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UNITED STATES FILE NO. 33-47287
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 FILE NO. 811-6637
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. | |
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Post Effective Amendment No. 18 |X|
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 19 |X|
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THE BRINSON FUNDS
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(Exact name of Registrant as Specified in Charter)
209 South LaSalle Street
Chicago, Illinois 60604-1295
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 312-220-7100
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The Brinson Funds
209 South LaSalle Street
Chicago, Illinois 60604-1295
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(Name and Address of Agent for Service)
COPIES TO: Bruce G. Leto, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICAL AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
| | IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
| | ON (DATE), PURSUANT TO PARAGRAPH (b)
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|X| 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1)
| | ON (DATE) PURSUANT TO PARAGRAPH (a)(1)
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| | 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2)
| | ON (June 30, 1977) PURSUANT TO PARAGRAPH (a)(2) OF RULE 485.
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IF APPROPRIATE, CHECK THE FOLLOWING BOX:
| | THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
Registrant has previously registered an indefinite number of shares of
beneficial interest of The Brinson Funds under the Securities Act of 1933
pursuant to Rule 24f-2 of the Investment Company Act of 1940, as amended.
Registrant filed a Notice pursuant to Rule 24f-2 for the fiscal period
ended June 30, 1996 on August 28, 1996.
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TOTAL PAGES: ____
INDEX TO EXHIBITS, PAGE: ____
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THE BRINSON FUNDS
Cross Reference Sheet Pursuant to Rule 481b
FORM N-1A ITEM CAPTION IN PROSPECTUS
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PART A INFORMATION REQUIRED IN A PROSPECTUS
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Prospectus Summary; Tables of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives and Policies; Other Investment
Practices and Risk Factors
5. Management of the Fund Management of the Trust
5A. Management's Discussion of Performance Information
Fund Performance
6. Capital Stock and Other Securities General Information; Dividends and Taxes;
Net Asset Value
7. Purchase of Securities Being Offered Purchase of Shares; Exchange of Shares; Distribution
Plan
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings *
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Covered in Part A
13. Investment Objectives and Policies Investment Policies; Investment Restrictions; Portfolio
Transactions and Brokerage Commissions
14. Management of the Fund Trustees and Officers
15. Principal Holders of Securities Control Persons and Principal Holders of Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services
17. Brokerage Allocation Portfolio Transactions and Brokerage Commissions
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18. Capital Stock and Other Securities Other Information
19. Purchase, Redemption and Pricing of Purchases; Redemptions
Securities Being Offered
20. Tax Status Taxes
21. Underwriters Underwriter
22. Calculations of Performance Data Performance Information
23. Financial Statements Audited Financials dated June 30, 1996
PART C OTHER INFORMATION
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Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part
C to this Registration Statement.
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[THE BRINSON FUNDS LOGO]
THE
BRINSON
FUNDS
209 South LaSalle Street
Chicago, IL 60604-1295
PROSPECTUS
JUNE 30, 1997
This Prospectus describes the BRINSON-CLASS N SHARES of the investment
portfolios offered by The Brinson Funds (the "Trust"). The Trust is an open-
end management investment company advised by Brinson Partners, Inc. ("Brinson
Partners" or the "Advisor"), which currently offers seven distinct investment
portfolios: Global Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced
Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund (each a
"Series" and collectively, the "Series"). Each Series offers three separate
classes of shares--the Brinson--Class N, the Brinson--Class I and the SwissKey
Fund class. The Brinson-Class N shares of the Series are referred to herein as
the: Brinson Global Fund, Brinson Global Equity Fund, Brinson Global Bond
Fund, Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund, Brinson U.S. Bond
Fund and Brinson Non-U.S. Equity Fund (each a "Fund" and collectively, the
"Brinson Funds" or "Funds"). This Prospectus pertains only to the Brinson--
Class N shares, which do not have a sales load, but are subject to annual 12b-
1 plan expenses. The Brinson--Class I shares, which are designed primarily for
institutional investors, do not have a sales load and are not subject to
annual 12b-1 plan expenses. Further information relating to the Brinson--Class
I shares may be obtained by calling 1-800-448-2430. The SwissKey Fund class
shares do not have a sales load, but have slightly higher Rule 12b-1 fees and
a lower minimum investment requirement. Further information relating to the
SwissKey Fund class shares may be obtained by calling 1-800-SWISSKEY.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Class N shares of any of the Brinson
Funds. Investors should read and retain this Prospectus for future reference.
Additional information about the Funds and the other classes of shares of the
Trust's investment portfolios is contained in the Statement of Additional
Information dated June 30, 1997, as amended from time to time, which has been
filed with the U.S. Securities and Exchange Commission and is available upon
request and without charge from the Trust at the addresses and telephone
numbers below. The Statement of Additional Information is incorporated by
reference into this Prospectus. The Statement of Additional Information,
material incorporated by reference into this Prospectus, and other information
regarding the Trust and each of the Series is maintained electronically with
the U.S. Securities and Exchange Commission at its Internet Web site
(http://www.sec.gov).
AN INVESTMENT IN ANY OF THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN ANY OF THE FUNDS IS NOT A
DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE U.S. SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITER: ADVISOR:
Funds Distributor, Inc. Brinson Partners, Inc.
60 State Street 209 South LaSalle Street
Suite 1300 Chicago, IL 60604-1295
Boston, MA 02109
1-800-448-2430
1-800-448-2430
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TABLE OF CONTENTS
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PAGE
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Annual Fund Operating Expenses............................................. 3
Description of the Funds................................................... 5
Investment Objectives and Policies......................................... 5
Global Fund.............................................................. 5
Global Equity Fund....................................................... 6
Global Bond Fund......................................................... 6
U.S. Balanced Fund....................................................... 7
U.S. Equity Fund......................................................... 7
U.S. Bond Fund........................................................... 7
Non-U.S. Equity Fund..................................................... 8
Investment Considerations and Risks........................................ 8
Management of the Trust.................................................... 11
Portfolio Management....................................................... 12
Administration of the Trust................................................ 13
Purchase of Shares......................................................... 14
Account Options............................................................ 15
Redemption of Shares....................................................... 16
Net Asset Value............................................................ 19
Distribution Plan.......................................................... 20
Dividends, Distributions and Taxes......................................... 21
General Information........................................................ 22
Performance Information.................................................... 24
Appendix A................................................................. 25
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THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE
SUCH AN OFFER OR SOLICITATION. NO SALES REPRESENTATIVE, DEALER, OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS.
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ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
BRINSON--CLASS N SHARES
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TOTAL FUND
OPERATING EXPENSES
MANAGEMENT FEES 12B-1 OTHER EXPENSES (AFTER FEE WAIVER AND/OR
(AFTER FEE WAIVER)/1/ EXPENSES/2/ (AFTER REIMBURSEMENT)/3/ EXPENSE REIMBURSEMENT)
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Brinson Global Fund..... 0.80% 0.25% 0.24% 1.29%
Brinson Global Equity
Fund................... 0.03% 0.25% 0.97% 1.25%
Brinson Global Bond
Fund................... 0.00% 0.25% 0.90% 1.15%
Brinson U.S. Balanced
Fund................... 0.49% 0.25% 0.31% 1.05%
Brinson U.S. Equity
Fund................... 0.36% 0.25% 0.44% 1.05%
Brinson U.S. Bond Fund.. 0.00% 0.25% 0.60% 0.85%
Brinson Non-U.S. Equity
Fund................... 0.60% 0.25% 0.40% 1.25%
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/1/Pursuant to the terms of the Investment Advisory Agreements between the
Trust on behalf of each Series and the Advisor, the Advisor is entitled to
receive a monthly fee at the following annual rates for each of the Global
Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity
Fund, U.S. Bond Fund and Non-U.S. Equity Fund: 0.80%, 0.80%, 0.75%, 0.70%,
0.70%, 0.50% and 0.80%, respectively. Brinson Partners has agreed
irrevocably to waive its fees and reimburse certain expenses so that total
operating expenses, with the exception of 12b-1 expenses, of the Brinson
Global Fund, Brinson Global Equity Fund, Brinson Global Bond Fund, Brinson
U.S. Balanced Fund, Brinson U.S. Equity Fund, Brinson U.S. Bond Fund and
Brinson Non-U.S. Equity Fund will never exceed 1.10%, 1.00%, 0.90%, 0.80%,
0.80%, 0.60% and 1.00%, respectively. Absent these fee waivers and expense
reimbursements, the total operating expenses for the Brinson--Class N
shares of the Series for the fiscal year ended June 30, 1996 would have
been 1.29%--Global Fund, 2.02%--Global Equity Fund, 1.90%--Global Bond
Fund, 1.26%--U.S. Balanced Fund, 1.39%--U.S. Equity Fund, 1.35%--U.S. Bond
Fund and 1.45%--Non-U.S. Equity Fund.
/2/For purposes of this Table, "12b-1 Expenses" is comprised of an asset-based
sales charge of 0.25% of average daily net assets of each Series. See
"Distribution Plans."
/3The/Brinson--Class N shares commenced operations on June 30, 1997.
Therefore, for the purpose of the table above, "Other Expenses" for the
Brinson--Class N shares of a Fund are based on the operating expenses for
the Brinson--Class I and SwissKey Fund class shares of the same Fund for the
fiscal year ended June 30, 1996.
Pursuant to rules of the National Association of Securities Dealers, Inc.
("NASD"), the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Funds may not exceed 6.25% of total
gross sales, subject to certain exclusions. This 6.25% limitation is imposed
on the Fund rather than on a per shareholder basis. Therefore, long-term
shareholders of the Brinson Funds may pay more than the economic equivalent of
the maximum front-end sales charges permitted by the NASD. This amount also
includes service fees.
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EXAMPLE: Based on the level of expenses listed above after fee waivers and
reimbursements, the total expenses relating to an investment of $1,000 would
be as follows assuming a 5% annual return and redemption at the end of each
time period.
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NAME OF FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Brinson Global Fund............................. $13 $41 $71 $156
Brinson Global Equity Fund...................... $13 $40 $69 $151
Brinson Global Bond Fund........................ $12 $37 $63 $140
Brinson U.S. Balanced Fund...................... $11 $33 $58 $128
Brinson U.S. Equity Fund........................ $11 $33 $58 $128
Brinson U.S. Bond Fund.......................... $ 9 $27 $47 $105
Brinson Non-U.S. Equity Fund.................... $13 $40 $69 $151
</TABLE>
The foregoing table is designed to assist the investor in understanding the
various costs and expenses that a shareholder will bear directly or
indirectly.
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THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, A FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN ACTUAL RETURNS GREATER OR LESS THAN
5%.
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THE TRUST ISSUES THREE CLASSES OF SHARES THAT INVEST IN THE SAME PORTFOLIOS
OF SECURITIES. ALTHOUGH SHAREHOLDERS OF THE BRINSON--CLASS N, BRINSON--CLASS I
AND SWISSKEY FUND CLASS SHARES DO NOT PAY SALES CHARGES, SHAREHOLDERS OF THE
BRINSON--CLASS N AND SWISSKEY FUND CLASS SHARES ARE SUBJECT TO SEPARATE ANNUAL
12B-1 PLAN EXPENSES. THEREFORE, EXPENSES, AND ULTIMATELY, PERFORMANCE WILL
VARY BETWEEN THE CLASSES. FURTHER INFORMATION ABOUT THE SWISSKEY FUND CLASS
SHARES OF THE TRUST MAY BE OBTAINED BY CALLING 1-800-SWISSKEY. FURTHER
INFORMATION ABOUT THE BRINSON--CLASS I SHARES OF THE TRUST MAY BE OBTAINED BY
CALLING 1-800-448-2430.
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DESCRIPTION OF THE FUNDS
The investment objective of each Series is fundamental and may not be
changed without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series, as defined in the Investment
Company Act of 1940, as amended (the "Act"). Unless otherwise stated in this
Prospectus or the Statement of Additional Information, each Series' investment
policies are not fundamental and may be changed without shareholder approval.
There can be no assurance that a Series will achieve its investment objective.
None of the Series intends to concentrate its investments in a particular
industry. None of the Series intends to issue senior securities as defined in
the Act, except that each Series may engage in borrowing activities as defined
in Appendix A and in the Statement of Additional Information. Each Series'
investment objective and its policies concerning portfolio lending, borrowing,
the issuance of senior securities and concentration are "fundamental," which
means that they may not be changed without the affirmative vote of the holders
of a majority of the Series' outstanding voting securities (as defined in the
Act).
INVESTMENT OBJECTIVES AND POLICIES
GLOBAL FUND
INVESTMENT OBJECTIVE
The Global Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. As a global
fund, at least 65% of the Series' total assets will be invested in securities
of issuers in at least three countries, one of which may be the United States.
The Series may utilize a wide range of equity, debt and money market
securities in domestic and foreign markets, and the Series may invest in other
open-end investment companies advised by Brinson Partners, Inc. ("Brinson
Partners" or the "Advisor"). The Series may enter into repurchase agreements
and reverse repurchase agreements, and engage in futures, options and currency
transactions for hedging and other permissible purposes, as more fully
described in "Investment Consideration and Risks" and Appendix A in this
Prospectus, and in the Statement of Additional Information.
The Series is a diversified portfolio that seeks to achieve its objective by
pursuing active asset allocation strategies across global equity and fixed
income markets and active security selection within each market. These
decisions are undertaken relative to the Global Securities Markets Index (the
"Global Benchmark"), which is compiled by Brinson Partners. The Global
Benchmark consists of eight distinct asset classes representing the primary
wealth-holding public securities markets. These asset classes are U.S.
equities, non-U.S. equities, emerging markets equities, U.S. bonds, non-U.S.
bonds, emerging markets bonds, high yield bonds and cash equivalents. Each
asset class is represented in the Global Benchmark by an index compiled by an
independent data provider. In order to compile the Global Benchmark, the
Advisor determines current relative market capitalizations in the world
markets (U.S. equities, non-U.S. equities, emerging markets equities, U.S.
bonds, non-U.S. bonds, emerging markets bonds, high yield bonds and cash) and
then weights each relevant index. Based on this weighting, the Advisor
determines the return of the relative indices, applies the index weighting and
then determines the return of the Global Benchmark. From time to time, the
Advisor may substitute an equivalent index within a given asset class when it
believes that such index more accurately reflects the relevant global market.
Although it may invest anywhere in the world, it is expected that the
Series' assets will be primarily invested in equity markets listed in the
Morgan Stanley Capital International ("MSCI") World Equity (Free) Index. The
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Series will primarily invest in fixed income markets listed in the Salomon
Brothers World Government Bond Index. The Series may invest up to 10% of its
net assets in equity and debt securities of emerging market issuers, or
securities with respect to which the return is derived from the equity or debt
securities of issuers in emerging markets.
GLOBAL EQUITY FUND
INVESTMENT OBJECTIVE
The Global Equity Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. As a global
fund, at least 65% of the Series' total assets will be invested in equity
securities of issuers in at least three countries, one of which may be the
United States. The Series may utilize a wide range of equity securities that
are traded on both domestic and foreign stock exchanges or, in the case of
domestic stocks, in the over-the-counter market. The Series may enter into
repurchase agreements and reverse repurchase agreements, and engage in
futures, options and currency transactions for hedging and other permissible
purposes, as more fully described in "Investment Considerations and Risks" and
Appendix A in this Prospectus, and in the Statement of Additional Information.
The Series is a diversified portfolio that seeks to achieve its objective by
pursuing an active asset allocation strategy across global equity markets,
active management of currency exposures and active security selection within
each market. The benchmark for the Series is the MSCI World Equity (Free)
Index (the "Global Equity Benchmark"). The Global Equity Benchmark is a market
driven broad based index which includes U.S. and non-U.S. equity markets in
terms of capitalization and performance. The Global Equity Benchmark is
designed to provide a representative total return for all major stock
exchanges located inside and outside the United States. Although it may invest
anywhere in the world, it is expected that the Series' assets will primarily
be invested in equity markets listed in the Global Equity Benchmark. From time
to time, the Advisor may substitute securities in an equivalent index when it
believes that such securities in the index more accurately reflect the
relevant global market.
GLOBAL BOND FUND
INVESTMENT OBJECTIVE
The Global Bond Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. As a global
fund, at least 65% of the Series' total assets will be invested in debt
securities with an initial maturity of more than one year of issuers in at
least three countries, one of which may be the United States. The Series seeks
to achieve this objective by investing primarily in debt securities that may
also provide the potential for capital appreciation. The Series may enter into
repurchase agreements and reverse repurchase agreements, and may engage in
futures, options and currency transactions for hedging and other permissible
purposes, as more fully described in "Investment Considerations and Risks" and
Appendix A in this Prospectus, and in the Statement of Additional Information.
The Series is a non-diversified portfolio as described in "Investment
Considerations and Risks--Non-Diversified Status" below.
The benchmark for the Series is the Salomon Brothers World Government Bond
Index (the "Global Bond Benchmark"). The Global Bond Benchmark is a market
driven index which measures the broad global fixed income markets invested in
debt issues of U.S. and non-U.S. governments, governmental entities and
supranationals. Although it may invest anywhere in the world, it is expected
that the Series' assets will be
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primarily invested in fixed income markets listed in the Global Bond
Benchmark. From time to time, the Advisor may substitute securities in an
equivalent index when it believes that such securities in the index more
accurately reflect the relevant global fixed income securities market.
U.S. BALANCED FUND
INVESTMENT OBJECTIVE
The U.S. Balanced Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income. The Series will attempt
to control risk while seeking to achieve its investment objective. Under
normal circumstances, the Series will invest at least 25% of its net assets in
fixed income securities. The Series may utilize a wide range of equity, debt
and money market securities. The Series may also invest in equity securities,
including warrants, preferred stock and securities convertible into equity
securities. The Series may enter into repurchase agreements and reverse
repurchase agreements, and may engage in futures and options for hedging and
other permissible purposes, as more fully described in "Investment
Considerations and Risks" and Appendix A in this Prospectus, and in the
Statement of Additional Information. It is not the policy of the Series to
take unreasonable risks to obtain speculative or aggressively high returns.
The Series is a diversified portfolio that seeks to achieve its objective by
pursuing active asset allocation strategies across U.S. equity and fixed
income markets and active security selection within each market. These
decisions are undertaken relative to the U.S. Balanced Index (the "U.S.
Balanced Benchmark"), which is compiled by Brinson Partners. The U.S. Balanced
Benchmark represents a fixed composite of 65% Wilshire 5000 Index, 30% Salomon
Brothers Broad Investment Grade Bond Index and 5% 30-day Treasury Bill Index.
From time to time, the Advisor may substitute an equivalent index within a
given asset class when the Advisor believes that such new index more
accurately reflects the relevant U.S. market.
U.S. EQUITY FUND
INVESTMENT OBJECTIVE
The U.S. Equity Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income, while controlling risk.
Under normal circumstances, at least 65% of the Series' total assets will be
invested in equity securities of U.S. companies. The Series is a diversified
portfolio that seeks to achieve its objective by investing in a wide range of
equity securities of U.S. companies that are traded on major stock exchanges
as well as in the over-the-counter market. The Series may engage in futures
and options for hedging and other permissible purposes, as more fully
described in "Investment Considerations and Risks" and Appendix A in this
Prospectus, and in the Statement of Additional Information. The benchmark for
the Series is the Wilshire 5000 Index (the "U.S. Equity Benchmark"). The U.S.
Equity Benchmark is a broad weighted index which includes all U.S. common
stocks. The U.S. Equity Benchmark is designed to provide a representative
indication of the capitalization and return for the U.S. equity market.
U.S. BOND FUND
INVESTMENT OBJECTIVE
The U.S. Bond Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income, while controlling risk.
As a matter of fundamental policy, under normal circumstances, the Series
intends to invest at least 65% of its total assets in U.S. debt securities
with an initial maturity of more than one year. The Series is a diversified
portfolio that seeks to achieve its objective by investing primarily in fixed
income securities, which may also provide the potential for capital
appreciation. The Series may also engage in
7
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futures and options transactions for hedging and other permissible purposes,
as more fully described in "Investment Considerations and Risks" and Appendix
A in this Prospectus, and in the Statement of Additional Information.
The Series may invest in a broad range of fixed income securities, including
debt securities of the U.S. government, together with its agencies and
instrumentalities and the debt securities of U.S. corporations. A majority of
the fixed income securities in which the Series will invest will possess a
minimum rating of BBB- by Standard & Poor's Ratings Group ("S&P") or Baa3 by
Moody's Investors Services, Inc. ("Moody's") or, if unrated, will be
determined to be of comparable quality by Brinson Partners. Such securities
are considered to be investment grade. Other fixed income securities in which
the Series may invest include zero coupon securities, mortgage-backed
securities, asset-backed securities and when-issued securities. The Series may
invest a portion of its assets in short-term debt securities (including
repurchase and reverse repurchase agreements) of corporations, the U.S.
government or its agencies or instrumentalities, and banks and finance
companies.
The benchmark for the Series is the Salomon Brothers Broad Investment Grade
Bond Index (the "U.S. Bond Benchmark"). The U.S. Bond Benchmark is a market
driven broad based index which includes U.S. bonds with over one year to
maturity. From time to time, the Advisor may substitute securities in an
equivalent index when it believes that such securities in the index more
accurately reflect the relevant fixed income securities market.
NON-U.S. EQUITY FUND
INVESTMENT OBJECTIVE
The Non-U.S. Equity Fund's investment objective is to maximize total return,
consisting of capital appreciation and current income, by investing primarily
in the equity securities of non-U.S. issuers. Under normal conditions, at
least 65% of the Series' total assets will be invested in equity securities of
issuers in at least three countries other than the United States. In seeking
to achieve its investment objective while also controlling risk, the Series
may invest in a wide range of equity securities, including: American, European
and Global Depository Receipts, common and preferred stock; debt securities
convertible into or exchangeable for common stock; and securities such as
warrants or rights that are convertible into common stock. The Series may
engage in futures, options and currency transactions for hedging and other
permissible purposes, as more fully described in "Investment Considerations
and Risks" and Appendix A in this Prospectus, and in the Statement of
Additional Information.
The Series is a diversified portfolio that seeks to achieve its objective by
investing primarily in the equity securities of non-U.S. issuers. The
benchmark for the Series is the MSCI Non-U.S. Equity (Free) Index (the "Non-
U.S. Equity Benchmark"). The Non-U.S. Equity Benchmark is a market driven
broad based index which includes non-U.S. equity markets in terms of
capitalization and performance. From time to time, the Advisor may substitute
securities in an equivalent index when it believes that such securities in the
index more accurately reflect the relevant international market. Although it
may invest anywhere in the world, it is expected that the Series' assets will
be primarily invested in the equity markets included in the MSCI Non-U.S.
Equity (Free) Index.
INVESTMENT CONSIDERATIONS AND RISKS
The following provides information about the types of instruments in which
the Funds may invest, strategies employed by Brinson Partners in its attempt
to attain each Series' investment objective and a summary of related risks.
Shareholders should understand that all investments involve risks and there
can be no guarantee against loss resulting from an investment in the Series,
nor can there be any assurance that the Series will be able to
8
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attain their investment objectives. A complete list of the Series' investment
restrictions and more detailed information about the Series' investments are
contained in Appendix A in this Prospectus, and in the Statement of Additional
Information.
EQUITY SECURITIES (GLOBAL FUND, GLOBAL EQUITY FUND, U. S. BALANCED FUND,
U.S. EQUITY FUND AND NON-U.S. EQUITY FUND)--Equity securities fluctuate in
value as a result of various factors, which are often unrelated to the value
of the issuer of the securities. These fluctuations may be pronounced. The
Global Fund may invest in small market capitalization companies and in equity
securities that are considered by the Advisor to be in their post-venture
capital stage. These securities may have limited marketability, and therefore,
may be more volatile. Fluctuations in the value of the Series' equity
investments will affect the value of their shares and thus the Funds' total
returns to investors.
FIXED INCOME SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND)--All fixed income securities are subject to two types of
risks: credit risk and interest rate risk. The credit risk relates to the
ability of the issuer to meet interest or principal payments or both as they
come due. The interest rate risk refers to the fluctuations in the net asset
value of any portfolio of fixed income securities resulting from the inverse
relationship between the price and yield of fixed income securities; that is,
when the general level of interest rates rises, the prices of outstanding
fixed income securities decline, and when interest rates fall, prices rise.
FOREIGN SECURITIES AND CURRENCY CONSIDERATIONS (GLOBAL FUND, GLOBAL EQUITY
FUND, GLOBAL BOND FUND AND NON-U.S. EQUITY FUND)--Investments in securities of
foreign issuers may involve greater risks than those of U.S. issuers. There is
generally less information available to the public about non-U.S. companies
and less government regulation and supervision of non-U.S. stock exchanges,
brokers and listed companies. Non-U.S. companies are not subject to uniform
global accounting, auditing and financial reporting standards, practices and
requirements. Securities of some non-U.S. companies are less liquid and their
prices more volatile than securities of comparable U.S. companies. Securities
trading practices abroad may offer less protection to investors. Settlement of
transactions in some non-U.S. markets may be delayed or may be less frequent
than in the United States, which could affect the liquidity of the Series'
portfolios. Additionally, in some non-U.S. countries, there is the possibility
of expropriation or confiscatory taxation, limitations on the removal of
securities, property or other assets of the Series, political or social
instability, or diplomatic developments which could affect U.S. investments in
those countries. The Series intend to diversify broadly among countries, but
reserve the right to invest a substantial portion of their assets in one or
more countries if economic and business conditions warrant such investments.
Brinson Partners will take these factors into consideration in managing the
Series' investments. Because the Series will keep their books and records in
U.S. dollars, the Series will be required, for federal income tax purposes, to
account for income and losses on all transactions involving foreign currency
under Section 988 of the Internal Revenue Code of 1986, as amended, and the
applicable U.S. Treasury Regulations, so that generally any component of a
gain or loss attributable to currency fluctuations results in ordinary income
or loss and not capital gain or loss.
The U.S. dollar market value of the Series' investments and of dividends and
interest earned by the Series may be significantly affected by changes in
currency exchange rates. Some currency prices may be volatile, and there is
the possibility of governmental controls on currency exchange or governmental
intervention in currency markets, which could adversely affect the Series.
Although the Series may attempt to manage currency exchange rate risks, there
is no assurance that the Series will do so at an appropriate time or that they
will be able to predict exchange rates accurately. For example, if the Series
increase their exposure to a currency and that currency's price subsequently
falls, such currency management may result in increased losses to the Series.
9
<PAGE>
Similarly, if the Series decrease their exposure to a currency, and the
currency's price rises, the Series will lose the opportunity to participate in
the currency's appreciation. Each Series will manage currency exposures
relative to the normal currency allocation and will consider return and risk
of currency exposures relative to its respective Benchmark. In addition, if
the currency in which a security is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, a decline
in the exchange rate of the currency would adversely affect the value of the
security expressed in dollars.
There are additional risks inherent in investing in less developed countries
which are applicable to the Global Fund. Compared to the United States and
other developed countries, emerging market countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade only a small number of securities and employ settlement
procedures different from those used in the United States. Prices on these
exchanges tend to be volatile and, in the past, securities in these countries
have offered greater potential for gain (as well as loss) than securities of
companies located in developed countries. Further, investments by foreign
investors are subject to a variety of restrictions in many emerging countries.
Emerging markets countries such as those in which the Global Fund may invest
have historically experienced and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations or currency
depreciation, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Additional factors which
may influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international agencies
and the political constraints to which a government debtor may be subject.
FOREIGN CURRENCY TRANSACTIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND
FUND AND NON-U.S. EQUITY FUND)--To manage exposure to currency fluctuations,
the Series may alter fixed income or money market exposures, enter into
forward currency exchange contracts, buy or sell options or futures relating
to foreign currencies and may purchase securities indexed to currency baskets.
The Series will also use these currency exchange techniques in the normal
course of business to hedge against adverse changes in exchange rates in
connection with purchases and sales of securities. Some of these strategies
may require the Series to set aside liquid assets in a segregated custodial
account to cover their obligations.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS (ALL SERIES)--The Series
may attempt to reduce the overall level of investment risk of particular
securities and attempt to protect against adverse market movements by
investing in futures, options and other derivative instruments. A derivative
instrument is commonly defined as a financial instrument whose performance and
value are derived, at least in part, from another source, such as the
performance of an underlying asset, a specific security or an index of
securities. The derivative instruments in which the Series may invest include
the purchase and writing of options on securities (including index options)
and options on foreign currencies, investing in futures contracts for the
purchase or sale of instruments based on financial indices, including interest
rate indices or indices of U.S. or foreign government securities, equity or
fixed income securities ("futures contracts"), forward contracts and swaps and
swap-related products such as equity index swaps, interest rate swaps,
currency swaps, and related caps, collars and floors.
The investment in futures, options, forward contracts, swaps and similar
strategies by the Series will depend on Brinson Partners' judgment as to the
potential risks and rewards of different types of strategies, and it should be
recognized that the use of these instruments exposes the Series to additional
investment risks and transaction costs. If the Advisor incorrectly analyzes
the market conditions or does not employ the appropriate strategy with respect
to these instruments, the Series could be left in a less favorable position.
For example, gains and losses
10
<PAGE>
on investments in futures depend on the Advisor's ability to predict correctly
the direction of security prices, interest rates and other economic factors.
Additional risks inherent in the use of futures, options and forward contracts
include: adverse movements in the prices of securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedge positions to avoid adverse tax consequences. Options and futures can be
volatile instruments and may not perform as expected. A Series could
experience losses if the prices of its options and futures positions are
poorly correlated with its other investments. If a hedge is applied at an
inappropriate time or price trends are judged incorrectly, options and futures
strategies may lower a Series' return (i.e., options and futures may fail as
hedging techniques in cases where the price movements of the securities
underlying the options and futures do not follow the price movements of the
portfolio securities subject to the hedge). Options and futures traded on
foreign exchanges generally are not regulated by U.S. authorities and may
offer less liquidity and less protection to a Series in the event of default
by the other party to the contract. The loss from investing in futures
transactions is potentially unlimited. A Series does not intend to purchase
put and call options that are traded on a national stock exchange in an amount
exceeding 5% of its net assets.
Each Series may invest in derivatives for hedging purposes, to maintain
liquidity, or in anticipation of changes in the composition of its portfolio
holdings. No Series will engage in derivative investments purely for
speculative purposes. A Series will invest in one or more derivatives only to
the extent that the instrument under consideration is judged by the Advisor to
be consistent with the Series' overall investment objective and policies. In
making such judgment, the potential benefits and risks will be considered in
relation to the Series' other portfolio investments.
Where not specified, investment limitations with respect to a Series'
derivative instruments will be consistent with that Series' existing
percentage limitations with respect to its overall investment policies and
restrictions. The risks and policies of various types of derivative
instruments permitted for the Series, including options, futures, forward
contracts and applicable interest rate swaps, are described in greater detail
in Appendix A in this Prospectus, and in the Statement of Additional
Information.
NON-DIVERSIFIED STATUS (GLOBAL BOND FUND ONLY)--The Global Bond Fund is
classified as a "non-diversified" investment company under the Act, which
means that the proportion of the Series' assets that may be invested in the
securities of a single issuer is not limited by the Act. Since it may invest a
larger portion of its assets in the securities of a single issuer than
investment companies that are classified as diversified funds under the Act,
an investment in the Global Bond Fund may be subject to greater fluctuations
in value than an investment in a diversified fund.
MANAGEMENT OF THE TRUST
THE BOARD OF TRUSTEES
The Trust is a Delaware business trust. Under Delaware law, the Board of
Trustees has overall responsibility for managing the business and affairs of
the Trust. The Trustees elect the officers of the Trust, who are responsible
for administering the day-to-day operations of the Series.
THE ADVISOR
Brinson Partners, a Delaware corporation, is an investment management firm
managing, as of December 31, 1996, approximately $119 billion, primarily for
pension and profit sharing institutional accounts. Brinson Partners was
organized in 1989 when it acquired the institutional asset management business
of The First
11
<PAGE>
National Bank of Chicago and First Chicago Investment Advisors, N.A. Brinson
Partners and its predecessor entities have managed domestic and international
investment assets since 1974 and global investment assets since 1982. Brinson
Partners has offices in Basel, London, Melbourne, New York, Paris, Singapore,
Sydney and Tokyo, in addition to its principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is an indirect wholly-owned
subsidiary of Swiss Bank Corporation ("Swiss Bank"). Swiss Bank, with
headquarters in Basel, Switzerland, is an internationally diversified
organization with operations in many aspects of the financial services
industry. Brinson Partners also serves as the investment advisor to nine other
investment companies: Brinson Relationship Funds, which includes six
investment portfolios (series); The Enterprise Group of Funds, Inc.--
International Growth Portfolio; Enterprise Accumulation Trust--International
Growth Portfolio; Fort Dearborn Income Securities, Inc.; The Hirtle Callaghan
International Trust--The International Equity Portfolio; John Hancock Variable
Series Trust I--International Balanced Portfolio; Managed Accounts Services
Portfolio Trust--Pace Large Company Value Equity Investments; AON Funds--
International Equity Fund; and The Republic Funds--Republic Equity Fund.
Pursuant to its investment advisory agreements (the "Agreements") with the
Trust on behalf of each Series, Brinson Partners is entitled to receive a
monthly fee at various annual percentage rates of the Series' average daily
net assets, as described below, for providing investment advisory services.
Brinson Partners is responsible for paying its own expenses and has agreed to
waive that portion of its advisory fee equal to the total expenses of a Series
for any fiscal year which exceeds the permissible limits applicable to the
Series in any state in which its shares are then qualified for sale. Brinson
Partners has also agreed irrevocably to waive its fees and reimburse certain
expenses so that total operating expenses with the exception of 12b-1 expenses
of each Series will not exceed the percentages set forth in footnote 1 to the
"Annual Fund Operating Expenses" table. Pursuant to its advisory agreements,
Brinson Partners is authorized, at its own expense, to obtain statistical and
other factual information and advice regarding economic factors and trends
from its foreign subsidiaries, but it does not generally receive advice or
recommendations regarding the purchase or sale of securities from such
subsidiaries.
For providing investment advisory services during the fiscal year ended June
30, 1996, Brinson Partners was entitled to receive, under the Agreements, a
monthly fee at an annual rate as follows of the average daily net assets of
the Funds:
<TABLE>
<S> <C>
Brinson Global Fund................................................. 0.80%
Brinson Global Equity Fund.......................................... 0.80
Brinson Global Bond Fund............................................ 0.75
Brinson U.S. Balanced Fund.......................................... 0.70
Brinson U.S. Equity Fund............................................ 0.70
Brinson U.S. Bond Fund.............................................. 0.50
Brinson Non-U.S. Equity Fund........................................ 0.80
</TABLE>
The fee payable to Brinson Partners by the Brinson Global, Brinson Global
Equity and Brinson Non-U.S. Equity Funds is higher than the advisory fees paid
by most other mutual funds, but is comparable to those of other mutual funds
with similar investment objectives.
PORTFOLIO MANAGEMENT
Investment decisions for the Series are made by an investment management
team at Brinson Partners. No member of the investment management team is
primarily responsible for making recommendations for portfolio purchases.
12
<PAGE>
ADMINISTRATION OF THE TRUST
THE UNDERWRITER
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, MA
02109, was engaged pursuant to an agreement dated February 5, 1997, for the
limited purpose of acting as underwriter to facilitate the filing of notice
regarding sale of the shares of the Trust under state securities laws and to
assist in the sale of shares. The fee for such service is borne by the
Advisor.
THE ADMINISTRATOR
ADMINISTRATIVE, ACCOUNTING, TRANSFER AGENCY AND CUSTODIAN SERVICES
The Trust, on behalf of each Fund, has entered into a Multiple Services
Agreement (the "Services Agreement") with Morgan Stanley Trust Company, One
Pierrepont Plaza, Brooklyn, New York 11201 ("MSTC"), pursuant to which MSTC is
required to provide general administrative, accounting, portfolio valuation,
transfer agency and custodian services to the Fund, including the coordination
and monitoring of any third party service providers.
Custody Services. MSTC provides custodian services for the securities and
cash of the Fund. The custody fee schedule is based primarily on the net
amount of assets held during the period for which payment is being made plus a
per transaction fee for transactions during the period and out-of-pocket
expenses.
As authorized under the Services Agreement, MSTC has entered into a Mutual
Funds Service Agreement (the "CGFSC Agreement") with Chase Global Funds
Services Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank,
under which CGFSC provides administrative, accounting, portfolio valuation and
transfer agency services to the Fund. CGFSC's business address is 73 Tremont
Street, Boston, Massachusetts 02108-3913. Subject to the supervision of the
Board of Trustees of the Trust, MSTC supervises and monitors such services
provided by CGFSC.
Pursuant to the CGFSC Agreement, CGFSC provides:
(1) administrative services, including providing the necessary office
space, equipment and personnel to perform administrative and clerical
services; preparing, filing and distributing proxy materials, periodic
reports to Investors, registration statements and other documents; and
responding to Investor inquiries;
(2) accounting and portfolio valuation services, including the daily
calculation of the Fund's net asset value and the preparation of certain
financial statements; and
(3) transfer agency services, including the maintenance of each
Investor's account records, responding to Investors' inquiries concerning
accounts, processing purchases and redemptions of the Fund's shares, acting
as dividend and distribution disbursing agent and performing other service
functions. Shareholder inquiries should be made to the transfer agent at 1-
800-448-2430.
Also as authorized under the Services Agreement, MSTC has entered into a
sub-administration agreement (the "FDI Agreement") with Funds Distributor,
Inc. ("FDI") under which FDI provides administrative assistance to the Fund
with respect to (i) regulatory matters, including regulatory developments and
examinations, (ii) all aspects of the Fund's day-to-day operations, (iii)
office facilities, clerical and administrative services, and (iv) maintenance
of books and records. FDI's business address is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
13
<PAGE>
For its administrative, accounting, transfer agency and custodian services,
MSTC receives the following as compensation from the Trust on an annual basis:
0.0025% of the average daily U.S. assets of the Trust; 0.0525% of the average
daily non-U.S. assets of the Trust; 0.3250% of the average daily emerging
markets equity assets of the Trust; and 0.019% of the average daily emerging
markets debt assets of the Trust. MSTC receives an additional fee of 0.075% of
the average daily net assets of the Trust for administrative duties, the
latter subject to the expense limitation applicable to the Trust. No fee
(asset based or otherwise) is charged on any investments made by any fund into
any other fund sponsored or managed by the Advisor and assets of a fund that
are invested in another investment company or series thereof sponsored or
managed by the Advisor will not be counted in determining the 0.075%
administrative duties fee or the applicability of the expense limitation on
such fee. The foregoing fees include all out-of-pocket expenses or transaction
charges incurred by MSTC and any third party service provider in providing
such services. Pursuant to the CGFSC Agreement and the FDI Agreement, MSTC
pays CGFSC and FDI, respectively, for the services that CGFSC and FDI provide
to MSTC in fulfilling MSTC's obligations under the Services Agreement.
PURCHASE OF SHARES
Shares of the Funds may be purchased directly from the Trust at the net
asset value next determined after receipt of the order in proper form by the
transfer agent. There is no sales load in connection with the purchase of Fund
shares. The Trust reserves the right to reject any purchase order and to
suspend the offering of shares of the Brinson--Class N or any Series. The
Funds will not accept a check endorsed over by a third-party. The minimum
initial investment for Fund shares is $1,000,000. The minimum initial
investment for Individual Retirement Accounts ("IRAs") is $2,000. The Trust
reserves the right to vary the initial investment minimum and impose minimums
for additional investments in any of the Funds at any time. In addition,
Brinson Partners may waive the minimum initial investment requirement for any
investor.
The Brinson Funds may be purchased through broker-dealers having sales
agreements with FDI, or through financial institutions having agency
agreements with FDI. There is no sales load or charge in connection with the
purchase of shares. The Brinson Class N shares, however, are subject to annual
12b-1 plan expenses of 0.25% of the Funds' average daily net assets of such
shares.
The Brinson--Class N shares may also be marketed directly through the
offices of Swiss Bank. Swiss Bank has been providing investment advisory
services since its formation in 1872. Through its branches and subsidiaries,
Swiss Bank conducts securities research, provides investment advisory services
and manages mutual funds in major cities throughout the world, including
Amsterdam, Basel, Geneva, Frankfurt, Hong Kong, London, Luxembourg, Monte
Carlo, New York, Paris, Singapore, Sydney, Tokyo, Toronto and Zurich.
Purchase orders for shares of the Funds which are received by the transfer
agent in proper form prior to the close of regular trading hours (currently
4:00 p.m. Eastern time) on the New York Stock Exchange (the "NYSE") on any day
that the Funds' net asset values per share are calculated, are priced
according to the net asset value determined on that day. Purchase orders for
shares of the Funds received after the close of the NYSE on a particular day
are priced as of the time the net asset value per share is next determined.
The Trust may accept telephone orders for Fund shares from broker-dealers or
service organizations which have been previously approved by the Trust. It is
the responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for the same to the Fund. Shares of the
Funds may be purchased through broker-dealers, banks and bank trust
departments which may charge the investor a transaction fee or other fee for
their services at the time of purchase. Such fees would not otherwise be
charged if the shares were purchased directly from the Trust.
14
<PAGE>
PURCHASES MAY BE MADE IN ONE OF THE FOLLOWING WAYS:
<TABLE>
<CAPTION>
INITIAL INVESTMENT SUBSEQUENT INVESTMENTS
------------------------------- -------------------------------
<S> <C> <C>
MINIMUM $1,000,000
BY MAIL . Complete and sign the Account . Make your check payable
[LOGO ENVELOPE] Application accompanying this to "Brinson ______ Fund--Class
Prospectus. N."
. Make your check payable to . Enclose the remittance
"Brinson ______ Fund--Class portion of your account
N." statement and include
the amount of investment, the
account name and number.
. Mail to the address indicated . Mail to the address indicated
on the Account Application. on your account statement or
enclose in the envelope provided.
BY WIRE . Call 1-800-448-2430 to
[LOGO WIRE] arrange for a wire
transaction.
. Wire federal funds within 24 . Wire federal funds to:
hours to: CHASE MANHATTAN BANK
CHASE MANHATTAN BANK ABA#021000021
ABA#021000021 DDA#9102-783504
DDA#9102-783504 FOR: "BRINSON FUND--CLASS N"
FOR: "BRINSON FUND--CLASS N" AND INCLUDE YOUR NAME AND
AND INCLUDE YOUR NAME AND NEW ACCOUNT NUMBER.
ACCOUNT NUMBER.
. Complete and sign the Account
Application and mail to the
address indicated on the
Account Application
immediately following the
initial wire transaction.
BY TELEPHONE . Call 1-800-448-2430 to . Call 1-800-448-2430 to
[LOGO TELEPHONE] arrange for a telephone arrange for a telephone
transaction. transaction.
PURCHASING BY EXCHANGES . You may open a new account by . You may purchase additional
[LOGO ARROW] making an exchange from an shares by making an exchange
existing Brinson--Class N from an existing Brinson--
account of any other Series of Class N account of any other
the Trust. Exchanges may be Series of the Trust. Exchanges
made by mail or telephone. may be made by mail or
Call 1-800-448-2430 for telephone. Call 1-800-448-2430
assistance. for assistance.
AUTOMATICALLY . Please refer to "Automatic . Please refer to "Automatic
Investment Plan" under Investment Plan" under
"Account Options" or call 1- "Account Options" or call 1-
800-448-2430 for assistance. 800-448-2430 for assistance.
</TABLE>
15
<PAGE>
ACCOUNT OPTIONS
The following account options are available to shareholders. There are no
charges for the programs noted below and an investor may change or terminate
these plans at any time by written notice to the Trust. For information about
participating in these account options, call the transfer agent at 1-800-448-
2430.
