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THE BRINSON FUNDS
LOGO
Global Fund U.S. Equity Fund
Global Equity Fund U.S. Bond Fund
Global Bond Fund U.S. Cash Management Fund
Short-Term Global Income Fund Non-U.S. Equity Fund
U.S. Balanced Fund Non-U.S. Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
February 15, 1996, as Supplemented May 28, 1996
The Brinson Funds (the "Trust") currently offers ten separate series, each with
its own investment objectives and policies. The Trust also offers two classes of
shares for each series--the Brinson Fund class and the SwissKey Fund class.
Information concerning the Brinson Fund class of each series is provided in the
following separate Prospectuses: the Brinson Global Fund, Brinson Global Equity
Fund, Brinson Global Bond Fund, Brinson Short-Term Global Income Fund, Brinson
U.S. Balanced Fund, Brinson U.S. Equity Fund, Brinson U.S. Cash Management Fund,
Brinson Non-U.S. Equity Fund and Brinson Non-U.S. Bond Fund each dated September
20, 1995; and the Brinson U.S. Bond Fund dated February 15, 1996. Information
concerning the SwissKey Fund class of each series is included in a separate
Prospectus for the SwissKey Funds, dated February 15, 1996. This Statement of
Additional Information is not a Prospectus, but should be read in conjunction
with the current Prospectuses of the Trust. Much of the information contained
herein expands upon subjects discussed in the Prospectuses. No investment in
shares should be made without first reading the applicable Prospectus. A copy of
each Prospectus may be obtained without charge from the Trust at the addresses
and telephone numbers below.
UNDERWRITER: ADVISOR:
Fund/Plan Broker Services, Inc. Brinson Partners, Inc.
2 W. Elm Street 209 South LaSalle Street
Conshohocken, PA 19428-0874 Chicago, IL 60604-1295
(800) 448-2430 (Brinson Fund class) (800) 448-2430 (Brinson Fund class)
1-800-SWISSKEY (SwissKey Fund class) 1-800-SWISSKEY (SwissKey Fund class)
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TABLE OF CONTENTS
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THE BRINSON FUNDS......................................................... S-3
INVESTMENT STRATEGIES..................................................... S-3
INVESTMENTS RELATING TO GLOBAL, U.S. AND NON-U.S. FUNDS................... S-3
Repurchase Agreements................................................... S-3
Reverse Repurchase Agreements........................................... S-4
Loans of Portfolio Securities........................................... S-4
Swaps................................................................... S-4
Index Options........................................................... S-4
Special Risks of Options on Indices..................................... S-5
Futures................................................................. S-5
Options................................................................. S-7
Rule 144A Securities.................................................... S-9
Other Investments....................................................... S-9
INVESTMENTS RELATING TO GLOBAL AND NON-U.S. FUNDS......................... S-9
Foreign Securities...................................................... S-9
Forward Foreign Currency Contracts...................................... S-10
Options on Foreign Currencies........................................... S-10
INVESTMENTS RELATING TO GLOBAL FUND, GLOBAL BOND FUND, SHORT-TERM GLOBAL
INCOME FUND, U.S. BALANCED FUND AND U.S. BOND FUND....................... S-12
Lower Grade Debt Securities............................................. S-12
Convertible Securities.................................................. S-12
When-Issued Securities.................................................. S-13
Mortgage-Backed Securities and Mortgage Pass-Through Securities......... S-13
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage...
Investment Conduits ("REMICs")......................................... S-15
Other Mortgage-Backed Securities........................................ S-15
Asset-Backed Securities................................................. S-16
Zero Coupon Securities.................................................. S-17
INVESTMENTS RELATING TO GLOBAL FUND....................................... S-18
Emerging Markets Investments............................................ S-18
Risks of Investing in Emerging Markets.................................. S-19
INVESTMENT RESTRICTIONS................................................... S-20
MANAGEMENT OF THE TRUST................................................... S-22
Trustees and Officers................................................... S-22
Compensation Table...................................................... S-23
CONTROL PERSONS & PRINCIPAL HOLDERS OF SECURITIES......................... S-24
INVESTMENT ADVISORY AND OTHER SERVICES.................................... S-27
Administrator........................................................... S-29
Underwriter............................................................. S-29
Distribution Plan....................................................... S-30
Code of Ethics.......................................................... S-30
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS.......................... S-31
Portfolio Turnover...................................................... S-31
Shares of Beneficial Interest........................................... S-32
PURCHASES................................................................. S-32
Exchanges of Shares..................................................... S-33
Net Asset Value......................................................... S-33
REDEMPTIONS............................................................... S-34
Taxation................................................................ S-34
PERFORMANCE CALCULATIONS.................................................. S-37
Total Return............................................................ S-37
Yield of U.S. Cash Management Fund...................................... S-38
CORPORATE DEBT RATINGS--APPENDIX A........................................ S-39
FINANCIAL STATEMENTS......................................................
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THE BRINSON FUNDS
The Brinson Funds (the "Trust"), 209 South LaSalle Street, Chicago, Illinois
60604-1295, is an open-end management investment company which currently offers
shares of ten series representing separate portfolios of investments: Global
Fund, Global Equity Fund, Global Bond Fund, Short-Term Global Income Fund, U.S.
Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, U.S. Cash Management Fund,
Non-U.S. Equity Fund and Non-U.S. Bond Fund (collectively referred to as the
"Series" or individually as a "Series"). The Global Fund, Global Equity Fund,
Global Bond Fund and Short-Term Global Income Fund are referred to herein
collectively as the "Global Funds" or individually as a "Global Fund;" U.S.
Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and U.S. Cash Management Fund
are referred to herein as "U.S. Funds;" Non-U.S. Equity Fund and Non-U.S. Bond
Fund are referred to herein as "Non-U.S. Funds." The Trust currently offers two
classes of shares for each Series. The Brinson Fund class shares of the Series
are as follows: Brinson Global Fund, Brinson Global Equity Fund, Brinson Global
Bond Fund, Brinson Short-Term Global Income Fund, Brinson U.S. Balanced Fund,
Brinson U.S. Equity Fund, Brinson U.S. Bond Fund, Brinson U.S. Cash Management
Fund, Brinson Non-U.S. Equity Fund and Brinson Non-U.S. Bond Fund. The SwissKey
Fund class shares of the Series are as follows: SwissKey Global Fund, SwissKey
Global Equity Fund, SwissKey Global Bond Fund, SwissKey Short-Term Global Income
Fund, SwissKey U.S. Balanced Fund, SwissKey U.S. Equity Fund, SwissKey U.S. Bond
Fund, SwissKey U.S. Cash Management Fund, SwissKey Non-U.S. Equity Fund and
SwissKey Non-U.S. Bond Fund. The Brinson Fund class shares of each Series have
no sales charges and are not subject to annual 12b-1 plan expenses. The SwissKey
Fund class shares of each Series have no sales charges but are subject to annual
12b-1 expenses to a maximum of 0.90% for the respective Series.
INVESTMENT STRATEGIES
The following discussion of investment techniques and instruments should be read
in conjunction with the "Investment Objectives" and "Other Investment Practices
and Risk Factors" sections of the Prospectuses of the Series. The investment
practices described below, except for the discussion of portfolio loan
transactions, are not fundamental and may be changed by the Board of Trustees
without the approval of the shareholders.
INVESTMENTS RELATING TO GLOBAL, U.S. AND NON-U.S. FUNDS
The following discussion applies to all of the Series.
REPURCHASE AGREEMENTS
When a Series enters into a repurchase agreement, it purchases securities from a
bank or broker-dealer which simultaneously agrees to repurchase the securities
at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement. As a result, a repurchase agreement provides a fixed
rate of return insulated from market fluctuations during the term of the
agreement. The term of a repurchase agreement generally is short, possibly
overnight or for a few days, although it may extend over a number of months (up
to one year) from the date of delivery. Repurchase agreements will be fully
collateralized and the collateral will be marked-to-market daily. A Series may
not enter into a repurchase agreement or invest in any other illiquid securities
having more than seven days remaining to maturity if, as a result, such
agreements, together with any other illiquid securities, would exceed 15% (10%
in the case of the U.S. Cash Management Fund) of the value of the net assets of
the Series.
In the event of bankruptcy or other default by the seller of the security under
a repurchase agreement, a Series may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral. In such
event, instead of the contractual fixed rate of return, the rate of return to a
Series would be dependent upon intervening fluctuations of the market value of
the underlying security and the accrued interest on the security. Although a
Series would have rights against the seller for breach of contract with respect
to any losses arising from market fluctuations following the failure of the
seller to perform, the ability of a Series to recover damages from a seller in
bankruptcy or otherwise in default would be reduced.
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Repurchase agreements are securities for purposes of the tax diversification
requirements, for pass-through treatment under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, each Series will
limit the value of its repurchase agreements on each of the quarterly testing
dates to ensure compliance with Subchapter M of the Code.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve sales of portfolio securities of a Series
to member banks of the Federal Reserve System or securities dealers believed
creditworthy, concurrently with an agreement by the Series to repurchase the
same securities at a later date at a fixed price which is generally equal to
the original sales price plus interest. A Series retains record ownership and
the right to receive interest and principal payments on the portfolio security
involved. In connection with each reverse repurchase transaction, a Series will
direct its custodian bank to place cash, U.S. government securities, or other
liquid high grade debt obligations in a segregated account of the Series in an
amount equal to the repurchase price. Reverse repurchase agreements have the
same characteristics as borrowing transactions by a Series.
LOANS OF PORTFOLIO SECURITIES
The Series may lend portfolio securities to broker-dealers and financial
institutions provided: (1) the loan is secured continuously by collateral
marked-to-market daily and maintained in an amount at least equal to the current
market value of the securities loaned; (2) a Series may call the loan at any
time and receive the securities loaned; (3) a Series will receive any interest
or dividends paid on the loaned securities; and (4) the aggregate market value
of securities loaned will not at any time exceed 33 1/3% of the total assets of
the Global Fund, Global Equity Fund, Global Bond Fund, Short-Term Global Income
Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, Non-U.S. Equity Fund
and Non-U.S. Bond Fund; the total assets of the Global Fund, Global Bond Fund
and Non-U.S. Equity or 10% of the total assets of the U.S. Cash Management Fund,
respectively.
Collateral will consist of U.S. and non-U.S. securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, a Series will only enter into portfolio loans
after a review of all pertinent facts by the Advisor, under the supervision of
the Board of Trustees, including the creditworthiness of the borrower. Such
reviews will be monitored on an ongoing basis.
SWAPS
The Series (except for the Global Equity Fund, U.S. Equity Fund, U.S. Cash
Management Fund, and Non-U.S. Equity Fund) may engage in swaps, including but
not limited to interest rate, currency and index swaps and the purchase or sale
of related caps, floors and collars and other derivative instruments. The Series
expect to enter into these transactions primarily to preserve a return or spread
on a particular investment or portion of the portfolio's duration, to protect
against any increase in the price of securities the Series anticipates
purchasing at a later date, or to gain exposure to certain markets in the most
economical way possible.
The use of swaps involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If Brinson Partners
is incorrect in its forecast of market values, interest rates and other
applicable factors, the investment performance of the Series will be less
favorable than it would have been if this investment technique was never used.
Thus, if the other party to a swap defaults, the Series' risk of loss consists
of the net amount of interest payments that the Series is contractually entitled
to receive. Under Internal Revenue Service rules, any lump sum payment received
or due under the notional principal contract must be amortized over the life of
the contract.
INDEX OPTIONS
The Series (except for the U.S. Cash Management Fund) may purchase exchange-
listed call options on stock and fixed income indices depending upon whether
the Series is an equity or bond series and sell such options in closing sale
transactions for hedging purposes. A Series may purchase call options on broad
market indices to temporarily achieve market exposure when the Series is not
fully invested. A Series may also purchase exchange-listed call options on
particular market segment indices to achieve temporary exposure to a specific
industry.
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In addition, the Series may purchase put options on stock and fixed income in-
dices and sell such options in closing sale transactions for hedging purposes. A
Series may purchase put options on broad market indices in order to protect its
fully invested portfolio from a general market decline. Put options on market
segments may be bought to protect a Series from a decline in value of heavily
weighted industries in the Series' portfolio. Put options on stock and fixed
income indices may also be used to protect a Series' investments in the case of
a major redemption.
The Series may also write (sell) put and call options on stock and fixed income
indices. While the option is open, a Series will maintain a segregated account
with its custodian in an amount equal to the market value of the option.
Options on indices are similar to regular options except that an option on an
index gives the holder the right, upon exercise, to receive an amount of cash if
the closing level of the index upon which the option is based is greater than
(in the case of a call) or lesser than (in the case of a put) the exercise price
of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The indices on which
options are traded include both U.S. and non-U.S. markets.
SPECIAL RISKS OF OPTIONS ON INDICES
The Series' purchases of options on indices will subject them to the risks de-
scribed below.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular security, whether a Series will
realize gain or loss on the purchase of an option on an index depends upon
movements in the level of prices in the market generally or in an industry or
market segment rather than movements in the price of a particular security.
Accordingly, successful use by a Series of options on indices is subject to
Brinson Partners' ability to predict correctly the direction of movements in the
market generally or in a particular industry. This requires different skills and
techniques than predicting changes in the prices of individual securities.
Index prices may be distorted if trading of a substantial number of securities
included in the index is interrupted causing the trading of options on that
index to be halted. If a trading halt occurred, a Series would not be able to
close out options which it had purchased and the Series may incur losses if the
underlying index moved adversely before trading resumed. If a trading halt
occurred and restrictions prohibiting the exercise of options were imposed
through the close of trading on the last day before expiration, exercises on
that day would be settled on the basis of a closing index value that may not
reflect current price information for securities representing a substantial
portion of the value of the index.
