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File No. 33-
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As filed with the SEC on September 21, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No.
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(Check appropriate box or boxes)
THE BRINSON FUNDS
(Exact Name of Registrant as Specified in Charter)
(312) 220-7100
(Area Code and Telephone Number)
209 South LaSalle Street, Chicago, IL 60604
(Address of Principal Executive Offices --
Number, Street, City, State, Zip Code)
Carolyn M. Burke
209 South LaSalle Street
Chicago, IL 60604-1295
(Name and Address of Agent for Service --
Number, Street, City, State, Zip Code)
Copies to:
Bruce G. Leto, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective
under the Securities Act of 1933.
Title Of Securities Being Registered -- Brinson High Yield Bond Fund Class I
shares of beneficial interest, $0.001 par value per share, of the High Yield
Bond Fund series
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No filing fee is due because Registrant is relying on Section 24(f) of the
Investment Company Act of 1940, as amended.
It is proposed that this filing will become effective on October 21, 1998,
pursuant to Rule 488.
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THE BRINSON FUNDS
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) under the
Securities Act of 1933)
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N-14 Item No. and Caption Location in Prospectus
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PART A
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1. Beginning of Registration Statement and Cover Page of Registration Statement; Front Cover
outside Front Cover Page of Prospectus Page of Prospectus
2. Beginning and outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Summary; Risk Factors; Comparisons of Some
Risk Factors Important Features
4. Information About the Transaction Summary; Reasons for the Reorganization;
Information About the Reorganization
5. Information About the Registrant Prospectus Cover Page; Summary; Comparison of
Investment Policies and Risks; Information About
the Brinson Fund; Additional Information
Regarding the Brinson Fund
6. Information About the Company Being Prospectus Cover Page; Comparison of Investment
Acquired Policies and Risks; Information About the UBS
Fund
7. Voting Information Prospectus Cover Page; Notice of Special Meeting
of Shareholders; Solicitation and Revocation of
Proxies and Voting Information; Principal
Shareholders; Summary-Voting Information;
Voting Information
8. Interest of Certain Persons and Experts None
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
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Location in Statement of Additional
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N-14 Item No. and Caption Information
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PART B
10. Cover Page Cover Page of Statement of Additional Information
11. Table of Contents Table of Contents
12. Additional Information about the The Brinson Funds; Investment Strategies;
Registrant Investment Restrictions; Management of the Trust;
Control Persons and Principal Holders of Securities;
Investment Advisory and Other Services; Portfolio
Transactions and Brokerage Commissions; Shares
of Beneficial Interest; Purchases; Redemptions;
Performance Calculations; Financial Statements;
Corporate Debt Ratings
13. Additional Information about the Incorporation of Documents by Reference in the
Company being Acquired Statement of Additional Information
14. Financial Statements Incorporation of Documents by Reference in the
Statement of Additional Information
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PART C-OTHER INFORMATION
Part C contains the information required by Items 15-17 under the items set
forth in the Form.
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Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Shareholders Meeting
which has been called for December 15, 1998 at _____ a.m., at
____________________. The accompanying Prospectus/Proxy Statement details a
proposal being presented for your consideration and requests your prompt
attention and vote via the enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND RETURN THE ENCLOSED PROXY CARD!
This meeting is critically important as you are being asked to
consider and approve an Agreement and Plan of Reorganization which would result
in an exchange of shares in your fund, the UBS High Yield Bond Fund (the "UBS
Fund") of UBS Private Investor Funds, Inc. (the "Corporation") for the Brinson
High Yield Bond Fund Class I shares ("Class I Shares") of beneficial interest of
the High Yield Bond Fund (the "Brinson Fund"), a newly created, comparable fund
managed by Brinson Partners, Inc. ("Brinson" or the "Advisor") that is a series
of The Brinson Funds. On the date of the exchange, you will receive Class I
Shares in the Brinson Fund equal in value to your investment in the UBS Fund of
the Corporation. Thereafter, the value of your investment will fluctuate with
market conditions and the investment performance of the Class I Shares of the
Brinson Fund.
The proposed reorganization is intended to be a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, as further
described in the accompanying Prospectus/Proxy Statement.
This transaction is being proposed because of the recent merger of
Union Bank of Switzerland, the corporate parent of the UBS Fund's investment
adviser and sub-investment adviser, and Swiss Bank Corporation, the corporate
parent of the Brinson Fund's investment adviser, to form UBS A.G. In an effort
to promote more efficient operations, to eliminate duplicate costs and to
enhance the distribution of shares, UBS A.G. and Brinson proposed that the UBS
Fund be reorganized into the Brinson Fund. The Brinson Fund has identical
investment objectives and similar investment policies to the UBS Fund. In
addition, the Trust possesses certain operating economies of scale which allow
shareholders to enjoy a relatively low cost investment program while receiving a
high level of service and communications.
Please take the time to review this document and vote now! To ensure
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that your vote is counted, indicate your position on the enclosed proxy card(s).
Sign and return your card(s) promptly. If you determine at a later date that
you wish to attend the meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
Paul J. Jasinski
President
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PRELIMINARY COPY
UBS PRIVATE INVESTOR FUNDS, INC.
UBS HIGH YIELD BOND FUND
200 Clarendon Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on December 15, 1998
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of
the UBS High Yield Bond Fund (the "UBS Fund") of the UBS Private Investor Funds,
Inc. (the "Corporation") will be held at __________________________ on December
15, 1998, at ______ a.m., Eastern time, for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization
between the Corporation, on behalf of the UBS Fund, and The Brinson Funds (the
"Trust"), on behalf of the High Yield Bond Fund (the "Brinson Fund"), that
provides for the acquisition of substantially all of the assets and liabilities
of the UBS Fund in exchange for the Brinson High Yield Bond Fund Class I shares
("Class I Shares") of beneficial interest of the Brinson Fund, a series of the
Trust, the distribution of such shares to the shareholders of the UBS Fund, and
the dissolution of the UBS Fund.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The attached Prospectus/Proxy Statement provides more information
concerning each of the foregoing matters, including the transaction contemplated
by the Agreement and Plan of Reorganization. A copy of the Agreement and Plan
of Reorganization is attached as Exhibit A.
Shareholders of record as of the close of business on ____________,
1998, are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
By Order of the
Board of Directors,
Susan C. Mosher
Secretary
__________, 1998
IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, THE BOARD OF DIRECTORS URGES YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. IT IS IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY
PROMPTLY SO THAT A QUORUM MAY BE ENSURED.
5
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Combined Prospectus and Proxy Statement
TABLE OF CONTENTS
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Page
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Cover Page......................................................................................................Cover
Solicitation and Revocation of Proxies and Voting Information........................................................
Principal Shareholders...............................................................................................
PROPOSAL 1: TO APPROVE THE AGREEMENT AND PLAN
OF REORGANIZATION...............................................................................................
Summary..............................................................................................................
Proposed Transaction............................................................................................
Voting Information..............................................................................................
Federal Income Tax Consequences.................................................................................
Comparisons of Some Important Features...............................................................................
Investment Objectives and Policies..............................................................................
Management of the Corporation and the Trust.....................................................................
Fees and Expenses...............................................................................................
Distribution Services...........................................................................................
Pro Forma Fee Table for the UBS Fund and the Brinson Fund.......................................................
Purchase Price, Redemption Price, Exchanges, Dividends and Distributions........................................
Special Information Regarding the UBS Fund's Two-Tier Structure.................................................
Risk Factors and Comparison of Policies.........................................................................
Reasons for the Reorganization.......................................................................................
The Merger of Union Bank of Switzerland and Swiss Bank Corporation..............................................
Reorganization..................................................................................................
Information about the Reorganization.................................................................................
Method of Carrying Out the Reorganization.......................................................................
Conditions Precedent to Closing.................................................................................
Expenses of the Transaction.....................................................................................
Federal Income Tax Consequences.................................................................................
Description of the Class I Shares of the Brinson Fund...........................................................
Capitalization..................................................................................................
Comparison of Investment Policies and Risks..........................................................................
The Brinson Fund and the UBS Fund...............................................................................
Investment Policies.............................................................................................
Investment Restrictions.........................................................................................
Risk Factors....................................................................................................
Information about the Brinson Fund...................................................................................
Information about the UBS Fund.......................................................................................
Transfer Agent and Custodian.........................................................................................
Shareholder Inquiries................................................................................................
Exhibit A - Agreement and Plan of Reorganization..................................................................A-1
Exhibit B - Additional Information Regarding the Brinson Fund.....................................................B-1
</TABLE>
6
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PRELIMINARY COPY
COMBINED PROSPECTUS AND PROXY STATEMENT
Dated______, 1998
Acquisition of the Assets of the
UBS High Yield Bond Fund of
UBS PRIVATE INVESTOR FUNDS, INC.
By and in exchange for the Brinson High Yield Bond Fund Class I shares of
the High Yield Bond Fund of
THE BRINSON FUNDS
This Prospectus/Proxy Statement is being furnished to you in
connection with the solicitation of proxies by the Board of Directors of the UBS
Private Investor Funds, Inc. (the "Corporation"). The Corporation is a series
investment company with six series of shares. Each such series represents an
interest in a separate investment portfolio, designated as the UBS Bond Fund,
UBS High Yield Bond Fund, UBS Value Equity Fund (formerly UBS U.S. Equity Fund),
UBS Large Cap Growth Fund, UBS Small Cap Fund and UBS International Equity Fund.
This Prospectus/Proxy Statement relates solely to the UBS High Yield Bond Fund
(the "UBS Fund"). The remaining five series of the Corporation, other than the
UBS Fund, are referred to in this Prospectus/Proxy Statement as the "UBS
Series," and the UBS Fund and the UBS Series are collectively referred to as the
"UBS Funds."
Proxies solicited will be voted at a Special Meeting of Shareholders
to approve or disapprove an Agreement and Plan of Reorganization (the "Agreement
and Plan"). The Agreement and Plan provides for the acquisition of
substantially all of the assets and liabilities of the UBS Fund of the
Corporation by the High Yield Bond Fund (the "Brinson Fund") of The Brinson
Funds (the "Trust"), a newly created series of the Trust which is managed by
Brinson Partners, Inc. ("Brinson" or the "Advisor") and which has investment
objectives that are identical and investment policies that are substantially
similar to the UBS Fund, in exchange solely for the Brinson High Yield Bond Fund
Class I shares ("Class I Shares") of beneficial interest of the Brinson Fund.
Concurrently with the transaction proposed with respect to the UBS Fund,
shareholders of each UBS Series will be approving an agreement and plan of
reorganization relating to the sale of each UBS Series' assets and liabilities
to another Trust series managed by Brinson with similar investment objectives
and policies. A separate vote will be conducted for each of the UBS Funds, and
the six reorganizations of the UBS Funds are independent of each other.
Following such transfer, the Class I Shares of the Brinson Fund will
be distributed to shareholders of the UBS Fund in liquidation of such Fund and
individual shareholders of the UBS Fund will receive that number of the Class I
Shares of the Brinson Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of the UBS Fund.
Thereafter, the Corporation will file an application pursuant to Section 8(f) of
the Investment Company Act of 1940, as amended (the "1940 Act"), for an order
declaring that it has ceased to be an investment company; provided that the
shareholders of each UBS Series also approve the sale of each UBS Series' assets
to a corresponding Trust series.
The Trust consists of thirteen separate investment series: Global
Fund, Global Equity Fund, Global Bond Fund, Emerging Markets Debt Fund, Emerging
Markets Equity Fund, U.S. Balanced Fund, U.S. Large Capitalization Equity Fund,
U.S. Equity Fund, U.S. Bond Fund, Non-U.S. Equity Fund, U.S. Large
Capitalization Growth Fund, U.S. Small Capitalization Fund and High Yield Bond
Fund (individually, a "Trust Series" and collectively, the "Trust Series").
Each Trust Series offers three separate classes of shares, the Class N shares,
the UBS Investment Fund class shares, and the Class I shares.
The Brinson Fund is a diversified series of the Trust, with its
principal offices located at 209 South LaSalle Street, Chicago, Illinois 60604-
1295, (800) 448-2430. The Brinson Fund has an investment objective that is
identical to that of the UBS Fund. The Brinson Fund's primary investment
objective is to provide high current income from a portfolio of higher-yielding,
lower-rated debt securities issued by domestic and foreign companies. In
addition, the Brinson Fund has a secondary objective of capital growth.
7
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The UBS Fund is a diversified series of the Corporation, with its
principal offices located at 200 Clarendon Street, Boston, Massachusetts 02116,
(888) 827-3863. Like the Brinson Fund, the UBS Fund's primary investment
objective is to provide high current income from a portfolio of higher-yielding,
lower-rated debt securities issued by domestic and foreign companies. In
addition, the UBS Fund has a secondary objective of capital growth. The UBS
Fund seeks to achieve its investment objectives by investing all of its
investable assets in the UBS High Yield Bond Portfolio (the "UBS Portfolio"), a
series of UBS Investor Portfolios Trust (the "UBS Trust"), a registered
management investment company. The investment policies and restrictions and,
consequently, the risks of investing in the Brinson Fund are substantially
similar to those of the UBS Fund, but differ in certain respects as described
more fully under "COMPARISON OF INVESTMENT POLICIES" in this Prospectus/Proxy
Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Brinson Fund and the
Trust that a prospective investor should know before investing. A Statement of
Additional Information dated ______________, 1998, relating to this
Prospectus/Proxy Statement, the transaction described herein and the parties
thereto, has been filed with the U.S. Securities and Exchange Commission ("SEC"
or the "Commission") and is incorporated by reference into this Prospectus/Proxy
Statement. A copy of that Statement may be obtained without charge by writing
to the address noted above or by calling (800) 448-2430. The Trust will
furnish, without charge, a copy of its annual and semi-annual reports to a
shareholder upon request by writing to the Trust at the address noted above or
by calling (800) 448-2430.
A prospectus, statement of additional information, and annual report
to shareholders, dated December 31, 1997, relating to the UBS Fund of the
Corporation are also on file with the SEC (File nos. 811-07431; 033-64401), each
of which is incorporated by reference herein and is available without charge
upon request to the Corporation. This Prospectus/Proxy Statement will first be
sent to shareholders on or about _________, 1998.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT
AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST.
Shares of the UBS Fund and the Brinson Fund are not deposits or
obligations of, or guaranteed or endorsed by, any bank, and the shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in the UBS Fund
and the Brinson Fund is subject to risk that may cause the value of the
investment to fluctuate, and when the investment is redeemed, the value may be
higher or lower than the amount originally invested by the investor.
8
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SOLICITATION AND REVOCATION OF PROXIES AND VOTING INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of
Directors of the Corporation in connection with the Special Meeting of
Shareholders of the UBS Fund to be held at __________________, on December 15,
1998 at _____ a.m. Eastern time (the "Meeting"), and at any or all adjournments
thereof. You may revoke your proxy at any time before it is exercised by
delivering a written notice to the Corporation expressly revoking your proxy, by
signing and forwarding to the Corporation a later-dated proxy, or by attending
the Meeting and casting your votes in person.
The Corporation will request broker-dealer firms, custodians, nominees
and fiduciaries to forward proxy material to the beneficial owners of the shares
of record by such persons. Such broker-dealer firms, custodians, nominees and
fiduciaries may be reimbursed for their reasonable expenses incurred in
connection with such proxy solicitation. The cost of soliciting these proxies
will not be borne by the Trust or the Corporation. In addition to solicitations
by mail, some of the officers and employees of UBS A.G., without additional
remuneration, may conduct additional solicitations by telephone, telegraph and
personal interviews.
Shareholders of record of the UBS Fund at the close of business on
[________, 1998] (the "Record Date") will be entitled to vote at the Meeting or
any adjournment thereof. On the Record Date, there were __________ outstanding
shares of the UBS Fund. Each shareholder will be entitled to one vote for each
full share, and a fractional vote for each fractional share, of the UBS Fund
held on the Record Date.
The Board of Directors does not intend to bring any matters before the
Meeting other than the proposal described below and is not aware of any other
matters to be brought before the Meeting by others. If any other matter legally
comes before the Meeting, proxyholders for which discretion has been granted
will vote shares in accordance with the views of management.
In the event that a quorum is present at the Meeting but sufficient
votes to approve the proposal set forth in the Notice of Special Meeting of
Shareholders are not received by the date of the Meeting, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares represented at the Meeting in person or by proxy.
If a quorum is present, the persons named as proxies will vote those proxies
that they are entitled to vote "FOR" any proposal in favor of adjournment and
will vote those proxies required to be voted "AGAINST" any such proposal against
any adjournment.
For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. Abstentions and broker non-votes would be treated in the same
manner with respect to the Trust.
The proxyholders will vote all proxies received. It is the present
intention that, absent contrary instructions, the enclosed proxy will be voted
for the approval of the Agreement and Plan; and in the discretion of the
proxyholders, upon such other matters not now known or determined as may legally
come before the Meeting.
PRINCIPAL SHAREHOLDERS
As of the Record Date, the following person(s) owned beneficially more
than 5% of the outstanding voting shares of the UBS Fund: ___________ at
[address] _______ owned _______ shares (___%).
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All of the respective officers and directors of the Corporation and
the officers and trustees of the Trust, as a group, owned less than 1% of the
outstanding voting securities of the UBS Fund and the Brinson Fund, as relevant.
9
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PROPOSAL 1: TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
This summary of certain information contained in this Prospectus/Proxy
Statement is qualified by reference to the more complete information contained
elsewhere in this Prospectus/Proxy Statement, the Prospectus of the UBS Fund,
and the Agreement and Plan of Reorganization (the "Agreement and Plan") attached
to this Prospectus/Proxy Statement as Exhibit A.
Proposed Transaction. At meetings of the Board of Directors of the Corporation,
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the directors of the Corporation, including a majority of the directors who are
not "interested persons" of the Corporation, as defined in the 1940 Act (the
"Independent Directors"), considered and subsequently approved the Agreement and
Plan providing for the transfer of substantially all of the assets and
liabilities of the UBS Fund of the Corporation in exchange solely for the Class
I Shares of beneficial interest of the Brinson Fund. (This proposed transaction
is referred to in this Prospectus/Proxy Statement as the "Reorganization.") The
value of Class I Shares issued by the Brinson Fund in connection with the
Reorganization will equal the value of the net assets of the UBS Fund acquired
by the Brinson Fund.
Pursuant to the Agreement and the Plan, the Class I Shares issued by
the Brinson Fund to the UBS Fund will be distributed to the shareholders of the
UBS Fund in liquidation of the UBS Fund. As a result, shareholders of the UBS
Fund will cease to be shareholders of such Fund and will instead be the owners
of that number of full and fractional Class I Shares of the Brinson Fund having
an aggregate net asset value equal to the aggregate net asset value of the
shares of the UBS Fund on the closing date of the Reorganization.
After presentations by representatives of Brinson and UBS A.G., the
investment adviser to the UBS Portfolio of UBS Trust, discussing why, in their
views, the proposal should be approved, the Board of Directors of the
Corporation, including all of the Independent Directors present at the meetings
at which the Reorganization was approved, concluded that the Reorganization is
in the best interests of the shareholders of the UBS Fund and, therefore,
recommended approval of the Agreement and Plan. The Board of Directors of the
Corporation and the Board of Trustees of the Trust, respectively, also concluded
that no dilution would result to the shareholders of the Corporation or the
Trust as a result of the Reorganization.
Voting Information. Approval of the Agreement and Plan requires the favorable
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vote of a majority of the holders of the outstanding shares of the UBS Fund
entitled to vote.
Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share, of the UBS Fund held on the Record
Date. If you give no voting instructions, your shares will be voted in favor of
the Agreement and Plan.
Federal Income Tax Consequences. Consummation of the Reorganization is subject
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to the receipt of a tax opinion by counsel to the Trust substantially to the
effect that, among other things, no gain or loss will be recognized by the UBS
Fund or its shareholders for federal income tax purposes as a result of such
Reorganization; the holding period and aggregate tax basis of Class I Shares of
the Brinson Fund received by a shareholder of the UBS Fund will be the same as
the holding period and aggregate tax basis of the shareholder's shares of the
UBS Fund; and the holding period and tax basis of the assets of the UBS Fund in
the hands of the Brinson Fund as a result of the Reorganization generally will
be the holding period and tax basis of those assets in the hands of the UBS Fund
from which they were acquired immediately prior to the Reorganization. It is
anticipated that the Brinson Fund will continue to hold the investable assets of
the UBS Fund with disposition of such assets only in the normal course of
business.
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COMPARISONS OF SOME IMPORTANT FEATURES
Investment Objectives and Policies. The Brinson Fund and the UBS Fund have an
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identical primary investment objective of seeking to provide high current income
from a portfolio of higher yielding, lower-rated debt securities issued by
domestic and foreign companies. In addition, the Brinson Fund and the UBS Fund
each have a secondary objective of capital growth. The Brinson Fund seeks to
achieve its objectives by investing in fixed income securities. Unlike the
Brinson Fund, however, the UBS Fund seeks to achieve its investment objectives
by investing all of its investable assets in the corresponding UBS Portfolio, a
series of the UBS Trust, a separate registered investment company, which UBS
Portfolio has the same investment objectives and policies as the UBS Fund. The
UBS Portfolio seeks to achieve its investment objectives by investing in fixed
income securities.
Management of the Corporation and the Trust. Similar to the Corporation and its
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Board of Directors, the management of the business and affairs of the Trust is
the responsibility of its Board of Trustees. The Corporation is organized as a
corporation under the laws of the State of Maryland, and the Trust is organized
as a business trust under the laws of the State of Delaware. 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 Corporation, on behalf of the UBS Fund, has not retained the
services of an investment adviser since the UBS Fund seeks to achieve its
investment objectives by investing all of its investable assets in the UBS
Portfolio. UBS A.G., a universal bank organized under the laws of and having
its principal executive offices in Switzerland, through its New York office,
located at 10 East 50th Street, New York, New York 10022 (the "UBS Adviser"),
serves as the investment adviser of the UBS Portfolio pursuant to an investment
advisory agreement. UBS Brinson Inc., a wholly-owned subsidiary of UBS A.G.,
located at 10 East 50th Street, New York, New York, 10022 (the "UBS Sub-
Adviser"), serves as the sub-investment adviser to the UBS Portfolio.
The Brinson Fund invests its assets directly in portfolio securities
and is advised and managed by Brinson, 209 South LaSalle Street, Chicago,
Illinois 60604-1295. Brinson is a wholly-owned subsidiary of UBS A.G.
Fees and Expenses. Pursuant to the UBS Trust's investment advisory agreement,
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the UBS Portfolio pays the UBS Adviser a fee for its services, calculated daily
and paid monthly, equal on an annual basis to a rate of 0.45% of the UBS
Portfolio's average daily net assets. Pursuant to a sub-advisory agreement
between the UBS Adviser and the UBS Sub-Adviser, the UBS Adviser pays the UBS
Sub-Adviser a fee, calculated daily and payable monthly, at an annual rate equal
to 0.25% of the UBS Portfolio's first $25 million of average daily net assets,
0.20% of the next $25 million of such assets, and 0.15% of such assets in excess
of $50 million. The UBS Adviser has voluntarily agreed to waive its fees and
reimburse the UBS Fund and the UBS Portfolio for any of their respective
operating expenses to the extent that the UBS Fund's total operating expenses
(including its share of the UBS Portfolio's expenses) exceed, on an annual
basis, 0.90% of the UBS Fund's average daily net assets.
