supplemental data Net assets, end of period (in 000s)............... $91,274 $54,157 $41,066 $51,863 $36,849 Ratio of expenses to av- erage net assets: Before expense reim- bursement.............. 0.96% 1.32% 1.65% 1.43% 1.78%** After expense reimburse- ment................... 0.90% 0.90% 0.90% 0.90% 0.90%** Ratio of net investment income to average net assets: Before expense reim- bursement.............. 4.47% 4.90% 4.98% 5.53% 4.03%** After expense reimburse- ment................... 4.53% 5.32% 5.73% 6.06% 4.91%** Portfolio turnover rate.. 151% 235% 184% 199% 189%
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 53 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED JUNE 30, BRINSON CLASS N 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of year................................... $ 9.64 ------ Income from investment operations: Net investment income.............................................. 0.42** Net realized and unrealized loss................................... (0.20) ------ Total income from investment operations.......................... 0.22 ------ Less distributions: Distributions from and in excess of net investment income.......... (0.29) Distributions from net realized gain............................... (0.17) ------ Total distributions.............................................. (0.46) ------ Net asset value, end of year......................................... $ 9.40 ====== Total return......................................................... 2.37% Ratios/Supplemental Data: Net assets, end of year (in 000s)................................... $ 9 Ratio of expenses to average net assets: Before expense reimbursement....................................... 1.21% After expense reimbursement........................................ 1.15% Ratio of net investment income to average net assets: Before expense reimbursement....................................... 4.22% After expense reimbursement........................................ 4.28% Portfolio turnover rate............................................. 151%
* Commencement of Brinson Class N was June 30, 1997. ** The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 54 GLOBAL BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR YEAR JULY 31, 1995* ENDED ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 9.61 $10.02 $10.56 ------ ------ ------ Income from investment operations: Net investment income............. 0.38*** 0.62 0.78 Net realized and unrealized gain (loss)........................... (0.18) 0.10 0.15 ------ ------ ------ Total income from investment op- erations....................... 0.20 0.72 0.93 ------ ------ ------ Less distributions: Distributions from and in excess of net investment income......... (0.25) (0.94) (1.37) Distributions from net realized gain............................. (0.17) (0.19) (0.10) ------ ------ ------ Total distributions............. (0.42) (1.13) (1.47) ------ ------ ------ Net asset value, end of period...... $ 9.39 $ 9.61 $10.02 ====== ====== ====== Total return (non-annualized)....... 2.28% 7.20% 9.17% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $4,377 $4,110 $3,653 Ratio of expenses to average net assets: Before expense reimbursement...... 1.45% 1.81% 2.14%** After expense reimbursement....... 1.39% 1.39% 1.39%** Ratio of net investment income to average net assets: Before expense reimbursement...... 3.98% 4.41% 4.49%** After expense reimbursement....... 4.04% 4.83% 5.24%** Portfolio turnover rate............ 151% 235% 184%
* Commencement of SwissKey Class ** Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 55 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1.SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eight series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Fund," collectively the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the Global Fund, Global Equity Fund and Global Bond Fund in the preparation of their financial statements. A.INVESTMENT VALUATION: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. U.S. equity securities traded over the counter are priced at the most recent bid price. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Investments in affiliated investment companies are valued each day based on the closing net asset value of the fund. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B.FOREIGN CURRENCY TRANSLATION: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate on the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C.INVESTMENT TRANSACTIONS: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D.INVESTMENT INCOME: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E.FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 1998, therefore, no federal income tax provision was required. F.DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex- dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. Amounts equal to 10.37% and 44.43% of the amount taxable as ordinary income qualify for dividends received deduction available to corporate shareholders for the Global Fund and the Global Equity Fund, respectively. - -------------------------------------------------------------------------------- 56 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- G.INCOME AND EXPENSE ALLOCATION: All income earned and expenses incurred by each Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I shares will not incur any of the distribution expenses of the Brinson Class N nor the SwissKey Class. H.USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, the Funds pay the Advisor a monthly fee based on each Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent that total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions with affiliates, for the year ended June 30, 1998, were as follows:
ADVISORY BRINSON CLASS I BRINSON CLASS N SWISSKEY CLASS ADVISORY FEES FEE EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES WAIVED -------- --------------- --------------- -------------- ---------- ------- Global Fund............. 0.80% 1.10% 1.35% 1.75% $5,378,141 $ -- Global Equity Fund...... 0.80 1.00 1.25 1.76 719,439 21,898 Global Bond Fund........ 0.75 0.90 1.15 1.39 500,982 43,502
Certain officers of the Funds are also officers and directors of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the year ended June 30, 1998 were $11,680, $4,745 and $4,380 for the Global Fund, Global Equity Fund and Global Bond Fund, respectively. The Global Fund invests in shares of certain affiliated investment companies also sponsored by the Advisor. These investments represented 12.11% of the Fund's total net assets at June 30, 1998. Activity for the year ended June 30, 1998 was as follows:
NET NET SALES REALIZED UNREALIZED AFFILIATES PURCHASES PROCEEDS GAINS GAINS/(LOSSES) VALUE - ---------- ----------- -------- -------- -------------- ----------- Brinson Post-Venture Fund................... $ -- $ -- -- $ 1,712,136 $ 8,960,844 Brinson High Yield Fund. 3,000,000 -- -- 1,234,705 17,562,145 Brinson Emerging Markets Equity Fund............ 17,300,000 -- -- (10,234,783) 23,662,860 Brinson Emerging Markets Debt Fund.............. 12,000,000 -- -- 2,146,849 34,515,928 ----------- ----- ----- ----------- ----------- $32,300,000 $ -- $ -- $(5,141,093) $84,701,777 =========== ===== ===== =========== ===========
3.INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 1998, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ------------ ------------ Global Fund........................................... $623,122,331 $565,947,059 Global Equity Fund.................................... 39,788,298 67,808,003 Global Bond Fund...................................... 129,422,765 93,539,341
- -------------------------------------------------------------------------------- 57 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4.FORWARD FOREIGN CURRENCY CONTRACTS The Funds may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to each Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Funds realize a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts at and for the year ended June 30, 1998, was the Funds' custodian or an affiliate of the Funds' custodian. 5.FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 6.SECURITY LENDING The Global Fund loaned securities to certain brokers, with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. Securities loaned are recorded at the amount of cash collateral received. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 102% of the value of domestic securities loaned and 105% of the value of non-U.S. securities loaned. The cash collateral received is invested in short-term investments. The value of loaned securities and related collateral outstanding at June 30, 1998 were as follows:
VALUE OF LOANED VALUE OF SECURITIES COLLATERAL --------------- ------------ Global Fund........................................ $98,984,231 $104,946,044 =========== ============
7.DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940 as amended for the Brinson Class N and the SwissKey Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of the Global Fund, Global Equity Fund and Global Bond Fund. Annual fees under the SwissKey Plan, which include a 0.25% service fee, total 0.65%, 0.76% and 0.49% of the average daily net assets of the SwissKey Class of the Global Fund, Global Equity Fund and Global Bond Fund, respectively. 8.LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated at an annual rate of the Federal Funds Rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized amount of the line of credit. During the year ended June 30, 1998 the Funds had no borrowings under the agreement. - -------------------------------------------------------------------------------- 58 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9.CAPITAL TRANSACTIONS Capital stock transactions were as follows:
GLOBAL FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I............... 18,850,057 $244,898,004 14,513,488 $180,787,534 Brinson Class N............... 90,370 1,177,290 76 1,000 SwissKey Class................ 803,666 10,347,586 932,414 11,508,566 ---------- ------------ ---------- ------------ Total Sales................ 19,744,093 $256,422,880 15,445,978 $192,297,100 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I............... 5,179,618 $ 62,332,662 4,022,259 $ 48,025,771 Brinson Class N............... 769 9,625 -- -- SwissKey Class................ 217,810 2,607,910 130,547 1,554,814 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 5,398,197 $ 64,950,197 4,152,806 $ 49,580,585 ========== ============ ========== ============ Redemptions: Brinson Class I............... 16,402,396 $209,137,318 11,346,380 $142,532,012 Brinson Class N............... 21 276 -- -- SwissKey Class................ 641,736 8,247,175 198,888 2,469,271 ---------- ------------ ---------- ------------ Total Redemptions.......... 17,044,153 $217,384,769 11,545,268 $145,001,283 ========== ============ ========== ============ GLOBAL EQUITY FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I............... 1,466,054 $ 17,934,645 1,338,623 $ 15,816,109 Brinson Class N............... -- -- 78 1,000 SwissKey Class................ 1,779,376 22,282,095 2,271,465 26,703,521 ---------- ------------ ---------- ------------ Total Sales................ 3,245,430 $ 40,216,740 3,610,166 $ 42,520,630 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I............... 126,859 $ 1,426,171 308,273 $ 3,485,504 Brinson Class N............... 9 93 -- -- SwissKey Class................ 442,472 4,952,413 286,226 3,226,433 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 569,340 $ 6,378,677 594,499 $ 6,711,937 ========== ============ ========== ============ Redemptions: Brinson Class I............... 3,546,702 $ 44,596,092 225,435 $ 2,683,391 Brinson Class N............... -- -- -- -- SwissKey Class................ 2,339,080 28,946,495 565,431 6,612,207 ---------- ------------ ---------- ------------ Total Redemptions.......... 5,885,782 $ 73,542,587 790,866 $ 9,295,598 ========== ============ ========== ============
- -------------------------------------------------------------------------------- 59 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
GLOBAL BOND FUND ------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 --------------------- --------------------- SHARES VALUE SHARES VALUE --------- ----------- --------- ----------- Sales: Brinson Class I.................... 4,561,105 $43,233,367 2,335,856 $22,155,311 Brinson Class N.................... 860 8,169 104 1,000 SwissKey Class..................... 293,533 2,793,303 103,968 1,007,942 --------- ----------- --------- ----------- Total Sales..................... 4,855,498 $46,034,839 2,439,928 $23,164,253 ========= =========== ========= =========== Dividend Reinvestment: Brinson Class I.................... 220,347 $ 2,058,040 348,609 $ 3,318,757 Brinson Class N.................... 12 115 -- -- SwissKey Class..................... 18,525 172,576 36,719 349,204 --------- ----------- --------- ----------- Total Dividend Reinvestment..... 238,884 $ 2,230,731 385,328 $ 3,667,961 ========= =========== ========= =========== Redemptions: Brinson Class I.................... 699,882 $ 6,667,104 1,159,373 $11,665,371 Brinson Class N.................... 22 210 -- -- SwissKey Class..................... 273,680 2,599,273 77,300 796,902 --------- ----------- --------- ----------- Total Redemptions............... 973,584 $ 9,266,587 1,236,673 $12,462,273 ========= =========== ========= ===========
- -------------------------------------------------------------------------------- 60 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders The Brinson Funds -- Global Fund Global Equity Fund Global Bond Fund We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Brinson Funds--Global Fund, Global Equity Fund and Global Bond Fund as of June 30, 1998, the related statements of operations and cash flows (Global Fund only) for the year then ended and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--Global Fund, Global Equity Fund and Global Bond Fund at June 30, 1998, the results of their operations and cash flows (Global Fund only) for the year then ended and the changes in their net assets and the financial highlights for the periods indicated therein in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois August 7, 1998 - -------------------------------------------------------------------------------- 61 DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC. 60 STATE STREET BOSTON, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. - -------------------------------------------------------------------------------- [SWISS KEY FUND LOGO] 10 East 50th Street, New York, New York 10022 . Tel: (800) SWISSKEY http://networth.galt.com/swisskey [SWISS KEY FUNDS LOGO] SWISSKEY U.S. BALANCED FUND SWISSKEY U.S. EQUITY FUND SWISSKEY U.S. LARGE CAPITALIZATION EQUITY FUND SWISSKEY U.S. BOND FUND ANNUAL REPORT JUNE 30, 1998 YOUR KEY TO PERFORMANCE ----------------------- TRUSTEES AND OFFICERS [SWISS KEY FUNDS LOGO] TRUSTEES Walter E. Auch Frank K. Reilly, CFA Edward M. Roob OFFICERS Frank K. Reilly, CFA Chairman of the Board E. Thomas McFarlan President Thomas J. Digenan, CFA, CPA Vice President Debra L. Nichols Vice President Carolyn M. Burke, CPA Secretary and Treasurer Catherine E. Macrae Assistant Secretary 1 THE FUNDS' ADVISOR -- BRINSON PARTNERS, INC. [SWISS KEY FUNDS LOGO] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory basis. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent and the flexibility to customize portfolios to meet unique requirements. 2 TABLE OF CONTENTS [SWISS KEY FUNDS LOGO] Shareholder Letter.......................................... 4 U.S. Economic and Market Highlights......................... 6 U.S. Balanced Fund.......................................... 7 Schedule of Investments.................................. 10 Financial Statements..................................... 13 Financial Highlights..................................... 16 U.S. Equity Fund............................................ 19 Schedule of Investments.................................. 22 Financial Statements..................................... 24 Financial Highlights..................................... 27 U.S. Large Capitalization Equity Fund....................... 30 Schedule of Investments.................................. 33 Financial Statements..................................... 35 Financial Highlights..................................... 38 U.S. Bond Fund.............................................. 41 Schedule of Investments.................................. 43 Financial Statements..................................... 45 Financial Highlights..................................... 48 The SwissKey Funds--Notes to Financial Statements........... 51 Report of Independent Auditors.............................. 55 3 SHAREHOLDER LETTER [SWISS KEY FUNDS LOGO] August 22, 1998 Dear Shareholder: We are very pleased to present the June 30, 1998 Annual Report for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund. Within this Report, we focus on the current domestic economic outlook as well as our current strategies and performance updates for the four Domestic Funds. In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced their intention to merge, which included the integration of UBS Asset Management and SBC Brinson into the UBS Brinson Division. The merger was consummated on June 29, 1998. UBS Brinson is managed today by the same senior management that has led the business over the past decades with a consistently applied investment philosophy and process. We are excited about the formation of the UBS Brinson Division and the additional resources we have brought together to further the tradition of delivering value-added investment performance and the highest level of professional client service. SwissKey U.S. Balanced Fund Since its performance inception on July 31, 1995, the SwissKey U.S. Balanced Fund has produced an annualized total return of 13.15% compared to the return of 20.42% of its benchmark, the U.S. Balanced Mutual Fund Index. SwissKey U.S. Equity Fund The SwissKey U.S. Equity Fund has provided an annualized return of 26.66% since its performance inception on July 31, 1995. This is compared to a 27.26% return for the benchmark, the Wilshire 5000 Index. The Fund operates with a fully invested policy. 4 SHAREHOLDER LETTER [SWISS KEY FUNDS LOGO] SwissKey U.S. Large Capitalization Equity Fund The SwissKey U.S. Large Capitalization Equity Fund has provided a return of - -0.32% since its performance inception on April 30, 1998. This is compared to a 2.25% return for the benchmark, the S&P 500 Index. The Fund operates with a fully invested policy. SwissKey U.S. Bond Fund The SwissKey U.S. Bond Fund has provided an annualized return of 7.43% since its inception on August 31, 1995. This is compared to a 8.01% return for the benchmark, the Salomon Brothers BIG Bond Index. We very much appreciate your continued trust and the confidence you have placed in The Brinson Funds. Sincerely, /s/ Hanspeter A. Walder /s/ Raymond Simon - ---------------------- --------------------- Hanspeter A. Walder Raymond Simon Executive Director Executive Director Private Banking Private Banking 5 U.S. ECONOMIC AND MARKET HIGHLIGHTS [LOGO] The Federal Reserve's latest signals lean more toward tightening than at any other time in the last year and a half. Despite the weakness in Asia and its impact on import prices and export demand, rapid growth in monetary aggregates and strength in labor markets and employment costs has increased concern at the Fed that inflationary biases are increasing in magnitude. While an actual move to tighten monetary policy may not be imminent, the prospects for a looser stance and rate reduction have diminished. Reported economic growth in the U.S. is likely to be much slower in the second quarter due to the strike at General Motors, a reduction in some of the inventory build-up from earlier in the year, and the unabated Asian situation. However, domestic demand has not yet shown signs of substantial cooling. This is a major factor in the 4.5% unemployment rate and in the rising wage and salary pressures since 1995. The pattern of consumer price inflation, both recently and in the last few years, contrasts sharply with the concerns voiced by the Fed. Twelve-month changes in the CPI continue to run well under 2%. However, this spectacular performance has occurred largely because of declines in the volatile food and energy components of the index. Measures of the core CPI inflation have not fallen in step with the headline inflation rate, but have flattened out around 2 1/4%. This can be taken as a sign that the underlying disinflation trend has been interrupted, and may turn up in the future as strong money supply growth starts to have an impact. U.S. ENVIRONMENT [GRAPH APPEARS HERE] Major Markets Year to date June 30, 1998 U.S. Cash Equivalents 2.38 U.S. Bonds 3.97 U.S. Equities 15.47 [GRAPH APPEARS HERE] Salomon U.S. Treasury Benchmark Returns Year to date June 30, 1998 1 5.95 2 6.60 3 7.75 5 9.13 10 13.19 30 22.96 [GRAPH APPEARS HERE] Top Ten Industry Returns Relative to S&P 500 Year to date June 30, 1998 Coal & Uranium 28.04 Forest Products 17.34 Trucking, Freight 14.16 Misc. Finance 13.61 Retail (Other) 11.97 Motor Vehicles 9.14 Media 6.76 Drugs, Medicine 6.65 Construction 4.61 Services 4.2 [GRAPH APPEARS HERE] Bottom Ten Industry Returns Relative to S&P 500 Year to date June 30, 1998 Precious Metals -14.07 Oil Refining, Dist. -14.31 Railroads -14.39 Electronics -14.50 Photographic -14.60 Containers -15.70 Tire & Rubber -16.32 Dom. Petroleum Res. -18.00 Oil Service -27.60 Tobacco -33.63 U.S. BALANCED FUND [LOGO OF SWISS KEY FUNDS] TRUSTEES AND OFFICERS The U.S. Balanced Fund is an actively managed portfolio that applies our value- based asset allocation process to U.S. stocks, bonds and cash. The Fund's investment strategy is developed in the context of our global asset allocation process and is based on analysis of long-term economic and market conditions. The SwissKey U.S. Balanced Fund has provided an annualized return of 13.15% since its inception on July 31, 1995. Over the same period, the return on the U.S. Balanced Mutual Fund Index was 20.42%. For the first six months of 1998, the return on the Fund was 5.90%, compared to the benchmark return of 11.42%. The first half of 1998 continued what can only be characterized as an extraordinary period of U.S. risky asset returns. The U.S. equity market has provided extremely high returns, protracting an annualized gain of 29.09% in the prior two years, as measured by the Wilshire 5000, with a 15.47% return in the first half of 1998. U.S. fixed income assets returned 3.77% in the first half of the year, extending annualized gains of 9.52% in the prior two years. The Fund strategy centers on reducing the risk of exposure to the overpriced equity assets, maintaining a significant underweight to the overvalued U.S. equity market and an overweight to the U.S. bond market. Consequently, asset allocation decisions provided a substantial detraction from the performance of the Fund relative to its benchmark. The strategic cash allocation relative to a benchmark weight of zero also detracted from the performance of the U.S. Balanced Fund. Security selection in the U.S. equity segment of the Fund was a contributor to the underperformance of the Fund relative to the benchmark. An underweighting of large capitalization stocks was an important contributor to this underperformance. The U.S. Balanced Fund maintains a 5% risk hedge in this environment of extremely overvalued equity assets and neutrally valued fixed income assets. 7 U.S. BALANCED FUND [LOGO OF SWISS KEY FUNDS] TOTAL RETURN
6 months 1 year 7/31/95* ended ended to 6/30/98 6/30/98 6/30/98 - --------------------------------------------------------------------------------------------------------------- SWISSKEY U.S. BALANCED FUND 5.90% 11.79% 13.15% - --------------------------------------------------------------------------------------------------------------- U.S. Balanced Mutual Fund Index** 11.42 22.38 20.42 - ---------------------------------------------------------------------------------------------------------------
* Performance inception date of the SwissKey U.S. Balanced Fund. ** An un-managed index compiled by the Advisor, constructed as follows: 65% Wilshire 5000 Index and 35% Salomon Brothers Broad Investment Grade Bond Index. Total return includes reinvestment of all capital gain and income distributions. Total returns in excess of 1 year are average annualized returns. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in the SwissKey U.S. Balanced Fund and the U.S. Balanced Mutual Fund Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SWISSKEY U.S. BALANCED FUND VS. U.S. BALANCED MUTUAL FUND INDEX Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
SwissKey U.S. Balanced Fund U.S. Balanced Mutal Fund Index 7/31/95 10,000 10,000 12/31/95 10,841 10,876 6/30/96 11,154 11,544 12/31/96 12,018 12,496 6/30/97 12,826 14,050 12/31/97 13,540 15,433 6/30/98 14,338 17,195
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 8 U.S. Balanced Fund [SWISS KEY FUNDS LOGO] - ------------------------------------------------------------------------ INDUSTRY DIVERSIFICATION - ------------------------------------------------------------------------
As a Percent of Net Assets As of June 30, 1998 - ------------------------------------------------------------------------ U.S. EQUITIES Energy ........................................................ 2.19% Capital Investment Capital Goods ............................................. 4.77 Technology ................................................ 4.54 ------ 9.31 Basic Industries Chemicals ................................................. 1.84 Housing/Paper ............................................. 3.60 Metals .................................................... 0.34 ------ 5.78 Consumer Non-Durables .............................................. 3.41 Retail/Apparel ............................................ 2.06 Autos/Durables ............................................ 1.39 Discretionary ............................................. 0.38 Health: Drugs ............................................. 3.49 Health: Non-Drugs ......................................... 2.56 ------ 13.29 Financial Banks ..................................................... 3.27 Non-Banks ................................................. 3.39 ------ 6.66 Utilities Electric .................................................. 1.75 Telephone ................................................. 0.42 ------ 2.17 Transportation ................................................ 3.77 Services/Misc ................................................. 3.13 ------ Total U.S. Equities ................................... 46.30* ------ U.S. BONDS Corporate Bonds Autos/Durables ............................................ 1.15 Airlines .................................................. 1.60 Banks ..................................................... 2.68 Consumer .................................................. 2.34 Financial Services ........................................ 1.04 Industrial Components ..................................... 1.29 Services/Miscellaneous .................................... 0.88 Utilities ................................................. 0.62 ------ 11.60 International Dollar Bonds .................................... 4.82 Mortgage-Backed Securities .................................... 8.98 U.S. Government Agencies ...................................... 17.04 U.S. Government Obligations ................................... 2.89 ------ Total U.S. Bonds ...................................... 45.33* ------ SHORT-TERM INVESTMENTS ........................................ 12.58* ------ TOTAL INVESTMENTS ..................................... 104.21 LIABILITIES, LESS CASH AND OTHER ASSETS ....................... (4.21) ------ NET ASSETS .................................................... 100.00% ======