If a Series holds an index option and exercises it before final determination of
the closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall "out-of-the-money," the Series will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although a
Series may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising
the option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
FUTURES
The Series (except the U.S. Cash Management Fund) may enter into contracts for
the purchase or sale for future delivery of securities, including index con-
tracts, or foreign currencies (Global and Non-U.S. Funds only). While futures
contracts provide for the delivery of securities, deliveries usually do not
occur. Contracts are generally terminated by entering into offsetting transac-
tions.
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The Series may enter into such futures contracts to protect against the adverse
affects of fluctuations in security prices, interest or foreign exchange rates
without actually buying or selling the securities or foreign currency. For
example, if interest rates are expected to increase, a Series might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Series. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the futures contracts to the
Series would increase at approximately the same rate, thereby keeping the net
asset value of the Series from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Series could take
advantage of the anticipated rise in value of debt securities without actually
buying them until the market had stabilized. At that time, the futures contracts
could be liquidated and the Series could then buy debt securities on the cash
market.
A stock index futures contract obligates the seller to deliver (and the pur-
chaser to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement was made. Open
futures contracts are valued on a daily basis and a Series may be obligated to
provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in the
future.
With respect to options on futures contracts, when a Series is temporarily not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Series is not fully invested, it may
purchase a call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial hedge
against the declining price of the security or foreign currency which is de-
liverable upon exercise of the futures contract. If the futures price at the
expiration of the option is below the exercise price, the Series will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the value of the Series' portfolio holdings.
The writing of a put option on a futures contract constitutes a partial hedge
against the increasing price of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at the
expiration of the option is higher than the exercise price, the Series will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Series intends to
purchase.
Call and put options on stock index futures are similar to options on securi-
ties except that, rather than the right to purchase or sell stock at a speci-
fied price, options on a stock index future give the holder the right to receive
cash. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing price of the futures contract on the expiration date.
If a put or call option which a Series has written is exercised, the Series may
incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options positions, the
Series' losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities and for federal tax purposes, will be
considered a "short sale." For example, a Series will purchase a put option on a
futures contract to hedge the Series' portfolio against the risk of rising
interest rates.
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To the extent that market prices move in an unexpected direction, a Series may
not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Series is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates de-
crease instead, the Series would lose part or all of the benefit of the in-
creased value which it has because it would have offsetting losses in its
futures position. In addition, in such situations, if the Series had insuffi-
cient cash, it may be required to sell securities from its portfolio to meet
daily variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the rising market. A Se-
ries may be required to sell securities at a time when it may be disadvanta-
geous to do so.
Further, with respect to options on futures contracts, a Series may seek to
close out an option position by writing or buying an offsetting position cov-
ering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot
be assured.
OPTIONS
The Series (except the U.S. Cash Management Fund) may purchase and write call
or put options on securities but will only engage in option strategies for
non-speculative purposes.
The U.S. Funds may invest in options that are listed on U.S. exchanges or
traded over the counter and the Global Funds and Non-U.S. Funds may invest in
options that are either listed on U.S. or recognized foreign exchanges or
traded over-the-counter. Certain over-the-counter options may be illiquid.
Thus, it may not be possible to close options positions and this may have an
adverse impact on a Series' ability to effectively hedge its securities. The
Series have been notified by the Securities and Exchange Commission that it
considers over-the-counter options to be illiquid. Accordingly, the Series
will only invest in such options to the extent consistent with the 15% limit
on investments in illiquid securities.
PURCHASING CALL OPTIONS--The Series may purchase call options on securities to
the extent that premiums paid by a Series do not aggregate more than 20% of
the Series' total assets. When a Series purchases a call option, in return for
a premium paid by the Series to the writer of the option, the Series obtains
the right to buy the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call op-
tion, who receives the premium upon writing the option, has the obligation,
upon exercise of the option, to deliver the underlying security against pay-
ment of the exercise price. The advantage of purchasing call options is that a
Series may alter portfolio characteristics and modify portfolio maturities
without incurring the cost associated with transactions.
A Series may, following the purchase of a call option, liquidate its position
by effecting a closing sale transaction. This is accomplished by selling an
option of the same series as the option previously purchased. The Series will
realize a profit from a closing sale transaction if the price received on the
transaction is more than the premium paid to purchase the original call op-
tion; the Series will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase
the original call option.
Although the Series will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an Ex-
change may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that a Series would have
to exercise its options in order to realize any profit and would incur broker-
age commissions upon the exercise of such options and upon the subsequent dis-
position of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes suffi-
ciently, a call option purchased by a Series may expire without any value to
the Series, in which event the Series would realize a capital loss which will
be short-term unless the option was held for more than one year.
COVERED CALL WRITING--The Series may write covered call options from time to
time on such portions of their portfolios, without limit, as Brinson Partners
determines is appropriate in seeking to obtain a Series' investment objective.
The advantage to a Series of writing covered calls is that the Series receives
a premium which is additional income. However, if the security rises in value,
the Series may not fully participate in the market appreciation.
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During the option period, a covered call option writer may be assigned an ex-
ercise notice by the broker-dealer through whom such call option was sold, re-
quiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the op-
tion or upon entering a closing purchase transaction. A closing purchase
transaction, in which a Series, as writer of an option, terminates its obliga-
tion by purchasing an option of the same series as the option previously writ-
ten, cannot be effected with respect to an option once the option writer has
received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit
on an outstanding call option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to enable a Series to
write another call option on the underlying security with either a different
exercise price or expiration date or both. A Series may realize a net gain or
loss from a closing purchase transaction depending upon whether the net amount
of the original premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the pre-
mium received from a sale of a different call option on the same underlying
security. Such a loss may also be wholly or partially offset by unrealized ap-
preciation in the market value of the underlying security. Conversely, a gain
resulting from a closing purchase transaction could be offset in whole or in
part by a decline in the market value of the underlying security.
If a call option expires unexercised, the Series will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value
of the underlying security during the option period. If a call option is exer-
cised, a Series will realize a gain or loss from the sale of the underlying
security equal to the difference between the cost of the underlying security
and the proceeds of the sale of the security plus the amount of the premium on
the option less the commission paid.
The Series will write call options only on a covered basis, which means that a
Series will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Series would be required to continue to hold a security which it might other-
wise wish to sell or deliver a security it would want to hold. The exercise
price of a call option may be below, equal to or above the current market
value of the underlying security at the time the option is written.
PURCHASING PUT OPTIONS--The Series may only purchase put options to the extent
that the premiums on all outstanding put options do not exceed 20% of a Se-
ries' total assets. A Series will, at all times during which it holds a put
option, own the security covered by such option. With regard to the writing of
put options, each Series will limit the aggregate value of the obligations un-
derlying such put options to 50% of its total net assets. The purchase of the
put on substantially identical securities held will constitute a short sale
for tax purposes, the effect of which is to create short-term capital gain on
the sale of the security and to suspend running of its holding period (and
treat it as commencing on the date of the closing of the short sale) or that
of a security acquired to cover the same if, at the time the put was acquired,
the security had not been held for more than one year.
A put option purchased by a Series gives it the right to sell one of its secu-
rities for an agreed price up to an agreed date. The Series intend to purchase
put options in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the op-
tion ("protective puts"). The ability to purchase put options will allow the
Series to protect unrealized gains in an appreciated security in their portfo-
lios without actually selling the security. If the security does not drop in
value, a Series will lose the value of the premium paid. A Series may sell a
put option which it has previously purchased prior to the sale of the securi-
ties underlying such option. Such sale will result in a net gain or loss de-
pending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid on the put option which is sold.
The Series may sell a put option purchased on individual portfolio securities.
Additionally, the Series may enter into closing sale transactions. A closing
sale transaction is one in which a Series, when it is the holder of an out-
standing option, liquidates its position by selling an option of the same se-
ries as the option previously purchased.
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WRITING PUT OPTIONS--The Series may also write put options on a secured basis
which means that a Series will maintain in a segregated account with its cus-
todian, cash or U.S. government securities in an amount not less than the ex-
ercise price of the option at all times during the option period. The amount
of cash or U.S. government securities held in the segregated account will be
adjusted on a daily basis to reflect changes in the market value of the secu-
rities covered by the put option written by the Series. Secured put options
will generally be written in circumstances where Brinson Partners wishes to
purchase the underlying security for a Series' portfolio at a price lower than
the current market price of the security. In such event, that Series would
write a secured put option at an exercise price which, reduced by the premium
received on the option, reflects the lower price it is willing to pay.
Following the writing of a put option, a Series may wish to terminate the ob-
ligation to buy the security underlying the option by effecting a closing pur-
chase transaction. This is accomplished by buying an option of the same series
as the option previously written. The Series may not, however, effect such a
closing transaction after it has been notified of the exercise of the option.
RULE 144A SECURITIES
The Series may invest in securities that are exempt under Rule 144A from the
registration requirements of the Securities Act of 1933. Those securities pur-
chased under Rule 144A are traded among qualified institutional investors.
Investing in securities under Rule 144A could have the effect of increasing
the levels of Series illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a security under Rule 144A, however, the Board of Trustees and
Brinson Partners, Inc. ("Brinson Partners" or the "Advisor") will continue to
monitor the liquidity of that security to ensure that each Series has no more
than 15% (10% in the case of the U.S. Cash Management Series) of its total as-
sets in illiquid securities.
The Series will limit investments in securities of issuers which the Series
are restricted from selling to the public without registration under the Secu-
rities Act of 1933 to no more than 15% (10% in the case of U.S. Cash Manage-
ment Fund) of the Series' total assets, excluding restricted securities
eligible for resale pursuant to Rule 144A that have been determined to be liq-
uid by the Trust's Board of Trustees.
OTHER INVESTMENTS
The Board of Trustees may, in the future, authorize a Series to invest in se-
curities other than those listed here and in the Prospectuses, provided such
investment would be consistent with that Series' investment objective and that
it would not violate any fundamental investment policies or restrictions ap-
plicable to that Series.
INVESTMENTS RELATING TO GLOBAL AND NON-U.S. FUNDS
The following discussion of strategies, techniques and policies applies only
to Global Fund, Global Equity Fund, Global Bond Fund, Short-Term Global Income
Fund, Non-U.S. Equity Fund and Non-U.S. Bond Fund.
FOREIGN SECURITIES
Investors should recognize that investing in foreign issuers involves certain
considerations, including those set forth in the Series' Prospectuses, which
are not typically associated with investing in United States issuers. Since
the stocks of foreign companies are frequently denominated in foreign curren-
cies, and since the Series may temporarily hold uninvested reserves in bank
deposits in foreign currencies, the Series will be affected favorably or unfa-
vorably by changes in currency rates and in exchange control regulations and
may incur costs in connection with conversions between various currencies. The
investment policies of the Series permit them to enter into forward foreign
currency exchange contracts, futures, options and interest rate swaps in order
to hedge portfolio holdings and commitments against changes in the level of
future currency rates.
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There has been in the past, and there may be again in the future, an interest
equalization tax levied by the United States in connection with the purchase
of foreign securities such as those purchased by the Series. Payment of such
interest equalization tax, if imposed, would reduce the Series' rates of re-
turn on investment. Dividends paid by foreign issuers may be subject to with-
holding and other foreign taxes which may decrease the net return on such
investments as compared to dividends paid to the Series by United States cor-
porations. The Series' ability to "pass through" the foreign taxes paid for
tax credit or deduction purposes will be determined by the composition of the
Series' portfolios. More than 50% of a Series must be invested in stock or se-
curities of foreign corporations for "pass through" to be possible in the
first instance. Special rules govern the federal income tax treatment of cer-
tain transactions denominated in terms of a currency other than the U.S. dol-
lar or determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by the special rules
generally include the following: (i) the acquisition of, or becoming the obli-
gor under, a bond or other debt instrument (including, to the extent provided
in Treasury Regulations, preferred stock); (ii) the accruing of certain trade
receivables and payables; and (iii) the entering into or acquisition of any
forward contract, futures contract and similar financial instruments other
than any "regulated futures contract" or "non-equity option" which would be
marked-to-market under the rules of Section 1256 of the Code if held at the
end of the tax year. The disposition of a currency other than the U.S. dollar
by a U.S. taxpayer is also treated as a transaction subject to the special
currency rules. However, foreign currency-related regulated futures contracts
and non-equity options are generally not subject to these special currency
rules. If subject, they are or would be treated as sold for their fair market
value at year-end under the marked-to-market rules applicable to other futures
contracts, unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying transac-
tion and is normally taxable gain or loss. A taxpayer may elect to treat as
capital gain or loss foreign currency gain or loss arising from certain iden-
tified forward contracts, futures contracts and options that are capital as-
sets in the hands of the taxpayer and which are not part of a straddle.
Certain transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Code and the Treasury
Regulations) will be integrated and treated as a single transaction or other-
wise treated consistently for purposes of the Code. The income tax effects of
integrating and treating a transaction as a single transaction are generally
to create a synthetic debt instrument that is subject to the original discount
provisions. It is anticipated that some of the non-U.S. dollar denominated in-
vestments and foreign currency contracts the Series may make or enter into
will be subject to the special currency rules described above.
FORWARD FOREIGN CURRENCY CONTRACTS
The Series may purchase or sell currencies and/or engage in forward foreign
currency transactions in order to expedite settlement of portfolio transac-
tions and to manage currency risk.