<TABLE>
<CAPTION>
ACCOUNT OPTIONS INSTRUCTIONS
------------------------------ -----------------------------------------------
<C> <S> <C>
AUTOMATIC INVESTMENT PLAN . You may have money deducted directly
from your checking, savings or bank
money market accounts for investment in
the Funds each month or quarter.
. Complete the Automatic Investment Plan
section on the Account Application
accompanying this Prospectus and mail
it to the address indicated.
. The account must be opened first with
the initial $1,000,000 minimum
investment pursuant to the Automatic
Investment Plan.
. The account designated will be debited
in the specified amount, on the date
indicated, and Fund shares will be
purchased. The Trust may alter or
terminate the Automatic Investment Plan
at any time.
SYSTEMATIC WITHDRAWAL PLAN . A shareholder with a minimum account of
$1,000,000 may direct the transfer
agent to send the shareholder (or
anyone the shareholder designates)
regular, monthly, quarterly or semi-
annual payments. Each payment under a
Systematic Withdrawal Plan ("SWP") must
be at least $100. Such payments are
drawn from share redemptions.
. Shareholders participating in the SWP
must elect to have their dividends and
distributions automatically reinvested
in additional Fund shares.
. The Trust may terminate any SWP for an
account if the value of the account
falls below $50,000 as a result of
share redemptions or an exchange of
shares of a Fund for Brinson--Class N
Fund shares of another Series of the
Trust.
INDIVIDUAL RETIREMENT ACCOUNTS . An IRA is a tax-deferred retirement
savings account that may be used by an
individual under age 70 1/2 who has
compensation or self-employment income
and his or her unemployed spouse, or an
individual who has received a qualified
distribution from his or her employer's
retirement plan.
. The minimum purchase requirement for
IRAs is $2,000.
</TABLE>
REDEMPTION OF SHARES
Shares of the Funds may be redeemed without charge on any business day that
the NYSE is open. Redemptions will be effected at the net asset value per
share next determined after the receipt by the transfer agent of a redemption
request meeting the requirements described below. The Trust normally sends
redemption proceeds on the next business day but, in any event, redemption
proceeds are sent within five business days of receipt of a redemption request
in proper form. Payment also may be made by wire directly to any bank
previously designated by the shareholder in an Account Application. Please
note that the shareholder's bank may impose a fee for wire service. The Trust
will honor redemption requests of shareholders who recently purchased
16
<PAGE>
shares by check, but will not mail the proceeds until it is reasonably
satisfied that the purchase check has cleared, which may take up to fifteen
days from the purchase date.
Except as noted below, redemption requests received in proper form by the
transfer agent prior to the close of regular trading hours on the NYSE on any
business day that the Funds' net asset values per share are calculated are
effected that day. Redemption requests received in proper form by the transfer
agent after the close of the NYSE are effected as of the time the net asset
value per share is next determined. No redemption will be processed until the
transfer agent has received a completed application with respect to the
account.
Shares of the Funds may be redeemed through certain broker-dealers, banks
and bank trust departments who may charge the investor a transaction fee or
other fee for their services at the time of redemption. Such fees would not
otherwise be charged if the shares were redeemed directly from the Trust.
The Trust will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of Brinson
Partners or the Board of Trustees, result in the necessity of a Series selling
assets under disadvantageous conditions and to the detriment of the remaining
shareholders of the Series. Pursuant to the Trust's Agreement and Declaration
of Trust, payment for shares redeemed may be made either in cash or in-kind,
or partly in cash and partly in-kind. However, the Trust has elected, pursuant
to Rule 18f-1 under the Act, to redeem its shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of a Series, during any 90-day
period for any one shareholder. Payments in excess of this limit will also be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of the Series. Any portfolio securities paid or distributed in-kind
would be valued as described under "Net Asset Value." In the event that an in-
kind distribution is made, a shareholder may incur additional expenses, such
as the payment of brokerage commissions, on the sale or other disposition of
the securities received from a Series. In-kind payments need not constitute a
cross-section of a Series' portfolio. Where a shareholder has requested
redemption of all or a part of the shareholder's investment and where a Series
computes such redemption in-kind, the Series will not recognize gain or loss
for federal tax purposes on the securities used to compute the redemption, but
the shareholder will recognize gain or loss equal to the difference between
the fair market value of the securities received and the shareholder's basis
in the Fund shares redeemed.
SHARES MAY BE REDEEMED IN ONE OF THE FOLLOWING WAYS:
<TABLE>
<C> <S>
BY MAIL . Submit a written request for redemption with:
[LOGO ENVELOPE] . The Fund's name;
. Your Fund account number;
. The dollar amount or number of shares to be
redeemed; and
. Signatures of all persons required to sign for
transactions, exactly as their names appear on
the Account Application.
. A signature guarantee for the signature of each
person in whose name the account is registered is
required on all written redemption requests over
$5,000.
. Mail to the address indicated on the Account
Application. Questions may be directed to the
transfer agent at 1-800-448-2430.
BY WIRE . This service must be elected either on the
[LOGO WIRE] initial application or subsequently arranged in
writing.
. Shares may be redeemed by instructing the
transfer agent by telephone at 1-800-448-2430.
. Wire redemption requests must be received by the
transfer agent before 4:00 p.m. Eastern time for
money to be wired the next business day.
</TABLE>
17
<PAGE>
<TABLE>
<C> <S>
BY TELEPHONE 1-800-448-2430 . This service must be elected either on the
[LOGO TELEPHONE] initial application or subsequently arranged in
writing.
. Shares may be redeemed by instructing the
transfer agent by telephone at 1-800-448-2430.
. Shares will be sold at the next share price
calculated after the order is received and
accepted. Share price is normally calculated at
4:00 p.m. Eastern time.
AUTOMATICALLY . Please refer to "Systematic Withdrawal Plan"
under "Account Options" or call 1-800-448-2430
for assistance.
</TABLE>
- ----------
NOTE: The Trust reserves the right to refuse a wire or telephone redemption if
it is believed advisable to do so. Procedures for redeeming shares of the
Brinson Funds by wire or telephone may be modified or terminated at any
time by the Trust.
TELEPHONE TRANSACTIONS:
Shareholders who wish to initiate purchase, exchange or redemption
transactions by telephone must elect the option, as described above. With
respect to such telephone transactions, the Funds will ensure that reasonable
procedures are used to confirm that instructions communicated by telephone are
genuine (including verification of the shareholder's social security number or
mother's maiden name) and, if they do not, the Funds or the transfer agent may
be liable for any losses due to unauthorized or fraudulent transactions.
Written confirmation will be provided for all purchase, exchange and
redemption transactions initiated by telephone.
EXCHANGE OF SHARES:
Fund shares may be exchanged for Brinson--Class N shares of any other Series
within the Trust. Exchanges will not be permitted between the Brinson--Class N
shares and either the SwissKey Fund class shares or the Brinson--Class I
shares of a Series of the Trust.
Fund shares may be exchanged by written request or by telephone if the
shareholder has previously signed a telephone authorization on the Account
Application. The telephone exchange may be difficult to implement during times
of drastic economic or market changes. The Trust reserves the right to
restrict the frequency of, or otherwise modify, condition, terminate or impose
charges upon the exchange and/or telephone transfer privileges upon 60 days'
prior written notice to shareholders.
Exchanges will be made on the basis of the relative net asset value per
share of the Brinson--Class N shares of the Fund from which, and the Fund into
which, the exchange is made. Exchanges may be made only for shares of a Series
and class then offering its shares for sale in your state of residence and are
subject to the minimum initial investment requirement. For federal income tax
purposes, an exchange of shares would be treated as if the shareholder had
redeemed shares of one Series and reinvested in shares of another Series.
Gains or losses on the shares exchanged are realized by the shareholder at the
time of the exchange. Any shareholder wishing to make an exchange should first
obtain and review a prospectus of the other Series. Requests for telephone
exchanges must be received by the transfer agent by the close of regular
trading hours (currently 4:00 p.m. Eastern time) on the NYSE on any day that
the NYSE is open for regular trading.
TRANSFER OF SECURITIES:
At the discretion of the Trust, investors may be permitted to purchase Fund
shares by transferring securities to a Series that meet the Series' investment
objective and policies. Securities transferred to a Series will be valued
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in accordance with the same procedures used to determine the Fund's net asset
value at the time of the next determination of net asset value after such
acceptance. Shares issued by a Series in exchange for securities will be
issued at net asset value per share of the Fund determined as of the same
time. All dividends, interest, subscription, or other rights pertaining to
such securities shall become the property of the Series and must be delivered
to the Series by the investor upon receipt from the issuer. Investors who are
permitted to transfer such securities will be required to recognize a gain or
loss on such transfer and pay tax thereon, if applicable, measured by the
difference between the fair market value of the securities and the investors'
basis therein. Securities will not be accepted in exchange for shares of a
Fund unless: (1) such securities are, at the time of the exchange, eligible to
be included in the Series' portfolio and current market quotations are readily
available for such securities; (2) the investor represents and warrants that
all securities offered to be exchanged are not subject to any restrictions
upon their sale by the Series under the Securities Act of 1933, as amended, or
under the laws of the country in which the principal market for such
securities exists, or otherwise; and (3) the value of any such security
(except U.S. government securities) being exchanged, together with other
securities of the same issuer owned by the Series, will not exceed 5% of the
Series' net assets immediately after the transaction.
NET ASSET VALUE
The net asset value per share for each class of shares of the Series is
computed by adding, with respect to each class of shares, the value of a
Series' investments, cash and other assets attributable to that class,
deducting liabilities of the class and dividing the result by the number of
shares of that class outstanding. The public offering price of the shares of
each classes' shares, all of which are sold on a continuous basis, is the net
asset value of that class. The valuation of assets for determining the net
asset value may be summarized as follows:
Securities traded on securities exchanges are valued at the last
available sale price. Securities that are not traded on a particular day or
on an exchange are valued at either (a) the bid price or (b) a valuation
within the range considered best to represent value in the circumstances.
Price information on listed securities is generally taken from the closing
price on the exchange where the security is primarily traded. Valuations of
equity securities may be obtained from a pricing service and/or broker-
dealers when such prices are believed to reflect fair value of such
securities. Use of a pricing service and/or broker-dealers has been
approved by the Board of Trustees. Futures contracts are valued at their
daily quoted settlement price on the exchange on which they are traded.
Forward foreign currency contracts are valued daily using the mean between
the bid and asked forward points added to the current exchange rate and an
unrealized gain or loss is recorded. The Series realizes a gain or loss
upon settlement of the contracts. For valuation purposes, foreign
securities initially expressed in foreign currency values will be converted
into U.S. dollar values using WM/Reuters closing spot rates as of 4:00 p.m.
London time.
Securities with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates market value. Fixed income securities
having a remaining maturity of over 60 days are valued at market price.
Debt securities are valued on the basis of prices provided by a pricing
service, or at the bid price where readily available, as long as the bid
price, in the opinion of the Advisor, continues to reflect the value of the
security. Redeemable securities issued by open-end investment companies are
valued using their respective net asset values for purchase orders placed
at the close of the NYSE. Securities (including over-the-counter options)
for which market quotations are not readily available and other assets are
valued at their fair value as determined in good faith by or under the
direction of the Trustees.
Net asset value is determined on each day that the NYSE is open, as of the
close of business of the regular session of the NYSE (currently 4:00 p.m.
Eastern time). Investments and requests to exchange or redeem shares received
by the Series in proper form before such close of business are effective, and
will receive the price determined, on that day. Investment, exchange and
redemption requests received after such close of business are effective, and
will receive the share price determined, on the next business day.
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Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE and values
of foreign futures and options and foreign securities will be determined as of
the earlier closing of such exchanges and securities markets. However, events
affecting the values of such foreign securities may occasionally occur between
the earlier closings of such exchanges and securities markets and the closing
of the NYSE which will not be reflected in the computation of the net asset
value of a class of a Series. If an event materially affecting the value of
such foreign securities occurs during such period, then such securities will
be valued at fair value as determined in good faith by or under the direction
of the Board of Trustees. Where a foreign securities market remains open at
the time that a Series values its portfolio securities, or closing prices of
securities from that market may not be retrieved because of local time
differences or other difficulties in obtaining such prices at that time, last
sale prices in such market at a point in time most practicable to timely
valuation of the Series may be used.
The Series' portfolio securities from time to time may be listed primarily
on foreign exchanges which trade on days when the NYSE is closed (such as
Saturday). As a result, the net asset value of a class of a Fund may be
significantly affected by such trading on days when shareholders have no
access to the Fund.
All of the Series' classes of shares will bear pro rata all of the expenses
of that Series common to all classes. The net asset value of all outstanding
shares of each class of the Series will be computed on a pro rata basis for
each outstanding share based on the proportionate participation in the Series
represented by the value of shares of that class. All income earned and
expenses incurred by the Series will be borne on a pro rata basis by each
outstanding share of a class, based on each class' proportionate participation
in the Series represented by the value of shares of such class, except that
the Brinson--Class N and SwissKey Fund class shares will bear 12b-1 expenses
payable under their respective 12b-1 plans.
Due to the specific distribution expenses and other costs that will be
allocable to each class, the dividends paid to each class of the Series may
vary. The per share net asset value of the Brinson--Class N shares and the
SwissKey Fund class shares will generally be lower than that of the Brinson--
Class I shares of a Series because of the higher expenses borne by the
SwissKey Fund class shares and the Brinson--Class N shares. It is expected,
however, that the net asset value per share of the two classes will tend to
converge immediately after the payment of dividends, which will differ by
approximately the amount of the service and distribution expenses differential
among the classes.
DISTRIBUTION PLAN
The Board of Trustees of the Trust has adopted a distribution plan (the
"Plan") pursuant to Rule 12b-1 under the Act for the Brinson--Class N shares.
The Plan permits each Series to reimburse FDI, Brinson Partners and others
from the assets of the Brinson--Class N shares a quarterly fee for services
and expenses incurred in distributing and promoting sales of the Brinson--
Class N shares. These expenses include, but are not limited to, preparing and
distributing advertisements and sales literature, printing prospectuses and
reports used for sales purposes, and paying distribution and maintenance fees
to brokers, dealers and others in accordance with a selling agreement with the
Trust on behalf of the Brinson--Class N shares or FDI. In addition, each
Series may make payments directly to FDI for payment to dealers or others, or
directly to others, such as banks, who assist in the distribution of the
SwissKey Funds or provide services with respect to the Brinson Funds.
Swiss Bank, or one of its affiliates, pursuant to a selected dealer
agreement, may provide additional compensation to securities dealers from its
own resources in connection with sales of the Brinson--Class N shares of the
Series.
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The aggregate distribution fees paid by the Series from the assets of the
respective Brinson--Class N shares to FDI and others under the Plan may not
exceed 0.25% of a Fund's average daily net assets in any year.
The Plan applies only to the Brinson--Class N shares of each Series. Shares
of other classes are not included in calculating the Plan's fees and the Plan
is not used to assist in the distribution and marketing of each Series'
SwissKey Fund class or Brinson--Class I shares. All payments made by the
Brinson--Class N shares of a Series pursuant to the Plan shall be made for the
purpose of selling shares issued by the Brinson--Class N of the Series.
Distribution expenses which are attributable to a particular class of a Series
will be charged against the assets of that class of that Series. Distribution
expenses which are attributable to more than one class or Series will be
allocated among the classes or Series, in proportion to their relative net
assets.
The quarterly fees paid to FDI under the Plan are subject to the review and
approval by the Trust's Trustees who are not "interested persons" of the
Advisor of FDI (as defined in the Act) and who may reduce the fees or
terminate the Plan at any time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS
The Series will distribute their net investment income semi-annually in June
and December. The Series will distribute annually in December substantially
all of their net long-term capital gains and any undistributed net short-term
capital gains realized during the one year period commencing November 1 (or
date of the creation of the Series, if later) and ending October 31, and, at
the same time, will distribute all of their net investment income earned
through the end of December and not previously distributed as ordinary (not
capital) income.
Dividends and other distributions paid by a Series with respect to its
Brinson--Class N, Brinson--Class I and SwissKey Fund class shares are
calculated in the same manner and at the same time. The per share amount of
any income dividends will generally differ among the classes only to the
extent that the Brinson--Class N and SwissKey Fund class are subject to
separate 12b-1 fees. The per share dividends on SwissKey Fund class shares and
Brinson--Class N shares will be lower than the per share dividends on the
Brinson--Class I shares of each Series as a result of the distribution and
service fees applicable with respect to the SwissKey Fund class shares and
Brinson--Class N shares.
Income dividends and capital gain distributions are reinvested automatically
in additional Fund shares of the Series at net asset value, unless the
shareholder has notified the transfer agent, in writing, of the shareholder's
election to receive them in cash. Distribution options may be changed at any
time by requesting a change in writing. Any check in payment of dividends or
other distributions which cannot be delivered by the Post Office or which
remains uncashed for a period of more than one year may be reinvested in the
shareholder's account at the then current net asset value and the dividend
option may be changed from cash to reinvest. Dividends are reinvested on the
ex dividend date (the "ex date") at the net asset value determined at the
close of business on that date. Please note that shares purchased shortly
before the record date for a dividend or distribution may have the effect of
returning capital although such dividends and distributions are subject to
taxes.
TAXES
Each Series has qualified, and intends to continue to qualify, for taxation
as a "regulated investment company" under the Internal Revenue Code of 1986,
as amended ("the Code"). Such qualification relieves a Series of liability for
federal income taxes to the extent the Series' earnings are distributed in
accordance with the Code. Each Series is treated as a separate corporate
entity for federal tax purposes. Distributions of any net investment income
and of any net realized short-term capital gains are taxable to shareholders
as ordinary income. All distributions may be subject to state and local taxes.
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Distributions of net capital gain (the excess of net long-term capital gain
over net short-term capital loss) are taxable to shareholders as long-term
capital gain regardless of how long a shareholder may have held shares of a
Series. The tax treatment of distributions of ordinary income or capital gains
will be the same whether the shareholder reinvests the distributions or elects
to receive them in cash. A distribution will be treated as paid on December 31
of the current calendar year if it is declared in October, November or
December with a record date in such a month and paid during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Shareholders will be advised annually of the source and tax status of all
distributions for federal income tax purposes. Further information regarding
the tax consequences of investing in the Series is included in the Statement
of Additional Information. The above discussion is intended for general
information only. Investors should consult their own tax advisors for more
specific information on the tax consequences of particular types of
distributions.
Redemptions of Series shares, and the exchange of shares between two Series
of the Trust, are taxable events and, accordingly, shareholders may realize
capital gains or losses on these transactions.
Shareholders may be subject to back-up withholding on reportable dividend
and redemption payments ("back-up withholding") if a certified taxpayer
identification number is not on file with the Series, or if, to the Series'
knowledge, an incorrect number has been furnished, or if the Series has been
notified by the Internal Revenue Service that an account is subject to back-up
withholding. An individual's taxpayer identification number is the
individual's social security number.
If more than 50% of a Series' total assets at the close of its taxable year
consists of stock or securities in foreign corporations, the Series may elect
to "pass-through" to shareholders for foreign tax credit purposes the amount
of foreign income taxes paid by the Series with respect to its direct holdings
of securities in foreign corporations. A Series will make such an election
only if it deems such election to be in the best interests of its
shareholders. If this election is made, shareholders of the Series will be
required to include in their gross incomes their pro rata share of foreign
taxes paid by the Series. However, shareholders will be able to treat their
pro rata share of foreign taxes as either a deduction (itemized deduction in
the case of individuals) or a foreign tax credit (but not both) against U.S.
income taxes on their tax returns.
GENERAL INFORMATION
ORGANIZATION
The Brinson Funds is a Delaware business trust organized pursuant to an
Agreement and Declaration of Trust, dated December 1, 1993. The Trust was
originally organized as a Maryland corporation on April 14, 1992. On December
1, 1993, the Trust reorganized as a Delaware business trust through a merger
of the Maryland corporation into the Trust. The Trust is registered under the
Act as an open-end management investment company, commonly known as a mutual
fund and consists of seven different Series. The Trustees of the Trust may
establish additional series or classes of shares without the approval of
shareholders. All of the Series, except the Global Bond Fund, are diversified
portfolios. The assets of each Series belong only to that Series, and the
liabilities of each Series are borne solely by that Series and no other.
DESCRIPTION OF SHARES
Each Series is authorized to issue an unlimited number of shares of
beneficial interest with a $0.001 par value per share. The Board of Trustees
has the power to designate one or more series or sub-series/classes of shares
of beneficial interest and to classify or reclassify only unissued shares with
respect to such series. Shares
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of each series represent equal proportionate interests in the assets of that
series only and have identical voting, dividend, redemption, liquidation, and
other rights, except that only shares of each Series' Brinson--Class N and
SwissKey Fund classes shall have voting rights with respect to the Rule 12b-1
plan relating to such classes, respectively, as described below. All shares
issued are fully paid and non-assessable, and shareholders have no preemptive
or other right to subscribe to any additional shares and no conversion rights.
Currently, the Trust offers seven investment portfolios or series--Global
Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity
Fund, U.S. Bond Fund and Non-U.S. Equity Fund. Three classes of shares are
currently issued by the Trust for each Series, the Brinson--Class N, Brinson--
Class I and SwissKey Fund class.
VOTING RIGHTS
Each issued and outstanding full and fractional share of a Series is
entitled to one full and fractional vote in the Series and all shares of each
Series participate equally with regard to dividends, distributions, and
liquidations with respect to that Series. Shareholders do not have cumulative
voting rights. On any matter submitted to a vote of shareholders, shares of
each Series will vote separately except when a vote of shareholders in the
aggregate is required by law, or when the Trustees have determined that the
matter affects the interests of more than one Series, in which case the
shareholders of all such Series shall be entitled to vote thereon. Only the
Brinson--Class N shareholders may vote on matters related to the Plan
associated with that class and only the SwissKey Fund class shareholders may
vote on matters related to the 12b-1 plan associated with that class and only
the SwissKey Fund class shareholders may vote on matters related to the 12b-1
plan associated with that class.
SHAREHOLDER MEETINGS
The Trustees of the Trust do not intend to hold annual meetings of
shareholders of the Series. The U.S. Securities and Exchange Commission,
however, requires the Trustees to promptly call a meeting for the purpose of
voting upon the question of removal of any Trustee when requested to do so by
not less than 10% of the outstanding shareholders of the respective Series. In
addition, subject to certain conditions, shareholders of each Series may apply
to the Series to communicate with other shareholders to request a
shareholders' meeting to vote upon the removal of a Trustee or Trustees.
PORTFOLIO TURNOVER (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S.
BOND FUND)
As a result of the investment policies of the Global Fund, Global Bond Fund,
U.S. Balanced Fund and U.S. Bond Fund, their portfolio turnover rates may
exceed 100%. High portfolio turnover (over 100%) may involve correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Series and ultimately by the Series' shareholders. In
addition, high portfolio turnover may result in increased short-term capital
gains, which, when distributed to shareholders, are treated as ordinary
income.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Trust will attempt to obtain the best overall price and most favorable
execution of transactions in portfolio securities. However, subject to
policies established by the Board of Trustees of the Trust, a Series may pay a
broker-dealer a commission for effecting a portfolio transaction for the
Series in excess of the amount of commission another broker-dealer would have
charged if Brinson Partners determines in good faith that the commission paid
was reasonable in relation to the brokerage or research services provided by
such broker-dealer, viewed in terms of that particular transaction or such
firm's overall responsibilities with respect to the clients, including the
Series, as to which it exercises investment discretion. In selecting and
monitoring broker-dealers and negotiating commissions, consideration will be
given to a broker-dealer's reliability, the quality of its execution services
on a continuing basis and its financial condition.
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When buying or selling securities, the Series may pay commissions to brokers
who are affiliated with the Advisor or the Series. The Series may also
purchase securities in certain underwritten offerings for which an affiliate
of the Series or the Advisor may act as an underwriter. The Series may effect
futures transactions through, and pay commissions to, futures commission
merchants who are affiliated with the Advisor or the Series in accordance with
procedures adopted by the Board of Trustees of the Trust.
SHAREHOLDER REPORTS AND INQUIRIES
Shareholders will receive semi-annual reports showing portfolio investments
and other information as of December 31 and annual reports audited by
independent auditors as of June 30. Shareholders with inquiries should call
the Brinson Funds at 1-800-448-2430 or write to The Brinson Funds, 9th Floor,
73 Tremont Street, P.O. Box 2798, Boston, MA 02208-2798.
PERFORMANCE INFORMATION
From time to time, performance information, such as yield or total return,
may be quoted in advertisements or in communications to present or prospective
shareholders. Performance quotations represent the Funds' past performance and
should not be considered as representative of future results. The current
yield will be calculated by dividing the net investment income earned per
share by a Fund during the period stated in the advertisement (based on the
average daily number of shares entitled to receive dividends outstanding
during the period) by the maximum net asset value per share on the last day of
the period and annualizing the result on a semi-annual compounded basis. The
Funds' total return may be calculated on an annualized and aggregate basis for
various periods (which periods will be stated in the advertisement). Average
annual return reflects the average percentage change per year in value of an
investment in a Fund. Aggregate total return reflects the total percentage
change over the stated period.
To help investors better evaluate how an investment in the Brinson Funds
might satisfy their investment objectives, advertisements regarding the Funds
may discuss yield or total return as reported by various financial
publications. Advertisements may also compare yield or total return to other
investments, indices and averages. The following publications, benchmarks,
indices and averages may be used: Lipper Mutual Fund Performance Analysis;
Lipper Fixed Income Analysis; Lipper Mutual Fund Indices; Morgan Stanley
Indices; Shearson Lehman Hutton Treasury Index; Salomon Brothers Indices; Dow
Jones Composite Average or its component indices; Standard & Poor's 500 Stock
Index or its component indices; Wilshire Indices; The New York Stock Exchange
composite or component indices; CDA Mutual Fund Report; Weisenberger--Mutual
Funds Panorama and Investment Companies; Mutual Fund Values and Mutual Fund
Service Book, published by Morningstar, Inc.; comparable portfolios managed by
the Advisor; and financial publications, such as Business Week, Kiplinger's
Personal Finance, Financial World, Forbes, Fortune, Money Magazine, The Wall
Street Journal, Barron's, et al., which rate fund performance over various
time periods.
The principal value of an investment in the Funds will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Any fees charged by banks or other institutional investors
directly to their customer accounts in connection with investments in shares
of the Funds will not be included in the Brinson Funds' calculations of yield
or total return. Further information about the performance of the Funds is
included in the Funds' Annual Report dated June 30, 1997, which may be
obtained without charge by contacting the Trust at 1-800-448-2430. The
performance of the Brinson--Class N shares, however, is not included in such
Annual Report as such performance commenced after June 30, 1997.
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APPENDIX A
INVESTMENT POLICIES AND TECHNIQUES
EQUITY SECURITIES (GLOBAL FUND, GLOBAL EQUITY FUND, U.S. BALANCED FUND, U.S.
EQUITY FUND AND NON-U.S. EQUITY FUND): The Series may invest in a broad range
of equity securities of U.S. and non-U.S. issuers, including common stocks of
companies or closed-end investment companies, preferred stocks, debt
securities convertible into or exchangeable for common stock, securities such
as warrants or rights that are convertible into common stock and sponsored or
unsponsored American, European and Global depository receipts ("Depository
Receipts"). The issuers of unsponsored Depository Receipts are not obligated
to disclose material information in the United States. The Series expect their
U.S. equity investments to emphasize large and intermediate capitalization
companies, although the Global Fund may also invest in small capitalization
equity markets. The equity markets in the non-U.S. component of the Series
will typically include available shares of larger capitalization companies.
Capitalization levels are measured relative to specific markets, thus large,
intermediate and small capitalization ranges vary country by country. The
Global Fund may invest in equity securities of companies considered by the
Advisor to be in their post-venture capital stage, or "post-venture capital
companies." A post-venture capital company is a company that has received
venture capital financing either (a) during the early stages of the company's
existence or the early stages of the development of a new product or service,
or (b) as part of a restructuring or recapitalization of the company. The
Global Fund also may invest in open-end investment companies advised by
Brinson Partners, in equity securities of issuers in emerging markets and in
securities with respect to which the return is derived from the equity
securities of issuers in emerging markets.
FIXED INCOME SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND): The Series may invest in a broad range of fixed income
securities of U.S. and non-U.S. issuers, including governments and
governmental entities, supranational issuers as well as corporations and other
business organizations. The Series may purchase U.S. dollar denominated
securities that reflect a broad range of investment maturities, qualities and
sectors. A majority of the fixed income securities in which the Series will
invest will possess a minimum rating of BBB- by S&P or Baa3 by Moody's or, if
unrated, will be determined to be of comparable quality by Brinson Partners.
Such securities are considered to be investment grade. While securities rated
BBB- or Baa3 are regarded as having an adequate capacity to pay principal and
interest, such bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics; and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher rated bonds. Securities
rated lower than BBB- by S&P and Baa3 by Moody's are classified as non-
investment grade securities (commonly referred to as "junk bonds"), carry a
higher degree of risk and are considered to be speculative by the major credit
rating agencies. Each Series currently intends to limit its aggregate
investment in non-investment grade debt securities of its U.S. and non-U.S.
dollar denominated fixed income assets to no more than 5% of its net assets.
To the extent that a security held by a Series is downgraded to below
investment grade, the Series will dispose of that or another non-investment
grade security so that no more than 5% of its assets will be invested in below
investment grade securities. Other fixed income securities in which the Series
may invest include zero coupon securities, mortgage-backed securities, asset-
backed securities and when-issued securities.
The non-U.S. fixed income component of the Series will typically be invested
in the securities of non-U.S. governments, governmental agencies and
supranational issues. A supranational entity is an entity established or
financially supported by the national governments of one or more countries to
promote reconstruction or development. Examples of supranational entities
include, among others: the World Bank, the European
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Economic Community, the European Coal and Steel Community, the European
Investment Bank, the Inter-American Development Bank, the Export-Import Bank
and the Asian Development Bank.
The Global Fund may invest in fixed income securities of emerging market
issuers, including government and government-related entities (including
participation in loans between governments and financial institutions), and of
entities organized to restructure outstanding debt securities of developing
countries' corporate issuers.
CASH AND CASH EQUIVALENTS (ALL SERIES): The Series may invest a portion of
their assets in short-term debt securities (including repurchase agreements
and reverse repurchase agreements) of corporations, the U.S. government and
its agencies and instrumentalities and banks and finance companies, which may
be denominated in any currency. When unusual market conditions warrant, a
Series may make substantial temporary defensive investments in cash
equivalents up to a maximum of 100% of its net assets. Cash equivalent
holdings may be in any currency (although such holdings may not constitute
"cash or cash equivalents" for tax diversification purposes under the Code).
When a Series invests for defensive purposes, it may affect the attainment of
the Series' investment objective.
ZERO COUPON SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND): Zero coupon securities are debt obligations which do not
entitle the holder to any periodic payments of interest prior to maturity or a
specified date when the securities begin paying current interest (the "cash
payment date") and, therefore, are issued and traded at a discount from their
value at maturity or par value. Such bonds carry an additional risk in that,
unlike bonds which pay interest throughout the period to maturity, a Series
investing in zero coupon securities will realize no cash until the cash
payment date and, if the issuer defaults, a Series may obtain no return at all
on its investment. The market price of zero coupon securities generally is
more volatile than the market price of securities that pay interest
periodically and are likely to be more responsive to changes in interest rates
than non-zero coupon securities having similar maturities and credit
qualities. For federal tax purposes, the Series will be required to include in
income daily portions of original issue discount accrued and to distribute the
same to shareholders annually, even if no payment is received before the
distribution date.
MORTGAGE- AND ASSET-BACKED SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S.
BALANCED AND U.S. BOND FUND): Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, pools of
mortgage loans secured by real property, and include single- and multi-class
pass-through securities and collateralized mortgage obligations. These
securities may be issued or guaranteed by agencies or instrumentalities of the
U.S. government. Other mortgage-backed securities are issued by private
issuers, generally originators of and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment bankers
and special purpose entities (collectively, "private lenders"). Mortgage-
backed securities issued by private lenders may be supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed,
directly or indirectly, by the U.S. government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement.
Asset-backed securities have structural characteristics similar to mortgage-
backed securities. However, the underlying assets are not first-lien mortgage
loans or interests therein; rather, they include assets such as motor vehicle
installment sales contracts, other installment loan contracts, home equity
loans, leases of various types of property and receivables from credit card or
other revolving credit arrangements. Payments or distributions of principal
and interest on asset-backed securities may be supported by non-governmental
credit enhancements similar to those utilized in connection with mortgage-
backed securities.
26
<PAGE>
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt obligations. Among the principal differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, the rate of return on these
securities may be affected by prepayments of principal on the underlying
loans, which generally increase as interest rates decline. As a result, if a
Series purchases these securities at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Conversely, if a Series purchases these securities at a discount,
a prepayment rate that is faster than expected will increase yield to
maturity, while a prepayment rate that is slower than expected will reduce
yield to maturity. Accelerated prepayments on securities purchased by a Series
at a premium also impose a risk of loss of principal because the premium may
not have been fully amortized at the time the principal is prepaid in full. In
addition, like other debt securities, the values of mortgage-related
securities, including government and government-related mortgage pools,
generally will fluctuate in response to market interest rates. The market for
privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for government sponsored mortgage-backed securities.
WHEN-ISSUED SECURITIES (GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED AND
U.S. BOND FUND): The Series may purchase securities on a "when-issued" basis
for payment and delivery at a later date. The price is generally fixed on the
date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to a Series. At the time of settlement, the
market value of the security may be more or less than the purchase price. The
Series will establish a segregated account consisting of cash, U.S. government
securities, equity securities and/or investment and non-investment grade debt
securities in an amount equal to the amounts of their when-issued securities.
The cash, U.S. government securities, equity securities, investment or non-
investment grade debt securities and other assets held in any segregated
account maintained by the Series with respect to any when-issued securities,
options, futures, forward contracts or other derivative transactions shall be
liquid, unencumbered and marked-to-market daily (the assets held in a
segregated account are referred to in this Prospectus as "Segregated Assets").
FOREIGN CURRENCY TRANSACTIONS (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND
FUND AND NON-U.S. EQUITY FUND): The Series may conduct their foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into contracts to
purchase or sell foreign currencies at a future date (i.e., a "forward foreign
currency" contract or "forward" contract). A forward contract involves an
obligation to purchase or sell a specific currency amount at a future date,
which may be any fixed number of days from the date of the contract agreed
upon by the parties at a price set at the time of the contract. The Series
will convert currency on a spot basis from time to time and investors should
be aware that changes in currency exchange rates and exchange control
regulations may affect the costs of currency conversion.
The Series may enter into forward contracts for hedging purposes as well as
non-hedging purposes. For hedging purposes, a Series may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. It may also use contracts in a manner intended
to protect foreign currency-denominated securities from declines in value due
to unfavorable exchange rate movements. A Series may also enter into contracts
with the intent of changing the relative exposure of the Series' portfolio of
securities to different currencies to take advantage of anticipated changes in
exchange rates.
When a Series enters into forward contracts for non-hedging purposes, it
will establish a segregated account with its custodian bank in which it will
maintain Segregated Assets equal in value to its obligations with respect to
their forward contracts for non-hedging purposes.
27
<PAGE>
At the maturity of a forward contract, a Series may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Series may realize a gain or loss from currency
transactions.
OPTIONS ON CURRENCIES (GLOBAL FUND, GLOBAL EQUITY FUND, GLOBAL BOND FUND AND
NON-U.S. EQUITY FUND): The Series also may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchanges or over-
the-counter markets) to manage the respective portfolio's exposure to changes
in currency exchange rates. Call options on foreign currency written by a
Series will be "covered," which means that the Series will own an equal amount
of, or an offsetting position in, the underlying foreign currency. With
respect to put options on foreign currency written by a Series, the Series
will establish a segregated account with its custodian bank consisting of
Segregated Assets equal in value to the amount the Series would be required to
deliver upon exercise of the put.
FUTURES CONTRACTS (ALL SERIES): The Series may enter into contracts for the
future purchase or sale of securities and indices. The Global Funds and the
Non-U.S. Equity Fund also may enter into contracts for the future purchase or
sale of foreign currencies. A financial futures contract is an agreement
between two parties to buy or sell a specified debt security at a set price on
a future date. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period. A futures
contract on a foreign currency is an agreement to buy or sell a specified
amount of a currency for a set price on a future date. A Series may enter into
a futures contract to the extent that not more than 5% of its assets are
required as futures contract margin deposits and its obligations relating to
such futures transactions represent not more than 25% of the Series' assets.
The Series may also effect futures transactions through futures commission
merchants who are affiliated with the Advisor or the Series in accordance with
procedures adopted by the Board of Trustees.
The Global Fund, Global Equity Fund, Global Bond Fund and Non-U.S. Equity
Fund will enter into such futures transactions on domestic exchanges and, to
the extent such transactions have been approved by the Commodity Futures
Trading Commission for sale to customers in the United States, on foreign
exchanges.
OPTIONS (ALL SERIES): The Series may purchase and write put and call options
on foreign or U.S. securities and indices and enter into related closing
transactions. A Series' may use options traded on U.S. exchanges and, to the
extent permitted by law, options traded over-the-counter and recognized
foreign exchanges. It is the position of the U.S. Securities and Exchange
Commission that over-the-counter options are illiquid. Accordingly, a Series
will invest in such options only to the extent consistent with its 15% limit
on investment in illiquid securities.
REPURCHASE AGREEMENTS (ALL SERIES): The Series may enter into repurchase
agreements with banks or broker-dealers. Repurchase agreements are considered
under the Act to be collateralized loans by a Series to the seller secured by
the securities transferred to the Series. Repurchase agreements under the Act
will be fully collateralized by securities which the Series may invest in
directly. Such collateral will be marked-to-market daily. If the seller of the
underlying security under the repurchase agreement should default on its
obligation to repurchase the underlying security, the Series may experience
delay or difficulty in recovering its cash. To the extent that, in the
meantime, the value of the security purchased had decreased, the Series could
experience a loss. No more than 15% of a Series' net assets will be invested
in illiquid securities, including repurchase agreements which have a maturity
of longer than seven days. The Series must treat each repurchase agreement as
a security for tax diversification purposes and not as cash, a cash equivalent
or as a receivable.
BORROWING (ALL SERIES): Each Series is authorized, within specified limits,
to borrow money as a temporary defensive measure for extraordinary purposes
and to pledge its assets in connection with such borrowings.
28
<PAGE>
LOANS OF PORTFOLIO SECURITIES (ALL SERIES): Each Series may loan its
portfolio securities to broker-dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. The major risk to which a Series would be exposed on a loan
transaction is the risk that the borrower would become bankrupt at a time when
the value of the security goes up. Therefore, a Series will only enter into
loan arrangements after a review of all pertinent factors by Brinson Partners,
subject to overall supervision by the Board of Trustees, including the
creditworthiness of the borrowing broker-dealer or institution and then only
if the consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by Brinson Partners.
RULE 144A AND ILLIQUID SECURITIES (ALL SERIES): Each Series may invest up to
15% of its net assets in illiquid securities. Illiquid securities are those
securities that are not readily marketable, including restricted securities
and repurchase obligations that mature in more than seven days. Certain
restricted securities that may be resold to institutional investors pursuant
to Rule 144A under the Securities Act of 1933 may be determined to be liquid
under guidelines adopted by the Trust's Board of Trustees.
INVESTMENT COMPANY SECURITIES (GLOBAL FUND): The Trust has received an
exemptive order (the "Exemptive Order") from the U.S. Securities and Exchange
Commission which permits each Series to invest its assets in certain
portfolios of Brinson Relationship Funds, another registered investment
company advised by Brinson Partners. Currently, only the Global Fund intends
to invest in the portfolios of Brinson Relationship Funds and only to the
extent consistent with Brinson Partners' investment process of allocating
assets to specific asset classes. The Global Fund will invest in the
portfolios of Brinson Relationship Funds to obtain exposure to the following
asset classes: (1) equity and fixed income securities of issuers located in
emerging market countries ("Emerging Market Securities"); (2) equity
securities issued by companies with relatively small overall market
capitalizations ("Small Cap Securities"); and (3) high yield securities ("High
Yield Securities"). The Global Fund will invest in corresponding portfolios of
Brinson Relationship Funds only to the extent the Advisor determines that such
investments are a more efficient means for the Global Fund to gain exposure to
the asset classes identified above than by investing directly in individual
securities. Thus, to gain exposure to Emerging Market Securities, the Global
Fund will invest in the Brinson Emerging Markets Equity Fund and the Brinson
Emerging Markets Debt Fund portfolios of Brinson Relationship Funds. To gain
exposure to Small Cap Securities and High Yield Securities, the Global Fund
will invest in the Brinson Post-Venture Fund and the Brinson High Yield Fund
portfolios, respectively, of Brinson Relationship Funds. Each portfolio of
Brinson Relationship Funds in which the Global Fund may invest is permitted to
invest in the same securities of a particular asset class in which the Global
Fund is permitted to invest directly, and with similar risks.
RUSSIAN SECURITIES (GLOBAL FUND)
The Series may invest in securities of Russian companies. The registration,
clearing and settlement of securities transactions in Russia are subject to
significant risks not normally associated with securities transactions in the
United States and other more developed markets. Ownership of shares of Russian
companies is evidenced by entries in a company's share register (except where
shares are held through depositories that meet the requirements of the
Investment Company Act) and the issuance of extracts from the register or, in
certain limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable and the Series could possibly lose its
registration through oversight, negligence or fraud. Moreover, Russia lacks a
centralized registry to record securities transactions and registrars located
throughout Russia or the companies themselves maintain share registers.
Registrars are under no obligation to provide extracts to potential purchasers
in a timely manner or at all and are not necessarily subject to state
supervision. In addition, while registrars are liable under law for
29
<PAGE>
losses resulting from their errors, it may be difficult for the Series to
enforce any rights it may have against the registrar or issuer of the
securities in the event of loss of share registration. Although Russian
companies with more than 1,000 shareholders are required by law to employ an
independent company to maintain share registers, in practice, such companies
have not always followed this law. Because of this lack of independence of
registrars, management of a Russian company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions on the share
register. Furthermore, these practices may prevent the Series from investing
in the securities of certain Russian companies deemed suitable by the Advisor
and could cause a delay in the sale of Russian securities by the Fund if the
company deems a purchaser unsuitable, which may expose the Fund to potential
loss on its investment.
In light of the risks described above, the Board of Trustees of the Series
has approved certain procedures concerning the Series' investments in Russian
securities. Among these procedures is a requirement that the Series will not
invest in the securities of a Russian company unless that issuer's registrar
has entered into a contract with the Series' sub-custodian containing certain
protective conditions including, among other things, the sub-custodian's right
to conduct regular share confirmations on behalf of the Series. This
requirements will likely have the effect of precluding investments in certain
Russian companies that the Series would otherwise make.
30
<PAGE>
FOR IRA ACCOUNTS ONLY
TO: CHASE MANHATTAN BANK, CUSTODIAN
FOR THE BRINSON FUNDS
INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
1. REGISTRATION: (PLEASE PRINT - ONE NAME ONLY)
--------------------------------------------------------------------------
First Name Middle Initial Last Name
--------------------------------------------------------------------------
Address
----------------------------------------- ----- ------------ -
---------
City State Zip Code
------------------------- ---------------
Social Security Number Date of Birth
Telephone Number: (Home)
-------------------- (Business)
--------------------
2. TYPE OF ACCOUNT: (CHECK ONE AS APPLICABLE)
[_] Regular IRA$_________ [_] Current Year [_] Prior Year
[_] Spousal IRA$_________ [_] Current Year [_] Prior Year
[_] Rollover IRA$________ (Do not combine with Regular IRA)
[_] IRA Transfer$________ (Please attach separate transfer form)
[_] SEP IRA $____________ (Please include Employer name and address)
--------------------------------------------------------------------------
Employer Name
--------------------------------------------------------------------------
Employer Address
3. CONTRIBUTION: (MAKE CHECK PAYABLE TO THE FUND) INITIAL MINIMUM ($1,000,000)
Your IRA Contribution may be invested in one or a combination of: the
Brinson Global, Brinson Global Equity, Brinson Global Bond, Brinson Non-U.S.