- ------------------------------------------------------------------------- * The Fund held a long position in U.S. Treasury futures on June 30, 1998 which increased U.S. bond exposure from 45.33% to 59.76%. The Fund also held a short position in stock index futures which reduced U.S. equity exposure from 46.30% to 29.32%. These two adjustments result in a net increase in the Fund's exposure to Short-Term Investments from 12.58% to 15.13%. - ------------------------------------------------------------------------- ASSET ALLOCATION - -------------------------------------------------------------------------
As of June 30, 1998 CURRENT BENCHMARK STRATEGY - ------------------------------------------------------------------------- U.S. Equity 65% 30% U.S. Bonds 35 65 Cash Equivalents 0 5 - ------------------------------------------------------------------------- 100% 100%
- ------------------------------------------------------------------------- TOP TEN U.S. EQUITY HOLDINGS - -------------------------------------------------------------------------
As of June 30, 1998 PERCENT OF NET ASSETS - ------------------------------------------------------------------------- 1. Xerox Corp. 2.23% 2. Lockheed Martin Corp. 2.13% 3. Burlington Northern Santa Fe Corp. 1.97% 4. Aon Corp. 1.54% 5. FDX Corp. 1.46% 6. Philip Morris Companies, Inc. 1.45% 7. CIGNA Corp. 1.26% 8. Automatic Data Processing, Inc. 1.16% 9. Goodyear Tire & Rubber Co. 1.13% 10. Baxter International, Inc. 1.08% - -------------------------------------------------------------------------
9 U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- U.S. Equities -- 46.30% Aetna Life & Casualty Co.................................... 6,400 $ 487,200 Allergan, Inc............................................... 10,300 477,662 Alza Corp. (b).............................................. 10,000 432,500 American Home Products Corp................................. 10,000 517,500 Aon Corp.................................................... 18,100 1,271,525 Automatic Data Processing, Inc.............................. 13,100 954,663 BankBoston Corp............................................. 6,200 344,875 Baxter International, Inc................................... 16,500 887,906 Beckman Coulter Inc......................................... 4,300 250,475 Bestfoods................................................... 8,800 510,950 Biogen, Inc. (b)............................................ 3,900 191,100 Birmingham Steel Corp....................................... 4,000 49,500 Burlington Northern Santa Fe Corp........................... 16,500 1,620,094 Champion Enterprises, Inc. (b).............................. 3,200 94,000 Champion International Corp................................. 5,000 245,937 CIGNA Corp.................................................. 15,000 1,035,000 Circuit City Stores-Circuit City Group...................... 14,800 693,750 Citicorp.................................................... 300 44,775 CMS Energy Corp............................................. 12,900 567,600 Columbia/HCA Healthcare Corp................................ 2,500 72,813 Comerica, Inc............................................... 4,200 278,250 Commscope, Inc. (b)......................................... 7,666 124,093 Comverse Technology, Inc. (b)............................... 4,620 239,663 Consolidated Stores Corp.................................... 4,700 170,375 Corning, Inc................................................ 23,800 827,050 Covance, Inc. (b)........................................... 5,075 114,188 Crown Cork & Seal Co., Inc.................................. 4,800 228,000 Dial Corp................................................... 5,200 134,875 Eastman Chemical Co......................................... 5,500 342,375 EMC Corp. (b)............................................... 9,000 403,313 Enron Corp.................................................. 11,100 600,094 Entergy Corp................................................ 29,100 836,625 FDX Corp. (b)............................................... 19,200 1,204,800 First American Corp. of Tennessee........................... 2,600 125,125 First Data Corp............................................. 24,258 808,095 First Security Corp......................................... 4,925 105,426 FirstEnergy Corp............................................ 2,075 63,806 Fleet Financial Group, Inc.................................. 6,100 509,350 Fleetwood Enterprises, Inc.................................. 900 36,000 Food Lion, Inc., Class A.................................... 19,400 206,125 Forest Laboratories, Inc. Class A (b)....................... 7,900 282,425 Fort James Corp............................................. 12,900 574,050 Gannett Co., Inc............................................ 4,400 312,675 General Instrument Corp. (b)................................ 22,800 619,875 General Semiconductor, Inc. (b)............................. 5,150 50,856 Genzyme Corp. (b)........................................... 4,000 102,250 Geon Co..................................................... 2,800 64,225 Goodyear Tire & Rubber Co................................... 14,400 927,900 Great Lakes Chemical Corp................................... 2,500 98,594 Harnischfeger Industries, Inc............................... 7,600 215,175 Health Care and Retirement Corp. (b)........................ 4,550 179,441 Hibernia Corp............................................... 5,600 113,050 IMC Global Inc.............................................. 5,300 159,663 Informix Corp. (b).......................................... 5,300 41,903 Interpublic Group of Companies, Inc......................... 4,150 251,853 Kimberly Clark Corp......................................... 18,500 848,687
SHARES VALUE ---------- ----------- Lafarge Corp............................................ 2,900 $ 114,006 Lear Corp. (b).......................................... 4,300 220,644 Lockheed Martin Corp.................................... 16,571 1,754,455 Lyondell Petrochemical Co............................... 13,800 420,037 Manor Care, Inc......................................... 5,100 196,031 Martin Marietta Materials, Inc.......................... 2,936 132,120 Masco Corp.............................................. 11,700 707,850 Medusa Corp............................................. 700 43,925 Nabisco Holdings Corp................................... 10,200 367,837 National Service Industries, Inc........................ 2,000 101,750 Nextel Communications, Inc. (b)......................... 14,000 348,250 Norfolk Southern Corp................................... 9,600 286,200 Peco Energy Co.......................................... 28,100 820,169 Pentair, Inc............................................ 5,300 225,250 Philip Morris Companies, Inc............................ 30,400 1,197,000 Praxair, Inc............................................ 9,400 440,038 Raytheon Co., Class B................................... 13,500 798,187 Regions Financial Corp.................................. 2,600 106,762 Reynolds & Reynolds Co.................................. 9,900 180,056 Schering Plough Corp.................................... 9,600 879,600 Seagate Technology, Inc. (b)............................ 8,900 211,931 Sears, Roebuck and Co................................... 10,300 628,944 Southdown, Inc.......................................... 2,000 142,750 St. Jude Medical, Inc. (b).............................. 5,000 184,062 Timken Co............................................... 1,800 55,462 Tyson Foods, Inc., Class A.............................. 20,400 442,425 Ultramar Diamond Shamrock Corp.......................... 11,390 359,497 US Bancorp.............................................. 12,759 548,637 Vencor, Inc. (b)........................................ 10,600 76,850 Ventas, Inc............................................. 10,600 146,413 Viad Corp............................................... 9,800 271,950 Wells Fargo & Co........................................ 1,300 479,700 Westvaco Corp........................................... 2,350 66,388 Witco Corp.............................................. 5,300 155,025 Xerox Corp.............................................. 18,100 1,839,412 York International Corp................................. 6,200 270,088 ----------- Total U.S. Equities (Cost $31,626,718).................. 38,169,776 ----------- FACE AMOUNT VALUE ---------- ----------- Bonds -- 45.33% U.S. CORPORATE BONDS -- 11.60% Archer Daniels, 6.950%, due 12/15/2027.................. $ 995,000 $ 1,062,217 Capital One Bank, 6.830%, due 05/17/99.................. 2,000,000 2,011,254 Chrysler Corp., 7.400%, due 08/01/2097.................. 880,000 949,810 Continental Airlines, Inc., 974A, 6.900%, due 01/02/18.. 950,000 988,171 Donaldson Lufkin & Jenrette FRN, 6.700%, due 06/30/00... 840,000 852,122 Enron Corp., 6.750%, due 08/01/09....................... 500,000 511,639 MBNA Global Capital Securities FRN, 6.519%, due 02/01/27 ....................................................... 215,000 199,836 News America Holdings, 7.750%, due 12/01/45............. 1,000,000 1,073,180 PanAmSat Corp., 144A, 6.000%, due 01/15/03.............. 335,000 331,654
- -------------------------------------------------------------------------------- 10 U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ---------- Time Warner, Inc., 7.570%, due 02/01/24.................. $ 790,000 $ 855,316 USA Waste Services, 6.500%, due 12/15/02................. 720,000 724,262 ---------- 9,559,461 ---------- INTERNATIONAL DOLLAR BONDS -- 4.82% Credit Suisse London, 144A, 7.900%, Resettable Perpetual Preferred............................................... 1,170,000 1,250,946 LKB Baden-Wuerttemberg Finance NV, 8.125%, due 01/27/00.. 280,000 289,049 Montell Finance Co., 144A, 8.100%, due 03/15/27.......... 610,000 732,450 Ras Laffan Liquefied Natural Gas Co., Ltd., 144A, 8.294%, due 03/15/14............................................ 735,000 733,832 Southern Investments UK 6.800%, due 12/01/06.................................... 930,000 963,583 ---------- 3,969,860 ---------- MORTGAGE-BACKED SECURITIES -- 8.98% Chase Manhattan Auto Owner Trust, 96-C, Class A4, 6.150%, due 03/15/02............................................ 1,360,000 1,370,023 First Security Auto Grantor Trust, 98-A, Class A, 5.970%, due 04/15/04............................................ 641,609 642,937 GE Capital Mortgage Services, Inc., 93-7F, Class FA3, 6.500%, due 09/25/08.................................... 1,425,922 1,429,344 Prudential Home Mortgage Securities, 93-43, Class A9, 6.750%, due 10/25/23.................................... 1,358,707 1,364,413 Residential Asset Securitization Trust, 97-A11, Class A2, 7.000%, due 01/25/28.................. 280,000 281,792 UCFC Home Equity Loan FRN , 97-C, Class A8, 5.888%, due 09/15/27................................................ 1,110,350 1,111,593 Morgan Stanley Capital, Inc., 97-WF1, Class A1, 6.830%, due 10/15/06............................................ 1,168,264 1,201,560 ---------- 7,401,662 ---------- U.S. GOVERNMENT AGENCIES -- 17.04% Federal Home Loan Mortgage Corp. 8.000%, due 08/15/22.................................... 1,980,000 2,119,077 Federal Home Loan Mortgage Corp. Gold 8.000%, due 05/01/23.................................... 593,475 613,134 9.000%, due 03/01/24.................................... 283,051 303,153 Federal National Mortgage Association 0.000%, due 09/25/22.................................... 403,557 370,833 7.000%, due 02/25/22.................................... 702,093 737,267 6.959%, due 08/01/07.................................... 1,066,955 1,127,131 6.789%, due 11/01/07.................................... 501,822 525,032 8.000%, due 12/18/11.................................... 1,000,000 1,064,263 6.500%, due 06/01/28.................................... 250,000 248,925 Government National Mortgage Association 8.000%, due 08/15/22.................................... 738,633 765,179 7.500%, due 08/15/23.................................... 910,746 935,509 7.500%, due 09/15/23.................................... 961,998 988,155 7.500%, due 12/15/23.................................... 805,637 820,299 7.375%, due 06/20/24.................................... 491,583 503,818
FACE AMOUNT VALUE ---------- ----------- Jordan Aid, 8.750%, due 09/01/19........................ $2,327,295 $ 2,926,108 ----------- 14,047,883 ----------- U.S. GOVERNMENT OBLIGATIONS -- 2.89% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................... 1,600,000 1,599,501 6.625%, due 07/31/01................................... 400,000 412,000 3.625%, due 01/15/08................................... 377,171 372,928 ----------- 2,384,429 ----------- Total U.S. Bonds (Cost $36,367,398)..................... 37,363,295 ----------- Short-Term Investments -- 12.58% U.S. GOVERNMENT OBLIGATIONS -- 0.66% U.S. Treasury Bill 5.236%, due 11/27/98................. 555,000 543,469 ----------- COMMERCIAL PAPER -- 11.92% Cincinnati Bell Inc., 6.601%, due 07/01/98.............. 2,000,000 2,000,000 NGC Corp., 6.751%, due 07/01/98......................... 3,332,000 3,332,000 Raytheon Co., 6.998%, due 07/01/98...................... 3,000,000 3,000,000 Tenneco Inc., 5.765%, due 07/17/98...................... 1,500,000 1,496,168 ----------- 9,828,168 ----------- Total Short-Term Investments (Cost $10,371,394)..................................... 10,371,637 ----------- Total Investments (Cost $78,365,510)--104.21% (a)........................ 85,904,708 ----------- Liabilities, less cash and other assets--(4.21%)........................................ (3,467,537) ----------- Net Assets--100%........................................ $82,437,171 ===========
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 11 U.S. BALANCED FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $78,365,510; and net unrealized appreciation consisted of: Gross unrealized appreciation................................ $ 8,712,737 Gross unrealized depreciation................................ (1,173,539) ----------- Net unrealized appreciation................................ $ 7,539,198 ===========
(b) Non-income producing security FRN: Floating rate note--The rate disclosed is that in effect at June 30, 1998. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $3,048,882, or 3.70% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. FUTURES CONTRACTS The U.S. Balanced Fund had the following open futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN/(LOSS) -------------- ---------- ---------- ----------- INTEREST RATE FUTURES BUY CONTRACTS 5 Year U.S. Treasury Note, 83 contracts..... September 1998 $9,057,919 $9,104,062 $ 46,143 10 Year U.S. Treasury Note, 17 contracts..... September 1998 1,915,893 1,935,344 19,451 30 Year U.S. Treasury Bond, 7 contracts...... September 1998 842,576 865,156 22,580 INDEX FUTURES SALE CON- TRACTS Standard & Poor's 500, 49 contracts........... September 1998 13,860,157 14,001,750 (141,593) -------- Total................. $(53,419) ========
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 1998 was $543,469. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 12 U.S. BALANCED FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $78,365,510).......................... $85,904,708 Cash.............................................................. 68,056 Receivables: Investment securities sold....................................... 4,246,178 Dividends........................................................ 60,929 Interest......................................................... 421,102 Fund shares sold................................................. 66,040 Variation margin................................................. 120,790 Other assets...................................................... 7,933 ----------- TOTAL ASSETS................................................... 90,895,736 ----------- LIABILITIES: Payables: Investment securities purchased.................................. 1,470,055 Fund shares redeemed............................................. 6,907,290 Investment advisory fees......................................... 45,525 Accrued expenses................................................. 35,695 ----------- TOTAL LIABILITIES.............................................. 8,458,565 ----------- NET ASSETS......................................................... $82,437,171 =========== NET ASSETS CONSIST OF: Paid in capital................................................... $40,373,749 Accumulated undistributed net investment income................... 1,337,239 Accumulated net realized gain..................................... 33,240,404 Net unrealized appreciation....................................... 7,485,779 ----------- NET ASSETS..................................................... $82,437,171 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $80,555,719 and 6,578,813 shares issued and outstanding)................................................ $ 12.24 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,117 and 91 shares issued and outstanding).................... $ 12.27 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,880,335 and 154,261 shares issued and outstanding)........... $ 12.19 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 U.S. BALANCED FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest......................................................... $ 9,614,198 Dividends........................................................ 1,594,329 ------------ TOTAL INCOME.................................................. 11,208,527 ------------ EXPENSES: Advisory......................................................... 1,674,661 Administration................................................... 79,503 Distribution..................................................... 8,818 Other............................................................ 179,045 ------------ TOTAL EXPENSES................................................ 1,942,027 Expenses waived by Advisor.................................... (19,097) ------------ NET EXPENSES.................................................. 1,922,930 ------------ NET INVESTMENT INCOME ........................................ 9,285,597 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 47,884,782 Futures contracts............................................... (4,490,965) ------------ Net realized gain............................................. 43,393,817 ------------ Change in net unrealized appreciation or depreciation on: Investments .................................................... (20,526,001) Futures contracts............................................... 1,138,171 ------------ Change in net unrealized appreciation or depreciation......... (19,387,830) ------------ Net realized and unrealized gain................................. 24,005,987 ------------ Net increase in net assets resulting from operations............. $ 33,291,584 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 U.S. BALANCED FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 9,285,597 $ 9,809,363 Net realized gain................................. 43,393,817 16,067,241 Change in net unrealized appreciation or deprecia- tion............................................. (19,387,830) 10,534,773 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 33,291,584 36,411,377 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I.................................. (11,202,072) (7,953,731) Brinson Class N.................................. (62) -- SwissKey Class................................... (96,209) (43,714) Distributions from net realized gain: Brinson Class I.................................. (20,202,719) (10,324,917) Brinson Class N.................................. (75) -- SwissKey Class................................... (121,168) (65,778) ------------ ------------ Total distributions to shareholders................ (31,622,305) (18,388,140) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 58,797,856 80,528,530 Shares issued on reinvestment of distributions.... 31,535,417 18,312,423 Shares redeemed................................... (294,075,195) (60,962,669) ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions .................................... (203,741,922) 37,878,284 ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS........ (202,072,643) 55,901,521 ------------ ------------ NET ASSETS: Beginning of year................................. 284,509,814 228,608,293 ------------ ------------ End of year (including accumulated undistributed net investment income of $1,337,239 and $3,271,123, respectively)........................ $ 82,437,171 $284,509,814 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, DECEMBER 30, 1994* ----------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 JUNE 30, 1995 - -------------------------------------------------------------------------------- Net asset value, beginning of period...................... $ 12.53 $ 11.71 $ 11.23 $ 10.00 ------- -------- -------- -------- Income from investment oper- ations: Net investment income...... 0.49*** 0.47 0.44 0.23 Net realized and unrealized gain...................... 0.93 1.29 1.04 1.16 ------- -------- -------- -------- Total income from invest- ment operations......... 1.42 1.76 1.48 1.39 ------- -------- -------- -------- Less distributions: Distributions from net in- vestment income........... (0.77) (0.40) (0.43) (0.16) Distributions from net re- alized gain............... (0.94) (0.54) (0.57) -- ------- -------- -------- -------- Total distributions...... (1.71) (0.94) (1.00) (0.16) ------- -------- -------- -------- Net asset value, end of peri- od.......................... $ 12.24 $ 12.53 $ 11.71 $ 11.23 ======= ======== ======== ======== Total return (non- annualized)................. 12.19% 15.50% 13.52% 13.91% Ratios/Supplemental Data: Net assets, end of period (in 000s).................. $80,556 $282,860 $227,829 $157,724 Ratio of expenses to average net assets: Before expense reimburse- ment...................... 0.81% 0.88% 1.01% 1.06%** After expense reimburse- ment...................... 0.80% 0.80% 0.80% 0.80%** Ratio of net investment in- come to average net assets: Before expense reimburse- ment...................... 3.88% 3.78% 3.76% 4.36%** After expense reimburse- ment...................... 3.89% 3.86% 3.97% 4.63%** Portfolio turnover rate..... 194% 329% 240% 196% Average commission rate paid per share.................. $0.0549 $0.0441 $ 0.0481 N/A
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR* ENDED BRINSON CLASS N JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period.............................. $ 12.53 ------- Income from investment operations: Net investment income........................................... 0.47** Net realized and unrealized gain................................ 0.94 ------- Total income from investment operations....................... 1.41 ------- Less distributions: Distributions from net investment income........................ (0.73) Distributions from net realized gain............................ (0.94) ------- Total distributions........................................... (1.67) ------- Net asset value, end of period.................................... $ 12.27 ======= Total return...................................................... 12.15% Ratios/Supplemental Data: Net assets, end of period (in 000s).............................. $ 1 Ratio of expenses to average net assets: Before expense reimbursement.................................... 1.06% After expense reimbursement..................................... 1.05% Ratio of net investment income to average net assets: Before expense reimbursement.................................... 3.63% After expense reimbursement..................................... 3.64% Portfolio turnover rate.......................................... 194% Average commission rate paid per share........................... $0.0549
*Commencement of Brinson Class N was June 30, 1997. **The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 17 U.S. BALANCED FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
JULY 31, 1995* YEAR ENDED YEAR ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 12.46 $ 11.67 $ 11.38 ------- ------- ------- Income from investment operations: Net investment income............. 0.42*** 0.38 0.42 Net realized and unrealized gain.. 0.95 1.31 0.86 ------- ------- ------- Total income from investment op- erations....................... 1.37 1.69 1.28 ------- ------- ------- Less distributions: Distributions from net investment income........................... (0.70) (0.36) (0.42) Distributions from net realized gain............................. (0.94) (0.54) (0.57) ------- ------- ------- Total distributions............. (1.64) (0.90) (0.99) ------- ------- ------- Net asset value, end of period...... $ 12.19 $ 12.46 $ 11.67 ======= ======= ======= Total return (non-annualized)....... 11.79% 14.99% 11.54% Ratios/Supplemental data Net assets, end of period (in 000s)............................. $ 1,880 $ 1,649 $ 779 Ratio of expenses to average net assets: Before expense reimbursement...... 1.31% 1.38% 1.51%** After expense reimbursement....... 1.30% 1.30% 1.30%** Ratio of net investment income to average net assets: Before expense reimbursement...... 3.38% 3.28% 3.26%** After expense reimbursement....... 3.39% 3.36% 3.47%** Portfolio turnover rate............ 194% 329% 240% Average commission rate paid per share............................. $0.0549 $0.0441 $0.0481
*Commencement of SwissKey Class **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 - -------------------------------------------------------------------------------- U.S. EQUITY FUND - -------------------------------------------------------------------------------- [SWISS KEY FUNDS LOGO] The U.S. Equity Fund is an actively managed fund invested in common stocks of U.S. corporations. The Fund is diversified by issue and industry; it is typically 70% invested in large capitalization stocks, with the remaining 30% in intermediate and small capitalization stocks. Investment strategies emphasize stock selection with attention to the management of factor and industry exposures. Since its inception on July 31, 1995, the SwissKey U.S. Equity Fund has provided an annualized return of 26.66% compared to 27.26% for the Wilshire 5000 Equity Index. For the first six months of 1998, the total return of the SwissKey U.S. Equity Fund was 13.33%, 214 basis points behind the 15.47% return for the Wilshire 5000 Equity Index. The following paragraphs review the sources of Fund underperformance in the first half of the year. Market exposure (average beta of .95) detracted modestly from the Fund relative performance in the strong equity market environment which characterized the first half of 1998. Factor weightings generally subtracted from results. The most significant negative factor positions were the underweighting in the relative strength and size measures. The largest capitalization stocks continued to dominate market performance. Most of these stocks are perceived as high quality companies with predictable, sustainable growth rates, attributes that have been highly favored in an environment with increasing economic uncertainty exacerbated by Southeast Asian problems. The Fund has minimal exposure to these largest stocks because they appear to be relatively overvalued. Some positive benefit to Fund performance was derived from an underweighting in the price volatility and growth factors. Industry weightings had the largest negative impact on active returns in the first half. The overweight in the tobacco industry detracted from performance as the industry continues to struggle with political and legal issues. Other negative industry positions were the overweights in the railroad, tire and rubber and paper industries, and the underweights in miscellaneous finance and retail industries. The non-health related consumer sector, especially the retail industry, was very strong in the first half of 1998 due to high employment levels combined with low inflation and the positive wealth effect associated with the strong stock market. However, our valuation work continues to suggest that consumer stock valuations already reflect this positive outlook and are not attractive, while many of the basic industries appear much more undervalued. A partial offset to these negative contributions were several positive industry positions including the underweights in energy, producer goods, and electronics. Stock selection had a positive effect on the Fund for the first six months. Among large capitalization issues, the best performers were EMC Corp., Xerox, and Enron while the worst were Federal Express, Lockheed Martin and Corning. In the intermediate capitalization segment of the Fund, the most positive contributors were General Instrument, Comverse Technology and Peco Energy while the weakest were Nabisco Holdings, Harnischfeger and Nextel Communications. 19 U.S. EQUITY FUND [LOGO] TOTAL RETURN 6 months 1 year 7/31/95* ended ended to 6/30/98 6/30/98 6/30/98 - ----------------------------------------------------------------------------- SwissKey U.S. Equity Fund 13.33% 20.80% 26.66% - ----------------------------------------------------------------------------- Wilshire 5000 Index 15.47% 28.86% 27.26% - -----------------------------------------------------------------------------