Forward foreign currency contracts are traded in the inter-bank market con-
ducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement and
no commissions are charged at any stage for trades. The Series will account
for forward contracts by marked-to-market each day at current forward values.
When a Series enters into a forward contract to sell, for a fixed amount of
U.S. dollars or other appropriate currency, an amount of foreign currency, the
Series' custodian or sub-custodian will place cash or liquid high grade debt
securities in a segregated account of the Series in an amount not less than
the value of the Series' total assets committed to the consummation of such
forward contracts. If the additional cash or securities placed in the segre-
gated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the
amount of the Series' commitments with respect to such contracts.
OPTIONS ON FOREIGN CURRENCIES
The Series may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example, a decline
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in the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against
such diminutions in the value of portfolio securities, the Series may purchase
put options on the foreign currency. If the dollar price of the currency does
decline, a Series will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the dollar
price of such securities, the Series may purchase call options on such curren-
cy. The purchase of such options could offset, at least partially, the effects
of the adverse movement in exchange rates. As in the case of other types of
options, however, the benefit to the Series to be derived from purchases of
foreign currency options will be reduced by the amount of the premium and re-
lated transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, a Series could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.
The Series may write options on foreign currencies for the same types of hedg-
ing purposes. For example, where a Series anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations
in exchange rates, it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the option
will most likely not be exercised, and the diminution in the value of portfo-
lio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Series could write
a put option on the relevant currency which, if rates move in the manner pro-
jected, will expire unexercised and allow the Series to hedge such increased
cost up to the amount of the premium. As in the case of other types of op-
tions, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and
the Series would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, a Series also may be required to forego all
or a portion of the benefit which might otherwise have been obtained from fa-
vorable movements in exchange rates.
The Series may write covered call options on foreign currencies. A call option
written on a foreign currency by a Series is "covered" if the Series owns the
underlying foreign currency covered by the call or has an absolute and immedi-
ate right to acquire that foreign currency without additional cash considera-
tion (or for additional cash consideration held in a segregated account by the
custodian bank) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if a Series has a call on the
same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the ex-
ercise price of the call written, or (b) is greater than the exercise price of
the call written if the difference is maintained by the Series in cash, U.S.
government securities or other high-grade liquid debt securities in a segre-
gated account with its custodian bank.
With respect to writing put options, at the time the put is written, a Series
will establish a segregated account with its custodian bank consisting of
cash, U.S. government securities or other high-grade liquid debt securities in
an amount equal in value to the amount the Series will be required to pay upon
exercise of the put. The account will be maintained until the put is
exercised, has expired, or the Series has purchased a closing put of the same
series as the one previously written.
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INVESTMENTS RELATING TO GLOBAL FUND, GLOBAL BOND FUND, SHORT-TERM GLOBAL
INCOME FUND, U.S. BALANCED FUND, AND U.S. BOND FUND
The following discussion applies to the Global Fund, Global Bond Fund, Short-
Term Global Income Fund, U.S. Balanced Fund and U.S. Bond Fund.
LOWER GRADE DEBT SECURITIES (not applicable to the Short-Term Global Income
Fund)
Fixed income securities rated lower than Baa3 by Moody's or BBB- by Standard &
Poor's are considered to be of poor standing and predominantly speculative.
Such securities are commonly referred to as "junk bonds" and are subject to a
substantial degree of credit risk. Medium and low-grade bonds held by the Se-
ries, which are those that are rated below Baa3 or BBB-, may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also, high yield bonds
are often issued by smaller less creditworthy companies or by highly leveraged
(indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.
In the past, the high yields from low-grade bonds have more than compensated
for the higher default rates on such securities. However, there can be no as-
surance that diversification will protect the Series from widespread bond de-
faults brought about by a sustained economic downturn, or that yields will
continue to offset default rates on high yield bonds in the future. Issuers of
these securities are often highly leveraged, so that their ability to service
their debt obligations during an economic downturn or during sustained periods
of rising interest rates may be impaired. In addition, such issuers may not
have more traditional methods of financing available to them and may be unable
to repay debt at maturity by refinancing. Further, an economic recession may
result in default levels with respect to such securities in excess of historic
averages.
The value of lower-rated debt securities will be influenced not only by chang-
ing interest rates, but also by the bond market's perception of credit quality
and the outlook for economic growth. When economic conditions appear to be de-
teriorating, low and medium-rated bonds may decline in market value due to in-
vestors' heightened concern over credit quality, regardless of prevailing
interest rates.
Especially at such times, trading in the secondary market for high yield bonds
may become thin and market liquidity may be significantly reduced. Even under
normal conditions, the market for high yield bonds may be less liquid than the
market for investment grade corporate bonds. There are fewer securities deal-
ers in the high yield market and purchasers of high yield bonds are concen-
trated among a smaller group of securities dealers and institutional
investors. In periods of reduced market liquidity, high yield bond prices may
become more volatile.
Besides credit and liquidity concerns, prices for high yield bonds may be af-
fected by legislative and regulatory developments. For example, from time to
time, Congress has considered legislation to restrict or eliminate the corpo-
rate tax deduction for interest payments or to regulate corporate
restructurings such as takeovers or mergers. Such legislation may signifi-
cantly depress the prices of outstanding high yield bonds. A description of
various bond ratings appears in Appendix A.
CONVERTIBLE SECURITIES
Common stock occupies the most junior position in a company's capital struc-
ture. Convertible securities entitle the holder to exchange the securities for
a specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to convert. The provisions of any convert-
ible security determine its ranking in a company's capital structure. In the
case of subordinated convertible debentures, the holder's claims on assets and
earnings are subordinated to the claims of other creditors and are senior to
the claims of preferred and common shareholders. In the case of preferred
stock and convertible preferred stock, the holder's claim on assets and earn-
ings are subordinated to the claims of all creditors but are senior to the
claims of common shareholders.
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WHEN-ISSUED SECURITIES
The Series may purchase securities offered on a "when-issued" or "forward de-
livery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but de-
livery and payment for the when-issued or forward delivery securities take
place at a later date. During the period between purchase and settlement, no
payment is made by the purchaser to the issuer and no interest on the when-is-
sued or forward delivery security accrues to the purchaser. While when-issued
or forward delivery securities may be sold prior to the settlement date, it is
intended that a Series will purchase such securities with the purpose of actu-
ally acquiring them unless a sale appears desirable for investment reasons. At
the time a Series makes the commitment to purchase a security on a when-issued
or forward delivery basis, it will record the transaction and reflect the
value of the security in determining its net asset value. The market value of
when-issued or forward delivery securities may be more or less than the pur-
chase price. The Advisor does not believe that the Series' net asset value or
income will be adversely affected by its purchase of securities on a when-is-
sued or forward delivery basis. The Series will establish a segregated account
in which it will maintain cash, U.S. government securities and high-grade debt
obligations equal in value to commitments for when-issued or forward delivery
securities.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
The Series may also invest in mortgage-backed securities, which are interests
in pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmen-
tal, government-related and private organizations as further described below.
The Series may also invest in debt securities which are secured with collat-
eral consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations") and in other types of mortgage-related securities.
The timely payment of principal and interest on mortgage-backed securities is-
sued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. government. These
guarantees, however, do not apply to the market value of Series shares. Also,
securities issued by GNMA and other mortgage-backed securities may be pur-
chased at a premium over the maturity value of the underlying mortgages. This
premium is not guaranteed and would be lost if prepayment occurs. Mortgage-
backed securities issued by U.S. government agencies or instrumentalities
other than GNMA are not "full faith and credit" obligations. Certain obliga-
tions, such as those issued by the Federal Home Loan Bank are supported by the
issuer's right to borrow from the U.S. Treasury, while others such as those
issued by the Federal National Mortgage Association, are supported only by the
credit of the issuer. Unscheduled or early payments on the underlying mortgage
may shorten the securities' effective maturities and reduce returns. The Se-
ries may agree to purchase or sell these securities with payment and delivery
taking place at a future date. A decline in interest rates may lead to a
faster rate of repayment of the underlying mortgages and expose the Series to
a lower rate of return upon reinvestment. To the extent that such mortgage-
backed securities are held by the Series, the prepayment right of mortgagors
may limit the increase in net asset value of the Series because the value of
the mortgage-backed securities held by the Series may not appreciate as rap-
idly as the price of noncallable debt securities.
A decline in interest rates may lead to a faster rate of repayment of the un-
derlying mortgages and expose the Series to a lower rate of return upon rein-
vestment. To the extent that such mortgage-backed securities are held by the
Series, the prepayment right will tend to limit to some degree the increase in
net asset value of the Series because the value of the mortgage-backed securi-
ties held by the Series may not appreciate as rapidly as the price of noncall-
able debt securities.
For federal tax purposes other than diversification under Subchapter M, mort-
gage-backed securities are not considered to be separate securities but rather
"grantor trusts" conveying to the holder an individual interest in each of the
mortgages constituting the pool.
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Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates. In-
stead, these securities provide a monthly payment which consists of both in-
terest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities. Ad-
ditional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-backed securities (such as securi-
ties issued by the Government National Mortgage Association) are described as
"modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain
fees, at the scheduled payments dates regardless of whether or not the mortga-
gor actually makes the payment.
Any discount enjoyed on the purchases of a "pass-through" type mortgage-backed
security will likely constitute market discount. As the Series receive princi-
pal payments, it will be required to treat as ordinary income an amount equal
to the lesser of the amount of the payment or the "accrued market discount."
Market discount is to be accrued either under a constant rate method or a pro-
portional method. Pass-through type mortgage-backed securities purchased at a
premium to face will be subject to a similar rule requiring recognition of an
offset to ordinary interest income, an amount of premium attributable to the
receipt of principal. The amount of premium recovered is to be determined us-
ing a method similar to that in place for market discount. A Series may elect
to accrue market discount or amortize premium notwithstanding the amount of
principal received but such election will apply to all bonds held and thereaf-
ter acquired unless permission is granted by the Commissioner of the Internal
Revenue Service to change such method.
The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned
United States government corporation within the Department of Housing and Ur-
ban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages. These guarantees, however, do not ap-
ply to the market value or yield of mortgage-backed securities or to the value
of Series shares. Also, GNMA securities often are purchased at a premium over
the maturity value of the underlying mortgages. This premium is not guaranteed
and should be viewed as an economic offset to interest to be earned. If pre-
payments occur, less interest will be earned and the value of the premium paid
will be lost.
Government-related guarantors (i.e., not backed by the full faith and credit
of the U.S. government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation of the Secretary of Housing and Urban Develop-
ment. FNMA purchases conventional (i.e., not insured or guaranteed by any gov-
ernment agency) mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of prin-
cipal and interest by FNMA but are not backed by the full faith and credit of
the U.S. government.
FHLMC is a corporate instrumentality of the U.S. government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of princi-
pal, but PCs are not backed by the full faith and credit of the U.S. govern-
ment.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in addi-
tion, be the originators and/or servicers of the underlying mortgage loans as
well as the guarantors of the
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mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-re-
lated pools because there are no direct or indirect government or agency guar-
antees of payments. However, timely payment of interest and principal of these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance guarantees are issued by governmental entities, private insurers and
the mortgage poolers. Such insurance and guarantees and the creditworthiness
of the issuers thereof will be considered in determining whether a mortgage-
related security meets a Series' investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee or guarantees, even if through an
examination of the loan experience and practices of the originators/servicers
and poolers, the Advisor determines that the securities meet the Series' qual-
ity standards. Although the market for such securities is becoming increas-
ingly liquid, securities issued by certain private organizations may not be
readily marketable.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS ("REMICS")
A CMO is a debt security on which interest and prepaid principal are paid, in
most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA and their income streams. Pri-
vately-issued CMOs tend to be more sensitive to interest rates than Govern-
ment-issued CMOs.
CMOs are structured into multiple classes, each bearing a different stated ma-
turity. Actual maturity and average life will depend upon the prepayment expe-
rience of the collateral. CMOs provide for a modified form of call protection
through a de facto breakdown of the underlying pool of mortgages according to
how quickly the loans are repaid. Monthly payments of principal received from
the pool of underlying mortgages, including prepayments, is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been re-
tired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series (e.g., A,
B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal
on the Bonds in the order A, B, C, Z. The Series A, B and C Bonds all bear
current interest. Interest on the Series Z Bond is accrued and added to prin-
cipal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series, A, B and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan port-
folios. REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are similar
to CMOs in that they issue multiple classes of securities.
Most if not all newly-issued debt securities backed by pools of real estate
mortgages will be issued as regular and residual interests in REMICs because,
as of January 1, 1992, new CMOs which do not make REMIC elections will be
treated as "taxable mortgage pools," a wholly undesirable tax result. Under
certain transition rules, CMOs in existence on December 31, 1991 are unaf-
fected by this change. The Series will purchase only regular interests in
REMICs. REMIC regular interests are treated as debt of the REMIC and
income/discount thereon must be accounted for on the "catch-up method," using
a reasonable prepayment assumption under the original issue discount rules of
the Code.
OTHER MORTGAGE-BACKED SECURITIES
The Advisor expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in
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addition to those described above. The mortgages underlying these securities
may include alternative mortgage instruments that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of mort-
gage-related securities are developed and offered to investors, the Advisor
will, consistent with a Series' investment objective, policies and quality
standards, consider making investments in such new types of mortgage-related
securities. The Advisor will not purchase any such other mortgage-backed secu-
rities until the Series' Prospectus and this Statement of Additional Informa-
tion have been supplemented.