Equity, Brinson U.S. Equity, Brinson U.S. Balanced or Brinson U.S. Bond
Funds.
FUND FUND
------------------ $ ________ ------------------ $ ________
------------------ $ ________ ------------------ $ ________
4. DIVIDEND DISTRIBUTIONS: (ALL DIVIDENDS AND CAPITAL GAINS ARE REINVESTED)
5. DESIGNATION OF BENEFICIARY:
PRIMARY BENEFICIARY
------------------------------------------------------ -----------------
Name Relationship
--------------------------------------------------------------------------
Address
------------------------- -----------------
Social Security Number Date of Birth
SECONDARY BENEFICIARY(IES)
------------------------------------------------------ -----------------
Name Relationship
--------------------------------------------------------------------------
Address
------------------------- -----------------
Social Security Number Date of Birth
6. SIGNATURE AND CERTIFICATION:
The undersigned hereby acknowledges receipt of and has read the Custodial
Agreement, Disclosure Statement and Prospectus of the Fund(s) and hereby
appoints the institution named at the top of this application as
Custodian; consents to Custodian's fees and terms of the Custodial
Agreement.
THE FOLLOWING IS REQUIRED BY FEDERAL TAX LAW TO AVOID 31% BACKUP
WITHHOLDING: "BY SIGNING BELOW, I CERTIFY UNDER PENALTIES OF PERJURY THAT
THE SOCIAL SECURITY NUMBER OR TAX I.D. NUMBER ENTERED ABOVE IS CORRECT
(OR I AM WAITING FOR A NUMBER TO BE ISSUED) AND THAT I HAVE NOT BEEN
NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING UNLESS I HAVE
CHECKED THE BOX." [_]
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION TO AVOID BACKUP
WITHHOLDING.
--------------------------------------------------- -----------------
Signature Date
7. ACCEPTANCE: Plan acceptance by the Custodian is evidenced by the statement
confirmation issued by Chase Global Funds Services Company reflecting the
investment of your monies in the selected Fund(s).
MAIL TO: CHASE GLOBAL FUNDS SERVICES COMPANY, P.O. BOX 2798, BOSTON, MA 02208-
2798
FOR INVESTMENT DEALER ONLY
--------------------------------------------------------------------------
Firm Name
--------------------------------------------------------------------------
Street Address
----------------------------------------- ----- ------------ -
---------
City State Zip Code
---------- ------------------------- ------------------------------
Rep # Rep's Last Name Authorized Signature
<PAGE>
ACCOUNT APPLICATION MAIL TO: THE BRINSON FUNDS--CLASS N
c/o Chase Global Funds Services Company
73 Tremont Street--9th Floor
P.O. Box 2798
Boston, MA 02208-2798
1-800-448-2430
[LOGO THE BRINSON FUNDS] The
Brinson
Funds
1. ACCOUNT REGISTRATION
If you have another Brinson Fund account with the same registration and tax ID
as this Account and would like to keep the same account number, please provide
the existing Account Number ________ Name of Fund ___________________ .
[_] INDIVIDUAL ACCOUNT
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Name Social Security Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
[_] JOINT ACCOUNT
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Name Social Security Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name Social Security Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(Joint Account will be Joint Account with rights of survivorship unless oth-
erwise specified).
[_] CUSTODIAL ACCOUNT/GIFT TO MINOR
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Minor's Name Custodian's Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Minor's Social Security Number Minor's State of Residence
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
[_] TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY
(Please include a copy of the corporate resolution form)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name of Legal Entity Taxpayer I.D. Number
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Name of Fiduciary (if to be included in
registration) Date of Trust Document
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
2. MAILING ADDRESS
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Street Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
City, State, Zip Code Daytime Phone
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
3. FUND INVESTMENT
Please make check payable to the appropriate Fund(s).
($1,000,000 minimum initial investment per Fund)
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
FUND NAME AMOUNT FUND NAME AMOUNT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brinson Global Fund $ Brinson U.S. Balanced Fund $
- ----------------------------------------------------------------------------------------
Brinson Global Equity
Fund Brinson U.S. Equity Fund
- ----------------------------------------------------------------------------------------
Brinson Global Bond
Fund Brinson U.S. Bond Fund
- ----------------------------------------------------------------------------------------
Brinson Non-U.S.
Equity Fund
- ----------------------------------------------------------------------------------------
</TABLE>
4. DISTRIBUTION OPTIONS
Check one--if no box is checked, all dividends and capital gains will be
reinvested in additional shares of the Fund.
[_] Reinvest all dividends and [_] Pay all dividends in cash and reinvest
capital gains capital gains
[_] Pay all capital gains in cash [_] Pay all dividends and capital gains in
and reinvest dividends cash
<PAGE>
5. FUND INVESTMENT OPTIONS
This application confirms prior purchase made by [_] telephone or [_] wire.
The following account number was assigned ____________________________________
(See accompanying prospectus for telephone or wire instructions.)
Do you wish to be able to redeem shares by telephone? [_] Yes [_] No
Do you wish to be able to exchange shares between Funds by telephone?
[_] Yes [_] No
Do you wish to be able to wire redemption proceeds to your bank account
designated?
[_] Yes [_] No
If no boxes are marked, you will not have the privileges specified.
FOR WIRE REDEMPTIONS, COMPLETE INFORMATION BELOW.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank Name Bank ABA# Your Shareholder Account Number
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Bank Street Address Bank City, State, Zip Code
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
A VOIDED CHECK FROM THIS BANK ACCOUNT MUST BE ATTACHED TO THIS DOCUMENT.
NOTE: Be sure that your bank accepts wire transfers.
6. AUTOMATIC INVESTMENT PLAN
[_] Automatic Investment Plan ($1,000,000 minimum) I (we) have read the
description of the Automatic Investment Plan in the Prospectus. Please debit
my account on the [_] 10th [_] 15th [_] 20th (choose one). (If no date is
specified, your account will be debited the 20th of each month) ($1,000,000
minimum initial investment) Fund: ____________________ Monthly Dollar
Amount: ____________________
I agree that your rights with respect to such debit shall be the same as if it
were a check drawn upon you and signed personally by me. This authority shall
remain in effect until you receive written notice from me changing the terms
or revoking it. I agree that you shall be fully protected in honoring any such
debit. I further agree that if any debit be dishonored, whether with or
without cause or whether intentionally or inadvertently, you shall be under no
liability whatsoever.
I (we) understand that my automatic clearing house (ACH) debit will be dated
on the day of each month indicated above. If that day falls on a day in which
the NYSE is not open for business, the debit will occur on the next available
business day. I (we) agree that if such debit is not honored, Chase Global
Funds Services Company reserves the right to discontinue this service and any
share purchase made upon such deposit will be cancelled. I (we) further agree
that if the net asset value of shares purchased is less when said purchase is
cancelled than when the purchase was made, Chase Global Funds Services Company
shall be authorized to liquidate other shares or fractions thereof held in my
(our) account to make up the deficiency. This Automatic Investment Plan may be
discontinued by Chase Global Funds Services Company upon 30 days written
notice or at any time by the investor by written notice to Chase Global Funds
Services Company which is received not later than 5 business days prior to the
above designated investment date.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Signature(s) Date
- -----------------------------------------------------------------------------------------------------
</TABLE>
A VOIDED CHECK FROM THIS BANK ACCOUNT MUST BE ATTACHED TO THIS DOCUMENT.
7. SIGNATURE CERTIFICATION
This order is subject to acceptance by the Fund(s). Receipt of the current
prospectus(es) is hereby acknowledged. I(we) am of legal age in my state of
residence. I (we) agree that The Brinson Funds will not be liable for any loss
or damage for acting in good faith upon instructions received by telephone and
believed to be genuine. I (we) understand all telephone conversations with The
Brinson Funds' representatives are tape-recorded so you can compare actions
taken with original instructions should clarification be necessary and hereby
consent to such recording. THE FOLLOWING IS REQUIRED BY FEDERAL TAX LAW TO
AVOID 31% BACKUP WITHHOLDING: "BY SIGNING BELOW, I CERTIFY UNDER PENALTIES OF
PERJURY THAT THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER ENTERED
ABOVE IS CORRECT (OR I AM WAITING FOR A NUMBER TO BE ISSUED), AND THAT I HAVE
NOT BEEN NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING UNLESS I HAVE
CHECKED THE BOX." IF BASED ON THE FOREGOING YOU ARE SUBJECT TO BACKUP
WITHHOLDING, CHECK BOX [_]
[_] U.S. CITIZEN [_] RESIDENT ALIEN [_] NONRESIDENT ALIEN,
COUNTRY ___________________
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATION TO AVOID BACKUP WITHHOLDING.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Signature of: [_] Owner [_] Trustee [_] Custodian Date
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Signature of Joint Owner (if any) Date
- --------------------------------------------------------------------------------------------------------
</TABLE>
8. FOR INVESTMENT DEALER INFORMATION ONLY
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Firm Name Branch/Branch #
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Branch Address City, State, Zip Code
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Representative # Representative's Last Name
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO THE BRINSON FUNDS] THE BRINSON FUNDS
For Additional Information about
Brinson Funds, call:
1-800-448-2430
[LOGO THE BRINSON FUNDS] THE BRINSON FUNDS
PROSPECTUS
JUNE 30, 1997
BRINSON GLOBAL FUND
BRINSON GLOBAL EQUITY FUND
BRINSON GLOBAL BOND FUND
BRINSON U.S. BALANCED FUND
BRINSON U.S. EQUITY FUND
BRINSON U.S. BOND FUND
BRINSON NON-U.S. EQUITY FUND
<PAGE>
THE BRINSON FUNDS
[LOGO OF BRINSON FUNDS]
GLOBAL FUND U.S. EQUITY FUND
GLOBAL EQUITY FUND U.S. BOND FUND
GLOBAL BOND FUND NON-U.S. EQUITY FUND
U.S. BALANCED FUND
STATEMENT OF ADDITIONAL INFORMATION
June 30, 1997
The Brinson Funds (the "Trust") currently offers seven separate series, each
with its own investment objective and policies. The Trust also offers three
classes of shares for each series - the Brinson-Class I, the Brinson-Class N and
the SwissKey Fund class. Information concerning the Brinson-Class I of each
series is provided in the following three separate Prospectuses: the Brinson
Global Fund, Brinson Global Equity Fund and Brinson Global Bond Fund Prospectus;
the Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund and Brinson U.S. Bond
Fund Prospectus; and the Brinson Non-U.S. Equity Fund Prospectus, each dated
October 28, 1996, as revised February 5, 1997 and supplemented June 30, 1997.
Information concerning the Brinson-Class N of each Series is included in a
separate Prospectus dated October 28, 1996, as revised February 5, 1997 and
supplemented June 30, 1997. Information concerning the SwissKey Fund class of
each series is included in a separate Prospectus for the SwissKey Funds dated
October 28, 1996, as revised February 5, 1997 and supplemented June 30, 1997.
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the current Prospectuses of the Trust. Much of the
information contained herein expands upon subjects discussed in the
Prospectuses. No investment in shares should be made without first reading the
applicable Prospectus. A copy of each Prospectus may be obtained without charge
from the Trust at the addresses and telephone numbers below.
UNDERWRITER: ADVISOR:
Funds Distributor, Inc. Brinson Partners, Inc.
60 State Street 209 South LaSalle Street
Suite 1300 Chicago, IL 60604-1295
Boston, MA 02109 1-800-448-2430 (Brinson-Class I and
1-800-448-2430 (Brinson-Class I and Brinson-Class N)
Brinson-Class N) 1-800-SWISSKEY (SwissKey Fund class)
1-800-SWISSKEY (SwissKey Fund class)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE BRINSON FUNDS..................................................................................
INVESTMENT STRATEGIES..............................................................................
INVESTMENTS RELATING TO ALL FUNDS.................................................................
Repurchase Agreements...........................................................................
Reverse Repurchase Agreements..................................................................
Borrowing......................................................................................
Loans of Portfolio Securities..................................................................
Swaps..........................................................................................
Futures........................................................................................
Options........................................................................................
Index Options..................................................................................
Special Risks of Options on Indices............................................................
Rule 144A Securities...........................................................................
Other Investments..............................................................................
INVESTMENTS RELATING TO THE GLOBAL FUNDS AND THE NON-U.S. EQUITY FUND..............................
Foreign Securities.............................................................................
Forward Foreign Currency Contracts.............................................................
Options on Foreign Currencies..................................................................
INVESTMENTS RELATING TO THE GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND AND U.S. BOND FUND...
Lower Grade Debt Securities...................................................................
Convertible Securities........................................................................
When-Issued Securities........................................................................
Mortgage-Backed Securities and Mortgage Pass-Through Securities...............................
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage.........................
Investment Conduits ("REMICs")...........................................................
Other Mortgage-Backed Securities..............................................................
Asset-Backed Securities.......................................................................
Zero Coupon Securities........................................................................
INVESTMENTS RELATING TO THE GLOBAL FUND............................................................
Emerging Markets Investments..................................................................
Risks of Investing in Emerging Markets........................................................
Investments in Affiliated Investment Companies...............................................
INVESTMENT RESTRICTIONS............................................................................
MANAGEMENT OF THE TRUST............................................................................
Trustees and Officers.........................................................................
Compensation Table............................................................................
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................................................
INVESTMENT ADVISORY AND OTHER SERVICES.............................................................
Advisor........................................................................................
Administrator...................................................................................
Underwriter.....................................................................................
Distribution Plan...............................................................................
Code of Ethics..................................................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS...................................................
Portfolio Turnover..............................................................................
SHARES OF BENEFICIAL INTEREST......................................................................
PURCHASES..........................................................................................
Exchanges of Shares.............................................................................
Net Asset Value.................................................................................
REDEMPTIONS........................................................................................
Taxation........................................................................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
PERFORMANCE CALCULATIONS.....................................................................
Total Return..............................................................................
Yield.....................................................................................
FINANCIAL STATEMENTS.........................................................................
CORPORATE DEBT RATINGS --- APPENDIX A........................................................
</TABLE>
<PAGE>
THE BRINSON FUNDS
The Brinson Funds (the "Trust"), 209 South LaSalle Street, Chicago, Illinois
60604-1295, is an open-end management investment company which currently offers
shares of seven series representing separate portfolios of investments: Global
Fund, Global Equity Fund, Global Bond Fund, U.S. Balanced Fund, U.S. Equity
Fund, U.S. Bond Fund and Non-U.S. Equity Fund (collectively referred to as the
"Series," or individually as a "Series"). The Global Fund, Global Equity Fund
and Global Bond Fund are referred to herein collectively as the "Global Funds"
or individually as the "Global Fund" and the U.S. Balanced Fund, U.S. Equity
Fund and U.S. Bond Fund are referred to herein as the "U.S. Funds." The Trust
currently offers three classes of shares for each Series: the Brinson-Class I,
Brinson-Class N and SwissKey Fund class. The Brinson-Class I shares of each
Series, which are designed primarily for institutional investors, have no sales
charges and are not subject to annual 12b-1 plan expenses. The Brinson-Class N
shares, which are available exclusively to 401(k) participants, have no sales
charges, but are subject to annual 12b-1 plan expenses of 0.25% of average daily
net assets of the respective Series. The SwissKey Fund class shares of each
Series have no sales charges, but are subject to annual 12b-1 expenses of up to
a maximum of 0.90% of average daily net assets of the respective Series.
INVESTMENT STRATEGIES
The following discussion of investment techniques and instruments supplements
and should be read in conjunction with the investment objectives and policies
set forth in the Prospectuses of the Funds. The investment practices described
below, except for the discussion of percentage limitations with respect to
portfolio loan transactions and borrowing, are not fundamental and may be
changed by the Board of Trustees without the approval of the shareholders.
INVESTMENTS RELATING TO ALL FUNDS
The following discussion applies to all Series.
REPURCHASE AGREEMENTS
- ---------------------
When a Series enters into a repurchase agreement, it purchases securities from a
bank or broker-dealer which simultaneously agrees to repurchase the securities
at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement. As a result, a repurchase agreement provides a fixed
rate of return insulated from market fluctuations during the term of the
agreement. The term of a repurchase agreement generally is short, possibly
overnight or for a few days, although it may extend over a number of months (up
to one year) from the date of delivery. Repurchase agreements will be fully
collateralized and the collateral will be marked-to-market daily. A Series may
not enter into a repurchase agreement having more than seven days remaining to
maturity if, as a result, such agreement, together with any other illiquid
securities held by the Series, would exceed 15% of the value of the net assets
of the Series.
In the event of bankruptcy or other default by the seller of the security under
a repurchase agreement, a Series may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral. In such
event, instead of the contractual fixed rate of return, the rate of return to a
Series would be dependent upon intervening fluctuations of the market value of
the underlying security and the accrued interest on the security. Although a
Series would have rights against the seller for breach of contract with respect
to any losses arising from market fluctuations following the failure of the
seller to perform, the ability of a Series to recover damages from a seller in
bankruptcy or otherwise in default would be reduced.
Repurchase agreements are securities for purposes of the tax diversification
requirements that must be met for pass-through treatment under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, each
Series will limit the value of its repurchase agreements on each of the
quarterly testing dates to ensure compliance with Subchapter M of the Code.
4
<PAGE>
REVERSE REPURCHASE AGREEMENTS
- -----------------------------
Reverse repurchase agreements involve sales of portfolio securities of a Series
to member banks of the Federal Reserve System or securities dealers believed
creditworthy, concurrently with an agreement by the Series to repurchase the
same securities at a later date at a fixed price which is generally equal to the
original sales price plus interest. A Series retains record ownership and the
right to receive interest and principal payments on the portfolio securities
involved. In connection with each reverse repurchase transaction, a Series will
direct its custodian bank to place cash, U.S. government securities, equity
securities and/or investment and non-investment grade debt securities in a
segregated account of the Series in an amount equal to the repurchase price.
Any assets held in any segregated accounts maintained by a Series with respect
to any reverse repurchase agreements, when-issued securities, options, futures,
forward contracts or other derivative transactions shall be liquid, unencumbered
and marked-to-market daily (any such assets held in a segregated account are
referred to in this Statement of Additional Information as "Segregated Assets").
A reverse repurchase agreement involves the risk that the market value of the
securities retained by a Series may decline below the price of the securities
the Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Series' use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Series' obligation to repurchase the
securities. Reverse repurchase agreements are considered borrowings by the
Series and as such, are subject to the same investment limitations.
BORROWING
- ---------
The Series may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. A Series will not borrow money in excess of 33 1/3%
of the value of its total assets. A Series has no intention of increasing its
net income through borrowing. Any borrowing will be done from a bank with the
required asset coverage of at least 300%. In the event that such asset coverage
shall at any time fall below 300%, a Series shall, within three days thereafter
(not including Sundays or holidays), or such longer period as the U.S.
Securities and Exchange Commission (the "SEC") may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. A Series will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the Investment Company Act of 1940, as amended (the "Act"), except for notes to
banks and reverse repurchase agreements. Investment securities will not be
purchased while a Series has an outstanding borrowing that exceeds 5% of a
Series' net assets.
LOANS OF PORTFOLIO SECURITIES
- -----------------------------
The Series may lend portfolio securities to qualified broker-dealers and
financial institutions provided: (1) the loan is secured continuously by
collateral marked-to-market daily and maintained in an amount at least equal to
the current market value of the securities loaned; (2) a Series may call the
loan at any time and receive the securities loaned; (3) a Series will receive
any interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed 33 1/3% of the
total assets of the Global Fund, Global Equity Fund, Global Bond Fund, U.S.
Balanced Fund, U.S. Equity Fund, U.S. Bond Fund and Non-U.S. Equity Fund,
respectively.
Collateral will consist of U.S. and non-U.S. securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, a Series will only enter into portfolio loans
after a review of all pertinent factors by Brinson Partners, Inc. ("Brinson
Partners" or the "Advisor") under the supervision of the Board of Trustees,
including the creditworthiness of the borrower. Creditworthiness will be
monitored on an ongoing basis by the Advisor.
SWAPS
- -----
The Series (except for the Global Equity Fund, U.S. Equity Fund and Non-U.S.
Equity Fund) may engage in swaps, including but not limited to interest rate,
currency and index swaps and the purchase or sale of related caps, floors,
collars and other derivative instruments. The Series expect to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of the portfolio's duration, to protect against any increase in the
price of securities the Series anticipates purchasing at a later date, or to
gain exposure to certain markets in the most economical way possible.
5
<PAGE>
The use of swaps involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If Brinson Partners
is incorrect in its forecast of market values, interest rates and other
applicable factors, the investment performance of the Series will be less
favorable than it would have been if this investment technique was never used.
Thus, if the other party to a swap defaults, a Series' risk of loss consists of
the net amount of interest payments that the Series is contractually entitled to
receive. Under Internal Revenue Service rules, any lump sum payment received or
due under the notional principal contract must be amortized over the life of the
contract.
FUTURES
- -------
The Series may enter into contracts for the purchase or sale for future delivery
of securities. The Global Funds and the Non-U.S. Equity Fund may also enter
into contracts for the purchase or sale for future delivery of foreign
currencies.
A purchase of a futures contract means the acquisition of a contractual right to
obtain delivery to a Series of the securities or foreign currency called for by
the contract at a specified price during a specified future month. When a
futures contract is sold, a Series incurs a contractual obligation to deliver
the securities or foreign currency underlying the contract at a specified price
on a specified date during a specified future month. A Series may enter into
futures contracts and engage in options transactions related thereto to the
extent that not more than 5% of the Series' assets are required as futures
contract margin deposits and premiums on options, and may engage in such
transactions to the extent that obligations relating to such futures and related
options on futures transactions represent not more than 25% of a Series' assets.
When a Series enters into a futures transaction, it must deliver to the futures
commission merchant selected by a Series an amount referred to as "initial
margin." This amount is maintained by the futures commission merchant in a
segregated account at the custodian bank. Thereafter, a "variation margin" may
be paid by the Series to, or drawn by the Series from, such account in
accordance with controls set for such accounts, depending upon changes in the
price of the underlying securities subject to the futures contract.
The Series will enter into futures transactions on domestic exchanges and, to
the extent such transactions have been approved by the Commodity Futures Trading
Commission for sale to customers in the United States, on foreign exchanges. In
addition, all of the Series except the Global Bond Fund and U.S. Bond Fund may
sell stock index futures in anticipation of or during a market decline to
attempt to offset the decrease in market value of their common stocks that might
otherwise result; and they may purchase such contracts in order to offset
increases in the cost of common stocks that they intend to purchase. Unlike
other futures contracts, a stock index futures contract specifies that no
delivery of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.
While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into
offsetting transactions.
The Series may enter into futures contracts to protect against the adverse
affects of fluctuations in security prices, interest or foreign exchange rates
without actually buying or selling the securities or foreign currency. For
example, if interest rates are expected to increase, a Series might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Series. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the futures contracts to the
Series would increase at approximately the same rate, thereby keeping the net
asset value of the Series from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Series could take
advantage of the anticipated rise in value of debt securities without actually
buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Series could then buy debt securities on
the cash market.
To the extent that market prices move in an unexpected direction, a Series may
not achieve the anticipated benefits of futures contracts or may realize a
loss. For example, if a Series is hedged against the possibility of an
increase in interest rates which would adversely affect the price of securities
held in its portfolio and interest rates decrease instead, the Series would lose
part or all of the benefit of the increased value which it has because it would
have offsetting losses
6
<PAGE>
in its futures position. In addition, in such situations, if the Series had
insufficient cash, it may be required to sell securities from its portfolio to
meet daily variation margin requirements. Such sales of securities may, but
will not necessarily, be at increased prices which reflect the rising market. A
Series may be required to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS
- -------
The Series may purchase and write call or put options on securities but will
only engage in option strategies for non-speculative purposes.
The U.S. Funds may invest in options that are listed on U.S. exchanges or traded
over-the-counter and the Global Funds and the Non-U.S. Equity Fund may invest in
options that are either listed on U.S. or recognized foreign exchanges or traded
over-the-counter. Certain over-the-counter options may be illiquid. Thus, it
may not be possible to close options positions and this may have an adverse
impact on a Series' ability to effectively hedge its securities. The Series
have been notified by the SEC that it considers over-the-counter options to be
illiquid. Accordingly, a Series will only invest in such options to the extent
consistent with its 15% limit on investments in illiquid securities.
PURCHASING CALL OPTIONS - The Series may purchase call options on securities to
the extent that premiums paid by a Series do not aggregate more than 20% of the
Series' total assets. When a Series purchases a call option, in return for a
premium paid by the Series to the writer of the option, the Series obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that a Series may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with transactions.
A Series may, following the purchase of a call option, liquidate its position by
effecting a closing sale transaction. This is accomplished by selling an option
of the same series as the option previously purchased. The Series will realize
a profit from a closing sale transaction if the price received on the
transaction is more than the premium paid to purchase the original call option;
the Series will realize a loss from a closing sale transaction if the price
received on the transaction is less than the premium paid to purchase the
original call option.
Although the Series will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that a Series would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by a Series may expire without any value to the Series, in which event
the Series would realize a capital loss which will be short-term unless the
option was held for more than one year.
COVERED CALL WRITING - A Series may write covered call options from time to
time on such portions of its portfolio, without limit, as Brinson Partners
determines is appropriate in seeking to achieve the Series' investment
objective. The advantage to a Series of writing covered calls is that the
Series receives a premium which is additional income. However, if the security
rises in value, the Series may not fully participate in the market appreciation.
During the option period, a covered call option the writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing purchase transaction. A closing purchase
transaction, in which a Series, as writer of an option, terminates its
obligation by purchasing an option of the same series as the option previously
written, cannot be effected with respect to an option once the option writer has
received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Series to write
another
7
<PAGE>
call option on the underlying security with either a different exercise price or
expiration date or both. A Series may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the original
premium received on the call option is more or less than the cost of effecting
the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss
may also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, the Series will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value
of the underlying security during the option period. If a call option is
exercised, a Series will realize a gain or loss from the sale of the underlying
security equal to the difference between the cost of the underlying security and
the proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.
The Series will write call options only on a covered basis, which means that a
Series will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Series would be required to continue to hold a security which it might otherwise
wish to sell or deliver a security it would want to hold. The exercise price of
a call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
PURCHASING PUT OPTIONS - The Series may only purchase put options to the extent
that the premiums on all outstanding put options do not exceed 20% of a Series'
total assets. A Series will, at all times during which it holds a put option,
own the security covered by such option. With regard to the writing of put
options, each Series will limit the aggregate value of the obligations
underlying such put options to 50% of its total net assets. The purchase of the
put on substantially identical securities held will constitute a short sale for
tax purposes, the effect of which is to create short-term capital gain on the
sale of the security and to suspend running of its holding period (and treat it
as commencing on the date of the closing of the short sale) or that of a
security acquired to cover the same if, at the time the put was acquired, the
security had not been held for more than one year.
A put option purchased by a Series gives it the right to sell one of its
securities for an agreed price up to an agreed date. The Series intend to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The ability to purchase put options will allow
the Series to protect unrealized gains in an appreciated security in their
portfolios without actually selling the security. If the security does not drop
in value, a Series will lose the value of the premium paid. A Series may sell a
put option which it has previously purchased prior to the sale of the securities
underlying such option. Such sale will result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold.
The Series may sell a put option purchased on individual portfolio securities.
Additionally, the Series may enter into closing sale transactions. A closing
sale transaction is one in which a Series, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
WRITING PUT OPTIONS - The Series may also write put options on a secured basis
which means that a Series will maintain in a segregated account with its
custodian Segregated Assets in an amount not less than the exercise price of the
option at all times during the option period. The amount of Segregated Assets
held in the segregated account will be adjusted on a daily basis to reflect
changes in the market value of the securities covered by the put option written
by the Series. Secured put options will generally be written in circumstances
where Brinson Partners wishes to purchase the underlying security for a Series'
portfolio at a price lower than the current market price of the security. In
such event, a Series would write a secured put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay.
8
<PAGE>
Following the writing of a put option, a Series may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Series may not, however, effect
such a closing transaction after it has been notified of the exercise of the
option.
INDEX OPTIONS
- -------------
The Series may purchase exchange-listed call options on stock and fixed income
indices depending upon whether a Series is an equity or bond series and sell
such options in closing sale transactions for hedging purposes. A Series may
purchase call options on broad market indices to temporarily achieve market
exposure when the Series is not fully invested. A Series may also purchase
exchange-listed call options on particular market segment indices to achieve
temporary exposure to a specific industry.
In addition, the Series may purchase put options on stock and fixed income
indices and sell such options in closing sale transactions for hedging purposes.
A Series may purchase put options on broad market indices in order to protect
its fully invested portfolio from a general market decline. Put options on
market segments may be bought to protect a Series from a decline in value of
heavily weighted industries in the Series' portfolio. Put options on stock and
fixed income indices may also be used to protect a Series' investments in the
case of a major redemption.
The Series may also write (sell) put and call options on stock and fixed income
indices. While the option is open, a Series will maintain a segregated account
with its custodian in an amount equal to the market value of the option.
Options on indices are similar to regular options except that an option on an
index gives the holder the right, upon exercise, to receive an amount of cash if
the closing level of the index upon which the option is based is greater than
(in the case of a call) or lesser than (in the case of a put) the exercise price
of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The indices on which
options are traded include both U.S. and non-U.S. markets.
SPECIAL RISKS OF OPTIONS ON INDICES
- -----------------------------------
The Series' purchases of options on indices will subject them to the risks
described below.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular security, whether a Series will
realize gain or loss on the purchase of an option on an index depends upon
movements in the level of prices in the market generally or in an industry or
market segment rather than movements in the price of a particular security.
Accordingly, successful use by a Series of options on indices is subject to
Brinson Partners' ability to predict correctly the direction of movements in the
market generally or in a particular industry. This requires different skills
and techniques than predicting changes in the prices of individual securities.
Index prices may be distorted if trading of a substantial number of securities
included in the index is interrupted causing the trading of options on that
index to be halted. If a trading halt occurred, a Series would not be able to
close out options which it had purchased and the Series may incur losses if the
underlying index moved adversely before trading resumed. If a trading halt
occurred and restrictions prohibiting the exercise of options were imposed
through the close of trading on the last day before expiration, exercises on
that day would be settled on the basis of a closing index value that may not
reflect current price information for securities representing a substantial
portion of the value of the index.
If a Series holds an index option and exercises it before final determination of
the closing index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change causes the
exercised option to fall "out-of-the-money," the Series will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer. Although a
Series may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising the
option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
9
<PAGE>
RULE 144A SECURITIES
- --------------------
The Series may invest in securities that are exempt under Rule 144A from the
registration requirements of the Securities Act of 1933. Those securities
purchased under Rule 144A are traded among qualified institutional investors.
The Board of Trustees of the Trust has instructed Brinson Partners to consider
the following factors in determining the liquidity of a security purchased under
Rule 144A: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer).
Although having delegated the day-to-day functions, the Board of Trustees will
continue to monitor and periodically review the Advisor's selection of Rule 144A
securities, as well as the Advisor's determinations as to their liquidity.
Investing in securities under Rule 144A could have the effect of increasing the
level of a Series' illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. After the
purchase of a security under Rule 144A, however, the Board of Trustees and
Brinson Partners will continue to monitor the liquidity of that security to
ensure that each Series has no more than 15% of its total assets in illiquid
securities.
The Series will limit investments in securities of issuers which the Series are
restricted from selling to the public without registration under the Securities
Act of 1933 to no more than 15% of the Series' total assets, excluding
restricted securities eligible for resale pursuant to Rule 144A that have been
determined to be liquid pursuant a policy and procedures adopted by the Trust's
Board of Trustees which includes continuing oversight by the Board of Trustees.
If Brinson Partners determines that a security purchased in reliance on Rule
144A which was previously determined to be liquid, is no longer liquid and, as a
result, the Series' holdings of illiquid securities exceed the Series' 15% limit
on investment in such securities, Brinson Partners will determine what action
shall be taken to ensure that the Series continue to adhere to such limitation,
including disposing of illiquid assets which may include such Rule 144A
securities.
OTHER INVESTMENTS
- -----------------
The Board of Trustees may, in the future, authorize a Series to invest in
securities other than those listed in this Statement of Additional Information
and in the Prospectuses, provided such investment would be consistent with that
Series' investment objective and that it would not violate any fundamental
investment policies or restrictions applicable to that Series.
INVESTMENTS RELATING TO THE GLOBAL FUNDS AND THE NON-U.S. EQUITY FUND
The following discussion of strategies, techniques and policies applies only to
the Global Fund, Global Equity Fund, Global Bond Fund and the Non-U.S. Equity
Fund.
FOREIGN SECURITIES
- ------------------
Investors should recognize that investing in foreign issuers involves certain
considerations, including those set forth in the Series' Prospectuses, which are
not typically associated with investing in U.S. issuers. Since the stocks of
foreign companies are frequently denominated in foreign currencies, and since
the Series may temporarily hold uninvested reserves in bank deposits in foreign
currencies, the Series will be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies. The investment policies
of the Series permit them to enter into forward foreign currency exchange
contracts, futures, options and interest rate swaps (in the case of the Global
Funds) in order to hedge portfolio holdings and commitments against changes in
the level of future currency rates.
There has been in the past, and there may be again in the future, an interest
equalization tax levied by the United States in connection with the purchase of
foreign securities such as those purchased by the Series. Payment of an
interest equalization tax, if imposed, would reduce the Series' rates of return
on investment. Dividends paid by foreign issuers may be subject to withholding
and other foreign taxes which may decrease the net return on such investments as
compared to dividends paid to the Series by U.S. corporations. The Series'
ability to "pass through" the foreign taxes paid for tax credit or deduction
purposes will be determined by the composition of the Series' portfolios. More
than 50%
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<PAGE>
of a Series must be invested in stock or securities of foreign corporations for
"pass through" to be possible in the first instance. Special rules govern the
federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules generally include the following: (i) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in the Treasury Regulations, preferred
stock); (ii) the accruing of certain trade receivables and payables; and (iii)
the entering into or acquisition of any forward contract, futures contract and
similar financial instruments other than any "regulated futures contract" or
"non-equity option" which would be marked-to-market under the rules of Section
1256 of the Code if held at the end of the tax year. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign currency-
related regulated futures contracts and non-equity options are generally not
subject to these special currency rules. If subject, they are or would be
treated as sold for their fair market value at year-end under the marked-to-
market rules applicable to other futures contracts, unless an election is made
to have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable gain or loss.
A taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. Certain transactions subject to the special currency rules
that are part of a "section 988 hedging transaction" (as defined in the Code and
the Treasury Regulations) will be integrated and treated as a single transaction
or otherwise treated consistently for purposes of the Code. The income tax
effects of integrating and treating a transaction as a single transaction are
generally to create a synthetic debt instrument that is subject to the original
discount provisions. It is anticipated that some of the non-U.S. dollar
denominated investments and foreign currency contracts the Series may make or
enter into will be subject to the special currency rules described above.
FORWARD FOREIGN CURRENCY CONTRACTS
- ----------------------------------
The Series may purchase or sell currencies and/or engage in forward foreign
currency transactions in order to expedite settlement of portfolio transactions
and to manage currency risk.
Forward foreign currency contracts are traded in the inter-bank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement and no
commissions are charged at any stage for trades. The Series will account for
forward contracts by marking-to-market each day at current forward contract
values.
A Series will only enter into forward contracts to sell, for a fixed amount of
U.S. dollars or other appropriate currency, an amount of foreign currency, to
the extent that the value of the short forward contract is covered by the
underlying value of securities denominated in the currency being sold.
Alternatively, when a Series enters into a forward contract to sell an amount of
foreign currency, the Series' custodian or sub-custodian will place Segregated
Assets in a segregated account of the Series in an amount not less than the
value of the Series' total assets committed to the consummation of such forward
contracts. If the additional Segregated Assets placed in the segregated account
decline, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Series'
commitments with respect to such contracts.
OPTIONS ON FOREIGN CURRENCIES
- -----------------------------
The Series also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to
manage the Series' exposure to changes in currency exchange rates. The Series
may purchase and write options on foreign currencies for hedging purposes in a
manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Series may purchase put options on the foreign
currency. If the dollar price of the currency does decline, a Series will have
the right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the dollar price
of such securities, the Series may purchase call options on such currency.
11
<PAGE>
The purchase of such options could offset, at least partially, the effects of
the adverse movement in exchange rates. As in the case of other types of
options, however, the benefit to the Series to be derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, a Series could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.
The Series may write options on foreign currencies for the same types of hedging
purposes. For example, where a Series anticipates a decline in the dollar value
of foreign currency denominated securities due to adverse fluctuations in
exchange rates, it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the option
will most likely not be exercised, and the diminution in the value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Series could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Series to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Series
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on foreign currencies, a Series also may be required to forego all or a portion
of the benefit which might otherwise have been obtained from favorable movements
in exchange rates.
The Series may write covered call options on foreign currencies. A call option
written on a foreign currency by a Series is "covered" if the Series owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the custodian
bank) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if a Series has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written, or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in Segregated Assets in a
segregated account with its custodian bank.
With respect to writing put options, at the time the put is written, a Series
will establish a segregated account with its custodian bank consisting of
Segregated Assets in an amount equal in value to the amount the Series will be
required to pay upon exercise of the put. The account will be maintained until
the put is exercised, has expired, or the Series has purchased a closing put of
the same series as the one previously written.
INVESTMENTS RELATING TO THE GLOBAL FUND, GLOBAL BOND FUND, U.S. BALANCED FUND
AND U.S. BOND FUND
The following discussion applies to the Global Fund, Global Bond Fund, U.S.
Balanced Fund and U.S. Bond Fund.
LOWER RATED DEBT SECURITIES
- ----------------------------
Fixed income securities rated lower than Baa by Moody's Investors Services, Inc.
or BBB by Standard & Poor's Ratings Group are considered to be of poor standing
and predominantly speculative. Such securities ("lower rated securities") are
commonly referred to as "junk bonds" and are subject to a substantial degree of
credit risk. Lower rated securities may be issued as a consequence of corporate
restructurings, such as leveraged buy-outs, mergers, acquisitions, debt
recapitalizations or similar events. Also, lower rated securities are often
issued by smaller, less creditworthy companies or by highly leveraged (indebted)
firms, which are generally less able than more financially stable firms to make
scheduled payments of interest and principal. The risks posed by securities
issued under such circumstances are substantial.
In the past, the high yields from lower rated securities have more than
compensated for the higher default rates on such securities. However, there can
be no assurance that diversification will protect the Series from widespread
bond defaults
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<PAGE>
brought about by a sustained economic downturn, or that yields will continue to
offset default rates on lower rated securities in the future. Issuers of these
securities are often highly leveraged, so that their ability to service their
debt obligations during an economic downturn or during sustained periods of
rising interest rates may be impaired. In addition, such issuers may not have
more traditional methods of financing available to them and may be unable to
repay debt at maturity by refinancing. Further, an economic recession may
result in default levels with respect to such securities in excess of historic
averages.
The value of lower-rated securities will be influenced not only by changing
interest rates, but also by the bond market's perception of credit quality and
the outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated securities may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates.
Especially at such times, trading in the secondary market for lower rated
securities may become thin and market liquidity may be significantly reduced.
Even under normal conditions, the market for lower rated securities may be less
liquid than the market for investment grade corporate bonds. There are fewer
securities dealers in the high yield market and purchasers of lower rated
securities are concentrated among a smaller group of securities dealers and
institutional investors. In periods of reduced market liquidity, lower rated
securities prices may become more volatile.
Besides credit and liquidity concerns, prices for lower rated securities may be
affected by legislative and regulatory developments. For example, from time to
time, Congress has considered legislation to restrict or eliminate the corporate
tax deduction for interest payments or to regulate corporate restructurings such
as takeovers or mergers. Such legislation may significantly depress the prices
of outstanding lower rated securities. A description of various corporate debt
ratings appears in Appendix A to this Statement of Additional Information.
CONVERTIBLE SECURITIES
- ----------------------
The Series may invest in convertible securities which generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality. The value of convertible securities may reflect changes in the value
of the underlying common stock. Convertible securities entail less credit risk
than the issuer's common stock because they rank senior to common stock.
Convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to convert. The provisions of any convertible
security determine its ranking in a company's capital structure. In the case of
subordinated convertible debentures, the holder's claims on assets and earnings
are subordinated to the claims of other creditors and are senior to the claims
of preferred and common shareholders. In the case of preferred stock and
convertible preferred stock, the holder's claim on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.
WHEN-ISSUED SECURITIES
- ----------------------
The Series may purchase securities offered on a "when-issued" or "forward
delivery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued or forward delivery securities take
place at a later date. During the period between purchase and settlement, no
payment is made by the purchaser to the issuer and no interest on the when-
issued or forward delivery security accrues to the purchaser. While when-issued
or forward delivery securities may be sold prior to the settlement date, it is
intended that a Series will purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time a Series makes the commitment to purchase a security on a when-
issued or forward delivery basis, it will record the transaction and reflect the
value of the security in determining its net asset value. The market value of
when-issued or forward delivery securities may be more or less than the purchase
price. The Advisor does not believe that a Series' net asset value or income
will be adversely affected by its purchase of securities on a when-issued or
forward delivery basis. The Series will establish a segregated account in which
it will maintain Segregated Assets equal in value to commitments for when-
issued or forward delivery securities.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES
- ---------------------------------------------------------------
The Series may also invest in mortgage-backed securities, which are interests in
pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of
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<PAGE>
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations as further described
below. The Series may also invest in debt securities which are secured with
collateral consisting of mortgage-backed securities (see "Collateralized
Mortgage Obligations") and in other types of mortgage-related securities.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. government. These
guarantees, however, do not apply to the market value of Series shares. Also,
securities issued by GNMA and other mortgage-backed securities may be purchased
at a premium over the maturity value of the underlying mortgages. This premium
is not guaranteed and would be lost if prepayment occurs. Mortgage-backed
securities issued by U.S. government agencies or instrumentalities other than
GNMA are not "full faith and credit" obligations. Certain obligations, such as
those issued by the Federal Home Loan Bank are supported by the issuer's right
to borrow from the U.S. Treasury, while others such as those issued by the
Federal National Mortgage Association ("FNMA"), are supported only by the credit
of the issuer. Unscheduled or early payments on the underlying mortgages may
shorten the securities' effective maturities and reduce returns. The Series may
agree to purchase or sell these securities with payment and delivery taking
place at a future date. A decline in interest rates may lead to a faster rate
of repayment of the underlying mortgages and expose the Series to a lower rate
of return upon reinvestment. To the extent that such mortgage-backed securities
are held by a Series, the prepayment right of mortgagors may limit the increase
in net asset value of the Series because the value of the mortgage-backed
securities held by the Series may not appreciate as rapidly as the price of
noncallable debt securities.
A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages and expose a Series to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by a
Series, the prepayment right will tend to limit to some degree the increase in
net asset value of the Series because the value of the mortgage-backed
securities held by the Series may not appreciate as rapidly as the price of
noncallable debt securities.
For federal tax purposes other than diversification under Subchapter M,
mortgage-backed securities are not considered to be separate securities but
rather "grantor trusts" conveying to the holder an individual interest in each
of the mortgages constituting the pool.
Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-backed securities (such as securities issued by the
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payments dates regardless of whether or
not the mortgagor actually makes the payment.