Pursuant to its investment advisory agreement with the Advisor, the
Trust, on behalf of the Brinson Fund, is obligated to pay to Brinson a monthly
fee at the annual rate of 0.60% of the Brinson Fund's average daily net assets,
subject to certain fee waivers and expense reimbursements as further described
below.
The UBS Portfolio employs IBT Trust and Custodial Services (Ireland)
LMTD ("IBT Ireland"), a subsidiary of Investors Bank and Trust Company
("Investors Bank"), and the UBS Fund employs Investors Bank, as administrators,
respectively, under administration agreements (collectively, the "UBS
Administration Agreements") to provide certain administrative services to the
UBS Portfolio and the UBS Fund. The services provided by IBT Ireland and
Investors Bank under the UBS Administration Agreements include certain
accounting, clerical, and bookkeeping services, blue sky (for the UBS Fund
only), corporate secretarial services and assistance in the preparation and
filing of tax returns and reports to shareholders and the SEC. For the services
Investors Bank provides under the administration agreement with the UBS Fund,
the UBS Fund pays Investor Bank a fee which is calculated daily and paid
monthly, equal, on an annual basis, to 0.065% of the UBS Fund's first $100
million average daily net assets and the 0.025% of the next $100 million average
daily net assets. Investors Bank does not receive a fee from the UBS Fund on
average daily net assets in excess of $200 million. For the services IBT
Ireland provides under the administration agreement with the UBS Portfolio, the
UBS Portfolio pays IBT Ireland a fee
11
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which is calculated daily and paid monthly, equal, on an annual basis, to 0.07%
of the UBS Portfolio's first $100 million average daily net assets and 0.05% of
the average daily net assets in excess of $100 million.
The Brinson Fund receives administrative services pursuant to a
Multiple Series Agreement (the "Services Agreement") entered into by the Trust,
on behalf of each Trust Series, including the Brinson Fund, and Morgan Stanley
Trust Company ("MSTC"), pursuant to which MSTC is required to provide general
administrative, accounting, portfolio evaluation, transfer agency and custodian
services to the Trust Series, including the coordination and monitoring of any
third party series providers. 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 each Trust Series.
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 Trust
Series into any other investment company sponsored or managed by the Advisor and
assets of a Trust Series 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, MSTC pays
CGFSC for services that CGFSC provides to MSTC in fulfilling MSTC's obligations
under the Services Agreement.
The annualized ratio of operating expenses to average net assets for
the UBS Fund for the period of September 30, 1997 (commencement of operations)
through December 31, 1997 was 0.90%. The annualized ratio of operating expenses
to average net assets for the six month period ended June 30, 1998 was 0.90%.
These ratios (i) include the UBS Fund's share of the UBS Portfolio's expenses,
and (ii) are net of fee waivers and expense reimbursements. Without such fee
waivers and expense reimbursements by the UBS Adviser, the ratios of total
operating expenses to average net assets for the period of September 30, 1997
through December 31, 1997, and for the six months ended June 30, 1998, would
have been 4.98% and 2.47%, respectively. Such fee waivers and expense
reimbursements had the effect of reducing the ratio of expenses to average net
assets and increasing the ratio of net investment income to average net assets
by 4.08% (annualized) for the period September 30, 1997 through December 31,
1997. In addition, prior to December 22, 1997, investment advisory services
were provided to the UBS Portfolio without compensation.
The Brinson Fund and its Class I Shares, which have not yet engaged in
any activities, will commence operations at the Closing Date (as hereinafter
defined), currently scheduled for __________, 1998, or such later date as the
parties may determine. For the fiscal year ending June 30, 1999, the estimated
annualized ratio of operating expenses to average net assets for the Class I
Shares of the Brinson Fund is 0.70%. The Advisor has irrevocably agreed to
waive its fees and to reimburse certain expenses of the Brinson Fund so that the
Fund's total operating expenses never exceed 0.70% of the Brinson Fund's average
net assets.
Distribution Services. Pursuant to a Distribution Agreement, First Fund
- ---------------------
Distributors, Inc. ("First Fund") serves as the distributor of the UBS Fund's
shares. First Fund does not receive a fee pursuant to the terms of the
distribution agreement, but receives compensation from the Administrator. The
address of First Fund is 4455 East Camelback Road, Phoenix, Arizona 85018.
Pursuant to an underwriting agreement, Funds Distributor, Inc. ("FDI") acts as
underwriter to the Trust to facilitate the filing of notices regarding the sale
of the shares of the Trust. FDI's fees for such services are borne by the
Advisor. The address of FDI is 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
12
<PAGE>
PRO FORMA FEE TABLE FOR THE UBS FUND AND THE BRINSON FUND
AS OF JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Actual
------------------- Pro Forma
UBS Fund/1/ Brinson Fund/2/ After Transaction
-------- ------------ -----------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested None None None
Dividends
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fee None None None
Annual Fund Operating Expenses
- ------------------------------
(as percentage of average net assets at
June 30, 1998):
Management Fees (after fee waivers and 0.00% 0.60% 0.60%
reimbursements)
12b-1 Fees....................................... None None None
Other Expenses (after fee waivers and 0.90% 0.10% 0.10%
reimbursements)
Total Operating Expenses (after fee waivers and 0.90% 0.70%/3/ 0.70%
reimbursements) ==== ==== ====
</TABLE>
- ---------------------------------------
/1/ The UBS Adviser had agreed to waive fees and reimburse the UBS Fund and the
UBS Portfolio for any of their respective operating expenses to the extent
that the UBS Fund's total operating expenses (including its share of the UBS
Portfolio's expenses) exceed, on an annual basis, 0.90% of the UBS Fund's
average daily net assets. If there were no waiver in effect, the UBS
Portfolio's advisory fee would be equal, on an annual basis, to 0.45% of the
UBS Portfolio's average daily net assets. In the absence of fee waivers and
reimbursements, the total operating expenses of the UBS Fund expected to be
incurred by the UBS Fund for the fiscal year ending December 31, 1998 would
be 2.81%.
/2/ The Brinson Fund has not yet engaged in activity and has no assets;
therefore, "Other Expenses" for the Brinson Fund is based on estimated
amounts for the current fiscal year.
/3/ As reflected in the table above, the Advisor has agreed to irrevocably waive
its fees and to reimburse certain expenses so that total operating expenses
of the Brinson Fund do not exceed 0.70%.
Example:
Based on the level of expenses listed above after waivers and
reimbursement, an investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
UBS Fund $9 $29 $50 $111
Brinson Fund $7 $22 $39 $87
(After proposed transaction)
The foregoing tables are designed to assist the investor in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses and actual expenses may be greater or lesser than
those shown.
13
<PAGE>
Purchase Price, Redemption Price, Exchanges, Dividends and Distributions.
- ------------------------------------------------------------------------
Shares of the UBS Fund and the Class I Shares of the Brinson Fund are sold on a
continuous basis at their respective net asset values per share. The minimum
initial investment in the UBS Fund is $25,000, except that the minimum initial
investment is $10,000 for shareholders of another UBS Series. The minimum
subsequent investment for all investors is $5,000. The minimum initial
investment for employees of UBS A.G. or its affiliates is $5,000, and the
minimum subsequent investment is $1,000. Certain tax deferred retirement plan
programs (including Individual Retirement Accounts ("IRAs")) are subject to a
minimum initial investment of $2,000, and subsequent investments must be $500.
The minimum initial investment for Class I Shares of the Brinson Fund
is $1,000,000. Subsequent investments for Class I Shares will be accepted in
minimum amounts of $2,500. The minimum initial investment pursuant to an
automatic investment plan is $1,000,000, with subsequent minimum investments of
$500. The minimum purchase requirement for IRAs is $2,000. The Brinson Fund
has agreed to waive the minimum initial investment requirement in connection
with the Reorganization. The subsequent minimum investment requirement will be
applied to UBS Fund shareholders who make additional investments after the
Reorganization.
Shares of the UBS Fund, the UBS Portfolio and the Brinson Fund may be
redeemed at their respective net asset values per share. With respect to the
Brinson Fund, redemptions in excess of $250,000 or 1% of net assets in any 90-
day period may be subject to certain conditions.
Shares of the UBS Fund may be exchanged for shares of the UBS Series,
subject to certain limitations, as provided in the UBS Fund's prospectus. Class
I Shares of the Brinson Fund may be exchanged for shares of the same class of
any other Trust Series, subject to certain limitations, as provided in Exhibit B
to this Prospectus/Proxy Statement. While the Corporation has five other series
of shares with which the UBS Fund shareholders may exchange their shares, the
Trust has twelve other series of shares with which the Brinson Fund shareholders
may exchange their shares.
The UBS Fund and the Brinson Fund have policies of distributing
substantially all of their net investment income and net capital gains to their
respective shareholders. The UBS Fund declares daily, and pays monthly,
dividends from its daily net investment income. The Brinson Fund distributes
its net investment income semi-annually in June and December, and distributes
annually in December substantially all of its net long-term capital gains and
any undistributed net short-term capital gains realized during the period. Any
aggregate net capital gains realized from the sale of portfolio securities of
the UBS Fund and the Brinson Fund are distributed at least once each year unless
they are used to offset capital losses carried forward from prior years, in
which case no capital gains will be distributed to the extent they offset such
capital losses. Dividends and capital gains distributions are automatically
reinvested by the UBS Fund and the Brinson Fund in additional shares at the then
current net asset value, unless and until the shareholder requests to receive
them in cash.
Special Information Regarding the UBS Fund's Two-Tier Structure. An investment
- ---------------------------------------------------------------
in the UBS Fund is subject to certain special considerations due to the UBS
Fund's two-tier structure, whereby it invests all of its assets in the
corresponding UBS Portfolio of the UBS Trust and the UBS Portfolio invests
directly in securities. The following discussion summarizes the considerations
that are present in a two-tier fund structure. These considerations do not
apply to an investment in the Brinson Fund.
In addition to selling beneficial interests to the UBS Fund, the UBS
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the UBS Portfolio on the same terms
and conditions and will pay a proportionate share of the UBS Portfolio's
expenses. However, the other investors investing in the UBS Portfolio are not
required to sell their shares at the same public offering price as the UBS Fund
due to variations in pricing structures and other operating expenses. These
differences may result in differences in returns experienced by investors in the
different funds that invest in the UBS Portfolio. Such differences in returns,
however, are also present in other mutual fund structures.
Smaller funds investing in the UBS Portfolio may be materially
affected by the actions of larger funds investing in the UBS Portfolio. For
example, if a large fund withdraws from the UBS Portfolio, the remaining funds
may subsequently experience higher pro rata operating expenses, thereby lowering
returns. Additionally, because the UBS Portfolio would become smaller, it may
become less diversified, resulting in potentially increased portfolio risk
(however, those possibilities also exist for traditionally structured funds that
have large or institutional investors who may withdraw from a fund). Also,
funds with a greater pro rata ownership in the UBS Portfolio
14
<PAGE>
could have effective voting control of its operations. Except as permitted by
the SEC, whenever the UBS Fund is requested to vote on matters pertaining to the
UBS Portfolio, the Corporation will hold a meeting of UBS Fund shareholders and
will cast all of its votes proportionately as instructed by the UBS Fund's
shareholders. UBS Fund shareholders who do not vote will not affect the UBS
Fund's votes at the UBS Portfolio meeting. The percentage of the Corporation's
votes representing the UBS Fund shareholders not voting will be voted by the
Corporation in the same proportion as the UBS Fund shareholders who do, in fact,
vote.
Certain changes in the UBS Portfolio's investment objectives, policies
or restrictions, or a failure by the UBS Fund's shareholders to approve a change
in the UBS Portfolio's investment objectives or restrictions, may require the
UBS Fund to withdraw its investments in the UBS Portfolio. Any such withdrawal
could result in an in-kind distribution of portfolio securities (as opposed to a
cash distribution) by the UBS Portfolio to the UBS Fund. In no event, however,
will securities which are not readily marketable exceed 15% of the total value
of such in-kind distribution. Such a distribution may result in a UBS Fund
having a less diversified portfolio of investments or adversely affect the UBS
Fund's liquidity, and the UBS Fund could incur brokerage, tax or other charges
in converting such securities to cash. Notwithstanding the above, there are
other means for meeting shareholder redemption requests, such as borrowing.
The UBS Fund may withdraw its investment in the UBS Portfolio at any
time if the Board of Directors of the Corporation determines that it is in the
best interests of the UBS Fund to do so. Upon any such withdrawal, the Board of
Directors of the Corporation would consider what action might be taken,
including the investment of all the UBS Fund's assets in another pooled
investment entity having the same investment objectives and restrictions as the
UBS Fund or the retaining of an investment adviser to manage the UBS Fund's
assets in accordance with its investment policies.
Risk Factors and Comparison of Policies. Because the investment objectives of
- ---------------------------------------
the UBS Fund and the Brinson Fund are identical, and the investment policies are
similar, the investment risks associated with an investment in the UBS Fund are
generally the same as those of the Brinson Fund. There are, however, some
distinctions in the investment program of the UBS Fund and the Brinson Fund.
For example, (i) the UBS Fund seeks to achieve its investment objectives by
investing all of its investable assets in the UBS Portfolio, while the Brinson
Fund invests directly in portfolio securities; (ii) the UBS Sub-Adviser actively
manages the UBS Portfolio's duration, while the Advisor does not actively manage
the Brinson Fund's portfolio duration; and (iii) the Brinson Fund is authorized
to invest in securities of issuers in emerging market countries, while the UBS
Portfolio may not invest in emerging market countries. See "COMPARISON OF
INVESTMENT POLICIES - Risk Factors" below and Exhibit B to this Prospectus/Proxy
Statement.
REASONS FOR THE REORGANIZATION
The Merger of Union Bank of Switzerland and Swiss Bank Corporation. On June 29,
- ------------------------------------------------------------------
1998, pursuant to a merger agreement, dated December 5/6, 1997, Union Bank of
Switzerland ("UBS") and Swiss Bank Corporation ("SBC"), each a universal bank
organized under the laws of Switzerland, merged into UBS A.G., a newly-created
entity organized under Swiss law. In conjunction with this transaction, the UBS
Sub-Adviser was created by the merger of UBS Asset Management (New York) Inc.
and SBC Brinson Inc. (These transactions are collectively referred to as the
"Merger.")
As a result of the Merger, and in an effort to promote more efficient
operations, to eliminate duplicate costs and to enhance the distribution of
shares, UBS A.G. and Brinson proposed that the UBS Fund be reorganized into the
Brinson Fund.
The Advisor is an investment management firm managing, as of March 31,
1998, over $158 billion, primarily for pension and profit sharing institutional
accounts. The Advisor was organized in 1989 when it acquired the institutional
asset management business of the First National Bank of Chicago and First
Chicago Investment Advisors N.A. On April 25, 1995, SBC purchased all of the
outstanding stock of the Advisor's former corporate parent, Brinson Holdings,
Inc. The Advisor and its predecessor entities have managed domestic and
international assets since 1974 and global investment assets since 1982.
15
<PAGE>
Reorganization. The Reorganization has been proposed by UBS A.G. and Brinson as
- --------------
a means of combining the UBS Fund with a fund managed by the Advisor with
compatible investment objectives, policies, restrictions and portfolios. The
sale of the assets of the UBS Fund to the Brinson Fund should enable the
combined entity to obtain certain economies of scale with attendant savings in
cost for the UBS Fund as further described below.
At the same time, UBS A.G. presented and recommended for approval to
the Corporation's Board of Directors agreements and plans of reorganization
relating to the sale of assets and liabilities of each of the UBS Series to
another Trust Series with similar investment objectives and policies. Such
agreements and plans are subject to the separate approval by the shareholders of
the respective UBS Series, and each of the six reorganizations is independent of
the other.
During the meetings at which the Agreement and Plan was presented to
the Corporation's Board of Directors, the directors questioned the potential
benefits to be gained by shareholders of the UBS Fund as well as any additional
costs to be borne. In determining whether to recommend approval of the
Reorganization to shareholders, the Board of Directors considered, among other
factors: expense ratios of the Brinson Fund, as well as similar funds; the
compatibility of the investment objectives, policies, restrictions and
portfolios of the Brinson Fund with the UBS Fund; and the tax consequences of
the Reorganization. Inquiry was also made as to fund administration and the
availability of high quality shareholder services.
During the course of its deliberations, the Corporation's Board of
Directors also considered the fact that the expenses of the Reorganization will
not be borne by the UBS Fund, the Corporation, the Brinson Fund or the Trust.
In reaching the decision to recommend that shareholders of the UBS
Fund vote to approve the Reorganization, the Board of Directors concluded that
the Reorganization is in the best interests of the shareholders of the UBS Fund.
The Board's conclusion was based on a number of factors, including that, as part
of the Trust, which has higher aggregate net assets than the Corporation,
shareholders should be able to obtain the benefits of economies of scale,
permitting the reduction or elimination of certain duplicate costs and expenses
which may result in lower overall expense ratios through the spreading of both
fixed and variable costs of fund operations over a larger asset base. As a
general rule, economies can be expected to be realized primarily with respect to
fixed expenses. However, expenses that are based on the value of assets or the
number of shareholder accounts, such as custody fees, would be largely
unaffected by the Reorganization.
In its deliberations, the Directors also considered that, as
shareholders of the Trust, the Reorganization would provide shareholders with
exchange privileges with respect to the Class I shares of the other twelve Trust
Series, each with different investment objectives and policies. In addition, the
Directors also determined that it may be detrimental for the UBS Fund to compete
for the same investor assets as the Brinson Fund, each of which is either
managed by UBS A.G. or indirectly managed by a subsidiary of UBS A.G.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR THE AGREEMENT AND PLAN. If the Agreement and Plan is not
approved, the Board of Directors will consider other possible courses of action
with respect to the UBS Fund, including dissolution and liquidation.
INFORMATION ABOUT THE REORGANIZATION
The following summary of the Agreement and Plan of Reorganization does
not purport to be complete, and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement and Plan, a copy
of which is attached hereto as Exhibit A.
Method of Carrying Out the Reorganization. Prior to the Reorganization, the UBS
- -----------------------------------------
Portfolio will make a pro rata in-kind liquidating distribution of all of its
assets to the UBS Fund and to each of its other shareholders.
If the shareholders of the UBS Fund approve the Agreement and Plan,
the reorganization of the UBS Fund will be consummated promptly after the
various conditions to the obligations of each of the parties are satisfied. (See
"Conditions Precedent to Closing.") Consummation of the Reorganization (the
"Closing Date") will
16
<PAGE>
be on December 16, 1998, or such other date as is agreed to by the Corporation
and the Trust, provided that the Agreement and Plan may be terminated by either
party if the Closing Date does not occur on or before March 31, 1999.
On the Closing Date, the UBS Fund will transfer substantially all of
its assets and liabilities in exchange for the Class I Shares of the Brinson
Fund having an aggregate net asset value equal to the aggregate value of assets
and liabilities so transferred as of 4:00 p.m. Eastern time on the Closing Date.
The stock transfer books of the Corporation with respect to the UBS Fund will be
permanently closed as of 4:00 p.m. Eastern time on the Closing Date and only
requests for redemption of shares of the UBS Fund received in proper form prior
to 4:00 p.m. Eastern time on the Closing Date will be accepted by the
Corporation. Redemption requests relating to the UBS Fund received by the
Corporation thereafter shall be deemed to be redemption requests for shares of
the Brinson Fund to be distributed to the former shareholders of the UBS Fund.
The UBS Fund will distribute as of the Closing Date such Class I
Shares of the Brinson Fund pro rata to its shareholders of record as of the
close of business on the Closing Date. The number of shares shall be determined
by dividing the net asset value per share of the UBS Fund (computed in
accordance with the policies and procedures set forth in the current prospectus
of the UBS Fund and using market quotations determined by the UBS Fund) by the
net asset value per share of the Class I Shares of the Brinson Fund as of 4:00
p.m. Eastern time on the Closing Date, and multiplying the result by the number
of outstanding shares of the UBS Fund on the Closing Date.
For example, on June 30, 1998, the net asset value of each share of
the UBS Fund was $102.26. The Brinson Fund had no assets on that date. Each
share of the UBS Fund would have been exchanged for 10.2263 shares of the Class
I Shares of the Brinson Fund if the Closing had taken place on June 30, 1998,
and the net asset value of each share of the Class I Shares of the Brinson Fund
would have been $10.00.
In the event that the shareholders of the UBS Fund do not approve the
Agreement and Plan, the assets and liabilities of the UBS Fund will not be
transferred on the Closing Date and the obligations of the Corporation under the
Agreement and Plan shall not be effective. If the Reorganization is not approved
by the UBS Fund shareholders, the Board of Directors of the Corporation will
consider other alternatives, including dissolution and liquidation.
Conditions Precedent to Closing. The obligation of the Corporation to transfer
- -------------------------------
the assets and liabilities of the UBS Fund to the Brinson Fund pursuant to the
Agreement and Plan is subject to the satisfaction of certain conditions
precedent, including performance by the Trust, in all material respects, of its
agreements and undertakings under the Agreement and Plan, the receipt of certain
documents from the Trust, the receipt of an opinion of counsel to the Trust, and
requisite approval of the Agreement and Plan by the shareholders of the UBS
Fund, as described above. The obligations of the Trust to consummate the
Reorganization are subject to the satisfaction of certain conditions precedent,
including the performance by the Corporation of its agreements and undertakings
under the Agreement and Plan, the receipt of certain documents, financial
statements and certificates from the Corporation, and the receipt of an opinion
of counsel to the Corporation.
Expenses of the Transaction. The expenses incurred in connection with entering
- ---------------------------
into and consummating the transaction contemplated by the Agreement and Plan
will not be borne by the UBS Fund, the Corporation, the Brinson Fund or the
Trust.
Federal Income Tax Consequences. Consummation of the Reorganization is subject
- --------------------------------
to the receipt of a tax opinion by counsel to the Trust substantially to the
effect that, on the basis of then current law and certain representations and
assumptions, and subject to certain limitations, for federal income tax
purposes:
(i) the Reorganization will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that the Brinson Fund and the UBS Fund will each be
a party to a reorganization within the meaning of Section 368(b) of
the Code;
17
<PAGE>
(ii) no gain or loss will be recognized by the Brinson Fund upon the
receipt of the assets of the UBS Fund solely in exchange for the
Class I Shares of the Brinson Fund and the assumption by the Brinson
Fund of the liabilities of the UBS Fund;
(iii) no gain or loss will be recognized by the UBS Fund upon the transfer
of the UBS Fund's assets to the Brinson Fund in exchange for the
Class I Shares of the Brinson Fund and the assumption by the Brinson
Fund of liabilities of the UBS Fund or upon the distribution of the
Class I Shares of the Brinson Fund to the UBS shareholders;
(iv) no gain or loss will be recognized by the shareholders of the UBS
Fund upon the exchange of their shares for Class I Shares of the
Brinson Fund;
(v) the aggregate tax basis of the shares of the Class I Shares of the
Brinson Fund pursuant to the Reorganization will be the same as the
aggregate tax basis of shares of the UBS Fund held by such
shareholder immediately prior to the Reorganization and the holding
period of the Class I Shares of the Brinson Fund to be received by
each shareholder of the UBS Fund will include the period during
which shares of the UBS Fund exchanged therefor were held by such
shareholder (provided shares of the UBS Fund were held as capital
assets on the date of the Reorganization); and
(vi) the tax basis of the UBS Fund assets and liabilities acquired by the
Brinson Fund will be the same as the tax basis of such assets and
liabilities to the UBS Fund immediately prior to the Reorganization,
and the holding period of the assets and liabilities of the UBS Fund
in the hands of the Brinson Fund will include the period during
which those assets and liabilities were held by the UBS Fund.