ASSET-BACKED SECURITIES
The Series may invest a portion of its assets in debt obligations known as
"asset-backed securities." The credit quality of most asset-backed securities
depends primarily on the credit quality of the assets underlying such securi-
ties, how well the entity issuing the security is insulated from the credit
risk of the originator or any other affiliated entities, and the amount and
quality of any credit support provided to the securities. The rate of princi-
pal payment on asset-backed securities generally depends on the rate of prin-
cipal payments received on the underlying assets which in turn may be affected
by a variety of economic and other factors. As a result, the yield on any as-
set-backed security is difficult to predict with precision and actual yield to
maturity may be more or less than the anticipated yield to maturity. Asset-
backed securities may be classified as "pass-through certificates" or "collat-
eralized obligations."
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payment, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection; and (ii) protection against losses resulting from ulti-
mate default by an obligor on the underlying assets. Liquidity protection re-
fers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments due on the underlying
pool is timely. Protection against losses resulting from ultimate default en-
hances the likelihood of payments of the obligations on at least some of the
assets in the pool. Such protection may be provided through guarantees, insur-
ance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through
a combination of such approaches. The Series will not pay any additional fees
for such credit support, although the existence of credit support may increase
the price of a security.
Due to the shorter maturity of the collateral backing such securities, there
is less of a risk of substantial prepayment than with mortgage-backed securi-
ties. Such asset-backed securities do, however, involve certain risks not as-
sociated with mortgage-backed securities, including the risk that security
interests cannot be adequately, or in many cases, ever, established. In addi-
tion, with respect to credit card receivables, a number of state and federal
consumer credit laws give debtors the right to set off certain amounts owed on
the credit cards, thereby reducing the outstanding balance. In the case of au-
tomobile receivables, there is a risk that the holders may not have either a
proper or first security interest in all of the obligations backing such re-
ceivables due to the large number of vehicles involved in a typical issuance
and technical requirements under state laws. Therefore, recoveries on
repossessed collateral may not always be available to support payments on the
securities.
Examples of credit support arising out of the structure of the transaction in-
clude "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"reserve funds" (where cash or investments, sometimes funded from a portion of
the payments on the underlying assets, are held in reserve against future
losses) and "over collateralization" (where the scheduled payments on, or the
principal amount of, the underlying assets exceeds that required to make pay-
ments of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical infor-
mation respecting the level of credit information respecting the level of
credit risk associated with the underlying assets. Delinquencies or losses in
excess of those anticipated could adversely affect the return on an investment
in such issue.
S-16
<PAGE>
ZERO COUPON SECURITIES
The Series may invest in zero coupon securities which pay no cash income and
are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the purchase price and their value at maturity.
The discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of finan-
cial difficulties of the issuer, decreases as the final maturity or cash pay-
ment date of the security approaches. The market prices of zero coupon and
delayed interest securities are generally more volatile and more likely to re-
spond to changes in interest rates than the market prices of securities having
similar maturities and credit quality that pay interest periodically. Current
federal income tax law requires that a holder of a zero coupon security report
as income each year the portion of the original issue discount on such secu-
rity (other than tax-exempt original issue discount from a zero coupon securi-
ty) that accrues that year, even though the holder receives no cash payments
of interest during the year. The Series will be required to distribute such
income to shareholders to comply with Subchapter M of the Code and avoid ex-
cise taxes, even though the Series have not received any cash from the issue.
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon convertible securi-
ties offer the opportunity for capital appreciation as increases (or de-
creases) in market value of such securities closely follow the movements in
the market value of the underlying common stock. Zero coupon convertible secu-
rities generally are expected to be less volatile than the underlying common
stocks as they usually are issued with short maturities (15 years or less) and
are issued with options and/or redemption features exercisable by the holder
of the obligation entitling the holder to redeem the obligation and receive a
defined cash payment.
Zero coupon securities include securities issued directly by the U.S. Trea-
sury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been sepa-
rated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying princi-
pal (the "corpus") of the U.S. Treasury security. A number of securities firms
and banks have stripped the interest coupons and receipts and then resold them
in custodial receipt programs with a number of different names, including
"Treasury Income Growth Receipts" ("TIGRS") and Certificate of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof. Coun-
sel to the underwriters of these certificates or other evidences of ownership
of the U.S. Treasury securities has stated that for federal tax and securities
purposes, in its opinion purchasers of such certificates, such as the Series,
most likely will be deemed the beneficial holder of the underlying U.S. gov-
ernment securities. The Series understand that the staff of the Securities and
Exchange Commission no longer considers such privately stripped obligations to
be U.S. government securities, as defined in the Investment Company Act of
1940, as amended (the "Act"); therefore, the Series intends to adhere to this
staff position and will not treat such privately stripped obligations to be
U.S. government securities for the purpose of determining if the Series is
"diversified," or for any other purpose, under the Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon secu-
rities by accounting separately for the beneficial ownership of particular in-
terest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as es-
tablished by the U.S. Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Series will be able to have its beneficial ownership of zero cou-
pon securities recorded directly in the book-entry record-keeping system in
lieu of having to hold certificates or other evidences of ownership of the un-
derlying U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount be-
cause the buyer receives only the right to receive a future fixed
S-17
<PAGE>
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be
sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchas-
ers of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the U.S. Treasury
sells itself. These stripped securities are also treated as zero coupon secu-
rities with original issue discount for tax purposes.
INVESTMENTS RELATING TO GLOBAL FUND
EMERGING MARKETS INVESTMENTS (Global Fund only).
The Series may invest up to 5% of its assets in equity and debt securities of
emerging market issuers, or securities with respect to which the return is de-
rived from the equity or debt securities of issuers in emerging markets. The
Series may invest in equity securities of issuers in emerging markets, or se-
curities with respect to which the return is derived from the equity securi-
ties of issuers in emerging markets. The Series also may invest in fixed
income securities of emerging market issuers, including government and govern-
mental-related entities (including participation in loans between governments
and financial institutions), and of entities organized to restructure out-
standing debt of such issuers. The Series also may invest in debt securities
of developing countries' corporate issuers.
The Series' investments in emerging market government and government-related
securities may consist of (i) debt securities or obligations issued or guaran-
teed by governments, governmental agencies or instrumentalities and political
subdivisions located in emerging countries (including participation in loans
between governments and financial institutions), (ii) debt securities or obli-
gations issued by government owned, controlled or sponsored entities located
in emerging countries and (iii) interests in issuers organized and operated
for the purpose of restructuring the investment characteristics of instruments
issued by any of the entities described above.
The Series' investments in the fixed income securities of emerging market is-
suers may include investments in Brady Bonds, Structured Securities, Loan Par-
ticipation and Assignments, and certain non-publicly traded securities.
Brady Bonds are securities created through the exchange of existing commercial
bank loans to public and private entities in certain emerging markets for new
bonds in connection with debt restructurings under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds may be collateralized or uncollateralized, are is-
sued in various currencies (but primarily the U.S. dollar), and are actively
traded in over-the-counter secondary markets. Dollar-denominated, collateral-
ized Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are
generally collateralized in full as to principal by U.S. Treasury zero coupon
bonds having the same maturity as the bonds.
Structured Securities are issued by entities organized and operated solely for
the purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with, or purchase
by, an entity, such as a corporation or trust, of specified instruments (such
as commercial bank loans or Brady Bonds) and the issuance by that entity of
one or more classes of securities ("Structured Securities") backed by, or rep-
resenting interests in, the underlying instruments.
The Series may invest in fixed rate and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign debt obligations
and one or more financial institutions ("Lenders"). The Series' investments in
Loans are expected in most instances to be in the form of participation in
loans ("Participation") and assignments of all or a portion of Loans ("Assign-
ments") from third parties. The Series will have the right to receive payments
of principal, interest and any fees to which they are entitled only from the
Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In the event of the insolvency of the Lender sell-
ing a Participation, the Series may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrow-
er.
S-18
<PAGE>
When a Series purchases Assignments from Lenders, it will acquire direct
rights against the borrower on the Loan. However, because Assignments are ar-
ranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Series as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
The Series also may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities
and limited partnerships. Investing in such unlisted emerging country equity
securities, including investments in new and early stage companies, may in-
volve a high degree of business and financial risk that can result in substan-
tial losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities.
The Series' investments in emerging market securities will at all times be
limited by the Series' prohibition on investing more than 15% of its net as-
sets in illiquid securities.
RISKS OF INVESTING IN EMERGING MARKETS
Compared to the United States and other developed countries, emerging coun-
tries may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade only a small number of securi-
ties and employ settlement procedures different from those used in the United
States. Prices on these exchanges tend to be volatile and, in the past, secu-
rities in these countries have offered greater potential for gain (as well as
loss) than securities of companies located in developed countries. Further,
investments by foreign investors are subject to a variety of restrictions in
many emerging countries. Countries such as those in which the Series may in-
vest have historically experienced and may continue to experience, high rates
of inflation, high interest rates, exchange rate fluctuations or currency de-
preciation, large amounts of external debt, balance of payments and trade dif-
ficulties and extreme poverty and unemployment. Additional factors which may
influence the ability or willingness to service debt include, but are not lim-
ited to, a country's cash flow situation, the availability of sufficient for-
eign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international agencies
and the political constraints to which a government debtor may be subject.
The ability of a foreign government or government-related issuer to make
timely and ultimate payments on its external debt obligations will be strongly
influenced by the issuer's balance of payments, including export performance,
its access to international credits and investments, fluctuations in interest
rates and the extent of its foreign reserves. A country whose exports are con-
centrated in a few commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these
commodities or imports. To the extent that a country receives payment for its
exports in currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign government or
government-related issuer cannot generate sufficient earnings from foreign
trade to service its external debt, it may need to depend on continuing loans
and aid from foreign governments, commercial banks, and multilateral organiza-
tions, and inflows of foreign investment. The commitment on the part of these
foreign governments, multilateral organizations and others to make such dis-
bursements may be conditioned on the government's implementation of economic
reforms and/or economic performance and the timely service of its obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may curtail the willingness of such
third parties to lend funds, which may further impair the issuer's ability or
willingness to service its debts in a timely manner. The cost of servicing ex-
ternal debt will also generally be adversely affected by rising international
interest rates, because many external debt obligations bear interest at rates
which are adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the relevant govern-
ment's international currency reserves and its access to foreign exchange.
Currency devaluations may affect the ability of a governmental issuer to ob-
tain sufficient foreign exchange to service its external debt.
S-19
<PAGE>
As a result of the foregoing, a governmental issuer may default on its obliga-
tions. If such a default occurs, the Series may have limited effective legal
recourse against the issuer and/or guarantor. Remedies must, in some cases, be
pursued in the courts of the defaulting country itself, and the ability of the
holder of foreign government and government-related debt securities to obtain
recourse may be subject to the political climate in the relevant country. In
addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign government and gov-
ernment-related debt obligations in the event of default under their commer-
cial bank loan agreements.
The issuers of the government and government-related debt securities in which
the Series expects to invest have in the past experienced substantial diffi-
culties in servicing their external debt obligations, which has led to de-
faults on certain obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things, reducing and re-
scheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds, and obtaining new credit to finance interest payments. Holders of
certain foreign government and government-related debt securities may be re-
quested to participate in the restructuring of such obligations and to extend
further loans to their issuers. There can be no assurance that the Brady Bonds
and other foreign government and government-related debt securities in which
the Series may invest will not be subject to similar defaults or restructuring
arrangements which may adversely affect the value of such investments. Fur-
thermore, certain participants in the secondary market for such debt may be
directly involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market partici-
pants.
Payments to holders of the high yield, high risk, foreign debt securities in
which the Series may invest may be subject to foreign withholding and other
taxes. Although the holders of foreign government and government-related debt
securities may be entitled to tax gross-up payments from the issuers of such
instruments, there is no assurance that such payments will be made.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may
not be changed as to a Series, without the approval of a majority of the out-
standing voting securities (as defined in the Act) of the Series. Unless oth-
erwise indicated, all percentage limitations listed below apply to the Series
only at the time of the transaction. Accordingly, if a percentage restriction
is adhered to at the time of investment, a later increase or decrease in the
percentage which results from a relative change in values or from a change in
a Series' total assets will not be considered a violation.
Except as set forth under "Investment Objectives" and "Other Investment Prac-
tices and Risk Factors" in each Prospectus, or "Investment Strategies" in the
Trust's Statement of Additional Information, each Series may not:
(i) As to 75% of the total assets of each Series, purchase the securities
of any one issuer, other than securities issued by the U.S. government
or its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of the total assets of a Series
would be invested in securities of such issuer (this does not apply to
the Global Bond Fund, Short-Term Global Income Fund or Non-U.S. Bond
Fund);
(ii) Invest in real estate or interests in real estate (This will not
prevent a Series from investing in publicly-held real estate
investment trusts or marketable securities of companies which may
represent indirect interests in real estate.), interests in oil, gas
and/or mineral exploration or development programs or leases;
(iii) Purchase or sell commodities or commodity contracts, but may enter
into futures contracts and options thereon in accordance with its
Prospectus. Additionally, each Series (except the U.S. Cash
Management Fund) may engage in forward foreign currency contracts
for hedging and non-hedging purposes;
(iv) Make investments in securities for the purpose of exercising control
over or management of the issuer;
(v) Purchase the securities of any one issuer if, immediately after such
purchase, a Series would own more than 10% of the outstanding voting
securities of such issuer;
S-20
<PAGE>
(vi) Sell securities short or purchase securities on margin, except such
short-term credits as are necessary for the clearance of transactions.