* Performance inception date of the SwissKey U.S. Equity Fund. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in the SwissKey U.S. Equity Fund and the Wilshire 5000 Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SWISSKEY U.S. EQUITY FUND VS. WILSHIRE 5000 INDEX Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] SwissKey U.S. Equity Fund Wilshire 5000 Index 7/31/95 10,000 10,000 12/31/95 11,335 10,994 6/30/96 12,570 12,123 12/31/96 14,157 13,326 6/30/97 16,499 15,677 12/31/97 17,587 17,496 6/30/98 19,931 20,202 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 20 U.S. EQUITY FUND [LOGO] INDUSTRY DIVERSIFICATION As a Percent of Net Assets As of June 30, 1998 - -------------------------------------------------------------- U.S. EQUITIES Energy............................................. 2.48% Capital Investment Capital Goods..................................... 10.20 Technology........................................ 9.49 ------- 19.69 Basic Industries Chemicals......................................... 4.35 Housing/Paper..................................... 7.66 Metals............................................ 0.71 ------- 12.72 Consumer Non-Durables...................................... 6.84 Retail/Apparel.................................... 4.38 Autos/Durables.................................... 2.96 Discretionary..................................... 0.77 Health: Drugs..................................... 7.34 Health: Non-Drugs................................. 5.43 ------- 27.72 Financial Banks............................................. 7.00% Non-Banks......................................... 7.00 ------- 14.00 Utilities Electric.......................................... 5.95 Telephone......................................... 0.90 ------- 6.85 Transportation..................................... 8.05 Services/Misc...................................... 6.33 ------- Total U.S. Equities............................ 97.84* ------- SHORT-TERM INVESTMENTS............................. 1.49* ------- TOTAL INVESTMENTS.............................. 99.33 ------- CASH AND OTHER ASSETS, LESS LIABILITIES.................................. 0.67 ------- NET ASSETS......................................... 100.00% =======
- -------------------------------------------------------------- * The Fund held a long position in stock index futures on June 30, 1998 which increased U.S. Equity exposure from 97.84% to 99.40% and reduced exposure to Short-Term Investments from 1.49% to -0.07%
TOP TEN U.S. EQUITY HOLDINGS As of June 30, 1998 Percent of Net Assets - ---------------------------------------------------- 1. Xerox Corp. 4.64% 2. Lockheed Martin Corp. 4.58 3. Burlington Northern Santa Fe Corp. 4.23 4. Aon Corp. 3.24 5. FDX Corp. 3.11 6. Philip Morris Companies, Inc. 3.09 7. CIGNA Corp. 2.50 8. Automatic Data Processing, Inc. 2.47 9. Goodyear Tire & Rubber Co. 2.39 10. Baxter International, Inc. 2.27 - ----------------------------------------------------
21 U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ---------- U.S. Equities -- 97.84% Aetna Life & Casualty Co..................................... 108,500 $8,259,562 Allergan, Inc................................................ 167,600 7,772,450 Alza Corp. (b)............................................... 170,750 7,384,937 American Home Products Corp.................................. 168,300 8,709,525 Aon Corp..................................................... 305,200 21,440,300 Automatic Data Processing, Inc............................... 223,800 16,309,425 BankBoston Corp.............................................. 127,600 7,097,750 Baxter International, Inc.................................... 279,000 15,013,687 Beckman Coulter PLC.......................................... 73,900 4,304,675 Bestfoods.................................................... 149,500 8,680,344 Biogen, Inc. (b)............................................. 66,950 3,280,550 Birmingham Steel Corp........................................ 68,350 845,831 Burlington Northern Santa Fe Corp............................ 284,900 27,973,619 Champion Enterprises, Inc. (b)............................... 51,900 1,524,562 Champion International Corp.................................. 85,100 4,185,856 CIGNA Corp................................................... 239,950 16,556,550 Circuit City Stores-Circuit City Group....................... 252,200 11,821,875 Citicorp..................................................... 4,900 731,325 CMS Energy Corp.............................................. 220,450 9,699,800 Columbia/HCA Healthcare Corp................................. 44,900 1,307,712 Comerica, Inc................................................ 70,450 4,667,312 Commscope, Inc. (b).......................................... 120,399 1,948,959 Comverse Technology, Inc. (b)................................ 78,065 4,049,622 Consolidated Stores Corp..................................... 79,900 2,896,375 Corning, Inc................................................. 406,100 14,111,975 Covance, Inc. (b)............................................ 85,850 1,931,625 Crown Cork & Seal Co., Inc................................... 81,200 3,857,000 Dial Corp.................................................... 88,300 2,290,281 Eastman Chemical Co.......................................... 94,050 5,854,612 EMC Corp. (b)................................................ 152,550 6,836,147 Enron Corp................................................... 189,400 10,239,437 Entergy Corp................................................. 510,100 14,665,375 FDX Corp. (b)................................................ 327,300 20,538,075 First American Corp. of Tennessee............................ 44,700 2,151,188 First Data Corp.............................................. 413,030 13,759,062 First Security Corp.......................................... 84,500 1,808,828 FirstEnergy Corp............................................. 34,605 1,064,104 Fleet Financial Group, Inc................................... 104,400 8,717,400 Fleetwood Enterprises, Inc................................... 3,800 152,000 Food Lion, Inc., Class A..................................... 331,100 3,517,937 Forest Laboratories, Inc. Class A (b)........................ 128,500 4,593,875 Fort James Corp.............................................. 219,200 9,754,400 Gannett Co., Inc............................................. 71,200 5,059,650 General Instrument Corp. (b)................................. 389,350 10,585,453 General Semiconductor, Inc. (b).............................. 88,175 870,728 Genzyme Corp. (b)............................................ 68,950 1,762,534 Geon Co...................................................... 47,050 1,079,209 Goodyear Tire & Rubber Co.................................... 245,200 15,800,075 Great Lakes Chemical Corp.................................... 49,600 1,956,100 Harnischfeger Industries, Inc................................ 119,150 3,373,434 Health Care and Retirement Corp. (b)......................... 76,850 3,030,772 Hibernia Corp................................................ 94,850 1,914,784 IMC Global Inc............................................... 91,300 2,750,413 Informix Corp. (b)........................................... 91,000 719,469 Interpublic Group of Companies, Inc.......................... 71,600 4,345,225 Kimberly Clark Corp.......................................... 314,850 14,443,744 Lafarge Corp................................................. 49,700 1,953,831 Lear Corp. (b)............................................... 73,550 3,774,034 Lockheed Martin Corp......................................... 286,076 30,288,297 Lyondell Petrochemical Co.................................... 231,750 7,053,891 Manor Care, Inc.............................................. 87,500 3,363,281 Martin Marietta Materials, Inc............................... 50,107 2,254,815
SHARES VALUE ---------- ------------ Masco Corp.......................................... 199,100 $ 12,045,550 Medusa Corp......................................... 8,000 502,000 Nabisco Holdings Corp............................... 174,000 6,274,875 National Service Industries, Inc.................... 33,300 1,694,138 Nextel Communications, Inc. (b)..................... 238,550 5,933,931 Norfolk Southern Corp............................... 160,400 4,781,925 Peco Energy Co...................................... 476,500 13,907,844 Pentair, Inc........................................ 90,300 3,837,750 Philip Morris Companies, Inc........................ 519,150 20,441,531 Praxair, Inc........................................ 158,100 7,401,056 Raytheon Co., Class B............................... 233,750 13,820,469 Regions Financial Corp.............................. 43,800 1,798,538 Reynolds & Reynolds Co.............................. 57,450 1,044,872 Schering Plough Corp................................ 163,400 14,971,525 Seagate Technology, Inc. (b)........................ 152,450 3,630,216 Sears, Roebuck and Co............................... 176,050 10,750,053 Southdown, Inc...................................... 37,300 2,662,288 St. Jude Medical, Inc. (b).......................... 84,700 3,118,019 Timken Co........................................... 30,050 925,916 Tyson Foods, Inc., Class A.......................... 347,550 7,537,491 Ultramar Diamond Shamrock Corp...................... 194,218 6,130,006 US Bancorp.......................................... 218,841 9,410,163 Vencor, Inc. (b).................................... 180,900 1,311,525 Ventas, Inc......................................... 180,900 2,498,681 Viad Corp........................................... 167,450 4,646,738 Wells Fargo & Co.................................... 21,700 8,007,300 Westvaco Corp....................................... 40,800 1,152,600 Witco Corp.......................................... 90,050 2,633,963 Xerox Corp.......................................... 301,550 30,645,019 York International Corp............................. 106,400 4,635,050 ------------ Total U.S. Equities (Cost $530,151,977)................................ 646,836,695 ------------ FACE AMOUNT VALUE ---------- ------------ Short-Term Investments -- 1.49% U.S. GOVERNMENT OBLIGATIONS -- 0.08% U.S. Treasury Bill 5.165%, due 11/27/98............................... $ 500,000 $ 489,612 ------------ COMMERCIAL PAPER -- 1.41% Cincinnati Bell Inc. 6.660%, due 07/01/98............................... 2,730,000 2,730,000 NGC Corp. 6.7500%, due 07/01/98.............................. 2,924,000 2,924,000 Raytheon Co. 7.000%, due 07/01/98............................... 3,000,000 3,000,000 Texas Utilities Co. 6.1000%, due 07/17/98.............................. 675,000 673,170 ------------ 9,327,170 ------------ Total Short-Term Investments (Cost $9,816,564).................................. 9,816,782 ------------ Total Investments (Cost $539,968,541) -- 99.33% (a).................. 656,653,477 ------------ Cash and other assets, less liabilities -- 0.67%.......................... 4,445,373 ------------ Net Assets -- 100%.................................. $661,098,850 ============
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 22 U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $539,968,541; and net unrealized appreciation consisted of: Gross unrealized appreciation............................... $131,931,680 Gross unrealized depreciation............................... (15,246,744) ------------ Net unrealized appreciation............................... $116,684,936 ============
(b) Non-income producing security FUTURES CONTRACTS The U.S. Equity Fund had the following open index futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN -------------- ----------- ----------- ---------- INDEX FUTURES BUY CON- TRACTS Standard & Poor's 500, 36 contracts........... September 1998 $10,190,052 $10,287,000 $96,948 =======
The aggregate market value of investments pledged to cover margin requirements for the open futures positions at June 30, 1998 was $489,612. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 23 U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $539,968,541) ....................... $656,653,477 Cash............................................................. 211,911 Receivables: Investment securities sold...................................... 2,290,931 Dividends....................................................... 1,036,060 Fund shares sold................................................ 4,436,998 Other assets..................................................... 19,339 ------------ TOTAL ASSETS.................................................. 664,648,716 ------------ LIABILITIES: Payables: Investment securities purchased................................. 1,521,040 Fund shares redeemed............................................ 1,505,921 Investment advisory fees ....................................... 372,011 Accrued expenses................................................ 74,394 Variation margin ............................................... 76,500 ------------ TOTAL LIABILITIES............................................. 3,549,866 ------------ NET ASSETS........................................................ $661,098,850 ============ NET ASSETS CONSIST OF: Paid in capital ................................................. $515,109,561 Accumulated undistributed net investment income.................. 1,242,787 Accumulated net realized gain.................................... 27,964,618 Net unrealized appreciation...................................... 116,781,884 ------------ NET ASSETS.................................................... $661,098,850 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $605,767,723 and 30,426,776 shares is- sued and outstanding) ......................................... $ 19.91 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $268,269 and 13,497 shares issued and outstanding) ............ $ 19.88 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $55,062,858 and 2,776,912 shares issued and outstanding) .............................................. $ 19.83 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends........................................................ $ 9,615,819 Interest......................................................... 766,543 ------------ TOTAL INCOME.................................................. 10,382,362 ------------ EXPENSES: Advisory ........................................................ 3,792,120 Administration................................................... 247,167 Distribution .................................................... 254,241 Other............................................................ 297,092 ------------ TOTAL EXPENSES................................................ 4,590,620 ------------ NET INVESTMENT INCOME......................................... 5,791,742 ------------ NET REALIZED AND UNREALIZED GAIN: Net realized gain on: Investments..................................................... 41,062,216 Futures contracts............................................... 3,068,863 ------------ Net realized gain ............................................ 44,131,079 ------------ Change in net unrealized appreciation or depreciation on: Investments .................................................... 58,415,670 Futures contracts .............................................. (137,787) ------------ Change in net unrealized appreciation or depreciation......... 58,277,883 ------------ Net realized and unrealized gain ................................ 102,408,962 ------------ Net increase in net assets resulting from operations............. $108,200,704 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------ ------------ OPERATIONS: Net investment income............................. $ 5,791,742 $ 2,268,618 Net realized gain ................................ 44,131,079 21,580,018 Change in net unrealized appreciation or deprecia- tion ............................................ 58,277,883 40,886,740 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 108,200,704 64,735,376 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................. (4,978,081) (1,717,943) Brinson Class N................................. (832) -- SwissKey Class.................................. (249,586) (87,137) Distributions from net realized gain: Brinson Class I................................. (28,383,478) (12,393,329) Brinson Class N................................. (64) -- SwissKey Class.................................. (2,678,143) (838,501) ------------ ------------ Total distributions to shareholders............... (36,290,184) (15,036,910) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 346,081,960 212,394,882 Shares issued on reinvestment of distributions.... 33,981,329 14,138,565 Shares redeemed................................... (163,864,419) (34,971,198) ------------ ------------ Net increase in net assets resulting from capital share transactions .............................. 216,198,870 191,562,249 ------------ ------------ TOTAL INCREASE IN NET ASSETS................... 288,109,390 241,260,715 ------------ ------------ NET ASSETS: Beginning of year................................. 372,989,460 131,728,745 ------------ ------------ End of year (including accumulated undistributed net investment income of $1,242,787 and $679,544, respectively).................................... $661,098,850 $372,989,460 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, FEBRUARY 22, 1994* ------------------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - ----------------------------------------------------------------------------------- Net asset value, begin- ning of period......... $ 17.64 $ 14.59 $ 11.53 $ 9.65 $10.00 -------- -------- -------- ------- ------ Income from investment operations: Net investment income. 0.19 0.15 0.17 0.16 0.05 Net realized and unrealized gain (loss)............... 3.39 4.27 3.31 1.89 (0.36) -------- -------- -------- ------- ------ Total income (loss) from investment operations......... 3.58 4.42 3.48 2.05 (0.31) -------- -------- -------- ------- ------ Less distributions: Distributions from net investment income.... (0.18) (0.14) (0.17) (0.14) (0.04) Distributions from net realized gain........ (1.13) (1.23) (0.25) (0.03) -- -------- -------- -------- ------- ------ Total distributions. (1.31) (1.37) (0.42) (0.17) (0.04) -------- -------- -------- ------- ------ Net asset value, end of period................. $ 19.91 $ 17.64 $ 14.59 $ 11.53 $ 9.65 ======== ======== ======== ======= ====== Total return (non- annualized)............ 21.48% 31.87% 30.57% 21.45% (3.10)% Ratios/Supplemental data Net assets, end of pe- riod (in 000s)........ $605,768 $337,949 $126,342 $42,573 $8,200 Ratio of expenses to average net assets: Before expense reim- bursement............ 0.80% 0.89% 1.14% 1.70% 5.40% ** After expense reim- bursement............ N/A 0.80% 0.80% 0.80% 0.80% ** Ratio of net investment income to average net assets: Before expense reim- bursement............ 1.12% 1.06% 1.13% 1.09% (2.82)%** After expense reim- bursement............ N/A 1.15% 1.47% 1.99% 1.78% ** Portfolio turnover rate.................. 42% 43% 36% 33% 9% Average commission rate paid per share........ $ 0.0469 $ 0.0422 $ 0.0457 N/A N/A
*Commencement of investment operations **Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 27 U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED BRINSON CLASS N JUNE 30, 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $ 17.64 ------- Income from investment operations: Net investment income.......................................... 0.15 Net realized and unrealized gain............................... 3.37 ------- Total income from investment operations...................... 3.52 ------- Less distributions: Distributions from net investment income....................... (0.15) Distributions from net realized gain........................... (1.13) ------- Total distributions.......................................... (1.28) ------- Net asset value, end of period................................... $ 19.88 ======= Total return..................................................... 21.10% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $ 268 Ratio of expenses to average net assets......................... 1.05% Ratio of net investment income to average net assets............ 0.87% Portfolio turnover rate......................................... 42% Average commission rate paid per share.......................... $0.0469
*Commencement of Brinson Class N was June 30, 1997 See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 28 U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
JULY 31, 1995* YEAR ENDED YEAR ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of peri- od................................. $ 17.59 $ 14.58 $ 11.94 ------- ------- ------- Income from investment operations: Net investment income............. 0.09 0.11 0.10 Net realized and unrealized gain.. 3.38 4.22 2.92 ------- ------- ------- Total income from investment op- erations....................... 3.47 4.33 3.02 ------- ------- ------- Less distributions: Distributions from net investment income........................... (0.10) (0.09) (0.13) Distributions from net realized gain............................. (1.13) (1.23) (0.25) ------- ------- ------- Total distributions............. (1.23) (1.32) (0.38) ------- ------- ------- Net asset value, end of period...... $ 19.83 $ 17.59 $ 14.58 ======= ======= ======= Total return (non-annualized)....... 20.80% 31.28% 25.70% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $55,063 $35,039 $ 5,387 Ratio of expenses to average net assets: Before expense reimbursement...... 1.32% 1.41% 1.66%** After expense reimbursement....... N/A 1.32% 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement...... 0.60% 0.54% 0.61%** After expense reimbursement....... N/A 0.63% 0.95%** Portfolio turnover rate............ 42% 43% 36% Average commission rate paid per share............................. $0.0469 $0.0422 $0.0457
*Commencement of SwissKey Class **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 29 U.S. LARGE CAPITALIZATION EQUITY FUND [SWISSKEY FUNDS LOGO] The U.S. Large Capitalization Equity Fund is an actively managed portfolio that invests in common stocks of the largest U.S. corporations. Issues are selected from a universe of less than 300 of the largest capitalization domestic stocks collectively comprising 65% of the value of the U.S. equity market. Since its performance inception on April 30, 1998, the SwissKey U.S. Large Capitalization Equity Fund has provided a return of -0.32% compared to 2.25% for its benchmark, the S&P 500 Equity Index. The discussion below focuses on Brinson's management of Large Capitalization Equities during the first half of 1998. Please note that the Fund's commencement of operations was during the second quarter of 1998. Market exposure (average beta of .98) modestly detracted from relative performance in the strong equity market environment which characterized the first half of 1998. Other broad factor positions had a negative effect on performance. The most significant negative factor position was the underweighting in relative strength (price momentum) and the size measure. The strongest relative performance within the stock market was posted by the largest capitalization companies. The Fund has minimal exposure to these largest companies because they appear to be relatively overvalued. The Fund benefited from an underweight in the price volatility and growth factors. Industry weightings were a negative contributor to relative results year-to- date. The Fund was negatively impacted by an overweight in tobacco stocks, which have been impacted by adverse legislative and litigation developments, and in chemicals, which have suffered from cyclical earnings problems. Fund results were also hurt by the overweight in the railroad industry which has been hurt by Union Pacific operational snafus and the resultant threat of punitive regulatory actions. These negative influences were only partially offset by the positive impact of the underweight in energy, where our analysis continues to produce lackluster value rankings for most stocks despite the dramatic declines in oil prices. The Fund was also positively impacted by an underweight in producer goods and electronics, particularly PC-related technology. Stock selection had a positive effect on the Fund for the first six months. The best performers were EMC Corp., Xerox, Enron, Schering Plough and Burlington Northern, while the worst were Federal Express, Lockheed Martin, Corning, Kimberly Clark and Baxter. 30 U.S. LARGE CAPITALIZATION EQUITY FUND [LOGO] TOTAL RETURN 4/30/98* to 6/30/98 - ---------------------------------------------------------------- SwissKey U.S. Large Capitalization Equity Fund -0.32% - ---------------------------------------------------------------- S&P 500 Equity Index 2.25 - ---------------------------------------------------------------- * Performance inception date of the SwissKey U.S. Large Capitalization Equity Fund. Total return includes reinvestment of all capital gain and income distributions. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in the SwissKey U.S. Large Capitalization Equity Fund and the S&P 500 Equity Index if you had invested $10,000 on April 30, 1998, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SWISSKEY U.S. LARGE CAPITALIZATION EQUITY FUND VS. S&P 500 EQUITY INDEX Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
SwissKey U.S. Large Capitalization S&P 500 Equity Fund Equity Index 4/30/98 10,000 10,000 5/31/98 9,826 9,827 6/30/98 10,225 9,968
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 31 U.S. LARGE CAPITALIZATION EQUITY FUND [LOGO OF SWISS KEY FUNDS] INDUSTRY DIVERSIFICATION
As a Percent of Net Assets As of June 30, 1998 - --------------------------------- U.S. EQUITIES Basic Industries Chemicals................ 1.65% Housing/Paper............ 5.95 Metals................... 0.85 ------ 8.45 Capital Investment Capital Goods............ 9.66 Technology............... 9.17 ------ 18.83 Consumer Autos/Durables........... 3.50 Discretionary............ 0.97 Health: Drugs............ 8.42 Health: Non-Drugs........ 4.09 Non-Durables............. 6.46 Retail/Apparel........... 2.38 ------ 25.82 Energy.................... 2.27% Financial Banks.................... 8.42 Non-Banks................ 9.98 ------ 18.40 Transportation............ 11.85 Services/Miscellaneous.... 6.65 Utilities Electric................. 2.52 ------ Total U.S. Equities.... 94.79* SHORT-TERM INVESTMENTS.... 5.09* ------ TOTAL INVESTMENTS...... 99.88 CASH AND OTHER ASSETS, LESS LIABILITIES......... 0.12 ------ NET ASSETS................ 100.00% ====== - ---------------------------------
* The Fund held a long position in stock index futures on June 30, 1998 which increased U.S. equity exposure from 94.79% to 98.32% and reduced exposure to short-term investments from 5.09% to 1.56%.