Shareholders of the UBS Fund should consult their tax advisers
regarding the effect, if any, of the Reorganization in light of their individual
circumstances. Since the foregoing discussion only relates to the federal income
tax consequences of the Reorganization, shareholders of the UBS Fund should also
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
Description of the Class I Shares of the Brinson Fund. The Class I Shares of
- -----------------------------------------------------
the Brinson Fund will be issued to shareholders of the UBS Fund in accordance
with the procedures under the Agreement and Plan as described above. Each share
will be fully paid and nonassessable when issued with no personal liability
attaching to the ownership thereof, will have no pre-emptive or conversion
rights and will be transferable upon the books of the Trust. In accordance with
the Trust's normal procedures, the Brinson Fund will not issue certificates for
shares of its Class I Shares to former shareholders of the UBS Fund, unless a
letter is sent to the transfer agent of the Trust requesting a certificate.
Ownership of the Brinson Fund shares by former shareholders of the UBS Fund will
be recorded electronically and the Trust will issue a confirmation to such
shareholders relating to those Class I Shares acquired as a result of the
Reorganization. No redemption or repurchase of any shares of the Brinson Fund
issued to former shareholders of the UBS Fund represented by unsurrendered share
certificates shall be permitted until such certificates have been surrendered
for cancellation.
As shareholders of the Brinson Fund, former shareholders of the UBS
Fund will have substantially similar voting rights and rights upon dissolution
with respect to the Brinson Fund as they currently have with respect to the UBS
Fund. Shares of the UBS Fund and of the Brinson Fund do not have cumulative
voting rights. Like the Corporation, the Trust does not routinely hold annual
meetings of shareholders.
Both the Corporation and the Trust are multi-series investment
companies that currently issue shares representing interests in six and thirteen
series, respectively, and shareholders of each of the UBS Funds and Trust Series
currently vote in the aggregate with the shareholders of the other relevant
series on certain matters (for example, the election of directors or trustees,
as applicable, and ratification of independent accountants). Unlike the
Corporation, however, the Trust currently offers three classes of shares of each
of the Trust Series: the UBS Investment Funds class shares, the Class N shares
and the Class I shares. Shares of a class represent an equal proportionate
interest in the assets and liabilities of the applicable Trust Series with each
other share, and each class has the same voting and other rights and preferences
as the other classes of that Trust Series, except that only the holders of Class
N shares may vote on matters related to the rule 12b-1 plan associated with that
class, and only the
18
<PAGE>
UBS Investment Funds class shareholders may vote on matters related to the rule
12b-1 plan associated with that class. The Class I shares are primarily sold to
institutional investors and are not subject to distribution expenses pursuant to
a distribution plan under rule 12b-1. The Class N shares, which are available
exclusively to 401(k) participants, and the UBS Investment Funds class shares,
which are sold primarily to retail investors, do not have a sales load but are
subject to annual rule 12b-1 plan expenses. With respect to the UBS Fund and
voting on matters relating to the UBS Portfolio, see the discussion "Special
Information Regarding the UBS Fund's Two-Tier Structure" under "COMPARISON OF
SOME IMPORTANT FEATURES."
The UBS Trust is organized as a master trust under the laws of the
State of New York. The UBS Trust's Declaration of Trust provides that the UBS
Fund and other entities investing in the UBS Portfolio (e.g., other investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of the UBS Portfolio. However,
the risk of the UBS Fund incurring financial loss on account of such liability
is limited to circumstances in which both inadequate insurance existed and the
UBS Portfolio itself was unable to meet its obligations. Accordingly, the
Directors of the Corporation believe that neither the UBS Fund nor its
shareholders will be adversely affected by reason of the UBS Fund's investing in
the UBS Portfolio.
Capitalization. The following table/(1)/ sets forth, as of June 30, 1998, (i)
- --------------
the capitalization of the UBS Fund, (ii) the capitalization of the Brinson Fund,
and (iii) the pro forma capitalization of the Brinson Fund as adjusted to give
effect to the proposed Reorganization. The capitalization of the Brinson Fund is
likely to be different when the Reorganization is consummated.
<TABLE>
<CAPTION>
UBS Private The Brinson Funds -
Investor Funds, Inc.- High Yield
UBS High Yield Bond Fund Pro Forma After
Bond Fund - Class I Shares/(1)/ Reorganization
--------- ---------------- --------------
<S> <C> <C> <C>
Net assets................................... $16,463,467 $0 $16,463,467
Net asset value per share.................... $102.26 $10.00 $10.00
Shares outstanding........................... 160,991 0 1,646,341
=========== ====== ===========
</TABLE>
/(1)/ Full pro forma financial statements are included in the Statement of
Additional Information to this Prospectus/Proxy Statement.
To the extent permitted by law, the Agreement and Plan may be amended
without shareholder approval by mutual agreement in writing of the Corporation
and the Trust. The Agreement and Plan may be terminated and the Reorganization
abandoned at any time before or, to the extent permitted by law, after the
approval of shareholders of the UBS Fund by mutual consent of the parties to the
Agreement.
COMPARISON OF INVESTMENT POLICIES AND RISKS
The Brinson Fund and the UBS Fund. The primary investment objective of the
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Brinson Fund and the UBS Fund is identical: to provide high current income from
a portfolio of higher-yielding, lower-rated debt securities issued by domestic
and foreign companies. In addition, the Brinson Fund and the UBS Fund each have
a secondary objective of capital growth.
Investment Policies. In seeking to achieve their investment objectives, the
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Brinson Fund and the UBS Fund are guided by substantially similar policies that
should be considered by the shareholders of the UBS Fund. However, unlike the
Brinson Fund, which directly acquires and manages its own portfolio securities,
the Corporation seeks to achieve the UBS Fund's investment objectives by
investing all of the UBS Fund's investable assets in the UBS Portfolio, a series
of a separate registered investment company. The UBS Portfolio has the same
investment objectives and policies as the UBS Fund.
Unless otherwise specified, the investment policies of each of the
Brinson Fund and the UBS Fund may be changed without shareholder approval.
Policies or restrictions stated as fundamental may not be changed without the
approval of the lesser of (i) a majority of the outstanding shares, or (ii) 67%
or more of the
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shares represented at a meeting of shareholders at which the holders of more
than 50% of the outstanding shares are represented, whichever is less ("Majority
Vote").
The primary investment objective of the Brinson Fund is fundamental
and may not be changed without approval of the Brinson Fund's shareholders. The
primary investment objective of the UBS Fund is also fundamental, and may only
be changed with the approval of the holders of a majority of the outstanding
shares of the UBS Fund.
Since the UBS Fund pursues its investment objectives by investing all
of its investable assets in the UBS Portfolio, the UBS Fund's and the UBS
Portfolio's investment objectives are the same and, therefore, the investment
characteristics of the UBS Fund correspond directly to those of the UBS
Portfolio. Accordingly, the following is a discussion of the various investments
and restrictions of, and techniques employed by, the UBS Portfolio.
The Brinson Fund is a diversified series of the Trust, a multi-series
investment company registered under the 1940 Act. The UBS Fund is a diversified
series of the Corporation, a multi-series investment company registered under
the 1940 Act. Both calculate net asset value per share as of the close of
trading (currently 4:00 P.M. Eastern time) on each day that the New York Stock
Exchange is open for business. Such net asset value per share is calculated by
subtracting the aggregate of all liabilities from the gross value of all assets
and dividing the result by the total number of shares outstanding.
With respect to the Class I Shares of the Brinson Fund, such Class
will bear, pro rata, all of the common expenses of the Trust. The net asset
value of the outstanding shares of the Class I Shares of the Brinson Fund will
be computed on a pro rata basis for each outstanding share based on the
proportionate participation in the Brinson Fund represented by the value of
shares of each of the classes of the Fund. All income earned and expenses
incurred by the Brinson Fund will be borne on a pro rata basis by each
outstanding share of a class, based on such class' percentage in the Brinson
Fund represented by the value of the shares of the classes, except that the
Class I Shares of the Brinson Fund will not incur any of the expenses under the
distribution plans adopted by the UBS Investment Funds class of shares and the
Class N shares, respectively.
As further described below, both the Brinson Fund and the UBS
Portfolio invest primarily in higher-yielding, lower-rated debt securities. As a
matter of fundamental policy, under normal market conditions, the Brinson Fund
intends to invest at least 65% of its assets in fixed income securities that
provide higher yields and that are rated in the lower rating categories of
Moody's Investors Service, Inc. ("Moody's") and/or Standard & Poor's Ratings
Group ("S&P"), including securities rated Baa or lower by Moody's or BBB or
lower by S&P. In seeking to achieve its primary investment objective, the
Brinson Fund seeks to control risk. In pursuing its secondary investment
objective of capital growth, when consistent with high current income, the
Brinson Fund may invest in securities, including common stocks and non-income
producing securities, that the Advisor expects will appreciate in value as a
result of declines in long-term interest rates or favorable developments
affecting the business or prospects of the issuer which may improve the issuer's
financial condition and credit rating. In addition to investing in fixed income
securities, the Brinson Fund may engage in futures, options and currency
transactions for non-speculative purposes, such as hedging against interest
rates and currency rates.
In seeking to achieve its investment objectives, the UBS Portfolio
will invest, under normal market conditions, at least 65% of its assets in debt
securities, convertible securities or preferred stocks that are consistent with
its primary investment objective. The UBS Sub-Adviser, in selecting securities,
will use quantitative tools, analyses of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts. Similar to the Brinson Fund, the UBS Portfolio seeks to achieve its
secondary objective of capital growth, when consistent with high current income,
by investing in securities, including common stocks and non-income producing
securities, which the UBS Sub-Adviser expects will appreciate in value as a
result of declines in long-term interest rates or favorable developments
affecting the business or prospects of the issuer which may improve the issuer's
financial condition and credit rating. As a matter of non-fundamental policy,
under normal circumstances, the UBS Sub-Adviser intends to keep at least 65% of
the UBS Portfolio's assets invested in bonds. In addition to investing in fixed
income securities, the UBS Portfolio may engage in futures, options and currency
transactions for hedging purposes.
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In contrast to the Brinson Fund, which does not have a stated policy
with respect to duration, the UBS Sub-Adviser manages, as a secondary activity,
the UBS Portfolio's duration and the allocation of securities across market
sectors. Duration is a measure of a bond's price sensitivity, expressed in
years. Duration represents the interest rate risk of a bond calculated by taking
into consideration the number of years until the average dollar, in present
value terms, is received from principal and interest payments. Based on
fundamental economic and capital markets research, the UBS Sub-Adviser may
adjust the duration of the UBS Portfolio in light of market conditions and the
UBS Sub-Adviser's opinion requiring future interest rates. The UBS Sub-Adviser
also actively allocates the UBS Portfolio's assets among the broad sectors of
the fixed income market including, but not limited to, corporate securities,
private placements, asset-backed securities and mortgage-backed securities. The
UBS Portfolio intends to have a duration between 3 and 8 years.
The benchmark for the UBS Portfolio, like the Brinson Fund, is the
Merrill Index, which currently has a duration of approximately 4.26 years. The
maturities of the individual securities owned by the UBS Portfolio may vary
widely from their duration, however, and may be as long as 30 years. The Brinson
Fund does not have a stated policy with respect to the maturity range of its
portfolio securities.
As a fundamental policy, both the Brinson Fund and the UBS Portfolio
do not intend to invest their assets in a particular industry. Both the Brinson
Fund and the UBS Portfolio may not purchase the securities (or other
obligations, in the case of the UBS Portfolio) of issuers conducting their
principal business activity 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 the Brinson Fund's or the UBS
Portfolio's investments in such industry would exceed 25% of the value of its
respective total assets. In the case of the Brinson Fund, this restriction is
applied without reference to the countries in which an industry is located. The
UBS Portfolio's restriction also provides that it may invest all or part of its
investable assets in an open-end management investment company with the same
investment objectives and restrictions.
Fixed Income Securities
Both the Brinson Fund and the UBS Portfolio may invest in a broad
range of fixed income securities, including debt securities of U.S. and foreign
issuers. Permissible fixed income securities for the Brinson Fund and the UBS
Portfolio include debt securities of various types and maturities, such as
debentures, notes, mortgage-backed securities, asset-backed securities, zero
coupon securities, government obligations and money market instruments.
Both the Brinson Fund and the UBS Portfolio pursue their primary
investment objectives by purchasing securities that, while generally providing
higher yields, are in the lower rating categories of Moody's and/or S&P,
including securities rated Baa or lower by Moody's or BBB or lower by S&P.
Securities rated Baa or BBB are considered investment grade, but have some
speculative characteristics. Securities rated below Baa or BBB are considered to
be of poor standing and predominately speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligations and involve major risk exposure to adverse conditions. These bonds
are commonly referred to as "junk bonds." The Brinson Fund may invest
substantially all of its assets, and the UBS Portfolio may invest up to 10% of
its assets, in securities rated below Caa by Moody's or CCC by S&P, including
securities in the lowest rating category of either rating agency, or in unrated
securities that the Advisor or the UBS Sub-Adviser, respectively, determines to
be of comparable quality. If, subsequent to the Brinson Fund's or the UBS
Portfolio's purchase of a security, the security's rating is reduced by a rating
agency, the Brinson Fund or the UBS Portfolio will not necessarily dispose of
that security. The Advisor or the UBS Sub-Adviser, as applicable, will, however,
monitor the investment to determine whether continued investment in the security
will assist in meeting the Brinson Fund or the UBS Fund's primary investment
objective.
Foreign Investments
Both the Brinson Fund and the UBS Portfolio may invest up to 25% of
their total assets in securities principally traded in foreign markets. The UBS
Portfolio may also purchase Eurodollar certificates of deposit without regard to
this 25% limitation. The Brinson Fund does not have a stated percentage
limitation regarding its investment in Eurodollar certificates of deposit.
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The Brinson Fund is permitted to invest in Brady Bonds and securities
of emerging market issuers. 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"). The UBS Portfolio is not
permitted to invest in Brady Bonds or securities of emerging market issuers.
The Brinson Fund, but not the UBS Portfolio, is authorized to invest
in structured securities. These are instruments that are issued by entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. These investments involve 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. Investments by the Brinson Fund in Structured Securities will be
limited by the Brinson Fund's prohibition on investing more than 15% of its net
assets in illiquid securities.
Short-Term Debt and Money Market Investments
Both the Brinson Fund and the UBS Portfolio may invest a portion of
their assets in short-term debt securities (including repurchase agreements) and
higher-rated money market instruments of corporations (such as commercial
paper), and short-term debt securities of the U.S. government and its agencies
and instrumentalities, and banks and finance companies (in the case of the
Brinson Fund). These instruments, other than U.S. government securities, may be
denominated in any currency. The Brinson Fund and the UBS Portfolio may also
invest in money market mutual funds.
When unusual market conditions warrant, the Brinson Fund may make
substantial temporary defensive investments in cash equivalents up to a maximum
of 100% of its net assets. The UBS Portfolio, under unusual market
circumstances, may seek to limit the risk of principal loss by reducing its
exposure to high yield bonds in favor of other, more defensive investments. When
the Brinson Fund or the UBS Portfolio invests for defensive purposes, this
practice may affect the attainment of the Brinson Fund's or the UBS Portfolio's
primary investment objective, since the yields on these types of investments
will generally be lower than those on lower-rated securities.
The UBS Portfolio may invest in bank obligations of (i) banks, savings
and loan associations and savings banks that have more than $2 billion in total
assets and are organized under the laws of the United States or any state, (ii)
foreign branches of these banks or of foreign banks of equivalent size (Euros)
and (iii) U.S. branches of foreign banks of equivalent size (Yankees). The
Brinson Fund is not subject to such investment restrictions when investing in
bank obligations.
The UBS Portfolio may also invest in master demand obligations, which
are a type of commercial paper that provide for periodic adjustments in the
interest rate paid and permit daily changes in the amount borrowed. Master
demand obligations are governed by agreements between the issuer and the UBS
Adviser. Master demand obligations are not rated, and there is no specific
percentage limitation on investments in master demand obligations. The Brinson
Fund has no corresponding investment policy regarding master demand obligations.
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Convertible Debt Securities
Both the Brinson Fund and the UBS Portfolio may invest in convertible
debt securities. Convertible securities generally offer lower interest or
dividend yields than non-convertible debt securities of similar quality. The
value of convertible debt securities may reflect changes in the value of the
underlying common stock. The convertible debt securities in which the Brinson
Fund and the UBS Portfolio may invest include any debt securities or preferred
stocks that may be converted into common stock or that carry the right to
purchase 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.
Loan Participations and Assignments
The Brinson Fund may invest in fixed rate and floating rate loans
("Loans") arranged through private negotiations between an issuer of debt
obligations and one or more financial institutions ("Lenders"). The Brinson
Fund's investments in Loans are expected in most instances to be in the form of
participations in loans ("Participations") or assignments of all or a portion of
Loans ("Assignments") from third parties. To the extent that the Brinson Fund
cannot dispose of a Participation or Assignment in the ordinary course of
business within seven days at approximately the value at which it valued the
Loan Participation or Assignment, the Brinson Fund will treat the Participation
or Assignment as illiquid and subject to its overall limit on illiquid
investments of 15% of its net assets. The UBS Portfolio is not authorized to
invest in Participations or Assignments.
Zero Coupon Securities
The Brinson Fund and the UBS Portfolio may invest in zero coupon
securities. 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.
Pay-in-Kind Bonds
The Brinson Fund may invest in pay-in-kind bonds. Pay-in-kind bonds
are securities which pay interest through the issuance of additional bonds. The
Brinson Fund will be deemed to receive interest over the life of such bonds and
may be treated for federal income tax purposes as if interest were paid on a
current basis, although no cash interest payments are received by the Brinson
fund until the cash payment date or until the bonds mature. The UBS Portfolio
does not have a stated policy regarding the purchase of pay-in-kind bonds.
Mortgage-Backed and Asset-Backed Securities
The Brinson Fund and the UBS Portfolio may invest in mortgage-backed
and asset-backed securities. 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-class 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.
With respect to the Brinson Fund, 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. 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, the
Advisor will, consistent with the Brinson Fund's primary
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investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
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.
When-Issued and Delayed Delivery Securities
Both the Brinson Fund and the UBS Portfolio may purchase securities on
a when-issued and, in the case of the UBS Portfolio, on a delayed delivery
basis. Delivery of and payment for these securities may take as long as a month
or more after the date of the purchase commitment. The value of these securities
is subject to market fluctuations during this period and no interest or income
accrues to the Brinson Fund or the UBS Portfolio until settlement. At the time
of settlement, a when-issued security may be valued at less than its purchase
price. Between the trade and settlement dates, the Brinson Fund and the UBS
Portfolio will maintain a segregated account consisting of a portfolio of liquid
securities with a value equal to these commitments. It is the current policy of
the UBS Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of such Portfolio's total assets less
liabilities (excluding the obligations created by these commitments). The
Brinson Fund does not have a 15% limitation with respect to such investments.
Repurchase Agreements
Both the Brinson Fund and the UBS Portfolio are authorized to enter
into repurchase agreements. In a repurchase agreement transaction, the Brinson
Fund or the UBS Portfolio 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. Repurchase agreements will be fully collateralized and the collateral
will be marked-to-market daily. The Brinson Fund and the UBS Portfolio may not
enter into a repurchase agreement having a maturity of longer than seven days
if, as a result, such agreement, together with any other illiquid securities
held, would exceed 15% of the value of their respective net assets. At no time
will the UBS Portfolio invest in repurchase agreements maturing in more than
thirteen months. The Brinson Fund is not subject to a similar restriction.
Reverse Repurchase Agreements
The Brinson Fund and the UBS Portfolio may also borrow money by
entering into reverse repurchase agreements. Reverse repurchase agreements
involve sales of portfolio securities to member banks of the Federal Reserve
System or securities dealers believed creditworthy, concurrently with an
agreement to repurchase the same securities at a later date at a fixed price,
which is generally equal to the original sales price plus interest. In a reverse
repurchase agreement transaction, the Brinson Fund and the UBS Portfolio direct
their respective custodian bank to place cash or liquid securities segregated
account in an amount equal to the repurchase price. Reverse repurchase
agreements will be considered as borrowings for purposes of the Brinson Fund's
and the UBS Portfolio's limitations on borrowing. In order to engage in such
investments, the Brinson Fund and the UBS Portfolio are required to maintain
asset coverage of at least 300% for such borrowings.
Borrowing Policy
As a fundamental policy, the Brinson Fund may borrow money as a
temporary measure for extraordinary purposes or to facilitate redemptions,
although it will not borrow money in excess of 33 1/3% of the value of its total
assets. Any borrowing will be done from a bank and in accordance with the
requirements of the 1940 Act and SEC positions. The Brinson Fund has no
intention of increasing its net income through borrowing. The Brinson Fund will
not pledge more than 10% of its net assets, or issue senior securities as
defined in the 1940 Act, except that it may purchase notes and enter into
reverse repurchase agreements.
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Similarly, the UBS Portfolio also has a fundamental policy that it may
borrow money from banks for extraordinary or emergency purposes. The UBS
Portfolio may enter into reverse repurchase agreements and other permitted
borrowings that constitute senior securities under the 1940 Act only in amounts
up to one-third of the market value of its total assets (including the amounts
borrowed), less liabilities (excluding obligations created by such borrowings
and reverse repurchase agreements). The UBS Portfolio's borrowing activities are
done in accordance with the requirements of the 1940 Act and SEC positions.
Neither the Brinson Fund nor the UBS Portfolio may purchase investment
securities while either has any outstanding borrowings (including reverse
repurchase agreements, in the case of the UBS Portfolio) that exceed 5% of its
respective net assets. Unlike the Brinson Fund, the UBS Portfolio may increase
its interest in an open-end management investment company with the same
investment objective and restrictions while such borrowings are outstanding.
Securities Lending
The Brinson Fund and the UBS Portfolio may each loan securities held
in their respective portfolios to qualified broker-dealers and financial
institutions provided that such loans are continuously collateralized in amounts
at least equal to the current market value and accrued interest of the
securities loaned. The UBS Portfolio will not make any loans in excess of one
year, while the Brinson Fund is not subject to a comparable restriction.
Rule 144A Securities and Restricted Securities
Both the Brinson Fund and the UBS Portfolio may invest in securities
that are exempt under Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act"), from the registration requirements of the 1933 Act. Securities
purchased under Rule 144A are traded among qualified institutional investors.
The Brinson Fund may invest up to 15% of its total 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 1933 Act may be
determined to be liquid under guidelines adopted by the Trust's Board of
Trustees. The Brinson Fund may invest up to 15% of its total assets in
securities of issuers which are restricted from selling to the public without
registration under the 1933 Act, excluding restricted securities eligible for
resale pursuant to Rule 144A.