For this purpose, the deposit or payment by a Series for initial or
maintenance margin in connection with futures contracts is not
considered to be the purchase or sale of a security on margin;
(vii) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly distributed
or privately placed debt securities, (b) the lending of portfolio
securities, or (c) entry into repurchase agreements with banks or
broker-dealers;
(viii) Borrow money in excess of 33 1/3% (10% with respect to the U.S. Cash
Management Fund) of the value of its assets except as a temporary
measure for extraordinary or emergency purposes to facilitate
redemptions or issue senior securities. All borrowings will be done
from a bank and to the extent that such borrowing exceeds 5% of the
value of a Series' assets, asset coverage of at least 300% is
required. A Series will not purchase securities when borrowings
exceed 5% of that Series' total assets;
(ix) Purchase the securities of issuers conducting their principal business
activities in the same industry other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
if immediately after such purchase the value of a Series' investments
in such industry would exceed 25% of the value of the total assets of
the Series across several countries;
(x) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Series may be deemed to be an
"underwriter" as that term is defined in the Securities Act of 1933;
(xi) Invest in securities of any open-end investment company, except that:
(i) a Series may purchase securities of money market mutual funds, (ii)
the Global Fund and Global Equity Fund may each invest in the securities
of closed-end investment companies at customary brokerage commission
rates, in accordance with the limitations imposed by the Act and the
rules thereunder, (iii) a Series may invest in the securities of other
open-end investment companies in accordance with any exemptive order
obtained from the Securities and Exchange Commission which permits
investment by a Series in other Series or other investment companies or
series thereof advised by the Advisor. In addition, each Series may
acquire securities of other investment companies if the securities are
acquired pursuant to a merger, consolidation, acquisition, plan of
reorganization or a Securities and Exchange Commission approved offer of
exchange;
(xii) Invest in puts, calls, straddles or combinations thereof except to the
extent disclosed in a Series' Prospectus; and
(xiii) Invest more than 5% of its total assets in securities of companies
less than three years old. Such three year periods shall include the
operation of any predecessor company or companies.
Although not considered fundamental, in order to comply with certain state
"blue sky" restrictions, each Series will not invest: (1) more than 5% of
their respective net assets in warrants, including within that amount no more
than 2% in warrants which are not listed on the New York or American Stock Ex-
changes, except warrants acquired as a result of its holdings of common
stocks; and (2) purchase or retain the securities of any issuer if, to the
knowledge of the Series, any officer or Trustee of the Series or of its in-
vestment manager owns beneficially more than 1/2 of 1% of the outstanding se-
curities of such issuer, and such officers and Trustees of the Series or of
its investment manager who own more than 1/2 of 1%, own in the aggregate, more
than 5% of the outstanding securities of such issuer.
S-21
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS AGE POSITION DURING PAST 5 YEARS
---------------- --- ------------ --------------------------
<C> <C> <C> <S>
Walter E. Auch 74 Trustee Retired; formerly Chairman
6001 N. 62nd Place and CEO of Chicago Board
Paradise Valley, AZ 85253 of Options Exchange (1979-
1986);
Trustee of the Trust since
May, 1994; Trustee,
Brinson Relationship Funds
since December, 1994;
Director, Thomsen Asset
Management Corp. since
1987; Fort Dearborn Income
Securities, Inc. since
1987, Geotek Industries,
Inc. since 1989, Smith
Barney VIP Fund since
1991, SB Advisers since
1992, SB Trak since 1992,
Banyan Realty Trust since
1987, Banyan Land Fund II
since 1988, Banyan
Mortgage Investment Fund
since 1989 and Express
America Holdings Corp.
since 1992.
Frank K. Reilly 60 Chairman and Professor, University of
College of Business Administration Trustee Notre Dame since 1981;
University of Notre Dame Trustee of the Trust since
208 Hurley Building December 1993; Trustee,
Notre Dame, IN 46556 Brinson Relationship Funds
since September, 1994;
Director of The Brinson
Funds, Inc. 1992-1993;
Trustee, Brinson Trust
Company, 1992-July, 1993;
Director, Fort Dearborn
Income Securities, Inc.
since 1993; Director,
First Interstate Bank of
Wisconsin from January,
1989 through March, 1990;
Director, Discover
Financing Corp., from 1990
to 1991; and Director,
Greenwood Trust Company
since 1993.
Edward M. Roob 61 Trustee Retired; prior thereto,
841 Woodbine Lane Senior Vice President,
Northbrook, IL 60002 Daiwa Securities America
Inc. (1986-1993);
Trustee of the Trust since
January 1995; Trustee,
Brinson Relationship Funds
since January 1995;
Director, Fort Dearborn
Income Securities, Inc.
since 1993; Director,
Brinson Trust Company
since 1993; Committee
Member, Chicago Stock
Exchange, since 1993;
Member of Board of
Governors, Midwest Stock
Exchange (1987-1991).
</TABLE>
OTHER OFFICERS
<TABLE>
<CAPTION>
POSITION WITH OFFICER PRINCIPAL OCCUPATION(S)
NAME AGE THE TRUST SINCE DURING PAST 5 YEARS
---- --- ----------------------- ------- -----------------------
<C> <C> <C> <C> <S>
E. Thomas McFarlan 51 President and Treasurer 1993 Managing Partner,
Brinson Partners, Inc.
since 1991; President
and Director of The
Brinson Funds, Inc.
1992-1993; Trustee,
Brinson Trust Company
since 1991; prior
thereto, Executive Vice
President of Washington
Mutual Savings Bank.
Bruce G. Leto 33 Secretary 1995 Partner, Stradley,
Ronon, Stevens & Young
since 1994; prior
thereto, Senior
Associate.
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH OFFICER PRINCIPAL OCCUPATION(S)
NAME AGE THE TRUST SINCE DURING PAST 5 YEARS
---- --- ------------------- ------- --------------------------
<C> <C> <C> <C> <S>
Thomas J. Digenan 31 Assistant Treasurer 1993 Partner, Brinson Partners,
Inc. since 1993; Assistant
Secretary, The Brinson
Funds, Inc. 1993-1994;
prior thereto, Senior
Manager, KPMG Peat
Marwick.
Debra L. Nichols 29 Assistant Secretary 1993 Partner, Brinson Partners,
Inc. since 1995;
Associate, Brinson
Partners, Inc. since 1991;
Assistant Secretary, The
Brinson Funds, Inc. 1992-
1993; prior thereto,
private investor.
Catherine E. Macrae 38 Assistant Secretary 1995 Associate, Brinson
Partners, Inc. since 1992;
prior thereto, Economic
Analyst, Chicago
Mercantile Exchange.
Carolyn B. Tretter 29 Assistant Secretary 1995 Associate, Brinson
Partners, Inc, since 1995;
prior thereto, Financial
Analyst, Van Kampen
American Capital
Investment Advisory Corp.
1992-1995; Senior
Accountant, KPMG Peat
Marwick 1989-1992.
</TABLE>
COMPENSATION TABLE
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
AGGREGATE PENSION OR TOTAL
COMPENSATION RETIREMENT COMPENSATION
FROM TRUST BENEFITS ESTIMATED FROM TRUST
FOR FISCAL ACCRUED AS ANNUAL AND FUND
YEAR ENDED PART OF BENEFITS COMPLEX PAID
JUNE 30, FUND UPON TO
NAME AND POSITION HELD 1995 EXPENSES RETIREMENT TRUSTEES/1/
---------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Walter E. Auch, Trustee $12,600 N/A N/A $18,750
6001 N. 62nd Place
Paradise Valley, AZ 85253
Frank K. Reilly, Trustee $10,800 N/A N/A $18,000
College of Business Administration
University of Notre Dame
208 Hurley Building
Notre Dame, IN 46556
Edward M. Roob, Trustee $ 6,600 N/A N/A $18,750
841 Woodbine Lane
Northbrook, IL 60002
</TABLE>
- ----------
/1/This amount represents the aggregate amount of compensation paid to the
Trustees for (a) service on the Board of Trustees for the Trust's most re-
cently completed fiscal year; and (b) service on the Board of Directors of
two other investment companies managed by Brinson Partners, Inc. for the
calendar year ending December 31, 1995.
No officer or Trustee of the Trust who is also an officer or employee of
Brinson Partners receives any compensation from the Trust for services to the
Trust. The Trust pays each Trustee who is not affiliated with Brinson Partners
a fee of $6,000 per year, plus $300 per Series per meeting and reimburses each
Trustee and officer for out-of-pocket expenses in connection with travel and
attendance at Board meetings.
The Trust has an Audit Committee which has the responsibility, among other
things, to (i) recommend the selection of the Trust's independent auditors,
(ii) review and approve the scope of the independent auditors' audit
S-23
<PAGE>
activity, (iii) review the financial statements which are the subject of the
independent auditors' certification, and (iv) review with such independent au-
ditors the adequacy of the Series' basic accounting system and the effective-
ness of the Series' internal accounting controls. The Audit Committee met
twice during the fiscal year ended June 30, 1995. There is no separate Nomi-
nating or Investment Committee. Items pertaining to these Committees are sub-
mitted to the full Board of Trustees.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 17, 1996, the officers and Trustees, individually and as a
group, owned beneficially less than 1% of the Brinson Fund class, SwissKey
Fund class, Series and Trust, respectively.
As of January 17, 1996, the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the Brinson Fund class or
SwissKey Fund class, as applicable:
GLOBAL FUND
<TABLE>
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
First Alabama Bank 4,547,562.874 12.43%
Mobile, AL
Polk Bros. Foundation 3,253,509.113 8.89%
Evanston, IL
Medical College of Virginia Foundation 3,206,795.392 8.76%
Richmond, VA
Nations Bank of Georgia NA Trustee 2,850,134.429 7.79%
Dallas, TX
Northern Trust Company 2,120,722.018 5.79%
Chicago, IL
SWISSKEY FUND CLASS
Swiss Bank Corporation* 255,344.056 85.68%
New York, NY
Ann Bolan & Ernest Bolan JT TEN 17,867.739 5.99%
New York, NY
GLOBAL EQUITY FUND
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
United States Japan Foundation* 2,122,270.478 97.42%
New York, NY
SWISSKEY FUND CLASS
Swiss Bank Corporation* 1,224,393.243 49.85%
New York, NY
</TABLE>
S-24
<PAGE>
GLOBAL BOND FUND
<TABLE>
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
Baptist Health Systems, Inc.* 1,391,388.328 38.57%
Birmingham, AL
Munson Williams Proctor Institute* 1,150,385.194 31.89%
Utica, NY
Abell Foundation, Inc. 467,014.628 12.94%
Baltimore, MD
Ripon College 371,505.321 10.29%
Ripon, WI
SWISSKEY FUND CLASS
Swiss Bank Corporation* 146,398.910 71.75%
New York, NY
Semper Trust Co. C/F IRA of Jack Ferman 15,672.395 7.68%
Van Nuys, CA
Semper Trust Co. C/F IRA of Abraham Freeman 14,149.913 6.93%
Van Nuys, CA
U.S. BALANCED FUND
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
State Street Bank & Trust Co.* 14,049,196.811 72.02%
Boston, MA
MAC & Co. 2,323,263.264 11.91%
Pittsburgh, PA
Mitra & Co 1,369,712.175 7.02%
Milwaukee, WI
Harris Trust and Savings Bank 1,007,004.065 5.16%
Chicago, IL
SWISSKEY FUND CLASS
Swiss Bank Corporation* 21,887.803 92.52%
New York, NY
Martha S. Weber and Heinrich G. Weber 1,767.505 7.47%
Palos Verdes Estates, CA
</TABLE>
S-25
<PAGE>
U.S. EQUITY FUND
<TABLE>
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
Swiss Bank Corporation* 3,216,007.675 45.19%
New York, NY
Wachovia Bank of North Carolina* 1,139,850.775 16.01%
Winston Salem, NC
American Institute of Physics 733,225.650 10.30%
College Park, MD
Central New York Community Foundation, Inc. 381,671.332 5.36%
Syracuse, NY
Augustana College 357,463.738 5.02%
Rock Island, IL
SWISSKEY FUND CLASS
Swiss Bank Corporation* 8,624.763 81.85%
New York, NY
Elias H., Charles E. & Margaerite E. Gellad 1,911.428 18.13%
Falls Church, VA
U.S. BOND FUND
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
Swiss Bank Corporation* 876,545.198 99.41%
New York, New York
SWISSKEY FUND CLASS
Swiss Bank Corporation 41,130.512 95.78%
New York, NY
NON-U.S. EQUITY FUND
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
BRINSON FUND CLASS
McConnell Trust Foundation 1,383,089.770 8.44%
Redding, CA
Edna McConnell Clark Foundation 1,333,018.144 8.13%
New York, NY
MAC & Co. 1,227,841.069 7.49%
Pittsburgh, PA
Society National Bank 1,157,920.887 7.07%
Cleveland, OH
Fifth Third Bank 1,110,517.679 6.78%
Cincinnati, OH
Northern Trust 1,102,517.484 6.73%
Chicago, IL
Bentley College 1,071,458.233 6.54%
Waltham, MA
MAC & Company 1,001,261.090 6.11%
Pittsburgh, PA
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
SWISSKEY FUND CLASS
Swiss Bank Corporation* 28,981.058 74.96%
New York, NY
Salim F. Abufadil & Joyce Abufadil 3,674.645 9.50%
Rolling Hill Estates, CA
Salim F. Abufadil 2,576.066 6.66%
Cust. Alexander Abufadil
Rolling Hill Estates, CA
</TABLE>
- ----------
* Person deemed to control the class within the meaning of the Act. Note
that such persons possess the ability to control the outcome of matters
submitted for the vote of shareholders of that class.