Any discount enjoyed on the purchases of a pass-through type mortgage-backed
security will likely constitute market discount. As a Series receives
principal payments, it will be required to treat as ordinary income an amount
equal to the lesser of the amount of the payment or the "accrued market
discount." Market discount is to be accrued either under a constant rate method
or a proportional method. Pass-through type mortgage-backed securities
purchased at a premium to face will be subject to a similar rule requiring
recognition of an offset to ordinary interest income, an amount of premium
attributable to the receipt of principal. The amount of premium recovered is to
be determined using a method similar to that in place for market discount. A
Series may elect to accrue market discount or amortize premium notwithstanding
the amount of principal received but such election will apply to all bonds held
and thereafter acquired unless permission is granted by the Commissioner of the
Internal Revenue Service to change such method.
The principal governmental guarantor of mortgage-related securities is GAMA,
which is a wholly-owned U. S. government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers)
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<PAGE>
and backed by pools of mortgages which are insured by the Federal Housing
Authority or guaranteed by the Veterans Administration. These guarantees,
however, do not apply to the market value or yield of mortgage-backed securities
or to the value of Series shares. Also, GNMA securities often are purchased at
a premium over the maturity value of the underlying mortgages. This premium is
not guaranteed and should be viewed as an economic offset to interest to be
earned. If prepayments occur, less interest will be earned and the value of the
premium paid will be lost.
Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. government) include FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation of the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) mortgages from a list of approved
seller/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the U.S. government.
FHLMC is a corporate instrumentality of the U.S. government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional mortgage loans. Such issuers may, in addition, be
the originators and/or servicers of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of interest than government
and government-related pools because there are no direct or indirect government
or agency guarantees of payments. However, timely payment of interest and
principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets a Series' investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
or guarantees, even if through an examination of the loan experience and
practices of the originators/servicers and poolers, the Advisor determines that
the securities meet the Series' quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE INVESTMENT
- --------------------------------------------------------------------------------
CONDUITS ("REMICS")
- -------------------
A CMO is a debt security on which interest and prepaid principal are paid, in
most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA and their income streams.
Privately-issued CMOs tend to be more sensitive to interest rates than
Government-issued CMOs.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payments of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding
the longer maturity classes receive principal only after the first class has
been retired. An investor is partially guarded against a sooner than desired
return of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series (e.g., A, B,
C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B and C Bonds all bear
current interest. Interest
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<PAGE>
on the Series Z Bond is accrued and added to principal and a like amount is paid
as principal on the Series A, B, or C Bond currently being paid off. When the
Series A, B and C Bonds are paid in full, interest and principal on the Series
Z Bond begins to be paid currently. With some CMOs, the issuer serves as a
conduit to allow loan originators (primarily builders or savings and loan
associations) to borrow against their loan portfolios. REMICs are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
Most if not all newly-issued debt securities backed by pools of real estate
mortgages will be issued as regular and residual interests in REMICs because, as
of January 1, 1992, new CMOs which do not make REMIC elections will be treated
as "taxable mortgage pools," a wholly undesirable tax result. Under certain
transition rules, CMOs in existence on December 31, 1991 are unaffected by this
change. The Series will purchase only regular interests in REMICs. REMIC
regular interests are treated as debt of the REMIC and income/discount thereon
must be accounted for on the "catch-up method," using a reasonable prepayment
assumption under the original issue discount rules of the Code.
CMOs and REMICs issued by private entities are not government securities and are
not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. Yields on privately-issued CMOs,
as described above, have been historically higher than yields on CMOs issued or
guaranteed by U.S. government agencies. However, the risk of loss due to default
on such instruments is higher since they are not guaranteed by the U.S.
government. Such instruments also tend to be more sensitive to interest rates
than U.S. government-issued CMOs. The Series will not invest in subordinated
privately-issued CMOs. For federal income tax purposes, the Series will be
required to accrue income on CMOs and REMIC regular interests using the "catch-
up" method, with an aggregate prepayment assumption.
OTHER MORTGAGE-BACKED SECURITIES
- --------------------------------
The Advisor expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose principal
or interest payments may vary or whose terms to maturity may differ from
customary long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Advisor will, consistent
with a Series' investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities. The
Advisor will not purchase any such other mortgage-backed securities until the
Series' Prospectuses and this Statement of Additional Information have been
supplemented.
ASSET-BACKED SECURITIES
- -----------------------
The Series may invest a portion of its assets in debt obligations known as
"asset-backed securities." Asset-backed securities are securities that represent
a participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool or pools of similar assets
(e.g., receivables on home equity and credit loans and receivables regarding
automobile, credit card, mobile home and recreational vehicle loans, wholesale
dealer floor plans and leases).
Such receivables are securitized in either a pass-through or a pay-through
structure. Pass-through securities provide investors with an income stream
consisting of both principal and interest payments in respect of the receivables
in the underlying pool. Pay-through asset-backed securities are debt
obligations issued usually by a special purpose entity, which are collateralized
by the various receivables and in which the payments on the underlying
receivables provide that the Series pay the debt service on the debt obligations
issued. The Series may invest in these and other types of asset-backed
securities that may be developed in the future.
The credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support and/or enhancement provided.
Such asset-backed securities are subject to the same prepayment risks as
mortgage-backed securities. For federal income tax purposes, the Series will be
required to accrue income on pay-through asset-backed securities using the
"catch-up" method, with an aggregate prepayment assumption.
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<PAGE>
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of the originator or any
other affiliated entities, and the amount and quality of any credit support
provided to the securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets which in turn may be affected by a variety of economic and
other factors. As a result, the yield on any asset-backed security is difficult
to predict with precision and actual yield to maturity may be more or less than
the anticipated yield to maturity. Asset-backed securities may be classified as
"pass-through certificates" or "collateralized obligations."
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payment, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection; and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments due on the underlying pool is
timely. Protection against losses resulting from ultimate default enhances the
likelihood of payments of the obligations on at least some of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Series will not pay any additional fees for such credit
support, although the existence of credit support may increase the price of a
security.
Due to the shorter maturity of the collateral backing such securities, there is
less of a risk of substantial prepayment than with mortgage-backed securities.
Such asset-backed securities do, however, involve certain risks not associated
with mortgage-backed securities, including the risk that security interests
cannot be adequately, or in many cases, ever, established. In addition, with
respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payments of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in such issue.
ZERO COUPON AND DELAYED INTEREST SECURITIES
- -------------------------------------------
The Series may invest in zero coupon or delayed interest securities which pay no
cash income until maturity or a specified date when the securities begin paying
current interest (the "cash payment date") and are sold at substantial discounts
from their value at maturity. When held to maturity or cash payment date, the
entire income of such securities, which consists of accretion of discount, comes
from the difference between the purchase price and their value at maturity or
cash payment date. The discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The discount, in the
absence of financial difficulties of the issuer, decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon and delayed interest securities are generally more volatile and more
likely to respond to changes in interest rates than the market prices of
securities having similar maturities and credit qualities that pay interest
periodically. Current federal income tax law requires that a holder of a zero
coupon security report as income each year the portion of the original issue
discount on such security (other than tax-exempt original issue discount from a
zero coupon security) that accrues that year, even though the holder receives no
cash payments of interest during the year. The Series will be required to
distribute such income to shareholders to comply with Subchapter M of the Code
and avoid excise taxes, even though the Series have not received any cash from
the issue.
17
<PAGE>
Zero coupon securities are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest (cash). Zero coupon convertible
securities offer the opportunity for capital appreciation as increases (or
decreases) in market value of such securities closely follow the movements in
the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks as they usually are issued with short maturities (15 years or less) and
are issued with options and/or redemption features exercisable by the holder of
the obligation entitling the holder to redeem the obligation and receive a
defined cash payment.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries ("CATS").
The underlying U.S. Treasury bonds and notes themselves are held in book-entry
form at the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are owned ostensibly by the bearer or holder
thereof), in trust on behalf of the owners thereof. Counsel to the underwriters
of these certificates or other evidences of ownership of the U.S. Treasury
securities has stated that for federal tax and securities purposes, in its
opinion, purchasers of such certificates, such as the Series, most likely will
be deemed the beneficial holder of the underlying U.S. government securities.
The Series understand that the staff of the SEC no longer considers such
privately stripped obligations to be U.S. government securities, as defined in
the Act; therefore, the Series intends to adhere to this staff position and
will not treat such privately stripped obligations to be U.S. government
securities for the purpose of determining if the Series is "diversified," or for
any other purpose, under the Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the U.S. Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, a Series will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the U.S. Treasury
sells itself. These stripped securities are also treated as zero coupon
securities with original issue discount for tax purposes.
INVESTMENTS RELATING TO THE GLOBAL FUND
EMERGING MARKETS INVESTMENTS (Global Fund only).
- ----------------------------
The Series may invest up to 10% of its assets in equity and debt securities of
emerging market issuers, or securities with respect to which the return is
derived from the equity or debt securities of issuers in emerging markets. The
Series may invest in equity securities of issuers in emerging markets, or
securities with respect to which the return is derived from the equity
securities of issuers in emerging markets. The Series also may invest in fixed
income securities of emerging market issuers, including government and
government-related entities (including participation in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. The Series also may invest in
debt securities of corporate issuers in developing countries.
The Series' investments in emerging market government and government-related
securities may consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging countries (including participation in
loans between governments and financial
18
<PAGE>
institutions), (ii) debt securities or obligations issued by government owned,
controlled or sponsored entities located in emerging countries and (iii)
interests in issuers organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the entities
described above.
The Series' investments in the fixed income securities of emerging market
issuers may include investments in Brady Bonds, Structured Securities, Loan
Participation and Assignments (as such capitalized terms are defined below), and
certain non-publicly traded securities.
Brady Bonds are securities created through the exchange of existing commercial
bank loans to public and private entities in certain emerging markets for new
bonds in connection with debt restructurings under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Bonds may be collateralized or uncollateralized, are issued
in various currencies (but primarily the U.S. dollar), and are actively traded
in over-the-counter secondary markets. Dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds.
Structured Securities are issued by entities organized and operated solely for
the purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with, or purchase
by, an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments.
The Series may invest in fixed rate and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions ("Lenders"). The Series' investments in
Loans are expected in most instances to be in the form of a participation in
loans ("Participation") and assignments of all or a portion of Loans
("Assignments") from third parties. The Series will have the right to receive
payments of principal, interest and any fees to which they are entitled only
from the Lender selling the Participation and only upon receipt by the Lender of
the payments from the borrower. In the event of the insolvency of the Lender
selling a Participation, the Series may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Series purchases Assignments from Lenders, it will acquire direct rights
against the borrower on the Loan. However, because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Series as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
The Series also may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities and
limited partnerships. Investing in such unlisted emerging market equity
securities, including investments in new and early stage companies, may involve
a high degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities.
The Series' investments in emerging market securities will at all times be
limited by the Series' prohibition on investing more than 15% of its net assets
in illiquid securities.
RISKS OF INVESTING IN EMERGING MARKETS
- --------------------------------------
Compared to the United States and other developed countries, emerging countries
may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade only a small number of securities
and employ settlement procedures different from those used in the United States.
Prices on these exchanges tend to be volatile and, in the past, securities in
these countries have offered greater potential for gain (as well as loss) than
securities of companies located in developed countries. Further, investments by
foreign investors are subject to a variety of restrictions in many emerging
countries. Countries such as those in which the Series may invest have
historically experienced and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations or currency
depreciation, large amounts of external debt, balance of payments and trade
difficulties and
19
<PAGE>
extreme poverty and unemployment. Additional factors which may influence the
ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of its debt service burden to
the economy as a whole, its government's policy towards the International
Monetary Fund, the World Bank and other international agencies and the political
constraints to which a government debtor may be subject.
The ability of a foreign government or government-related issuer to make timely
and ultimate payments on its external debt obligations will be strongly
influenced by the issuer's balance of payments, including export performance,
its access to international credits and investments, fluctuations in interest
rates and the extent of its foreign reserves. A country whose exports are
concentrated in a few commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these
commodities or imports. To the extent that a country receives payment for its
exports in currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign government or
government-related issuer cannot generate sufficient earnings from foreign trade
to service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks, and multilateral organizations, and
inflows of foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such disbursements
may be conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the issuer's ability or willingness to
service its debts in a timely manner. The cost of servicing external debt will
also generally be adversely affected by rising international interest rates,
because many external debt obligations bear interest at rates which are adjusted
based upon international interest rates. The ability to service external debt
will also depend on the level of the relevant government's international
currency reserves and its access to foreign exchange. Currency devaluations may
affect the ability of a governmental issuer to obtain sufficient foreign
exchange to service its external debt.
As a result of the foregoing, a governmental issuer may default on its
obligations. If such a default occurs, the Series may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting country itself, and the
ability of the holder of foreign government and government-related debt
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
government and government-related debt obligations in the event of default under
their commercial bank loan agreements.
The issuers of the government and government-related debt securities in which
the Series expects to invest have in the past experienced substantial
difficulties in servicing their external debt obligations, which has led to
defaults on certain obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things, reducing and
rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds, and obtaining new credit to finance interest payments. Holders of
certain foreign government and government-related debt securities may be
requested to participate in the restructuring of such obligations and to extend
further loans to their issuers. There can be no assurance that the Brady Bonds
and other foreign government and government-related debt securities in which the
Series may invest will not be subject to similar defaults or restructuring
arrangements which may adversely affect the value of such investments.
Furthermore, certain participants in the secondary market for such debt may be
directly involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market participants.
Payments to holders of the high yield, high risk, foreign debt securities in
which the Series may invest may be subject to foreign withholding and other
taxes. Although the holders of foreign government and government-related debt
securities may be entitled to tax gross-up payments from the issuers of such
instruments, there is no assurance that such payments will be made.
INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES
- ----------------------------------------------
The Series may invest in securities issued by other registered investment
companies advised by Brinson Partners
20
<PAGE>
pursuant to exemptive relief granted by the SEC. Currently, the Global Fund is
the only Series of the Trust that intends to invest in portfolios of Brinson
Relationship Funds, another investment company which is advised by Brinson
Partners, and only to the extent consistent with the Advisor's investment
process of allocating assets to specific asset classes. The Global Fund will
invest in corresponding portfolios of Brinson Relationship Funds only to the
extent that the Advisor determines that such investments are a more efficient
means for the Global Fund to gain exposure to the asset classes referred to
below than by investing directly in individual securities.
To gain exposure to equity and fixed income securities of issuers located in
emerging market countries, the Global Fund may invest that portion of its
assets allocated to emerging markets investments in the Brinson Emerging Markets
Equity Fund portfolio and the Brinson Emerging Markets Debt Fund portfolio of
Brinson Relationship Funds. The investment objective of the Brinson Emerging
Markets Equity Fund and the Brinson Emerging Markets Debt Fund is to maximize
total U.S. dollar return, consisting of capital appreciation and current income,
while controlling risk. Under normal circumstances, at least 65% of the total
assets of the Brinson Emerging Markets Equity Fund is invested in the equity
securities of issuers in emerging markets or securities with respect to which
the return is derived from the equity securities of issuers in emerging markets.
At least 65% of the total assets of the Brinson Emerging Markets Debt Fund is
invested in the debt securities issued by governments, government-related
entities (including participations in loans between governments and financial
institutions), corporations and entities organized to restructure outstanding
debt of issuers in emerging markets, or debt securities the return on which is
derived primarily from other emerging markets instruments. The Brinson Emerging
Markets Equity Fund and Brinson Emerging Markets Debt Fund are permitted to
invest in the same types of securities as the Global Fund may invest in
directly.
In lieu of investing directly in certain high yield, higher risk securities, the
Global Fund may invest a portion of its assets in the Brinson High Yield Fund
portfolio (the "High Yield Fund") of Brinson Relationship Funds. The investment
objective of the High Yield Fund is to maximize total U.S. dollar return,
consisting of capital appreciation and current income, while controlling risk.
The High Yield Fund maintains a high yield portfolio and as such, at least 65%
of its assets are invested in high yield securities. The Global Fund currently
intends to limit its investment in non-investment grade debt securities to no
more than 5% of its net assets. Any investment in the High Yield Fund will be
considered within this limitation.
In lieu of investing directly in equity securities issued by companies with
relatively small overall market capitalizations, the Global Fund may invest a
portion of its assets in the Brinson Post-Venture Fund (the "Post-Venture Fund")
portfolio of Brinson Relationship Funds. The investment objective of the Post-
Venture Fund is to maximize total U.S. dollar return, consisting of capital
appreciation and current income, while controlling risk. The Post-Venture Fund
invests primarily in publicly- traded companies representing the lower 5% of the
Wilshire 5000 Index, and, as such, at least 65% of its assets are invested in
small capitalization equity securities.
Each portfolio of Brinson Relationship Funds in which the Global Fund may invest
is permitted to invest in the same securities of a particular asset class in
which the Global Fund is permitted to invest directly, and with similar risks.
Pursuant to undertakings with the SEC, the Global Fund will not be subject to
the imposition of double management or administration fees with respect to its
investments in Brinson Relationship Funds.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may not
be changed as to a Series, without the approval of a majority of the outstanding
voting securities (as defined in the Act) of the Series. Unless otherwise
indicated, all percentage limitations listed below apply to the Series only at
the time of the transaction. Accordingly, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in the
percentage which results from a relative change in values or from a change in a
Series' total assets will not be considered a violation.
Except as set forth under "Investment Objectives and Policies" and "Investment
Considerations and Risks" in each Prospectus, or "Investment Strategies" in
this Statement of Additional Information, each Series may not:
(i) As to 75% of the total assets of each Series, purchase the
securities of any one issuer, other than securities issued by the
U.S. government or its agencies or instrumentalities, if
21
<PAGE>
immediately after such purchase more than 5% of the value of the
total assets of a Series would be invested in securities of such
issuer (this does not apply to the Global Bond Fund);
(ii) Invest in real estate or interests in real estate (This will not
prevent a Series from investing in publicly-held real estate
investment trusts or marketable securities of companies which may
represent indirect interests in real estate.), interests in oil, gas
and/or mineral exploration or development programs or leases;
(iii) Purchase or sell commodities or commodity contracts, but may enter
into futures contracts and options thereon in accordance with its
Prospectus. Additionally, each Series may engage in forward foreign
currency contracts for hedging and non-hedging purposes;
(iv) Make investments in securities for the purpose of exercising
control over or management of the issuer;
(v) Purchase the securities of any one issuer if, immediately after such
purchase, a Series would own more than 10% of the outstanding voting
securities of such issuer;
(vi) Sell securities short or purchase securities on margin, except such
short-term credits as are necessary for the clearance of
transactions. For this purpose, the deposit or payment by a Series
for initial or maintenance margin in connection with futures
contracts is not considered to be the purchase or sale of a security
on margin;
(vii) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly
distributed or privately placed debt securities, (b) the lending of
portfolio securities, or (c) entry into repurchase agreements with
banks or broker-dealers;
(viii) Borrow money in excess of 33 1/3% of the value of its assets except
as a temporary measure for extraordinary or emergency purposes to
facilitate redemptions or issue senior securities. All borrowings
will be done from a bank and to the extent that such borrowing
exceeds 5% of the value of a Series' assets, asset coverage of at
least 300% is required. A Series will not purchase securities when
borrowings exceed 5% of that Series' total assets;
(ix) Purchase the securities of issuers conducting their principal
business activities in the same industry, other than obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, if immediately after such purchase, the value of
a Series' investments in such industry would exceed 25% of the value
of the total assets of the Series across several countries;
(x) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Series may be deemed to be an
"underwriter" as that term is defined in the Securities Act of 1933;
(xi) Invest in securities of any open-end investment company, except that
(i) a Series may purchase securities of money market mutual funds,
(ii) the Global Fund and Global Equity Fund may each invest in the
securities of closed-end investment companies at customary brokerage
commission rates in accordance with the limitations imposed by the
Act and the rules thereunder, and (iii) in accordance with any
exemptive order obtained from the SEC which permits investment by a
Series in other Series or other investment companies or series
thereof advised by the Advisor. In addition, each Series may acquire
securities of other investment companies if the securities are
acquired pursuant to a merger, consolidation, acquisition, plan of
reorganization or a SEC approved offer of exchange;
(xii) Invest in puts, calls, straddles or combinations thereof except to
the extent disclosed in a Series' Prospectus; and
22
<PAGE>
(xiii) Invest more than 5% of its total assets in securities of companies
less than three years old. Such three year periods shall include the
operation of any predecessor company or companies.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
POSITION
WITH
NAME AND ADDRESS AGE THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------- --- --------- -------------------------------------------
<S> <C> <C> <C>
Walter E. Auch 76 Trustee Retired; formerly Chairman and CEO of Chicago Board of
6001 N. 62nd Place Options Exchange (1979-1986); Trustee of the Trust since
Paradise Valley, AZ May, 1994; Trustee, Brinson Relationship Funds since
85253 December, 1994; Director, Thomsen Asset Management
Corp. since 1987; Director, Fort Dearborn Income
Securities, Inc. 1987 to 1995; Director, Geotek Industries,
Inc. since 1989; Director, Smith Barney VIP Fund since
1991; Director, SB Advisers since 1992; Director, SB
Trak since 1992; Director, Banyan Realty Trust since 1987;
Director, Banyan Land Fund II since 1988; Director,
Banyan Mortgage Investment Fund since 1989; and
Director, Express America Holdings Corp. since 1992, and
Nicholas/Applegate, Legend Properties, Inc.
Frank K. Reilly 61 Chairman and Professor, University of Notre Dame since 1982; Trustee
College of Business Trustee of the Trust since December, 1993; Trustee, Brinson
Administration Relationship Funds since September, 1994; Director of The
University of Brinson Funds, Inc. 1992-1993; Trustee, Brinson Trust
Notre Dame Company, 1992-July, 1993; Director, Fort Dearborn
208 Hurley Building Income Securities, Inc. since 1993; Director, First Interstate
Notre Dame, IN 46556 Bank of Wisconsin from January, 1989 through March,
1990; Director, Greenwood Trust Company since 1993; and
Director, Dean Witter Trust, FSB, since 1996.
Edward M. Roob 62 Trustee Retired; prior thereto, Senior Vice President, Daiwa
841 Woodbine Lane Securities America Inc. (1986-1993); Trustee of the Trust
Northbrook, IL 60002 since January, 1995; Trustee, Brinson Relationship Funds
since January 1995; Director, Fort Dearborn Income
Securities, Inc. since 1993; Director, Brinson Trust
Company since 1993; Committee Member, Chicago Stock
Exchange since 1993; Member of Board of Governors,
Midwest Stock Exchange (1987-1991).
</TABLE>
23
<PAGE>
OTHER OFFICERS
<TABLE>
<CAPTION>
POSITION
WITH THE OFFICER
NAME AGE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---- --- -------- ------- -----------------------------------------------------
<S> <C> <C> <C> <C>
E. Thomas McFarlan 53 President 1993 Managing Partner, Brinson Partners, Inc. since 1991;
and President and Director of The Brinson Funds, Inc. 1992-
Treasurer 1993; Trustee, Brinson Trust Company since 1991; prior
thereto, Executive Vice President of Washington Mutual
Savings Bank.
Bruce G. Leto 35 Secretary 1995 Partner, Stradley, Ronon, Stevens & Young, LLP since
1994; prior thereto, Senior Associate.
Thomas J. Digenan 33 Assistant 1993 Partner, Brinson Partners, Inc. since 1993; Assistant
Treasurer Secretary The Brinson Funds, Inc. 1993 - 1995; prior
thereto, Senior Manager, KPMG Peat Marwick.
Debra L. Nichols 31 Assistant 1993 Partner, Brinson Partners, Inc. since 1995; Associate,
Secretary Brinson Partners, Inc. from 1991 to 1995; Assistant Secretary,
The Brinson Funds, Inc. 1992-1993; prior thereto, private
investor.
Catherine E. Macrae 39 Assistant 1995 Associate, Brinson Partners, Inc, since 1992; prior thereto,
Secretary Economic Analyst, Chicago Mercantile Exchange.
Carolyn M. Burke 30 Assistant 1995 Partner, Brinson Partners, Inc., since January 1977;
Secretary prior thereto, Associate, Brinson Partners, Inc. from 1995
to 1997; Financial Analyst, Van Kampen American Capital
Investment Advisory Corp. 1992-1995; Senior Accountant,
KPMG Peat Marwick 1989-1992.
</TABLE>
COMPENSATION TABLE
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
FROM TRUST FOR FISCAL YEAR TRUST AND FUND COMPLEX
NAME AND POSITION HELD ENDED JUNE 30, 1996 PAID TO TRUSTEES/1/
- ---------------------- -------------------------- -----------------------
<S> <C> <C>
Walter E. Auch, Trustee $12,600 $26,200
6001 N. 62nd Place
Paradise Valley, AZ 85253
Frank K. Reilly, Trustee $12,600 $23,700
College of Business Administration
University of Notre Dame
208 Hurley Building
Notre Dame, IN 46556
Edward M. Roob, Trustee $12,600 $26,200
841 Woodbine Lane
Northbrook, IL 60002
</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
recently completed fiscal year; and (b) service on the Board of Directors
of two other investment companies managed by Brinson Partners for the
calendar year ending December 31, 1995.
24
<PAGE>
No officer or Trustee of the Trust who is also an officer or employee of Brinson
Partners receives any compensation from the Trust for services to the Trust. The
Trust pays each Trustee who is not affiliated with Brinson Partners a fee of
$6,000 per year, plus $300 per Series per meeting, and reimburses each Trustee
and officer for out-of-pocket expenses in connection with travel and attendance
at Board meetings.
The Board of Trustees has an Audit Committee which has the responsibility, among
other things, to (i) recommend the selection of the Trust's independent
auditors, (ii) review and approve the scope of the independent auditors' audit
activity, (iii) review the financial statements which are the subject of the
independent auditors' certification, and (iv) review with such independent
auditors the adequacy of the Series' basic accounting system and the
effectiveness of the Series' internal accounting controls. The Audit Committee
met once during the fiscal year ended June 30, 1996. There is no separate
nominating or investment committee. Items pertaining to these committees are
submitted to the full Board of Trustees.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 8, 1997, the officers and Trustees, as a group, owned beneficially
138,077.809 outstanding voting shares of the Global Fund, 3,736.560 shares of
the Global Bond Fund and 1,937.142 shares of the U.S. Equity Fund, which in the
aggregate amount to 2,078,956.369 shares of the Trust.
As of April 8, 1997, the following persons owned of record or beneficially more
than 5% of the outstanding voting shares of the Brinson Fund class, SwissKey
Fund class or the Series, as applicable:
GLOBAL FUND
<TABLE>
<CAPTION>
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
BRINSON FUND CLASS
- ------------------
<S> <C> <C>
First Alabama Bank 10.95% 10.51%
Mobile, AL
Polk Bros. Foundation 7.50% 7.20%
Evanston, IL
NationsBank of Georgia NA Trustee 6.80% 6.53%
Dallas, TX
Northern Trust Company 5.08% -----
Chicago, IL
SWISSKEY FUND CLASS
- -------------------
*Swiss Bank Corporation 76.20% -----
New York, NY
</TABLE>
25
<PAGE>
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
BRINSON FUND CLASS
- ------------------
<S> <C> <C>
*+United States Japan Foundation 76.78% 35.63%
New York, NY
Wachovia Bank of North Carolina
Winston Salem, NC 9.45% -----
SWISSKEY FUND CLASS
- -------------------
*Swiss Bank Corporation 40.84% 21.88%
New York, NY
Schweizerischer Bankverin
Zurich, Switzerland 23.40% 12.54%
GLOBAL BOND FUND
BRINSON FUND CLASS
- ------------------
*+Baptist Health Systems, Inc. 33.06% 30.35%
Birmingham, AL
*Munson Williams Proctor Institute 25.62% 23.53%
Utica, NY
Charles Schwab & Co. 9.47% 8.70%
San Francisco, CA
Ripon College 9.06% 8.32%
Ripon, WI
Wilmington Trust Co.
Wilmington, DE 8.46% 7.77%
SWISSKEY FUND CLASS
- -------------------
*Swiss Bank Corporation 59.99% -----
New York, NY
Schweizerischer Bankverein 7.65% -----
Zurich, Switzerland
U.S. BALANCED FUND
BRINSON FUND CLASS
- ------------------
*+Bankers Trust Co. 74.29% 73.83%
Jersey City, NJ
MAC & Co. 11.78% 11.71%
Pittsburgh, PA
Mitra & Co 5.81% 5.78%
Milwaukee, WI
SWISSKEY FUND CLASS
- -------------------
*Swiss Bank Corp. 48.63% -----
New York, NY
*Blush & Co.
New York, NY 28.99% -----
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
SWISSKEY FUND CLASS (CON'T)
- -------------------
<S> <C> <C>
Schweizerischer Bankverien 12.29% -----
Zurich, Switzerland
Schweizerischer Bankverien 7.26% -----
Zurich, Switzerland
U.S. EQUITY FUND
BRINSON FUND CLASS
- ------------------
Wachovia Bank Trust-Swiss Bank Corp. 24.42% 22.15%
Winston Salem, NC
Wachovia Bank Trust 10.37% 9.41%
Winston Salem, NC
Charles Schwab & Co. 6.45% 5.86%
San Francisco, CA
American Institute of Physics 5.20% -----
College Park, MD
SWISSKEY FUND CLASS
- -------------------
*Schweizerischer Bankverien 37.92% -----
Zurich, Switzerland
*Schweizerischer Bankverien 28.12% -----
Zurich, Switzerland
Swiss Bank Corporation 17.18% -----
New York, NY
Fox & Co. 14.43% -----
New York, NY
U.S. BOND FUND
BRINSON FUND CLASS
- ------------------
*+Wachovia Bank of North Carolina 40.64% 38.22%
Winston Salem, NC
*+Lafayette College Endowment 30.86% 29.02%
F M Kirby
Easton, PA
Lafayette College Endowment 11.86% 11.15%
Easton, PA
Lafayette College Endowment 8.53% 8.03%
A P Kirby
Easton, PA
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Percentage of Percentage of
Name & Address of Beneficial Owners Class Series
- ----------------------------------- ------------- -------------
<S> <C> <C>
SwissKey Fund Class
-------------------
*Schweizerischer Bankverien 40.54% ------
Zurich, Switzerland
*Schweizerischer Bankverien 36.17% ------
Zurich, Switzerland
Swiss Bank Corp. 18.68% ------
New York, NY
Non U.S. Equity Fund
Brinson Fund Class
------------------
*Northern Trust 27.33% 26.92%
Chicago, IL
SwissKey Fund Class
-------------------
*Schweizerischer Bankverien 59.90% ------
Zurich, Switzerland
Schweizerischer Bankverien* 28.56% ------
Zurich, Switzerland
Blush & Co. 5.54% ------
New York, NY
</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.
+ Person deemed to control the Series within the meaning of the Act. Note that
such persons possess the ability to control the outcome of matters submitted
for the vote of shareholders of that Series.
As of April 8, 1997, the following persons owned of record or beneficially more
than 5% of the outstanding voting shares of the Trust:
Name & Address of Beneficial Owners Percentage of Trust
- ----------------------------------- -------------------
Bankers Trust Co. 12.40%
Jersey City, NJ
Northern Trust 6.63%
Chicago, IL
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISOR
- -------
Brinson Partners, a Delaware corporation, is an investment management firm
managing, as of December 31, 1996, approximately $119 billion, primarily for
institutional pension and profit sharing funds. Brinson Partners was organized
in 1989 when it acquired the institutional asset management business of The
First National Bank of Chicago and First
28
<PAGE>
Chicago Investment Advisors, N.A. Brinson Partners and its predecessor entities
have managed domestic and international investment assets since 1974 and global
investment assets since 1982. Brinson Partners has offices in Basel, London,
Melbourne, New York, Paris, Singapore, Sydney and Tokyo, in addition to its
principal office at 209 South LaSalle Street, Chicago, IL 60604-1295. Brinson
Partners is an indirect wholly-owned subsidiary of Swiss Bank Corporation
("Swiss Bank"). Swiss Bank, with headquarters in Basel, Switzerland, is an
internationally diversified organization with operations in many aspects of the
financial services industry. Brinson Partners also serves as the investment
advisor to nine other investment companies: Brinson Relationship Funds, which
includes six investment portfolios (series); Enterprise Accumulation Trust;
Enterprise International Growth Portfolio; Fort Dearborn Income Securities,
Inc.; The Hirtle Callaghan International Trust - International Equity Portfolio;
John Hancock Variable Series Trust I - International Balanced Fund; Managed
Account Services Portfolio Trust - Pace Large Company Value Equity Investments.
Pursuant to its investment advisory agreements (the "Agreements") with the
Trust, on behalf of each Series, Brinson Partners receives from each Series a
monthly fee at an annual rate (as described in each Series' Prospectus and
below) multiplied by the average daily net assets of that Series for providing
investment advisory services. Brinson Partners is responsible for paying its
expenses. Under the Agreements, each Series pays the following expenses: (1) the
fees and expenses of the Trust's disinterested Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
Brinson Partners; (3) interest expenses; (4) taxes and governmental fees; (5)
brokerage commissions and other expenses incurred in acquiring or disposing of
portfolio securities; (6) the expenses of registering and qualifying shares for
sale with the SEC and with various state securities commissions; (7) auditing
and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's
custodian, administrative and transfer agent and any related services; (10)
expenses of obtaining quotations of the Series' portfolio securities and of
pricing the Series' shares; (11) expenses of maintaining the Trust's legal
existence and of shareholders' meetings; (12) expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses; and
(13) fees and expenses of membership in industry organizations.
Under the Agreements, the Advisor is entitled to a monthly fee of the respective
Series' average daily net assets as follows: annual rates of 0.80% for the
Global Fund, Global Equity Fund and Non-U.S. Equity Fund; 0.75% for the Global
Bond Fund; 0.70% for the U.S. Balanced Fund and U.S. Equity Fund; and 0.50% for
the U.S. Bond Fund. The Advisor has agreed irrevocably to waive its fees and
reimburse expenses to the extent that total operating expenses exceed the
following rates of the respective Series' average daily net assets as follows,
without regard to 12b-1 Plan expenses for the SwissKey Fund class or the
Brinson - Class N of each Series: 1.10% for the Global Fund; 1.00% for the
Global Equity Fund and the Non-U.S. Equity Fund; 0.90% for the Global Bond Fund;
0.80% for the U.S. Balanced Fund and the U.S. Equity Fund; and 0.60% for the
U.S. Bond Fund.
Advisory fees accrued to Brinson Partners were as follows:
<TABLE>
<CAPTION>
A. FISCAL YEAR ENDED JUNE 30, 1994*
- -------------------------------------------------------------------------------------------
SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID
EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL FUND $1,951,309 $1,860,397 $ 30,946
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 68,151 $ 0.00 $ 82,834
- -------------------------------------------------------------------------------------------
GLOBAL BOND FUND $ 189,136 $ 0.00 $149,667
- -------------------------------------------------------------------------------------------
U.S. BALANCED FUND NA NA NA
- -------------------------------------------------------------------------------------------
U.S. EQUITY FUND $ 14,819 $ 0.00 $ 63,834
- -------------------------------------------------------------------------------------------
U.S. BOND FUND NA NA NA
- -------------------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $ 300,928 $ 74,698 $136,835
- -------------------------------------------------------------------------------------------
</TABLE>
* The Global Equity Fund commenced investment operations on January 28, 1994;
Global Bond Fund commenced investment operations on July 30, 1993; U.S.
Balanced Fund commenced investment operations on December 30, 1994; U.S.
Equity Fund commenced investment operations on February 22, 1994; U.S. Bond
Fund commenced
29
<PAGE>
investment operations on August 31, 1995; and Non-U.S. Equity Fund commenced
investment operations on August 31, 1993.
<TABLE>
<CAPTION>
B. FISCAL YEAR ENDED JUNE 30, 1995
- -------------------------------------------------------------------------------------------
SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID
EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL FUND $2,681,392 $2,681,392 $ 0.00
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 163,038 $ 0.00 $216,658
- -------------------------------------------------------------------------------------------
GLOBAL BOND FUND $ 329,156 $ 95,216 $233,940
- -------------------------------------------------------------------------------------------
U.S. BALANCED FUND $ 441,419 $ 275,707 $165,712
- -------------------------------------------------------------------------------------------
U.S. EQUITY FUND $ 154,258 $ 0.00 $199,708
- -------------------------------------------------------------------------------------------
U.S. BOND FUND NA NA NA
- -------------------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $ 933,521 $ 666,061 $267,460
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
C. FISCAL YEAR ENDED JUNE 30, 1996
- -------------------------------------------------------------------------------------------
SERIES GROSS ADVISORY FEES NET ADVISORY FEES PAID FUND EXPENSES PAID
EARNED BY ADVISOR AFTER FEE WAIVER BY ADVISOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL FUND $3,415,057 $3,415,057 $ 0.00
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 390,824 $ 12,198 $378,626
- -------------------------------------------------------------------------------------------
GLOBAL BOND FUND $ 310,066 $ 158 $309,908
- -------------------------------------------------------------------------------------------
U.S. BALANCED FUND $1,465,283 $1,015,531 $449,752
- -------------------------------------------------------------------------------------------
U.S. EQUITY FUND $ 638,063 $ 326,322 $311,741
- -------------------------------------------------------------------------------------------
U.S. BOND FUND $ 37,868 $ 0.00 $230,216
- -------------------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $1,403,109 $1,050,199 $352,910
- -------------------------------------------------------------------------------------------
</TABLE>
General expenses of the Trust (such as costs of maintaining corporate existence,
legal fees, insurances, etc.) will be allocated among the Series in proportion
to their relative net assets. Expenses which relate exclusively to a particular
Series, such as certain registration fees, brokerage commissions and other
portfolio expenses, will be borne directly by that Series.
ADMINISTRATOR
- -------------
Administrative, Accounting, Transfer Agency and Custodian Services
Effective May 10, 1997, the Trust, on behalf of each Fund, has entered into a
Multiple Services Agreement (the "Services Agreement") with Morgan Stanley Trust
Company, One Pierrepont Plaza, Brooklyn, New York 11201 ("MSTC"), pursuant to
which MSTC is required to provide general administrative, accounting, portfolio
valuation, transfer agency and custodian services to the Fund, including the
coordination and monitoring of any third party service providers.
Custody Services. MSTC provides custodian services for the securities and cash
of the Fund. The custody fee schedule is based primarily on the net amount of
assets held during the period for which payment is being made plus a per
transaction fee for transactions during the period and out-of-pocket expenses.
As authorized under the Services Agreement, MSTC has entered into a Mutual Funds
Service Agreement (the "CGFSC Agreement") with Chase Global Funds Services
Company ("CGFSC"), a corporate affiliate of The Chase Manhattan Bank, under
which CGFSC provides administrative, accounting, portfolio valuation and
transfer agency services to the Fund. CGFSC's business address is 73 Tremont
Street, Boston, Massachusetts 02108-3913.
Pursuant to the CGFSC Agreement, CGFSC provides:
(1) administrative services, including providing the necessary office space,
equipment and personnel to perform administrative and clerical services;
preparing, filing and distributing proxy materials, periodic reports to
Investors, registration statements and other documents; and responding to
Investor inquiries;
(2) accounting and portfolio valuation services, including the daily calculation
of the Fund's net asset value and the preparation of certain financial
statements; and
(3) transfer agency services, including the maintenance of each Investor's
account records, responding to Investors' inquiries concerning accounts,
processing purchases and redemptions of the Fund's shares, acting as dividend
and distribution disbursing agent and performing other service functions.
Shareholder inquiries should be made to the transfer agent at 1-800-448-2430
(for the Brinson-Class N and Brinson-Class I) or 1-800-SWISSKEY (for The
SwissKey Funds).
Also as authorized under the Services Agreement, MSTC has entered into a
sub-administration agreement (the "FDI Agreement") with Funds Distributor, Inc.
("FDI") under which FDI provides administrative assistance to the Fund with
respect to (i) regulatory matters, including regulatory developments and
examinations, (ii) all aspects of the Fund's day-to-day operations, (iii) office
facilities, clerical and administrative services, and (iv) maintenance of books
and records. FDI's business address is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Pursuant to the CGFSC Agreement and the FDI Agreement, MSTC pays CGFSC and FDI,
respectively, for the services that CGFSC and FDI provide to MSTC in fulfilling
MSTC's obligations under the Services Agreement.
Until May 9, 1997, FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA
19406-0903 ("FPS"), provided certain administrative services to the Trust
pursuant to an administration agreement (the "Administration Agreement").
30
<PAGE>
As compensation for services performed under the Administration Agreement, FPS
received a fee payable monthly at an annual rate multiplied by the average daily
net assets of the Trust.
Administration fees paid to FPS were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SERIES FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL FUND $186,897 $211,243 $293,601
- -------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 6,064 $ 15,062 $ 32,468
- -------------------------------------------------------------------------------
GLOBAL BOND FUND $ 19,968 $ 28,889 $ 29,216
- -------------------------------------------------------------------------------
U.S. BALANCED FUND NA $ 39,523 $140,841
- -------------------------------------------------------------------------------
U.S. EQUITY FUND $ 3,482 $ 15,362 $ 58,286
- -------------------------------------------------------------------------------
U.S. BOND FUND NA NA $ 58,286
- -------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $ 23,597 $ 72,350 $119,433
- -------------------------------------------------------------------------------
</TABLE>
UNDERWRITER
- -----------
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, MA 02109,
acts as an underwriter of the Series' continuous offer of shares for the purpose
of facilitating the filing of notices regarding sale of the shares of the Series
under state securities laws and to assist in sales of shares pursuant to an
underwriting agreement (the "Underwriting Agreement") approved by the Board of
Trustees. In this regard, FDI has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Trust shall from time to time identify to FDI as states in which it wishes
to offer the Series' shares for sale, in order that state filings may be
maintained for the Series. FDI does not receive any compensation under the
Underwriting Agreement.
FDI is a broker-dealer registered with the SEC and a member in good standing of
the National Association of Securities Dealers, Inc.
The Trust does not impose any sales loads or redemption fees. Each Series shall
continue to bear the expense of all filing fees incurred in connection with the
filing of notices regarding sale of shares under state securities laws.
The Underwriting Agreement may be terminated by either party upon sixty (60)
days' prior written notice to the other party, and if so terminated, the pro
rata portion of the unearned fee will be returned to the Trust.
31
<PAGE>
DISTRIBUTION PLAN
- -----------------
The Board of Trustees of the Trust has adopted a distribution plan (the
"SwissKey Plan") pursuant to Rule 12b-1 under the Act, for each Series' SwissKey
Fund class shares and a separate distribution plan (the "Class N Plan") pursuant
to Rule 12b-1 under the Act for each Series' Brinson-Class N shares (the
SwissKey Plan and the Class N Plan together, the "Plans"). The Plans permit each
Series to reimburse FDI, Brinson Partners and others from the assets of the
SwissKey Fund class and Brinson-Class N shares with a quarterly fee for services
and expenses incurred in distributing and promoting sales of SwissKey Fund class
shares and Brinson-Class N Shares, respectively. The aggregate fees paid by the
SwissKey Fund class and Brinson-Class N shares to FDI, and others under the Plan
may not exceed 0.90% of a SwissKey Fund classes' average daily net assets and
0.25% of a Brinson-Class N's average daily net assets, respectively, in any
year.