As a matter of non-fundamental policy, the UBS Portfolio may not
invest more than 15% of its net assets (taken at the greater of cost or market
value) in securities that are illiquid or not readily marketable excluding (a)
Rule 144A securities that have been determined to be liquid by the Board of
Trustees and (b) commercial paper that is sold under Section 4(2) of the 1933
Act which (i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two nationally
recognized statistical rating organizations and the Corporation's Board of
Directors has determined the commercial paper to be liquid; or (iii) is rated in
one of the two highest categories by one nationally recognized statistical
rating organization and the Corporation's Board of Directors has determined that
the commercial paper is of equivalent quality and is liquid. In addition, the
UBS Portfolio will not invest more than 10% of its total assets (taken at the
greater of cost or market value) in securities (excluding Rule 144A securities)
that are restricted as to resale under the 1933 Act.
Investment Company Securities
The UBS Portfolio may purchase securities of other investment
companies to the extent that such purchases are consistent with the UBS
Portfolio's investment objectives and restrictions and are permitted under the
1940 Act. Securities of any investment company will not be purchased by the UBS
Portfolio if such purchase would cause: (a) more than 10% of the UBS Portfolio's
total assets (taken at the greater of cost or market value) to be invested in
the securities of such issuers; (b) more than 5% of the UBS Portfolio's total
assets to be invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the UBS
Portfolio. The UBS Portfolio is subject to a non-fundamental investment
restriction that provides that the UBS Portfolio will not purchase securities
issued by any investment company except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase other
than customary broker's commissions, or except when such purchase, though not
made in the open market, is part of a plan of
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merger or consolidation. In addition, except in the case of a merger or
consolidation, the UBS Portfolio shall not purchase any securities of any open-
end investment company unless the UBS Adviser waives the investment advisory fee
with respect to the assets invested in other open-end investment companies.
As a matter of non-fundamental policy, the Brinson Fund may not invest
in securities of any open-end investment company, except that (1) the Brinson
Fund may purchase securities of money market mutual funds, and (2) the Brinson
Fund may purchase shares of an open-end investment company in accordance with
any exemptive order obtained from the SEC which permits investment by the
Brinson Fund in other Trust Series or in other investment companies or series
advised by the Advisor. In addition, the Brinson Fund 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.
Under the terms of an exemptive order issued by the SEC, the Brinson
Fund may invest cash (i) held for temporary defensive purposes; (ii) not
invested pending investment in securities; (iii) that is set aside to cover an
obligation or commitment of the Brinson Fund to purchase securities or other
assets at a later date; (iv) to be invested on a strategic management basis (i-
iv herein referred to as "Uninvested Cash"); and (v) collateral that it receives
from the borrowers of its portfolio securities in connection with the Brinson
Fund's securities lending program, in a series of shares of Brinson
Supplementary Trust (the "Supplementary Trust Series"). Brinson Supplementary
Trust is a private investment company which has retained the Advisor to manage
its investments. The Trustees of the Trust also serve as Trustees of the Brinson
Supplementary Trust. The Supplementary Trust Series will invest in U.S. dollar
denominated money market instruments having a dollar-weighted average maturity
of 90 days or less. The Brinson Fund's investment of Uninvested Cash in shares
of the Supplementary Trust Series will not exceed 25% of the Brinson Fund's
total assets. In the event that the Advisor waives 100% of its investment
advisory fee with respect to the Brinson Fund, as calculated monthly, then the
Brinson Fund will be unable to invest in the Supplementary Trust Series until
additional investment advisory fees are owed by the Brinson Fund. The UBS
Portfolio is not subject to a similar order.
As a shareholder of another investment company, the Brinson Fund or the UBS
Portfolio would bear, along with other shareholders, the pro rata portion of the
other investment company's expenses, including any advisory fees. These expenses
would be in addition to the expenses that the Brinson Fund or the UBS Portfolio
would bear in connection with its own operations.
Futures, Options and Other Derivative Instruments
The Brinson Fund and the UBS Portfolio may attempt to reduce the
overall level of investment risk of particular securities and attempt to protect
against adverse market movements by investing in certain derivative instruments
as described below. In addition, the Brinson Fund and the UBS Portfolio may
invest in derivatives for hedging purposes. A derivative instrument is 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 Brinson Fund and the UBS Portfolio may
invest in a variety of derivative instruments, including futures contracts and
options transactions. The Brinson Fund and the UBS Portfolio will invest in
derivatives only to the extent that the instruments are determined by the
Advisor or the UBS Adviser to be consistent with the Brinson Fund's or the UBS
Portfolio's investment objectives and policies.
The Brinson Fund and the UBS Portfolio may enter into contracts for
the future purchase or sale of fixed income securities, indices of fixed income
securities and foreign currencies. A financial futures contract is an agreement
between the parties to buy or sell a specified security (in the case of the
Brinson Fund and the UBS Portfolio, a fixed income 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 contact 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. (This latter type of futures contract is
described below under "Foreign Currencies and Forward Currency Transactions.")
Both the Brinson Fund and the UBS Portfolio will enter into futures transactions
on domestic exchanges and, to the extent such transactions have been approved by
the Commodity Futures Trading Commission (the "CFTC") for sale to customers in
the United States, on foreign exchanges.
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The Brinson Fund and the UBS Portfolio may enter into futures
contracts to the extent that not more than 5% of their respective net assets are
committed as futures contract margin deposits. The Brinson Fund may enter into
these transactions to the extent that obligations relating to such futures
transactions represent not more than 25% of its assets. The Brinson Fund may
effect futures transactions through futures commission merchants who are
affiliated with the Advisor or the Trust Series in accordance with procedures
adopted by the Trust's Board of Trustees.
The Brinson Fund and the UBS Portfolio may purchase and sell put and
call options on U.S. and foreign securities and indices and enter into related
closing transactions. In addition, the Brinson Fund and the UBS Portfolio may
purchase and sell put and call options on foreign securities, and may purchase
and sell put and call options on futures contracts (in the case of the UBS
Portfolio only) and indices of fixed income securities. The Brinson Fund and the
UBS Portfolio may use options traded on U.S. exchanges and, to the extent
permitted by law, options traded over-the-counter and on recognized foreign
exchanges. Because the SEC construes over-the-counter options as being illiquid,
the Brinson Fund and the UBS Portfolio may only invest in such options to the
extent consistent with its respective 15% limit on investments in illiquid
securities.
The Brinson Fund and the UBS Portfolio may purchase call options on
securities to the extent that premiums paid by the Brinson Fund or the UBS
Portfolio do not aggregate more than 20% of the Brinson Fund's or the UBS
Portfolio's total assets. In addition, in order to assure that the Brinson Fund
and the UBS Portfolio will not be considered a "commodity pool operator" for
purposes of CFTC Rules, the Brinson Fund and the UBS Portfolio will only enter
into transactions in futures contracts and options on futures contracts if: (i)
such transactions constitute bona fide hedging transactions, as defined under
CFTC rules, or (ii) no more than 5% of the Brinson Fund's or the UBS Portfolio's
net assets are committed as initial margin or premiums to positions that do not
constitute bona fide hedging transactions.
The Brinson Fund may only purchase put options to the extent that the
premiums on all outstanding put options do not exceed 20% of its total assets.
With regard to the writing of put options, the Brinson Fund will limit the
aggregate value of the obligations underlying such put options to 50% of its
total net assets. The Brinson Fund 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.
As a matter of non-fundamental policy the UBS Portfolio may purchase
and sell puts and calls on securities, securities index futures or options on
securities index futures, or futures or options on futures according to the
following conditions. First, the options or futures are offered though the
facilities of a national securities association or are listed on a national
securities or commodities exchange. Second, the aggregate margin requirements
required on all such futures or options thereon do not exceed 5% of the UBS
Portfolio's total assets.
Swaps
The UBS Portfolio is authorized to invest in interest rate swaps and
related products, such as fixed income index swaps, interest rate swaps,
currency swaps, and related caps, collars and floors. Interest rate swaps
involve the exchange by the UBS Portfolio with another party of its right to
receive interest payments. The UBS Portfolio expects 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 they anticipate purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. The Brinson
Fund, as a matter of non-fundamental policy, is not permitted to enter into
swaps.
Foreign Currencies and Forward Currency Transactions
Because the Brinson Fund and the UBS Portfolio may purchase and sell
foreign securities and receive interest and dividends in currencies other than
the U.S. dollar, their assets are subject to certain risks associated with
currency or exchange rate fluctuations. Exposure to foreign currencies may be
adjusted based on the perception of the most favorable markets and issuers,
taking into consideration the relationship of the foreign currencies to the U.S.
dollar. The Brinson Fund and the UBS Portfolio do not expect to invest more than
25% of their total assets in securities principally traded in foreign markets,
which securities may be denominated in foreign currencies. The Brinson Fund and
the UBS Portfolio are authorized to allocate their exposure to foreign
currencies
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to take advantage of or to protect their investments from risk and return
characteristics of foreign currencies and exchange rates.
The Brinson Fund and the UBS Portfolio may alter fixed income or money
market exposures, enter into forward currency exchange contracts, use currency
futures contracts, purchase or sell options thereon or purchase or sell currency
options. Such investment techniques are designed to take advantage of or protect
the Brinson Fund and the UBS Portfolio from currency fluctuations.
The Brinson Fund and the UBS Portfolio may purchase or sell currencies
and forward currency transactions. The Brinson Fund and the UBS Portfolio 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, at an amount set by the parties (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 Brinson Fund and the UBS Portfolio
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.
At the maturity of a forward contract, the Brinson Fund or the UBS
Portfolio 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.
The Brinson Fund and the UBS Portfolio may purchase and sell put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar costs of securities to be acquired. The Brinson Fund and the UBS
Portfolio may purchase covered call options on foreign currencies, meaning that
they own an equal amount of, or an offsetting position in, the underlying
currency. If the Brinson Fund or the UBS Portfolio purchases put options, it
will keep cash or high-quality liquid securities segregated in a sufficient
quantity with its custodian.
Investment Restrictions
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The investment restrictions of the Brinson Fund, the UBS Fund and the
UBS Portfolio are similar, but not identical. Each of the investment
restrictions applicable to the Brinson Fund is a fundamental policy that may not
be changed without a Majority Vote of the Brinson Fund's outstanding shares. The
UBS Fund and the UBS Portfolio, however, have adopted investment restrictions
that are fundamental and non-fundamental; to the extent that a fundamental
policy and non-fundamental policy apply to a given investment activity or
strategy, the more restrictive policy shall govern. Each investment policy of
the UBS Fund and the UBS Portfolio discussed below is fundamental, unless
otherwise indicated. These fundamental investment restrictions are in addition
to those discussed previously in the "Investment Policies" section. As with the
Brinson Fund, a fundamental investment restriction may not be changed without a
Majority Vote of the UBS Portfolio's (or the UBS Fund's) outstanding shares.
The investment restrictions applicable to the UBS Fund have been
adopted by the Corporation's Board of Directors, with respect to the UBS Fund,
and by the UBS Trust's Board of Trustees, with respect to the UBS Portfolio. The
investment restrictions of the UBS Fund and the UBS Portfolio are identical,
unless otherwise specified.
With respect to both the Brinson Fund and the UBS Portfolio, 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 the Fund's or Portfolio's total assets will not be considered a
violation.
Neither the Brinson Fund nor the UBS Portfolio may, as to 75% of its
total assets, purchase the securities (or other obligations, in the case of the
UBS Portfolio) of any one issuer, other than securities issued (or guaranteed,
in the case of the UBS Portfolio) by the U.S. government or its agencies or
instrumentalities, if immediately after such purchase more than 5% of the value
of the total assets of the Brinson Fund or the UBS Portfolio would be invested
in securities (or obligations, in the case of the UBS Portfolio) of such issuer.
The UBS
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Portfolio however, may invest all or part of its investable assets in an open-
end management investment company with the same investment objectives and
restrictions.
Neither the Brinson Fund nor the UBS Portfolio may invest in real
estate (or interests in real estate, in the case of the Brinson Fund, but this
will not prevent the Brinson Fund 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 (including limited partnerships, in the case
of the UBS Portfolio) or leases (in the case of the Brinson Fund only). The UBS
Portfolio may purchase debt obligations secured by interests in real estate or
issued by companies that invest in real estate or interests therein, including
real estate investment trusts.
Neither the Brinson Fund nor the UBS Portfolio may purchase or sell
commodities or commodity contracts. The Brinson Fund's restriction provides that
it may enter into futures contracts and options thereon in accordance with its
prospectus. The UBS Portfolio's restriction provides that it may not purchase or
sell options on commodities or commodity contracts except for its interest in
hedging and certain other activities described in its statement of additional
information.
The UBS Portfolio has a non-fundamental investment restriction that
provides that it will not invest for the purpose of exercising control or
management. The Brinson Fund is not subject to a comparable restriction.
Neither the Brinson Fund nor the UBS Portfolio (with respect to 75% of
its total assets) may purchase the securities of an issuer if, immediately after
such purchase, the Brinson Fund or the UBS Portfolio would own more than 10% of
the outstanding voting securities of such issuer. The UBS Portfolio further
provides that it may invest all or part of its investable assets in an open-end
management investment company with the same investment objectives and
restrictions.
The Brinson Fund may not 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 the Brinson Fund for
initial or maintenance margin in connection with futures contracts is not
considered to be the purchase or sale of a security on margin.
The UBS Portfolio is subject to a non-fundamental restriction that
provides that it may not purchase any security or evidence of interest therein
on margin, except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in connection with
the purchase, ownership, holding or sale of futures.
As a matter of non-fundamental policy, the UBS Portfolio may not sell
securities it does not own such that the dollar amount of such short sales at
any one time exceeds 25% of the net equity of the UBS Portfolio, and the value
of securities of any one issuer in which the UBS Portfolio is short exceeds the
lesser of 2.0% of the value of the Portfolio's net assets or 2.0% of the
securities of any class of any U.S. issuer, and provided that short sales may be
made only in those securities which are fully listed on a national securities
exchange or a foreign exchange (this provision does not include the sale of
securities the UBS Portfolio contemporaneously owns or where the UBS Portfolio
has the right to obtain securities equivalent in kind and amount to those sold,
i.e., short sales against the box). The UBS Portfolio has no current intention
to engage in short selling.
In addition to the restrictions on borrowing discussed previously in
the "Investment Policies" section, the UBS Portfolio's investment restriction
also provides that it may not mortgage, pledge, or hypothecate any assets,
except in connection with any permitted borrowing or reverse repurchase
agreements.
Neither the Brinson Fund nor the UBS Portfolio may act as an
underwriter of securities, except that, with respect to the Brinson Fund, in
connection with the disposition of a security, the Brinson Fund may be deemed to
be an "underwriter" as that term is defined in the 1933 Act.
The UBS Portfolio has adopted a non-fundamental investment restriction
which provides that it may not invest in warrants (other than warrants acquired
by the UBS Portfolio as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of cost or
market) would
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exceed 5% of the value of the UBS Portfolio's net assets. The Brinson Fund is
not subject to a comparable restriction.
Risk Factors
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Lower Rated Securities
Both the Brinson Fund and the UBS Portfolio invest primarily in lower
rated securities. 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 either the Brinson
Fund or the UBS Portfolio from widespread bond defaults brought about by a
substantial economic downturn, or that yields will continue to offset default
rates on lower rated securities in the future.
Issuers of these securities are often smaller, less creditworthy
companies, or highly leveraged (indebted) firms, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. These issuers are generally
less able than more financially stable firms to make scheduled payments of
principal and interest. The inability (or perceived inability) of issuers to
make timely payments of interest and principal would likely make the values of
securities held by the Brinson Fund and the UBS Portfolio more volatile and
could limit the Brinson Fund's and the UBS Portfolio's ability to sell their
securities at prices approximating the values that the Brinson Fund and the UBS
Portfolio had placed on these securities. The absence of a liquid trading market
for certain of these securities may make it more difficult for the Brinson Fund
and the UBS Portfolio to establish the fair market value of these securities and
calculate the Brinson Fund's and the UBS Portfolio's net asset values. The
rating assigned to a security by Moody's or S&P does not reflect an assessment
of the volatility of the security's market value or the liquidity of an
investment in the security.
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 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. The market values of
these securities tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. 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 and the ability of the Brinson Fund or the UBS
Portfolio to dispose of particular issues when necessary to meet the Fund's or
the Portfolio's liquidity needs or in response to a specific economic event such
as a deterioration in the creditworthiness of the issuer may be adversely
affected.
Changes by ratings services in their ratings of securities held by the
Brinson Fund and the UBS Portfolio may affect the value of these investments.
Changes in the value of portfolio investments generally will not affect the
income derived from these investments, but will affect the Brinson Fund's and
the UBS Portfolio's net asset values. Securities rated C by Moody's are the
lowest rated class and can be regarded as having extremely poor prospects of
ever attaining any real investment standing. Debt rated D by S&P, its lowest
rating, is in default or is expected to default upon maturity or payment date.
In addition to 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 restructuring such as takeovers or mergers. Such legislation may
significantly depress the prices of outstanding lower rated securities.
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Fixed Income Securities
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.
Mortgage-Backed and Asset-Backed Securities
Both the Brinson Fund and the UBS Portfolio are authorized to invest
in mortgage-backed securities, asset-backed securities and other collateralized
securities. These investments are subject to the risk of lower rates of return
than expected if lower interest rates lead to a faster rate of prepayment of the
mortgages underlying the securities. Securities issued by certain private
organizations may not be readily marketable. The Brinson Fund and the UBS
Portfolio may also invest in collateralized mortgage obligations ("CMOs").
Investors in CMOs may experience losses should the collateral prove insufficient
to meet payments. Privately-issued CMOs tend to be more sensitive to interest
rates than government-issued CMOs.
Risks of asset-backed securities include the prepayment of the
debtor's obligation and the creditor's limited interests in applicable
collateral. Additionally, if the letter of credit guaranteeing payments of
principal or interest for the asset-backed securities is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amount due in underlying sales contracts are not realized.
Foreign Securities
The Brinson Fund and the UBS Portfolio, by investing in foreign
securities, would be subject to certain additional risks. Investments in
securities of foreign issuers and in obligations of foreign branches of domestic
banks involve somewhat different investment risks from those affecting
securities of domestic issuers, and include, but are not limited to, economic
developments, possible withholding taxes, seizure of foreign deposits, changes
in currency rates or currency exchange controls, higher transactional costs due
to a lack of negotiated commissions, or other governmental restrictions which
might affect the amount and types of foreign investments made or the payment of
principal or interest on securities in the investment portfolios of the Brinson
Fund and the UBS Portfolio. In addition, in some non-U.S. countries, there is
the possibility of political or social instability, or diplomatic developments
that could affect U.S. investments in those countries. Also, there may be less
information available about these securities in general, and it may be more
difficult to obtain or enforce a court judgement in the event of a lawsuit.
Emerging Market Countries
Unlike the UBS Portfolio, the Brinson Fund may invest in securities of
issuers in emerging market countries. Investments in securities of issuers in
emerging market countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investment
in securities of foreign issuers, as discussed above, to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging market
issuers and the currently low or non-existent volume of trading, resulting in
limited liquidity and in price volatility; (iii) certain national policies that
may restrict the Brinson Fund's investment opportunities, including restrictions
on investing in issuers or industries deemed sensitive to relevant national
interest; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
Securities of issuers in emerging market countries have offered
greater potential for gain, as well as loss, than securities of companies
located in developed countries. Countries such as those in which the Brinson
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
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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. In consideration of
the foregoing, a governmental issuer may default on its obligations. If such
default occurs, the Brinson Fund 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.
Brady Bonds
The Brinson Fund may invest in Brady Bonds, which have been issued
only during recent years, and for that reason do not have a long payment
history. 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. Brady Bonds are often viewed as having three or
four valuation components; the collateralized repayment of principal at final
maturity; the collateralized interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds with respect to commercial bank loans by public and private
entities, investments in Brady Bonds by the Brinson Fund may be viewed as
speculative. There can be no assurance that the Brady Bonds in which the Brinson
Fund invests will not be subject to restructuring arrangements or to requests
for a new credit which may cause the Brinson Fund to suffer a loss of interest
or principal in any of its holdings.
Structured Securities
Because Structured Securities of the type in which the Brinson Fund
anticipates investing typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. The Brinson
Fund is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently is no
active trading market for Structured Securities.
Loan Participations and Assignments
The Brinson Fund will have the right to receive payments of principal,
interest and any fees to which it is 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 Brinson Fund may be treated as a general creditor of the Lender and may not
benefit from any set-off between the Lender and the borrower. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender with respect to
the Participation. Even under such a structure, in the event of the Lender's
insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation may be impaired. The Brinson Fund will
acquire Participations only if the Lender interpositioned between the Brinson
Fund and the borrower is determined by the Advisor to be creditworthy. When the
Brinson Fund 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 Brinson Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
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Because there may be no liquid market for Participations and
Assignments, the Brinson Fund anticipates that such securities could be sold
only to a limited number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
the Brinson Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Brinson Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower or the Lender. The lack of a liquid secondary
market for Assignments and Participations also may make it more difficult for
the Brinson Fund to assign a value to these securities for purposes of valuing
the Brinson Fund's portfolio and calculating its net asset value.
Zero Coupon Securities
The Brinson Fund and the UBS Portfolio may each invest in zero coupon
securities. Zero coupon securities are subject to the risk that the purchaser
will realize no cash until the cash payment date and, if the issuer of the
securities defaults, the purchaser may realize 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 Brinson Fund or the UBS Portfolio will be required to include
in income daily portions of original issue discount accrued and distribute the
same to shareholders annually, even if no payment is received before the
distribution date.
Currency and Exchange Rate Fluctuations
The assets of the Brinson Fund and the UBS Portfolio are subject to
certain risks associated with currency or exchange rate fluctuations. The U.S.
dollar market value of the Brinson Fund's and the UBS Portfolio's investments
and dividends and interest earned 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 could have adverse affects. The Brinson Fund
and the UBS Portfolio may enter into foreign currency exchange transactions in
connection with the settlement of foreign securities transactions or to manage
their currency exposure related to foreign investments. The Brinson Fund and the
UBS Portfolio will not enter into such transactions for speculative purposes.
Although the Brinson Fund and the UBS Portfolio may attempt to manage currency
exchange rate risks, there is no assurance that the Advisor or the UBS Sub-
Adviser will do so at an appropriate time or that they will be able to predict
exchange rates accurately.
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.
Although foreign currency transactions are intended to minimize the
risk of loss due to a decline in the value of the hedged currency, these
transactions also limit any potential gain that might be realized should the
value of the hedged currency increase. Additionally, any premiums paid for
currency or futures options increase transaction costs. Forward contracts that
convert one foreign currency into another foreign currency will cause the
Brinson Fund or the UBS Portfolio to assume the risk of fluctuations in the
value of the currency purchased vis-a-vis the hedged currency and the U.S.
dollar. The precise matching of these transactions and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date such a transaction is
entered into and the date it matures. The projection of currency market
increments is extremely difficult and the successful execution of a hedging
strategy is highly uncertain.
On January 1, 1999, the European Monetary Union (the "EMU") plans to
introduce a new single currency, the Euro, which will replace the national
currencies of participating member nations. If the Brinson Fund or the UBS
Portfolio holds investments in nations with currencies replaced by the Euro, its
investment process, including trading, foreign exchange, payments, settlements,
cash accounts, custody and accounting, will be impacted. Although it is not
possible to predict the impact of the Euro on the Brinson Fund or the UBS
Portfolio, the transition and the elimination of currency risk among nations
participating in the EMU may change the economic environment and behavior of
investors, particularly in European markets.