As of January 17, 1996, the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the Trust:
<TABLE>
<CAPTION>
NAME & ADDRESS OF BENEFICIAL OWNERS NUMBER OF SHARES PERCENTAGE
- ----------------------------------- ---------------- ----------
<S> <C> <C>
State Street Bank & Trust Co. Boston, MA 14,049,196.811 15.73%
First Alabama Bank
Mobile, AL 4,547,562.874 5.09%
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Brinson Partners, a Delaware corporation, is an investment management firm
managing, as of December 31, 1995, approximately $53 billion, primarily for
institutional pension and profit sharing funds. Brinson Partners was organized
in 1989 when it acquired the institutional asset management business of The
First National Bank of Chicago and First Chicago Investment Advisors, N.A.
Brinson Partners and its predecessor entities have managed domestic and inter-
national investment assets since 1974 and global investment assets since 1982.
Brinson Partners has offices in London and Tokyo in addition to its principal
office at 209 South LaSalle Street, Chicago, IL 60604. Brinson Partners is an
indirect wholly-owned subsidiary of Swiss Bank Corporation ("Swiss Bank").
Brinson Partners also serves as the investment advisor to six other investment
companies, Brinson Relationship Funds, which includes six investment portfo-
lios (series), Enterprise Accumulation Trust, Enterprise International Growth
Portfolio, Fort Dearborn Income Securities, Inc., Short-Term World Income
Portfolio and Pace Large Company Value Equity Investments. Swiss Bank, with
headquarters in Basel, Switzerland, is an internationally diversified organi-
zation with operations in many aspects of the financial services industry.
Brinson Partners receives from each Series a monthly fee at an annual rate (as
described in each Series' Prospectus and below) multiplied by the average
daily net assets of that Series for providing investment advisory services and
is responsible for paying its expenses. Under the Agreement, each Series pays
the following expenses: (1) the fees and expenses of the Trust's disinterested
Trustees; (2) the salaries and expenses of any of the Trust's officers or em-
ployees who are not affiliated with Brinson Partners; (3) interest expenses;
(4) taxes and governmental fees; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses
of registering and qualifying shares for sale with the Securities and Exchange
Commission and with various state securities commissions; (7) accounting and
legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Cus-
todian, Administrative and Transfer Agent and any related services; (10) ex-
penses of obtaining quotations of the Series' portfolio securities and of
pricing the Series' shares; (11) expenses of maintaining the Trust's legal ex-
istence and of shareholders' meetings; (12) expenses of preparation and dis-
tribution to existing shareholders of reports, proxies and prospectuses; and
(13) fees and expenses of membership in industry organizations.
S-27
<PAGE>
The Series pay the Advisor a monthly fee of the respective Series' average
daily net assets as follows: annual rates of 0.80% for the Global Fund, Global
Equity Fund and Non-U.S. Equity Fund, 0.75% for the Global Bond Fund and Non-
U.S. Bond Fund, 0.70% for the U.S. Balanced Fund and the U.S. Equity Fund,
0.60% for the Short-Term Global Income Fund, 0.50% for the U.S. Bond Fund and
0.30% of the U.S. Cash Management Fund. The Advisor has agreed irrevocably to
waive its fees and reimburse expenses to the extent that total operating ex-
penses exceed the following rates of the respective Series' average daily net
assets as follows, without regard to Rule 12b-1 Plan expenses for the SwissKey
Fund classes of each Series: 1.10% for the Global Fund, 1.00% for the Global
Equity Fund and the Non-U.S. Equity Fund, 0.90% for the Global Bond Fund and
Non-U.S. Bond Fund, 0.80% for the U.S. Balanced Fund and the U.S. Equity Fund,
0.75% for the Short-Term Global Income Fund, 0.60% for the U.S. Bond Fund, and
0.40% for the U.S. Cash Management Fund.
Advisory Fees paid to Brinson Partners were as follows:
With respect to the Global Fund, for the period August 31, 1992 (commence-
ment of operations) through June 30, 1993, and the fiscal years ended June
30, 1994 and June 30, 1995, advisory fees of $759,098, $1,951,309 and
$2,681,392, respectively, were accrued by the Series and the Series paid to
the Advisor $472,812, $1,860,397 and $2,681,392, respectively; with respect
to the Global Equity Fund for the period January 28, 1994 (commencement of
operations) through June 30, 1994 and the fiscal year ended June 30, 1995,
advisory fees of $68,151 and $163,038, respectively, were accrued by the
Series and the Series paid to the Advisor $0.00 for both 1994 and 1995;
with respect to the Global Bond Fund, for the period July 30, 1993 (com-
mencement of operations) through June 30, 1994 and the fiscal year ended
June 30, 1995, advisory fees of $189,136 and $329,156, respectively, were
accrued by the Series and the Series paid to the Advisor $0.00 and $95,216,
respectively; with respect to the U.S. Balanced Fund, for the period Decem-
ber 30, 1994 (commencement of operations) through June 30, 1995, advisory
fees of $441,419 were accrued by the Series and the Series paid to the Ad-
visor $275,707; with respect to the U.S. Equity Fund, for the period Febru-
ary 22, 1994 (commencement of operations) through June 30, 1994 and the
fiscal year ended June 30, 1995, advisory fees of $14,819 and $154,258, re-
spectively, were accrued by the Series and the Series paid to the Advisor
$0.00 for both 1994 and 1995; and, with respect to the Non-U.S. Equity
Fund, for the period August 31, 1993 (commencement of operations) through
June 30, 1994 and the fiscal year ended June 30, 1995, advisory fees of
$300,928 and $933,521, respectively, were accrued by the Series and the Se-
ries paid to the Advisor $74,698 and $666,061, respectively.
In addition, with respect to the Global Fund, for the period August 31, 1992
(commencement of operations) through June 30, 1993, and the fiscal years ended
June 30, 1994 and June 30, 1995, the Advisor paid expenses of $141,040,
$30,946 and $0.00, respectively; with respect to the Global Equity Fund for
the period January 28, 1994 (commencement of operations) through June 30, 1994
and the fiscal year ended June 30, 1995, the Advisor paid expenses of $82,834
and $216,658; with respect to the Global Bond Fund, for the period July 30,
1993 (commencement of operations) through June 30, 1994 and the fiscal year
ended June 30, 1995, the Advisor paid expenses of $149,667 and $233,940, re-
spectively; with respect to the U.S. Balanced Fund, for the period December
30, 1994 (commencement of operations) through June 30, 1995, the Advisor paid
expenses of $165,712; with respect to the U.S. Equity Fund, for the period
February 22, 1994 (commencement of operations) through June 30, 1994 and the
fiscal year ended June 30, 1995, the Advisor paid expenses of $63,834 and
$199,708, respectively; and with respect to the Non-U.S. Equity Fund, for the
period August 31, 1993 (commencement of operations) through June 30, 1994 and
the fiscal year ended June 30, 1995, the Advisor paid expenses of $136,835 and
$267,460, respectively.
General expenses of the Trust (such as costs of maintaining corporate exist-
ence, legal fees, insurances, etc.) will be allocated among the Series in pro-
portion to their relative net assets. Expenses which relate exclusively to a
particular Series, such as certain registration fees, brokerage commissions
and other portfolio expenses, will be borne directly by that Series.
S-28
<PAGE>
Brinson Partners has agreed to waive its advisory fee in an amount equal to
the total expenses of a Series for any fiscal year which exceeds the permissi-
ble limits applicable to that Series in any state in which its shares are then
qualified for sale. At the present time, the most restrictive state expense
limitation limits a fund's annual expenses (excluding interest, taxes, distri-
bution expense, brokerage commissions and extraordinary expenses and other ex-
penses subject to approval by state securities administrators) to 2.5% of the
first $30 million of its average daily net assets, 2.0% of the next $70 mil-
lion of its average daily net assets and 1.5% of its average daily net assets
in excess of $100 million.
ADMINISTRATOR
Fund/Plan Services, Inc., 2 W. Elm Street, Conshohocken, PA 19428-0874 (the
"Administrator"), provides certain administrative services to the Trust pursu-
ant to an Administrative Services Agreement.
Under the Administrative Services Agreement, the Administrator: (1) coordi-
nates with the Custodian and Transfer Agent and monitors the services they
provide to the Series; (2) coordinates with and monitors any other third par-
ties furnishing services to the Series; (3) provides the Series with necessary
office space, telephones and other communications facilities and personnel
competent to perform administrative and clerical functions; (4) supervises the
maintenance by third parties of such books and records of the Series as may be
required by applicable federal or state law; (5) prepares or supervises the
preparation by third parties of all federal, state and local tax returns and
reports of the Series required by applicable law; (6) prepares and, after ap-
proval by the Series, files and arranges for the distribution of proxy materi-
als and periodic reports to shareholders of the Series as required by
applicable law; (7) prepares and, after approval by the Series, arranges for
the filing of such registration statements and other documents with the Secu-
rities and Exchange Commission and other federal and state regulatory authori-
ties as may be required by applicable law; (8) reviews and submits to the
officers of the Trust for their approval invoices or other requests for pay-
ment of the Series' expenses and instructs the Custodian to issue checks in
payment thereof; and (9) takes such other action with respect to the Trust or
the Series as may be necessary in the opinion of the Administrator to perform
its duties under the Agreement.
As compensation for services performed under the Administrative Services
Agreement, the Administrator receives a fee payable monthly at an annual rate
(as described in each Series' Prospectus) multiplied by the average daily net
assets of the Trust.
Administration Fees paid to Fund/Plan Services, Inc. were as follows:
With respect to the Global Fund, for the period August 31, 1992 (commence-
ment of operations) through June 30, 1993, the fiscal years ended June 30,
1994, and June 30, 1995, $96,797, $186,897 and $211,243, respectively; with
respect to the Global Equity Fund, for the period January 28, 1994 (com-
mencement of operations) through June 30, 1994, and the fiscal year ended
June 30, 1995, $6,064 and $15,062, respectively; with respect to the Global
Bond Fund, for the period July 30, 1993 (commencement of operations)
through June 30, 1994 and the fiscal year ended June 30, 1995, $19,968 and
$28,889, respectively; with respect to the U.S. Balanced Fund, for the pe-
riod December 30, 1994 (commencement of operations) through June 30, 1995,
$39,523; with respect to the U.S. Equity Fund, for the period February 22,
1994 (commencement of operations) through June 30, 1994, and the fiscal
year ended June 30, 1995, $3,482 and $15,362, respectively; and with re-
spect to the Non-U.S. Equity Fund, for the period August 31, 1993 (com-
mencement of operations) through June 30, 1994, and the fiscal year ended
June 30, 1995, $23,597 and $72,350, respectively.
UNDERWRITER
Fund/Plan Broker Services, Inc. ("FPBS"), 2 W. Elm Street, Conshohocken, PA
19428, acts as an underwriter of the Series' continuous offer of shares for
the purpose of facilitating the registration of the shares of the Series under
state securities laws and to assist in sales of shares pursuant to an under-
writing agreement (the "Underwriting Agreement") approved by the Board of
Trustees. In this regard, FPBS has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Trust shall from time to time identify to FPBS as states in which it
wishes to offer its shares for sale, in order that state registrations may be
maintained for the Series.
S-29
<PAGE>
FPBS is a broker-dealer registered with the Securities and Exchange Commission
and a member in good standing of the National Association of Securities Deal-
ers, Inc.
For the services to be provided to the Trust under the Underwriting Agreement,
FPBS is entitled to receive an annual fixed fee of $7,500 for one series, plus
$2,500 for each additional operational series or class, payable in advance.
These fees are fixed for a one (1) year period from the date of the Agreement
and may be increased or decreased in future years by an amendment signed by
both the Trust and FPBS. The fees for such services are borne entirely by the
Advisor. The Trust does not impose any sales loads or redemption fees, nor
does it bear any fees pursuant to a Rule 12b-1 Plan. Each Series shall con-
tinue to bear the expense of all filing or registration fees incurred in con-
nection with the registration of shares under state securities laws.
The Underwriting Agreement may be terminated by either party upon sixty (60)
days' prior written notice to the other party, and if so terminated, the pro
rata portion of the unearned fee will be returned to the Trust.
DISTRIBUTION PLAN
The Board of Trustees of the Trust has adopted a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Plan")
for each Series' SwissKey Fund class shares. The Plan permits each Series to
reimburse FPBS, Brinson Partners and others from the assets of the SwissKey
Fund class shares a quarterly fee for services and expenses incurred in dis-
tributing and promoting sales of SwissKey Fund class shares. The aggregate
fees paid by the SwissKey Fund class shares to FPBS and others under the Plan
may not exceed 0.90% of a SwissKey Fund classes' average daily net assets in
any year.
The Plan does not apply to the Brinson Fund class shares of each Series and
those shares are not included in calculating the Plan's fees.
CODE OF ETHICS
The Trust has adopted a Code of Ethics which establishes standards by which
certain access persons of the Trust, which include officers of the Advisor and
officers and Trustees of the Trust, must abide relating to personal securities
trading conduct.