TOP 10 U.S. EQUITY HOLDINGS As of June 30, 1998 PERCENT OF NET ASSETS - ---------------------------------------------------- 1. Xerox Corp. 6.84% 2. Lockheed Martin Corp. 6.74 3. Burlington Northern Santa Fe Corp. 6.19 4. Aon Corp. 4.77 5. FDX Corp. 4.57 6. Philip Morris Companies, Inc. 4.52 7. Automatic Data Processing, Inc. 3.60 8. Goodyear Tire & Rubber Co. 3.50 9. CIGNA Corp. 3.37 10. Schering Plough Corp. 3.34 - ----------------------------------------------------
32 U.S. LARGE CAPITALIZATION EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----------- U.S. Equities -- 94.79% Aetna Life & Casualty Co.................................... 3,900 $ 296,888 American Home Products Corp................................. 6,100 315,675 Aon Corp.................................................... 11,000 772,750 Automatic Data Processing, Inc.............................. 8,000 583,000 BankBoston Corp............................................. 3,600 200,250 Baxter International, Inc................................... 10,000 538,125 Bestfoods................................................... 5,400 313,538 Burlington Northern Santa Fe Corp........................... 10,200 1,001,512 CIGNA Corp.................................................. 7,900 545,100 Citicorp.................................................... 300 44,775 Columbia/HCA Healthcare Corp................................ 1,900 55,338 Comerica, Inc............................................... 2,500 165,625 Corning, Inc................................................ 14,600 507,350 Covance, Inc. (b)........................................... 3,100 69,750 Crown Cork & Seal Co., Inc.................................. 2,900 137,750 EMC Corp. (b)............................................... 5,500 246,469 Enron Corp.................................................. 6,800 367,625 Entergy Corp................................................ 14,200 408,250 FDX Corp. (b)............................................... 11,800 740,450 First Data Corp............................................. 14,800 493,025 Fleet Financial Group, Inc.................................. 3,800 317,300 Gannett Co., Inc............................................ 2,200 156,338 Goodyear Tire & Rubber Co................................... 8,800 567,050 Kimberly Clark Corp......................................... 11,500 527,562 Lockheed Martin Corp........................................ 10,300 1,090,512 Masco Corp.................................................. 7,200 435,600 Norfolk Southern Corp....................................... 5,900 175,894 Philip Morris Companies, Inc................................ 18,600 732,375 Praxair, Inc................................................ 5,700 266,831 Raytheon Co., Class B....................................... 8,000 473,000 Schering Plough Corp........................................ 5,900 540,587 Seagate Technology, Inc. (b)................................ 5,500 130,969 Sears, Roebuck and Co....................................... 6,300 384,694 US Bancorp.................................................. 7,900 339,700 Wells Fargo & Co............................................ 800 295,200 Xerox Corp.................................................. 10,900 1,107,712 ----------- Total U.S. Equities Stock (Cost $15,532,291)................ 15,344,569 -----------
FACE AMOUNT VALUE -------- ----------- Short-Term Investments -- 5.09% COMMERCIAL PAPER -- 5.09% NGC Corp., 6.750%, due 07/01/98........................... $424,000 $ 424,000 Raytheon Co., 7.000%, due 07/01/98........................ 400,000 400,000 ----------- Total Short-Term Investments (Cost $824,000).......................................... 824,000 ----------- Total Investments (Cost $16,356,291) -- 99.88% (a)......................... 16,168,569 ----------- Cash and other assets, less liabilities -- 0.12%..................................... 18,804 ----------- Net Assets -- 100%........................................ $16,187,373 ===========
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 33 U.S. LARGE CAPITALIZATION EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $16,356,291; and net unrealized depreciation consisted of: Gross unrealized appreciation................................. $ 317,890 Gross unrealized depreciation................................. (505,612) --------- Net unrealized depreciation................................. $(187,722) =========
(b) Non-income producing security FUTURES CONTRACTS The U.S. Large Capitalization Equity Fund had the following open futures contracts as of June 30, 1998:
SETTLEMENT COST/ CURRENT UNREALIZED DATE PROCEEDS VALUE GAIN -------------- -------- -------- ---------- INDEX FUTURES BUY CONTRACTS Standard & Poor's 500, 2 con- tracts...................... September 1998 $562,464 $571,500 $9,036 ======
The segregated cash pledged to cover margin requirements for the open futures positions at June 30, 1998 was $20,100. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 34 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $16,356,291)......................... $16,168,569 Cash............................................................. 25,077 Receivables: Dividends....................................................... 26,247 Due from Advisor................................................ 2,759 Fund shares sold................................................ 41,691 Other assets..................................................... 35,562 ----------- TOTAL ASSETS.................................................. 16,299,905 ----------- LIABILITIES: Payables: Investment securities purchased................................. 56,256 Variation margin................................................ 4,250 Accrued expenses................................................ 52,026 ----------- TOTAL LIABILITIES............................................. 112,532 ----------- NET ASSETS........................................................ $16,187,373 =========== NET ASSETS CONSIST OF: Paid in capital.................................................. $16,423,723 Accumulated undistributed net investment income.................. 11,637 Accumulated net realized loss.................................... (69,301) Net unrealized depreciation...................................... (178,686) ----------- NET ASSETS.................................................... $16,187,373 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $153,503 and 15,666 shares issued and outstanding)................................................... $ 9.80 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $16,032,852 and 1,638,635 shares issued and outstanding)....... $ 9.78 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $1,018 and 104 shares issued and outstanding).................. $ 9.79 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 35 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1998* INVESTMENT INCOME: Dividends.......................................................... $ 49,557 Interest........................................................... 14,677 --------- TOTAL INCOME.................................................... 64,234 --------- EXPENSES: Advisory........................................................... 21,230 Professional....................................................... 10,880 Distribution....................................................... 7,537 Other.............................................................. 16,142 --------- TOTAL EXPENSES.................................................. 55,789 Expenses waived and reimbursed by Advisor....................... (23,989) --------- NET EXPENSES.................................................... 31,800 --------- NET INVESTMENT INCOME .......................................... 32,434 --------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments....................................................... (71,182) Futures contracts................................................. 1,881 --------- Net realized loss............................................... (69,301) --------- Change in net unrealized appreciation or depreciation on: Investments....................................................... (187,722) Futures contracts................................................. 9,036 --------- Change in net unrealized appreciation or depreciation.............. (178,686) --------- Net realized and unrealized loss................................... (247,987) --------- Net decrease in net assets resulting from operations............... $(215,553) =========
*The Fund commenced operations on April 6, 1998. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 36 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
APRIL 6, 1998* THROUGH JUNE 30, 1998 OPERATIONS: ------------- Net investment income........................................... $ 32,434 Net realized loss............................................... (69,301) Change in net unrealized appreciation or depreciation........... (178,686) ----------- Net decrease in net assets resulting from operations............ (215,553) ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................................ (191) Brinson Class N................................................ (20,605) SwissKey Class................................................. (1) ----------- Total distributions to shareholders............................. (20,797) ----------- CAPITAL SHARE TRANSACTIONS: Shares sold..................................................... 16,922,491 Shares issued on reinvestment of distributions.................. 20,775 Shares redeemed................................................. (519,553) ----------- Net increase in net assets resulting from capital share transactions................................................... 16,423,713 ----------- TOTAL INCREASE IN NET ASSETS................................. 16,187,363 ----------- NET ASSETS: Beginning of period............................................. 10 ----------- End of period (including accumulated undistributed net invest- ment income of $11,637)............................................. $16,187,373 ===========
*Commencement of investment operations See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 37 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
APRIL 6, 1998* THROUGH BRINSON CLASS I JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $ 10.00 ------- Income from investment operations: Net investment income.......................................... 0.02 Net realized and unrealized loss............................... (0.20) ------- Total loss from investment operations........................ (0.18) ------- Less distributions: Distributions from net investment income....................... (0.02) Distributions from net realized gain........................... -- ------- Total distributions.......................................... (0.02) ------- Net asset value, end of period................................... $ 9.80 ======= Total return (non-annualized).................................... (1.83)% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $154 Ratio of expenses to average net assets: Before expense reimbursement................................... 1.59%** After expense reimbursement.................................... 0.80%** Ratio of net investment income to average net assets: Before expense reimbursement................................... 0.52%** After expense reimbursement.................................... 1.31%** Portfolio turnover rate......................................... 12% Average commission rate paid per share.......................... $0.0350
*Commencement of investment operations **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 38 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
APRIL 6, 1998* THROUGH BRINSON CLASS N JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period.............................. $ 10.00 ------- Income from investment operations: Net investment income........................................... 0.02 Net realized and unrealized loss................................ (0.23) ------- Total loss from investment operations......................... (0.21) ------- Less distributions: Distributions from net investment income........................ (0.01) Distributions from net realized gain............................ -- ------- Total distributions........................................... (0.01) ------- Net asset value, end of period.................................... $ 9.78 ======= Total return (non-annualized)..................................... (2.02)% Ratios/Supplemental Data: Net assets, end of period (in 000s).............................. $16,033 Ratio of expenses to average net assets: Before expense reimbursement.................................... 1.84%** After expense reimbursement..................................... 1.05%** Ratio of net investment income to average net assets: Before expense reimbursement.................................... 0.27%** After expense reimbursement..................................... 1.06%** Portfolio turnover rate.......................................... 12% Average commission rate paid per share........................... $0.0350
*Commencement of investment operations. **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 39 U.S. LARGE CAPITALIZATION EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
APRIL 6, 1998* THROUGH SWISSKEY CLASS JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $ 10.00 ------- Income from investment operations: Net investment income.......................................... 0.02 Net realized and unrealized loss............................... (0.22) ------- Total loss from investment operations........................ (0.20) ------- Less distributions: Distributions from net investment income....................... (0.01) Distributions from net realized gain........................... -- ------- Total distributions.......................................... (0.01) ------- Net asset value, end of period................................... $ 9.79 ======= Total return (non-annualized).................................... (2.06)% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $ 1 Ratio of expenses to average net assets: Before expense reimbursement................................... 2.11%** After expense reimbursement.................................... 1.32%** Ratio of net investment income to average net assets: Before expense reimbursement................................... 0.00%** After expense reimbursement.................................... 0.79%** Portfolio turnover rate......................................... 12% Average commission rate paid per share.......................... $0.0350
*Commencement of investment operations **Annualized See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 40 U.S. BOND FUND [SWISS KEY FUNDS LOGO] The U.S. Bond Fund is an actively managed diversified portfolio of U.S. dollar- denominated investment-grade fixed income securities. Macroeconomic and monetary analysis are the key elements in our strategy. We develop expectations about the returns on U.S. bonds based on the divergence of current market yields from our estimates of equilibrium yields. Relative value analysis serves as the basis of both our sector and individual security selection. The first half of 1998 in U.S. fixed income markets was characterized by unusually low volatility, stable short-term interest rates and modestly declining long-term interest rates. The Federal Reserve's overnight funds target rate has not changed in the past fifteen months. Inflation has remained stable at historically low levels despite robust economic growth and a tight labor market. Higher domestic productivity and lower import prices due to a strong dollar and troubled foreign economies has allowed the U.S. economy to continue to grow without an acceleration in inflation. The SwissKey U.S. Bond Fund has produced an annualized return of 7.43% since its inception on August 31, 1995, compared to an 8.01% return for the Salomon Brothers Broad Investment Grade Bond Index. The annualized volatility of returns for the Fund was 4.19% compared to 3.46% for the index. In the most recent six month period the Fund returned 3.45% relative to a 3.97% return for the index. INDUSTRY DIVERSIFICATION
As a Percent of Net Assets As of June 30, 1998 - -------------------------------------------------- U.S. BONDS Corporate Bonds Airlines................................ 0.18% Asset-Backed............................ 5.50 Banks................................... 1.35 Business and Public Service............. 0.97 CMO..................................... 8.78 Consumer................................ 0.50 Energy.................................. 1.40 Financial Services...................... 4.27 Industrial Components................... 4.25 Real Estate............................. 0.54 Telecommunications...................... 1.38 ------ Total U.S. Corporate Bonds........... 29.12 U.S. Government Agencies................. 25.30 U.S. Government Obligations.............. 25.05 International Dollar Bonds............... 7.10 ------ Total U.S. Bonds..................... 86.57 ------ SHORT-TERM INVESTMENTS................... 11.58 ------ TOTAL INVESTMENTS.................... 98.15 CASH AND OTHER ASSETS, LESS LIABILITIES.. 1.85 ------ NET ASSETS............................... 100.00% ====== - --------------------------------------------------
41 U.S. BOND FUND [SWISS KEY FUNDS LOGO] TOTAL RETURN
6 months 1 year Annualized ended ended 8/31/95* to 6/30/98 6/30/98 6/30/98 - -------------------------------------------------------------------------------------------- SWISSKEY U.S. BOND FUND 3.45% 9.97% 7.43% - -------------------------------------------------------------------------------------------- Salomon Brothers Broad Investment Grade (BIG) Bond Index 3.97 10.59 8.01 - --------------------------------------------------------------------------------------------
* Inception date of the SwissKey U.S. Bond Fund. Total return includes reinvestment of all capital gain and income distributions. ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 This chart shows the growth in the value of an investment in the SwissKey U.S. Bond Fund and the Salomon Brothers Broad Investment Grade (BIG) Bond Index if you had invested $10,000 on August 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SWISSKEY U.S. BOND FUND VS. SALOMON BROTHERS BIG BOND INDEX Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE]
Salomon Brothers Date SwissKey U.S. Bond Fund BIG Bond Index - ---- ----------------------- ---------------- 8/31/95 10,000 10,000 12/31/95 10,532 10,529 6/30/96 10,400 10,324 12/31/96 10,914 10,861 6/30/97 11,248 11,141 12/31/97 11,964 11,844 6/30/98 12,439 12,252
Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 42 U.S. BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- Bonds -- 86.57% U.S. CORPORATE BONDS -- 29.12% Aetna Services Inc., 6.970%, due 08/15/36............... $ 235,000 $ 242,980 Bellsouth Savings & Employee ESOP, 9.125%, due 07/01/03. 81,528 88,101 Capital One Bank, 6.830%, due 05/17/99.................. 359,000 361,020 Chase Mortgage Finance Corp., 93-J1, Class 1A5, 6.625%, due 08/25/09........................................... 65,055 64,776 Chemical Mortgage Securities, Inc., 93-1, Class A5, 7.450%, due 02/25/23................................... 785,000 794,925 Chesapeake & Potomac Telephone of Maryland, 8.000%, due 10/15/29............................................... 87,000 107,317 Chrysler Corp., 7.400%, due 08/01/97.................... 223,000 240,690 Citicorp Mortgage Securities, Inc., 94-9, Class A8, 5.750%, due 06/25/09................................... 97,953 93,170 Comcast Cable Communications, 8.500%, due 05/01/27................................... 300,000 361,420 Con Edison, 6.450%, due 12/01/07........................ 300,000 306,595 Continental Airlines Inc., 98-1B, 6.748%, due 09/15/18................................... 75,000 76,252 Countrywide Funding Corp. FRN, 5.880%, due 12/01/03................................... 250,000 248,125 CS First Boston Mortgage Securities Corp., 7.150%, due 08/20/06............................................... 245,000 257,556 Dayton Hudson Credit Card Master Trust, 95-1, Class A, 6.100%, due 02/25/02................................... 218,000 218,266 DLJ Mortgage Acceptance Corp., 98-2, 6.500%, due 08/19/28............................................... 520,000 513,500 First Bank Corporate Card Master Trust, 97-1, Class A, 6.400%, due 02/15/03................................... 155,000 157,791 GE Capital Mortgage Services, Inc., 97-HE4, Class A7, 6.735%, due 12/25/28................................... 410,000 417,552 General Motors Acceptance Corp., 6.375%, due 12/01/01................................... 400,000 404,522 General Motors Acceptance Corp., 9.625%, due 12/15/01................................... 294,000 326,490 GreenTree Financial Corp., 94-5, Class A5, 8.300%, due 11/15/19............................................... 320,000 352,659 Interamer Development Bank, 6.800%, due 10/15/25................................... 100,000 111,784 Lehman Brothers Holdings, 7.250%, due 04/15/03................................... 225,000 234,439 Lockheed Martin Corp., 7.700%, due 06/15/08................................... 282,000 310,374 MBNA Global Capital Securities FRN, 6.519%, due 02/01/27............................................... 90,000 83,652 Mid-America Energy, 6.375%, due 06/15/06................................... 275,000 273,749 News America Holdings, 7.750%, due 12/01/45................................... 358,000 384,198
FACE AMOUNT VALUE ---------- ----------- PanAmSat Corp. 144A, 6.000%, due 01/15/03................................... $ 375,000 $ 371,254 PNC Mortgage Securities Corp., 94-3, Class A8, 7.500%, due 07/25/24........................................... 215,000 223,330 Premier Auto Trust 96-3, Class A3, 6.500%, due 03/06/00................... 139,058 139,486 96-4, Class A4, 6.400%, due 10/06/01................... 350,000 352,611 Prudential Home Mortgage Securities 93-43, Class A9, 6.750%, due 10/25/23................................... 287,826 289,035 94-3, Class A10, 6.500%, due 02/25/24.................. 170,000 164,737 Residential Accredit Loans, Inc., 96-QS4, Class AI10, 7.900%, due 08/25/26................................... 275,000 285,092 Salomon, Inc., 6.750%, due 02/15/03..................... 300,000 307,297 SASCO LLC, 98-RF1, Class A, 8.712%, due 03/15/27................................... 539,306 578,405 The Money Store Home Equity Trust, 98-A, Class AF5, 6.370%, due 12/15/23................................... 465,000 467,269 Thrift Financing Corp., A, Class 4, 11.250%, due 01/01/16.................................. 43,328 46,075 Time Warner Entertainment, Inc., 8.375%, due 03/15/23................................... 94,000 110,051 Time Warner, Inc., 7.570%, due 02/01/24................. 90,000 97,441 UCFC Home Equity Loan FRN, 97-C, Class A8, 5.888%, due 09/15/27............................................... 166,772 166,959 USA Waste Services, 6.500%, due 12/15/02................................... 400,000 402,368 USX Corp., 8.125%, due 07/15/23......................... 400,000 457,576 Vendee Mortgage Trust, 92-1, Class 2Z, 7.750%, due 05/15/22............................................... 492,787 540,023 ----------- 12,030,912 ----------- INTERNATIONAL DOLLAR BONDS -- 7.10% Banco Santiago S.A., 7.000%, due 07/18/07................................... 380,000 381,497 Empressa Nacional Electric, 7.875%, due 02/01/27................................... 394,000 394,187 Den Danske Bank, 144A, 6.375%, due 06/15/08................................... 560,000 561,401 Province of Quebec, 7.500%, due 07/15/23................................... 200,000 222,346 Repsol International Finance, 7.000%, due 08/01/05................................... 200,000 212,082 Republic of South Africa, 9.625%, due 12/15/99................................... 71,000 73,840 Royal Bank of Scotland, 7.375%, Resettable Perpetual Preferred.............................................. 80,000 85,191 Skandinaviska Enskilda Banken, 144A, Resettable Perpet- ual Preferred.......................................... 305,000 306,647 Tyco International Group, 6.250%, due 06/15/03................................... 700,000 697,913 ----------- 2,935,104 -----------