The SwissKey Plan does not apply to the Brinson-Class I or the Brinson-Class N
shares of each Series and those shares are not included in calculating the
SwissKey Plan's fees. Amounts spent on behalf of each SwissKey Fund class
pursuant to the SwissKey Plan during the fiscal year ended June 30, 1996 are set
forth below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FUND PRINTING DISTRIBUTION COMPENSATION COMPENSATION COMPENSATION TO ADVERTISING OTHER
SERVICES TO TO SWISS BANK SALES
UNDERWRITERS* DEALERS PERSONNEL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SwissKey Global $ 554.54 $857.14 $714.29 $0.00 $ 9,160.75 $685.45 $357.98
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SwissKey Global $8,010.38 $857.14 $714.29 $0.00 $92,602.80 $685.45 $357.98
Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SwissKey Global $ 530.12 $857.14 $714.29 $0.00 $ 3,074.92 $685.45 $357.98
Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SwissKey U.S. $ 52.56 $857.14 $714.29 $0.00 $ 319.48 $685.45 $357.98
Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SwissKey U.S. $ 66.50 $857.14 $714.29 $0.00 $ 1,498.85 $685.45 $357.98
Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SwissKey U.S. $ 41.80 $857.14 $714.29 $0.00 $ 380.59 $685.45 $357.98
Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
SwissKey Non- $ 88.10 $857.14 $714.29 $0.00 $ 1,399.14 $685.45 $357.98
U.S. Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior to February 5, 1997, FPS Broker Services, Inc. served as underwriter to
the Trust.
The Brinson--Class N shares commenced operations on June 30, 1997, and
therefore, no 12b-1 fees were accrued or expended under the Class N Plan on
behalf of the Brinson--Class N shares during the periods reported.
CODE OF ETHICS
- --------------
The Trust has adopted a Code of Ethics which establishes standards by which
certain access persons of the Trust, which include officers of the Advisor and
officers and Trustees of the Trust, must abide relating to personal securities
trading conduct.
Under the Code of Ethics, access persons are prohibited from engaging in certain
conduct, including, but not limited to: 1) investing in companies in which the
Series invest unless the securities have a broad public market and are
registered on a national securities exchange or are traded in the over-the-
counter markets; 2) making or maintaining an investment in any corporation or
business with which the Series have business relationships if the investment
might create, or give the appearance of creating, a conflict of interest; 3)
participating in an initial public offering; 4) entering into a securities
transaction when the access person knows or should know that such activity will
anticipate, parallel or counter any securities transaction of a Series; 5)
entering into any securities transaction, without prior approval, in connection
with any security which has been designated as restricted; 6) entering into a
net short position with respect to any security held by a Series; 7) entering
into any derivative transaction when a direct transaction in the underlying
security would be a violation; and 8) engaging in self-dealing or other
transactions benefiting the access person at the expense of the Series or its
shareholders.
In addition, access persons are required to receive advance approval prior to
purchasing or selling a restricted security, and may not buy or sell certain
prohibited securities. The Advisor will identify for access persons prohibited
securities, which include securities that are being considered for purchase or
sale by any account or fund managed by the Advisor,
32
<PAGE>
and provide a list of such securities to all access persons. Access persons are
required to file quarterly reports of security investment transactions. Trustees
or officers who are not "interested persons" of the Trust, as defined in the
1940 Act, need only report a transaction in a security if such Trustee or
officer, at the time of the transaction, knew or should have known, in the
ordinary course of fulfilling his or her official duties as a Trustee or
officer, that, during the 15-day period immediately preceding or after the date
of the transaction by the Trustee or officer, such security was purchased or
sold by a Series, or was being considered for purchase by a Series.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brinson Partners is responsible for decisions to buy and sell securities for the
Series and for the placement of the Series' portfolio business and the
negotiation of commissions, if any, paid on such transactions. Fixed income
securities in which the Series invest are traded in the over-the-counter market.
These securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the
bid/ask spread quoted on securities includes an implicit profit to the dealers.
In over-the-counter transactions, orders are placed directly with a principal
market-maker unless a better price and execution can be obtained by using a
broker. Brokerage commissions are paid on transactions in listed securities,
futures contracts and options thereon. Brinson Partners is responsible for
effecting portfolio transactions and will do so in a manner deemed fair and
reasonable to the Series. Under its advisory agreements with the Global Funds
and the Non-U.S. Equity Fund, Brinson Partners is authorized to utilize the
trading desk of its foreign subsidiaries to execute foreign securities
transactions, but monitors the selection by such subsidiaries of brokers and
dealers used to execute transactions for those Series. The primary consideration
in all portfolio transactions will be prompt execution of orders in an efficient
manner at the most favorable price. In selecting and monitoring broker-dealers
and negotiating commissions, Brinson Partners considers the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria,
preference may be given to brokers who provide research or statistical material
or other services to the Series or to Brinson Partners. Such services include
advice, both directly and in writing, as to the value of the securities; the
advisability of investing in, purchasing or selling securities; and the
availability of securities, or purchasers or sellers of securities, as well as
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts. This allows
Brinson Partners to supplement its own investment research activities and obtain
the views and information of others prior to making investment decisions.
Brinson Partners is of the opinion that, because this material must be analyzed
and reviewed by its staff, its receipt and use does not tend to reduce expenses
but may benefit the Series by supplementing the Advisor's research.
Brinson Partners effects portfolio transactions for other investment companies
and advisory accounts. Research services furnished by dealers through whom the
Series effect its securities transactions may be used by Brinson Partners in
servicing all of its accounts; not all such services may be used in connection
with the Series. In the opinion of Brinson Partners, it is not possible to
measure separately the benefits from research services to each of the accounts
(including the Series). Brinson Partners will attempt to equitably allocate
portfolio transactions among the Series and others whenever concurrent decisions
are made to purchase or sell securities by the Series and another. In making
such allocations between the Series and others, the main factors to be
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for recommending investments to the Series
and the others. In some cases, this procedure could have an adverse effect on
the Series. In the opinion of Brinson Partners, however, the results of such
procedures will, on the whole, be in the best interest of each of the clients.
The Series incurred brokerage commissions as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SERIES FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL FUND $141,430 $196,381 $329,191
- -------------------------------------------------------------------------------
GLOBAL EQUITY FUND $ 45,153 $ 34,283 $123,467
- -------------------------------------------------------------------------------
GLOBAL BOND FUND $ 0.00 $ 0.00 $ 0.00
- -------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SERIES FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. BALANCED FUND NA $ 88,904 $ 99,554
- -------------------------------------------------------------------------------
U.S. EQUITY FUND $ 8,431 $ 53,830 $105,887
- -------------------------------------------------------------------------------
U.S. BOND FUND NA $ 0.00 $ 0.00
- -------------------------------------------------------------------------------
NON-U.S. EQUITY FUND $156,842 $172,829 $322,915
- -------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended June 30, 1996 the Trust and the Advisor had no
agreements or understandings with a broker or otherwise causing brokerage
transactions or commissions for research services.
PORTFOLIO TURNOVER
- ------------------
The Series are free to dispose of their portfolio securities at any time,
subject to complying with the Code and the Act, when changes in circumstances or
conditions make such a move desirable in light of the respective investment
objective. The Series will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving that Series'
investment objective.
The Series do not intend to use short-term trading as a primary means of
achieving their investment objectives. The rate of portfolio turnover shall be
calculated by dividing (a) the lesser of purchases and sales of portfolio
securities for the particular fiscal year by (b) the monthly average of the
value of the portfolio securities owned by that Series during the particular
fiscal year. Such monthly average shall be calculated by totaling the values of
the portfolio securities as of the beginning and end of the first month of the
particular fiscal year and as of the end of each of the succeeding eleven months
and dividing the sum by 13.
Under normal circumstances, the portfolio turnover rate for the Global Equity
Fund, U.S. Equity Fund, and Non-U.S. Equity Fund is not expected to exceed 100%.
The portfolio turnover rates for the Global Fund, Global Bond Fund, U.S.
Balanced Fund and U.S. Bond Fund, however, may exceed 100% and in some years
200%. High portfolio turnover rates (over 100%) may involve correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Series and ultimately by that Series' shareholders. In addition,
high portfolio turnover may result in increased short-term capital gains, which,
when distributed to shareholders, are treated as ordinary income.
With respect to the Global Fund, for the fiscal years ended June 30, 1994, June
30, 1995 and June 30, 1996, respectively, the portfolio turnover rate of the
Series was 149%, 231%, 238% and 142%, respectively. With respect to the Global
Bond Fund, for the period July 30, 1993 (commencement of operations) to June 30,
1994 and the fiscal years ended June 30, 1995 and June 30, 1996 the portfolio
turnover rate of the Series was 189%, 199%, and 184%, respectively. With respect
to the U.S. Balanced Fund, for the fiscal year ended June 30, 1996, the
portfolio turnover rate of the Series was 240%. With respect to the U.S. Bond
Fund, for the period from August 31, 1995 (commencement of operations) to June
30, 1996, the portfolio turnover rate of the Series was 363%. The significant
variation in portfolio turnover rates over such periods was due to an increase
in the assets of the Series which caused the Series, to reposition their
portfolio holdings in order to meet their investment objectives and policies.
SHARES OF BENEFICIAL INTEREST
The Trust presently offers seven Series of shares of beneficial interest, each
of which offers three classes of shares. Each share of beneficial interest
represents an equal proportionate interest in the assets and liabilities of the
applicable Series and has the same voting and other rights and preferences as
the other class of that Series, except that only shares of the SwissKey Fund
class may vote on any matter affecting only the SwissKey Plan under Rule 12b-1.
Similarly, only shares of the Brinson--Class N may vote on matters that affect
only the Class N Plan. No class may vote on matters that affect only another
class. Under Delaware law, the Trust does not normally hold annual meetings of
shareholders. Shareholders' meetings may be held from time to time to consider
certain matters including changes to a Series' fundamental investment objective
and fundamental investment policies, changes to the Trust's investment advisory
agreement and the election of Trustees when required by the Act. When matters
are submitted to shareholders for a vote, shareholders are entitled to one vote
per share with proportionate voting
34
<PAGE>
for fractional shares. The shares of the Series do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have authority
from time to time to divide or combine the shares of the Series into a greater
or lesser number of shares so affected. In the case of a liquidation of a
Series, each shareholder of the Series will be entitled to share, based upon the
shareholder's percentage share ownership, in the distribution out of assets, net
of liabilities, of the Series. No shareholder is liable for further calls or
assessment by the Series.
On any matters affecting only one Series or class, only the shareholders of that
Series or class are entitled to vote. On matters relating to the Trust but
affecting the Series differently, separate votes by the Series or class are
required. With respect to the submission to shareholder vote of a matter
requiring separate voting by a Series or class, the matter shall have been
effectively acted upon with respect to any Series or class if a majority of the
outstanding voting securities of that Series or class votes for the approval of
the matter, notwithstanding that: (1) the matter has not been approved by a
majority of the outstanding voting securities of any other Series or class; and
(2) the matter has not been approved by a majority of the outstanding voting
securities of the Trust.
PURCHASES
Shares of each class of each Series are sold at the net asset value next
determined after the receipt of a purchase application in proper form by the
transfer agent. The minimum for initial investments with respect to the
Brinson--Class I for each Series is $1,000,000; subsequent investment minimums
are $2,500. Effective March 1, 1997, the minimum for initial investments with
respect to the Brinson Fund class for each Series is $1,000,000. The minimum for
initial investments with respect to the SwissKey Fund class for each Series is
$1,000; subsequent investment minimums are $50. The minimum for initial
investment with respect to the Brinson--Class N for each Series is $1,000,000. A
more detailed description of methods of purchase is included in the
Prospectuses.
Certificates representing shares purchased are not issued. However, such
purchases are confirmed to the investor and credited to the shareholder's
account on the books maintained by the Trust's transfer agent. The investor will
have the same rights of ownership with respect to such shares as if certificates
had been issued.
EXCHANGES OF SHARES
- -------------------
Shares of one class of a Series may only be exchanged for the same class of
another Series of the Trust. Exchanges will not be permitted between the
different classes.
Each qualifying exchange will be made on the basis of the relative net asset
values per share of both the Series from which, and the Series into which, the
exchange is made, that is next computed following receipt of the exchange order
in proper form by the Trust's transfer agent. Exchanges may be made by telephone
if the shareholder's Account Application Form includes specific authorization
for telephone exchanges. The telephone exchange privilege may be difficult to
implement during times of drastic economic or market changes.
The transactions described above will result in a taxable gain or loss for
federal income tax purposes. Generally, any such taxable gain or loss will be a
capital gain or loss (long-term or short-term, depending on the holding period
of the shares) in the amount of the difference between the net asset value of
the shares surrendered and the shareholder's tax basis for those shares. Each
investor should consult his or her tax adviser regarding the tax consequences of
an exchange transaction.
Any shareholder who wishes to make an exchange should first obtain and review
the Prospectus of the Series to be acquired in the exchange. Requests for
telephone exchanges must be received prior to the close of regular trading on
the New York Stock Exchange ("NYSE") on any day on which the NYSE is open for
regular trading.
At the discretion of the Trust, this exchange privilege may be terminated or
modified at any time for any of the participating Series upon 60 days' prior
written notice to shareholders. Contact the transfer agent for details about a
particular exchange.
NET ASSET VALUE
- ---------------
The net asset value per share is calculated separately for each class of each
Series. The net asset value per share of a Series is computed by dividing the
value of the assets of the Series, less its liabilities, by the number of shares
of the Series outstanding.
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<PAGE>
Each class of a Series will bear pro rata all of the common expenses of that
Series. The net asset values of all outstanding shares of each class of a Series
will be computed on a pro rata basis for each outstanding share based on the
proportionate participation in the Series represented by the value of shares of
that Series. All income earned and expenses incurred by a Series will be borne
on a pro rata basis by each outstanding share of a class, based on each class'
percentage in the Series represented by the value of such shares of such
classes, except that none of the shares of a class will incur any of the
expenses under the 12b-1 plan of another class.
Portfolio securities are valued and net asset value per share is determined as
of the close of regular trading on the NYSE which currently is 4:00 p.m. Eastern
time on each day the NYSE is open for trading. The NYSE is open for trading on
every day except Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day (day observed), Independence Day,
Labor Day, Thanksgiving and Christmas and on the preceding Friday or subsequent
Monday when any of these holidays falls on a Saturday or Sunday, respectively.
Portfolio securities listed on a national or foreign securities exchange are
valued on the basis of the last sale on the date the valuation is made.
Securities that are not traded on a particular day or an exchange, are valued at
either (a) the bid price or (b) a valuation within the range considered best to
represent value in the circumstances. Price information on listed securities is
generally taken from the closing price on the exchange where the security is
primarily traded. Other portfolio securities which are traded in the over-the-
counter market are valued at the bid price as long as the bid price, in the
opinion of the Advisor, continues to reflect the value of the security.
Valuations of fixed income and equity securities may be obtained from a pricing
service and/or broker-dealers when such prices are believed to reflect the fair
value of such securities. Use of a pricing service and/or broker-dealers has
been approved by the Board of Trustees.
Futures contracts are valued at their daily quoted settlement price on the
exchange on which they are traded. Forward foreign currency contracts are
valued daily using the mean between the bid and asked forward points added to
the current exchange rate and an unrealized gain or loss is recorded. A Series
realizes a gain or loss upon settlement of the contracts. Swaps will be priced
at fair value based on (1) swap prices provided by broker-dealers; (2) values,
or estimates of values, of the applicable equity indices and foreign rates
underlying the contracts; and (3) consideration of other relevant factors. A
Series' obligation under a swap agreement will be accrued daily (offset by any
amounts owing to the portfolio) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of Segregated Assets. For valuation purposes, foreign securities
initially expressed in foreign currency values will be converted into U.S.
dollar values using WM/Reuters closing spot rates as of 4:00 p.m. London time.
Securities with a remaining maturity of 60 days or less are valued at amortized
cost, which approximates market value. Fixed income securities having a
remaining maturity of over 60 days are valued at market price. Debt securities
are valued on the basis of prices provided by a pricing service, or at the bid
price where readily available, as long as the bid price, in the opinion of FPS
and the Advisor, continues to reflect the value of the security. Redeemable
securities issued by open-end investment companies are valued using their
respective net asset values for purchase orders placed at the close of the
NYSE. Securities (including over-the-counter options) for which market
quotations are not readily available and other assets are valued at their fair
value as determined in good faith by or under the direction of the Trustees.
Because of time zone differences, foreign exchanges and securities markets will
usually be closed prior to the time of the closing of the NYSE and values of
foreign futures and options and foreign securities will be determined as of the
earlier closing of such exchanges and securities markets. However, events
affecting the values of such foreign securities may occasionally occur between
the earlier closings of such exchanges and securities markets and the closing of
the NYSE which will not be reflected in the computation of the net asset value
of a Series. If an event materially affecting the value of such foreign
securities occurs during such period, then such securities will be valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees. Where a foreign securities market remains open at the time that a
Series values its portfolio securities, or closing prices of securities from
that market may not be retrieved because of local time differences or other
difficulties in obtaining such prices at that time, last sale prices in such
market at a point in time most practicable to timely valuation of the Series may
be used.
REDEMPTIONS
Under normal circumstances shareholders may redeem their shares at any time
without a fee. The redemption price will be based upon the net asset value per
share next determined after receipt of the redemption request, provided it has
been submitted in the manner described below. The redemption price may be more
or less than the original cost, depending upon the net asset value per share at
the time of redemption.
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<PAGE>
(iii) for such other periods as the SEC may by order permit for the protection
of shareholders of the Series.
Under unusual circumstances, when the Board of Trustees deems it in the best
interest of the Series' shareholders, the Trust may make payment for shares
repurchased or redeemed in whole or in part in securities of the Series taken at
current values. With respect to such redemptions in kind, the Trust has made an
election pursuant to Rule 18f-1 under the Act. This will require the Trust to
redeem in cash at a shareholder's election in any case where the redemption
involves less than $250,000 (or 1% of the Series' net asset value at the
beginning of each 90 day period during which such redemptions are in effect, if
that amount is less than $250,000), during any 90-day period for any one
shareholder. Should payment be made in securities, the redeeming shareholder may
incur brokerage costs in converting such securities to cash.
TAXATION
- --------
Each of the Series has qualified, and intends to continue to qualify each year,
as a regulated investment company under Subchapter M of the Code. In order to so
qualify, a mutual fund must, among other things, (i) derive at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities or foreign currencies, or
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (ii) derive less than 30% of its gross income
from the sale or other disposition of stock or securities or certain futures and
options thereon held for less than three months ("short-short gains"); (iii)
distribute at least 90% of its dividend, interest and certain other taxable
income each year; and (iv) at the end of each fiscal quarter maintain at least
50% of the value of its total assets in cash, government securities, securities
of other regulated investment companies and other securities of issuers which
represent, with respect to each issuer, no more than 5% of the value of a fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in the
same, similar or related trades and businesses.
To the extent each of the Series qualifies for treatment as a regulated
investment company, they will not be subject to federal income tax on income and
net capital gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Series' "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a Series' ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The Series intend to make distributions sufficient to avoid imposition of
the excise tax. Distributions declared by the Series during October, November or
December to shareholders of record during such month and paid by January 31 of
the following year will be taxable to shareholders in the calendar year in which
they are declared, rather than the calendar year in which they are received.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Series accrues interest or other receivables or accrues
expenses or liabilities denominated in a foreign currency and the time the
Series actually collects such receivables, or pays such liabilities, are
generally treated as ordinary income or loss. Similarly, a portion of the gains
or losses realized on disposition of debt securities denominated in a foreign
currency may also be treated as ordinary gain or loss. These gains, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of a Series' investment company taxable income to be distributed to its
shareholders, rather than increasing or decreasing the amount of the Series'
capital gains or losses.
When a Series writes a call, or purchases a put option, an amount equal to the
premium received or paid by it is included in the Series' assets and liabilities
as an asset and as an equivalent liability.
In writing a call, the amount of the liability is subsequently "marked-to-
market" to reflect the current market value of the option written. The current
market value of a written option is the last sale price on the principal
Exchange on which such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a Series has written
expires on its stipulated expiration date, the Series recognizes a short-term
capital gain. If a Series enters into a closing purchase transaction with
respect to an option which the Series has written, the Series realizes a short-
term gain (or loss if the cost of the closing transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a call option which a Series has written is exercised, the
Series realizes a capital gain or loss from the
37
<PAGE>
sale of the underlying security and the proceeds from such sale are increased by
the premium originally received.
The premium paid by a Series for the purchase of a put option is recorded in the
Series' assets and liabilities as an investment and subsequently adjusted daily
to the current market value of the option. For example, if the current market
value of the option exceeds the premium paid, the excess would be unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess would be unrealized depreciation. The current market value of a
purchased option is the last sale price on the principal Exchange on which such
option is traded or, in the absence of a sale, the mean between the last bid and
asked prices. If an option which a Series has purchased expires on the
stipulated expiration date, the Series realizes a short-term or long-term
capital loss for Federal income tax purposes in the amount of the cost of the
option. If a Series exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale which will be decreased by the premium originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Series at the end of each fiscal year on a
broad-based stock index will be required to be "marked-to-market" for Federal
income tax purposes. Sixty percent of any net gain or loss recognized on such
deemed sales or on any actual sales will be treated as long-term capital gain or
loss and the remainder will be treated as short-term capital gain or loss.
Certain options, futures contracts and options on futures contracts utilized by
the Series are "Section 1256 contracts." Any gains or losses on Section 1256
contracts held by a Series at the end of each taxable year (and on October 31 of
each year for purposes of the 4% excise tax) are "marked-to-market" with the
result that unrealized gains or losses are treated as though they were realized
and the resulting gain or loss is treated as a 60/40 gain or loss. Shareholders
will be subject to federal income taxes on distributions made by the Series
whether received in cash or additional shares of the Series. Distributions of
net investment income and net short-term capital gains, if any, will be taxable
to shareholders as ordinary income. Distributions of net long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of the Series. A loss
on the sale of shares held for twelve months or less will be treated as a long-
term capital loss to the extent of any long-term capital gain dividend paid to
the shareholder with respect to such shares. Dividends eligible for designation
under the dividends received deduction and paid by a Series may qualify in part
for the 70% dividends received deduction for corporations provided, however,
that those shares have been held for at least 45 days. The Series will notify
shareholders each year of the amount of dividends and distributions, including
the amount of any distribution of long-term capital gains and the portion of its
dividends which may qualify for the 70% deduction.
Each class of shares of a Series will share proportionately in the investment
income and expenses of that Series, except that the respective SwissKey Fund
class and Brinson-Class N for each Series will incur distribution fees under
their respective 12b-1 Plans.
It is expected that certain dividends and interest received by the Global Funds
and the Non-U.S. Equity Fund will be subject to foreign withholding taxes. If
more than 50% in value of the total assets of a fund at the close of any taxable
year consists of stocks or securities of foreign corporations, such fund may
elect to treat any foreign taxes paid by it as if paid by its shareholders.
These Series will notify shareholders in writing each year whether it has made
the election and the amount of foreign taxes it has elected to have treated as
paid by the shareholders. If a Series makes the election, its shareholders will
be required to include in gross income their proportionate share of the amount
of foreign taxes paid by the Series and will be entitled to claim either a
credit or deduction for their share of the taxes in computing their U.S. federal
income tax subject to certain limitations. No deduction for foreign taxes may be
claimed by shareholders who do not itemize deductions.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, the source of each Series' income flows
through to its shareholders. Gains from the sale of securities will be treated
as derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency denominated debt securities, receivables
and payables, will be treated income derived from U.S. sources. The limitation
on the foreign tax credit is applied separately to foreign source passive income
(as defined for purposes of foreign tax credit), such as foreign source passive
income received from the respective Series. Because of changes made by the Code,
shareholders may be unable to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Series.
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<PAGE>
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
Regulations. The Code and Regulations are subject to change by legislative or
administrative action at any time and retroactively.
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local taxes as well as the application of the
foreign tax credit.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the Series, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
PERFORMANCE CALCULATIONS
Performance information for the SwissKey Fund class and Brinson Fund class
shares of each Series will vary due to the effect of expense ratios on the
performance calculations.
TOTAL RETURN
- ------------
Current yield and total return quotations used by the Series (and classes
of shares) are based on standardized methods of computing performance mandated
by rules adopted by the SEC. As the following formula indicates, the average
annual total return is determined by multiplying a hypothetical initial purchase
order of $1,000 by the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
annualizing the result. The calculation assumes that all dividends and
distributions are reinvested at the net asset value on the reinvestment dates
during the period. The quotation assumes the account was completely redeemed at
the end of each period and deduction of all applicable charges and fees.
According to the SEC formula:
P(1+T)/n/=ERV
where:
P = a hypothetical initial payment of $1,000,
T = average annual total return,
n = number of years,
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods at the end of
the 1, 5 or 10 year periods (or fractional portion thereof).
Based upon the foregoing calculations, the average annual total return for the
Brinson-Class I (previously Brinson Fund class) shares of: (i) the Global Fund
for the one and three year periods ended June 30, 1996 and the period August 31,
1992 (commencement of operations) through June 30, 1996 was 16.38%, 9.69% and
10.42%, respectively; (ii) the Global Equity Fund for the one year period ended
June 30, 1996 and the period January 28,1994 (commencement of operations)
through June 30, 1996 was 25.66% and 10.42%, respectively; (iii) the Global Bond
Fund for the one year period ended June 30, 1996 and the period July 30, 1993
(commencement of operations) through June 30, 1996 was 11.50% and 7.40%,
respectively; (iv) the U.S. Balanced Fund for the one year period ended June 30,
1996 and the period December 30, 1994 (commencement of operations) through June
30, 1996 was 13.52% and 18.71%, respectively; (v) the U.S. Equity Fund for the
one year period ended June 30, 1996 and the period February 22, 1994
(commencement of operations) through June 30, 1996 was 30.57% and 20.23%,
respectively; (vi) the U.S. Bond Fund for the period August 31, 1995
(commencement of operations) through June 30, 1996 was 3.60%; (vii); and the
Non-U.S. Equity Fund for the one year period ended June 30, 1996 and the period
August 31, 1993 (commencement of operations) through June 30, 1996 was 23.64%
and 6.80%, respectively.
Based upon the foregoing calculations, the average annual total return for the
SwissKey Fund class shares of: the Global Fund, Global Equity Fund, Global Bond
Fund, U.S. Balanced Fund, U.S. Equity Fund and Non U.S. Equity Fund for the
period July 31, 1995 (commencement of operations) through June 30, 1996 was
13.24%, 19.25%, 9.17%, 11.54%, 25.70% and 15.78%, respectively; and the U.S.
Bond Fund for the period August 31, 1995 (commencement of operations) through
June 30, 1996 was 3.24%.
The Brinson-Class N shares of each Series commenced operations on June 30, 1997,
and therefore, the average annual total return for prior periods is not
available.
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<PAGE>
YIELD
- -----
As indicated below, current yield is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the result. Expenses accrued
for the period include any fees charged to all shareholders during the 30-day
base periods. According to the SEC formula:
Yield = 2[(a-b + 1)/6/ - 1]
-------------------
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yield of a Series may be calculated by dividing the net investment income
per share earned by the particular Series during a 30-day (or one month) period
by the net asset value per share on the last day of the period and annualizing
the result on a semi-annual basis. A Series' net investment income per share
earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements.
FINANCIAL STATEMENTS
The Financial Statements contained in the Series' Annual Report dated June 30,
1996 and the Series' Semi-Annual Report dated December 31, 1996 are incorporated
herein by reference.
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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. Together with the Aaa group they comprise what are generally
known as high-grade. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's also supplies numerical indicators 1, 2, and 3 to rating categories. The
modifier 1 indicates the security is in the higher end of its rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
ranking toward the lower end of the category.
Standard & Poor's Ratings Group describes classifications of corporate bonds as
follows:
AAA - This is the highest rating assigned by Standard & Poor's Ratings
Group to a debt obligation and indicates an extremely strong capacity to
pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and in the majority of
instances they differ from the AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more
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susceptible to the adverse effects of changes in circumstances and economic
conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lend to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC - Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest or repay principal.
CC - The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in default, or is expected to default upon maturity or
payment date.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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The Brinson Funds
Form N-1A
Part C Other Information
<PAGE>
THE BRINSON FUNDS
FORM N-1A
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
----------------------------------
(a) Financial Statements.
Included in Part A: Financial Highlights
BRINSON GLOBAL FUND, BRINSON GLOBAL EQUITY FUND, BRINSON GLOBAL
BOND FUND, BRINSON U.S. EQUITY FUND, BRINSON U.S. BALANCED FUND,
BRINSON U.S. BOND FUND, AND BRINSON NON-U.S. EQUITY FUND.
SWISSKEY GLOBAL FUND, SWISSKEY GLOBAL EQUITY FUND, SWISSKEY
GLOBAL BOND FUND, SWISSKEY U.S. BALANCED FUND, SWISSKEY U.S.
EQUITY FUND, SWISSKEY U.S. BOND FUND, SWISSKEY NON-U.S. EQUITY
FUND.
The Brinson-Class N Shares commenced operations on June 30,
1997.
Included in Part B:
GLOBAL FUND
-----------
(1) Report of Independent Auditors;/1/
(2) Schedule of Investments as of June 30, 1996
(audited)/1/;
(3) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(4) Statement of Operations for the year ended June 30, 1996
(audited)/1/;
(5) Statements of Changes in Net Assets for the two years
ended June 30, 1996 and June 30, 1995 and for the period
August 31, 1992 (commencement of operations) to June 30,
1993 (audited)/1/;
(6) Financial Highlights for the two years ended June 30,
1996 and June 30, 1995 and for the period August 31,
1992 (commencement of operations) to June 30, 1993
(audited)/1/;
(7) Notes to Financial Statements dated June 30, 1996
(audited)/1/.
(8) Schedules of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended
December 31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996, the three years ended June 30,
1996, June 30, 1995, and June 30, 1994 and for the
period August 31, 1992 (commencement of operations) to
June 30, 1993 (unaudited)./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the three years
ended June 30, 1996, June 30, 1995 and June 30, 1994 and
for the period August 31, 1992 (commencemnt of
operations) to June 30, 1993 (unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
GLOBAL EQUITY FUND
-------------------
(1) Report of Independent Auditors/1/;
(2) Schedule of Investments as of June 30, 1996 (audited)/1/;
(3) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(4) Statement of Operations for the year ended June 30, 1996
<PAGE>
(audited)/1/;
(5) Statements of Changes in Net Assets for the years ended
June 30, 1996 and June 30, 1995 and for the period
January 28, 1994 (commencement of operations) to June 30,
1994 (audited)/1/;
(6) Financial Highlights for the years ended June 30, 1996
and June 30, 1995 and for the period January 28, 1994
(commencement of operations) to June 30, 1994
(audited)/1/ ;
(7) Notes to Financial Statements dated June 30, 1996
(audited)/1/.
(8) Schedule of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended December
31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996 and the year ended June 30, 1996
(unaudited)./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the two years ended
June 30, 1996, June 30, 1995 and for the period January
28, 1994 (commencement of operations) to June 30, 1994
(unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
GLOBAL BOND FUND
-----------------
(1) Report of Independent Auditors/1/;
(2) Schedule of Investments as of June 30, 1996 (audited)/1/;
(3) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(4) Statement of Operations for the year ended June 30, 1996
(audited)/1/;
(5) Statements of Changes in Net Assets for the years ended
June 30, 1996 and June 30, 1995 and for the period July
30, 1993 (commencement of operations) to June 30, 1994
(audited)/1/;
(6) Financial Highlights for the years ended June 30, 1996
and June 30, 1995 and for the period July 30, 1993
(commencement of operations) to June 30, 1994
(audited)/1/;
(7) Notes to Financial Statements dated June 30, 1996
(audited)/1/.
(8) Schedule of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended December
31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996 and the year ended June 30, 1996
(unaudited)./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the two years ended
June 30, 1996, June 30, 1995 and for the period July 30,
1993 (commencement of operations) to June 30, 1994
(unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
U.S. BALANCED FUND
-------------------
(1) Report of Independent Auditors/1/;
(2) Schedule of Investments as of June 30, 1996 (audited)/1/;
(3) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(4) Statement of Operations for the year ended June 30, 1996
(audited)/1/;
(5) Statement of Changes in Net Assets for the year ended
June 30, 1996, and period December 30, 1994 (commencement
of operations) to June 30, 1995 (audited)/1/;
(6) Financial Highlights for the year ended June 30, 1996,
and period December 30, 1994 commencement of operations)
to June 30, 1995 (audited)/1/;
(7) Notes to Financial Statements dated June 30, 1996/1/.
(8) Schedule of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended December
31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996 and the year ended June 30, 1996
(unaudited)./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the two years ended
June 30, 1996, June 30, 1995 and for the period December
30, 1994 (commencement of operations) to June 30, 1994
(unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
U.S. EQUITY FUND
-----------------
(1) Report of Independent Auditors/1/;
(2) Schedule of Investments as of June 30, 1996 (audited)/1/;
(3) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(4) Statement of Operations for the year ended June 30, 1996
(audited)/1/;
<PAGE>
(5) Statements of Changes in Net Assets for the years ended
June 30, 1996 and June 30, 1995 and for the period
February 22, 1994 (commencement of operations) to June
30, 1994 (audited)/1/.
(6) Financial Highlights for the years ended June 30, 1996
and June 30, 1995 and for the period February 22, 1994
(commencement of operations) to June 30, 1994
(audited)/1/;
(7) Notes to Financial Statements dated June 30, 1996
(audited)/1/.
(8) Schedule of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended December
31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996 and the year ended June 30, 1996
(unaudited )./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the two years ended
June 30, 1996, June 30, 1995 and for the period February
22, 1994 (commencement of operations) to June 30, 1994
(unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
NON-U.S. EQUITY FUND
---------------------
(1) Report of Independent Auditors/1/;
(2) Schedule of Investments as of June 30, 1996 (audited)/1/;
(3) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(4) Statement of Operations for the year ended June 30, 1996
(audited)/1/;
(5) Statements of Changes in Net Assets for the years ended
June 30, 1996 and June 30, 1995 and for the period August
31, 1993 (commencement of operations) to June 30, 1994.
(audited)/1/;
(6) Financial Highlights for the year ended June 30, 1996,
June 30, 1995 and for the period August 31, 1993
(commencement of operations) to June 30, 1994
(audited)/1/;
(7) Notes to Financial Statements dated June 30, 1996
(audited)/1/.
(8) Schedule of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended December
31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996 and the year ended June 30, 1996
(unaudited )./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the two years ended
June 30, 1996, June 30, 1995 and for the period August
31, 1993 (commencement of operations) to June 30, 1994
(unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
U.S. BOND FUND
---------------
(1) Schedule of Investments as of June 30, 1996
(audited)/1/;
(2) Statement of Assets and Liabilities at June 30, 1996
(audited)/1/;
(3) Statement of Operations for the period August 31, 1995
(commencement of operations) to June 30, 1996
(audited)/1/;
(4) Statement of Changes in Net Assets for the period August
31, 1995 (commencement of operations) to June 30, 1996
(audited)/1/;
(5) Financial Highlights for the period August 31, 1995
(commencement of operations) to June 30, 1996
(audited)/1/;
(6) Notes to Financial Statements dated June 30, 1996
(audited)/1/;
(8) Schedule of Investments as of December 31, 1996
(unaudited)./2/
(9) Statement of Assets and Liabilities at December 31, 1996
(unaudited)./2/
(10) Statement of Operations for the six months ended December
31, 1996 (unaudited)./2/
(11) Statements of Changes in Net Assets for the six months
ended December 31, 1996 and the year ended June 30, 1996
(unaudited )./2/
(12)(a) Financial Highlights for the Brinson Fund Class for the
six months ended December 31, 1996, the two years ended
June 30, 1996, June 30, 1995 and for the period February
22, 1994 (commencement of operations) to June 30, 1994
(unaudited)./2/
(b) Financial Highlights for the SwissKey Fund Class for the
six months ended December 31, 1996 and for the period
July 31, 1995 (commencement of operations) to June 30,
1996 (unaudited)./2/
(13) Notes to Financial Statements dated December 31, 1996
(unaudited)./2/
/1/ Incorporated by reference to the Trust's Financial Statements in the
Annual Report dated June 30, 1996 and filed electronically on August
29, 1996.
/2/ Incorporated by reference to the Trust's Financial Statements in the
Semi-Annual Report dated December 31, 1996 and filed electronically on
February 28, 1997.
(b) Exhibits:
Exhibits filed pursuant to Form N-1A:
(1) Certificate of Trust and Agreement and Declaration of Trust
of The Brinson Funds is filed herewith electronically,
previously incorporated by reference to Post-Effective
Amendment No. 6 to Registrant's Registration Statement No.
33-47287, Exhibit No. (1) as filed on October 5, 1993.
<PAGE>
(2) By-Laws of The Brinson Funds is filed herewith
electronically, previously incorporated by reference
to Post-Effective Amendment No. 6 to Registrant's
Registration Statement No. 33-47287, Exhibit No. (2) as
filed on October 5, 1993.
(3) Not Applicable.
(4) Specimen Share Certificate of The Brinson Funds is
incorporated herein by reference to Post-Effective Amendment
No. 9 to Registrant's Registration Statement No. 33-47287,
Exhibit No. (4) as filed on July 21, 1994.
(5) (a) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson Global
Fund of The Brinson Funds, dated April 25, 1995, is
filed herewith electronically, previously incorporated
by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement No. 33-4787,
Exhibit No. (5)(a) as filed on September 20, 1995.
(b) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson Global
Bond Fund of The Brinson Funds, dated April 25, 1995,
is filed herewith electronically, previously
incorporated by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement No.
33-4787, Exhibit No.(5)(b) as filed on September 20,
1995.
(c) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson Non-U.S.
Equity Fund of The Brinson Funds, dated April 25, 1995,
is filed herewith electronically, previously
incorporated by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement No.
33-4787, Exhibit No.(5)(c) as filed on September 20,
1995.
(d) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson Global
Equity Fund of The Brinson Funds, dated April 25, 1995,
is filed herewith electronically, previously
incorporated by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement No. 33-
4787, Exhibit No.(5)(d) as filed on September 20, 1995.
(e) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson U.S.
Equity Fund of The Brinson Funds, dated April 25, 1995,
is filed herewith electronically, previously
incorporated by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement No. 33-
4787, Exhibit No.(5)(e) as filed on September 20, 1995.
(f) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson U.S.
Balanced Fund of The Brinson Funds, dated April 25,
1995, is filed herewith electronically, previously
incorporated by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement No. 33-
4787, Exhibit No.(5)(f) as filed on September 20, 1995.
(g) Investment Advisory Agreement between Brinson Partners,
Inc. and the Registrant on behalf of Brinson U.S. Bond
Fund of The Brinson Funds, dated April 25, 1995, is
filed herewith electronically, previously incorporated
by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement No. 33-4787,
Exhibit No.(5)(g) as filed on September 20, 1995.
<PAGE>
(6) (a) Underwriting Agreement between Fund/Plan Broker
Services, Inc. and the Registrant on behalf of each of
the series of The Brinson Funds dated November 20, 1996
is incorporated herein by reference to Post Effective
Amendment No. 16 to Registrant's Registration Statement
No. 33-4787, as Exhibit No. (6)(a) to Item 24 as
electronically filed on February 15, 1996.
(b) Amendment to Underwriting Agreement between Fund/Plan
Broker Services, Inc. and the Registrant on behalf of
each of the series of The Brinson Funds dated August
21, 1995 is incorporated herein by reference to Post
Effective Amendment No. 16 to Registrant's Registration
Statement No. 33-4787, as Exhibit No. (6)(b) to Item 24
as electronically filed on February 15, 1996.
(c) Underwriting Agreement between Fund/Plan Broker
Services, Inc. and the Registrant on behalf of each of
the series of The Brinson Funds dated April 25, 1995 is
incorporated herein by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement
No. 33-4787, Exhibit No. (6)(a) to Item 24 as filed on
September 20, 1995
(d) Underwriting Agreement between Fund/Plan Broker
Services, Inc. and the Registrant on behalf of each of
the series of The Brinson Funds dated September 1, 1994
is incorporated herein by reference to Post-Effective
Amendment No. 10 to Registrant's Registration Statement
No. 33-47287 Exhibit No. (6)(a) to Item 24 as filed on
September 15, 1994.
(e) Underwriting Agreement between Fund/Plan Broker
Services, Inc. and the Registrant on behalf of each of
the series of The Brinson Funds is incorporated herein
by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement No. 33-47287,
Exhibit No. (6) as filed on July 21, 1994.
(f) Distribution Agreement dated February 24, 1997 between
Funds Distributor, Inc. and the Registrant on behalf of
each Series of The Brinson Funds is filed
electronically herewith.
(7) Not Applicable.
(8) (a) Amendment to the Custodian Agreement between the Registrant
and Bankers Trust Company to the Agreement dated June 18,
1992 is incorporated herein by reference to Post-Effective
Amendment No. 12 to Registrant's Registration Statement No.
33-47287 as filed on May 31, 1995 as Exhibit (8)(a) to Item
24.
(b) Custodian Agreement between the Registrant and Bankers Trust
Company is incorporated herein by reference to Post-
Effective Amendment No. 9 to Registrant's Registration
Statement No. 33-47287, Exhibit No. (8)(a) as filed on July
21, 1994.
(c) Amendments to the Custodian Agreement between the Registrant
and Bankers Trust Company is incorporated herein by
reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement No. 33-47287, Exhibit No. (8)(b) as
filed on July 21, 1994.
(d) Form of Multiple Services Agreement dated _________, 1997
between Morgan Stanley Trust Company and the Registrant on
behalf of each Series of The Brinson Funds filed
electronically herewith.
(9)(a)(i) Shareholder Services Agreement between Fund/Plan Services,
Inc. and the
<PAGE>
Registrant dated November 20, 1995 is incorporated
herein by reference to Post Effective Amendment No. 16
to Registrant's Registration Statement No. 33-4787, as
Exhibit No. (9)(a) to Item 24 as electronically filed
on February 15, 1996.
(a)(ii) Amendment to the Shareholder Services Agreement between
Fund/Plan Services, Inc. and the Registrant dated
August 21, 1995 is incorporated herein by reference to
Post Effective Amendment No. 16 to Registrant's
Registration Statement No. 33-4787, as Exhibit No.
(9)(a) to Item 24 as electronically filed on February
15, 1996.
(a)(iii) Shareholder Services Agreement between Fund/Plan
Services, Inc. and the Registrant dated April 25, 1995
is incorporated herein by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement
No. 33-4787, Exhibit No. (9)(a) to Item 24 as filed on
September 20, 1995.
(a)(iv) Shareholder Services Agreement between the Registrant
and Fund/Plan Services, Inc. is incorporated herein by
reference to Post-Effective Amendment No. 9 to the
Registrant's Registration Statement No. 33-47287,
Exhibit No. (9)(a) as filed on July 21, 1994.
(b)(i) Administration Agreement between Fund/Plan Services,
Inc. and the Registrant dated November 20, 1995 is
incorporated herein by reference to Post Effective
Amendment No. 16 to Registrant's Registration Statement
No. 33-4787, as Exhibit No. (9)(b) to Item 24 as
electronically filed on February 15, 1996.
(b)(ii) Amendment to the Administrative Services Agreement
between Fund/Plan Services, Inc. and the Registrant
dated August 21, 1995 is incorporated herein by
reference to Post Effective Amendment No. 16 to
Registrant's Registration Statement No. 33-4787, as
Exhibit No. (9)(b) to Item 24 as electronically filed
on February 15, 1996.
(b)(iii) Administrative Services Agreement between Fund/Plan
Services, Inc. and the Registrant dated April 25, 1995
is incorporated herein by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement
No. 33-4787, Exhibit No. (9)(b) to Item 24 as filed on
September 20, 1995.
(b)(iv) Administrative Services Agreement between the
Registrant and Fund/Plan Services, Inc. is incorporated
herein by reference to Post-Effective Amendment No. 9
to the Registrant's Registration Statement No. 33-
47287, Exhibit No. (9)(b) as filed on July 21, 1994.