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The adoption of the Euro does not reduce the currency risk presented
by fluctuations in value of the U.S. dollar to other currencies, and, in fact,
currency exchange risk may be magnified. Also, increased market volatility may
result. Additional risks that may result include the fact that European issuers
in which the UBS Portfolio invests may face substantial conversion costs, which
may not be accurately anticipated and may impact issuer profitability and
creditworthiness.
The Advisor has created an interdepartmental team to handle all Euro-
related changes to enable the Brinson Fund to process transactions accurately
and completely with minimal disruption to business activities. While there can
be no assurance that the Brinson Fund will not be adversely affected, the
Advisor and the Trust's service provides are taking steps that they believe are
reasonably designed to address the Euro issue.
The Brinson Fund's and the UBS Portfolio's ability to "pass through"
any foreign taxes paid for tax credit or deduction purposes will be determined
by the composition of their portfolios. 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.
Futures, Options and Other Derivative Instruments
The success of the investments by the Brinson Fund and the UBS
Portfolio in options, futures, forward contracts, swaps (in the case of the UBS
Portfolio), and other derivative instruments will depend on the judgment of the
Advisor and the UBS Sub-Adviser, respectively, as to trends relating to prices,
interest rates and currency rates. 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. The Brinson
Fund and the UBS Portfolio 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 return. Options and
futures traded on foreign exchanges generally are not regulated by U.S.
authorities and may offer less liquidity and less protection in the event of
default by the other party to the contract. The loss from investing in futures
transactions is potentially unlimited.
The Brinson Fund's and the UBS Portfolio's purchases of options on
indices will subject them to the following risks. First, 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 the Brinson Fund or the UBS Portfolio
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 either the Brinson Fund or the UBS Portfolio of
options on indices is subject to the Advisor's or the UBS Sub-Adviser's ability,
respectively, 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.
Second, 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, the Brinson Fund
and the UBS Portfolio would not be able to close out options which they had
purchased and it 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.
Finally, if either the Brinson Fund or the UBS Portfolio 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 Brinson Fund or the UBS Portfolio 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 either
the Brinson Fund or the UBS Portfolio 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
34
<PAGE>
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.
Repurchase Agreements
The Brinson Fund and the UBS Portfolio may each invest in repurchase
agreements, which involve risk of loss if a seller defaults on its obligations
under the agreement, and reverse repurchase agreements, which involve risk of
loss if a purchaser defaults in its obligation to return securities to the
Brinson Fund or the UBS Portfolio.
When-Issued and Delayed Delivery Securities
Both the Brinson Fund and the UBS Portfolio may purchase securities on
a when-issued and, in the case of the UBS Portfolio, a delayed delivery basis.
At the time of settlement, a when-issued security may be valued at less than its
purchase price. When entering into a when-issued or delayed delivery
transaction, the Brinson Fund or the UBS Portfolio, as relevant, will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Brinson Fund or the UBS Portfolio may be disadvantaged.
Swaps
The use of swaps by the UBS Portfolio involves investment techniques
and risks different from those associated with ordinary portfolio security
transactions. If the UBS Portfolio is incorrect in its forecast of market
values, interest rates and other applicable factors, the investment performance
of the UBS Portfolio will be less favorable than it would have been if this
investment technique were never used. Thus, if the other party to the swap
defaults, the UBS Portfolio's risk of loss consists of the net amount of
interest payments that it is contractually entitled to receive.
Securities Lending
Both the Brinson Fund and the UBS Portfolio may loan portfolio
securities to qualified broker-dealers and other institutions on a
collateralized basis. As with any extension of credit, loans by the Brinson Fund
or the UBS Portfolio may be subject to the risks of delay in recovery and loss
of rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities are only made to firms
deemed by either the Brinson Fund or the UBS Portfolio to be of good standing,
and when, in the judgment of either the Brinson Fund or the UBS Portfolio, the
income that can be earned from such loans justifies the attendant risk.
INFORMATION ABOUT THE BRINSON FUND
Additional information about the Brinson Fund is included in Exhibit B
attached to this Prospectus/Proxy Statement, and in the Statement of Additional
Information related to this Prospectus/Proxy Statement, which is dated
___________, 1998, which has been filed with the Commission and is incorporated
by reference herein. Copies of the Statement of Additional Information may be
obtained without charge by writing to the Trust or calling 1-800-448-2430. The
Trust is subject to the informational requirements of the Securities Exchange
Act of 1934 and the 1940 Act, as applicable, and, in accordance with such
requirements, files proxy materials, reports and other information with the
Commission. These materials can be inspected and copied at the Public Reference
Facilities maintained by the Commission at 450 Fifth Street N.W., Washington, DC
20549, and at the offices of the Trust at 209 South LaSalle Street, Chicago, IL
60604 and at the Midwest Regional Office of the Commission at 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, U.S. Securities and Exchange Commission, Washington, DC
20549, at prescribed rates.
INFORMATION ABOUT THE UBS FUND
Information about the UBS Fund is incorporated herein by reference
from its current prospectus, dated May 1, 1998, as amended or supplemented from
time to time, and Statement of Additional Information of the
35
<PAGE>
same date, and annual report to shareholders, dated December 31, 1997, copies of
which may be obtained without charge by writing or calling the Corporation at
the address and telephone number shown on the cover page of this
Prospectus/Proxy Statement. Reports and other information filed by the
Corporation can be inspected and copied at the Public Reference Facilities
maintained by the Commission at 450 Fifth Street N.W., Washington, DC 20549, and
copies of such material can be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, U.S. Securities and Exchange
Commission, Washington, DC 20549, at prescribed rates.
TRANSFER AGENT AND CUSTODIAN
MSTC, One Pierrepont Plaza, Brooklyn, New York 11201 provides
custodian services for the Trust. CGFSC, 73 Tremont Street, Boston,
Massachusetts 02108-3913 provides transfer agency services to the Trust.
Investors Bank, whose principal offices are located at 200 Clarendon Street,
Boston, Massachusetts 02116, serves as the transfer and dividend disbursing
agent and custodian for the UBS Fund and the UBS Portfolio.
SHAREHOLDER INQUIRIES
Shareholder inquiries with respect to the Brinson Fund may be made by
writing the Trust at 209 South LaSalle Street, Chicago, Illinois 60604 or by
calling toll-free (800) 448-2430. Shareholder inquiries with respect to the
Corporation and the UBS Fund may be made by writing to the Corporation at 200
Clarendon Street, Boston, Massachusetts 02116 or by calling toll-free (888) 827-
3863.
36
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS OF THE UBS PRIVATE INVESTOR FUNDS, INC.
UBS HIGH YIELD BOND FUND
DECEMBER 15, 1998
The undersigned hereby revokes all previous proxies for his/her shares and
appoints [Names], and each of them, proxies of the undersigned with full power
of substitution to vote all shares of the UBS High Yield Bond Fund (the "UBS
Fund") of UBS Private Investor Funds, Inc. (the "Corporation") which the
undersigned is entitled to vote at the Corporation's Special Meeting to be held
at _____________________________ at _____ a.m. Eastern time on the 15th day of
December, 1998, including any adjournment thereof, upon such business as may
properly be brought before the Meeting.
No. 1 To approve an Agreement and Plan of Reorganization between the
Corporation, on behalf of the UBS Fund, and The Brinson Funds, on
behalf of the High Yield Bond Fund series (the "Brinson Fund"), that
provides for the acquisition of substantially all of the assets and
liabilities of the UBS Fund in exchange for the Brinson High Yield
Bond Fund Class I shares of the Brinson Fund, the distribution of
such shares to the shareholders of the UBS Fund, and the dissolution
of the UBS Fund.
FOR AGAINST ABSTAIN
--- ------- -------
[_] [_] [_]
No. 2 To vote upon any other business which may legally come before the
meeting.
GRANT WITHHOLD
----- --------
[_] [_]
37
<PAGE>
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
This proxy is solicited on behalf of the Board of Directors of the Corporation.
It will be voted as specified. If no specification is made, this proxy shall be
voted in favor of Proposal 1, regarding the reorganization of the UBS Fund of
the Corporation pursuant to the Agreement and Plan of Reorganization with The
Brinson Funds. If any other matters properly come before the meeting about
which the proxyholders were not aware prior to the time of the solicitation,
authorization is given the proxyholders to vote in accordance with the views of
management thereon. The management is not aware of any such matters.
Dated:
--------------------------------------
--------------------------------------------
Signature
--------------------------------------------
Print Name
--------------------------------------------
Signature
--------------------------------------------
Print Name
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, title or
capacity should be stated. If shares are
held jointly, each holder must sign.
38
<PAGE>
EXHIBITS TO
PROSPECTUS AND PROXY STATEMENT
Exhibit
- -------
A Agreement and Plan of Reorganization between UBS Private Investor
Funds, Inc., on behalf of its UBS High Yield Bond Fund, and The
Brinson Funds, on behalf of the High Yield Bond Fund.
B Additional Information Regarding the Brinson Fund.
39
<PAGE>
EXHIBIT A
---------
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, made as of this ____ day of
_____________ 1998, by and between The Brinson Funds (the "Trust"), a business
trust created under the laws of the State of Delaware, with its principal place
of business at 209 South LaSalle Street, Chicago, Illinois 60604 and UBS Private
Investor Funds, Inc. (the "UBS Funds"), a corporation organized under the laws
of the State of Maryland, with its principal place of business at 200 Clarendon
Street, Boston, Massachusetts 02116.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by the Trust of
substantially all of the property, assets and goodwill of the UBS High Yield
Bond Fund (the "UBS Portfolio") of the UBS Funds in exchange solely for the
Brinson High Yield Bond Fund Class I shares ("Class I shares") of beneficial
interest of the High Yield Bond Fund (the "Brinson Fund"), $0.001 par value, and
the assumption by the Trust of the liabilities of the UBS Portfolio, (ii) the
distribution of such shares of beneficial interest of the Brinson Fund to the
shareholders of the UBS Portfolio according to their respective interests, and
(iii) the dissolution of the UBS Portfolio as soon as practicable after the
closing (as defined in Section 3, hereinafter called the "Closing"), all upon
and subject to the terms and conditions of this Agreement hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration
of the premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as follows:
1. Sale and Transfer of Assets and Liabilities, Liquidation and
Dissolution of the UBS Portfolio
----------------------------------------------------------------
(a) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of the Trust herein contained,
and in consideration of the delivery by the Trust of the number of its Class I
shares of the Brinson Fund hereinafter provided, the UBS Funds on behalf of the
UBS Portfolio agrees that it will convey, transfer and deliver to the Trust at
the Closing provided for in Section 3 (hereinafter called the "Closing") all of
the then existing liabilities and assets of the UBS Portfolio free and clear of
all liens, encumbrances, and claims whatsoever (other than shareholders' rights
of redemption and such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act"), with respect to privately placed or otherwise
restricted securities that the UBS Portfolio may have acquired in the ordinary
course of business), except for cash, bank deposits, or cash equivalent
securities in an estimated amount necessary (1) to pay its costs and expenses of
carrying out this Agreement (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution contemplated
hereunder), which costs and expenses shall be
A-1
<PAGE>
established on the books of the UBS Portfolio as liability reserves, (2) to
discharge all of the UBS Portfolio's liabilities on its books at the closing
date (as defined in Section 3, hereinafter called the "Closing Date"),
including, but not limited to, its income dividends and capital gains
distributions, if any, payable for any period prior to, and through, the Closing
Date, and excluding those liabilities and obligations which would otherwise be
discharged at a later date in the ordinary course of business, and (3) to pay
such contingent liabilities as the directors shall reasonably deem to exist
against the UBS Portfolio, if any, at the Closing Date, for which contingent and
other appropriate liability reserves shall be established on the books of the
UBS Portfolio (hereinafter "Net Assets"). The UBS Portfolio shall also retain
any and all rights which it may have over and against any person which may have
accrued up to and including the close of business on the Closing Date.
(b) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of the Trust herein contained,
and in consideration of such sale, conveyance, transfer, and delivery, the Trust
agrees at the Closing to deliver to the UBS Portfolio the number of Class I
shares of beneficial interest of the Brinson Fund ($0.00l par value) determined
by dividing the net asset value per share of stock of the UBS Portfolio on the
Closing Date by the net asset value per share of beneficial interest of the
Class I shares of the Brinson Fund on the Closing Date, which net asset value
per share shall be identical to that determined to be the net asset value per
share of the Class I shares of the Brinson Fund on the Closing Date, and
multiplying the result by the number of outstanding shares of the UBS Portfolio
on the Closing Date. All such values shall be determined in the manner and as
of the time set forth in Section 2 hereof.
(c) Immediately following the Closing, the UBS Portfolio shall
dissolve and distribute pro rata to its shareholders of record as of the close
of business on the Closing Date the shares of beneficial interest of the Class I
shares of the Brinson Fund received by the UBS Portfolio pursuant to this
Section 1. Such liquidation and distribution shall be accomplished by the
establishment of accounts on the share records of the Brinson Fund of the type
and in the amounts due such shareholders based on their respective holdings as
of the close of business on the Closing Date. Fractional shares of beneficial
interest of the Class I shares of the Brinson Fund shall be carried to the third
decimal place. As promptly as practicable after the Closing, each holder of any
outstanding certificate or certificates representing shares of common stock of
the UBS Portfolio shall be entitled to surrender the same to the transfer agent
for the Trust and request in exchange therefor a certificate or certificates
representing the number of whole shares of beneficial interest of the Class I
shares of the Brinson Fund into which the shares of common stock of the UBS
Portfolio theretofore represented by the certificate or certificates so
surrendered shall have been converted. Certificates for fractional shares of
beneficial interest of the Class I shares of the Brinson Fund shall not be
issued, but shall continue to be carried by the Brinson Fund for the account of
such shareholder as unissued shares. Until so surrendered, each outstanding
certificate which, prior to the Closing, represented shares of common stock of
the UBS Portfolio shall be deemed for all the Brinson Fund purposes to evidence
ownership of the number of shares of beneficial interest of the Class I shares
of the Brinson Fund into which the shares of common stock of the UBS Portfolio
(which prior to the Closing were represented thereby) have been converted.
A-2
<PAGE>
2. Valuation
---------
(a) The value of the UBS Portfolio's Net Assets to be acquired by the
Brinson Fund hereunder shall be computed as of the close of business (which
shall be deemed to be the close of The New York Stock Exchange, Inc. ("NYSE"))
on the Closing Date using the valuation procedures set forth in the UBS
Portfolio's currently effective prospectus.
(b) The net asset value of a share of beneficial interest of the Class
I shares of the Brinson Fund shall be identical to the net asset value per share
of the UBS Portfolio at the close of business on the Closing Date, determined as
set forth in subsection (c) of Section 2.
(c) The net asset value of a share of common stock of the UBS
Portfolio shall be determined to the nearest full cent as of the close of
business (which shall be deemed to be the close of the NYSE) on the Closing
Date, using the valuation procedures as set forth in the UBS Portfolio's
currently effective prospectus.
3. Closing and Closing Date
------------------------
The Closing Date shall be December 16, 1998, or such later date as the
parties may mutually agree. The Closing shall take place at the principal
office of the Trust, 209 South LaSalle Street, Chicago, Illinois 60604 at 10:00
a.m. Eastern Time on the first business day following the Closing Date. The UBS
Funds shall have provided for delivery as of the Closing of those Net Assets of
the UBS Portfolio to be transferred to the Trust's Custodian, Morgan Stanley
Trust Company, One Pierrepont Plaza, Brooklyn, New York 11201. Also, the UBS
Funds shall deliver at the Closing a list of names and addresses of the
shareholders of record of the UBS Portfolio and the number of shares of common
stock of the UBS Portfolio owned by each such shareholder, indicating thereon
which such shares are represented by outstanding certificates and which by book-
entry accounts, all as of the close of business on the Closing Date, certified
by its transfer agent, or by its President to the best of their knowledge and
belief. The Trust shall issue and deliver a certificate or certificates
evidencing the shares of beneficial interest of the Class I shares of the
Brinson Fund to be delivered to said transfer agent registered in such manner as
the UBS Funds may request, or provide evidence satisfactory to the UBS Portfolio
that such shares of the Brinson Fund have been registered in an account on the
books of the Brinson Fund in such manner as the UBS Funds may request.
4. Representations and Warranties by the UBS Funds
-----------------------------------------------
The UBS Funds represents and warrants to the Trust that:
(a) UBS Funds is a corporation duly organized under the laws of the
State of Maryland on November 16, 1995, and is validly existing and in good
standing under the laws of that state. UBS Funds, of which the UBS Portfolio is
a diversified separate series of shares, is duly registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, management
investment company and all its shares sold have been sold pursuant to an
A-3
<PAGE>
effective registration statement filed under the 1933 Act, except for those
shares sold pursuant to the private offering exemption for the purpose of
raising the required initial capital.
(b) The UBS Funds has an authorized capital of 500,000,000 shares of
common stock with $0.001 par value per share, each outstanding share of which is
fully paid, non-assessable, fully transferable and has full voting rights.
(c) The financial statements appearing in the UBS Funds' Annual Report
to Shareholders for the fiscal year ended December 31, 1997, audited by Price
Waterhouse LLP, and the unaudited financial statements appearing in the UBS
Funds' Semi-Annual Report to Shareholders for the period ended June 30, 1998,
copies of which have been delivered to the Trust, fairly present the financial
position of the UBS Funds and the UBS Portfolio as of the respective dates
indicated, in conformity with generally accepted accounting principles applied
on a consistent basis.
(d) The books and records of the UBS Portfolio made available to the
Trust and/or its counsel are true and correct and contain no material omissions
with respect to the business and operations of the UBS Portfolio.
(e) The UBS Funds has the necessary power and authority to conduct its
business as such business is now being conducted.
(f) The UBS Funds is not a party to or obligated under any provision
of its Articles of Incorporation, By-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which would
be violated by its execution of or performance under this Agreement and Plan of
Reorganization.
(g) The UBS Funds is not under the jurisdiction of a Court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
(h) The UBS Funds does not have any unamortized or unpaid
organizational fees or expenses.
(i) The UBS Portfolio satisfies, will at the Closing satisfy, and
consummation of this Agreement will not cause it to fail to satisfy, for any
period, the requirements of Subchapter M of the Code.
5. Representations and Warranties by the Trust
-------------------------------------------
The Trust represents and warrants to the UBS Funds that:
(a) The Trust is a business trust created under the laws of the State
of Delaware on August 9, 1993, and is validly existing and in good standing
under the laws of that state. The Trust, of which the Brinson Fund is a
diversified separate series of shares, is duly
A-4
<PAGE>
registered under the 1940 Act, as an open-end, management investment company and
all of its shares sold have been sold pursuant to an effective registration
statement filed under the 1933 Act, except for those shares sold pursuant to the
private offering exemption for the purpose of raising the required initial
capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.001 per share. Each outstanding share is
fully paid, non-assessable, fully transferable, and has full voting rights. The
shares of beneficial interest of the Class I shares of the Brinson Fund to be
issued pursuant to this Agreement and Plan of Reorganization will be fully paid,
non-assessable, freely transferable and have full voting rights.
(c) At the Closing, the shares of beneficial interest of the Class I
shares of the Brinson Fund will be eligible for offering to the public in those
states of the United States and jurisdictions in which the shares of the UBS
Portfolio are presently eligible for offering to the public, and there are a
sufficient number of such shares registered under the 1933 Act, to permit the
transfers contemplated by this Agreement to be consummated.
(d) The Trust has the necessary power and authority to conduct its
business as such business is now being conducted.
(e) The Trust is not a party to or obligated under any provision of
its Agreement and Declaration of Trust, By-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which would
be violated by its execution of or performance under this Agreement and Plan of
Reorganization.
(f) Neither the Trust nor the Brinson Fund is under the jurisdiction
of a Court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
6. Representations and Warranties by the UBS Funds and the Trust
-------------------------------------------------------------
The UBS Funds and the Trust each represents and warrants to the other
that:
(a) The statement of assets and liabilities to be furnished by it as
of the close of business on the Closing Date for the purpose of determining the
number of shares of beneficial interest of the Class I shares of the Brinson
Fund to be issued pursuant to Section 1 of this Agreement will accurately
reflect its Net Assets in the case of the UBS Portfolio and its net assets in
the case of the Brinson Fund, and outstanding shares of beneficial interest or
common stock, as applicable, as of such date in conformity with generally
accepted accounting principles applied on a consistent basis.
(b) At the Closing, it will have good and marketable title to all of
the securities and other assets shown on the statement of assets and liabilities
referred to in subsection (a) above, free and clear of all liens or encumbrances
of any nature whatever except such restrictions as might arise under the 1933
Act with respect to privately placed or otherwise restricted securities that the
UBS Portfolio may have acquired in the ordinary course of business
A-5
<PAGE>
and such imperfections of title or encumbrances as do not materially detract
from the value or use of the assets subject thereto, or materially affect title
thereto.
(c) Except as disclosed in its currently effective prospectus, there
is no material suit, judicial action, or legal or administrative proceeding
pending or threatened against it.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(e) It has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action of its Board of
Directors or Board of Trustees, as the case may be, and this Agreement
constitutes its valid and binding obligation enforceable in accordance with its
terms.
7. Covenants of the UBS Funds and the Trust
----------------------------------------
(a) The UBS Funds and the Trust each covenant to operate their
respective businesses as presently conducted between the date hereof and the
Closing.
(b) The UBS Funds undertakes that it will not acquire the Brinson
Fund's shares for the purpose of making distributions thereof other than to the
UBS Portfolio's shareholders.
(c) The UBS Funds undertakes that if this Agreement is consummated, it
will file an application pursuant to Section 8(f) of the 1940 Act for an order
declaring that it has ceased to be an investment company.
(d) The UBS Funds and the Trust each agree that by the Closing, all of
its federal and other tax returns and reports required by law to be filed on or
before such date shall have been filed and all federal and other taxes shown as
due on said returns shall have either been paid or adequate liability reserves
shall have been provided for the payment of such taxes.
(e) The UBS Funds will at the Closing provide the Trust with:
(1) A statement of the respective tax basis of all investments
and liabilities to be transferred by the UBS Portfolio to the Brinson
Fund certified by PricewaterhouseCoopers LLP.
(2) A copy of the shareholder ledger accounts for all the
shareholders of record of the UBS Portfolio as of the close of
business on the Closing Date, who are to become shareholders of the
Brinson Fund as a result of the transfer of assets which is the
subject of this Agreement, certified by its transfer agent or its
President to the best of their knowledge and belief.
A-6
<PAGE>
(f) UBS Funds agrees to mail to each shareholder of record of the UBS
Portfolio entitled to vote at the meeting of shareholders at which action on
this Agreement is to be considered, in sufficient time to comply with
requirements as to notice thereof, a Combined Proxy Statement and Prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the Securities Exchange Act of 1934, as amended, and Section
20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder.