- -------------------------------------------------------------------------------- 43 U.S. BOND FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
FACE AMOUNT VALUE ---------- ----------- U.S. GOVERNMENT AGENCIES -- 25.30% Aid-Israel, Series 10 Z, 0.000%, due 02/15/03........... $ 805,000 $ 622,539 Federal Home Loan Mortgage Corp. 7.000%, due 10/15/13................................... 492,125 507,333 8.500%, due 07/15/21................................... 102,207 106,179 7.500%, due 01/15/23................................... 151,427 162,242 7.238%, due 05/01/26................................... 27,260 28,209 Federal Home Loan Mortgage Corp. Gold 6.000%, due 06/01/03................................... 90,031 89,806 8.000%, due 11/01/22................................... 156,826 162,021 9.000%, due 03/01/24................................... 121,218 129,826 Federal National Mortgage Assoc. 6.959%, due 08/01/07................................... 486,332 513,762 6.361%, due 06/01/08................................... 430,000 440,191 8.000%, due 12/18/11................................... 100,000 106,426 6.000%, due 12/01/12 TBA............................... 160,000 158,199 8.000%, due 05/25/21................................... 260,000 269,010 9.000%, due 08/01/21................................... 25,369 27,155 8.500%, due 07/01/22................................... 17,764 18,781 9.500%, due 08/01/22................................... 111,949 119,400 8.000%, due 11/01/23................................... 210,810 41,680 7.000%, due 12/18/24................................... 300,000 302,625 9.000%, due 04/25/25................................... 227,003 238,170 6.000%, due 12/01/27 TBA............................... 2,000,000 1,945,610 7.500%, due 01/01/28................................... 377,668 387,340 6.000%, due 03/01/28................................... 741,026 721,255 Federal National Mortgage Assoc. Strips 0.000%, due 09/25/22 principal only.................... 526,998 484,264 7.500%, due 05/01/23 interest only..................... 150,875 34,289 0.000%, due 04/01/27 principal only.................... 346,881 293,500 3.500%, due 05/01/28 interest only..................... 293,559 252,132 Government National Mortgage Assoc. 10.000%, due 09/15/00.................................. 2,234 2,385 10.000%, due 05/15/01.................................. 3,149 3,362 9.000%, due 11/15/04................................... 8,857 9,333 9.000%, due 11/15/04................................... 4,759 5,015 9.000%, due 12/15/17................................... 48,048 51,917 8.000%, due 08/15/22................................... 66,477 68,866 7.500%, due 12/15/22................................... 320,163 329,825 7.500%, due 12/15/23................................... 383,643 394,075 7.500%, due 01/15/24................................... 86,110 88,452 7.000%, due 02/16/24................................... 150,000 151,857 7.375%, due 06/20/24................................... 303,265 310,813 7.500%, due 06/15/25................................... 107,318 110,290 7.000%, due 07/15/25................................... 111,670 113,551 Jordan Aid, 8.750%, due 09/01/19........................ 517,177 650,246 ----------- 10,451,931 -----------
FACE AMOUNT VALUE ---------- ----------- U.S. GOVERNMENT OBLIGATIONS-- 25.05% U.S. Treasury Notes and Bonds 5.500%, due 02/29/00................................... $4,735,000 $ 4,733,523 6.625%, due 07/31/01................................... 2,875,000 2,961,250 6.250%, due 08/31/02................................... 360,000 369,338 3.625%, due 01/15/08................................... 357,056 353,039 8.000%, due 11/15/21................................... 1,060,000 1,366,407 6.000%, due 02/15/26................................... 545,000 566,971 ----------- 10,350,528 ----------- Total U.S. Bonds (Cost $35,235,550)..................... 35,768,475 ----------- Short-Term Investments-- 11.58% COMMERCIAL PAPER -- 11.58% ARCO Chemical, 5.770%, due 07/06/98..................... 1,000,000 999,199 Cincinnati Bell Inc., 6.599%, due 07/01/98.............. 270,000 270,000 NGC Corp., 6.750%, due 07/01/98......................... 500,000 500,000 PG & E Gas Transmission, 5.670%, due 07/02/98................................... 521,000 520,918 Raytheon Co., 6.996%, due 07/01/98...................... 500,000 500,000 Tenneco Inc., 5.750%, due 07/17/98...................... 1,000,000 997,604 Texas Utilities Co., 6.100%, due 07/17/98............... 1,000,000 997,289 ----------- Total Short-Term Investments (Cost $4,785,010)...................................... 4,785,010 ----------- Total Investments (Cost $40,020,560) -- 98.15% (a)....................... 40,553,485 ----------- Cash and other assets, less liabilities -- 1.85%........ 764,939 ----------- Net Assets -- 100%...................................... $41,318,424 ===========
NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $40,020,560; and net unrealized appreciation consisted of: Gross unrealized ap- preciation........... $613,576 Gross unrealized de- preciation........... (80,651) -------- Net unrealized ap- preciation........... $532,925 ========
FRN: Floating rate note -- The rate disclosed is that in effect at June 30, 1998. TBA: Security is subject to delayed delivery. 144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 1998, the value of these securities amounted to $1,239,302, or 3.00% of net assets. Resettable Perpetual Preferred: A bond with either no maturity date or a maturity date that is so far in the future that the bond will pay interest indefinitely. The issuer generally retains the right to call such a bond. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 44 U.S. BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $40,020,560).......................... $40,553,485 Cash.............................................................. 14,172 Receivables: Investment securities sold....................................... 2,352,284 Fund shares sold................................................. 2,732,416 Interest......................................................... 427,521 Other assets...................................................... 10,252 ----------- TOTAL ASSETS................................................... 46,090,130 ----------- LIABILITIES: Payables: Investment securities purchased.................................. 4,712,267 Fund shares redeemed............................................. 6,893 Investment advisory fees......................................... 11,802 Accrued expenses................................................. 40,744 ----------- TOTAL LIABILITIES.............................................. 4,771,706 ----------- NET ASSETS......................................................... $41,318,424 =========== NET ASSETS CONSIST OF: Paid in capital................................................... $40,134,461 Accumulated undistributed net investment income................... 300,973 Accumulated net realized gain..................................... 350,065 Net unrealized appreciation....................................... 532,925 ----------- NET ASSETS..................................................... $41,318,424 =========== OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $38,873,821 and 3,674,422 shares issued and outstanding)................................................ $ 10.58 =========== Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $1,100 and 104 shares issued and outstanding)................... $ 10.58 =========== SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $2,443,503 and 231,723 shares issued and outstanding)........... $ 10.54 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 45 U.S. BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Interest........................................................... $1,818,237 ---------- TOTAL INCOME.................................................... 1,818,237 ---------- EXPENSES: Advisory........................................................... 142,474 Professional....................................................... 37,230 Registration....................................................... 17,245 Distribution....................................................... 9,160 Other.............................................................. 41,928 ---------- TOTAL EXPENSES.................................................. 248,037 Expenses waived by Advisor...................................... (67,848) ---------- NET EXPENSES.................................................... 180,189 ---------- NET INVESTMENT INCOME .......................................... 1,638,048 ---------- NET REALIZED AND UNREALIZED GAIN: Net realized gain.................................................. 801,133 Change in net unrealized appreciation or depreciation.............. 335,673 ---------- Net realized and unrealized gain................................... 1,136,806 ---------- Net increase in net assets resulting from operations............... $2,774,854 ==========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 46 U.S. BOND FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 OPERATIONS: ------------- ----------- Net investment income.............................. $ 1,638,048 $ 836,232 Net realized gain (loss)........................... 801,133 (36,166) Change in net unrealized appreciation or deprecia- tion.............................................. 335,673 343,515 ----------- ----------- Net increase in net assets resulting from opera- tions............................................. 2,774,854 1,143,581 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I................................... (1,526,152) (598,393) Brinson Class N................................... (54) -- SwissKey Class.................................... (103,513) (31,712) Distributions from net realized gain: Brinson Class I................................... (335,742) (675) Brinson Class N................................... (14) -- SwissKey Class.................................... (25,812) (39) ----------- ----------- Total distributions to shareholders................ (1,991,287) (630,819) ----------- ----------- CAPITAL SHARE TRANSACTIONS: Shares sold........................................ 21,794,978 16,583,813 Shares issued on reinvestment of distributions..... 1,174,894 461,917 Shares redeemed.................................... (6,255,720) (3,420,321) ----------- ----------- Net increase in net assets resulting from capital share transactions................................ 16,714,152 13,625,409 ----------- ----------- TOTAL INCREASE IN NET ASSETS.................... 17,497,719 14,138,171 ----------- ----------- NET ASSETS: Beginning of year.................................. 23,820,705 9,682,534 ----------- ----------- End of year (including accumulated undistributed net investment income of $300,973 and $271,841, respectively).... $41,318,424 $23,820,705 =========== ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 47 U.S. BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
AUGUST 31, 1995* YEAR ENDED YEAR ENDED THROUGH BRINSON CLASS I JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of pe- riod............................. $ 10.24 $ 9.93 $10.00 ------- ------- ------ Income from investment opera- tions: Net investment income........... 0.53 0.51*** 0.50 Net realized and unrealized gain (loss)......................... 0.53 0.32 (0.14) ------- ------- ------ Total income from investment operations................... 1.06 0.83 0.36 ------- ------- ------ Less distributions: Distributions from net invest- ment income.................... (0.58) (0.52) (0.40) Distributions in excess of net realized gain.................. (0.14) -- (0.03) ------- ------- ------ Total distributions........... (0.72) (0.52) (0.43) ------- ------- ------ Net asset value, end of period.... $ 10.58 $ 10.24 $ 9.93 ======= ======= ====== Total return (non-annualized)..... 10.60% 8.45% 3.60% Ratios/Supplemental Data: Net assets, end of period (in 000s)........................... $38,874 $22,421 $9,047 Ratio of expenses to average net assets: Before expense reimbursement.... 0.84% 1.65% 3.63%** After expense reimbursement..... 0.60% 0.60% 0.60%** Ratio of net investment income to average net assets: Before expense reimbursement.... 5.61% 5.14% 3.00%** After expense reimbursement..... 5.85% 6.19% 6.03%** Portfolio turnover rate.......... 198% 410% 363%
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 48 U.S. BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR ENDED BRINSON CLASS N JUNE 30, 1998* - -------------------------------------------------------------------------------- Net asset value, beginning of period............................. $10.24 ------ Income from investment operations: Net investment income.......................................... 0.61 Net realized and unrealized gain............................... 0.42 ------ Total income from investment operations...................... 1.03 ------ Less distributions: Distributions from net investment income....................... (0.55) Distributions from net realized gain........................... (0.14) ------ Total distributions.......................................... (0.69) ------ Net asset value, end of period................................... $10.58 ====== Total return (non-annualized).................................... 10.30% Ratios/Supplemental Data: Net assets, end of period (in 000s)............................. $ 1 Ratio of expenses to average net assets: Before expense reimbursement................................... 1.09% After expense reimbursement.................................... 0.85% Ratio of net investment income to average net assets: Before expense reimbursement................................... 5.36% After expense reimbursement.................................... 5.60% Portfolio turnover rate......................................... 198%
*Commencement of Brinson Class N was June 30, 1997. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 49 U.S. BOND FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
AUGUST 31, 1995* YEAR ENDED YEAR ENDED THROUGH SWISSKEY CLASS JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of pe- riod............................. $10.22 $ 9.92 $10.00 ------ ------ ------ Income from investment opera- tions: Net investment income........... 0.50 0.46*** 0.46 Net realized and unrealized gain (loss)......................... 0.49 0.32 (0.13) ------ ------ ------ Total income from investment operations................... 0.99 0.78 0.33 ------ ------ ------ Less distributions: Distributions from net invest- ment income.................... (0.53) (0.48) (0.38) Distributions in excess of net realized gain.................. (0.14) -- (0.03) ------ ------ ------ Total distributions........... (0.67) (0.48) (0.41) ------ ------ ------ Net asset value, end of period.... $10.54 $10.22 $ 9.92 ====== ====== ====== Total return (non-annualized)..... 9.97% 7.91% 3.24% Ratios/Supplemental Data: Net assets, end of period (in 000s)........................... $2,444 $1,399 $ 636 Ratio of expenses to average net assets: Before expense reimbursement.... 1.31% 2.12% 4.10%** After expense reimbursement..... 1.07% 1.07% 1.07%** Ratio of net investment income to average net assets: Before expense reimbursement.... 5.14% 4.67% 2.53%** After expense reimbursement..... 5.38% 5.72% 5.56%** Portfolio turnover rate.......... 198% 410% 363%
*Commencement of investment operations **Annualized ***The net investment income per share data was determined by using average shares outstanding throughout the period. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 50 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1.SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eight series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund in the preparation of their financial statements. A.INVESTMENT VALUATION: Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Equity securities traded over-the-counter are valued at the most recent bid price. Securities for which the most recent bid price or market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Debt securities are valued at the most recent bid price by using market quotations or independent services. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B.INVESTMENT TRANSACTIONS: Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. C.INVESTMENT INCOME: Interest income, which includes the amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. D.FEDERAL INCOME TAXES: It is the policy of the Funds to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 1998, therefore, no federal income tax provision was required. E.DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of the Funds to distribute their respective net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex- dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Differences in dividends per share between the classes are due to distribution expenses. Amounts equal to 10.72%, 35.30% and 100% of the amount taxable as ordinary income qualify for the dividends received deduction available to corporate shareholders for the U.S. Balanced Fund, U.S. Equity Fund and U.S. Large Capitalization Equity Fund, respectively. F.INCOME AND EXPENSE ALLOCATIONS: All income earned and expenses incurred by the Funds will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the SwissKey Class. G.USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. - -------------------------------------------------------------------------------- 51 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Funds with investment management services. As compensation for these services, each Fund pays the Advisor a monthly fee based on the Fund's respective average daily net assets. The Advisor has agreed to waive its fees and reimburse each Fund to the extent total annualized expenses exceed a specified percentage of each Fund's respective average daily net assets. Investment advisory fees and other transactions with affiliates for the year ended June 30, 1998, were as follows:
FEES WAIVED ADVISORY BRINSON CLASS I BRINSON CLASS N SWISSKEY CLASS ADVISORY AND/OR FEE EXPENSE CAP EXPENSE CAP EXPENSE CAP FEES REIMBURSED -------- --------------- --------------- -------------- ---------- ---------- U.S. Balanced Fund...... 0.70% 0.80% 1.05% 1.30% $1,674,661 $19,097 U.S. Equity Fund........ 0.70 0.80 1.05 1.32 3,792,120 -- U.S. Large Capitaliza- tion Equity Fund....... 0.70 0.80 1.05 1.32 21, 230 23,989 U.S. Bond Fund.......... 0.50 0.60 0.85 1.07 142,474 67,848
Certain officers of the Funds are also officers of the Advisor. All officers serve without direct compensation from the Funds. Trustees' fees paid to unaffiliated trustees for the year ended June 30, 1998 were $7,665, $9,205, $1,785 and $4,015 for the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund, respectively. 3.INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 1998, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ------------ ------------ U.S. Balanced Fund................................... $415,621,140 $630,096,518 U.S. Equity Fund..................................... 413,499,173 218,951,890 U.S. Large Capitalization Equity Fund................ 17,063,797 1,460,325 U.S. Bond Fund....................................... 65,711,529 52,607,836
4.FUTURES CONTRACTS The Funds may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Funds to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Funds, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Funds recognize a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. 5.DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the SwissKey Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of the average daily net assets of the Brinson Class N of the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund. Annual fees under the SwissKey Plan, which include a 0.25% service fee, total 0.50%, 0.52%, 0.52% and 0.47% of the average daily net assets of the SwissKey Class of the U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund, respectively. 6.LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed is calculated at an annual rate of the Federal Funds rate plus 0.50%. The Funds pay an annual commitment fee of 0.08% of the average daily unutilized balance of the line of credit. During the year ended June 30, 1998, the Funds had no borrowings under the agreement. - -------------------------------------------------------------------------------- 52 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6.CAPITAL TRANSACTIONS Capital stock transactions were as follows:
U.S. BALANCED FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I.............. 4,720,912 $ 58,173,143 6,578,157 $ 78,728,712 Brinson Class N.............. -- -- 80 1,000 SwissKey Class............... 49,659 624,713 148,317 1,798,818 ---------- ------------ ---------- ------------ Total Sales................ 4,770,571 $ 58,797,856 6,726,554 $ 80,528,530 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I.............. 2,662,862 $ 31,359,575 1,541,262 $ 18,266,191 Brinson Class N.............. 11 136 -- -- SwissKey Class............... 14,933 175,706 3,904 46,232 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 2,677,806 $ 31,535,417 1,545,166 $ 18,312,423 ========== ============ ========== ============ Redemptions: Brinson Class I.............. 23,388,425 $293,534,522 4,988,208 $ 59,912,281 Brinson Class N.............. -- -- -- -- SwissKey Class............... 42,682 540,673 86,625 1,050,388 ---------- ------------ ---------- ------------ Total Redemptions.......... 23,431,107 $294,075,195 5,074,833 $ 60,962,669 ========== ============ ========== ============ U.S. EQUITY FUND ----------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I.............. 16,875,765 $314,205,812 11,551,336 $183,660,431 Brinson Class N.............. 13,398 269,368 57 1,000 SwissKey Class............... 1,697,355 31,606,780 1,834,556 28,733,451 ---------- ------------ ---------- ------------ Total Sales................ 18,586,518 $346,081,960 13,385,949 $212,394,882 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I.............. 1,861,660 $ 32,092,717 907,559 $ 13,745,444 Brinson Class N.............. 47 896 -- -- SwissKey Class............... 110,158 1,887,716 25,905 393,121 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 1,971,865 $ 33,981,329 933,464 $ 14,138,565 ========== ============ ========== ============ Redemptions: Brinson Class I.............. 7,470,182 $144,565,891 1,959,184 $ 31,250,336 Brinson Class N.............. 5 100 -- -- SwissKey Class............... 1,023,014 19,298,428 237,473 3,720,862 ---------- ------------ ---------- ------------ Total Redemptions.......... 8,493,201 $163,864,419 2,196,657 $ 34,971,198 ========== ============ ========== ============ U.S. LARGE CAPITALIZATION EQUITY FUND* ----------------------- PERIOD ENDED JUNE 30, 1998* ----------------------- SHARES VALUE ---------- ------------ Sales: Brinson Class I.............. 16,662 $ 163,328 Brinson Class N.............. 1,688,092 16,758,163 SwissKey Class............... 104 1,000 ---------- ------------ Total Sales................ 1,704,858 $ 16,922,491 ========== ============ Dividend Reinvestment: Brinson Class I.............. 18 $ 168 Brinson Class N.............. 2,204 20,606 SwissKey Class............... -- 1 ---------- ------------ Total Dividend Reinvest- ment...................... 2,222 $ 20,775 ========== ============ Redemptions: Brinson Class I.............. 1,015 $ 9,875 Brinson Class N.............. 51,661 509,678 SwissKey Class............... -- -- ---------- ------------ Total Redemptions.......... 52,676 $ 519,553 ========== ============