(c)(i) Accounting Services Agreement between Fund/Plan
Services, Inc. and the Registrant dated November 20,
1995 is incorporated herein by reference to Post
Effective Amendment No. 16 to Registrant's Registration
Statement No. 33-4787, as Exhibit No. (9)(c) to Item 24
as electronically filed on February 15, 1996.
(c)(ii) Amendment to the Accounting Services Agreement between
Fund/Plan Services, Inc. and the Registrant dated
August 21, 1995 is incorporated herein by reference to
Post Effective Amendment No. 16 to Registrant's
Registration Statement No. 33-4787, as Exhibit No.
(9)(c) to Item 24 as electronically filed on February
15, 1996.
(c)(iii) Accounting Services Agreement between Fund/Plan
Services, Inc. and the Registrant dated April 25, 1995
is incorporated herein by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement
No. 33-4787, Exhibit No. (9)(c) to Item 24 as filed on
September 20, 1995.
<PAGE>
(c)(iv) Accounting Services Agreement between the Registrant
and Fund/Plan Services, Inc. is incorporated herein by
reference to Post-Effective Amendment No. 9 to the
Registrant's Registration Statement No. 33-47287,
Exhibit No. (9)(c) as filed on July 21, 1994.
(c)(v) Amendment to Accounting Services Agreement between the
Registrant and Fund/Plan Services, Inc. is incorporated
herein by reference to Post-Effective Amendment No. 9
to Registrant's Registration Statement No. 33-47287,
Exhibit No. (9)(d) as filed on July 21, 1994.
(10) Opinion and Consent of Counsel.
(a) Incorporated herein by reference to Registrant's Notice
pursuant to Rule 24f-2 filed with the U.S. Securities and
Exchange Commission on August 28, 1996.
(11) Other Opinions and Consents.
(a) Consent of Ernst & Young LLP, independent auditors to the
Trust. Filed herewith electronically as Exhibit (11)(a).
(12) Not Applicable.
(13) Letter of Understanding relating to initial capital is
incorporated herein by reference to Pre-Effective Amendment No. 1
to Registrant's Registration Statement No. 33-47287, Exhibit No.
(13) as filed on July 9, 1992.
(14) Not Applicable.
(15) (a) Distribution Plan relating to the SwissKey Class Shares on
behalf of each Series of The Brinson Funds dated November
20, 1995 is incorporated herein by reference to Post
Effective Amendment No. 16 to Registrant's Registration
Statement No. 33-4787, as Exhibit No. (15)(a) as
electronically filed on February 15, 1996.
(15) (b) Distribution Plan relating to the SwissKey Class Shares on
behalf of each Series of The Brinson Funds dated July 31,
1995 is incorporated herein by reference to Post-Effective
Amendment No. 13 to Registrant's Registration Statement No.
33-4787, Exhibit No. (15) as filed September 20, 1995.
(15) (c) Form of Distribution Plan relating to the Brinson-Class N
Shares on behalf of each series of The Brinson Funds is
filed electronically herewith.
(16) (a) Schedule for Computation of Performance Quotations on behalf
of Brinson Global Fund, Brinson Global Equity Fund, Brinson
Global Bond Fund, Brinson U.S. Balanced Fund, Brinson U.S.
Equity Fund and Brinson Non-U.S. Equity Fund is incorporated
herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement No. 33-4787, Exhibit No.
(16) as filed on September 20, 1995.
(16) (b) Schedule for Computation of Performance Quotations on behalf
of the U.S. Bond Fund is incorporated herein by reference to
Post-Effective Amendment No. 16 to Registrant's Registration
Statement No. 33-4787, Exhibit No. (16) as electronically
filed on February 15, 1996.
(17) Not Applicable.
(18) (a) Form of Multiple Class Plan relating to the Brinson Class
and Swiss Key Class Shares on behalf of each Series of The
Brinson Funds as presented to the Board of Trustees is
incorporated herein by reference to Post-Effective No. 12/13
to Registrant's Registration
(18) (b) Form of Revised Multiple Class Plan Pursuant to Rule 18f-3
on behalf of each Series of The Brinson Funds is filed
electronically herewith.
<PAGE>
Statement No. 33-47287.
(19) Powers of Attorney are incorporated herein by reference to Post-
Effective No. 11/12 to Registrants' Registration Statement
No. 33-47287, Exhibit No. (18) as filed on March 17, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
--------------------------------------------------------------
None.
-----
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
--------------------------------
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 8, 1997
-------------- ------------------------
Shares of Beneficial Interest
par value $0.001 of: 1513
BRINSON CLASS OF THE BRINSON FUNDS
----------------------------------
<TABLE>
<CAPTION>
<S> <C>
Brinson Global Fund 450
Brinson Global Equity Fund 119
Brinson Global Bond Fund 40
Brinson U.S. Balanced Fund 31
Brinson U.S. Equity Fund 175
Brinson U.S. Bond Fund 21
Brinson Non-U.S. Equity Fund 125
SWISSKEY CLASS OF THE BRINSON FUNDS
-----------------------------------
SwissKey Global Fund 80
SwissKey Global Equity Fund 383
SwissKey Global Bond Fund 30
SwissKey U.S. Balanced Fund 9
SwissKey U.S. Equity Fund 22
SwissKey U.S. Bond Fund 6
SwissKey Non-U.S. Equity Fund 22
BRINSON--CLASS N OF THE BRINSON FUNDS
-------------------------------------
There are no shares outstanding of the Brinson--Class N
of The Brinson Funds and therefore, there are no
shareholders of record.
</TABLE>
ITEM 27. INDEMNIFICATION.
----------------
Article VII, Sections 2 and 3 of Registrant's Agreement and
Declaration of Trust provide:
Section 2. Indemnification and Limitation of Liability. The Trustees
shall not be responsible or liable in any event for any neglect or
wrong-doing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, and, subject to the provisions
of the Bylaws, the Trust out of its assets may indemnify and hold
harmless each and every Trustee and officer of the Trust from and
against any and all claims, demands, costs, losses, expenses, and
damages whatsoever arising out of or related to such Trustee's
performance of his or her duties as a Trustee or officer of the Trust;
provided that nothing
<PAGE>
herein contained shall indemnify, hold harmless or protect any Trustee
or officer from or against any liability to the Trust or any
Shareholder to which he or she would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with
the Trust shall be conclusively deemed to have been issued, executed
or done only in or with respect to their or his or her capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers hereunder shall
be binding upon everyone interested in or dealing with the Trust. A
Trustee shall be liable to the Trust and to any Shareholder solely for
his or her own wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office
of Trustee and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration
of Trust and shall be under no liability for any act or omission in
accordance with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets
insurance for liability and for all expenses, reasonably incurred or
paid or expected to be paid by a Trustee or officer in connection with
any claim, action, suit or proceeding in which he or she becomes
involved by virtue of his or her capacity or former capacity with the
Trust, whether or not the Trust would have the power to indemnify him
or her against such liability under the provisions of this Article.
Indemnification of Registrant's custodian, transfer agent, accounting
services provider, administrator and distributor against certain
stated liabilities is provided for the following documents until May
9, 1997:
(a) Section 12 of Accounting Services Agreement, between the
Registrant and Fund/Plan Services, Inc., incorporated herein
by reference to Post Effective No. 16 to Registrant's
Registration Statement No. 33-47287, Exhibit 9(c) as filed
on February 15, 1996
(b) Section 8 of Administration Agreement between the Registrant
and Fund/Plan Services, Inc., incorporated herein by
reference to Post Effective No. 16 to Registrant's
Registration Statement No. 33-47287, Exhibit 9(b) as filed
on February 15, 1996
(c) Section 14 of Custodian Agreement between the Registrant and
Bankers Trust Company, incorporated herein by reference to
Post Effective No. 13 to Registrant's Registration No. 33-
47287, Exhibit Nos. 8(a) and 8(b) as filed on September 20,
1995
(d) Section 19 of Shareholder Services Agreement between
Registrant and Fund/Plan Services, Inc., incorporated herein
by reference to Post Effective No. 16 to Registrant's
Registration Statement No. 33-47287, Exhibit 9(a) as filed
on February 15, 1996.
(e) Section 8 of the Underwriting Agreement between Registrant
and Fund/Plan Broker Services, Inc. are incorporated herein
by reference to Post Effective No. 16 to Registrant's
Registration Statement No. 33-47287, Exhibit No. (6) as
filed on February 15, 1996.
Effective May 10, 1997, indemnification of Registrant's custodian,
transfer agent, accounting services provider, administrator and
distributor against certain stated liabilities is provided for in the
following documents:
(a) Section III of the Multiple Services Agreement between
Morgan Stanley Trust Company and the Registrant on behalf of
each of the Series of The Brinson Funds, filed
electronically herewith.
(b) Section 1.10 of the Distribution Agreement between Funds
Distributor, Inc. and the Registrant on behalf of each
Series of The Brinson Funds, filed electronically herewith.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF ADVISOR.
------------------------------------------
Brinson Partners, Inc. provides investment advisory services
consisting of portfolio management for a variety of individuals and
institutions and as of December 31, 1996 had approximately $119
billion in assets under management. It presently acts as investment
advisor to nine other investment companies, Brinson Relationship
Funds, which includes six investment portfolios (series);
<PAGE>
Enterprise Accumulation Trust - International Growth Portfolio;
Enterprise Group of Funds, Inc. - International Growth Portfolio; Fort
Dearborn Income Securities, Inc.; The Hirtle Callaghan International
Trust; John Hancock Variable Series Trust - International Balanced
Portfolio; Managed Account Services Portfolio Trust - Pace Large
Company Value Equity Investments; AON Funds - International Equity
Fund; and The Republic Funds - Republic Equity Fund.
For information as to any other business, vocation or employment of a
substantial nature in which each Trustee or officer of the
Registrant's investment advisor is or has been engaged for his own
account or in the capacity of Trustee, officer, employee, partner or
trustee, reference is made to the Form ADV (File #34910) filed by it
under the Investment Advisers Act of 1940, as amended.
ITEM 29. PRINCIPAL UNDERWRITER.
----------------------
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.
BJB Investment Funds
Burridge Funds
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
The JPM Series Trust II
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Money Market Fund, Inc.
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
WEBS Index Fund, Inc.
Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Funds Distributor is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers of Funds
Distributor, Inc.
President and Chief Executive Officer -Marie E. Connolly
Executive Vice President -Richard W. Ingram
Executive Vice President -Donald R. Roberson
Senior Vice President, General
Counsel, Secretary and Clerk -John E. Pelletier
Senior Vice President -Michael S. Petrucelli
Senior Vice President, Treasurer
and Chief Financial Officer -Joseph F. Tower, III
Senior Vice President -Paula R. David
Senior Vice President -Bernard A. Whalen
Senior Vice President -David A. Wrubel
<PAGE>
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
---------------------------------
All records described in Section 31(a) of the 1940 Act and the Rules
17 CFR 270.31a-1 to 31a-31 promulgated thereunder, are maintained by
the Trust's Investment Advisor, Brinson Partners, Inc., 209 South
LaSalle Street, Chicago, IL 60604-1295, except for those maintained
until May 9, 1997, by the Fund's Custodian, Bankers Trust Company, c/o
BTNY Services, Inc., 34 Exchange Place, Jersey City, NJ 07302 and the
Fund's Administrator, Transfer, Redemption, Dividend Disbursing and
Accounting Agent, FPS Services, Inc., 3200 Horizon Drive, King of
Prussia, PA 19406-0903. Effective May 9, 1997, Morgan Stanley Trust
Company ("MSTC"), One Pierrepont Plaza, Brooklyn, New York 11201, will
provide general administrative, accounting, portfolio valuation,
transfer agency and custodian services to the Trust, including the
coordination and monitoring of any third party service providers, and
together with any third party service providers, will maintain certain
records on behalf of the Trust that had been previously maintained by
Bankers Trust Company and FPS Services, Inc.
ITEM 31. MANAGEMENT SERVICES.
--------------------
There are no management-related service contracts not discussed in
Part A or Part B.
ITEM 32. UNDERTAKINGS.
-------------
(a) Inapplicable.
(b) The Registrant hereby undertakes to furnish each person to whom a
Prospectus for one or more series of the Registrant is delivered
with a copy of the relevant latest annual report to shareholders,
upon request and without charge.
(c) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of
removal of any Trustee when requested in writing to do so by the
<PAGE>
record holders of not less than 10 percent of the Registrant's
outstanding shares and to assist its shareholders in accordance
with the requirements of Section 16(c) of the Investment Company
Act of 1940, as amended, relating to shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 18 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
King of Prussia and the Commonwealth of Pennsylvania, on the 30th day of April,
1997.
THE BRINSON FUNDS
By: E. Thomas McFarlan*
President, Treasurer, and
Principal Accounting
Officer*
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 18 to Registrant's Registration Statement has been signed below
by the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
<S> <C>
E. THOMAS MCFARLAN*
E. Thomas McFarlan April 30, 1997
President, Treasurer,
Principal Accounting
Officer
WALTER E. AUCH*
Walter E. Auch April 30, 1997
Trustee
EDWARD M. ROOB*
Edward M. Roob April 30, 1997
Trustee
FRANK K. REILLY*
Frank K. Reilly April 30, 1997
Trustee
</TABLE>
- --------------------------
*By: /s/ Carolyn F. Mead,
--------------------
as Attorney-in-Fact and Agent pursuant to Power of Attorney
<PAGE>
REGISTRATION NO. 33-47287
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 18 TO THE
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AND
THE SECURITIES ACT OF 1933
ON FORM N-1A
THE BRINSON FUNDS
<PAGE>
THE BRINSON FUNDS
&
INDEX TO EXHIBITS TO FORM N-1A
Exhibit Description of Sequentially
Number Exhibit Numbered Page
(99.B6(f)) Distribution Agreement between Funds Distributor,
Inc. and the Registrant on behalf of each Series
of the Trust
(99.B8(d)) Form of Multiple Services Agreement between Morgan
Stanley Trust Company and Registrant on behalf of
each Series of the Trust
(99.B11(a)) Consent of Ernst & Young LLP
(99.B15(c)) Form of Distribution Plan relating to the Brinson-
Class N shares on behalf of each Series of the Trust
(99.B18(b)) Form of Revised Multiple Class Plan Pursuant to
Rule 18f-3 on behalf of each Series of the Trust
(99.B27) Financial Data Schedules on behalf of each Series
of the Trust
<PAGE>
DISTRIBUTION AGREEMENT
THE BRINSON FUNDS
209 South LaSalle Street
Chicago, Il 60604-1295
February 24, 1997
Funds Distributor, Inc.
60 State Street
Suite 1300
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this agreement, the distributor of (a) shares of
each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, a "Series"). For purposes of this agreement the
term "Shares" shall mean the authorized shares of each of the relevant Series of
the Fund.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by, and in
accordance with, the Fund's registration statement and prospectus and statement
of additional information then in effect under the Securities Act of 1933, as
amended, and will transmit promptly any orders received by you for purchase or
redemption of Shares to the Transfer Agent for the Fund of which the Fund has
notified you in writing from time to time.
1.2 You agree to use your best efforts to solicit orders for the sale of
Shares. It is contemplated that you may appoint sub-agents and enter into sales
or servicing agreements with securities dealers, financial institutions and
other industry professionals, such as investment advisers, accountants and
estate planning firms, and in so doing you will act only on your own behalf as
principal and not as principal for the Fund. This Agreement shall not be
construed as authorizing any securities dealer or other person to accept orders
for sale or repurchase on our behalf or otherwise act as our agent for any
purpose. However, the Fund and each Series retain the right to make direct
sales of Shares consistent with the terms of the prospectus and statement of
additional information relating to the Shares then in effect under the
Securities Act of 1933, as amended, and applicable law, and to engage in other
legally authorized transactions in Shares which do not involve the sale of
Shares to the general public. Such other transactions may
1
<PAGE>
include, without limitation, transactions between the Fund or any Series or
class and its shareholders only, transactions involving the reorganization of
the Fund or any Series, and transactions involving the merger or combination of
the Fund or any Series with another corporation or trust.
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitations, the
Investment Company Act of 1940, as amended, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and the National
Association of Securities Dealers, Inc.'s (the "NASD") Rules of Fair Practice,
Constitution and By-Laws. You represent and warrant that you are a broker-dealer
registered with the Securities and Exchange Commission and that you are
registered with the relevant securities regulatory agencies in all fifty states,
the District of Columbia and Puerto Rico. You also represent and warrant that
you are a member in good standing of the NASD and that you will maintain
registration and membership for the life of the agreement.
1.4 Other than our prospectus and statement of additional information
relating to the Shares then in effect under the Securities Act of 1933, as
amended, you will not issue any sales material or statements except literature
or advertising which conforms to the requirements of Federal and State
securities laws and regulations and which have been filed, where necessary, with
the appropriate regulatory authorities. You shall file Fund advertisements,
sales literature and other marketing and sales related materials with the
appropriate regulatory agencies and shall obtain such approvals for their use as
may be required by the Securities and Exchange Commission, the NASD and/or state
securities administrators.
1.5 The Fund may decline to accept any orders for, or make any sales of,
any Shares until such time as it deems it advisable to accept such orders and to
make such sales and the Fund shall advise you promptly of any such
determination.
1.6 The Fund agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information for
regulatory purposes and for their distribution to shareholders; provided
however, that the Fund shall not pay any of the costs of advertising or
promotion for the sale of Shares pursuant to this agreement. You shall also be
entitled to compensation for your services as provided in any Distribution Plan
adopted as to any Series and class of the Fund's Shares pursuant to Rule 12b-1
under the Investment Company Act of 1940.
1.7 The Fund agrees to execute any and all documents and to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Fund's officers in connection with the
registration and/or qualification, as applicable, of Shares for sale in such
states as you may designate to the Fund and the Fund may
2
<PAGE>
approve, and the Fund agrees to pay all reasonable expenses which may be
incurred in connection with such qualification or registration. You shall pay
all expenses connected with your own qualification as a dealer under state or
Federal laws and, except as otherwise specifically provided in this agreement,
all other expenses incurred by you in connection with the sale of Shares as
contemplated in this agreement.
1.8 The Fund shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to the Fund or any
relevant Series and the Shares as you may reasonably request, all of which shall
be signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such information, when so signed
by the Fund's officers, shall be true and correct. The Fund also shall furnish
you upon request with: (a) semi-annual reports and annual audited reports of
the Fund's books and accounts made by independent public accountants regularly
retained by the Fund, (b) semi-annual financial statements prepared by us; (c)
registration statements; and (d) from time to time such additional information
regarding the Fund's financial condition as you may reasonably request.
1.9 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, with respect to the Shares and the Fund have been prepared in
conformity with the requirements of said Acts and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus, including the statement of additional information
incorporated by reference therein, filed with the Securities and Exchange
Commission and any amendments and supplements thereto which at any time shall
have been filed with said Commission. The Fund represents and warrants to you
that any registration statement and prospectus, when such registration statement
becomes effective, will contain all statements required to be stated therein in
conformity with said Acts and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement becomes
effective; and that neither any registration statement nor any prospectus when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The Fund
may, but shall not be obligated to, propose from time to time such amendment or
amendments to any registration statement and such supplement or supplements to
any prospectus as, in the light of future developments, may, in the opinion of
the Fund's counsel, be necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
days after receipt by the Fund of a written request from you to do so, you may,
at your option, terminate this agreement or decline to make offers of the Fund's
securities until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus without
giving you reasonable notice thereof in advance; provided, however, that nothing
contained in this agreement shall in any way limit the Fund's right to file
3
<PAGE>
at any time such amendments to any registration statement and/or supplements to
any prospectus, of whatever character, as the Fund may deem advisable, such
right being in all respects absolute and unconditional.
1.10 The Fund authorizes you and any dealers with whom you have entered
into dealer agreements to use any currently effective prospectus in the form
furnished by the Fund in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and any
person who controls you within the meaning of Section 15 of the Securities Act
of 1933, as amended, free and harmless from and against any and all claims,
demands, liabilities and expenses (including the reasonable cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which you, your
officers and directors, or any such controlling persons, may incur under the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, or common law or otherwise, arising out of or on the basis of any
untrue statement, or alleged untrue statement, of a material fact required to be
stated in either any registration statement or any prospectus or any statement
of additional information, or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in any
registration statement, any prospectus or any statement of additional
information or necessary to make the statements in any of the aforementioned
documents not misleading, except that the Fund's agreement to indemnify you,
your officers or directors, and any such controlling person will not be deemed
to cover any such claim, demand, liability or expense to the extent that it
arises out of or is based upon any such untrue statement, alleged untrue
statement, omission or alleged omission made in any registration statement, any
prospectus or any statement of additional information in reliance upon
information furnished by you, your officers, directors or any such controlling
person to the Fund or a person that you reasonably believe is a person
designated by the Fund for use in the preparation thereof, and except that the
Fund's agreement to indemnify you and the Fund's representations and warranties
set out in paragraph 1.9 of this Agreement will not be deemed to cover any
liability to the Funds or their shareholders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard in the
performance of your obligations and duties under this Agreement ("Disqualifying
Conduct"). The Fund's agreement to indemnify you, your officers and directors,
and any such controlling person, as aforesaid, is expressly conditioned upon the
Fund's being notified of any action brought against you, your officers or
directors, or any such controlling person, such notification to be given by
letter, by facsimile or by telegram addressed to the Fund at its address set
forth above promptly after the summons or other first legal process shall have
been served. The failure to so notify the Fund of any such action shall not
relieve the Fund from any liability which the Fund may have to the person
against whom such action is brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account of
the Fund's indemnity agreement contained in this paragraph 1.10. The Fund will
be entitled to assume the defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund and approved by you. In the event
the Fund elects to assume the defense of any such suit and retain counsel of
good standing
4
<PAGE>
approved by you, the defendant or defendants in such suit shall bear the fees
and expenses of any additional counsel retained by any of them; but in case the
Fund does not elect to assume the defense of any such suit, the Fund will
reimburse you, your officers and directors, or the controlling person or persons
named as defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by you or them. The Fund's indemnification
agreement contained in this paragraph 1.10 and the Fund's representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you, your officers and
directors, or any controlling person, and shall survive the delivery of any
Shares. This agreement of indemnity will inure exclusively to your benefit, to
the benefit of your several officers and directors, and their respective
estates, and to the benefit of any controlling persons and their successors. The
Fund agrees promptly to notify you of the commencement of any litigation or
proceedings against the Fund or any of its officers or Board members in
connection with the issue and sale of Shares.
1.11 You agree to indemnify, defend and hold the Fund, its several
officers and Board members, and any person who controls the Fund within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the reasonable cost of investigating or defending such claims,
demands or liabilities and any reasonable counsel fees incurred in connection
therewith) which the Fund, its officers or Board members, or any such
controlling person, may incur under the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the Fund, its
officers or Board members, or such controlling person resulting from such claims
or demands, (a) shall arise out of or be based upon any Disqualifying Conduct,
or (b) shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
you to the Fund specifically for use in the Fund's registration statement and
used in the answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by you to the Fund and required to be stated in such answers or
necessary to make such information not misleading. Your agreement to indemnify
the Fund, its officers and Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any action
brought against the Fund, its officers or Board members, or any such controlling
person, such notification to be given by letter, by facsimile or by telegram
addressed to you at your address set forth above promptly after the summons or
other first legal process shall have been served. The failure so to notify you
of any such action shall not relieve you from any liability which you may have
to the person against whom such action is brought by reason of any such untrue,
or alleged untrue, statement or omission, or alleged omission, otherwise than on
account of your indemnity agreement contained in this paragraph 1.11. You will
be entitled to assume the defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by you and approved by the Fund. In the event
you elect to assume the defense of any such suit and retain counsel of good
standing approved by
5
<PAGE>
the Fund, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in the case you
do not elect to assume the defense of any such suit, you will reimburse the
Fund, the Fund's officers and directors, or the controlling person or persons
named as defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by the Fund or them. Your indemnification
agreement contained in this paragraph 1.11 and your representations and
warranties in this agreement shall remain operative and in full force and effect
regardless of any investigation made by you or on behalf of you, your officers
and directors, or any controlling person, and shall survive the delivery of any
Shares. This agreement of indemnity will inure exclusively to the Fund's
benefit, to the benefit of the Fund's officers and Board members, and their
respective estates, and to the benefit of any controlling persons and their
successors. You agree promptly to notify the Fund of the commencement of any
litigation or proceedings against you or any of your officers or directors in
connection with the issue and sale of Shares.
1.12 No Shares shall be offered by either you or the Fund under any of the
provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission or if the Fund or its Transfer Agent has
notified you that Shares are not registered and/or qualified for sale in a given
state or jurisdiction; provided, however, that nothing contained in this
paragraph 1.12 shall in any way restrict or have an application to or bearing
upon the Fund's obligation to repurchase any Shares from any shareholder in
accordance with the provisions of the Fund's prospectus or charter documents.
6
<PAGE>
1.13 The Fund agrees to advise you promptly in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect or of
additional information that materially affects you;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation of
any proceeding for that purpose;
(c) of the happening of any event which makes untrue any statement of
a material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus which
may from time to time be filed with the Securities and Exchange Commission.
2. Offering Price
Shares of any class of the Fund offered for sale by you shall be offered
at a price per share (the "offering price") equal to (a) the net asset value
(determined in the manner set forth in the Fund's charter documents) plus (b) a
sales charge, if any and except to those persons set forth in the then-current
prospectus, which shall be the percentage of the offering price of such Shares
as set forth in the Fund's then-current prospectus. All Shares will be sold in
the manner set forth in the Fund's then current prospectus and statement of
additional information, and in compliance with applicable law. The offering
price, if not an exact multiple of one cent, shall be adjusted to the nearest
cent. In addition, Shares of any class of the Fund offered for sale by you may
be subject to a contingent deferred sales charge as set forth in the Fund's
then-current prospectus. Any payments to dealers shall be governed by a
separate agreement between you and such dealer and the Fund's then-current
prospectus.
3. Orders for and Sales of Shares
Orders for shares shall be directed to the Fund's Transfer Agent for
acceptance on behalf of the Fund. Sales of Shares shall be deemed to be made
when and where accepted by the Fund's Transfer Agent.
4. Term
7
<PAGE>
This Agreement shall become effective with respect to the Fund as of the
date hereof and will continue for an initial one-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Fund's Board or (ii) by a vote of a majority of the Shares
of the Fund or the relevant Series, as the case may be, provided that in either
event its continuance also is approved by a majority of the Board members who
are not "interested persons" of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. This
agreement is terminable with respect to the Fund, without penalty, on not less
than sixty days' notice, by the Fund's Board of Trustees, by vote of a majority
of the outstanding voting securities of such Fund, or by you. This Agreement
will automatically and immediately terminate in the event of its "assignment."
(As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the Investment Company Act of 1940, as amended). You agree
to notify the Fund immediately upon the event of your expulsion or suspension by
the NASD. This Agreement will automatically and immediately terminate in the
event of your expulsion or suspension by the NASD.
5. Miscellaneous
5.1 The Fund recognizes that, except to the extent otherwise agreed to by
the parties hereto, your directors, officers and employees may from time to time
serve as directors, trustees, officers and employees of corporations and
business trusts (including other investment companies), and that you or your
affiliates may enter into distribution or other agreements with such other
corporations and trusts.
5.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
5.3 This Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts without giving effect to principles of conflicts
of laws.
5.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding Agreement between us.
Very truly yours,
THE BRINSON FUNDS
8
<PAGE>
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
9
<PAGE>
Accepted:
FUNDS DISTRIBUTOR, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
10
<PAGE>
EXHIBIT A
Series of the Funds
-------------------
THE BRINSON FUNDS*
Global Fund
Global Equity Fund
Global Bond Fund
U.S. Balanced Fund
U.S. Equity Fund
U.S. Bond Fund
Non-U.S. Equity Fund
*Each Series above offers two separate classes of shares - the SwissKey Fund
class and the Brinson Fund class.
11
<PAGE>
FORM OF
MULTIPLE SERVICES AGREEMENT
This AGREEMENT is effective May 9, 1997, and is between Morgan Stanley
Trust Company, a New York state chartered trust company (the "Bank"), and The
Brinson Funds, a Delaware business trust (the "Customer") on behalf of its
separate series of shares representing interests in separate portfolios which
are listed on Schedule B1, as may be amended from time to time ("Series").
WHEREAS, Customer is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act") as an open-end
investment company; and
WHEREAS, the Customer desires to enter into one agreement providing
for the furnishing of global custody, administrative, accounting and transfer
agency services to the Series; and
WHEREAS, the Bank desires to furnish such services to the Customer or
to arrange for the furnishing of such services through the use of certain
agents;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS
I. GLOBAL CUSTODY SERVICES
The Customer hereby appoints the Bank as its global custodian to the
Series, and the Bank hereby accepts such appointment. This Section I. of this
Multiple Services Agreement (the "Agreement") relates solely to the provision of
global custody services to the Customer.
1. CUSTOMER ACCOUNTS.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
Separate custody accounts for each Series in the name of the Customer
on behalf of each such Series as listed in Schedule B1 for any and all stocks,
shares, bonds, debentures, notes, mortgages or other obligations for the payment
of money, bullion, coin and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe to the same or
evidencing or representing any other rights or interests therein and other
similar property whether certificated or uncertificated as may be received by
the Bank or its Subcustodian (as defined in Sub-section 3 of this Section I.)
for the account of the Customer on behalf of a Series ("Securities") and any and
all cash equivalents.
Prior to the delivery of any Assets (as defined hereinafter) by the
Customer to the Bank, the Customer shall deliver to the Bank each applicable
document or other item listed
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in Schedule B2, which schedule may be amended from time to time by the Customer
and the Bank.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Sub-section 11 of this Section I.) concerning the Accounts. Such
Instructions shall specifically indicate to which Series such Assets belong or,
if such Assets belong to more than one Series, shall allocate such Assets to the
appropriate Series. The Bank may deliver securities of the same type and class
in place of those deposited in the Accounts.
Upon receipt of Instructions and appropriate documentation, the Bank
shall establish additional Accounts, which shall be separately accounted for as
additional Accounts under the terms of this Agreement.
The procedures the Bank and the Customer will use in performing
activities in connection with this Agreement are set forth in a client services
guide provided to the Customer by the Bank, as such guide may be amended from
time to time by the Bank (the "Client Services Guide") with the consent of the
Customer; provided, however, that any customer enhancement or amendments deemed
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necessary by the Bank in order to comply with existing or new rules, regulations
or market practices, in any jurisdiction, may be made by the Custodian without
the consent of the Customer. Any Customer specific procedures which are
included in the Client Services Guide must be agreed to or changed in writing by
both parties and such Customer specific procedures shall be deemed to be a part
of this Agreement.
2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location, securities
will be held in the country or other jurisdiction in which the principal trading
market for such Securities is located, where such Securities are to be presented
for payment or where such Securities are acquired.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Subject to the provisions of Sub-section 2 above of this Section I.,
the Assets held for each Series may be held in custody and deposit accounts that
have been established by the Bank (i) with one or more domestic or foreign banks
or other institutions as listed on Schedule A1 (the "Subcustodians"), as such
Schedule may be amended from time to time by the Bank by ninety (90) days'
written notice to the Customer, or (ii) through the facilities of one or more
securities depositories or clearing agencies as listed on Schedule A2, as such
Schedule may be amended from time to time by the Bank by sixty (60) days' prior
written notice to the Customer. (The parties agree that, for so long as required
by the 1940 Act and the rules thereunder, including Rule 17f-5, any new
securities depositories or clearing agencies are subject to approval or
ratification by the Customer's Board of Trustees.) Any
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Subcustodian may hold Assets of the Customer in a securities depository and may
utilize a clearing agency. Each of the entities listed on Schedule A1 are
"Eligible Foreign Custodians" (as such term is defined in Rule 17f-5(c)(2) of
the Investment Company Act of 1940 (the "1940 Act")), except as otherwise noted
on Schedule A1. Each of the entities listed on Schedule A2 are "Eligible
Foreign Custodians" or "Securities Depositories" as such term is defined in Rule
17f-4(a) and (b) of the 1940 Act, or have been so qualified by exemptive order,
rule or other appropriate action of the SEC, except as otherwise noted on
Schedule A2; provided, however, that although the Bank is of the opinion that
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each of the securities depositories used by it does operate either a central
system for handling securities in their respective countries or a transnational
system for the central handling of securities or equivalent book-entries, the
determination that a securities depository operates a central system absent any
official proclamation by the SEC is a factual one and the Bank shall not be
liable for any future determination by the SEC that any such securities
depository does not in fact operate such a central system.
The Customer will be given reasonable notice by the Bank of any amendment
to Schedule A1 or A2. Upon request by the Customer, the Bank will identify the
name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) The Bank will identify the Assets on its books as belonging to the
Customer on behalf of a particular Series.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such Subcustodian's books
as custody accounts for the exclusive benefit of customers of the Bank. In the
event the Subcustodian holds Assets in a securities depository, such
Subcustodian shall be required by its agreement with the Bank to identify on its
books such Assets as being held for the account of the Bank as custodian for its
customers or in such other manner as is required by local law or market
practice.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian or its agent.
(d) Any agreement the Bank enters into with a Subcustodian for holding the
Customer's Assets shall provide that: (i) the Account will be adequately
indemnified and its assets adequately insured in the event of a loss; (ii) the
Assets are not subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian or its creditors except a claim of
payment for their safe custody or administration; (iii) beneficial
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ownership of such Assets will be freely transferable without the payment of
money or value other than for safe custody or administration; (iv) adequate
records will be maintained identifying the Assets held pursuant to such
Agreement as belonging to the Bank on behalf of Customer; (v) the independent
public accountants of or designated by, the Customer, will be given access to or
confirmation of the contents of the books and records of such Subcustodian
relating to its actions under its agreement pertaining to any Assets held by it
thereunder; and (vi) Customer will receive periodic reports with respect to the
safekeeping of the Assets, including notification of any transfer to or from the
Customer's account.
(e) The Bank shall deliver to the Customer annually documents stating: (i)
the identity of each Subcustodian then acting on behalf of the Bank and the name
and address of the governmental agency or other regulatory authority that
supervises or regulates such Subcustodian; (ii) the countries in which each
Subcustodian is located; and (iii) so long as Rule 17f-5 of the 1940 Act
requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such Subcustodians as
may reasonably be requested by the Customer to ensure Customer's compliance with
Rule 17f-5 of the 1940 Act. The Bank shall furnish annually to the Customer
information concerning such Subcustodians similar in kind and scope as that
furnished to the Customer in connection with the initial approval of this
Agreement. Bank agrees to provide Customer with notice of any material adverse
changes in the facts or circumstances upon which such information is based as
soon as practicable after it becomes aware of any such material adverse changes
in the normal course of its custodian activities.
5. CASH TRANSACTIONS.
(a) All cash received by the Bank for each of the Accounts shall be held by
the Bank as a short-term credit balance in favor of the Customer on behalf of
the Series to which the Account relates and, because the Bank and the Customer
have agreed in writing in advance that such credit balances shall bear interest,
the relevant Series shall earn interest at the rates and times as agreed between
the Bank and the Customer. The Customer acknowledges that any such credit
balances shall not be accompanied by the benefit of any governmental insurance.
(b) The Bank or its Subcustodians will make cash payments from the Account
upon receipt of Instructions.
(c) In the event that any payment to be made under this Sub-section 5
exceeds the funds available in an Account, the Bank, in its discretion, may
advance the Customer on behalf of the relevant Series whose Assets are held in
such Account such excess amount which shall be deemed a short-term credit
extension which is (i) necessary in connection with payment and clearance of
securities and foreign exchange transactions or (ii) pursuant to an agreed
schedule, as and if set forth in the Client Services Guide, of credits for
dividends and interest payments on the Assets. Such credit extensions shall be
payable on demand, bearing
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interest at the rate customarily charged by the Bank on similar loans and
consistent with the fee schedule set forth on Schedule F.
(d) If the Bank credits an Account on a payable date, or at any time prior
to actual collection and reconciliation to the Account, with interest,
dividends, redemptions or any other amount due, the Customer on behalf of and
from the Assets of the Series to which the Account relates will promptly return
any such amount upon written notification: (i) that such amount has not been
received in the ordinary course of business, or (ii) that such amount was
incorrectly credited. If the Customer on behalf of and from the Assets of the
Series to which the Account relates does not promptly return any amount upon
such notification, the Bank shall be entitled, upon written notification to the
Customer, to reverse such credit by debiting the Account for the amount
previously credited. The Bank shall be entitled to charge the Customer on
behalf of the Assets of the Series in the Account interest for any such credit
extension at rates to be agreed upon from time to time or, if such credit is
arranged by the Bank with a third party on behalf of the Series, the Customer
out of the Series' assets shall reimburse the Bank for any interest charge. In
addition to any other remedies available, with respect to the extension of
credit to a particular Series, the Bank shall be entitled to a right of set-off
against the Assets of such Series to satisfy the repayment of such credit
extension and the payment of, or reimbursement for, accrued interest thereon.
(e) The Bank shall provide the Customer, in a format mutually agreed upon
by both parties, the Customer's short-term credit balances in the Account by no
later than 9:00 a.m. Eastern Time and securities lending collateral by no later
than 11:00 a.m. and updated at 1:00 p.m., on each business day that the Bank is
open or authorized to transact business in the State of New York and the
Customer shall be entitled to rely on such short-term credit balance
calculations. The Bank shall provide the Customer with a five day cash
projection report, on each business day that the Bank is open or authorized to
transact business in the State of New York. The short-term credit balance and
cash projection report shall include Class level shareholder activity from the
previous day as reported by each Series' transfer agent.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions. Settlement and
payment for Securities received for, and delivery of Securities out of, the
Accounts may be made in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs. Under all circumstances, Bank shall use
its reasonable efforts to make delivery of Securities to a purchaser, dealer or
their agents only against payment subject to local custom and regulations.
Delivery of Securities out of an Account may also be made in any other manner
specifically required by Instructions.
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(b) The Bank, upon receipt of Instructions, will credit or debit an
Account on a contractual settlement date, if consistent with applicable law,
with cash or Securities with respect to any sale, exchange or purchase of
Securities. Otherwise, such transactions will be credited or debited to an
Account on the date cash or Securities are actually received by the Bank and
reconciled to such Account.
7. ACTIONS OF THE BANK.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
(e) Receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Accounts.
(f) Take non-discretionary action on mandatory corporate actions.
(g) Pay or cause to be paid, from the Accounts, any and all taxes and
levies of any nature imposed on the Assets by any governmental authority in
connection with custody of and transactions in such Assets.
(h) In general, attend to all nondiscretionary details in connection with
the custody, sale, purchase, transfer and other dealings with the Assets held in
the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer sends the Bank a written exception or objection to
any Bank statement within ninety (90) days of receipt, the Customer shall be
deemed to have approved such statement.
All collections of funds or other property paid or distributed in
respect of Securities in the Accounts shall be made at the risk of the Customer.
The Bank shall have
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no liability for any loss occasioned by delay in the actual receipt of notice by
the Bank or by its Subcustodians of any payment, redemption or other transaction
regarding Securities in the Accounts in respect of which the Bank has agreed to
take any action under this Agreement.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
(a) Corporate Actions. Whenever the Bank receives information concerning
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the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the Bank
will give the Customer notice of such Corporate Actions to the extent that the
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions, as defined in Sub-section 11 of this Section I., but if
Instructions are not received in time for the Bank to take timely action, or
actual notice of such Corporate Action was received too late to seek
Instructions, the Bank is authorized to act in accordance with the default
option provided by local market practice and/or the issuer of the Securities.
Fractional interests resulting from Corporate Action activity shall be treated
in accordance with local market practices. The Bank shall be held harmless for
any such action provided such action was made in good faith.
The indemnification provision of this Sub-section 8(a) will survive
the termination of this Agreement.
(b) Proxy Voting. The Bank will provide proxy voting services only
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pursuant to the Client Services Guide. Proxy voting services may be provided by
the Bank or, in whole or in part, by one or more third parties appointed by the
Bank (which may be affiliates of the Bank).
(c) Tax Reclaims.
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(i) Subject to the provisions hereof and the receipt of Instructions
as described in the Client Services Guide, the Bank will timely apply for or
facilitate the application for a reduction of withholding tax and any refund of
any tax paid or tax credits which apply in each applicable market in respect of
income payments on Securities for the benefit of the Customer which the Bank
believes may be available to such Customer. The Bank shall notify the Customer
that it is making such application for a reduction of withholding tax and refund
of any tax paid or tax credits which apply in each applicable market in respect
of income payments on Securities for the benefit of Customer.
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(ii) The provisions of tax reclaim services by the Bank is
conditional upon the Bank receiving from the beneficial owner of Securities (A)
a declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The Bank
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shall use reasonable means to notify Customer of the declarations, documentation
and information which the Customer is to provide to Bank in order for the Bank
to perform the tax reclaim services described herein. The Customer acknowledges
that, if the Bank does not receive such information, additional United Kingdom
taxation will be deducted from all income received in respect of Securities
issued outside the United Kingdom and that U.S. non-resident alien tax or U.S.
backup withholding tax will be deducted from U.S. source income. The Customer
shall provide to the Bank such documentation and information as it may require
in connection with taxation, and warrants that, when given, this information
shall be true and correct in every respect, not misleading in any way, and
contain all material information. The Customer undertakes to notify the Bank
immediately if any such information requires updating or amendment.
(iii) The Bank shall not be liable to the Customer or any third party
for any tax, fines or penalties payable by the Bank or the Customer, and shall
be indemnified accordingly, whether these result from the inaccurate completion
of documents by the Customer or any third party, or as a result of the provision
to the Bank or any third party of inaccurate or misleading information or the
withholding of material information by the Customer or any other third party, or
as a result of any delay of any revenue authority or any other matter beyond the
control of the Bank. The provisions of this Sub-section 8(c)(iii) shall survive
the termination of this Agreement.
(iv) The Customer confirms that the Bank is authorized to deduct
from any cash received or credited to the Accounts any taxes or levies required
by any revenue or governmental authority for whatever reason in respect of the
Accounts.
(v) The Bank shall perform tax reclaim services only with respect
to taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and, upon Instructions as described in the Client
Services Guide, the Bank may, if the Bank offers tax reclaim services in new
markets, supplement or amend the markets in which the tax reclaim services are
offered. Other than as expressly provided in this sub-clause and to the extent
that the Bank acts in accordance with the information provided on Schedule B2,
the Bank shall have no responsibility with regard to the Customer's tax position
or status in any jurisdiction.
(vi) The Customer confirms that the Bank is authorized to disclose
any information requested by any revenue authority or any governmental body in
relation to the Customer or the Securities and/or Cash held for the Customer for
the purpose of obtaining tax reclaims only. This provision does not authorize
any other disclosure to any revenue authority or any governmental body without
the prior written consent of Customer.
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(vii) Tax reclaim services may be provided by the Bank or, in whole
or in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
(viii) The Bank shall monitor tax reclaims and report on such
reclaims on a monthly basis.
9. NOMINEES.
Securities which are ordinarily held in registered form may be registered
in the name of the Bank, Subcustodian or securities depository or any of their
nominees, as the case may be. The Bank may without notice to the Customer cause
any such Securities to cease to be registered in the name of any such nominee
and to be registered in the name of the Customer. Under no circumstances, shall
any of the Securities be registered in the name of Brinson Partners, Inc. unless
the Bank has been instructed otherwise. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
Where the Bank has been instructed by the Customer to hold any Securities
in the name of any person or entity other than the Bank, its Subcustodian or any
such entity's nominee, the Bank shall not be responsible for any failure to
collect such dividends or other income or participate in any such corporate
action with respect to such Securities.