Under the Code, access persons are prohibited from engaging in certain con-
duct, including, but not limited to: 1) investing in companies in which the
Series invest unless the securities have a broad public market and are regis-
tered on a national securities exchange or are traded in the over-the-counter
markets; 2) making or maintaining an investment in any corporation or business
with which the Series which have business relationships if the investment
might create, or give the appearance of creating a conflict of interest; 3)
participating in an initial public offering; 4) entering into a securities
transaction when the access person knows or should know that such activity
will anticipate, parallel or counter any securities transaction of a Series;
5) entering into any securities transaction, without prior approval, in con-
nection with any security which has been designated as restricted; 6) entering
into a net short position with respect to any security held by a Series; 7)
entering into any derivative transaction when a direct transaction in the un-
derlying security would be a violation; and 8) engaging in self-dealing or
other transactions benefiting the access person at the expense of the Series
or its shareholders.
In addition, access persons are required to receive advance approval prior to
purchasing or selling a restricted security, and may not buy or sell certain
prohibited securities. The Advisor will identify for access persons prohibited
securities, which include securities that are being considered for purchase or
sale by any account or fund managed by the Advisor, and provide a list of such
securities to all access persons. Access persons are required to file quar-
terly reports of security investment transactions. Trustees or officers who
are not "interested persons" of the Trust, as defined in the 1940 Act, need
only report a transaction in a security if such trustee or officer, at the
time of the transaction, knew or should have know, in the ordinary course of
fulfilling his official duties as a trustee or officer, that, during the 15-
day period immediately preceding or after the date of the transaction by the
trustee, such security was purchased or sold by a Series, or was being consid-
ered for purchase by a Series.
S-30
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brinson Partners is responsible for decisions to buy and sell securities for
the Series and for the placement of its portfolio business and the negotiation
of commissions, if any, paid on such transactions. Fixed income securities in
which the Series invest are traded in the over-the-counter market. These secu-
rities are generally traded on a net basis with dealers acting as principal
for their own accounts without a stated commission, although the bid/ask
spread quoted on securities includes an implicit profit to the dealers. In
over-the-counter transactions, orders are placed directly with a principal
market-maker unless a better price and execution can be obtained by using a
broker. Brokerage commissions are paid on transactions in listed securities,
futures contracts and options thereon. Brinson Partners is responsible for ef-
fecting portfolio transactions and will do so in a manner deemed fair and rea-
sonable to the Series. Under its advisory agreement with the Global Funds and
Non-U.S. Funds, Brinson Partners is authorized to utilize the trading desk of
its foreign subsidiaries to execute foreign securities transactions, but moni-
tors the selection by such subsidiaries of brokers and dealers used to execute
transactions for those Series. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting and monitoring broker-dealers and negotiat-
ing commissions, Brinson Partners considers the firm's reliability, the qual-
ity of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria, prefer-
ence may be given to brokers who provide research or statistical material or
other services to the Series or to Brinson Partners. Such services include ad-
vice, both directly and in writing, as to the value of the securities; the ad-
visability of investing in, purchasing or selling securities; and the
availability of securities, or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic fac-
tors and trends, portfolio strategy and the performance of accounts. This al-
lows Brinson Partners to supplement its own investment research activities and
obtain the views and information of others prior to making investment deci-
sions. Brinson Partners is of the opinion that, because this material must be
analyzed and reviewed by its staff, its receipt and use does not tend to re-
duce expenses but may benefit the Series by supplementing the Advisor's re-
search.
Brinson Partners effects portfolio transactions for other investment companies
and advisory accounts. Research services furnished by dealers through whom the
Series effect its securities transactions may be used by Brinson Partners in
servicing all of its accounts; not all such services may be used in connection
with the Series. In the opinion of Brinson Partners, it is not possible to
measure separately the benefits from research services to each of the accounts
(including the Series). Brinson Partners will attempt to equitably allocate
portfolio transactions among the Series and others whenever concurrent deci-
sions are made to purchase or sell securities by the Series and another. In
making such allocations between the Series and others, the main factors to be
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for recommending investments to the Series
and the others. In some cases, this procedure could have an adverse effect on
the Series. In the opinion of Brinson Partners, however, the results of such
procedures will, on the whole, be in the best interest of each of the clients.
The Series incurred brokerage commissions as follows: (i) for the fiscal year
ended June 30, 1993--Global Fund -$70,000; (ii) for the fiscal year ended June
30, 1994, Global Fund--$141,430; Global Equity Fund--$45,153; Global Bond
Fund--$0.00; U.S. Equity Fund--$8,431; and Non-U.S. Equity Fund--$156,842, re-
spectively; (iii) for the fiscal year ended June 30, 1995, Global Fund--
$196,831; Global Equity Fund--$34,283; Global Bond Fund--$0; U.S. Balanced
Fund--$88,904; U.S. Equity Fund--$53,830; and Non-U.S. Equity Fund--$172,829,
respectively. For the fiscal year ended June 30, 1995, the Trust and the Advi-
sor had no agreements or understandings with a broker or otherwise causing
brokerage transactions or commissions for research services.
PORTFOLIO TURNOVER
The Series are free to dispose of their portfolio securities at any time, sub-
ject to complying with the Internal Revenue Code and the Act, when changes in
circumstances or conditions make such a move desirable in light of the invest-
ment objective. The Series will not attempt to achieve or be limited to a pre-
determined rate of portfolio turnover, such a turnover always being incidental
to transactions undertaken with a view to achieving that Series' investment
objective.
S-31
<PAGE>
The Series do not intend to use short-term trading as a primary means of
achieving their investment objectives. The rate of portfolio turnover shall be
calculated by dividing (a) the lesser of purchases and sales of portfolio se-
curities for the particular fiscal year by (b) the monthly average of the
value of the portfolio securities owned by that Series during the particular
fiscal year. Such monthly average shall be calculated by totaling the values
of the portfolio securities as of the beginning and end of the first month of
the particular fiscal year and as of the end of each of the succeeding eleven
months and dividing the sum by 13.
Under normal circumstances, the portfolio turnover rate for the Global Equity
Fund, U.S. Balanced Fund, U.S. Equity Fund, U.S. Bond Fund, U.S. Cash Manage-
ment Fund, Non-U.S. Equity Fund and Non-U.S. Bond Fund is not expected to ex-
ceed 100%. The portfolio turnover rates for the Global Fund, Global Bond Fund,
and Short-Term Global Income Fund, however, may exceed 100%. High portfolio
turnover rates (over 100%) may involve correspondingly greater brokerage com-
missions and other transaction costs, which will be borne directly by the Se-
ries and ultimately by that Series' shareholders. In addition, high portfolio
turnover may result in increased short-term capital gains, which, when dis-
tributed to shareholders, are treated as ordinary income.
With respect to the Global Fund, for the period from August 31, 1992 (com-
mencement of operations) to June 30, 1993, and for the fiscal years ended June
30, 1994 and June 30, 1995, respectively, the portfolio turnover rate of the
Series was 149%, 231% and 238%, respectively. With respect to the Global Bond
Fund, for the period July 30, 1993 (commencement of operations) to June 30,
1994 and the fiscal year ended June 30, 1995, the portfolio turnover rate of
the Series was 189% and 199%, respectively. The significant variation in port-
folio turnover rates over such periods was due to an increase in the assets of
the Series which caused the Series to reposition their portfolio holdings in
order to meet their investment objectives and policies.
SHARES OF BENEFICIAL INTEREST
The Trust presently offers ten Series of shares of beneficial interest, which
offer two classes of shares. Each representing an equal proportionate interest
in the assets and liabilities of the applicable Series and each having the
same voting and other rights and preferences as the other class of that Se-
ries, except that shares of the Brinson Fund class may not vote on any matter
affecting only the SwissKey Fund classes' Distribution Plan under Rule 12b-1
and neither class may vote on matters that affect only the other class. Under
Delaware law, the Trust does not normally hold annual meetings of sharehold-
ers. Shareholders' meetings may be held from time to time to consider certain
matters including changes to a Series' fundamental investment objective and
fundamental investment policies, changes to the Trust's investment advisory
agreement and the election of Trustees when required by the Act. When matters
are submitted to shareholders for a vote, shareholders are entitled to one
vote per share with proportionate voting for fractional shares. The shares of
the Series do not have cumulative voting rights or any preemptive or conver-
sion rights, and the Trustees have authority from time to time to divide or
combine the shares of the Series into a greater or lesser number of shares so
affected. In the case of a liquidation of a Series, each shareholder of the
Series will be entitled to share, based upon his percentage share ownership,
in the distribution out of assets, net of liabilities, of the Series. No
shareholder is liable for further calls or assessment by the Series.
On any matters affecting only one Series or class, only the shareholders of
that Series or class are entitled to vote. On matters relating to the Trust
but affecting the Series differently, separate votes by the Series or class
are required. With respect to the submission to shareholder vote of a matter
requiring separate voting by a Series, the matter shall have been effectively
acted upon with respect to any Series or class if a majority of the outstand-
ing voting securities of that Series votes for the approval of the matter,
notwithstanding that: (1) the matter has not been approved by a majority of
the outstanding voting securities of any other Series; and (2) the matter has
not been approved by a majority of the outstanding voting securities of the
Trust.
PURCHASES
Shares of the Brinson Fund class and the SwissKey Fund class of each Series
are sold at the net asset value next determined after the receipt of a pur-
chase application in proper form by the Transfer Agent. The minimum for ini-
tial investments with respect to the Brinson Fund class for each Series is
$100,000; subsequent investment minimums are $2,500. The minimum for initial
investments with respect to the SwissKey Fund class for each Series is $1,000;
subsequent investment minimums are $50. A more detailed description of methods
of purchase is included in the Prospectuses.
S-32
<PAGE>
Certificates representing shares purchased are not issued. However, such pur-
chases are confirmed to the investor and credited to the shareholder's account
on the books maintained by the Transfer Agent. The investor will have the same
rights of ownership with respect to such shares as if certificates had been
issued.
EXCHANGES OF SHARES
Shares of the Brinson Fund class of a Series may only be exchanged for any
other Brinson Fund class of another Series in the Trust. The SwissKey Fund
class of a Series may be exchanged for any other SwissKey Fund class of an-
other Series in the Trust. Exchanges will not be permitted between the Brinson
Fund class and the SwissKey Fund class.
The SwissKey Fund class of a Series also may be exchanged for shares of the
SBC Short-Term World Income Fund, a non-diversified, open-end management in-
vestment company advised by Brinson Partners, Inc.
Each qualifying exchange will be made on the basis of both Funds' relative net
asset values per share next computed following receipt of the order in proper
form by the Transfer Agent. Exchanges may be made by telephone if the share-
holder's Account Application Form includes specific authorization for tele-
phone exchanges. The telephone exchange privilege may be difficult to
implement during times of drastic economic or market changes.
The transactions described above will result in a taxable gain or loss for
federal income tax purposes. Generally, any such taxable gain or loss will be
a capital gain or loss (long-term or short-term, depending on the holding pe-
riod of the shares) in the amount of the difference between the net asset
value of the shares surrendered and the shareholder's tax basis for those
shares. Each investor should consult his or her tax adviser regarding the tax
consequences of an exchange transaction.
Any shareholder who wishes to make an exchange should first obtain and review
a prospectus of the Series to be acquired in the exchange. Requests for tele-
phone exchanges must be received prior to the close of regular trading on the
New York Stock Exchange ("NYSE") on any day on which such exchange is open for
regular trading.
At the discretion of the Trust, this exchange privilege may be terminated or
modified at any time for any of the participating Series upon 60 days' prior
written notice to shareholders. Contact the Transfer Agent for details about a
particular exchange.
NET ASSET VALUE
The net asset value per share is calculated separately for each class of each
Series. The net asset value per share of a Series is computed by dividing the
value of the assets of the Series, less its liabilities, by the number of
shares of the Series outstanding.
Each class of a Series will bear pro rata all of the common expenses of that
Series. The net asset values of all outstanding shares of each class of a Se-
ries will be computed on a pro rata basis for each outstanding share based on
the proportionate participation in the Series represented by the value of
shares of that Series. All income earned and expenses incurred by a Series,
will be borne on a pro rata basis by each outstanding share of a class, based
on each class' percentage in the Series represented by the value of such
shares of such classes, except that the Brinson Fund class will not incur any
of the expenses under the SwissKey Fund classes' 12b-1 Plan.
Portfolio securities are valued and net asset value per share is determined as
of the close of regular trading on the NYSE which currently is 4:00 p.m. East-
ern time, except that orders and payment for the U.S. Cash Management Series
must be received by 12:00 p.m. Eastern time, on each day the NYSE is open for
trading. The NYSE is open for trading on every day except Saturdays, Sundays
and the following holidays: New Year's Day, Presidents' Day, Good Friday, Me-
morial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
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Portfolio securities listed on a national or foreign securities exchange and
over-the-counter securities carried as NASDAQ National Market Issues are val-
ued on the basis of the last sale on the date the valuation is made. If there
has been no sale that day, securities traded on exchanges or over NASDAQ are
valued at the last reported bid price, using prices as of the close of trading
on that exchange. Other portfolio securities which are traded in the over-the-
counter market are valued at the last available bid price. Valuations of fixed
income securities may be obtained from a pricing service when such prices are
believed to reflect the fair value of such securities. Use of a pricing serv-
ice has been approved by the Board of Trustees. Futures contracts and options
thereon are valued at their daily quoted settlement price. For valuation pur-
poses, foreign securities initially expressed in foreign currency values will
be converted into U.S. dollar values at the mean between the bid and offered
quotations of such currencies against U.S. dollars as last quoted by any rec-
ognized dealer or major bank which is a regular participant in the institu-
tional foreign exchange markets. Securities with a remaining maturity of 60
days or less are valued at amortized cost, which approximates market value.