*The Fund commenced operations on April 6, 1998. - -------------------------------------------------------------------------------- 53 THE SWISSKEY FUNDS -- NOTES TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
U.S. BOND FUND -------------------------------------------- YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ---------------------- --------------------- SHARES VALUE SHARES VALUE --------- ------------ --------- ----------- Sales: Brinson Class I.................. 1,926,960 $ 20,378,131 1,521,821 $15,371,166 Brinson Class N.................. -- -- 98 1,000 SwissKey Class................... 134,362 1,416,847 119,951 1,211,647 --------- ------------ --------- ----------- Total Sales.................... 2,061,322 $ 21,794,978 1,641,870 $16,583,813 ========= ============ ========= =========== Dividend Reinvestment: Brinson Class I.................. 107,565 $ 1,114,591 44,351 $ 449,362 Brinson Class N.................. 6 68 -- -- SwissKey Class................... 5,825 60,235 1,239 12,555 --------- ------------ --------- ----------- Total Dividend Reinvestment.... 113,396 $ 1,174,894 45,590 $ 461,917 ========= ============ ========= =========== Redemptions: Brinson Class I.................. 549,381 $ 5,780,080 288,064 $ 2,929,252 Brinson Class N.................. -- -- -- -- SwissKey Class................... 45,413 475,640 48,365 491,069 --------- ------------ --------- ----------- Total Redemptions.............. 594,794 $ 6,255,720 336,429 $ 3,420,321 ========= ============ ========= ===========
- -------------------------------------------------------------------------------- 54 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders The Brinson Funds -- U.S. Balanced Fund U.S. Equity Fund U.S. Large Capitalization Equity Fund U.S. Bond Fund We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of The Brinson Funds--U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund as of June 30, 1998, the related statements of operations for the period then ended and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund and U.S. Bond Fund at June 30, 1998, the results of their operations for the period then ended and the changes in their net assets and the financial highlights for the periods indicated therein in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois August 7, 1998 - -------------------------------------------------------------------------------- 55 DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC. 60 STATE STREET BOSTON, MA 02109 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. - -------------------------------------------------------------------------------- [SWISS KEY FUNDS LOGO] 10 East 50th Street, New York, New York 10022 . Tel:(800) SWISSKEY. http://networth.galt.com/swisskey [LOGO] SWISSKEY NON-U.S. EQUITY FUND ANNUAL REPORT JUNE 30, 1998 YOUR KEY TO PERFORMANCE ----------------------------------- Trustees and Officers [LOGO] Trustees Walter E. Auch Frank K. Reilly, CFA Edward M. Roob Officers Frank K. Reilly, CFA Chairman of the Board E. Thomas McFarlan President Thomas J. Digenan, CFA, CPA Vice President Debra L. Nichols Vice President Carolyn M. Burke, CPA Secretary and Treasurer Catherine E. Macrae Assistant Secretary 1 The Fund's Advisor -- Brinson Partners, Inc. [LOGO] The UBS Brinson Division is the institutional asset management division of UBS AG. UBS Brinson is the name used outside North America while Brinson Partners continues as the primary name within North America. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. In addition, UBS Brinson acts as the investment advisor to UBS Private Banking on an advisory basis. UBS Brinson manages investment portfolios for corporations, public funds, endowments, foundations, central banks and other investors located throughout the world. The UBS Brinson Division employs over 1,500 people in offices in Chicago, Bahrain, Basel, Frankfurt, Geneva, Hong Kong, London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich. Investment performance for our clients is maximized within and across major asset classes through a comprehensive understanding of global investment markets and their interrelationships. Portfolio structure is focused upon both risk and return considerations in the context of full investment cycles. Our investment decisions are based on fundamental research, internally developed valuation systems and seasoned judgment. Our independent team approach allows for rapid responses to market changes, while providing each client with the benefit of our best talent and the flexibility to customize portfolios to meet unique requirements. 2 Table of Contents [LOGO] Shareholder Letter........................................................... 4 Global Economic and Market Highlights........................................ 5 Non-U.S. Equity Fund......................................................... 6 Schedule of Investments...................................................... 9 Financial Statements......................................................... 14 Financial Highlights......................................................... 17 Notes to Financial Statements................................................ 20 Report of Independent Auditors............................................... 23
3 Shareholder Letter [LOGO] August 22, 1998 Dear Shareholder: We are very pleased to present the June 30, 1998 Annual Report for the Non-U.S. Equity Fund. Within this Report, we focus on the current global economic outlook as well as our current strategy and performance update for the Non-U.S. Equity Fund. In December 1997, Union Bank of Switzerland and Swiss Bank Corporation announced their intention to merge which included the integration of UBS Asset Management and SBC Brinson into the UBS Brinson Division. The merger was consummated on June 29, 1998. UBS Brinson is managed today by the same senior management that has led the business over the past decades with a consistently applied investment philosophy and process. The UBS Brinson Division manages over USD 390 billion of institutional assets, including over USD 277 billion of discretionary institutional assets on an active basis and mutual fund assets for UBS Private Banking which total over USD 113 billion. The UBS Brinson Division employs over 1,500 people in fifteen different cities throughout the world. We are excited about the formation of the UBS Brinson Division and the additional resources we have brought together to further the tradition of delivering value-added investment performance and the highest level of professional client service. SwissKey Non-U.S. Equity Fund Since its inception on July 31, 1995, the SwissKey Non-U.S. Equity Fund has produced an annualized total return of 13.19% versus 9.15% for the Morgan Stanley Capital International Non-U.S. Equity (Free) Index benchmark. We very much appreciate your continued trust and the confidence you have placed in The SwissKey Funds. Sincerely, /s/ Hanspeter A. Walder /s/ Raymond Simon Hanspeter A. Walder Raymond Simon Executive Director Executive Director Private Banking Private Banking 4 Global Economic and Market Highlights [SWISS KEY LOGO] The economic situation in Japan remains bleak. With real GDP growth negative in the last two quarters, the country is officially in a recession. The downturn in output has brought on the highest unemployment rate recorded in the post-war period, at just over 4%. In response to the news, the voters have delivered a severe rebuke to the ruling LDP, although it is not at all certain that this will result in the implementation of "Solutions" proffered by Western governments and commentators. Many of Japan's problems are magnified elsewhere in Asia. Last year's financial and economic crisis has not diminished to any great extent. With financial systems straining under large amounts of defunct debts, and the IMF prescribing high interest rates in the interest of currency support and inflation control, real economic activity has slowed substantially. While Asia suffers from falling living standards, the crisis has been a partial benefit to the U.S. and Europe by keeping commodity and import prices in check, and by not augmenting strong domestic demand in those economies. Continental Europe's cyclical recovery is well under way, and is starting to have some beneficial effects on the high unemployment rate. Previously, output and profit growth were reasonably strong, but did not carry over into the labor market. Although unemployment has been reduced, the failure to address structural problems will almost certainly guarantee that the Continent's poor overall unemployment picture will persist for several years. The U.K.'s economic performance has been at odds with most of the rest of Europe. A series of Bank of England rate hikes has not prevented the headline inflation rate from rising above 4% this year. Now however, there are signs that these hikes, coupled with a strong pound, have started to cool the economy. The U.S. expansion is unabated; more than 7 years have elapsed since the recession at the start of the decade. However, the Federal Reserve's attempts to maintain a neutral policy stance, in light of the Asian crisis' effect on demand and costs, has resulted in substantial growth in the money supply. This could set the stage for a modest resurgence in inflation. Profit growth, which had reflected the strength of the domestic economy in prior years, is now showing signs of the fall-off in Asian demand and the strength of the dollar.
Non-U.S. Equity Environment 6 months 1 year 7/31/95* Major Markets ended ended to Total Return in U.S. Dollar Hedged Terms 6/30/98 6/30/98 6/30/98 - --------------------------------------------------------------------------- MSCI Non-US Equity (Free) Index 18.55% 16.90% 21.22% Japan 6.69 -12.84 5.65 U.K. 12.94 27.19 21.17 Germany 38.48 54.41 39.41 France 40.90 49.97 35.36 Canada 12.73 19.79 22.73 Netherlands 24.69 34.80 43.51 Australia 7.21 4.55 9.12 - --------------------------------------------------------------------------- 6 months 1 year 7/31/95* Major Currencies ended ended to Percent Change Relative to U.S. Dollars 6/30/98 6/30/98 6/30/98 - --------------------------------------------------------------------------- Yen -6.31% -17.55% -14.45% Pound 1.41 -0.25 1.45 Deutschemark -0.39 -3.46 -8.78 Canadian Dollar -2.69 -6.19 -2.34 - ---------------------------------------------------------------------------
*Inception date of the SwissKey Class All total returns in excess of 1 year are average annualized total returns 5 Non-U.S. Equity Fund [SWISS KEY LOGO] The Non-U.S. Equity Fund invests in the common stocks of companies headquartered outside the U.S. We believe that in a non-U.S. investment program the country allocation decision is the most important. Country assessments are jointly developed by the non-U.S. strategy team in our offices worldwide. Currency strategies are separately developed and coordinated with market allocations. Our industry strategies and individual security selections are determined by fundamental research conducted by our analysts worldwide. Since its inception on July 31, 1995, the SwissKey Non-U.S. Equity Fund has earned an annualized return of 13.19% versus 9.15% for the Morgan Stanley Capital International Non-U.S. Equity (Free) Index benchmark. For the six months ended June 30, 1998, the Fund returned 12.58%, compared to the index return of 15.53%. During the first half of 1998, the aggregate non-U.S. markets outperformed, rising 17.45% in dollar-hedged terms. The continental European markets continued to set the pace, with the best performing markets in dollar-hedged terms. Finland, Belgium and Spain led the pack, followed by France, Germany and Italy, each growing in excess of 30%. In strong contrast, the Far East ex-Japan region lost 29%. All three Southeast Asian markets had steep declines, led by Singapore (-35%), Hong Kong (-28%) and Malaysia (-26%). New Zealand was also quite weak, losing almost 14%. While positive, Japan's 5.7% hedged return was the sixth weakest as of mid-year. Currency weakness, coupled with debt and banking problems were behind the first group's weakness, while Japan's very weak economy, troubled banking system and seeming inability to resolve these problems has kept the market down. During the first half of 1998 several strategy changes took place. France was increased and Germany decreased, bringing the two markets into closer alignment. In February, Spain was eliminated, with proceeds added to Finland and Switzerland. In mid-April Malaysia was reduced to neutral and the U.K. overweight was increased. In early June Italy was reduced, with funds added to Denmark, Norway and Sweden, as part of an ongoing shift away from overvalued southern European markets to more attractively priced northern European markets. One currency strategy change took place. An Australian dollar overweight was established, paired with the yen, allowing us to take advantage of a strong positive interest rate differential in favor of the Australian currency. Market allocation had a significant negative effect on returns, largely due to strategic cash. Value added from underweighting Japan and Hong Kong and from overweighting Belgium, Finland and Italy, was more than offset by holding strategic cash, overweighting New Zealand and Singapore and underweighting Spain. Currency management had a negative impact on performance. The value added by the yen and U.S. dollar strategies was reduced by the overweights of the weak Australian and New Zealand dollars and the underweight of the rising pound sterling. Overall stock selection was positive due to the solid value added by Japan stock selection, as well as contributions from France, Italy and Hong Kong. 6 Non-U.S. Equity Fund [LOGO] Total Return
6 months 1 year 7/31/95* ended ended to 6/30/98 6/30/98 6/30/98 - ------------------------------------------------------------------------------ SwissKey Non-U.S. Equity Fund 12.58% 3.90% 13.19% MSCI Non-U.S. Equity (Free) Index** 15.53% 6.04% 9.15% - ------------------------------------------------------------------------------
* Inception date of the SwissKey Non-U.S. Equity Fund ** Performance is net of withholding taxes on dividends. Total return includes reinvestment of all capital gain and income distributions. All total returns in excess of 1 year are average annualized returns Illustration of an Assumed Investment of $10,000 This chart shows the growth in the value of an investment in the SwissKey Non- U.S. Equity Fund and the MSCI Non-U.S. Equity (Free) Index if you had invested $10,000 on July 31, 1995, and had reinvested all your income dividends and capital gain distributions through June 30, 1998. No adjustment has been made for any income taxes payable by shareholders on income dividends and capital gain distributions. Past performance is no guarantee of future results. Share price and return will vary with market conditions; investors may realize a gain or loss upon redemption. SwissKey Non-U.S. Equity Fund vs. MSCI Non-U.S. Equity (Free) Index Wealth Value with Dividends Reinvested [GRAPH APPEARS HERE] Non US Equity Fund MSCI 7/31/95 $10,000 $10,000 12/31/95 $10,858 $10,220 6/30/96 $11,578 $10,713 12/31/96 $12,140 $10,947 6/30/97 $13,815 $12,174 12/31/97 $12,750 $11,174 6/30/98 $14,354 $12,909 Fund returns are net of all fees and costs, while the Index returns are based solely on market returns without deduction for fees or transaction costs for rebalancing. 7 Non-U.S. Equity Fund [LOGO]
Industry Diversification As a Percent of Net Assets As of June 30, 1998 - ------------------------------------------------------ NON-U.S. EQUITIES Aerospace & Military......................... 0.22% Airlines..................................... 0.37 Appliances & Household....................... 2.09 Autos/Durables............................... 3.65 Banking...................................... 11.51 Beverages & Tobacco.......................... 2.39 Broadcasting & Publishing.................... 2.47 Building Materials........................... 1.50 Business & Public Service.................... 3.41 Chemicals.................................... 3.01 Construction................................. 1.03 Data Processing.............................. 0.82 Electric Components.......................... 1.24 Electronics.................................. 4.14 Energy....................................... 6.52 Financial Services........................... 1.71 Food & House Products........................ 4.53 Forest Products.............................. 1.21 Gold Mining.................................. 0.06 Health & Personal Care....................... 7.45 Housing/Paper................................ 0.04 Industrial Components........................ 1.57 Insurance.................................... 4.99 Investment Companies......................... 0.36 Leisure & Tourism............................ 0.69 Machinery & Engineering...................... 0.72 Merchandising................................ 3.88 Metals--Steel................................ 1.74 Miscellaneous Materials...................... 0.04 Multi-Industry............................... 4.76 Non-Ferrous Metals........................... 1.52 Real Estate.................................. 0.44 Recreation................................... 0.55 Retail/Apparel............................... 0.24 Shipping..................................... 0.01 Shipping..................................... 0.02 Telecommunications........................... 7.53 Textiles & Apparel........................... 0.28 Transportation............................... 1.08 Utilities.................................... 3.07 Wholesale & International Trade.............. 0.46 ------ Total Non-U.S. Equities......... 93.32 ------ SHORT-TERM INVESTMENTS....................... 7.58 ------ TOTAL INVESTMENTS................ 100.90 LIABILITIES, LESS CASH AND OTHER ASSETS........................... (0.90) ------ NET ASSETS................................... 100.00% ------
Market and Currency Strategy As of June 30, 1998
Fund ------------------- Market Currency Strategy Strategy Index - ------------------------------------------------------ U.S. Dollar 0.0% 2.1% 0.0% Australia 5.1 6.2 2.2 Austria 0.0 0.4 0.4 Belgium 4.5 1.8 1.8 Canada 2.9 4.6 4.6 Denmark 0.4 0.9 0.9 Finland 2.6 1.0 1.0 France 9.2 9.1 9.2 Germany 10.6 10.9 10.8 Hong Kong 0.2 0.0 1.6 Ireland 0.0 0.5 0.5 Italy 3.5 4.4 4.4 Japan 14.7 15.7 19.7 Malaysia 0.3 0.5 0.5 Netherlands 4.9 5.5 5.6 New Zealand 3.7 3.8 0.2 Norway 0.4 0.5 0.5 Portugal 0.0 0.6 0.6 Singapore 1.3 0.5 0.5 Spain 0.0 3.2 3.2 Sweden 3.3 3.1 3.1 Switzerland 6.8 7.4 7.4 U.K. 25.6 17.3 21.3 Cash Reserves 0.0 0.0 0.0 - ------------------------------------------------------ 100.0% 100.0% 100.0%
Top Ten Non-U.S. Equity Holdings As of June 30, 1998
Percent of Net Assets - ------------------------------------------------------ 1. Novartis AG (Reg.) 1.50% 2. Glaxo Wellcome PLC 1.49 3. Nokia Oyj. Class A Preferred 1.28 4. British Petroleum Co. PLC 1.21 5. Royal Dutch Petroleum Co. 1.16 6. CS Holdings AG 1.13 7. British Telecommunications PLC 1.09 8. B.A.T. Industries PLC 1.08 9. Telecom Corp. of New Zealand Ltd. 1.04 10. Roche Holding AG (Gen.) 1.04 - ------------------------------------------------------
NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ------------ Non-U.S. Equities -- 93.32% AUSTRALIA -- 4.46% Amcor Ltd................................................. 91,600 $ 401,065 Boral Ltd................................................. 270,300 507,211 Brambles Industries Ltd................................... 43,600 855,675 Broken Hill Proprietary Co., Ltd.......................... 267,270 2,259,347 Coca-Cola Amatil Ltd...................................... 52,100 348,467 CSR Ltd................................................... 166,200 479,642 David Jones Ltd........................................... 579,500 663,935 Lend Lease Corp. Ltd...................................... 39,978 808,359 Mayne Nickless Ltd........................................ 133,100 704,765 National Australia Bank Ltd............................... 189,848 2,504,296 News Corp., Ltd........................................... 335,121 2,735,377 News Corp., Ltd., Preferred............................... 112,061 793,927 Orica Ltd................................................. 61,200 361,955 Pacific Dunlop Ltd........................................ 278,200 449,674 Qantas Airways Ltd........................................ 278,668 419,366 Rio Tinto Ltd............................................. 65,010 773,004 Santos Ltd................................................ 119,900 371,270 Telstra Corp., Ltd........................................ 567,600 1,455,267 Westpac Bank Corp., Ltd................................... 306,251 1,868,159 WMC Ltd................................................... 223,300 672,086 Woolworth's Ltd........................................... 117,200 381,054 ------------ 19,813,901 ------------ BELGIUM -- 4.18% Delhaize-Le Lion S.A. (b)................................. 20,650 1,442,892 Electrabel S.A............................................ 11,285 3,199,590 Fortis AG (b)............................................. 623 34 Fortis AG Strip (b)....................................... 15,673 4,001,438 Groupe Bruxelles Lambert S.A. (b)......................... 5,860 1,182,709 KBC Bancassurance Holding-Strip (b)....................... 660 53 KBC Bancassurance Holding (b)............................. 27,760 2,484,300 Petrofina S.A............................................. 5,810 2,385,051 Solvay S.A., Class A...................................... 16,860 1,336,657 Tractebel................................................. 13,200 1,933,351 Union Miniere S.A.(b)..................................... 9,990 617,495 ------------ 18,583,570 ------------ CANADA -- 2.83% Agrium, Inc............................................... 29,500 368,098 Alcan Aluminum Ltd........................................ 22,400 616,891 Bank of Montreal.......................................... 17,100 941,861 Barrick Gold Corp......................................... 13,700 260,846 Canadian National Railway Co.............................. 15,500 824,222 Canadian Pacific Ltd...................................... 51,294 1,444,017 Extendicare Inc. (b)...................................... 38,300 309,921 Hudson's Bay Co........................................... 20,300 465,191 Imasco, Ltd............................................... 26,500 489,239 Imperial Oil Ltd.......................................... 55,300 966,415 Magna International Inc., Class A......................... 6,800 465,633 Moore Corp., Ltd.......................................... 25,200 334,149 Newbridge Networks Corp. (b).............................. 7,000 167,313 Noranda, Inc.............................................. 23,100 398,980 NOVA Corp................................................. 62,800 719,557 Potash Corporation of Saskatchewan, Inc................... 6,800 512,335 Royal Bank of Canada...................................... 20,000 1,203,590 Seagram Co., Ltd.......................................... 9,400 383,197 Shaw Communications Inc., Class B......................... 36,200 704,012 TransCanada Pipelines Ltd................................. 30,500 676,119 Westcoast Energy, Inc..................................... 15,300 340,728 ------------ 12,592,314 ------------