(g) The Trust will file with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form N-14 under the
1933 Act ("Registration Statement"), relating to the shares of beneficial
interest of the Class I shares of the Brinson Fund issuable hereunder, and will
use its best efforts to provide that the Registration Statement becomes
effective as promptly as practicable. At the time the Registration Statement
becomes effective, it (i) will comply in all material respects with the
applicable provisions of the 1933 Act, and the rules and regulations promulgated
thereunder; and (ii) will not contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading. At the time the Registration Statement
becomes effective, at the time of the UBS Portfolio's shareholders' meeting, and
at the Closing Date, the prospectus and statement of additional information
included in the Registration Statement will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
8. Conditions Precedent to be Fulfilled by the UBS Funds and the Trust
-------------------------------------------------------------------
The obligations of the UBS Funds and the Trust to effectuate this
Agreement and the Plan of Reorganization hereunder shall be subject to the
following respective conditions:
(a) That (1) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (2) the other party shall have
performed all obligations required by this Agreement to be performed by it prior
to the Closing; and (3) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent officer
to the foregoing effect.
(b) That the other party shall have delivered to such party a copy of
the resolutions approving this Agreement adopted by the other party's Board of
Directors or Board of Trustees, as applicable, certified by the Secretary or
equivalent officer.
(c) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted nor threatened to
institute any proceeding seeking to enjoin consummation of the reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of either party or would prohibit the transactions
contemplated hereby.
A-7
<PAGE>
(d) That the adoption of this Agreement and Plan of Reorganization
contemplated hereby shall have been approved by the holders of at least a
majority of the outstanding shares of the UBS Portfolio at a special meeting to
be held no later than March 22, 1999 or other such date as the parties may
agree.
(e) That each party shall have declared a distribution or
distributions prior to the Closing Date which, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its ordinary income and all of its capital gain net income, if any, for the
period from the close of its last fiscal year to the close of business on the
Closing Date, and (ii) any undistributed ordinary income and capital gain net
income from any prior period. Capital gain net income has the meaning given
such term by Section 1222(9) of the Code.
(f) That prior to or at the Closing, the UBS Funds and the Trust shall
receive an opinion from Messrs. Stradley, Ronon, Stevens & Young LLP, counsel
to the Trust, to the effect that provided the acquisition contemplated hereby is
carried out in accordance with this Agreement and in accordance with customary
representations provided by the UBS Funds and the Trust in certificates
delivered to counsel to the Trust:
(1) The acquisition by the Brinson Fund of substantially all of
the assets and liabilities of the UBS Portfolio in exchange for the
Brinson Fund voting shares followed by the distribution by the UBS
Portfolio of the Brinson Fund voting shares to the shareholders, in
complete liquidation, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code. For these purposes,
"substantially all" means at least 70 percent of the fair market value
of the gross assets and at least 90 percent of the fair market value
of the net assets of the UBS Portfolio. Additionally, the Brinson
Fund and the UBS Portfolio will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the UBS Portfolio upon
the transfer of substantially all of its assets and liabilities to the
Brinson Fund in exchange solely for voting shares of the Brinson Fund
(Sections 361(a) and 357(a)). No opinion will be expressed as to
whether any accrued market discount will be required to be recognized
as ordinary income pursuant to Section 1276 of the Code;
(3) No gain or loss will be recognized by the Brinson Fund upon
the receipt of substantially all of the assets and liabilities of the
UBS Portfolio in exchange solely for voting shares of the Brinson Fund
(Section 1032(a) of the Code);
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<PAGE>
(4) The basis of the assets of the UBS Portfolio received by the
Brinson Fund will be the same as the basis of such assets and
liabilities to the UBS Portfolio immediately prior to the exchange
(Section 362(b) of the Code);
(5) The holding period of the assets of the UBS Portfolio
received by the Brinson Fund will include the period during which such
assets were held by the UBS Portfolio (Section 1223(2) of the Code);
(6) No gain or loss will be recognized to the shareholders of the
UBS Portfolio upon the exchange of their shares in the UBS Portfolio
for voting shares of the Brinson Fund (including fractional shares to
which they may be entitled) (Section 354(a) of the Code);
(7) The basis of the Brinson Fund's shares received by the UBS
Portfolio shareholders (including fractional shares to which they may
be entitled) shall be the same as the basis of the shares of the UBS
Portfolio exchanged therefor (Section 358(a)(1) of the Code);
(8) The holding period of the Brinson Fund's shares received by
the UBS Portfolio's shareholders (including fractional shares to which
they may be entitled) will include the holding period of the UBS
Portfolio's shares surrendered in exchange therefor, provided that the
UBS Portfolio shares were held as a capital asset on the date of the
exchange (Section 1223(l) of the Code); and
(9) The Brinson Fund will succeed to and take into account the
items of the UBS Portfolio described in Section 381(c) of the Code,
including the earnings and profits, or deficit earnings and profits,
of the UBS Portfolio as of the date of the transaction (Section 381(a)
and Treasury Regulations 1.381-1(a)). Any deficit in earnings and
profits of the UBS Portfolio will be used only to offset earnings and
profits accumulated after the effective date of the proposed
reorganization. The Brinson Fund will take these items into account
subject to the conditions and limitations specified under Sections
381, 382, 383 and 384 and the Treasury Regulations thereunder.
(g) That the Trust shall have received an opinion in form and
substance satisfactory to it from Messrs. Willkie Farr & Gallagher, counsel to
the UBS Funds, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) UBS Funds was incorporated under the laws of the State of
Maryland on November 16, 1995, and is validly existing and in good
standing under the laws of the State of Maryland;
A-9
<PAGE>
(2) UBS Funds has an authorized capital of 500,000,000 shares of
common stock, par value $0.001 per share, and, assuming that the
initial shares of common stock of the UBS Portfolio were issued in
accordance with the 1940 Act, and the Articles of Incorporation and
By-laws of the UBS Funds, and that all other outstanding shares of the
UBS Portfolio were sold, issued and paid for in accordance with the
terms of the UBS Portfolio's prospectus in effect at the time of such
sales, each such outstanding share is fully paid, non-assessable,
fully transferable and has full voting rights;
(3) UBS Funds is an open-end, investment company of the
management type registered as such under the 1940 Act;
(4) Except as disclosed in the UBS Portfolio's currently
effective prospectus, such counsel does not know of any material suit,
action, or legal or administrative proceeding pending or threatened
against the UBS Funds, the unfavorable outcome of which would
materially and adversely affect the UBS Funds or the UBS Portfolio;
(5) All corporate actions required to be taken by the UBS Funds
to authorize this Agreement and to effect the Plan of Reorganization
contemplated hereby have been duly authorized by all necessary
corporate action on the part of the UBS Funds; and
(6) This Agreement is the legal, valid and binding obligation of
the UBS Funds and is enforceable against the UBS Funds in accordance
with its terms.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the UBS Funds with regard to
matters of fact and certain certifications and written statements of
governmental officials with respect to the good standing of the UBS Funds and
the UBS Portfolio.
(h) That the UBS Funds shall have received an opinion in form and
substance satisfactory to it from Messrs. Stradley, Ronon, Stevens & Young LLP,
counsel to Trust, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) The Trust was created as a business trust under the laws of
the State of Delaware on August 9, 1993, and is validly existing and
in good standing under the laws of that state;
(2) The Trust is authorized to issue an unlimited number of
shares of beneficial interest, par value $0.001 per share, and,
assuming that the initial shares of beneficial interest of the Class I
shares of the Brinson Fund were issued
A-10
<PAGE>
in accordance with the 1940 Act, and the Trust's Agreement and
Declaration of Trust and that all other such shares were sold, issued
and paid for in accordance with the terms of the Brinson Fund's
prospectus in effect at the time of such sales, each such outstanding
share is fully paid, non-assessable, freely transferable and has full
voting rights;
(3) The Trust is an open-end investment company of the management
type registered as such under the 1940 Act;
(4) Except as disclosed in the Brinson Fund's currently effective
prospectus, such counsel does not know of any material suit, action,
or legal or administrative proceeding pending or threatened against
the Trust, the unfavorable outcome of which would materially and
adversely affect the Trust or the Brinson Fund;
(5) The shares of beneficial interest of the Brinson Fund to be
issued pursuant to the terms of this Agreement have been duly
authorized and, when issued and delivered as provided in this
Agreement, will have been validly issued and fully paid and will be
nonassessable by the Trust or the Brinson Fund;
(6) All actions required to be taken by the Trust to authorize
this Agreement and to effect the Plan of Reorganization contemplated
hereby have been duly authorized by all necessary action on the part
of the Trust;
(7) Neither the execution, delivery nor performance of this
Agreement by the Trust violates any provision of its Agreement and
Declaration of Trust, its Bylaws, or the provisions of any agreement
or other instrument, known to such counsel to which the Trust is a
party or by which the Trust is otherwise bound;
(8) This Agreement is the legal, valid and binding obligation of
the Trust and is enforceable against the Trust in accordance with its
terms; and
(9) The registration statement of the Trust filed with the
Commission on September 15, 1998, is, at the time of the signing of
this Agreement, effective under the 1933 Act, and, to the best
knowledge of such counsel, no stop order suspending the effectiveness
of the registration statement has been issued, and no proceedings for
such purpose have been instituted or are pending before or threatened
by the Commission under the 1933 Act, and nothing has come to its
attention which causes it to believe that at the time the registration
statement became effective, or at the time of the signing of this
Agreement, such registration statement (except for the financial
statements and other financial and statistical data included therein,
as to which counsel need express no opinion), contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and such counsel knows of no legal or
government proceedings required to be
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<PAGE>
described in the registration statement or of any contract or document
of a character required to be described in the registration statement
that is not described as required.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the Trust with regard to matters
of fact and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust.
(i) That the UBS Funds shall have received a certificate from the
President and Secretary of the Trust to the effect that the statements contained
in the registration statement of the Trust filed with the Commission on April
28, 1998, at the time the registration statement became effective, at the date
of the signing of this Agreement, at the Closing, and at all times during this
period did not contain any 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.
(j) That the Trust's Registration Statement with respect to the Class
I shares of the Brinson Fund to be delivered to the UBS Portfolio's shareholders
in accordance with this Agreement shall have become effective, and no stop order
suspending the effectiveness of the Registration Statement or any amendment or
supplement thereto, shall have been issued prior to the Closing Date or shall be
in effect at Closing, and no proceedings for the issuance of such an order shall
be pending or threatened on that date.
(k) That the Class I shares of the Brinson Fund to be delivered
hereunder shall be eligible for sale by the Trust with each state commission or
agency with which such eligibility is required in order to permit the shares
lawfully to be delivered to each UBS Portfolio shareholder.
(l) That at the Closing, the UBS Funds transfers to the Brinson Fund
aggregate Net Assets of the UBS Portfolio comprising at least 90% in fair market
value of the total net assets and 70% in fair market value of the total gross
assets recorded on the books of the UBS Portfolio on the Closing Date.
9. Brokerage Fees and Expenses; Other Agreements
---------------------------------------------
(a) The UBS Funds and the Trust each represents and warrants to the
other that there are no broker or finders' fees payable by it in connection with
the transactions provided for herein.
(b) The expenses of entering into and carrying out the provisions of
this Agreement, whether or not consummated, shall be borne exclusively by UBS
A.G. or its affiliates and neither UBS Funds nor the Trust will bear any such
expenses.
(c) Any other provision of this Agreement to the contrary
notwithstanding, any liability of the UBS Funds under this Agreement with
respect to any UBS Portfolio, or in
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<PAGE>
connection with the transactions contemplated herein with respect to any UBS
Portfolio, shall be discharged only out of the assets of that UBS Portfolio, and
no other Portfolio of the UBS Funds shall be liable with respect thereto.
10. Termination, Waiver; Order
--------------------------
(a) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Plan of Reorganization
abandoned at any time (whether before or after adoption thereof by the
shareholders of the UBS Portfolio) prior to the Closing as follows:
(1) by mutual consent of the UBS Funds and the Trust;
(2) by the Trust if any condition precedent to its obligations
set forth in Section 8 has not been fulfilled or waived by the Trust;
or
(3) by the UBS Funds if any condition precedent to its
obligations set forth in Section 8 has not been fulfilled or waived by
the UBS Funds.
An election by the UBS Funds or the Trust to terminate this
Agreement and to abandon the Plan of Reorganization shall be exercised
respectively by the Board of Directors of the UBS Funds or the Board of Trustees
of the Trust.
(b) If the transactions contemplated by this Agreement have not been
consummated by March 31, 1999, this Agreement shall automatically terminate on
that date, unless a later date is agreed to by both the UBS Funds and the Trust.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either the UBS Funds or the
Trust or persons who are their directors, trustees, officers, agents or
shareholders in respect of this Agreement.
(d) At any time prior to the Closing, any of the terms or conditions
of this Agreement may be waived by either the UBS Funds or the Trust,
respectively (whichever is entitled to the benefit thereof), by action taken by
the Board of Directors of the UBS Funds or the Board of Trustees of the Trust,
if, in the judgment of the Board of Directors of the UBS Funds or the Board of
Trustees of the Trust (as the case may be), such action or waiver will not have
a material adverse affect on the benefits intended under this Agreement to the
holders of shares of the UBS Portfolio or the Brinson Fund, on behalf of which
such action is taken.
(e) The respective representations and warranties contained in
Sections 4-7 hereof shall expire with, and be terminated by, the Plan of
Reorganization, and neither the UBS Funds nor the Trust nor any of their
officers, trustees or directors, agents or shareholders shall have any liability
with respect to such representations or warranties after the Closing. This
provision shall not protect any officer, trustee or director, agent or
shareholder of the UBS Funds
A-13
<PAGE>
or the Trust against any liability to the entity for which that officer, trustee
or director, agent or shareholder so acts or to its shareholders to which that
officer, trustee or director, agent or shareholder would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Closing and shall impose any terms or
conditions which are determined by action of the Board of Directors of the UBS
Funds or the Board Trustees of the Trust to be acceptable, such terms and
conditions shall be binding as if a part of this Agreement without further vote
or approval of the shareholders of the UBS Portfolio, unless such terms and
conditions shall result in a change in the method of computing the number of
Class I shares of the Brinson Fund to be issued to the UBS Portfolio in which
event, unless such terms and conditions shall have been included in the proxy
solicitation material furnished to the shareholders of the UBS Portfolio prior
to the meeting at which the transactions contemplated by this Agreement shall
have been approved, this Agreement shall not be consummated and shall terminate
unless the UBS Funds shall promptly call a special meeting of shareholders of
the UBS Portfolio at which such conditions so imposed shall be submitted for
approval.
11. Entire Agreement and Amendments
-------------------------------
This Agreement embodies the entire Agreement between the parties and
there are no agreements, understandings, restrictions, or warranties between the
parties other than those set forth herein or herein provided for. This
Agreement may be amended only by mutual consent of the parties in writing.
Neither this Agreement nor any interest herein may be assigned without the prior
written consent of the other party.
12. Counterparts
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts together
shall constitute but one instrument.
13. Notices
-------
Any notice, report, or demand required or permitted by any provision
of this Agreement shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to the UBS Funds at
200 Clarendon Street, Boston, MA 02116 Attention: Paul J. Jasinski, President,
or to the Trust at 209 South LaSalle Street, Chicago, Illinois 60604, Attention:
Thomas E. McFarlan, President, as the case may be.
14. Governing Law
-------------
This Agreement shall be governed by and carried out in accordance with
the internal laws of the State of Delaware.
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<PAGE>
IN WITNESS WHEREOF, the UBS Funds and the Trust have each caused this
Agreement and Plan of Reorganization to be executed on its behalf by its duly
authorized officers, all as of the day and year first above written.
UBS PRIVATE INVESTOR FUNDS, INC.
Attest:
By:
- ---------------------------- -----------------------------
Susan C. Mosher Paul J. Jasinski
Secretary President
THE BRINSON FUNDS
Attest:
By:
- ---------------------------- -----------------------------
Carolyn M. Burke E. Thomas McFarlan
Secretary President
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<PAGE>
EXHIBIT B
ADDITIONAL INFORMATION REGARDING THE BRINSON FUND
Unless otherwise defined in this Exhibit B, all capitalized terms have the
meanings set forth in the Prospectus/Proxy Statement.
Investment Considerations and Risks
- -----------------------------------
The following provides information about the types of instruments in which
the Brinson Fund may invest, strategies employed by the Advisor in its attempt
to attain the Brinson Fund's investment objectives 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
Brinson Fund, nor can there be any assurance that the Brinson Fund will be able
to attain its investment objectives.
High Yield Securities
Securities issued by foreign issuers rated below investment grade entail
greater risks than higher rated securities, including risk of untimely interest
and principal payment, default, price volatility and may present problems of
liquidity and valuation. Investors should carefully consider these risks before
investing. The standards described earlier in this Prospectus/Proxy Statement
must be satisfied at the time an investment is made. If the quality of the
investment later declines, the Brinson Fund may continue to hold the investment.
Lower rated securities frequently have call or redemption features which
would permit an issuer to repurchase the security from the Brinson Fund. If a
call were exercised by the issuer during a period of declining interest rates,
the Brinson Fund likely would have to replace such called security with a lower
yielding security, thus decreasing the net investment income to the Brinson Fund
and any dividends to investors.
For a complete description of the ratings systems of Moody's and S&P, see
the Statement of Additional Information to this Prospectus/Proxy Statement.
Foreign Investments
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. Settlements of transactions in some non-U.S. markets may be
delayed or be less frequent than in the United States, which could affect the
liquidity of the Brinson Fund's portfolio. 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
Brinson Fund, political or social instability, or diplomatic developments which
could affect U.S. investments in those countries. The Brinson Fund intends to
diversify broadly among countries, but reserves the right to invest a portion of
its assets in one or more countries if economic and business conditions warrant
such investments. The Advisor will take these factors in consideration by
managing the Brinson Fund's investments. Because the Brinson Fund will keep its
books and records in U.S. dollars, the Brinson Fund 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 (the "Code"), 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 Brinson Fund's investments and of
dividends and interest earned by the Brinson Fund 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
Brinson Fund. Although the Brinson Fund may attempt to manage currency exchange
rate risks, there is no assurance that the Brinson Fund will do so at an
appropriate time or that it will be able to predict exchange rates accurately.
For example, if the Brinson Fund increases its exposure to a
<PAGE>
currency and that currency's price subsequently falls, such currency management
may result in increased losses to the Brinson Fund. Similarly, if the Brinson
Fund decreases its exposure to a currency, and the currency's price rises, the
Brinson Fund will lose the opportunity to participate in the currency's
appreciation The Brinson Fund will manage currency exposures relative to the
normal currency allocation and will consider return and risk of currency
exposures relative to its 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.
The non-U.S. fixed income component of the Brinson Fund 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 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.
Payments to holders of the higher yielding foreign debt securities in which
the Brinson Fund 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
securities, there is no assurance that such payments will be made.
Emerging Markets Securities
The Brinson Fund considers a country to be an "emerging market" if it is
defined as an emerging or developing economy by any one of the following: the
International Bank for Reconstruction and Development (i.e., the World Bank),
the International Finance Corporation, or the United Nations or its authorities.
An emerging market security is a security issued by a government or other issuer
that, in the opinion of the Advisor, has one or more of the following
characteristics:
1. The principal trading market of the security is in an emerging market;
2. The primary revenue of the issuer (at least 50%) is generated from
goods produced or sold, investments made, or services performed in an emerging
market country; or
3. At least 50% of the assets of the issuer are situated in emerging
market countries.
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.
These restrictions may take the form of prior governmental approval, limits
on the amount or type of securities held by foreigners, and limits on the types
of companies in which foreigners may invest. Additional restrictions may be
imposed at any time by these or other countries in which the Brinson Fund
invests. In addition, the repatriation of both investment income and capital
from several foreign countries is restricted and controlled under certain
regulations, including, in some cases, the need for certain governmental
consents. Although these restrictions may in the future make it undesirable to
invest in emerging market countries, the Advisor does not believe that any
current repatriation restrictions would affect its decision to invest in such
countries. Countries such as those in which the Brinson 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
B-2
<PAGE>
World Bank and other international agencies and the political constraints to
which a government debtor may be subject.
The issuers of the government and government-related debt securities in
which the Brinson Fund 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 securities and to
extend further loans to the issuers of such securities. There can be no
assurance that the Brady Bonds and other foreign government and government-
related debt securities in which the Brinson Fund 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 securities may be directly involved in negotiating the
terms of these arrangements and may therefore have access to information not
available to other market participants.
Foreign Currency Transactions
To manage exposure to currency fluctuations, the Brinson Fund 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 Brinson Fund 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 Brinson Fund to set
aside liquid assets in a segregated custodial account to cover its obligations.
Futures, Options and Derivative Instruments
The investment in futures, options, forward contracts, and similar
strategies by the Brinson Fund will depend on the Advisor's 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 Brinson Fund 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 Brinson Fund could be left in a less favorable
position. For example, gains and losses on investments in futures depend on the
Advisor's ability to predict correctly the direction of security prices,
interest rates and other economic factors. For example, if a hedge is applied
at an inappropriate time or price trends are judged incorrectly, options and
futures strategies may lower the Brinson Fund's 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).
The Brinson Fund may invest in derivatives for hedging purposes, to
maintain liquidity, or in anticipation of changes in the composition of its
portfolio holdings. The Brinson Fund will not engage in derivative investments
purely for speculative purposes. The Brinson Fund 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 Brinson Fund's overall investment
objectives and policies. In making such judgment, the potential benefits and
risks will be considered in relation to the Brinson Fund's other portfolio
investments.
Where not specified, investment limitations with respect to the Brinson
Fund's derivative instruments will be consistent with the Brinson Fund's
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 Brinson Fund, including options, futures and
forward contracts, are described in greater detail in the Statement of
Additional Information to this Prospectus/Proxy Statement.
B-3
<PAGE>
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 Brinson Fund.
Information Regarding the Advisor
The Advisor, a Delaware corporation, is an investment management firm that,
in addition to managing the Trust, serves as the investment advisor to nine
other investment companies: Brinson Relationship Funds, which includes
seventeen 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
Annuity Series Trust 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.
Brinson has offices in Bahrain, Basel, Frankfurt, Geneva, Hong Kong,
London, Melbourne, New York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and
Zurich, in addition to its principal office at 209 South LaSalle Street,
Chicago, IL 60604-1295. Brinson is a wholly-owned subsidiary of UBS A.G. UBS
A.G., with headquarters in Basel, Switzerland, is an internationally diversified
organization with operations in many aspects of the financial services industry.
UBS A.G. was formed by the merger of Union Bank of Switzerland and Swiss Bank
Corporation in June 1998.
Pursuant to its investment advisory agreement (the "Agreement") with the
Trust on behalf of the Brinson Fund, the Advisor is entitled to receive a
monthly fee equal to an annual percentage rate of the Brinson Fund's average
daily net assets for providing investment advisory services. The Advisor is
responsible for paying its own expenses. Pursuant to the Agreement, the Advisor
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.
Investment decisions for the Brinson Fund are made by an investment
management team at Brinson. No one member of the investment management team is
primarily responsible for making recommendations for portfolio purchases for the
Brinson Fund.
Administration of the Trust
The Underwriter
FDI was engaged as underwriter pursuant to an agreement dated February 5,
1997. The fee for FDI's service is borne by the Advisor.
The Administrator
Administrative, Accounting, Transfer Agency and Custodian Services
The Trust, on behalf of the Brinson Fund, has entered into a Services
Agreement with MSTC pursuant to which MSTC is required to provide general
administrative, accounting, portfolio valuation, transfer agency and custodian
services to the Brinson Fund.
MSTC provides custodian services for the securities and cash of the Brinson
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.