10. AUTHORIZED PERSONS.
As used in this Agreement, the term "Authorized Person" means persons as
have been designated on Schedule B3, or entities as have been designated on
Schedule B4, as such Schedules may be amended from time to time by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons or entities shall continue to be
Authorized Persons until such time as the Bank receives Instructions that any
such person or entity is no longer an Authorized Person. Prior to the delivery
of the Assets to the Bank, the Bank shall provide to Customer a list of
designated system user ID numbers and passwords that the Customer shall be
responsible for assigning to Authorized Persons. The Bank shall assume that an
electronic transmission received and identified by a system user ID number and
password was sent by an Authorized Person. The Bank agrees to provide
additional designated system user ID numbers and passwords as needed by the
Customer. The Customer authorizes the Bank to issue new system user ID numbers
upon the request of a previously existing Authorized Person. Upon the issuance
of additional system user ID numbers by the Bank to the Customer, Schedule B4
shall be deemed automatically amended accordingly. The Customer authorizes and
instructs the Bank to assume that a facsimile transmission received which sets
forth only the typed name of an Authorized Person is an Instruction sent by an
Authorized Person. The Customer authorizes
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the Bank to receive, act and rely upon any Instructions received by the Bank
which have been issued, or purport to have been issued, by an Authorized Person.
Any Authorized Person may cancel/correct or otherwise amend any Instruction
received by the Bank, but the Customer agrees to indemnify the Bank for any
liability, loss or expense incurred by the Bank and its Subcustodians as a
result of their having relied upon or acted in good faith on any prior
Instruction. The Bank will use its reasonable efforts to process trades once
the trades have settled, upon receipt of an amendment or cancellation of an
Instruction to deliver or receive any security or funds with respect to such
trades.
11. INSTRUCTIONS.
The term "Instructions" for purposes of Section I. of this Agreement means
instructions of any Authorized Person received by the Bank, via telex, facsimile
transmission, bank wire, SWIFT or other teleprocess or electronic instruction or
trade information system acceptable to the Bank which the Bank reasonably
believes in good faith to have been given by Authorized Persons or by such other
means as may be agreed in writing by Bank and Customer or which are transmitted
with proper testing or authentication pursuant to terms and conditions which the
Bank may specify and provided that such Instructions are timely received by the
Bank. Unless otherwise expressed, Instructions shall continue in full force and
effect until canceled or superseded.
The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall make
available to the Customer or its Authorized Persons.
II. ADMINISTRATIVE, ACCOUNTING AND TRANSFER AGENCY SERVICES
The Customer hereby appoints the Bank as its administrative, accounting
services and transfer agent to the Series, and the Bank hereby accepts such
appointment. This Section II. of this Agreement relates solely to the provision
of administrative, accounting and transfer agency services to the Customer and
its Series. For purposes of this Section II., the term "Bank" shall include the
Bank and its agents.
A. ADMINISTRATIVE SERVICES
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1. SERVICES.
Subject to the succeeding provisions of this section and subject to
the direction and supervision of the Board of Trustees of the Customer, Bank
shall provide to Customer and each of the Series administrative services as set
forth in Schedule C attached hereto and incorporated by reference into this
Agreement. In addition to the obligations set forth in Schedule C, the Bank, in
its capacity as administrator for the Customer and each of the
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Series ("Administrator"), shall: (i) provide its own office space, facilities,
equipment and personnel for the performance of its duties under this Section
II.A. of this Agreement; and (ii) take all actions the Bank deems necessary to
properly execute administration on behalf of the Series.
2. COOPERATION OF OTHER PARTIES.
So that the Bank may perform its duties under the terms of this
Agreement, the Board of Trustees of the Customer shall direct the officers,
investment adviser, legal counsel, independent accountants and other agents of
the Customer to cooperate with the Bank in performing administrative services
hereunder and, upon request of the Bank, to provide such information, documents
and advice as is within the possession or knowledge of such persons provided
that no such person need provide any information to the Bank if to do so would
result in the loss of any privilege with respect to such information unless the
Customer elects to waive such privilege. In the event that the Customer does
not elect to waive such privilege, the Bank shall not be liable for and shall be
indemnified against any losses directly resulting from the failure to deliver
such information, documents or advice. In connection with its duties hereunder,
the Bank shall be entitled to rely, and shall be held harmless by the Customer
when acting in reliance upon the instruction, advice or any documents relating
to the Customer as provided to the Bank by any of the aforementioned persons
provided that such reliance is reasonable.
The indemnification provisions of this Sub-section 2 of this Section
II.A. shall survive the termination of the Agreement.
3. COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS.
Any activities performed by the Bank under this Section II.A. of this
Agreement shall conform to the requirements of:
(a) the provisions of the 1940 Act and of any rules or regulations in
force thereunder;
(b) any other applicable provision of state and Federal law;
(c) the provisions of the Declaration of Trust and the By-Laws of the
Customer, as amended from time to time;
(d) any policies and determinations of the Board of Trustees of the
Customer provided to the Bank in writing; and
(e) the fundamental policies of the Series as reflected in the
Customer's registration statement on Form N-1A ("Form N-1A") under the 1940 Act
and the Securities Act of 1933 (the "1933 Act") and any amendments thereto.
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4. NON-EXCLUSIVITY.
Nothing in this Agreement shall prevent the Bank or any officer or
employee thereof from acting as administrator for or with any other person,
firm, corporation or trust. While the administrative services supplied to the
Customer and the Series may be different than those supplied to other persons,
firms, corporations or trusts, the Bank shall provide the Customer and the
Series equitable treatment in supplying services. The Bank agrees to maintain
the records and all other information of the Customer and the Series as required
by the 1940 Act and shall not use such information for any purpose other than
the performance of the Bank's duties under this Agreement.
B. ACCOUNTING SERVICES
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1. SERVICES.
The Bank, in its capacity as accounting services agent for the
Customer and the Series ("Accounting Agent"), will in addition to the duties and
functions listed below, perform accounting services listed in Schedule D
attached hereto.
2. INSTRUCTIONS.
For purposes of this Section II.B. of this Agreement:
(a) Oral Instructions shall mean an authorization, instruction,
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approval, item or set of data, or information of any kind transmitted to the
Bank in person or by telephone, telegram, telecopy, or other mechanical or
documentary means lacking a signature, by an Authorized Person, as defined in
Sub-section 10 of Section I. of this Agreement or by any of the Customer's
officers, employees, shareholders or other agents reasonably believed by Bank to
be authorized to give such Oral Instructions.
(b) Written Instructions shall mean an authorization, instruction,
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approval, item or set of data or information of any kind transmitted to the Bank
in original writing containing original signatures or a copy of such document
transmitted by telecopy or facsimile transmission including transmission of such
signature reasonably identified to the Bank to be the signature of an Authorized
Person, as defined in Sub-section 10 of Section I. of this Agreement or by any
of the Customer's officers, employees, shareholders or other agents reasonably
believed by Bank to be authorized to give such Written Instructions.
3. MAINTENANCE OF ACCOUNTS AND RECORDS.
To the extent the Bank receives the necessary information from the
Customer or its agents by Written or Oral Instructions, the Bank shall maintain
and keep current the following Accounts and Records relating to the Customer's
business in such form as may be mutually agreed upon between the Customer and
the Bank:
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(a) Net Asset Value Calculation Reports;
(b) cash Receipts Journal;
(c) cash Disbursements Journal;
(d) dividends Paid and Payable Schedule;
(e) purchase and Sales Journals - Portfolio Securities;
(f) security Ledgers - Transaction Report and Tax Lot Holdings
Report;
(g) broker Ledger - Commission Report;
(h) daily Expense Accruals;
(i) daily Interest Accruals;
(j) daily Trial Balance;
(k) portfolio Interest Receivable and Income Journal;
(l) portfolio Dividend Receivable and Income Register;
(m) listing of Portfolio Holdings - showing cost, market value and
percentage of portfolio comprised of each security;
(n) average daily net assets provided on monthly basis; and
(o) daily accounting reports as agreed to by the parties.
The necessary information to perform the above functions and the
calculation of each Series' net asset value as provided below, is to be
furnished by Written or Oral Instructions to the Bank daily (in accordance with
the time frame identified in Sub-section 7 of this Section II.B.).
4. CALCULATION OF NET ASSET VALUE.
The Bank shall perform the calculations necessary to calculate each
Series' net asset value daily, in accordance with: (i) the Customer's Advisory
Agreements and Declaration of Trust; (ii) the provisions of the Customer's Form
N-1A; and (iii) any other procedures approved by the Board of Trustees of the
Customer and supplied to the Bank by the Customer in writing. Portfolio items
for which market quotations are available by the Bank's use of automated
financial information services which shall be authorized by the
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Customer in writing to the Bank ("Services") shall be based on the closing
prices of such Services except where the Customer has given or caused to be
given specific Written Instructions to utilize a different value. Restricted
securities and other securities requiring valuation not readily ascertainable
solely by such Services shall be given values as the Customer provides by
Written Instructions. The Bank shall not have any responsibility or liability
for: (i) the accuracy of prices quoted by any of the Services; (ii) the
accuracy of any information supplied by the Customer; or (iii) for any loss,
liability, damage, or cost arising out of any inaccuracy, delay or omissions
from such data provided by the Services or the Customer. The Bank shall have no
responsibility or duty to include information or valuations to be provided by
the Customer in any computation unless and until it is timely supplied to the
Bank in usable form. The Bank shall record corporate action information of
which it has become aware in its capacity as Custodian for Customer or from the
Services or the Customer. The Bank shall not have any duty to gather or record
corporate action information not supplied by these sources.
The Bank will not be responsible for any losses, damages or costs to
the Customer, the Series or its shareholders for any price errors caused by:
the Customer, the Series, its advisers, corporate action and dividend
information, or any other party other than the Bank itself.
5. AUTHORITY TO ACT UPON RECEIPT OF INSTRUCTIONS.
For all purposes under Section II.B. of this Agreement, the Bank is
authorized to act upon receipt of any Written or Oral Instruction. The Customer
agrees to provide Written Instructions to the Bank with respect to trade
confirmation and cash instruction. The Bank shall be entitled to rely on any
Oral or Written Instruction received. For any act or omission undertaken in
compliance with such Oral or Written Instruction received, the Bank shall be
free of liability and fully indemnified and held harmless by the Customer,
provided, however, that in the event an Oral or Written Instruction received by
the Bank is countermanded by a timely later Oral or Written Instruction received
by the Bank prior to acting upon such countermanded Instruction, the Bank shall
act upon such later Oral or Written Instruction. The indemnification provisions
of this Sub-section 5 shall survive termination of this Agreement.
6. PROVISION OF REPORTS.
The Bank shall promptly supply daily and periodic reports to the
Customer as requested by the Customer and agreed upon by the Bank.
7. PROVISION OF INFORMATION BY THE CUSTOMER.
The Customer shall provide to the Bank or shall cause to be provided
to the Bank as of the close of each business day or on such other schedule as
the Bank determines is necessary, Oral or Written Instructions containing any
additional data or information
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necessary for the Bank to maintain the Customer's and the Series' Accounts and
Records. Such Oral or Written Instructions shall be delivered to the Bank no
later than 11:00 a.m., Eastern time the following business day.
8. ADOPTION OF ADDITIONAL PROCEDURES.
In connection with and in furtherance of the rendering of services
under this Section II.B., the Bank and the Customer may from time to time adopt
such procedures as agreed upon in writing, and the Bank may conclusively assume
that any procedure approved by the Customer or direction by the Customer does
not conflict with or violate any requirements of the Customer's Declaration of
Trust, By-Laws, or any rule or regulation of any regulatory body or governmental
agency.
C. TRANSFER AGENCY SERVICES
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1. SERVICES.
The Bank, in its capacity as transfer agent to the Customer and the
Series ("Transfer Agent") will, in addition to the duties and functions listed
below, perform the duties and functions of a transfer agent for an open-end
investment company as listed in Schedule E attached hereto. The terms as
defined in this Section II.C. wherever used in this Section II.C., or in any
amendment or supplement with respect to this Section II.C., shall have the
meanings herein specified unless the context otherwise requires.
Share Certificates shall mean the certificates representing shares of
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beneficial interest of the Series.
Shareholders shall mean the registered owners of the Shares of the
------------
Series in accordance with the share registry records maintained by the Bank.
Shares shall mean the issued and outstanding shares of the Series.
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Signature Guarantee shall mean the guarantee of signatures by an
-------------------
"eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. Broker-dealers guaranteeing signatures must be members of a
clearing corporation or maintain net capital of at least $100,000. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program.
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2. ISSUANCE OF SHARES.
The Bank, as Transfer Agent, shall make original issuances of Shares
in accordance with Sub-sections 7 and 8 of this Section II.C. of this Agreement
and with the Customer's Declaration of Trust upon the written request of the
Customer and upon being furnished with: (i) a certified copy of a resolution or
resolutions of the Board of Trustees of the Customer authorizing such; and (ii)
necessary funds for the payment of any original issue tax applicable to such
additional Shares.
3. TRANSFER OF SHARES.
Transfers of Shares shall be registered and new Shares issued by the
Bank upon redemption of outstanding Shares:
(a) in the form deemed by the Bank to be properly endorsed for
transfer;
(b) with all necessary endorser's signatures as required to be
guaranteed in accordance with the Customer's Form N-1A;
(c) upon receipt of such assurances as the Bank shall deem necessary
or appropriate to evidence the genuineness and effectiveness of each necessary
endorsement; and
(d) upon receipt of satisfactory evidence of compliance with all
applicable laws relating to the payment or collection of taxes.
4. RELIANCE ON APPLICABLE LAW.
In registering transfers, the Bank, as Transfer Agent, will comply
with applicable law relating to its activities as Transfer Agent for the
Customer.
5. MAINTENANCE OF RECORDS.
The Bank will maintain records in the usual form in which it will note
the issuance, transfer and redemption of Shares. The Bank is responsible for
providing reports of Share purchases, redemptions and total Shares outstanding
on the next business day after each net asset value calculation. The Bank is
authorized to keep records, which will be part of the transfer records, in which
it will note the names and registered address of Shareholders and the number of
Shares and fractions thereof held by them.
6. RELIANCE UPON LISTS, INSTRUCTIONS OR OTHER INSTRUMENTS.
The Bank, as Transfer Agent, may rely conclusively and act without
further investigation upon any list, instruction, certification, authorization
or other instrument or paper believed by it in good faith to be genuine and
unaltered, and to have been signed,
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countersigned, or executed by a duly authorized person or persons, or upon the
instructions of any officer of the Customer, or upon the advice of counsel for
the Customer or for the Bank. The Bank may record any transfer of Shares which
is reasonably believed by it to have been duly authorized or may refuse to
record any transfer of Shares if in good faith, the Bank, in its capacity as
Transfer Agent, deems such refusal necessary in order to avoid any liability on
the part of either the Series or the Bank. The Customer agrees to indemnify and
hold the Bank harmless from and against any and all losses, costs, claims, and
liability which it may suffer or incur by reason of so relying or acting or
refusing to act, except for actions taken pursuant to advice of the Bank's
counsel and actions resulting from the Bank's negligence or lack of good faith.
The Bank shall maintain and reconcile all operating bank accounts necessary to
facilitate all transfer agency processes; including, but not limited to,
distribution disbursements, redemptions and payment clearance accounts. The
indemnification provisions of this Sub-section II.C.6. shall survive the
termination of this Agreement.
7. PROCESSING OF PURCHASE ORDERS.
Prior to the daily determination of net asset value in accordance with
the Customer's Declaration of Trust and Form N-1A, the Bank shall process all
purchase orders received since the last determination of each Series' net asset
value.
The Bank shall place a purchase order daily with the appropriate
Series for the proper number of Shares and fractional Shares to be purchased and
confirm such number to the Customer in writing.
8. ISSUANCE AND CREDITING OF SHARES.
The proper number of Shares and fractional Shares shall then be issued
daily and credited by the Bank to the Shareholder Registration Records. The
Shares and fractional Shares purchased for each Shareholder will be credited by
the Bank to that Shareholder's account. The Bank shall mail to each Shareholder
a confirmation of each purchase, with copies to the Customer as requested by the
Customer. Such confirmations will show the prior Share balance, the new Share
balance, the amount invested and the price paid for the newly purchased Shares.
9. DAILY PROCESSING OF REDEMPTION REQUESTS.
The Bank shall, prior to the daily determination of net asset value in
accordance with the Customer's Declaration of Trust and Form N-1A, process all
requests from Shareholders to redeem Shares and determine the number of Shares
required to be redeemed to make monthly payments, automatic payments or the
like. Thereupon, the Bank shall advise the Customer of total number of Shares
available for redemption and the number of Shares and fractional Shares
requested to be redeemed. The Bank shall furnish the Customer with an
appropriate confirmation of the redemption and process the redemption by
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making the proper distribution and application of the redemption proceeds in
accordance with the Customer's Declaration of Trust and Form N-1A then in
effect. The registry books recording outstanding Shares, the Shareholder
Registration Records and the individual account of the Shareholder shall be
properly debited.
10. REDEMPTIONS AFTER RECENT PURCHASE.
With respect to redemption of Shares which have been purchased within
fifteen (15) calendar days of a redemption request, the Customer shall provide
the Bank, from time to time, with Written Instructions concerning the time
within which such requests may be honored.
III. GENERAL PROVISIONS
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1. STANDARD OF CARE; LIABILITIES - SECTION I.
(a) With respect to Section I. of this Agreement, the Bank shall be
responsible for the performance of only such duties as are set forth in Section
I. of this Agreement or expressly contained in Instructions which are consistent
with the provisions of Section I. of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Assets. The Bank shall
be liable to the Customer for any loss which shall occur as the result of the
negligence or willful misconduct of the Bank or a Subcustodian with respect to
the safekeeping of such Assets. In the event of any loss to the Customer or
Series by reason of the failure of the Bank or its Subcustodian to utilize
reasonable care, the Bank shall be liable to the Customer and the Series only to
the extent of the Customer's actual damages.
(ii) The Bank will not be responsible for any act, omission, default
or the solvency of any agent which it or a Subcustodian uses unless such use was
made negligently or in bad faith.
(iii) The Customer and the Series shall be indemnified by, and
without liability to, the Bank for any action taken or omitted by the Bank
within the scope of this Agreement as a result of the Bank's negligence or
willful misconduct.
(iv) The Bank and its nominees shall be indemnified by, and without
liability to, the Customer, the Series, or the Shareholders for any action taken
or omitted by the Bank whether pursuant to or in reliance upon Instructions for
any losses arising out of the Bank's performance hereunder, arising out of its
nominees acting as a nominee or holder of record of the Securities, or for any
action or omission otherwise within the scope of this Agreement if such act or
omission was in good faith, without negligence. In performing its
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obligations under this Agreement, the Bank may rely on the genuineness of any
document which it reasonably believes in good faith to have been validly
executed.
(v) The Customer agrees to pay for and hold the Bank harmless from
any liability or loss resulting from the imposition or assessment of any taxes
or other governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(vi) The Bank shall be entitled to rely, and may act, upon the
advice of counsel for the Customer on all matters and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not limited
to, losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions which prevent
the orderly execution of securities transactions or affect the value of Assets
provided, however, that where the Bank is required to provide information to the
Customer as part of its services herewith, the Bank shall be responsible for
obtaining and relaying such information in accordance with the standard of care
described in this Section III.1.
(viii) In no event shall the Bank be liable to the Customer or the
Series for any indirect, incidental, special or consequential losses or damages
of any kind whatsoever (including but not limited to lost profits), even if the
Bank has been advised of the likelihood of such loss or damage and regardless of
the form of action.
(b) Consistent with and without limiting the first paragraph of this Sub-
section 1 of this Section III. of this Agreement, it is specifically
acknowledged that the Bank shall have no duty or responsibility to:
(i) supervise or make recommendations with respect to investments
or the retention of Securities;
(ii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than as
provided in Sub-section 5(c) of Section I. of this Agreement;
(iii) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this Agreement.
Nothing contained in this clause shall limit the Bank's responsibilities
pursuant to Section I.4 of this Agreement;
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(iv) review or reconcile trade confirmations received from brokers.
The Customer or its Authorized Persons (as defined in Sub-section 10 of Section
I. of this Agreement) issuing Instructions shall bear any responsibility to
review such confirmations against Instructions issued to and statements issued
by the Bank;
(v) The Bank hereby warrants to the Customer that in its opinion,
after due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign custodian
and each eligible foreign securities depository holding the Customer's
Securities pursuant to this Agreement afford reasonable protection for such
Securities given prevailing practices, procedures and controls available in that
market; and
(vi) The provisions of this Section III.1 shall survive the
termination of this Agreement.
2. STANDARD OF CARE; LIABILITIES - SECTION II.
(a) For purposes of Section II. of this Agreement, the Bank shall not be
liable for any error of judgment or mistake of law or for any loss or expense
suffered by the Bank or the Customer, the Series, or the Shareholders in
connection with the matters to which this Agreement relates, except for a loss
or expense to the extent caused by or resulting from willful misfeasance, bad
faith or negligence on the Bank's part in the performance of its duties or from
reckless disregard by the Bank of its obligations and duties under this
Agreement. In the performance of its services, however, the Bank shall be
obligated to exercise the due care and diligence of an open-end fund
administrative, accounting and transfer agent. In no event shall the Bank be
liable for any indirect, incidental, special or consequential losses or damages
of any kind whatsoever (including but not limited to lost profits), even if the
Bank has been advised of the likelihood of such loss or damage and regardless of
the form of action.
(b) Subject to Section 2(a) above, the Bank shall not be responsible for,
and the Customer shall indemnify and hold the Bank harmless from and against,
any and all losses, damages, costs, reasonable attorneys' fees and expenses,
payments, expenses and liabilities incurred by the Bank, any of its agents, or
the Customer's agents in the performance of its/their duties hereunder,
including but not limited to those arising out of or attributable to:
(i) any and all actions of the Bank or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reasonable reliance on or use by the Bank or its officers
or agents of information, records, or documents which are received by the Bank
or its officers or agents and furnished to it or them by or on behalf of the
Customer, and which have been prepared or maintained by the Customer or any
third party on behalf of the Customer;
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(iii) the Customer's refusal or failure to comply with the material
terms of this Agreement or the Customer's lack of good faith, or its actions, or
lack thereof, involving negligence or willful misfeasance;
(iv) the breach of any material representation or warranty of the
Customer hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, or reliance by the Bank, its officers or agents on telephone or
other electronic instructions of any person acting on behalf of a shareholder or
shareholder account for which telephone or other electronic services have been
authorized, provided the Bank, its officers or agents complies with all laws
relating to the taping or other form of recording of telephone conversations;
(vi) the reliance on or the carrying out by the Bank or its officers
or agents of any proper instructions reasonably believed to be duly authorized,
or requests of the Customer or recognition by the Bank or its officers or agents
of any share certificates which are reasonably believed to bear the proper
signatures of the officers of the Customer and the proper countersignature of
any transfer agent or registrar of the Customer;
(vii) any delays, inaccuracies or omissions from information or data
provided to the Bank or its officers or agents by data services, corporate
action services, Services or securities brokers and dealers;
(viii) the offer or sale of shares by the Customer in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions or omissions by the Customer or its other service providers
and agents, or (2) existing or arising out of activities, actions or omissions
by or on behalf of the Customer prior to the effective date of this Agreement;
(ix) any failure of the Customer's registration statement to
materially comply with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and any other applicable laws, or any untrue statement
of a material fact or omission of a material fact necessary to make any
statement therein not misleading in a Customer's prospectus; and
(x) the actions taken by the Customer, and its investment advisers,
in compliance with applicable securities, tax, commodities and other laws, rules
and regulations, or the failure to so comply.
(c) In performing the services required under Section II. hereof, the Bank
shall be entitled to rely on any Oral or Written Instructions, notices or other
communications,
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including electronic transmissions, from the Customer and its officers and
trustees, investors, agents and other service providers which the Bank or its
agents reasonably believes to be genuine, valid and authorized, and shall be
indemnified by the Customer for any loss or expense caused by such reliance.
The Bank shall also be entitled to consult with and rely on the advice and
opinions of outside legal counsel retained by the Customer, as necessary or
appropriate.
(d) The Bank shall indemnify and hold the Customer and the Series harmless
from and against any and all losses, damages, costs, charges, reasonable
attorneys' fees and expenses, payments, expenses and liabilities arising out of
or attributable to the Bank's refusal or failure to comply with the material
terms of this Agreement; the Bank's breach of any material representation made
by it herein; or the Bank's lack of good faith or acts involving negligence,
willful misfeasance or reckless disregard of its duties under this Agreement.
(e) The provisions of this Section III.2. shall survive the termination of
this Agreement.
3. INDEMNIFICATION.
(a) In connection with any indemnification required under this Section
III., the party seeking indemnification ("Indemnified Party") shall give written
notice within a reasonable period of time to the other party ("Indemnifying
Party") of a written assertion or claim of any threatened or pending legal
proceeding which may be subject to this indemnification. The failure to so
notify the Indemnifying Party of such written assertion or claim shall not,
however, operate in any manner whatsoever to relieve the Indemnifying Party of
any liability arising from this Section III. or otherwise, except to the extent
failure to give notice prejudices the Indemnifying Party.
(b) For any legal proceeding giving rise to indemnification under this
Agreement, the Indemnifying Party shall be entitled to defend or prosecute any
claim in the name of the Indemnified Party at its own expense and through
counsel of its own choosing if it gives written notice to the Indemnified Party
within fifteen (15) business days of receiving notice of such claim.
Notwithstanding the foregoing, the Indemnified Party may participate in the
litigation at its own expense through counsel of its own choosing. If the
Indemnifying Party chooses to defend or prosecute such claim, then the parties
shall cooperate in the defense or prosecution thereof and shall furnish such
records and other information as are reasonably necessary.
(c) The provisions of this Sub-section 3 shall survive the termination of
this Agreement.
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4. USE OF OTHER PARTIES BY THE BANK.
(a) In furnishing the services required to be provided under Section II.
of this Agreement, the Bank may, upon prior written approval of Customer, sub-
contract with other parties ("Other Parties") for the provision of all or such
part of those services as Bank deems appropriate. In the event that the Bank
utilizes the services of Other Parties in performing the functions required to
be performed by it as set forth in Section II. of this Agreement, the Bank shall
be responsible for the actions of such Other Parties to the same extent as if
the Bank performed such functions. Termination of such Other Parties may be made
only upon prior written approval of Customer.
(b) To the extent the Bank contracts with Other Parties to perform
services required by Section II., of this Agreement, Bank is authorized to make
representations in writing to such Other Parties concerning the Customer only
(i) to the same extent as the Customer makes representations and warranties to
the Bank in this Agreement; and (ii) concerning the obligations of Customer set
forth in Sub-section 4(c) of this Agreement.
(c) The Customer and the Bank agree that to the extent the Bank utilizes
Other Parties to perform certain functions called for by Section II. of this
Agreement, the Customer may communicate directly with such Other Parties and
agrees to pay the direct Customer expenses set forth in Schedule F.
(d) To the extent the Bank contracts with Other Parties to perform any of
the functions required under Section II. of this Agreement and is required
pursuant to contracts with such Other Parties to supply documents to such Other
Parties relating to the Customer, the Customer shall supply such documents to
the Bank upon reasonable request.
5. REPRESENTATIONS AND WARRANTIES OF CUSTOMER.
The Customer represents and warrants to Bank that:
(a) the Customer is a business trust duly organized and existing and in
good standing under the laws of the State of Delaware;
(b) the Customer is an open-end investment company properly registered
under the 1940 Act; and
(c) all records and regulatory filings of the Customer have been properly
maintained or made in accordance with applicable laws.
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6. REPRESENTATIONS OF BANK
The Bank represents and warrants to the Customer that:
(a) the Bank is a New York State Chartered Trust Company duly organized
and existing and in good standing under the laws of New York;
(b) the Bank is empowered under applicable laws and by its Charter
Document and By-Laws to enter into and perform this Agreement;
(c) all requisite proceedings have been taken to authorize the Bank to
enter into and perform this Agreement;
(d) the Bank is not a party to any pending or threatened legal proceedings
which would impair its ability to perform the duties and obligations called for
by this Agreement; and
(e) the Bank will only sub-contract with an Other Party to perform
services under this Agreement if such Other Party:
(i) is duly organized, existing and in good standing under the laws
of its state of organization;
(ii) is duly qualified to carry on its business wherever it is
legally required to be so qualified;
(iii) is empowered under applicable laws and by its charter documents
and By-Laws to perform the functions required under Section II. of this
Agreement which the Bank has contracted with it to provide;
(iv) has and will continue to have access to the facilities,
personnel and equipment required to fully perform the functions which the Bank
has contracted with it to provide; and
(v) is not a party to any pending or threatened legal proceedings
which would impair such Other Party's ability to perform the duties and
obligations which the Bank has contracted with it to provide.
7. FEES AND EXPENSES.
(a) The Customer agrees to pay the Bank or its agents for all services to
be provided under this Agreement such amount as may be agreed upon in writing
and as set forth on Schedule F. For any amount of fees that has not been
contested in accordance with Sub-section (e) of this Section III.7., the Bank
shall have a lien on and is authorized to
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charge the Account of any Series for any amount owing to the Bank by Customer on
behalf of such Series under any provision of this Agreement. The fee schedule
agreed to and as set forth on Schedule F shall be fixed for a period of three
years from the date hereof.
(b) The Bank is, and any Subcustodians are, authorized to charge the
Account of any Series for such items and the Bank shall have a lien, charge and
security interest on any and all Assets of such Series for any amount owing to
the Bank with respect to such Series from time to time under this Agreement.
(c) The Customer may from time to time request additional services,
additional processing, or special reports. The Customer shall submit such
requests in writing together with such specifications and requirements
documentation as may be reasonably required by the Bank. If the Bank elects to
provide such services or arrange for their provision, it shall be entitled to
additional fees and expenses at its customary rates and charges. The Bank's
agreement to perform such additional services shall not be unreasonably
withheld.
(d) The Bank will render, after the close of each month in which services
have been furnished, a statement reflecting all of the charges for such month.
Undisputed charges remaining unpaid after sixty (60) days shall bear interest in
finance charges equivalent to, in the aggregate, the Prime Rate (as determined
by the Bank) plus two percent per year and all costs and expenses of effecting
collection of any such sums, including reasonable attorney's fees, shall be paid
by the Customer to the Bank.
(e) In the event that the Customer is more than ninety (90) days
delinquent in its payments of monthly billings in connection with this Agreement
(with the exception of specific amounts which may be reasonably contested by the
Customer), this Agreement may be terminated upon sixty (60) days' written notice
to the Customer by the Bank. The Customer must notify the Bank in writing of any
contested amounts within thirty (30) days of receipt of a billing for such
amounts. Disputed amounts are not due and payable while they are being
investigated.
8. RECORDS; PROPRIETARY NATURE; DUTY TO MAINTAIN; ACCESS AND INSPECTION;
REPORT ON INTERNAL ACCOUNTING CONTROLS.
(a) Proprietary Nature. The Bank agrees that all accounts, books and
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records of the Bank relating thereto, in its capacity as Custodian under this
Agreement, are the property of the Bank. The Bank agrees that all accounts,
books and records of the Customer maintained in its capacity as Administrative,
Accounting Services and Transfer Agent pursuant to Section 31 of the 1940 Act
and Rule 31a-1 and 31a-2 are the property of the Customer. All books and
records maintained in accordance with this Agreement shall be open to inspection
and audit at all reasonable times during normal business hours by any person
designated by the Customer. All such accounts, books and records shall be
maintained and preserved in the form acceptable to and the periods prescribed by
the Customer and in accordance with and for the periods prescribed by the 1940
Act and the
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Rules and Regulations thereunder, including, without limitation, Section 31
thereof and Rules 31a-1 and 31a-2 thereunder.
(b) Access and Inspection. The Bank shall assist the Customer, the
---------------------
Customer's independent auditors, or, upon approval of the Customer, any
regulatory body, in any requested review of the Customer's or Series' accounts,
books and records maintained by the Bank in its capacity as Custodian,
Administrative, Accounting or Transfer Agent. The Bank shall be reimbursed by
the Customer for all reasonable expenses incurred in connection with any such
review, other than routine and normal periodic reviews and audits. Bank, in its
capacity as Accounting Agent, will supply the necessary data for the Customer's
or an independent auditor's completion of any necessary tax returns,
questionnaires, periodic reports to shareholders and such other reports and
information requests as the Customer and the Bank shall agree upon from time to
time. In case of any other request or demand for the inspection of any
accounts, books or records maintained by the Bank on Customer's behalf, the Bank
shall not permit such inspection except upon prior written approval of Customer,
which approval shall not be unreasonably withheld.
(c) Records of Subcustodians. Subject to restrictions under applicable
------------------------
law, the Bank shall also obtain from each Subcustodian an undertaking to permit
the Customer's independent public accountants reasonable access to the records
of each Subcustodian which has physical possession of any Assets, as may be
required in connection with the examination of the Customer's books and records.
(d) Report on Internal Accounting Controls. Upon reasonable request from
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the Customer, the Bank shall furnish the Customer such reports (or portions
thereof) of the Bank's system of internal accounting controls (SAS-70)
applicable to the Bank's duties under this Agreement. The Bank shall use its
reasonable efforts to obtain and furnish the Customer with such similar reports
as it may reasonably request with respect to each Subcustodian and securities
depository holding the Customer's assets.
9. MISCELLANEOUS.
(a) Foreign Exchange Transactions. To facilitate the administration of the
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Customer's trading and investment activity, the Bank is authorized to enter into
spot or forward foreign exchange contracts with the Customer or an Authorized
Person for the Customer on behalf of a Series on a principal and agency basis
and may also provide foreign exchange through its subsidiaries, affiliates,
Subcustodians or third parties. Instructions, including standing instructions,
may be issued with respect to such contracts but the Bank may establish rules or
limitations concerning any foreign exchange facility made available. In all
cases where the Bank, its subsidiaries, affiliates or Subcustodians enter into a
foreign exchange contract related to Accounts, the terms and conditions of the
then current foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply to
such transaction.
26
<PAGE>
(b) Certification of Residency, etc. The Customer certifies that it is a
--------------------------------
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications. The indemnification provisions of this Sub-section 9(b) shall
survive termination of this Agreement.
(c) Governing Law; Successors and Assign. This Agreement shall be
------------------------------------
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(d) Entire Agreement; Applicable Riders. This Agreement consists
-----------------------------------
exclusively of this document together with Schedule A1, Schedule A2, Schedules
B1, B2, B3, B4, Schedule C, Schedule D, Schedule E, and Schedule F. There are
no other provisions of this Agreement, and this Agreement supersedes any other
agreements, whether written or oral, between the parties. Any amendment to this
Agreement must be in writing, executed by both parties. With respect to the
services required to be provided under Section II. of this Agreement, the Bank
and the Customer may from time to time adopt such procedures to facilitate the
provision of such services, as agreed upon in writing.
(e) Severability. In the event that one or more provisions of this
------------
Agreement are held invalid, illegal or unenforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(f) Waiver. Except as otherwise provided in this Agreement, no failure or
------
delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(g) Notices. All notices under this Agreement shall be effective when
-------
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be furnished to the other party in
writing by certified or registered mail, unless otherwise specified in this
Agreement or in the Client Services Guide:
27
<PAGE>
Bank: Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, NY 11201
Attention: President
or facsimile: (718) 754-6160
Customer: The Brinson Funds
209 South LaSalle Street
Chicago, IL 60604-1295
Attention: President
or facsimile: (312) 554-3935
(h) Term and Termination.
--------------------
(i) This Agreement shall become effective on the date first written
above and shall continue in effect for an initial three year period. The
Agreement may be terminated in its entirety or as to Section I. or Section II.
only prior to the expiration of the initial term only if a party commits a
material breach of any term or condition hereof and any such breach is not cured
or rectified within ninety (90) calendar days after the party claiming the
breach shall have given written notice of such to the other party ("Curable
Breach") except that neither party shall have a right to cure a material breach
resulting from willful misconduct, reckless disregard or intentional misconduct
("Non-curable Breach"). In the event that a Curable Breach is not cured within
such ninety (90) day period, the party claiming a material breach shall have
thirty (30) days to notify the party committing the breach of its intention to
terminate this Agreement in accordance with subparagraph (ii) of Section
III.9.(h).
(ii) The Customer or the Bank may give notification of termination
to the other party following a Non-Curable Breach or following a Curable Breach
which has not been cured or after the initial three year period by giving ninety
(90) days written notice to the other, provided that such notice to the Bank
shall specify the names of the persons to whom the Bank shall deliver the Assets
in the Accounts; and further provided that, if Bank is the terminating party
(other than on account of a material breach hereof by Customer) Customer may
extend the termination period by up to an additional sixty (60) days by sending
prompt written notice ("Extension Notice") to Bank of its intent to do so
(including the number of additional days). If notice of termination is given by
the Bank, the Customer shall, within ninety (90) days (or such other amount of
days as is contemplated by the Extension Notice) following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver the
Assets to the persons so specified, after deducting any amounts which the Bank
determines in good faith to be owed to it under Sub-section 7 of Section III. of
this Agreement.
28
<PAGE>
If within ninety (90) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver the
Assets, the Bank, at its election, may deliver the Assets to a bank or trust
company doing business in any State within the United States to be held and
disposed of pursuant to the provisions of this Agreement, or to Authorized
Persons, or may continue to hold the Assets until Instructions are provided to
the Bank; provided, however, that the Bank shall have no obligation to settle
-------- -------
any transactions in securities for the Accounts following the expiration of the
ninety (90) day period referred to in this sentence except those transactions
which remained open prior to the expiration of such ninety (90) day period.
(iii) Termination as to One or More Series. This Agreement may be
------------------------------------
terminated as to one or more Series (but less than all of the Series) by
delivery of an amended Schedule B1 deleting such Series, in which case
termination as to such deleted Series shall take effect sixty (60) days after
the date of such delivery. The execution and delivery of an amended Schedule B1
which deletes one or more Series shall constitute a termination of this
Agreement only with respect to such deleted Series, shall be governed by the
preceding provisions of this Sub-section 9(h) of Section III. of this Agreement
as to the identification of a successor custodian and the delivery of Assets of
the Series so deleted to such successor custodian, and shall not affect the
obligations of the Bank and the Customer hereunder with respect to the other
Series set forth in Schedule B1, as amended from time to time.
(i) Several Obligations of the Series. With respect to any obligations of
---------------------------------
the Customer on behalf of the Series and their related Accounts arising out of
this Agreement, the Bank shall look for payment or satisfaction of any
obligation solely to the assets and property of the Series and such Accounts to
which such obligation relates as though the Customer had separately contracted
with the Custodian by separate written instrument with respect to each Series
and its related Accounts.
(j) Representations and Warranties. (A) The Customer represents and
------------------------------
warrants that (i) the execution, delivery and performance of this agreement
(including, without limitation, the ability to obtain the short-term extensions
of credit in accordance with Section I.5.) are within the Customer's and the
Series' power and authority and have been duly authorized by all requisite
action (corporate or otherwise) of the Customer, and (ii) this Agreement and
each extension of short-term credit extended to or arranged for the benefit of
any Series in accordance with Section I.5. shall at all times constitute a
legal, valid and binding obligation of the Customer on behalf of and solely from
the assets attributable to such Series and be enforceable against the Customer
on behalf of and solely from the assets attributable to such Series in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
29
<PAGE>
(k) The Bank represents and warrants that (i) the execution, delivery and
performance of this Agreement are within the Bank's power and authority and have
been duly authorized by all requisite action (corporate or otherwise) of the
Bank and (ii) this Agreement constitutes the legal, valid and binding obligation
of the Bank enforceable against the Bank in accordance with its terms, except as
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
(l) Force Majeure. Subject to reasonable compliance with the Bank's then-
-------------
existing disaster recovery plans, the Bank shall not be liable for any harm,
loss or damage suffered by the Customer, its investors, or other third parties
or for any failure or delay in performance of the Bank's obligations under this
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond the Bank's control. In the event of a force majeure, any resulting harm,
loss, damage, failure or delay by the Bank will not give the Customer the right
to terminate this Agreement.
(m) Confidentiality.
---------------
(i) Except to the extent necessary to perform the functions
required under this Agreement, the Bank, its agents and employees shall maintain
the confidentiality of information concerning any Assets held under this
Agreement, including in dealings with affiliates of the Bank. In the event the
Bank or any Subcustodian is requested or required to disclose any confidential
information concerning any such Assets, the Bank shall, to the extent
practicable and legally permissible, promptly notify the Customer of such
request or requirement so that the Bank may seek a protective order or waive any
objection to the Bank's or such Subcustodian's compliance with this Sub-section
9(m). In the absence of such a waiver, if the Bank or such Subcustodian is
compelled, in the opinion of its counsel, to disclose any confidential
information, the Bank or such Subcustodian may disclose such information to such
persons as, in the opinion of counsel, is so required.
(ii) The Customer shall maintain the confidentiality of, and not
provide to any third parties absent the written permission of the Bank, any
computer software, hardware or communications facilities made available to the
Customer or its agents by the Bank.
(iii) Neither the Bank nor any Other Party may create written or
other promotional materials and/or distribute such promotional materials to the
public or to prospective customers or clients which state that it is providing
services to the Customer or any of its affiliates in connection with this
Agreement without the prior verbal or written consent of the Customer, which
consent will not be unreasonably withheld. For purposes of Sub-section 9(m) of
this Agreement, the term "written or other promotional materials" shall mean any
(A) material prepared in connection with the solicitation of prospective or
existing customers; and (B) material published, or designed for use in, a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or
30
<PAGE>
billboards, motion pictures, telephone directories (other than routine
listings), electronic or other public media.
THE BRINSON FUNDS
By:________________________________
Title:
Date:
MORGAN STANLEY TRUST COMPANY
By:________________________________
Title:
Date:
31
<PAGE>
STATE OF ILLINOIS )
: SS.
COUNTY OF COOK )
On this ___________ day of ___________________________, 19__, before
me personally came ______________________________, to me known, who being by me
duly sworn, did depose and say that he/she resides in ________________________
at _________________________ that he/she is _______________________ of
______________________________, the entity described in and which executed the
foregoing instrument; that he/she knows the seal of said entity, that the seal
affixed to said instrument is such seal, that it was so affixed by order of said
entity, and that he/she signed his/her name thereto by like order.
___________________________________
Sworn to before me this ___________
day of _________________, 19__.
___________________________________
Notary
32
<PAGE>
STATE OF NEW YORK )
: SS.
COUNTY OF KINGS )
On this ___________ day of ___________________________, 19__, before
me personally came ______________________________, to me known, who being by me
duly sworn, did depose and say that he/she resides in ________________________
at _________________________; that he/she is a Vice President of
_______________________ the corporation described in and which executed the
foregoing instrument; that he/she knows the seal of said corporation, that the
seal affixed to said instrument is such corporate seal, that it was so affixed
by order of the Board of Trustees of said corporation, and that he/she signed
his/her name thereto by like order.
___________________________________
Sworn to before me this ___________
day of _________________, 19__.
___________________________________
Notary
33
<PAGE>
SCHEDULE A1
-----------
LIST OF SUBCUSTODIANS
---------------------
<TABLE>
<CAPTION>
COUNTRY SUB-CUSTODIAN
------- -------------
<S> <C>
Argentina Citibank N.A.
Australia Westpac Banking Corporation
Austria Creditanstalt-Bankverein
Bangladesh Standard Chartered Bank
Belgium Bank Brussels Lambert S.A.
Botswana Barclays Bank of Botswana Ltd.
Brazil Banco de Boston
Canada The Toronto-Dominion Bank
Canada Royal Bank of Canada*
Chile Citibank N.A.
China Hongkong and Shanghai Banking Corporation
Colombia Cititrust S.A.
Cote d'Ivoire Societe Generale
Cyprus Barclays Bank PLC
Czech Republic ING Bank N.V.
Denmark Den Danske Bank
Ecuador Citibank N.A.