SHARES VALUE ------- ------------ DENMARK -- 0.34% Den Danske Bank Group..................................... 6,700 $ 803,766 Tele Danmark A/S.......................................... 7,400 710,194 ------------ 1,513,960 ------------ FINLAND -- 2.12% Cultor Oyj................................................ 7,600 123,285 Merita Ltd., Class A...................................... 161,510 1,065,645 Metsa Serla Oyj, Class B.................................. 31,590 305,162 Nokia Oyj Class A, Preferred (b).......................... 77,260 5,682,021 Outokumpu Oyj, Class A.................................... 29,620 377,909 Sampo Insurance Co., Ltd., Class A........................ 11,360 538,340 UPM-Kymmene Corp.......................................... 36,830 1,013,639 Valmet Oyj................................................ 19,000 327,604 ------------ 9,433,605 ------------ FRANCE -- 8.36% Air Liquide............................................... 4,483 741,399 Alcatel Alsthom........................................... 8,405 1,711,306 AXA-UAP................................................... 17,402 1,957,221 AXA-UAP Certificate de Valeur Guarantie (b)............... 9,002 3,067 Banque Nationale de Paris................................. 18,610 1,520,566 Carrefour SA.............................................. 2,000 1,265,299 Cie de Saint Gobain....................................... 9,443 1,750,844 Dexia France (b).......................................... 8,840 1,190,169 Elf Aquitaine S.A......................................... 14,214 1,998,329 Eridania Beghin-Say SA.................................... 3,600 794,906 France Telecom S.A........................................ 36,300 2,503,655 Groupe Danone............................................. 5,220 1,439,256 Lafarge S.A............................................... 7,964 823,272 Lagardere S.C.A........................................... 26,760 1,114,041 Michelin, Class B......................................... 17,993 1,038,630 Paribas (b)............................................... 12,643 1,352,964 Pechiney S.A., Class A.................................... 17,685 712,256 Peugeot S.A............................................... 8,160 1,754,548 Pinault-Printemps-Redoute S.A............................. 1,260 1,054,515 Rhone-Poulenc, Class A.................................... 31,130 1,755,761 SEITA..................................................... 31,430 1,424,383 Societe Generale.......................................... 7,913 1,645,161 Suez Lyonnaise des Eaux S.A. (b).......................... 12,942 2,129,886 Thomson CSF............................................... 25,590 973,487 Total S.A., Class B....................................... 11,025 1,433,286 Usinor Sacilor............................................ 25,980 401,345 Vivendi................................................... 12,434 2,655,027 Vivendi Warrants "01" (b)................................. 12,664 24,926 ------------ 37,169,505 ------------ GERMANY -- 9.83% Allianz AG (b)............................................ 436 142,515 Allianz AG................................................ 13,530 4,460,028 BASF AG................................................... 19,940 944,526 Bayer AG.................................................. 49,400 2,548,000 Bayerische Motoren Werke (BMW) (b)........................ 402 399,773 Bayerische Motoren Werke AG............................... 1,240 1,250,992 Commerzbank AG............................................ 10,830 414,000 Continental AG............................................ 34,500 1,074,183 Daimler-Benz AG........................................... 20,792 2,038,883 Deutsche Bank AG.......................................... 32,917 2,787,459 Deutsche Telekom AG....................................... 137,010 3,696,613 Dresdner Bank AG.......................................... 39,800 2,145,451 Hochtief AG............................................... 11,690 560,213
- -------------------------------------------------------------------------------- 9 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ------------ GERMANY (CONTINUED) Hoechst AG................................................ 15,610 $ 779,203 M.A.N. AG................................................. 2,500 972,299 Mannesmann AG (b)......................................... 20,470 2,076,486 Metro AG.................................................. 27,353 1,659,365 Metro AG Right (b)........................................ 27,353 1,061 Muenchener Rueckver AG.................................... 6,820 3,381,662 Preussag AG............................................... 3,719 1,326,890 RWE AG.................................................... 24,300 1,440,499 Schering AG............................................... 12,622 1,487,368 Siemens AG................................................ 39,520 2,404,042 Thyssen AG................................................ 4,850 1,227,950 Veba AG................................................... 28,708 1,956,279 Volkswagen AG............................................. 2,621 2,519,355 ------------ 43,695,095 ------------ HONG KONG -- 0.57% Cheung Kong Holdings Ltd.................................. 95,000 467,117 Citic Pacific Ltd......................................... 49,000 86,635 CLP Holdings Ltd.......................................... 53,500 243,728 Hang Seng Bank Ltd........................................ 38,400 217,061 Hong Kong & China Gas Co., Ltd............................ 258,700 293,803 Hong Kong & China Gas Warrants "99" (b)................... 11,850 811 Hong Kong Telecommunications Ltd.......................... 111,600 209,558 Hutchison Whampoa Ltd..................................... 103,000 543,672 Johnson Electric Holdings Ltd............................. 54,000 200,010 South China Morning Post (Holdings) Ltd................... 100,000 48,073 Sun Hung Kai Properties Ltd............................... 49,000 208,050 ------------ 2,518,518 ------------ ITALY -- 3.67% Assicurazioni Generali.................................... 54,446 1,770,402 Banca Commercial Italiana................................. 21,000 125,583 Credito Italiano S.p.A.................................... 241,500 1,264,188 Danieli & Co. Savings (Risp).............................. 129,100 599,181 Edison S.p.A.............................................. 6,000 48,151 ENI ADR................................................... 18,500 1,202,500 ENI S.p.A................................................. 369,000 2,418,413 Fiat S.p.A.-Privileged Preferred.......................... 399,220 993,811 INA-Istituto Nazionale delle Assicurazioni................ 33,100 94,037 Instituto Mobiliare Italiano S.p.A........................ 62,000 976,625 Istituto Bancario San Paolo di Torino..................... 56,000 808,079 Italgas S.p.A............................................. 14,000 57,022 La Rinascente S.p.A....................................... 79,140 788,039 Montedison S.p.A.......................................... 833,280 1,033,660 Parmalat Finanziaria S.p.A................................ 295,000 601,601 Telecom Italia Mobile S.p.A............................... 270,000 1,651,093 Telecom Italia Mobile S.p.A. RNC.......................... 121,000 408,427 Telecom Italia S.p.A...................................... 202,666 1,491,876 ------------ 16,332,688 ------------ JAPAN -- 16.02% Amada Co., Ltd............................................ 150,000 729,546 Bank of Tokyo-Mitsubishi, Ltd............................. 139,000 1,471,276 Canon Sales Co., Inc...................................... 56,000 761,005 Canon, Inc................................................ 115,000 2,610,152 Citizen Watch Co., Ltd.................................... 136,000 1,122,023 Dai Nippon Printing Co., Ltd.............................. 142,000 2,266,311 Daiichi Pharmaceutical Co., Ltd........................... 139,000 1,832,835 Daikin Industries Ltd..................................... 159,000 1,024,217
SHARES VALUE ------- ------------ Daiwa House Industry Co., Ltd............................. 85,000 $ 750,261 Denso Corp................................................ 118,000 1,955,543 Fanuc..................................................... 57,700 1,995,605 Fuji Photo Film........................................... 11,000 382,822 Fujitsu................................................... 89,000 936,268 Hitachi Ltd............................................... 286,000 1,864,971 Honda Motor Co............................................ 61,000 2,171,272 Hoya Corp................................................. 34,000 962,784 Inax...................................................... 121,000 415,874 Ito Yokado Co., Ltd....................................... 56,000 2,634,867 Kaneka Corp............................................... 162,000 852,109 Keio Teito Electric Railway............................... 178,000 647,693 Kinki Nippon Railway...................................... 178,000 833,664 Kirin Brewery Co., Ltd.................................... 168,000 1,585,762 Kokuyo.................................................... 51,000 863,566 Kuraray Co., Ltd.......................................... 181,000 1,537,623 Kyocera Corp.............................................. 18,300 894,001 Marui Co., Ltd............................................ 82,000 1,223,043 Matsushita Electric Industrial Co......................... 166,000 2,667,291 NGK Insulators............................................ 259,000 2,248,766 Nintendo Co., Ltd......................................... 14,500 1,342,544 Nippon Meat Packers, Inc.................................. 99,000 1,211,954 Nippon Steel Co........................................... 142,000 249,652 Okumura Corp.............................................. 157,000 550,917 Omron Corp................................................ 46,000 702,670 Osaka Gas Co.............................................. 285,000 731,059 Sankyo Co., Ltd........................................... 148,000 3,369,817 Secom Co., Ltd............................................ 37,000 2,135,461 Sega Enterprises Ltd...................................... 19,000 327,881 Seino Transportation...................................... 123,000 682,423 Sekisui House Ltd......................................... 141,000 1,092,157 Shin-Etsu Chemical Co., Ltd............................... 12,000 207,515 Sony Corp................................................. 30,500 2,626,184 Sumitomo Bank............................................. 14,000 136,182 Sumitomo Chemical Co...................................... 203,000 626,033 Sumitomo Electric Industries.............................. 125,000 1,263,645 Takeda Chemical Industries................................ 94,000 2,499,262 TDK Corp.................................................. 26,000 1,920,236 Tokio Marine & Fire Insurance Co.......................... 148,000 1,520,683 Tokyo Electric Power...................................... 37,000 725,150 Tonen Corp................................................ 110,000 569,874 Toray Industries, Inc..................................... 385,000 1,997,334 Toshiba Corp.............................................. 387,000 1,581,072 Toyo Suisan Kaisha........................................ 79,000 481,565 Toyota Motor Corp......................................... 103,000 2,664,337 Yamato Transport Co., Ltd................................. 24,000 268,905 Yamazaki Baking Co., Ltd.................................. 56,000 496,307 ------------ 71,221,969 ------------ MALAYSIA -- 0.39% Berjaya Sports Toto Bhd................................... 71,000 105,280 Kuala Lumpur Kepong Bhd................................... 118,000 190,621 Malayan Banking Bhd A Shares (b).......................... 47,000 46,858 Malayan Banking Bhd....................................... 39,000 39,306 Malaysia International Shipping Bhd (Frgn.)............... 47,000 68,559 Nestle (Malaysia) Bhd..................................... 38,000 172,248 Petronas Gas Bhd.......................................... 73,000 135,527 Public Bank Bhd (Frgn.)................................... 71,000 21,398 Resorts World Bhd......................................... 100,000 109,946 Rothmans of Pall Mall Bhd................................. 37,000 256,480
- -------------------------------------------------------------------------------- 10 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE --------- ------------ MALAYSIA (CONTINUED) Sime Darby Bhd.......................................... 25,000 $ 17,239 Tanjong PLC............................................. 46,000 63,773 Telekom Malaysia Bhd (b)................................ 104,000 175,527 Tenaga Nasional Bhd..................................... 110,000 132,610 UMW Holdings Bhd........................................ 58,000 26,011 YTL Corp. Bhd........................................... 162,000 121,866 YTL Power International Bhd (b)......................... 64,900 35,364 ------------ 1,718,613 ------------ NETHERLANDS -- 4.55% ABN AMRO Holdings NV.................................... 69,730 1,631,672 Akzo Nobel NV........................................... 2,230 495,726 Elsevier NV............................................. 74,910 1,130,536 Heineken NV (b)......................................... 32,062 1,259,342 Hoogovens NV............................................ 7,303 315,930 ING Groep NV............................................ 39,998 2,619,081 KLM Royal Dutch Air Lines NV............................ 10,150 412,147 KPN NV.................................................. 36,890 1,419,962 Philips Electronics NV.................................. 21,070 1,771,198 PolyGram NV............................................. 13,400 683,768 Royal Dutch Petroleum Co................................ 92,660 5,138,161 TNT Post Group NV (b)................................... 36,890 943,014 Unilever NV............................................. 30,660 2,432,663 ------------ 20,253,200 ------------ NEW ZEALAND -- 2.28% Brierley Investments Ltd................................ 2,683,400 1,337,236 Carter Holt Harvey Ltd.................................. 929,700 810,781 Fletcher Challenge Building............................. 307,650 383,283 Fletcher Challenge Energy............................... 339,250 810,082 Fletcher Challenge Forests Ltd.......................... 626,593 351,286 Fletcher Challenge Paper................................ 609,800 677,411 Lion Nathan Ltd......................................... 256,600 570,101 Telecom Corp. of New Zealand Ltd........................ 1,122,800 4,627,796 Telecom Corp. of New Zealand Ltd. ADR................... 17,600 576,400 ------------ 10,144,376 ------------ NORWAY -- 0.21% Norsk Hydro ASA......................................... 17,000 747,703 Norske Skogindustrier ASA Class A....................... 6,300 194,579 ------------ 942,282 ------------ SINGAPORE -- 1.13% City Developments Ltd................................... 89,000 248,642 Creative Technology Ltd. (b)............................ 10,000 121,338 DBS Land Ltd............................................ 168,000 139,213 Development Bank of Singapore Ltd....................... 43,200 239,077 Elec & Eltek International Co., Ltd..................... 26,100 88,218 Fraser & Neave Ltd...................................... 35,000 94,051 Keppel Corp., Ltd....................................... 109,750 164,999 Keppel Land Ltd......................................... 105,000 96,330 Oversea-Chinese Banking Corp., Ltd...................... 112,400 382,539 Rothmans Industries Ltd................................. 22,000 97,662 Singapore Airlines Ltd. (Frgn.)......................... 125,000 584,492 Singapore Press Holdings Ltd............................ 99,972 668,650 Singapore Technologies Engineering Ltd. (b). 111,000 78,183 Singapore Telecommunications, Ltd....................... 870,000 1,235,869 United Overseas Bank Ltd. (Frgn.)....................... 241,000 748,890 Venture Manufacturing (Singapore) Ltd. (b).............. 27,000 51,139 ------------ 5,039,292 ------------
SHARES VALUE --------- ------------ SWEDEN -- 2.97% ABB AB, A Shares........................................ 64,400 $ 912,513 Astra AB, A Shares...................................... 64,800 1,324,455 Electrolux AB Series B.................................. 29,400 505,060 Ericsson, B Shares...................................... 93,700 2,737,602 Investor AB-B Shares.................................... 27,300 1,593,518 Nordbanken Holding AB................................... 205,700 1,508,915 Skandia Forsakrings AB.................................. 60,800 869,127 Skanska AB, B Shares.................................... 18,600 834,970 Svenska Handelsbanken, A Shares......................... 20,900 969,667 Swedish Match AB........................................ 169,100 561,907 Volvo AB, B Shares...................................... 46,100 1,372,901 ------------ 13,190,635 ------------ SWITZERLAND -- 6.55% ABB AG (Bearer)......................................... 892 1,317,300 CS Holdings AG (Reg.)................................... 22,671 5,044,477 Holderbank Financiere Glarus, B Shares.................. 840 1,068,829 Julius Baer Holding AG.................................. 377 1,179,368 Nestle S.A. (Reg.)...................................... 1,875 4,012,559 Novartis AG (Reg.)...................................... 4,020 6,689,399 Roche Holding AG (Gen.)................................. 470 4,615,407 Sairgroup............................................... 2,475 814,231 Saurer AG............................................... 845 863,496 Sulzer AG............................................... 886 699,197 Swiss Reinsurance Co. (Reg.)............................ 1,109 2,804,670 ------------ 29,108,933 ------------ UNITED KINGDOM -- 22.86% Abbey National PLC...................................... 91,400 1,624,137 B.A.T. Industries PLC................................... 477,800 4,783,262 Barclays PLC............................................ 116,900 3,370,427 Bass PLC................................................ 49,407 925,753 Billiton PLC............................................ 554,300 1,123,694 BOC Group PLC........................................... 62,100 846,008 Booker PLC.............................................. 283,200 1,157,673 British Petroleum Co. PLC............................... 368,294 5,370,724 British Sky Broadcasting PLC............................ 164,400 1,180,869 British Steel PLC....................................... 1,060,800 2,331,905 British Telecommunications PLC.......................... 391,600 4,835,052 BTR PLC (b)............................................. 177,306 502,920 Cable & Wireless PLC.................................... 92,200 1,119,925 Cadbury Schweppes PLC................................... 134,200 2,076,793 Charter PLC............................................. 182,218 1,901,715 Coats Viyella PLC....................................... 997,900 1,223,774 Diageo PLC.............................................. 165,135 1,956,249 FKI PLC................................................. 551,925 1,593,136 General Electric Co. PLC................................ 320,400 2,761,147 Glaxo Wellcome PLC...................................... 220,300 6,612,602 Greenalls Group PLC..................................... 177,200 1,534,468 Hanson PLC.............................................. 205,712 1,250,219 Hillsdown Holdings PLC.................................. 489,700 1,331,817 House of Fraser PLC..................................... 517,200 1,501,532 HSBC Holdings PLC....................................... 125,251 3,178,609 Inchcape PLC............................................ 275,100 867,519 Legal & General Group PLC............................... 58,800 627,400 Lloyds TSB Group PLC.................................... 318,285 4,452,931 Marks & Spencer PLC..................................... 453,600 4,128,521 Mirror Group PLC........................................ 489,000 1,835,769 National Westminster Bank PLC........................... 81,600 1,458,164
- -------------------------------------------------------------------------------- 11 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - --------------------------------------------------------------------------------
SHARES VALUE ------- ------------ UNITED KINGDOM (CONTINUED) Peninsular & Oriental Steam Navigation Co................. 179,260 $ 2,581,196 Prudential Corp. PLC...................................... 65,800 866,772 Reckitt & Colman PLC...................................... 49,646 947,626 Reed International PLC.................................... 210,000 1,899,089 Reuters Group PLC......................................... 46,353 529,780 Rio Tinto PLC............................................. 129,800 1,461,858 RJB Mining PLC............................................ 325,800 668,625 Royal & Sun Alliance Insurance Group PLC.................. 137,714 1,423,463 Scottish Hydro-Electric PLC............................... 145,600 1,292,408 Sears PLC................................................. 702,600 615,452 Sedgwick Group PLC........................................ 412,300 894,300 SmithKline Beecham PLC.................................... 351,200 4,286,428 Smurfit (Jefferson) Group PLC............................. 496,729 1,483,540 Tate & Lyle PLC........................................... 242,000 1,918,953 Tesco PLC................................................. 179,300 1,750,100 Thames Water PLC.......................................... 121,500 2,211,708 Unilever PLC.............................................. 273,600 2,912,484 United News & Media PLC................................... 94,100 1,315,711 Vodafone Group PLC........................................ 148,327 1,882,115 Williams PLC.............................................. 162,000 1,040,645 Willis Corroon Group PLC.................................. 89,100 225,969 ------------ 101,672,936 ------------ Total Non-U.S. Equities (Cost $354,901,674)...................................... 414,945,392 ------------
FACE AMOUNT VALUE ---------- ------------ Short-Term Investments -- 7.58% UNITED STATES -- 7.58% ARCO Chemical Co. 5.770%, due 07/06/98.................................. $2,894,000 $ 2,891,681 Cincinnati Bell Inc. 6.600%, due 07/01/98.................................. 3,000,000 3,000,000 5.850%, due 07/13/98.................................. 2,000,000 1,996,100 5.900%, due 07/17/98.................................. 3,500,000 3,490,822 Hilton Hotels Corp. 5.720%, due 07/15/98.................................. 1,500,000 1,496,663 NGC Corp. 6.750%, due 07/01/98.................................. 2,304,000 2,304,000 PG & E Gas Transmission 5.670%, due 07/02/98.................................. 2,000,000 1,999,685 Raytheon Co. 7.000%, due 07/01/98.................................. 3,599,000 3,599,000 5.700%, due 07/09/98.................................. 4,000,000 3,994,933 Tenneco Inc. 5.750%, due 07/17/98.................................. 5,000,000 4,987,222 Union Pacific Resources Inc. 5.740%, due 08/31/98.................................. 2,000,000 1,981,090 5.750%, due 08/31/98.................................. 2,000,000 1,981,090 ------------ Total Short-Term Investments (Cost $33,721,297).................................... 33,722,286 ------------ Total Investments (Cost $388,622,971) -- 100.90% (a).................... 448,667,678 ------------ Liabilities, less cash and other assets--(0.90%)....... (4,018,530) ------------ Net Assets -- 100%..................................... $444,649,148 ============
See accompanying notes to schedule of investments. - -------------------------------------------------------------------------------- 12 NON-U.S. EQUITY FUND -- SCHEDULE OF INVESTMENTS June 30, 1998 - -------------------------------------------------------------------------------- NOTES TO SCHEDULE OF INVESTMENTS (a) Aggregate cost for federal income tax purposes was $388,622,971; and net unrealized appreciation consisted of: Gross unrealized appreciation................................ $94,020,292 Gross unrealized depreciation................................ (33,975,585) ----------- Net unrealized appreciation................................ $60,044,707 ===========
(b) Non-income producing security. (c) Denominated in U.S. dollars. FORWARD FOREIGN CURRENCY CONTRACTS The Non-U.S. Equity Fund had the following open forward foreign currency contracts as of June 30, 1998:
SETTLEMENT LOCAL CURRENT UNREALIZED DATE CURRENCY VALUE GAIN/(LOSS) ---------- -------------- ----------- ----------- FORWARD FOREIGN CURRENCY BUY CONTRACTS Australian Dollar.......... 8/19/98 10,350,000 $ 6,382,807 $ (510,975) Canadian Dollar............ 8/19/98 9,200,000 6,262,423 (126,466) Danish Krone............... 8/19/98 29,900,000 4,357,171 349 French Franc............... 8/19/98 13,000,000 2,156,781 179 German Mark................ 8/19/98 5,800,000 3,223,135 (2,671) Hong Kong Dollar........... 8/19/98 6,500,000 835,044 962 Italian Lira............... 8/19/98 12,690,000,000 7,144,834 (7,706) Japanese Yen............... 8/19/98 1,110,000,000 8,057,759 (996,074) Malaysian Ringgit.......... 8/19/98 11,800,000 2,779,466 (165,013) Netherlands Guilder........ 8/19/98 7,900,000 3,895,636 (4,058) Norwegian Krona............ 8/19/98 15,700,000 2,048,360 (40,795) Spanish Peseta............. 8/19/98 2,270,000,000 14,854,400 19,808 Swedish Krona.............. 8/19/98 24,900,000 3,128,687 38,590 Swiss Franc................ 8/19/98 13,600,000 9,011,815 (498,675) FORWARD FOREIGN CURRENCY SALE CONTRACTS Belgian Franc.............. 8/19/98 455,000,000 12,262,773 (23,501) British Pound.............. 8/19/98 20,700,000 34,440,876 (649,116) Finnish Markka............. 8/19/98 29,300,000 5,355,628 56,243 Hong Kong Dollar........... 8/19/98 27,500,000 3,532,879 2,053 Italian Lira............... 8/19/98 3,550,000,000 1,998,752 (18,587) Malaysian Ringgit.......... 8/19/98 11,800,000 2,779,466 214,318 Singapore Dollar........... 8/19/98 6,300,000 3,716,529 26,786 Swedish Krona.............. 8/19/98 24,900,000 3,128,687 (12,214) Swiss Franc................ 8/19/98 6,700,000 4,439,644 227,069 ----------- Total.................... $(2,469,494) ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 13 NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1998 ASSETS: Investments, at value (Cost $388,622,971)....................... $448,667,678 Cash............................................................ 26,932 Receivables: Investment securities sold..................................... 7,890,263 Dividends...................................................... 1,342,491 Interest....................................................... 32,326 Fund shares sold............................................... 63,095 Other assets.................................................... 475 ------------ TOTAL ASSETS................................................. 458,023,260 ------------ LIABILITIES: Payables: Investment securities purchased................................ 5,994,611 Fund shares sold............................................... 3,978,248 Investment advisory fees....................................... 313,798 Accrued expenses............................................... 617,961 Net unrealized depreciation on forward foreign currency con- tracts......................................................... 2,469,494 ------------ TOTAL LIABILITIES............................................ 13,374,112 ------------ NET ASSETS....................................................... $444,649,148 ============ NET ASSETS CONSIST OF: Paid in capital................................................. $385,674,481 Accumulated undistributed net investment income................. 1,437,308 Accumulated net realized loss................................... (65,467) Net unrealized appreciation..................................... 57,602,826 ------------ NET ASSETS................................................... $444,649,148 ============ OFFERING PRICE PER SHARE: Brinson Class I: Net asset value, offering price and redemption price per share (Based on net assets of $439,328,830 and 36,163,586 shares is- sued and outstanding)......................................... $ 12.15 ============ Brinson Class N: Net asset value, offering price and redemption price per share (Based on net assets of $10,772 and 887 shares issued and outstanding)................ $ 12.14 ============ SwissKey Class: Net asset value, offering price and redemption price per share (Based on net assets of $5,309,546 and 440,453 shares issued and outstanding).............................................. $ 12.05 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 14 NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998 INVESTMENT INCOME: Dividends (net of $1,314,183 for foreign taxes withheld)......... $ 9,245,122 Interest (including securities lending income of $82,824)........ 1,703,252 ----------- TOTAL INCOME.................................................. 10,948,374 ----------- EXPENSES: Advisory......................................................... 3,475,953 Administrative................................................... 305,643 Custodian........................................................ 228,877 Distribution..................................................... 67,597 Other............................................................ 331,206 ----------- TOTAL EXPENSES................................................ 4,409,276 ----------- NET INVESTMENT INCOME ........................................ 6,539,098 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments..................................................... 11,812,215 Futures contracts............................................... (1,031,399) Foreign currency transactions................................... 1,443,040 ----------- Net realized gain............................................. 12,223,856 ----------- Change in net unrealized appreciation or depreciation on: Investments and foreign currency ............................... 10,352,717 Translation of other assets and liabilities denominated in for- eign currency.................................................. (107,626) Futures contracts .............................................. (3,327,266) Forward contracts............................................... (42,714) ----------- Change in net unrealized appreciation or depreciation......... 6,875,111 ----------- Net realized and unrealized gain.................................. 19,098,967 ----------- Net increase in net assets resulting from operations.............. $25,638,065 ===========
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 NON-U.S. EQUITY FUND -- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED JUNE 30, JUNE 30, 1998 1997 ------------- ------------ OPERATIONS: Net investment income............................. $ 6,539,098 $ 5,529,755 Net realized gain................................. 12,223,856 24,421,499 Change in net unrealized appreciation or deprecia- tion ............................................ 6,875,111 35,391,730 ------------ ------------ Net increase in net assets resulting from opera- tions............................................ 25,638,065 65,342,984 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Brinson Class I ................................. (6,380,973) (4,371,883) Brinson Class N.................................. (58) -- SwissKey Class................................... (51,271) (40,369) Distributions from net realized gain: Brinson Class I.................................. (25,288,399) (12,209,010) Brinson Class N.................................. (59) -- SwissKey Class................................... (521,640) (94,152) ------------ ------------ Total distributions to shareholders............... (32,242,400) (16,715,414) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Shares sold....................................... 317,039,181 232,045,893 Shares issued on reinvestment of distributions.... 31,189,854 16,204,754 Shares redeemed................................... (325,627,875) (81,854,223) ------------ ------------ Net increase in net assets resulting from capital share transactions............................... 22,601,160 166,396,424 ------------ ------------ TOTAL INCREASE IN NET ASSETS.................... 15,996,825 215,023,994 ------------ ------------ NET ASSETS: Beginning of year................................. 428,652,323 213,628,329 ------------ ------------ End of year (including accumulated undistributed net investment income of $1,437,308 and $1,777,930, respectively)........................ $444,649,148 $428,652,323 ============ ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, AUGUST 31, 1993* ---------------------------------------- THROUGH BRINSON CLASS I 1998 1997 1996 1995 JUNE 30, 1994 - ------------------------------------------------------------------------------------ Net asset value, begin- ning of period......... $ 12.59 $ 11.17 $ 9.68 $ 9.69 $ 10.00 -------- -------- -------- -------- ------- Income from investment operations: Net investment income. 0.18 0.18 0.18 0.15 0.10 Net realized and unrealized gain (loss)............... 0.30 1.97 2.05 (0.16) (0.34) -------- -------- -------- -------- ------- Total income (loss) from investment operations......... 0.48 2.15 2.23 (0.01) (0.24) -------- -------- -------- -------- ------- Less distributions: Distributions from in- vestment income...... (0.18) (0.17) (0.18) -- (0.07) Distributions from net realized gain........ (0.74) (0.56) (0.56) -- -- -------- -------- -------- -------- ------- Total distributions. (0.92) (0.73) (0.74) -- (0.07) -------- -------- -------- -------- ------- Net asset value, end of period................. $ 12.15 $ 12.59 $ 11.17 $ 9.68 $ 9.69 ======== ======== ======== ======== ======= Total return (non- annualized)............ 4.78% 20.27% 23.64% (0.10)% (2.45)% Ratios/Supplemental da- ta: Net assets, end of pe- riod (in 000s)........ $439,329 $420,855 $212,366 $148,319 $71,544 Ratio of expenses to average net assets: Before expense reim- bursement............ 1.00% 1.00% 1.20% 1.23% 1.60%** After expense reim- bursement............ N/A N/A 1.00% 1.00% 1.00%** Ratio of net investment income to average net assets: Before expense reim- bursement............ 1.52% 1.83% 1.67% 1.93% 1.28%** After expense reim- bursement............ N/A N/A 1.87% 2.16% 1.88%** Portfolio turnover rate.................. 49% 25% 20% 14% 12% Average commission rate paid per share........ $ 0.0221 $ 0.0245 $ 0.0219 N/A N/A
* Commencement of investment operations ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 17 NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout the period presented.
YEAR* ENDED BRINSON CLASS N JUNE 30, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of year $ 12.59 ------- Income from investment operations: Net investment income........................................... 0.16 Net realized and unrealized gain................................ 0.29 ------- Total income from investment operations....................... 0.45 ------- Less distributions: Distributions from net investment income........................ (0.16) Distributions from net realized gain............................ (0.74) ------- Total distributions........................................... (0.90) ------- Net asset value, end of year $ 12.14 ======= Total return...................................................... 4.51% Ratios/Supplemental data: Net assets, end of year (in 000s)................................ $ 11 Ratio of expenses to average net assets: Before expense reimbursement.................................... 1.25% After expense reimbursement..................................... N/A Ratio of net investment income to average net assets: Before expense reimbursement.................................... 1.27% After expense reimbursement..................................... N/A Portfolio turnover rate.......................................... 49% Average commission rate paid per share........................... $0.0221
* Commencement of Brinson Class N was June 30, 1997. ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 NON-U.S. EQUITY FUND -- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
YEAR ENDED JUNE 30, JULY 31, 1995* ----------------- THROUGH SWISSKEY CLASS 1998 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------- Net asset value, beginning of period........ $ 12.49 $ 11.12 $ 10.26 ------- ------- ------- Income from investment operations: Net investment income..................... 0.08 0.11 0.12 Net realized and unrealized gain.......... 0.30 1.93 1.45 ------- ------- ------- Total income from investment operations. 0.38 2.04 1.57 ------- ------- ------- Less distributions: Distributions from net investment income.. (0.08) (0.11) (0.15) Distributions from net realized gain...... (0.74) (0.56) (0.56) ------- ------- ------- Total distributions..................... (0.82) (0.67) (0.71) ------- ------- ------- Net asset value, end of period.............. $ 12.05 $ 12.49 $ 11.12 ======= ======= ======= Total return (non-annualized)............... 3.90% 19.32% 15.78% Ratios/Supplemental data: Net assets, end of period (in 000s)........ $ 5,310 $ 7,797 $ 1,262 Ratio of expenses to average net assets: Before expense reimbursement.............. 1.84% 1.81% 2.04%** After expense reimbursement............... N/A N/A 1.84%** Ratio of net investment income to average net assets: Before expense reimbursement.............. 0.68% 1.02% 0.83%** After expense reimbursement............... N/A N/A 1.03%** Portfolio turnover rate.................... 49% 25% 20% Average commission rate paid per share..... $0.0221 $0.0245 $0.0219
* Commencement of SwissKey Class ** Annualized N/A = Not applicable See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 19 NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1.SIGNIFICANT ACCOUNTING POLICIES The Brinson Funds (the "Trust") is an open-end, management investment company registered under the Investment Company Act of 1940, as amended, as a series company. The Trust currently offers shares of eight series: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a "Fund" and collectively, the "Funds"). Each Fund has three classes of shares outstanding, Brinson Class I, Brinson Class N and SwissKey Class. There are an unlimited number of shares of each class with par value of $0.001 authorized. Each share represents an identical interest in the investments of the Funds and has the same rights. The following is a summary of significant accounting policies consistently followed by the Non-U.S. Equity Fund in the preparation of its financial statements. A.INVESTMENT VALUATION:Securities for which market quotations are readily available are valued at the last available sales price on the exchange or market on which they are principally traded, or lacking any sales, at the last available bid price on the exchange or market on which such securities are principally traded. Securities for which market quotations are not readily available, including restricted securities which are subject to limitations on their sale, are valued at fair value as determined in good faith by or under the direction of the Trust's Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Forward foreign currency contracts are valued daily using quoted forward exchange rates. Short-term obligations with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B.FOREIGN CURRENCY TRANSLATION:Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using WM/Reuters closing spot rates as of 4:00 p.m. London time. Purchases and sales of portfolio securities, commitments under forward foreign currency contracts and income receipts are translated at the prevailing exchange rate on the date of each transaction. Realized and unrealized foreign exchange gains or losses on investments are included as a component of net realized and unrealized gain or loss on investments in the statement of operations. C.INVESTMENT TRANSACTIONS:Investment transactions are accounted for on a trade date basis. Gains and losses on securities sold are determined on an identified cost basis. D.INVESTMENT INCOME:Interest income, which includes amortization of premiums and discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as the information becomes available. E.FEDERAL INCOME TAXES:It is the policy of the Fund to comply with all requirements of the Internal Revenue Code (the "Code") applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. The Fund has met the requirements of the Code applicable to regulated investment companies for the year ended June 30, 1998, therefore, no federal income tax provision was required. F.DISTRIBUTIONS TO SHAREHOLDERS:It is the policy of the Fund to distribute its net investment income on a semi-annual basis and net capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing tax treatments for foreign currency transactions. Differences in dividends per share between the classes are due to distribution expenses. G.INCOME AND EXPENSE ALLOCATION:All income earned and expenses incurred by the Fund will be borne on a pro rata basis by each of the classes, except that the Brinson Class I will not incur any of the distribution expenses of the Brinson Class N nor the SwissKey Class. - -------------------------------------------------------------------------------- 20 NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- H.USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 2.INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES Brinson Partners, Inc. (the "Advisor"), a registered investment advisor, provides the Fund with investment management services. As compensation for these services, the Fund pays the Advisor a monthly fee based on the Fund's average daily net assets. The Advisor has agreed to waive its fees and reimburse the Fund to the extent total annualized expenses exceed a specified percentage of the Fund's average daily net assets. The expense cap is 1.00%, 1.25% and 1.84% of the average daily net assets of the Brinson Class I, Brinson Class N and SwissKey Class, respectively. Investment advisory fees and other transactions with affiliates for the year ended June 30, 1998, were as follows:
ADVISORY ADVISORY FEE FEES -------- ---------- Non-U.S. Equity Fund........................................ 0.80% $3,475,953
Certain officers of the Fund are also officers of the Advisor. All officers serve without direct compensation from the Fund. Trustees' fees paid to unaffiliated trustees for the year ended June 30, 1998 were $5,840. 3.INVESTMENT TRANSACTIONS Investment transactions for the year ended June 30, 1998, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ------------ ------------ Non-U.S. Equity Fund.................................. $196,176,481 $198,897,969
4.FORWARD FOREIGN CURRENCY CONTRACTS The Fund engages in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell currencies. Forward foreign currency contracts are also used to achieve currency allocation strategies. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Risks associated with such contracts include movement in the value of the foreign currency relative to the U.S. dollar and the ability of the counterparty to perform. The unrealized gain, if any, represents the credit risk to the Fund on a forward foreign currency contract. Fluctuations in the value of forward foreign currency contracts are recorded daily as net unrealized gains or losses. The Fund realizes a gain or loss upon settlement of the contracts. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. The counterparty to all forward foreign currency contracts, at and for the year ended June 30, 1998, was the Fund's custodian or an affiliate of the Fund's custodian. 5.FUTURES CONTRACTS The Fund may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Fund to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Fund enters into such contracts to hedge a portion of its portfolio. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Fund, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. The statement of operations reflects net realized and net unrealized gains and losses on these contracts. - -------------------------------------------------------------------------------- 21 NON-U.S. EQUITY FUND -- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6.SECURITY LENDING The Fund loaned securities to certain brokers with the Fund's custodian acting as the Fund's lending agent. The Fund earned negotiated lenders' fees, which are included in interest income in the statement of operations. The Fund receives securities, which are not reflected in the statement of assets and liabilities, as collateral against the loaned securities. The Fund monitors the market value of securities loaned on a daily basis and initially requires collateral against the loaned securities in an amount at least equal to 105% of the value of non-U.S. securities loaned. The value of loaned securities and related collateral at June 30, 1998 was $34,770,031 and $39,692,153, respectively. 7.DISTRIBUTION PLANS The Trust has adopted distribution plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, for the Brinson Class N and the SwissKey Class. Each Plan governs payments made for the expenses incurred in the promotion and distribution of the Brinson Class N and the SwissKey Class. Annual fees under the Brinson Class N Plan shall not exceed 0.25% of daily net assets of the Brinson Class N. Annual fees under the SwissKey Plan, which include a 0.25% service fee, shall not exceed 0.84% of the average daily net assets of the SwissKey Class. 8.LINE OF CREDIT The Trust has entered into an agreement with Chase Manhattan Bank to provide a 364 day $100 million committed line of credit to the Funds. Borrowings will be made for temporary purposes. Interest on amounts borrowed are calculated at the Federal Funds rate plus 0.50% per year. The Funds pay a commitment fee of 0.08% per year of the average daily unutilized amount of the line of credit. During the year ended June 30, 1998, the Non-U.S. Equity Fund had total borrowings of $32,600,000 outstanding for 1 day under the agreement. 9.CAPITAL TRANSACTIONS Capital stock transactions were as follows:
YEAR ENDED YEAR ENDED JUNE 30, 1998 JUNE 30, 1997 ----------------------- ----------------------- SHARES VALUE SHARES VALUE ---------- ------------ ---------- ------------ Sales: Brinson Class I............... 26,268,807 $312,436,986 19,910,853 $225,344,857 Brinson Class N............... 798 9,817 79 1,000 SwissKey Class................ 387,174 4,592,378 590,377 6,700,036 ---------- ------------ ---------- ------------ Total Sales................ 26,656,779 $317,039,181 20,501,309 $232,045,893 ========== ============ ========== ============ Dividend Reinvestment: Brinson Class I............... 2,849,536 $ 30,664,100 1,461,013 $ 16,110,105 Brinson Class N............... 10 117 -- -- SwissKey Class................ 49,433 525,637 8,477 94,649 ---------- ------------ ---------- ------------ Total Dividend Reinvest- ment...................... 2,898,979 $ 31,189,854 1,469,490 $ 16,204,754 ========== ============ ========== ============ Redemptions: Brinson Class I............... 26,391,131 $318,236,785 6,945,571 $ 80,838,515 Brinson Class N............... -- -- -- -- SwissKey Class................ 620,542 7,391,090 87,985 1,015,708 ---------- ------------ ---------- ------------ Total Redemptions.......... 27,011,673 $325,627,875 7,033,556 $ 81,854,223 ========== ============ ========== ============
- -------------------------------------------------------------------------------- 22 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders The Brinson Funds--Non-U.S. Equity Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Brinson Funds--Non-U.S. Equity Fund as of June 30, 1998, the related statements of operations for the year then ended and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Brinson Funds--Non-U.S. Equity Fund at June 30, 1998, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods indicated therein in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois August 7, 1998 - -------------------------------------------------------------------------------- 23 DISTRIBUTED BY: FUNDS DISTRIBUTOR, INC. 60 STATE STREET BOSTON, MA 02109 This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund's objectives, policies, expenses and other information. - -------------------------------------------------------------------------------- [SWISS KEY FUNDS LOGO] 10 East 50th Street, New York, New York 10022 . Tel: (800) SWISSKEY . http://networth.galt.com/swisskey -----END PRIVACY-ENHANCED MESSAGE-----