Investors Bank and Trust Company, 200 Clarendon Street, Boston,
Massachusetts, will serve as co-custodian for the Brinson Fund with respect to
certain foreign securities until such securities are transferred to
B-4
<PAGE>
MSTC. After such securities are transferred to MSTC, MSTC will be the sole
custodian of the Brinson Fund under the terms of the Services Agreement.
As authorized under the Services Agreement, MSTC has entered into the CGFSC
Agreement with CGFSC. 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 Brinson 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 Brinson 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 FDI under which FDI
provides administrative assistance to the Brinson Fund with respect to (i)
regulatory matters, including regulatory developments and examinations, (ii) all
aspects of the Brinson Fund's day-to-day operations, (iii) office facilities,
clerical and administrative services, and (iv) maintenance of books and records.
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.
Independent Auditors
Ernst & Young LLP, Chicago, Illinois, are the independent auditors of the
Trust.
Purchase of Shares
Shares of the Brinson Fund 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 the
Brinson Fund's shares. The Trust reserves the right to reject any purchase
order and to suspend the offering of shares of the Brinson Fund or any Trust
Series. The Brinson Fund will not accept a check endorsed over by a third-
party.
Purchase orders for shares of the Brinson Fund 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 Brinson Fund's net asset value per share is calculated, are
priced according to the net asset value determined on that day. Purchase orders
for shares of the Brinson Fund 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 Brinson Fund reserves the right to change the time at which
purchases are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
time or if an emergency exists.
Under certain circumstances, the Trust has entered into one or more
agreements (each, a "Sales Agreement") with brokers, dealers or financial
institutions (each, an "Authorized Dealer") under which the Authorized Dealer
may directly, or through intermediaries that the Authorized Dealer is authorized
to designate under the Sales Agreement (each a "Sub-designee"), accept purchase
and redemption orders that are in "good form" on behalf of the Brinson Fund.
The Brinson Fund will be deemed to have received a purchase order when the
Authorized Dealer or Sub-designee accepts the purchase order and such order will
be priced at the Brinson Fund's net asset value next computed after such order
is accepted by the Authorized Dealer or Sub-designee.
B-5
<PAGE>
The Trust may accept telephone orders for the Brinson Fund's 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 Brinson Fund. Shares of the Brinson Fund 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.
The Advisor, or its affiliates, from its own resources, may compensate
broker-dealers or the financial intermediaries ("Services Providers") for
marketing, shareholder servicing, recordkeeping and/or other services performed
with respect to the Brinson Fund's Class I Shares. Payments made for any of
these purposes may be made from its revenues, its profits or any other sources
available to it. When such service arrangements are in effect, they are made
generally available to all qualified Service Providers.
Purchases may be made in one of the following ways:
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
------------------ ----------------------
<S> <C> <C>
Minimum $1,000,000 Minimum $2,500
By Mail: . Complete and sign the Account Application that . Make your check payable to "Brinson High Yield
accompanies the Brinson Fund's prospectus. Bond Fund-Class I."
. Make your check payable to "Brinson High Yield . Enclose the remittance portion of your account
Bond Fund-Class I." statement and include the amount of investment,
. Mail to the address indicated on the Account the account name and number.
Application. . Mail to the address indicated on your account
statement or enclose in the envelope provided.
By Wire: . Call 1-800-448-2430 to arrange for a wire . Wire federal funds to:
transaction. The Chase Manhattan Bank
. Wire federal funds within 24 hours to: ABA#021000021
The Chase Manhattan Bank DDA#9102-783504
ABA#021000021 For: "Brinson High Yield Bond Fund-Class I" and
DDA#9102-783504 include your name and account number.
For: "Brinson High Yield Bond Fund-Class I" and
include your name and new account number.
. Complete and sign the Account Application and
mail to the address indicated on the Account
Application immediately following the initial
wire transaction.
<CAPTION>
Initial Investment Subsequent Investments
------------------ ----------------------
<S> <C> <C>
Minimum $1,000,000 Minimum $2,500
By telephone: . Call 1-800-448-2430 to arrange for a telephone . Call 1-800-448-2430 to arrange for a telephone
transaction. transaction.
Purchasing By . You may open a new account for a Trust Series by . You may purchase additional shares of a Trust
Exchanges: making an exchange from an existing Brinson Series by making an exchange from an existing
Fund-Class I account of any other Trust Series. Brinson Fund-Class I account of any other Trust
Exchanges may be made by mail or telephone. Series. Exchanges may be made by mail or
Call 1-800-448-2430 for assistance. telephone. Call 1-800-448-2430 for assistance.
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C> <C>
Automatically: . Please refer to "Automatic Investment Plan" . Please refer to "Automatic Investment Plan"
under "Account Options" or call 1-800-448-2430 under "Account Options" or call 1-800-448-2430
for assistance. for assistance.
</TABLE>
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
--------------- ------------
<S> <C>
Automatic Investment Plan . You may have money deducted directly from your
checking, savings or bank money market accounts
for investment in the Trust Series each month or
quarter.
. Complete the Automatic Investment Plan
application, which is available upon request by
calling 1-800-448-2430, and mail it to the address
indicated.
. The initial account must be opened first with the
initial $1,000,000 minimum investment, with
subsequent minimum investments of $500 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 $500.
Such payments are drawn from share redemptions.
. Shareholders participating in the SWP must elect
to have their dividends and distributions
automatically reinvested in additional Brinson
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 Trust Series for Brinson Fund-Class I
shares of another Trust Series.
Individual Retirement . An IRA is a tax-deferred retirement savings
Accounts 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 Brinson Fund 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. A
shareholder's bank may impose a fee for wire service. The Trust will honor
redemption requests of shareholders who recently purchased 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 Brinson Fund's net asset value per share is calculated are
effected that day. The Brinson Fund reserves the right to change the time at
which purchases are
B-7
<PAGE>
priced if the NYSE closes at a time other than 4:00 p.m.
Eastern time or if an emergency exists. 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 Brinson Fund 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.
Customers of Eligible Institutions must request a representative of their
Eligible Institution to assist them in placing a redemption order with the
Brinson Fund.
Under the Sales Agreement, the Authorized Dealer or Sub-designee is
authorized to accept redemption orders on behalf of the Brinson Fund. The
Brinson Fund will be deemed to have received a redemption order when the
Authorized Dealer or Sub-designee accepts the redemption order and such order
will be priced at the Brinson Fund's net asset value next computed after such
order is accepted by the Authorized Dealer or Sub-designee.
The Trust will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion the of Advisor or
the Board of Trustees, result in the necessity of the Brinson Fund selling
assets under disadvantageous conditions and to the detriment of the remaining
shareholders of the Brinson Fund. 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 part in-kind. However, the Trust has elected,
pursuant to Rule 18f-1 under the 1940 Act, to redeem its shares solely in cash
up to the lesser of $250,000 or 1% of the net asset value of the Brinson Fund,
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 Brinson Fund. 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 the Brinson Fund. In-kind
payments need not constitute a cross-section of the Brinson Fund's portfolio.
Where a shareholder has requested redemption of all or a part of the
shareholder's investment and where the Brinson Fund computes such redemption in-
kind, the Brinson Fund will not recognize gain or loss for federal tax purposes
on the securities used to compute the redemption, but the shareholder will
recognize gain or loss equal to the difference between the fair market value of
the securities received and the shareholder's basis in the Fund shares redeemed.
Shares may be redeemed in one of the following ways:
By Mail: . Submit a written request for redemption with:
. The Brinson 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 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.
B-8
<PAGE>
By Telephone: . This service must be elected either on the initial
application or subsequently arranged in writing.
. Shares may be redeemed by instructing the transfer
agent by telephone at 1-800-448-2430.
. Shares will be sold at the next share price
calculated after the order is received and
accepted. Share price is normally calculated at
4:00 p.m. Eastern time.
Automatically: . Please refer to "Systematic Withdrawal Plan" under
"Account Options" or call 1-800-448-2430 for
assistance.
- -------------
Note: The Trust reserves the right to refuse a wire or telephone redemption if
it is believed advisable to do so. Procedures for redeeming shares of the
Brinson Fund 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 Brinson Fund 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 it does not, the Brinson Fund
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
Shares of the Brinson Fund may be exchanged for Brinson Fund-Class I
Shares of any other Trust Series. Exchanges will not be permitted between the
Brinson Fund-Class I shares and either the UBS Investment Funds class of shares
or the Brinson Fund-Class N shares of a Trust Series.
Shares of the Brinson Fund 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 changes 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 Fund-Class I shares of the Trust Series from which, and the
Trust Series into which, the exchange is made. Exchanges may be made only for
shares of a Trust Series and class then offering its shares for sale in the
purchaser's 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 Trust Series and
reinvested in shares of another Trust 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 Trust 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. The Brinson Fund reserves the right to change the time at which
exchanges are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
time or if an emergency exists.
Transfer of Securities
At the discretion of the Trust, investors may be permitted to purchase
the Brinson Fund's Class I Shares by transferring securities to the Brinson Fund
that meet the Brinson Fund's investment objectives and policies. Securities
transferred to the Brinson Fund will be valued in accordance with the same
procedures used to determine the Brinson Fund's net asset value at the time of
the next determination of net asset value after such acceptance. Shares issued
by the Brinson Fund in exchange for securities will be issued at the net asset
value per share of the Brinson Fund determined as of the same time. All
dividends, interest, subscription, or other rights pertaining to such securities
shall become the property of the Brinson Fund and must be delivered to the
Brinson Fund by the investor
B-9
<PAGE>
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 the Brinson Fund unless: (1) such securities
are, at the time of the exchange, eligible to be included in the Brinson Fund's
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
Brinson Fund 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 Brinson Fund, will not exceed 5% of the Brinson Fund's net assets
immediately after the transaction.
Net Asset Value
The net asset value per share for each class of shares of the Brinson Fund
is computed by adding, with respect to each class of shares, the value of the
Brinson Fund's 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 of the Class I
Shares 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 Brinson Fund 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 Brinson Fund 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. The Brinson
Fund reserves the right to change the time at which purchases, redemptions and
exchanges are priced if the NYSE closes at a time other than 4:00 p.m. Eastern
time or if an emergency exists.
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 securities 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 the Brinson Fund. 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
B-10
<PAGE>
Trustees. Where a foreign securities market
remains open at the time that the Brinson Fund 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 Brinson Fund may be used.
The Brinson Fund's 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 the Brinson Fund
may be significantly affected by such trading on days when shareholders have no
access to the Brinson Fund.
All of the Brinson Fund's classes of shares will bear pro rata all of the
expenses of the Brinson Fund common to all classes. The net asset value of all
outstanding shares of each class of the Brinson Fund will be computed on a pro
rata basis for each outstanding share based on the proportionate participation
in the Brinson Fund represented by the value of shares of that class. All
income earned and expenses incurred by the Brinson Fund will be borne on a pro
rata basis by each outstanding share of a class, based on each class'
proportionate participation in the Brinson Fund represented by the value of
shares of such class, except that the Brinson Fund-Class N and UBS Investment
Funds class of 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, and related
performance, of the Brinson Fund may vary. The per share net asset value of the
Brinson Fund-Class N shares and the UBS Investment Funds class of shares will
generally be lower than that of the Brinson Fund-Class I shares of the Brinson
Fund because of the higher expenses borne by the UBS Investment Funds class of
shares and the Brinson Fund-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.
Dividends and Distributions
The Brinson Fund will distribute its net investment income semi-annually in
June and December. The Brinson Fund will distribute annually in December
substantially all of its 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 Brinson Fund, if later) and ending October 31,
and, at the same time, will distribute all of its net investment income earned
through the end of December and not previously distributed as ordinary (not
capital) income.
Dividends and other distributions paid by the Brinson Fund with respect to
its Brinson Fund-Class N, Brinson Fund-Class I and UBS Investment Funds class of
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 Fund-Class N and UBS Investment Funds class are
subject to separate 12b-1 fees. The per share dividends on UBS Investment Funds
class of shares and Brinson Fund-Class N shares will be lower than the per share
dividends on the Brinson Fund-Class I shares of the Brinson Fund as a result of
the distribution and service fees applicable with respect to the UBS Investment
Funds class of shares and Brinson Fund-Class N shares.
Income dividends and capital gain distributions are reinvested
automatically in additional Fund shares of the same class of the Brinson Fund 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 disbursements 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 dividend and distributions are
subject to taxes.
Taxes
B-11
<PAGE>
The Brinson Fund intends to qualify for taxation as a "regulated investment
company" under the Code. Such qualification would relieve the Brinson Fund of
liability for federal income taxes to the extent the Brinson Fund's earnings are
distributed in accordance with the Code. The Brinson Fund 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. 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 Class I Shares of the Brinson Fund. 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. Investors should consult their
own tax advisors for more specific information on the tax consequences of
particular types of distributions. Further information regarding the tax
consequences of investing in the Brinson Fund is included in the Statement of
Additional Information to this Prospectus/Proxy Statement. 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 the Brinson Fund's Class I Shares, and the exchange of
shares between the Trust Series, are taxable events and, accordingly,
shareholders may realize capital gains or losses on these transactions. If
shares of a Trust Series are held for six months or less, any loss that a
shareholder will have will be treated as a long-term capital loss to the extent
of any capital gains distributions received by such shareholder from the Trust
Series. All or a portion of any loss on the redemption or exchange of shares
will be disallowed if the shareholder purchases other shares in the Trust Series
within 30 days before or after such redemption or exchange. Redemptions and
exchanges of shares in a Trust Series may also be subject to state and local
taxes.
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 Brinson Fund, or if, to the
Brinson Fund's knowledge, an incorrect number has been furnished, or if the
Brinson Fund 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.
General Information
The Trust is registered under the 1940 Act as an open-end management
investment company, commonly known as a mutual fund and consists of thirteen
Trust Series. The Trustees of the Trust may establish additional series or
classes of shares without the approval of shareholders.
Description of Shares
Each Trust 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 of each Trust Series represent equal
proportionate interests in the assets of that Trust Series only and have
identical voting, dividend, redemption, liquidation, and other rights, except
that only shares of each Trust Series' Brinson Fund-Class N and UBS Investment
Funds class of shares 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.
B-12
<PAGE>
Voting Rights
Each issued and outstanding full and fractional share of the Brinson Fund
is entitled to one full and fractional vote in the Brinson Fund and all shares
of the Brinson Fund participate equally with regard to dividends, distributions,
and liquidations with respect to the Brinson Fund. Shareholders do not have
cumulative voting rights. On any matter submitted to a vote of shareholders,
shares of each Trust 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 Trust Series,
in which case the shareholders of all such Trust Series shall be entitled to
vote thereon. Only the Brinson Fund-Class N shareholders may vote on matters
related to the Rule 12b-1 plan associated with that class and only the UBS
Investment Funds class shareholders may vote on matters related to the Rule 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 Trust Series. The SEC, 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 Trust Series. In addition, subject to certain
conditions, shareholders of each Trust Series may apply to the Trust Series to
communicate with other shareholders to request a shareholders' meeting to vote
upon the removal of a Trustee or Trustees.
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, the Brinson Fund may pay a
broker-dealer a commission for effecting a portfolio transaction for the Brinson
Fund in excess of the amount of commission another broker-dealer would have
charged if the Advisor 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 Brinson
Fund, 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.
When buying or selling securities, the Brinson Fund may pay commissions to
brokers who are affiliated with the Advisor or the Brinson Fund. The Brinson
Fund may purchase securities in certain underwritten offerings for which an
affiliate of the Brinson Fund may act as an underwriter. The Brinson Fund may
effect futures transactions through, and pay commissions to, futures commission
merchants who are affiliated with the Advisor or the Brinson Fund 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, P.O. Box 2798,
Boston, MA 02208-2798.
Year 2000 Issues
Like other investment companies, as well as other financial and business
organizations around the world, the Trust could be adversely affected if the
computer systems used by the Advisor, MSTC, CGFSC and other service providers,
in performing their administrative functions for the Trust, do not properly
process and calculate date-related information and data as of and after January
1, 2000. This is commonly known as the "Year 2000 Issue." The Year 2000 Issue,
and, in particular, foreign service providers' responsiveness to the issue,
could affect portfolio and operational areas including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, custody functions and others. The Advisor, MSTC and CGFSC are
taking steps that they believe are reasonably designed to address the Year 2000
Issue with respect to computer systems that
B-13
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they use and to obtain reasonable assurances that comparable steps are being
taken by the Trust's other service providers. These include identifying those
systems that may not function properly after December 31, 1999, and constructing
or replacing those systems. In addition, steps include testing the processing of
Trust Series data on all systems relied on by the Advisor, MSTC and CGFSC. As of
the date of this Prospectus/Proxy Statement, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Brinson
Fund.
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 Brinson Fund's 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 the Brinson 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 Brinson Fund's 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 the Brinson Fund. Aggregate total
return reflects the total percentage change over the stated period.
To help investors better evaluate how an investment in the Brinson Fund
might satisfy its investment objectives, advertisements regarding the Brinson
Fund 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; Lehman Brothers 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 Brinson Fund 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 Brinson Fund will not be included in the Brinson Fund's calculations of
yield or total return.
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STATEMENT OF ADDITIONAL INFORMATION
THE BRINSON FUNDS
RELATING TO THE ACQUISITION OF THE ASSETS OF
UBS HIGH YIELD BOND FUND OF UBS PRIVATE INVESTOR FUNDS, INC.
This Statement of Additional Information relates specifically to the
proposed acquisition of substantially all of the assets of the UBS High Yield
Bond Fund (the "UBS Fund") of UBS Private Investor Funds, Inc. (the
"Corporation") by the High Yield Bond Fund (the "Brinson Fund") of The Brinson
Funds (the "Transaction").
This Statement of Additional Information also includes the following
documents, which are attached and incorporated by reference:
. Pro forma financial statements reflecting the financial situation
of the Brinson Fund following the Transaction as if the
Transaction had taken place on June 30, 1998.
. The Annual Report to Shareholders of the UBS Fund, containing
audited financial statements for the fiscal year ended December
31, 1997, and including the Annual Report to Shareholders of the
UBS High Yield Bond Portfolio (the "UBS Portfolio") of UBS
Investor Portfolios Trust, containing audited financial
statements for the fiscal year ended December 31, 1997.
. The Semi-Annual Report to Shareholders of the UBS Fund for the
period ended June 30, 1998, and including the Semi-Annual Report
to Shareholders of the UBS Portfolio for the period ended June
30, 1998.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus/Proxy Statement.
This Statement of Additional Information is not a Prospectus; a
Prospectus/Proxy Statement dated ______________, 1998, relating to the
Transaction may be obtained from the Trust, 209 South LaSalle Street, Chicago,
Illinois 60604, (800) 448-2430. This document should be read in conjunction with
such Prospectus/Proxy Statement. The date of this Statement of Additional
Information is _________, 1998.
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HIGH YIELD BOND FUND
TABLE OF CONTENTS
THE BRINSON FUNDS...............................................................
INVESTMENT STRATEGIES...........................................................
Repurchase Agreements......................................................
Reverse Repurchase Agreements..............................................
Loans of Portfolio Securities..............................................
Futures....................................................................
Options....................................................................
Index Options..............................................................
Special Risks of Options on Indices........................................
Rule 144A Securities.......................................................
Other Investments..........................................................
Foreign Securities.........................................................
Forward Foreign Currency Contracts.........................................
Options on Foreign Currencies..............................................
Lower Rated 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 and Delayed Interest Securities................................
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................................................................
Code of Ethics.............................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................................
Portfolio Turnover.........................................................
SHARES OF BENEFICIAL INTEREST...................................................
PURCHASES.......................................................................
Exchanges of Shares........................................................
Net Asset Value............................................................
REDEMPTIONS.....................................................................
TAXATION........................................................................
PERFORMANCE CALCULATIONS........................................................
Total Return...............................................................
Yield......................................................................
FINANCIAL STATEMENTS............................................................
CORPORATE DEBT RATINGS --- APPENDIX A...........................................
PRO FORMA FINANCIAL STATEMENTS..................................................
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THE BRINSON FUNDS
The Brinson Funds (the "Trust"), 209 South LaSalle Street, Chicago,
Illinois 60604-1295, is an open-end management investment company which offers
shares of beneficial interest in series representing separate portfolios of
investments (collectively referred to as the "Trust Series"). This Statement of
Additional Information relates only to the High Yield Bond Fund (the "Brinson
Fund").
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 Brinson Fund's Prospectus/Proxy Statement of the same
date as this Statement of Additional Information. Unless otherwise defined in
this Statement of Additional Information, all capitalized terms have the
meanings set forth in the Prospectus/Proxy Statement. The investment practices
described below are not fundamental and may be changed by the Board of Trustees
without the approval of the shareholders.
Repurchase Agreements
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.
In the event of bankruptcy or other default by the seller of the security
under a repurchase agreement, the Brinson Fund 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 the Brinson Fund would be dependent upon intervening fluctuations of
the market value of the underlying security and the accrued interest on the
security. Although the Brinson Fund 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 the Brinson Fund
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, the Brinson Fund will limit the value of its repurchase agreements
on each of the quarterly testing dates to ensure compliance with Subchapter M of
the Code.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the Brinson Fund retains record
ownership and the right to receive interest and principal payments on the
portfolio securities involved. Any assets held in any segregated accounts
maintained by the Brinson Fund 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 the Brinson Fund may decline below the price of the
securities the Brinson Fund 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 Brinson Fund's 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 Brinson Fund's
obligation to repurchase the securities. Reverse repurchase agreements are
considered borrowings by the Brinson Fund and as such, are subject to the same
investment limitations.
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Loans of Portfolio Securities
The Brinson Fund 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) the Brinson Fund may call
the loan at any time and receive the securities loaned; (3) the Brinson Fund
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 Brinson Fund's total assets.
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, the Brinson Fund will only enter into portfolio
loans after a review of all pertinent factors by Brinson Partners, Inc.
("Brinson" 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.
Futures
The Brinson Fund may enter into contracts for the purchase or sale for
future delivery of securities. The Brinson 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 the Brinson Fund 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, the Brinson Fund 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.
When the Brinson Fund enters into a futures transaction, it must deliver to
the futures commission merchant selected by the Brinson Fund 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 Brinson Fund to, or drawn by the Brinson Fund 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 Brinson Fund 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, the Brinson Fund may sell stock index futures in
anticipation of or during a market decline to attempt to offset the decrease in
market value of its common stocks that might otherwise result; and it may
purchase such contracts in order to offset increases in the cost of common
stocks that it intends 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 Brinson Fund 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, the Brinson Fund 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 Brinson Fund. 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 Brinson Fund would increase at approximately the same rate,
thereby keeping the net asset value of the Brinson Fund 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 Brinson Fund 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 Brinson Fund could then
buy debt securities on the cash market.
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To the extent that market prices move in an unexpected direction, the
Brinson Fund may not achieve the anticipated benefits of futures contracts or
may realize a loss. For example, if the Brinson Fund 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 Brinson Fund would lose part or all of the benefit of the increased value
which it has because it would have offsetting losses in its futures position. In
addition, in such situations, if the Brinson Fund 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. The Brinson Fund may be
required to sell securities at a time when it may be disadvantageous to do so.
Options
The Brinson Fund may purchase and write call or put options on securities
but will only engage in option strategies for non-speculative purposes.
Purchasing Call Options - When the Brinson Fund purchases a call option,
in return for a premium paid by the Brinson Fund to the writer of the option,
the Brinson Fund 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 the Brinson Fund may alter portfolio characteristics and modify
portfolio maturities without incurring the cost associated with transactions.