Egypt Citibank N.A.
Estonia Hansabank**
Finland Merita Bank
France Banque Indosuez
Germany Dresdner Bank AG
Ghana Barclays Bank of Ghana Ltd.
Greece Citibank N.A.
Hong Kong Hongkong and Shanghai Banking Corporation
Hungary Citibank Budapest Rt.
India Standard Chartered Bank
India Hongkong and Shanghai Banking Corporation
India State Bank of India/Stock Holding Corporation of India Limited
India MSTC Mumbai Branch
Indonesia Hongkong and Shanghai Banking Corporation
Ireland Allied Irish Banks plc
Israel Bank Leumi
Italy Citibank N.A.
Japan The Bank of Tokyo-Mitsubishi Limited
</TABLE>
*Effective May 23, 1997
**Not an eligible foreign custodian under Rule 17f-5
34
<PAGE>
LIST OF SUBCUSTODIANS
---------------------
<TABLE>
<CAPTION>
COUNTRY SUB-CUSTODIAN
------- -------------
<S> <C>
Japan Morgan Stanley Japan Limited**
Jordan Arab Bank plc
Kenya Barclays Bank of Kenya Ltd.
Luxembourg Bank Brussels Lambert S.A.
Malaysia OCBC Bank (Malaysia) Berhad
Mauritius Hongkong and Shanghai Banking Corporation
Mexico Citibank Mexico S.A.
Morocco Banque Commerciale du Maroc
Netherlands ABN AMRO Bank N.V.
New Zealand ANZ Banking Group (New Zealand) Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Papua New Guinea Westpac Banking Corporation
Peru Citibank N.A.
Philippines Hongkong and Shanghai Banking Corporation
Poland Citibank Poland S.A.
Portugal Banco Comercial Portugues
Russia Credit Suisse (Moscow) Ltd.
Singapore Oversea-Chinese Banking Corporation Limited
Slovakia ING Bank N.V.
South Africa First National Bank of Southern Africa, Ltd.
South Korea Standard Chartered Bank
Spain Banco Santander
Sri Lanka Hongkong and Shanghai Banking Corporation
Swaziland Barclays Bank of Swaziland Ltd.
Sweden Svenska Handelsbanken
Switzerland Bank Leu Limited
Taiwan Hongkong and Shanghai Banking Corporation
Thailand Standard Chartered Bank
Tunisia Banque Internationale Arabe de Tunisie**
Turkey Citibank N.A.
UK Barclays Bank PLC
USA Chase Manhattan Bank
Uruguay Citibank N.A.
Venezuela Citibank N.A.
Zambia Barclays Bank of Zambia Ltd.
Zimbabwe Barclays Bank of Zimbabwe Ltd.
</TABLE>
**Not an eligible foreign custodian under Rule 17f-5
35
<PAGE>
SCHEDULE A2
-----------
LIST OF SECURITIES DEPOSITORIES OR CLEARING AGENCIES
----------------------------------------------------
<TABLE>
<CAPTION>
COUNTRY CENTRAL DEPOSITORY
------- ------------------
<S> <C> <C>
Argentina Caja de Valores
Australia CHESS Clearing House Electronic
Subregister System
Austria OKB OsterreicheKontrollbank
Bangladesh None
Belgium CIK Caisse Interprofessionelle de
Depots et de Virements de
Titres
Botswana None
Brazil BOVESPA Bolsa de Valores de Sao Paulo
BVRJ Bolsa de Valores de Rio de
Janeiro
CETIP - fixed income Central de Custodia e
Liquidacao Financeira de
Titulos
SELIC - fixed income Sistema Especial de Liquidacao
e Custodia
Canada CDS The Canadian Depository for
Securities
Chile Depositorio Central de
Valores
China SSCCRC Shanghai Securities Central
Clearing and Registration
Corporation
SSCC Shenzhen Securities Central
Clearing Company Ltd.
Colombia DCV - central bank Deposito Central de Valores
securities
DECEVAL - fixed income
securities
Cote d'Ivoire None
Cyprus None
Czech Republic SCP Stredisko cennych papiru
(Center for Securities)
Denmark VP Vaerdipapircentralen
Ecuador None
Egypt None
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
COUNTRY CENTRAL DEPOSITORY
------- ------------------
<S> <C> <C>
Finland None
France SICOVAM Societe Interprofessionelle pour
la Compensation des Valeurs
Mobilieres
Germany DKV Deutscher Kassenverein AG
Ghana None
Greece Apothetirio Titlon A.E.
Hong Kong CCASS Central Clearing and Settlement
System
Hungary KELER Kozponti Elszamolohas es
Ertktar (Budapest) Rt.
India National Securities National Securities Depository
Depository Limited Limited
Indonesia KDEI Kustodian Depositari Efek
Indonesia
Ireland CGO - gilts only Central Gilts Office
Israel SECH (for securities Stock Exchange Clearing House
listed
on the Tel Aviv Stock
Exchange)
Italy Monte Titoli S.P.A.
Banco d'Italia
Japan JASDEC Japan Securities Depository
Center
Jordan None
Kenya None
South Korea KSD Korean Securities Depository
Luxembourg None
Malaysia MCD Malaysian Central Depository
Mauritius None
Mexico S.D. INDEVAL, S.A.
Morocco None
Netherlands NECIGEF Netherlands Central Institute for
Giral Effectenclearing
New Zealand
NZCSD New Zealand Central Securities
Depository
Norway VPS Verdipapirsentralen
Pakistan CDC Central Depository Company of
Pakistan
Papua New CHESS Clearing House Electronic
Guinea Subregister System
Peru Caja de Valores Caja de Valores de Lima
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
COUNTRY CENTRAL DEPOSITORY
------- ------------------
<S> <C> <C>
Philippines PCD Phillippine Central Depository
Poland NDS National Depository of
Securities
Portugal CENTRAL
Russia None
Singapore CDP Central Depository Pte Ltd.
Slovak Republic SCP Stredisko cennych papierov
Slovenskej Republiky (Center
for Securities)
South Africa Central Depository Ltd.
Spain SCLV Servicio de Compensacion y
Liquidacion de Valores
Sri Lanka CDS Central Depository System Pvt
Ltd.
Swaziland None
Sweden VPS Vardipapperscentralen
Switzerland SEGA Schweizerische EffektenGiro
AG
Taiwan TSCD Taiwan Securities Depository
Co.
Thailand SDC or TSD Thailand Securities
Depository
Center
Tunisia
Turkey None
United Kingdom CGO - gilts only Central Gilts Office
CREST
United States DTC Depository Trust Company
Uruguay None
Venezuela None
Zambia Lusaka Stock Exchange
Depository
Zimbabwe None
</TABLE>
38
<PAGE>
SCHEDULE B1
-----------
LIST OF SERIES OF THE BRINSON FUNDS
-----------------------------------
Global Fund
Global Equity Fund
Global Bond Fund
U.S. Balanced Fund
U.S. Equity Fund
U.S. Bond Fund
Non-U.S. Equity Fund
39
<PAGE>
SCHEDULE B2
-----------
LIST OF DOCUMENTS TO BE PROVIDED BY CUSTOMER TO BANK
----------------------------------------------------
REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES (INCLUDING TAX RECLAIMS):
- ---------------------------------------------------------------------------
CUSTODY AGREEMENT
CLIENT SERVICES GUIDE (INCLUDING APPENDICES)
FEE SCHEDULE/BILLING GUIDE
GENERAL ACCOUNT INFORMATION
US TAX AUTHORITY DOCUMENTATION
LOCAL TAX OFFICE LETTER/APPLICATION LETTER
(NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FORM 6166/REQUEST FOR FOREIGN CERTIFICATION FORM
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL RESIDENCY, TAX STATUS
AND TAX IDS
TAX RECLAIM POWER OF ATTORNEY
PREVIOUS TAX RECLAIM FILING INFORMATION
(PREVIOUS FILERS, ONLY)
UK TAX AUTHORITY DOCUMENTATION
SOPHISTICATED INVESTOR (ACCREDITED INVESTOR LETTER)
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
40
<PAGE>
DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS TAX-EXEMPT BY ITS
- -----------------------------------------------------------------------------
LOCAL TAX AUTHORITY:
- -------------------
UK FORM 4338
(EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY)
UK FORM 309A
(EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FOREIGN EXEMPTION LETTERS/APPLICATION FOR AUSTRALIAN EXEMPTION LETTER
(EXEMPT BENEFICIAL OWNERS, ONLY)
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN CERTAIN SECURITIES:
- --------------------------------------------------------------------------
THAI AUTHORIZATION LETTER
JGB INDEMNIFICATION LETTER
KOREAN SECURITIES POWER OF ATTORNEY
NEW ZEALAND "APPROVED ISSUER LEVY" LETTER
SPANISH POWER OF ATTORNEY WITH APOSTILE
ITALIAN GOVERNMENT BOND LETTER
UK STAR LETTER
41
<PAGE>
SCHEDULE B3
-----------
LIST OF AUTHORIZED PERSONS
--------------------------
NAME SIGNATURE
---- ---------
42
<PAGE>
SCHEDULE B4
-----------
DESIGNATED SYSTEM USER ID NUMBERS
---------------------------------
<TABLE>
<CAPTION>
ACCOUNT ACCOUNT
MNEMONIC NUMBER ACCOUNT NAME FUND TYPE
<S> <C> <C> <C>
42 BMFD 00043006 U.S. Bond Mutual Fund Mutual Fund
43 MFB1 00043007 Segregated Segregated
44 MFB2 00043008 When Issued TBA Segregated
45 BMFE 00043009 U.S. Equity Mutual Fund Mutual Fund
46 MFE1 00043010 Segregated Segregated
47 BMFN 00043011 Non-U.S. Equity Mutual Fund Mutual Fund
48 MFN1 00043012 Segregated Segregated
49 MFN2 00043013 Secured Segregated
50 MFN3 00043014 Currency Segregated
51 BBMF 00043015 U.S. Balanced Mutual Fund Mutual Fund
52 BMF1 00043016 Segregated Segregated
53 BMF2 00043017 Segregated Segregated
54 BMF3 00043018 When Issued TBA's Segregated
55 BGEM 00043019 Global Equity Mutual Fund Mutual Fund
56 GEM1 00043020 Segregated Segregated
57 GEM2 00043021 Secured Segregated
58 GEM3 00043022 Currency Segregated
59 BGMM 00043023 Global Bond Mutual Fund Mutual Fund
60 GMM1 00043024 Segregated Segregated
61 GMM2 00043025 Secured Segregated
62 GMM3 00043026 When Issued TBA Segregated
63 GMM4 00043027 Currency Segregated
64 BGMF 00043028 Global Mutual Fund Mutual Fund
65 GMF1 00043029 Segregated Segregated
66 GMF2 00043030 Secured Segregated
67 GMF3 00043031 When Issued TBA's Segregated
68 GMF4 00043032 Currency Segregated
</TABLE>
43
<PAGE>
SCHEDULE C
----------
THE BRINSON FUNDS
-----------------
GENERAL DESCRIPTION OF FUND ADMINISTRATIVE SERVICES
---------------------------------------------------
I. REGULATORY COMPLIANCE
---------------------
A. Compliance - Federal Investment Company Act of 1940
1. Review, report and renew
a. Investment advisory contracts
b. File and monitor compliance of fidelity bond
c. Underwriting contract
d. Distribution (12b-1) plans (class specific)
e. Multiple Services Agreement
2. Filings
a. N-SAR (semi-annual report and annual report) (series and
class specific)
b. Initial registration statement on Form N1-A, post-effective
amendments on Form N-1A, and supplements ("stickers")
c. Notice pursuant to Rule 24f-2 (registration of indefinite
number of shares
d. Filing fidelity bond under Rule 17g-1
e. Filing shareholders reports under Rule 30b2-1
f. Proxy statement, when necessary
3. Annual up-dates of biographical information and questionnaires
for Trustees and Officers, coordinated with the Brinson
Relationship Funds' questionnaire.
B. Compliance - State "Blue Sky" (classes deemed separate funds for
filing purposes)
1. Blue Sky (state registration)
a. Registration shares (initial/renewal)
b. Monitor sales shares
c. Report shares sold
d. Filing of federal registration statements and contracts
e. Filing annual and semi-annual reports with states
44
<PAGE>
SCHEDULE C
----------
C. Compliance - Prospectus
1. Analyze and review portfolio reports from Adviser regarding:
a. compliance with investment objectives, although primary
responsibility for such compliance will be with the
investment adviser or investment manager.
b. maximum investment by company/industry, although primary
responsibility for such compliance will be with the
investment adviser or investment manager.
D. Compliance - Exemptive Orders and No-Action Letters
1. Monitor compliance with all exemptive orders and no-action
letters, although primary responsibility for such compliance will
be with the investment adviser or investment manager.
II. CORPORATE BUSINESS AND SHAREHOLDER/PUBLIC INFORMATION
-----------------------------------------------------
A. Trustees/Management
1. Preparation of meetings
a. agendas and resolutions - all necessary items of compliance
b. compile and distribute Board materials
c. attend and record minutes of meetings
d. keep attendance records
e. maintain corporate records/minute book
2. Preparation and distribution of periodic operation reports to
management
B. Maintain Corporate Calendars and Files
1. General
2. Blue Sky
C. Release Corporate Information
1. To shareholders
2. To financial and general press
3. To industry publications
a. distributions (dividends and capital gains)
b. tax information
c. changes to prospectus
d. letters from management
45
<PAGE>
SCHEDULE C
----------
e. performance information (class specific)
4. Respond to:
a. financial press, as authorized
b. miscellaneous shareholder inquiries
c. industry questionnaires
5. Prepare, maintain and update monthly information manual
D. Communications to Shareholders
1. Coordinate printing and distribution of annual and semi-annual
reports, proxy statements when applicable and prospectuses
E. Shareholder Meetings
1. Assist with Preparation of proxy (matters to be voted on may be
class specific)
2. Preparation of minutes and record ballot results
III. FINANCIAL AND MANAGEMENT REPORTING
----------------------------------
A. Income and Expenses (class specific when applicable)
1. Preparation of monthly expense analysis (class specific)
2. Expense figures calculated and accrual levels set (class
specific)
3. Monitoring of expenses paid and expense caps (monthly)
4. Approve and process the payment of authorized expenses
5. Checking Account Reconciliation (monthly)
6. Write checks to pay vendors
7. Calculation and payment of advisory fees
B. Distributions to Shareholders (if applicable)
1. Projections of distribution amounts
a. compliance with Sub-Chapter M income tax provisions
b. compliance with excise tax provisions - schedules prepared
2. Compilation of distributions for tax reporting for shareholders'
Form 1099
C. Financial Reporting
1. Liaison between fund management and auditors
46
<PAGE>
SCHEDULE C
----------
2. Preparation of unaudited and audited financial statements to
shareholders (semi-annually) (class specific, when applicable)
- Statement of Assets and Liabilities - shares, TNA and NAV at
class level
- Statement of Operations - prepared at fund level
- Statement of Changes in Net Assets - distributions and
capital stock at class level
- Financial Highlights (class specific)
- per share data/analysis (class specific)
- Footnotes
- Schedule of Investments
3. 60 day delivery to SEC and shareholders
4. Preparation of semi-annual and annual N-SARs and Financial Data
Sheet (Financial Information)
5. Preparation of Post-effective financial statements (if
applicable)
6. Provide work area for auditors
D. Other Financial Analyses
1. Sales information, portfolio turnover (monthly)
2. Performance Calculations (monthly) (class specific)
3. 1099 Miscellaneous - prepared for Directors/Trustees (annually)
4. 1099 Dividend insert card prepared - coordinate printing and
mailing (annually)
5. 1099-DIV Form - validate per share amounts and tax status
(annually)
E. Review and Monitoring Functions
1. Review accruals and reclassification entries (class specific)
2. Review Financial Reporting generated entries to ensure proper
update by accounting, ensure proper money movement by reviewing
daily bank statements, expense analysis. Review capital stock
reconciliations.
3. Asset Diversification (Sub-Chapter M and 1940 Act) and Income
Qualification Tests (Sub-Chapter M)
47
<PAGE>
SCHEDULE C
----------
F. Preparation and distribution of monthly operational reports to
management by 10th business day
1. Management Statistics (Recap) -when applicable
a. portfolio (including top ten holdings)
b. book gains/losses/per share
c. net income, book income/per share
d. share/shareholders
e. distributions
2. Performance Analysis (per class)
a. total return
b. monthly, quarterly, year to date, average annually
c. calculation of SEC yield
3. Short-Short Analysis
a. short-short income
b. gross income (components)
4. Portfolio Turnover
a. market value
b. cost of purchases
c. net proceeds of sales
d. average market value
5. Asset Diversification Test
a. gross assets
b. non-qualifying assets
c. 5% issuers
6. Activity Summary
a. shares sold, redeemed and reinvested
b. change in investment
c. change in price per share
d. net sales
7. Expense Ratios - (per class)
a. per quarter
b. semi-annual
c. annual
G. Provide rating agencies with statistical data on a monthly and
quarterly basis
48
<PAGE>
SCHEDULE C
----------
H. For Money Market Funds -weekly Mark-to-Market review
- 5% test
- NAV variance
IV. SPECIAL ISSUES RELATED TO FOREIGN INVESTMENTS
---------------------------------------------
A. Financial Reporting
1. Review and monitor treatment of currency gain/loss and capital
gain/loss
a. section 988 transactions
b. section 1256 contracts
c. section 1092 deferrals
d. maintain reconciliation of portfolio forward realized
gains/losses
B. Tax Reporting (work closely with the Funds' independent audit firm)
1. Determine tax treatment of foreign investments and their impact
on taxable income and capital gains
2. Calculate distributions to shareholders (if applicable)
a. monitor character and impact of realized currency gain/loss
on distribution amount
b. adherence to 988(a)(1)(b) election (if applicable)
c. identify and compute book/tax difference
d. preparation of distribution worksheet
3. Calculate income (reclaims) and expenses (tax withheld) by
country in order to determine foreign tax credit available to
shareholders (if appropriate)
4. Work with the advisor and independent audit firm in the
identification of Passive Foreign Investment Companies (if
appropriate), although primary responsibility will be with the
investment adviser or investment manager
5. Calculate Dividend Received Deduction available to corporate
shareholders and analyze domestic equity security holding periods
6. Preparation and maintenance of straddle schedules
7. Identification and compliance with the mark-to-market rules
49
<PAGE>
SCHEDULE C
----------
8. Prepare return of capital worksheet for financial statement
presentation with auditor review/discussion, if necessary
9. Provide schedules to auditors for audit/tax review to enable the
audit firm to prepare and file the necessary tax forms (1120,
8613, K-1, etc.)
V. OTHER ADMINISTRATIVE SERVICES WHICH MAY BE PERFORMED BY OTHER PARTY
-------------------------------------------------------------------
A. The provision of information to the Funds with respect to regulatory
matters, including monitoring regulatory and legislative developments
that may affect the Funds and assisting the Funds in routine
regulatory examinations or investigations.
B. Assistance in the Funds' operations and provision of customary
administration services.
C. In connection with the foregoing activities, maintenance of an office
facility; and
D. In connection with the foregoing activities, the furnishing of
clerical services and internal executive and administrative services,
and office supplies.
50
<PAGE>
SCHEDULE D
----------
THE BRINSON FUNDS
-----------------
DESCRIPTION OF FUND ACCOUNTING SERVICES
---------------------------------------
DAILY ACCOUNTING SERVICES
--------------------------
1) Maintain the books and records of each Series and each Class within the
-----------------------------------------------------------------------
Series.
------
2) Calculate Net Asset Value (and Offering Price) Per Share, at both a Series
--------------------------------------------------------------------------
level and on Class level:
------------------------
. Enter manual prices supplied by Customer and/or broker.
. Review variance reporting on-line and in hard copy for price changes
in individual securities using variance levels established by
Customer. Verify US dollar security prices exceeding variance levels
by notifying Customer and pricing sources, of noted variance.
. Complete daily variance review on foreign exchange rates and local
foreign prices. Notify Customer of changes exceeding established
levels for the Customer's verification.
3) Reconcile and Record All Daily Expense Accruals; on a Series level and on
-------------------------------------------------------------------------
Class level.
-----------
4) Verify and Record All Daily Income Accruals for Debt Issues, on a Series
------------------------------------------------------------------------
level and on Class level, if necessary.
--------------------------------------
5) Record Corporate Action, Cash Dividends and Capital changes on Securities,
--------------------------------------------------------------------------
on a Series level and on Class level.
------------------------------------
6) Record all Security Trades based on instruction from the Customer, on a
-----------------------------------------------------------------------
Series level and Class level.
----------------------------
7) Record All Series Share Transactions.
------------------------------------
8) Review and Reconcile With Custodian Statements:
----------------------------------------------
. Track status of past due items and failed trades handled by the
Custodian.
51
<PAGE>
SCHEDULE D
----------
9) Submission of Daily Accounting Reports as agreed to from time to time by
------------------------------------------------------------------------
Bank and Customer:
-----------------
. Bank represents that all Customer Information, in whatever form, is
the property of the Customer.
MONTHLY ACCOUNTING SERVICES
---------------------------
1) For the Series, full Financial Statement Preparation (automated Statements
--------------------------------------------------------------------------
of Assets and Liabilities, of Operations and of Changes in Net Assets) and
--------------------------------------------------------------------------
submission to Customer by 10th Business Day.
-------------------------------------------
. Class specific capital share activity and expenses will be disclosed
also.
2) Submission of Monthly Reports Series Level:
------------------------------------------
. Security Purchase/Sales Journal.
. Interest and Maturity Report.
. Brokers Ledger (Commission Report).
. Security Ledger Transaction Report with Realized Gains/Losses.
. Security Ledger Tax Lot Holdings Report.
. Additional reports available upon request.
3) Reconcile Accounting Asset Listing to Custodian Asset Listing:
-------------------------------------------------------------
Series Level
. Report any security balance discrepancies to the Custodian/Customer.
4) Provide Monthly Analysis and Reconciliation of Additional Trial Balance
-----------------------------------------------------------------------
Accounts, such as:
-----------------
Series Level
. Security cost and realized gains/losses.
. Interest/dividend receivable and income.
. Payable/receivable for securities purchased and sold.
. Unrealized and realized currency gains/losses.
Series and Each Class
. Payable/receivable for Fund shares; issued and redeemed
. Expense payments and accruals analysis
52
<PAGE>
SCHEDULE D
----------
ANNUAL (AND SEMI-ANNUAL) ACCOUNTING SERVICES
--------------------------------------------
1) Assist and supply auditors with schedules supporting securities and
shareholder transactions, income and expense accruals, etc. for the Series
and each Class during the year in accordance with standard audit assistance
requirements. Provide reasonable space and necessary personnel to
accommodate auditors.
2) Provide NSAR Reporting (Accounting Questions).
---------------------------------------------
3) If Appropriate, Prepare and Submit Annually During the Excise Reporting
-----------------------------------------------------------------------
Period (October-December) to the Customer at the Series level:
-------------------------------------------------------------
. Income by state reporting.
. Standard Industry Code Valuation Report.
. Alternative Minimum Tax Income segregation schedule.
53
<PAGE>
SCHEDULE E
----------
THE BRINSON FUNDS
-----------------
DESCRIPTION OF TRANSFER AGENCY
------------------------------
I. SHAREHOLDERS FILE
1. Establish new accounts and enter demographic data into shareholder
base. Includes review and file maintenance for all NSCC originated
registration and data changes for FundServ, Networking and ACTS
accounts for compliance with Investar customer file requirements.
2. Create Combined Statement File to link accounts within the Fund and
across funds within the Fund Group. Facilitates account maintenance,
lead tracking, quality control, household mailings and combined
statements.
3. Systematic linkage of shareholder accounts with exact matches on
Social Security Number and address for the purpose of consolidated
account history reporting. Monthly production of laser printed
combined statements.
4. Production of mailing labels which enable the Fund to do special
mailings to each address in the Fund Group rather than each account.
5. Maintain account and customer file records based on shareholder
request and routine quality review.
6. Maintain tax ID certification and NRA records for each account,
including backup withholding.
7. Produce shareholder statements for daily activity, dividends, on-
request, third party and monthly mailings.
8. Produce shareholder lists, labels and ad hoc reports to Fund
management as requested.
9. Automated processing of dividends and capital gains with daily,
monthly, quarterly or annual distributions. Payment options include
reinvestment, directed payment to another fund, cash via mail, Fed
wire or ACH.
10. Coordination of registration of the Funds with the National Securities
Clearing Corporation ("NSCC") and filing of required Fund/SERV reports
with the NSCC.
54
<PAGE>
SCHEDULE E
----------
II. SHAREHOLDER SERVICES
1. Answer shareholder calls: provide routine account information,
transaction details including direct and wire purchases, redemptions,
exchanges, systematic withdrawals, pre-authorized drafts, Fund SERV
and wire order trades, problem solving and process telephone
transactions.
2. Customized recording of fund prices daily after regular business hours
for shareholder access.
3. Silent monitoring of shareholder class by the phone supervisor to
ensure quality of customer service.
4. Record and maintain tape recordings of all shareholder calls for a six
month period.
5. Systematic production of daily management reports of shareholder calls
which track volumes, length of calls, average wait time and abandoned
call rates to ensure quality service.
6. Customer inquiries received by letter or telephone are researched by a
correspondence team member. These inquires include such items as,
account/customer file information, complete historical account
information, stop payments on checks, transaction details and lost
certificates.
III. INVESTMENT PROCESSING
1. Initial and subsequent investments by checks, Fed wire, or Automated
Clearing House ("ACH").
2. Pre-authorized investment (PAD) through ACH system.
3. Prepare and process daily bank deposit of shareholder investments.
4. NSCC - FundSERV and networking trades.
IV. REDEMPTION PROCESSING
1. Process letter redemption requests.
2. Process telephone redemption transactions.
55
<PAGE>
SCHEDULE E
----------
3. Establish Systematic Withdrawal File and process automated
transactions on monthly basis.
4. Issue checkbooks and process checkbook redemptions through agent bank.
5. Redemption proceeds distributed to shareholder by check, Fed wire or
ACH processing.
6. Provide NSCC - FundSERV and networking trade processing.
V. EXCHANGE & TRADE PROCESSING
1. Process legal transfers.
2. Issue and cancel certificates.
3. Replace certificates through surety bonds (separate charge to
shareholder).
4. Process exchange transactions (letter and telephone request).
5. Process ACATS transfers.
VI. RETIREMENT PLANS
1. Fund sponsored IRAs offered using Chase as custodian. Services
include:
a. Contribution processing
b. Distribution processing
c. Apply rollover transactions
d. Process Transfer of Assets
e. Letters of Acceptance to prior custodians
f. Notify IRA holders of 70 1/2 requirements
g. Calculate Required Minimum Distributions
h. Maintain beneficiary information file
i. Solicit birth date information
2. Fund sponsored SEP-IRA plans offered using Chase as custodian.
Services include those listed under IRAs and:
a. Identification of employer contributions
3. Fund sponsored Qualified plans (401(k) and 403(b) only) offered.
a. Plan document available
56
<PAGE>
SCHEDULE E
----------
b. Omnibus/master account processing only
c. Produce annual statements
d. Process contributions
e. Process distributions
f. Process rollover and Transfer of Assets transactions
VII. SETTLEMENT & CONTROL
1. Daily review of processed shareholder transactions to assure input was
processed correctly. Accurate trade activity figures passed to Fund's
Accounting Agent by 10:00am EST.
2. Preparation of daily cash movement information to be passed to the
Fund's Accounting Agent and Custodian Bank by 10:00am EST for use in
determining Fund's daily cash availability.
3. Prepare a daily share reconcilement which balances the shares on the
Transfer Agent system to those on the books of the Fund.
4. Resolve any outstanding share or cash issues that are not cleared.
5. Process shareholder adjustments to include the proper notification of
any booking entries needed, as well as any necessary cash movement.
6. Settlement and review of Fund's declared dividends and capital gains
to include the following:
a. Review record date report for accuracy of shares.
b. Preparation of dividend settlement report after dividend is
posted. Verify the posting date shares, the rates used and the
NAV price of reinvest date to ensure dividend was posted
properly.
c. Distribute copies to the Fund's Accounting Agent.
d. Preparation of the checks prior to being mailed.
e. Sending of any dividends via wires if requested.
f. Preparation of cash movement information for each portion of the
dividend payout on payable date.
7. Placement of stop payments on dividend and liquidation checks as well
as the issuance of their replacements.
8. Maintain inventory control for stock certificates and dividend check
form.
57
<PAGE>
SCHEDULE E
----------
9. Monthly deposits to the IRS of all taxes withheld from shareholder
disbursements, distributions and foreign account distributions.
Correspond with the IRS concerning any of the above issues.
10. Timely settlement and cash movement for all NSCC/FundSERV activity.
VIII. YEAR END PROCESSING
1. Maintain shareholder records in accordance with IRS notices for under-
reporting and invalid Tax Ids. This includes initiating 31% backup
withholding and notifying shareholders of their tax status and the
corrective action which is needed.
2. Conduct annual W-9 solicitation of all uncertified accounts. Update
account tax status to reflect backup withholding or certified status
depending upon responses.
3. Conduct periodic W-8 solicitation of all non-resident alien
shareholder accounts. Update account tax status with updated
shareholder information and treaty rates for NRA tax.
4. Review IRS Revenue Procedures for changes in transaction and
distribution reporting and specifications for the production of forms
to ensure compliance.
5. Coordinate year end activity with client. Activities include
producing year end statement, scheduling record dates for year
dividends and capital gains, production of combined statements,
printing of inserts to be mailed with tax forms.
6. Distribute Dividend Letter to funds for them to sign off on all
distributions paid year to date. Dates and rates must be authorized
so that they can be used for reporting to the IRS.
7. Coordinate the ordering of form stock and envelopes from vendor in
preparation of tax reporting. Review against IRS requirements to
ensure accuracy.
8. Prepare form flashes for the microfiche or microfilm vendor. Test and
oversee the production of fiche or film for year end statements and
tax forms.
58
<PAGE>
SCHEDULE E
----------
9. Match and settle tax reporting totals to fund records and on-line data
from Investar.
10. Produce forms 1099R, 1099B, 1099Div, 5498, 1042S and year end
valuations. Quality assure forms before mailing to shareholders.
11. Monitor IRS deadlines and special events such as cross over dividends
and prior year IRA contributions.
12. Prepare IRS magnetic tapes and appropriate forms for the filing of all
reportable activity to the Internal Revenue Service.
IX. CLIENT SERVICES
1. An Account Manager is assigned to each relationship. The Account
Manager acts as the liaison between the Fund and the Transfer Agency
staff. Responsibilities include scheduling of events, system
enhancement implementation, special promotion/event implementation and
follow-up, and constant fund interaction on daily operational issues.
Specifically:
a. Scheduling of dividends, proxies, report mailing and special
mailings.
b. Coordinate with the Fund the shipment of materials for scheduled
mailings.
c. Liaison between the Fund and support services for preparation of
proofs and eventual printing of statement forms, certificates,
proxy cards, envelopes.
d. Handle all notification regarding proxy tabulation through the
meeting. Coordinate scheduling of materials, including voted
cards, tabulation letters, and shareholder list, to be available
for the meeting.
e. Order special reports, tapes, discs for special systems requests
received.
f. Implement new operational procedures, e.g., check writing
feature, load discounts, minimum waivers, sweeps, telephone
options, PAD promotions.
g. Coordinate with systems, services and operations on special
events, e.g., mergers, new fund start ups, small account
liquidations, combined statements, household mailings, additional
mail files.
h. Prepare standard operating procedures and review prospectus for
new funds and our current client base. Coordinate implementation
of suggested changes with the Fund.
59
<PAGE>
SCHEDULE E
----------
i. Liaison between the Fund and the transfer agency staff regarding
all service and operational issues.
2. Proxy Processing
a. Coordinate printing of cards with vendor.
b. Coordinate mailing of cards with Account Manger and mailroom
c. Provide daily report totals to Account Manager for client
notification.
d. Preparation of affidavit of mailing documents.
e. Provide one shareholder list.
f. Prepare final tabulation letter.
3. Blue Sky Processing
a. Maintain file with additions, deletions, changes and updates at
the Fund's direction.
b. Provide daily and monthly reports to enable the Fund to do
necessary state filings.
60
<PAGE>
SCHEDULE F
----------
FEE SCHEDULE FOR THE BRINSON FUNDS
----------------------------------
ACCOUNTING, ADMINISTRATION, TRANSFER AGENCY AND
CUSTODY SERVICES ANNUAL FEE SCHEDULE
61
<PAGE>
Exhibit 99.B11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our reports dated August 9,
1996, in the Registration Statement (Form N-1A) and related Prospectus of The
Brinson Funds, filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 18 to the Registration Statement under the
Securities Act of 1993 (Registration No. 33-47287) and in this Amendment No. 19
to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-6637).
/s/ Ernst & Young
--------------------------------------
ERNST & YOUNG LLP
Chicago, Illinois
April 28, 1997
<PAGE>
DISTRIBUTION PLAN RELATING TO
THE BRINSON-CLASS N SHARES
OF THE BRINSON FUNDS
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), by
The Brinson Funds (the "Trust") on behalf of the Brinson-Class N shares (each
individually a "Class" and collectively, the "Classes") of each of the series of
the Trust as listed on Schedule A attached hereto (which may be amended from
time to time to add or delete series). Each series listed on Schedule A is
referred to herein individually as a "Fund" or collectively as the "Funds"). The
Plan is adopted for the use of Brinson-Class N shares of the Funds and any
Brinson-Class N shares of separate series of the Trust hereinafter organized.
The Plan has been approved by a majority of the Trust's Board of Trustees,
including a majority of the trustees who are not interested persons of the Trust
(as that term is defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan (the "non-interested trustees"),
cast in person at a meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Trustees of the Trust determined that
adoption of the Plan would be prudent and in the best interests of each Fund and
its shareholders. Such approval included a determination by the trustees that in
the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
each Fund and its shareholders. The Plan has also been approved by a vote of the
sole initial shareholder of the Brinson-Class N shares of each Fund.
The provisions of the Plan are:
1. Each Class shall reimburse Brinson Partners, Inc. (the "Manager"), Funds
Distributor, Inc. (the "Distributor") or others for all expenses incurred by
such parties in the promotion and distribution of the shares of the Class,
including but not limited to, the printing of prospectuses and reports used for
sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses, as
well as any distribution or service fees paid to securities dealers or others
who have executed a servicing agreement with the Trust on behalf of the Class,
the Manager on behalf of the Class, the Distributor, the Fund's transfer agent,
shareholder servicing agent, administrator or sub-administrator on behalf of the
Class, which form of agreement has been approved from time to time by the
trustees, including the non-interested trustees.
2. The maximum aggregate amount which may be reimbursed by a Class to such
parties pursuant to Paragraph 1 herein shall be 0.25% per annum of the average
daily net assets of the Class. Said reimbursement shall be made quarterly by the
Class to such parties.
<PAGE>
3. The Manager and the Distributor shall collect and monitor the
documentation of payments made under paragraphs 1 and 2 above, and shall furnish
to the Board of Trustees of the Trust, for their review, on a quarterly basis, a
written report of the monies reimbursed to them and others under the Plan as to
a Fund's Class, and shall furnish the Board of Trustees of the Trust with such
other information as the Board may reasonably request in connection with the
payments made under the Plan as to a Fund's Class in order to enable the Board
to make an informed determination of whether the Plan should be continued for
such Class.
4. The Plan shall continue in effect for each Class for a period of more than
one year only so long as such continuance is specifically approved at least
annually by the Trust's Board of Trustees, including the non-interested
trustees, cast in person at a meeting called for the purpose of voting on the
Plan.
5. The Plan, or any agreements entered into pursuant to the Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of a Class with respect to that Class, or by vote
of a majority of the non-interested trustees, on not more than sixty (60) days'
written notice, and shall terminate automatically in the event of any act that
constitutes an assignment of the management agreement between the Trust on
behalf of the relevant Funds of the Trust and the Manager.
6. The Plan and any agreements entered into pursuant to the Plan may not be
amended to increase materially the amount to be spent by a Class for
distribution pursuant to Paragraph 2 hereof without approval by a majority of
the outstanding voting securities of the Class.
7. All material amendments to the Plan, and any agreements entered into
pursuant to the Plan, shall be approved by the non-interested trustees cast in
person at a meeting called for the purpose of voting on any such amendment or
agreement.
8. So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested trustees shall be committed to the discretion of such
non-interested trustees.
9. This Plan shall take effect on the ___th day of _______, 1997.
<PAGE>
This Plan and the terms and provisions thereof are hereby accepted and agreed
to by the Fund, the Manager and the Distributor as evidenced by their execution
hereof.
THE BRINSON FUNDS
By:
--------------------------------
BRINSON PARTNERS, INC.
By:
--------------------------------
FUNDS DISTRIBUTOR, INC.
By:
--------------------------------
<PAGE>
Schedule "A"
Series subject to the Distribution Plan relating to the Brinson - Class N Shares
of The Brinson Funds:
Series
------
Global Fund
Global Equity Fund
Global Bond Fund
U.S. Balanced Fund
U.S. Equity Fund
U.S. Bond Fund
Non - U.S. Equity Fund
Date:____________________ , 1997
<PAGE>
THE BRINSON FUNDS
REVISED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
The Brinson Funds (the "Trust") hereby adopts this plan pursuant to Rule 18f-3
(the "Plan") under the Investment Company Act of 1940, as amended (the "1940
Act"), which sets forth the separate distribution arrangements and expense
allocations of each of the classes of the series of the Trust.
The Plan is adopted by a majority of the Board of Trustees of the Trust,
including a majority of the Trustees who are not interested persons of the Trust
under the 1940 Act. The Board of Trustees of the Trust has determined that the
Plan, including the allocation of expenses, is in the best interests of the
Trust as a whole, each series of shares offered by the Trust and each class of
shares offered by the Trust. To the extent that a subject matter set forth in
the Plan is covered by the Trust's Agreement and Declaration of Trust ("Trust
Agreement") or By-Laws, such Trust Agreement or By-Laws will control in the
event of any inconsistences with descriptions contained in the Plan.
Appendix A, as may be amended from time to time, to this Plan describes the
classes to be issued by each series and identifies the names of such classes.
CLASS CHARACTERISTICS
Each class of shares of a series will represent an interest in the same
portfolio of investments of a series of the Trust, and be identical in all
respects to each other class, except as set forth below.
BRINSON-CLASS I: Class I shares will not be subject to an initial sales charge,
a contingent deferred sales charge or a Rule 12b-1 plan. Class
I shares will be offered to investors with a minimum initial
investment of $1 million.
BRINSON-CLASS N: Class N shares will not be subject to an initial sales charge
or a contingent deferred sales charge, but will have a Rule
12b-1 plan with a fee of 0.25% of average daily net assets per
annum. Class N shares will be offered to investors with a
minimum initial investment of $1 million.
SWISSKEY CLASS: SwissKey Class shares will not be subject to an initial sales
charge or a contingent deferred sales charge, but will have a
Rule 12b-1 plan with an asset-based distribution fee of up to
a maximum of 0.65% of average daily net assets per annum and a
service fee of 0.25% of
<PAGE>
average daily net assets per annum. SwissKey Class shares will
be offered to investors with a minimum initial investment of
$1,000 and minimum subsequent investments of $50.
The only differences among the various classes of shares of the same series of
the
Trust will relate solely to: (a) distribution fee payments associated with a
Rule 12b-1 plan for a particular class of shares and any other costs relating to
implementing or amending such plan (including obtaining shareholder approval of
such plan or any amendment thereto), which will be borne solely by shareholders
of such class or classes; (b) exchange privileges; (c) class names or
designations; and (d) voting rights as described in the Plan.
The Board of Trustees has the power to designate one or more series or sub-
series/classes of shares of beneficial interest and to classify and reclassify
only unissued shares with respect to such series. The assets of each series
belong only to that series, and the liabilities of each series are borne solely
by that series and no other. Shares of each series represent equal
proportionate interests in the assets of that series only and have identical
voting, dividend, redemption, liquidation and other rights. All shares issued
are fully paid and nonassessable, and shareholders have no preemptive or other
right to subscribe to any additional shares and no conversion rights.
Each issued and outstanding full and fractional share of a series is entitled to
one full and fractional vote in the series and all shares of each series
participate equally with regard to dividends, distributions and liquidations
with respect to that series. Shareholders do not have cumulative voting rights.
On any matter submitted to a vote of shareholders, shares of each series will
vote separately except when a vote of shareholders in the aggregate is required
by law, or when the Trustees have determined that the matter affects the
interests of more than one series, in which case the shareholders of all such
series shall be entitled to vote thereon.
Each class shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement for shareholder services and
the distribution of shares including its Rule 12b-1 plan, and shall have
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, and shall
have in all respects the same rights and obligations as each other class.
INCOME AND EXPENSE ALLOCATION
The Trust shall allocate to each class of shares of a series any fees and
expenses incurred by the Trust in connection with the distribution or servicing
of such class of shares under a Rule 12b-1 plan, if any, adopted for such class.
Except for Rule 12b-1 plan fees as described above, all expenses incurred by a
series will be allocated to each class of shares of such series on the basis of
the net asset value of each such class in relation to the net asset value of the
series.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Income and realized and unrealized capital gains and losses of a series will be
allocated to each class of such series on the basis of the net asset value of
each such class in relation to the net asset value of the series.
EXCHANGES AND CONVERSIONS
Shares of any series of the Trust will be exchangeable with shares of the same
class
of shares of another series of the Trust to the extent such shares are
available. Exchanges will comply with all applicable provisions of Rule 11a-3
under the 1940 Act.
GENERAL
Any distribution arrangement of the Trust, including distribution fees pursuant
to Rule
12b-1 under the 1940 Act, will comply with Article III, Section 26 of the
Conduct Rules of the National Association of Securities Dealers, Inc.
Any material amendment to the Plan must be approved pursuant to Rule 18f-3 under
the 1940 Act by a majority of the Board of Trustees of the Trust, including a
majority of those trustees who are not interested persons of the Trust, as
defined in the 1940 Act.
Date:_________________ , 1997
<PAGE>
APPENDIX "A"
List of Series and Classes
Series Classes
- ------ -------
Global Fund Brinson Global Fund - Class I
Brinson Global Fund - Class N
SwissKey Global Fund
Global Equity Fund Brinson Global Equity Fund - Class I
Brinson Global Equity Fund - Class N
SwissKey Global Equity Fund
Global Bond Fund Brinson Global Bond Fund - Class I
Brinson Global Bond Fund - Class N
SwissKey Global Bond Fund
U.S. Balanced Fund Brinson U.S. Balanced Fund - Class I
Brinson U.S. Balanced Fund - Class N
SwissKey U.S. Balanced Fund
U.S. Equity Fund Brinson U.S. Equity Fund - Class I
Brinson U.S. Equity Fund - Class N
SwissKey U.S. Equity Fund
U.S. Bond Fund Brinson U.S. Bond Fund - Class I
Brinson U.S. Bond Fund - Class N
SwissKey U.S. Bond Fund
Non-U.S. Equity Fund Brinson Non-U.S. Equity Fund - Class I
Brinson Non-U.S. Equity Fund - Class N
SwissKey Non-U.S. Equity Fund
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<NAME> THE BRINSON FUNDS
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<NAME> BRINSON U.S. BALANCED FUND
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<NAME> SWISSKEY GLOBAL EQUITY FUND
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<NAME> THE BRINSON FUNDS
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<NAME> SWISSKEY NON-U.S. EQUITY FUND
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<NAME> THE BRINSON FUNDS
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<NAME> SWISSKEY U.S. EQUITY FUND
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<CIK> 0000886244
<NAME> THE BRINSON FUNDS
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<CIK> 0000886244
<NAME> THE BRINSON FUNDS
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