Securities (including over-the-counter options) for which market quotations
are not readily-available and other assets are valued at their fair value as
determined in good faith by or under the direction of the Trustees.
REDEMPTIONS
Under normal circumstances shareholders may redeem their shares at any time
without a fee. The redemption price will be based upon the net asset value per
share next determined after receipt of the redemption request, provided it has
been submitted in the manner described below. The redemption price may be more
or less than their cost, depending upon the net asset value per share at the
time of redemption.
Payment for shares tendered for redemption is made by check within five busi-
ness days after tender in proper form, except that the Trust reserves the
right to suspend the right of redemption, or to postpone the date of payment
upon redemption beyond five business days, (I) for any period during which the
NYSE is closed (other than customary weekend and holiday closings) or during
which trading on the NYSE is restricted, (ii) for any period during which an
emergency exists as determined by the Securities and Exchange Commission as a
result of which disposal of securities owned by a Series is not reasonably
practicable or it is not reasonably practicable for the Series fairly to de-
termine the value of its net assets or (iii) for such other periods as the Se-
curities and Exchange Commission may by order permit for the protection of
shareholders of the Series.
Under unusual circumstances, when the Board of Trustees deems it in the best
interest of the Series' shareholders, the Trust may make payment for shares
repurchased or redeemed in whole or in part in securities of the Series taken
at current values. With respect to such redemptions in kind, the Trust has
made an election pursuant to Rule 18f-1 under the Act. This will require the
Trust to redeem in cash at a shareholder's election in any case where the re-
demption involves less than $250,000 (or 1% of the Series' net asset value at
the beginning of each 90 day period during which such redemptions are in ef-
fect, if that amount is less than $250,000). Should payment be made in securi-
ties, the redeeming shareholder may incur brokerage costs in converting such
securities to cash.
TAXATION
Each of the Series has qualified, and intends to continue to qualify each
year, as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order to so qualify, a mu-
tual fund must, among other things, (I) derive at least 90% of its gross in-
come from dividends, interest, payments with respect to certain securities
loans, gains from the sale of securities or foreign currencies, or other in-
come (including but not limited to gains from options, futures or forward con-
tracts) derived with respect to its business of investing in such stock,
securities or currencies; (ii) derive less than 30% of its gross income from
the sale or other disposition of stock or securities or certain futures and
options thereon held for less than three months ("short-short gains"); (iii)
distribute at least 90% of its dividend, interest and certain other taxable
income each year; and (iv) at the end of each fiscal quarter maintain at least
50% of the value of its total assets in cash, government securities, securi-
ties of other regulated investment companies and other securities of issuers
which represent, with respect to each issuer, no more than 5% of the value of
a fund's total assets and 10% of the outstanding voting securities of such is-
suer, and with no more than 25% of its assets invested in the securities
(other than those of the government or other regulated investment companies)
of any one issuer or of two or more issuers which the fund controls and which
are engaged in the same, similar or related trades and businesses.
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To the extent each of the Series qualifies for treatment as a regulated in-
vestment company, they will not be subject to federal income tax on income and
net capital gains paid to shareholders in the form of dividends or capital
gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Series' "required distributions" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Series' ordinary in-
come for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 plus undistributed amounts
from prior years. The Series intend to make distributions sufficient to avoid
imposition of the excise tax. Distributions declared by the Series during Oc-
tober, November or December to shareholders of record during such month and
paid by January 31 of the following year will be taxable to shareholders in
the calendar year in which they are declared, rather than the calendar year in
which they are received.
Gains or losses attributable to fluctuations in exchange rates which occur be-
tween the time a Series accrues interest or other receivables or accrues ex-
penses or liabilities denominated in a foreign currency and the time the
Series actually collects such receivables, or pays such liabilities, are gen-
erally treated as ordinary income or loss. Similarly, a portion of the gains
or losses realized on disposition of debt securities denominated in a foreign
currency may also be treated as ordinary gain or loss. These gains, referred
to under the Code as "Section 988" gains or losses, may increase or decrease
the amount of a Series' investment company taxable income to be distributed to
its shareholders, rather than increasing or decreasing the amount of the Se-
ries' capital gains or losses.
When a Series writes a call, or purchases a put option, an amount equal to the
premium received or paid by it is included in the Series' assets and liabili-
ties as an asset and as an equivalent liability.
In writing a call, the amount of the liability is subsequently "marked-to-mar-
ket" to reflect the current market value of the option written. The current
market value of a written option is the last sale price on the principal Ex-
change on which such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a Series has written
expires on its stipulated expiration date, the Series recognizes a short-term
capital gain. If a Series enters into a closing purchase transaction with re-
spect to an option which the Series has written, the Series realizes a short-
term gain (or loss if the cost of the closing transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a call option which a Series has written is exercised, the
Series realizes a capital gain or loss from the sale of the underlying secu-
rity and the proceeds from such sale are increased by the premium originally
received.
The premium paid by a Series for the purchase of a put option is recorded in
the Series' assets and liabilities as an investment and subsequently adjusted
daily to the current market value of the option. For example, if the current
market value of the option exceeds the premium paid, the excess would be
unrealized appreciation and, conversely, if the premium exceeds the current
market value, such excess would be unrealized depreciation. The current market
value of a purchased option is the last sale price on the principal Exchange
on which such option is traded or, in the absence of a sale, the mean between
the last bid and asked prices. If an option which a Series has purchased ex-
pires on the stipulated expiration date, the Series realizes a short-term or
long-term capital loss for Federal income tax purposes in the amount of the
cost of the option. If a Series exercises a put option, it realizes a capital
gain or loss (long-term or short-term, depending on the holding period of the
underlying security) from the sale which will be decreased by the premium
originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Series at the end of each fiscal year on
a broad-based stock index will be required to be "marked-to-market" for Fed-
eral income tax purposes. Sixty percent of any net gain or loss recognized on
such deemed sales or on any actual sales will be treated as long-term capital
gain or loss and the remainder will be treated as short-term capital gain or
loss. Certain options, futures contracts and options on
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<PAGE>
futures contracts utilized by the Series are "Section 1256 contracts." Any
gains or losses on Section 1256 contracts held by a Series at the end of each
taxable year (and on October 31 of each year for purposes of the 4% excise
tax) are "marked-to-market" with the result that unrealized gains or losses
are treated as though they were realized and the resulting gain or loss is
treated as a 60/40 gain or loss. Shareholders will be subject to federal in-
come taxes on distributions made by the Series whether received in cash or ad-
ditional shares of the Series. Distributions of net investment income and net
short-term capital gains, if any, will be taxable to shareholders as ordinary
income. Distributions of net long-term capital gains, if any, will be taxable
to shareholders as long-term capital gains, without regard to how long a
shareholder has held shares of the Series. A loss on the sale of shares held
for twelve months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain dividend paid to the shareholder with re-
spect to such shares. Dividends eligible for designation under the dividends
received deduction and paid by a Series may qualify in part for the 70% divi-
dends received deduction for corporations provided, however, that those shares
have been held for at least 45 days. The Series will notify shareholders each
year of the amount of dividends and distributions, including the amount of any
distribution of long-term capital gains and the portion of its dividends which
may qualify for the 70% deduction.
Each class of shares of a Series will share proportionately in the investment
income and expenses of that Series, except that the respective SwissKey Fund
class for each Series alone will incur distribution fees under their respec-
tive 12b-1 Plans.
It is expected that certain dividends and interest received by the Global
Funds and Non-U.S. Funds will be subject to foreign withholding taxes. If more
than 50% in value of the total assets of a fund at the close of any taxable
year consists of stocks or securities of foreign corporations, such fund may
elect to treat any foreign taxes paid by it as if paid by its shareholders.
These Series will notify shareholders in writing each year whether it has made
the election and the amount of foreign taxes it has elected to have treated as
paid by the shareholders. If the Series make the election, its shareholders
will be required to include in gross income their proportionate share of the
amount of foreign taxes paid by the Series and will be entitled to claim ei-
ther a credit or deduction for their share of the taxes in computing their
U.S. federal income tax subject to certain limitations. No deduction for for-
eign taxes may be claimed by shareholders who do not itemize deductions.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareowner's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, the source of each Series' income
flows through to its shareholders. Gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated debt securities,
receivables and payables, will be treated income derived from U.S. sources.
The limitation on the foreign tax credit is applied separately to foreign
source passive income, (as defined for purposes of foreign tax credit) such as
foreign source passive income received from the respective Series. Because of
changes made by the Code, shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by the Se-
ries.
The foregoing is a general and abbreviated summary of the applicable provi-
sions of the Code and Treasury regulations currently in effect. For the com-
plete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action at any time and retroactively.
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisors regarding specific ques-
tions as to federal, state and local taxes as well as the application of the
foreign tax credit.
The foregoing discussion relates solely to U.S. federal income tax law. Non-
U.S. investors should consult their tax advisors concerning the tax conse-
quences of ownership of shares of the Series, including the possibility that
distributions may be subject to a 30% U.S. withholding tax (or a reduced rate
of withholding provided by treaty).
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PERFORMANCE CALCULATIONS
Performance information for the SwissKey Fund class and Brinson Fund class
shares of each Series will vary due to the effect of expense ratios on the
performance calculations.
TOTAL RETURN
Current yield and total return quotations used by the Series (and both classes
of shares) are based on standardized methods of computing performance mandated
by SEC Rules. As the following formula indicates, the average annual total re-
turn is determined by multiplying a hypothetical initial purchase order of
$1,000 by the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes that all dividends and distri-
butions are reinvested at the et asset value on the reinvestment dates during
the period. The quotation assumes the account was completely redeemed at the
end of each period and deduction of all applicable charges and fees. According
to the Commission formula:
P(1+T)n=ERV
where:
P= a hypothetical initial payment of $1,000.
T= average annual total return
n= number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).
Based upon the foregoing calculations, the average annual total return for:
(i) the Global Fund for the period August 31, 1992 (commencement of opera-
tions) through June 30, 1995 and the fiscal year ended June 30, 1995, was
25.64% and 8.40%, respectively; (ii) the Global Equity Fund for the period
January 28,1994 (commencement of operations) through June 30, 1995 and the
fiscal year ended June 30, 1995 was 1.08% and 0.76%, respectively; (iii) the
Global Bond Fund for the period July 30, 1993 (commencement of operations)
through June 30, 1995 and the fiscal year ended June 30, 1995 was 10.46% and
5.33%, respectively; (iv) the U.S. Balanced Fund for the period December 30,
1994 (commencement of operations) through June 30, 1995 was 13.91%; (v) the
U.S. Equity Fund for the period February 22, 1994 (commencement of operations)
through June 30, 1995 and the fiscal year ended June 30, 1995 was 17.80% and
13.07%, respectively; (vi) the Brinson U.S. Bond Fund for the period August
31, 1995 (commencement of operations) through December 31, 1995 was 5.49%;
(vii) the SwissKey U.S. Bond Fund for the period August 31, 1995 (commencement
of operations) through December 31, 1995 was 5.29%; and (viii) the Non-U.S.
Equity Fund for the period August 31, 1993 (commencement of operations)
through June 30, 1995 and the fiscal year ended June 30, 1995 was 2.55% and
1.40%, respectively.
YIELD
As indicated below, current yield is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses ac-
crued for the period include any fees charged to all shareholders during the
30-day base periods. According to the SEC formula:
Yield = 2[(a-b + 1)/6/-1]
-----------
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the pe-
riod.
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The yield of the Series may be calculated by dividing the net investment in-
come per share earned by the particular Series during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis. A Series' net investment income
per share earned during the period is based on the average daily number of
shares outstanding during the period entitled to receive dividends and in-
cludes dividends and interest earned during the period minus expenses accrued
for the period, net of reimbursements.
YIELD OF U.S. CASH MANAGEMENT FUND
As summarized in the Prospectus, the yield of the SwissKey Fund class and
Brinson Fund class of the U.S. Cash Management Fund for a seven-day period
(the "base period") will be computed by determining the net change in value
(calculated as set forth below) of a hypothetical account having a balance of
one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to ob-
tain the base period return, and multiplying the base period return by 365/7
with the resulting yield figure carried to the nearest hundredth of one per-
cent. Net changes in value of a hypothetical account will include the value of
additional shares purchased with dividends from the original share and divi-
dends declared on both the original share and any such additional shares, but
will not include realized gains or losses or unrealized appreciation or depre-
ciation on portfolio investments. Yield may also be calculated on a compound
basis (the "effective yield"), which assumes that net income is reinvested in
shares of the Series at the same rate as net income is earned for the base pe-
riod.
The yield and effective yield of the U.S. Cash Management Fund will vary in
response to fluctuations in interest rates and in the expenses of the Series.
For comparative purposes the current and effective yields should be compared
to current and effective yields offered by competing financial institutions
for the same base period and calculated by the methods described above.
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CORPORATE DEBT RATINGS
APPENDIX A
Moody's Investors Service, Inc. describes classifications of corporate bonds
as follows:
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high-quality by all
standards. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's also supplies numerical indicators 1, 2, and 3 to rating categories.
The modifier 1 indicates the security is in the higher end of its rating cate-
gory; the modifier 2 indicates a mid-range ranking; and the modifier 3 indi-
cates a ranking toward the lower end of the category.
Standard & Poor's Corporation describes classifications of corporate bonds as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and in the majority of
instances they differ from the AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
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BB, B, CCC, CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addi-
tion of a plus or minus sign to show relative standing within the major rating
categories.
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