The Brinson Fund 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
Brinson Fund 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 Brinson Fund 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 Brinson Fund 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 the Brinson Fund 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 the Brinson Fund may expire without any
value to the Brinson Fund, in which event the Brinson Fund would realize a
capital loss which will be short-term unless the option was held for more than
one year.
Covered Call Writing - The Brinson Fund may write covered call options
from time to time on such portions of its portfolio, without limit, as the
Advisor determines is appropriate in seeking to achieve its investment
objective. The advantage to the Brinson Fund of writing covered calls is that it
receives a premium which is additional income. However, if the security rises in
value, the Brinson Fund may not fully participate in the market appreciation.
During the option period for 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 the Brinson Fund, 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 the
Brinson Fund to write another call option on the underlying security with either
a different exercise price or expiration date or both. The Brinson Fund may
realize a net gain or loss from a closing purchase transaction
4
<PAGE>
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 Brinson Fund 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, the Brinson Fund 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 Brinson Fund will write call options only on a covered basis, which
means that it will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Brinson Fund 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 purchase of a 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 the Brinson Fund gives it the right to sell one
of its securities for an agreed price up to an agreed date. The Brinson Fund
intends 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 Brinson Fund to protect unrealized gains in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, the Brinson Fund will lose the value of the
premium paid. The Brinson Fund 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 Brinson Fund may sell a put option purchased on individual portfolio
securities, and enter into closing sale transactions. A closing sale transaction
is one in which the Brinson Fund, 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 Brinson Fund may also write put options on a
secured basis which means that the Brinson Fund 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 Brinson Fund. Secured put options will generally be
written in circumstances where the Advisor wishes to purchase the underlying
security for the Brinson Fund's portfolio at a price lower than the current
market price of the security. In such event, the Brinson Fund would write a
secured put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay.
Following the writing of a put option, the Brinson Fund 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 Brinson Fund may not, however,
effect such a closing transaction after it has been notified of the exercise of
the option.
Index Options
5
<PAGE>
The Brinson Fund may purchase exchange-listed call options on stock and
fixed income indices depending upon whether the Brinson Fund is an equity or
bond portfolio and sell such options in closing sale transactions for hedging
purposes. The Brinson Fund may purchase call options on broad market indices to
temporarily achieve market exposure when the Brinson Fund is not fully invested.
The Brinson Fund may also purchase exchange-listed call options on particular
market segment indices to achieve temporary exposure to a specific industry.
In addition, the Brinson Fund may purchase put options on stock and fixed
income indices and sell such options in closing sale transactions for hedging
purposes. The Brinson Fund 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 the Brinson Fund from a
decline in value of heavily weighted industries in its portfolio. Put options on
stock and fixed income indices may also be used to protect the Brinson Fund's
investments in the case of a major redemption.
The Brinson Fund may also write (sell) put and call options on stock and
fixed income indices. While the option is open, the Brinson Fund 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 Brinson Fund's purchases of options on indices will subject it 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 the Brinson
Fund 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 the Brinson Fund of options on indices is subject
to the Advisor's 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, the Brinson Fund would
not be able to close out options which it had purchased and the Brinson Fund 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 the Brinson Fund 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 Brinson Fund 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 the Brinson Fund 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.
Rule 144A Securities
6
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The Brinson Fund may invest in securities that are exempt under Rule 144A
from the registration requirements of the Securities Act of 1933, as amended
(the "1933 Act"). Those securities purchased under Rule 144A are traded among
qualified institutional investors.
The Board of Trustees of the Trust has instructed Brinson 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 the Brinson Fund's 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 will continue to monitor the liquidity of that security
to ensure that the Brinson Fund has no more than 15% of its net assets in
illiquid securities.
The Brinson Fund will limit investments in securities of issuers which it
is restricted from selling to the public without registration under the 1933 Act
to no more than 15% of the Brinson Fund's net assets, excluding restricted
securities eligible for resale pursuant to Rule 144A that have been determined
to be liquid pursuant to a policy and procedures adopted by the Trust's Board of
Trustees which includes continuing oversight by the Board of Trustees.
If the Advisor 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 Brinson Fund's holdings of illiquid securities exceed the 15% limit
on investment in such securities, the Advisor will determine what action shall
be taken to ensure that the Brinson Fund continues 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 the Brinson Fund to
invest in securities other than those listed in this Statement of Additional
Information or in the Prospectus/Proxy Statement, provided such investment would
be consistent with the Brinson Fund's investment objectives and that it would
not violate any fundamental investment policies or restrictions applicable to
the Brinson Fund.
Foreign Securities
Investors should recognize that investing in foreign issuers involves
certain considerations, including those set forth in the Brinson Fund's
Prospectus/Proxy Statement, 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 Brinson Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Brinson Fund
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 Brinson Fund permit
it to enter into forward foreign currency exchange contracts, futures, and
options 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 Brinson Fund.
Payment of an interest equalization tax, if imposed, would reduce the Brinson
Fund's 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 Brinson Fund by U.S.
corporations. The Brinson Fund's ability to "pass through" the foreign taxes
paid for tax credit or deduction purposes will be determined by the composition
of the Brinson Fund's portfolio. More than 50% of the Brinson Fund must be
invested in stock or securities of foreign corporations for "pass through" to be
possible in the first instance. Special rules govern the
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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 a 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 Brinson Fund
may make or enter into will be subject to the special currency rules described
above.
Forward Foreign Currency Contracts
The Brinson Fund 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 Brinson Fund will account
for forward contracts by marking-to-market each day at current forward contract
values.
The Brinson Fund 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 the Brinson Fund enters into a forward contract to sell an
amount of foreign currency, the Brinson Fund's custodian or sub-custodian will
place Segregated Assets in a segregated account in an amount not less than the
value of the Brinson Fund's 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
Brinson Fund's commitments with respect to such contracts.
Options on Foreign Currencies
The Brinson Fund 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 Brinson Fund's exposure to changes in currency exchange
rates. The Brinson Fund 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 Brinson Fund may purchase
put options on the foreign currency. If the dollar price of the currency does
decline, the Brinson Fund 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.
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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 Brinson Fund may purchase call options on
such currency.
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 Brinson Fund 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, the Brinson Fund 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 Brinson Fund may write options on foreign currencies for the same types
of hedging purposes. For example, where the Brinson Fund 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, the
Brinson Fund could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the Brinson Fund
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 Brinson Fund 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, the Brinson Fund
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 Brinson Fund may write covered call options on foreign currencies. A
call option written on a foreign currency is "covered" if the Brinson Fund 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 the Brinson Fund 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 Brinson Fund in
Segregated Assets in a segregated account with its custodian bank.
With respect to writing put options, at the time the put is written, the
Brinson Fund will establish a segregated account with its custodian bank
consisting of Segregated Assets in an amount equal in value to the amount the
Brinson Fund will be required to pay upon exercise of the put. The account will
be maintained until the put is exercised, has expired, or the Brinson Fund has
purchased a closing put of the same series as the one previously written.
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.
Convertible Securities
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The Brinson Fund 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 Brinson Fund 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 the Brinson Fund will purchase such securities with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Brinson Fund 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 the
Brinson Fund's net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis. The Brinson
Fund 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 Brinson Fund may also invest in mortgage-backed securities, which are
interests in pools of mortgage loans, including mortgage loans made by savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations as further described
below. The Brinson Fund 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 the Brinson Fund's
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 Brinson
Fund 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 Brinson Fund to a
lower rate of return upon reinvestment. To the extent that such mortgage-backed
securities are held by the Brinson Fund, the prepayment right of mortgagors may
limit the increase in net asset value of the Brinson Fund because the value of
the mortgage-backed securities held by the Brinson Fund 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 the Brinson Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities
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are held by the Brinson Fund, the prepayment right will tend to limit to some
degree the increase in net asset value of the Brinson Fund because the value of
the mortgage-backed securities held by the Brinson Fund 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 the Brinson Fund
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. The Brinson Fund 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
GNMA, 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) 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 the Brinson Fund's 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.
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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 the Brinson Fund's 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 Brinson Fund's 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 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.
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government-issued CMOs. The Brinson Fund will not invest in subordinated
privately-issued CMOs. For federal income tax purposes, the Brinson Fund 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 the Brinson Fund's investment objective, policies and quality standards,
consider making investments in such new types of mortgage-related securities.
The Advisor does not presently intend to purchase any such other mortgage-backed
securities.
Asset-Backed Securities
The Brinson Fund 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 Brinson Fund pay the debt service on the debt obligations
issued. The Brinson Fund 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 Brinson Fund
will be required to accrue income on pay-through asset-backed securities using
the "catch-up" method, with an aggregate prepayment assumption.
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 Brinson Fund will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
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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 Brinson Fund 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 Brinson Fund will be
required to distribute such income to shareholders to comply with Subchapter M
of the Code and avoid excise taxes, even though the Brinson Fund has not
received any cash from the issue.
Zero coupon securities are subject to greater market value fluctuations
from changing interest rates than debt obligations of comparable maturities
which make current distributions of interest (cash). Zero coupon convertible
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
14
<PAGE>
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 Brinson Fund, most likely will be deemed the beneficial holder of the
underlying U.S. government securities. The Brinson Fund understands 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 Brinson Fund
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 Brinson Fund 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, the Brinson Fund 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.
INVESTMENT RESTRICTIONS
The investment restrictions as set forth below are fundamental policies and
may not be changed as to the Brinson Fund without the approval of a majority of
the outstanding voting securities (as defined in the Act) of the Brinson Fund.
Unless otherwise indicated, all percentage limitations listed below apply to the
Brinson Fund 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 the Brinson Fund's total assets will not be considered a
violation.
Except as set forth in the Prospectus/Proxy Statement or under "Investment
Strategies" in this Statement of Additional Information, the Brinson Fund may
not:
(i) As to 75% of the total assets of the Brinson Fund, purchase the
securities of any one issuer, other than securities issued by the
U.S. government or its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of the total assets of
the Brinson Fund would be invested in securities of such issuer, or
purchase the securities of any one issuer if, immediately after such
purchase, the Brinson Fund would own more than 10% of the
outstanding voting securities of such issuer;
(ii) Invest in real estate or interests in real estate (this will not
prevent the Brinson Fund 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, the Brinson Fund may engage in forward
foreign currency contracts for hedging and non-hedging purposes;
15
<PAGE>
(iv) 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;
(v) 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 the Brinson Fund's assets, asset coverage
of at least 300% is required. The Brinson Fund will not purchase
securities when borrowings exceed 5% of the Brinson Fund's total
assets;
(vi) 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
the Brinson Fund's investments in such industry would exceed 25% of
the value of the total assets of the Brinson Fund across several
countries; and
(vii) Act as an underwriter of securities, except that, in connection with
the disposition of a security, the Brinson Fund may be deemed to be
an "underwriter" as that term is defined in the 1933 Act.
16
<PAGE>
MANAGEMENT OF THE TRUST
Trustees and Officers
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
POSITION
WITH
NAME AGE THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Walter E. Auch 77 Trustee Retired; formerly Chairman and CEO of Chicago Board of Options
6001 N. 62nd Place Exchange (1979-1986); Trustee of the Trust since May, 1994;
Paradise Valley, AZ 85253 Trustee, Brinson Relationship Funds since 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 62 Chairman Professor, University of Notre Dame since 1982; Trustee of the
College of Business and Trust since December, 1993; Trustee, Brinson Relationship
Administration Trustee Funds since September, 1994; Director of The Brinson Funds,
University of Inc. 1992-1993; Trustee, Brinson Trust Company, 1992-July,
Notre Dame 1993; Director, Fort Dearborn Income Securities, Inc. since
Notre Dame, IN 46556-0399 1993; Director, First Interstate 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 63 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>
Other Officers
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
POSITION
WITH OFFICER PRINCIPAL OCCUPATION(S) DURING PAST 5
NAME AGE THE TRUST SINCE YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Thomas McFarlan 54 President 1992 Managing Director, Brinson Partners, Inc. since 1991;
Treasurer and Principal Accounting Officer, The
Brinson Funds 1995-1997; President and Director of
The Brinson Funds, Inc., 1992 - 1993; Trustee,
Brinson Trust Company since 1991; prior thereto,
Executive Vice President of Washington Mutual Savings
Bank.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
POSITION
WITH OFFICER
NAME AGE THE TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Digenan 34 Vice 1993 Director, Brinson Partners, Inc. since 1993;
President Assistant Treasurer, The Brinson Funds 1995-1997;
Assistant Secretary, The Brinson Funds, 1993 - 1995;
Assistant Secretary, The Brinson Funds, Inc., 1993;
prior thereto, Senior Manager, KPMG Peat Marwick.
- ---------------------------------------------------------------------------------------------------------------------------
Debra L. Nichols 32 Vice 1992 Director, Brinson Partners, Inc. since 1995;
President Associate, Brinson Partners, Inc. from 1991 to 1995;
Vice President, The Brinson Funds since 1997;
Secretary, The Brinson Funds 1997; Assistant
Secretary, The Brinson Funds 1993 - 1997; Assistant
Secretary, The Brinson Funds, Inc. 1992-1993; prior
thereto, private investor.
- ---------------------------------------------------------------------------------------------------------------------------
Carolyn M. Burke 31 Treasurer, 1995 Director, Brinson Partners, Inc., since January 1997;
Secretary Associate, Brinson Partners, Inc. from 1995 to 1997;
and Secretary, Treasurer and Principal Accounting
Principal Officer, The Brinson Funds since 1997; Assistant
Accounting Secretary, The Brinson Funds 1995-1997; prior
Officer thereto, Financial Analyst, Van Kampen American
Capital Investment Advisory Corp. 1992-1995; Senior
Accountant, KPMG Peat Marwick 1989-1992.
- ---------------------------------------------------------------------------------------------------------------------------
Catherine E. Macrae 41 Assistant 1995 Associate Director, Brinson Partners, Inc. since
Secretary January 1996; Associate Brinson Partners, Inc., from
1992 to 1996; prior thereto, Economic Analyst,
Chicago Mercantile Exchange.
- ---------------------------------------------------------------------------------------------------------------------------
</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, 1998 PAID TO TRUSTEES/1/
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Walter E. Auch, Trustee $12,300 $24,900
6001 N. 62nd Place
Paradise Valley, AZ 85253
- ---------------------------------------------------------------------------------------------------------------------------
Frank K. Reilly, Trustee $14,400 $42,450
College of Business Administration
University of Notre Dame
Notre Dame, IN 46556-0399
- ---------------------------------------------------------------------------------------------------------------------------
Edward M. Roob, Trustee $14,400 $42,450
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
June 30, 1998.
18
<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 audited financial statements, and (iv) review with
such independent auditors the adequacy of the Brinson Fund's basic accounting
system and the effectiveness of the Brinson Fund's internal controls. The Audit
Committee met once during the fiscal year ended June 30, 1998. 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 __________, 199__, the officers and Trustees as a group owned less
than 1% of the outstanding equity securities of the Trust and of each class of
equity securities of the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
Advisor
Pursuant to its investment advisory agreement (the "Agreement") with the
Trust, on behalf of the Brinson Fund, Brinson receives from the Brinson Fund a
monthly fee at an annual rate (as described in the Prospectus/Proxy Statement)
multiplied by the average daily net assets of the Brinson Fund for providing
investment advisory services. Brinson is responsible for paying its expenses.
Under the Agreement, the Brinson Fund 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
the Advisor; (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 Brinson Fund's portfolio securities and
of pricing its 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.
General expenses of the Trust (such as costs of maintaining corporate
existence, legal fees, insurance, etc.) will be allocated among the Trust Series
in proportion to their relative net assets. Expenses that relate exclusively to
the Brinson Fund, such as certain registration fees, brokerage commissions and
other portfolio expenses, will be borne directly by the Brinson Fund.
Administrator
Administrative, Accounting, Transfer Agency and Custodian Services
Effective May 10, 1997, the Trust, on behalf of each Trust Series, 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
Trust Series, including the coordination and monitoring of any third party
service providers.
Custody Services. MSTC provides custodian services for the securities and
cash of the Brinson 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.
19
<PAGE>
Investors Bank and Trust Company, 200 Clarendon Street, Boston,
Massachusetts, will serve as co-custodian for the Brinson Fund with respect to
certain foreign securities until such securities are transferred to MSTC. After
such securities are transferred to MSTC, MSTC will be the sole custodian of the
Brinson Fund under the terms of the Services Agreement.
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 Brinson 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 Brinson 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 Brinson 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 Fund-
Class N and Brinson Fund-Class I) or 1-800-794-7753 (for the UBS
Investment Funds class).
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 Brinson Fund
with respect to (i) regulatory matters, including regulatory developments and
examinations, (ii) all aspects of the Brinson 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.
Underwriter
FDI, 60 State Street, Suite 1300, Boston, MA 02109, acts as an
underwriter of the Brinson Fund's continuous offer of shares for the purpose of
facilitating the filing of notices regarding sale of the shares of the Brinson
Fund 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 Brinson Fund's shares for sale, in order that state filings may be
maintained for the Brinson Fund. 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. The
Brinson Fund 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.
20
<PAGE>
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 Trust 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 Trust 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 the
Trust 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 the Brinson Fund; 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 Trust Series or their shareholders.
In addition, access persons are required to receive advance approval
prior to purchasing or selling a restricted security, and may not buy or sell
certain prohibited securities. The Advisor will identify for access persons
prohibited securities, which include securities that are being considered for
purchase or sale by any account or fund managed by the Advisor, and provide a
list of such securities to all access persons. Access persons are required to
file 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 the Trust Series,
or was being considered for purchase by the Trust Series.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Advisor is responsible for decisions to buy and sell securities
for the Brinson Fund and for the placement of the Brinson Fund's portfolio
business and the negotiation of commissions, if any, paid on such transactions.
Fixed income securities in which the Brinson Fund invests 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. The
Advisor is responsible for effecting portfolio transactions and will do so in a
manner deemed fair and reasonable to the Brinson Fund. Under its advisory
agreements with certain Trust Series, the Advisor 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 Trust 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, the Advisor 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 Trust Series or to Brinson. 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 the
Advisor to supplement its own investment research activities and obtain the
views and information of others prior to making investment decisions. The
Advisor 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 Trust Series by supplementing the Advisor's research.
21
<PAGE>
The Advisor effects portfolio transactions for other investment
companies and advisory accounts. Research services furnished by dealers through
whom the Brinson Fund effects its securities transactions may be used by the
Advisor in servicing all of its accounts; not all such services may be used in
connection with the Brinson Fund. In the opinion of the Advisor, it is not
possible to measure separately the benefits from research services to each of
the accounts. The Advisor will attempt to equitably allocate portfolio
transactions among the Trust Series and others whenever concurrent decisions are
made to purchase or sell securities by the Trust Series and another. In making
such allocations between the Trust 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 Trust
Series and the others. In some cases, this procedure could have an adverse
effect on the Brinson Fund. In the opinion of the Advisor, however, the results
of such procedures will, on the whole, be in the best interest of each of the
clients.
For the fiscal year ended June 30, 1998, 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 Trust 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 Brinson Fund 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 the Brinson
Fund's investment objective.
The Brinson Fund does not intend to use short-term trading as a
primary means of achieving its investment objective. 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 the Brinson Fund
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.
SHARES OF BENEFICIAL INTEREST
Each Trust Series offers three classes of shares representing shares
of beneficial interest in the respective Trust Series. Each share of beneficial
interest represents an equal proportionate interest in the assets and
liabilities of the applicable Trust Series and has the same voting and other
rights and preferences as the other class of that Series, except that only
shares of the UBS Investment Funds class may vote on any matter affecting only
the UBS Investment Funds Plan under Rule 12b-1. Similarly, only shares of the
Brinson Fund-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 the Brinson Fund's fundamental investment objective and fundamental
investment policies, changes to the Trust's investment advisory agreement and
the election of Trustees when required by the Act. When matters are submitted
to shareholders for a vote, shareholders are entitled to one vote per share with
proportionate voting for fractional shares. The shares of the Brinson Fund 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 Brinson Fund into a greater or lesser number of shares so affected. In the
case of a liquidation, each shareholder of the Brinson Fund will be entitled to
share, based upon the shareholder's percentage share ownership, in the
distribution out of assets, net of liabilities, of the Brinson Fund. No
shareholder is liable for further calls or assessment by the Brinson Fund.
On any matters affecting only one Trust Series or class, only the
shareholders of that Trust Series or class are entitled to vote. On matters
relating to the Trust but affecting the Trust Series differently, separate votes
by the Trust Series or class are required. With respect to the submission to
shareholder vote of a matter requiring separate voting by a Trust Series or
class, the matter shall have been effectively acted upon with respect to any
Trust Series
22
<PAGE>
or class if a majority of the outstanding voting securities of that Trust 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 Trust 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 the Brinson Fund 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
Fund-Class I is $1,000,000; subsequent investment minimums are $2,500. A more
detailed description of methods of purchase is included in the Prospectus/Proxy
Statement.
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 the Brinson Fund may only be exchanged for the
same class of another Trust Series. 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 Trust Series from which, and the Trust 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 Trust 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 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 the Brinson Fund. The net asset value per share of the Brinson Fund is
computed by dividing the value of the assets of the Brinson Fund, less its
liabilities, by the number of shares of the Brinson Fund outstanding.
Each class of the Brinson Fund will bear pro rata all of the common
expenses of the Brinson Fund. The net asset values of all outstanding shares of
each class of the Brinson Fund will be computed on a pro rata basis for each
outstanding share based on the proportionate participation in the Brinson Fund
represented by the value of shares of the Brinson Fund. All income earned and
expenses incurred by the Brinson Fund will be borne on a pro rata basis by each
outstanding share of a class, based on each class' percentage in the Brinson
Fund 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.
23
<PAGE>
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 Brinson
Fund and the Trust reserve the right to change the time at which purchases,
redemptions or exchanges are priced if the NYSE closes at a time other than 4:00
p.m. Eastern time or if an emergency exits. The NYSE is open for trading on
every day except Saturdays, Sundays and the following holidays: New Year's Day,
Dr. Martin Luther King, Jr. 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. 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 CGFSC 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 the Brinson Fund. 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 the Brinson Fund 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 Brinson Fund 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.
Payment for shares tendered for redemption is made by check within
five business days after tender in proper form, except that the Trust reserves
the right to suspend the right of redemption, or to postpone the date of payment
upon redemption beyond five business days, (i) for any period during which the
NYSE is closed (other than customary weekend and holiday closings) or during
which trading on the NYSE is restricted, (ii) for any period
24
<PAGE>
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Brinson Fund is not reasonably practicable
or it is not reasonably practicable for the Brinson Fund fairly to determine the
value of its net assets, or (iii) for such other periods as the SEC may by order
permit for the protection of shareholders of the Brinson Fund.
Under unusual circumstances, when the Board of Trustees deems it in
the best interest of the Brinson Fund's shareholders, the Trust may make payment
for shares repurchased or redeemed in whole or in part in securities of the
Brinson Fund 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 Brinson Fund's
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
The Brinson Fund intends 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) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iii) 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 the Brinson Fund qualifies for treatment as a regulated
investment company, it 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 the Brinson Fund's "required distributions" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a fund's
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 Brinson Fund intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared by the
Brinson Fund 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 the Brinson Fund accrues interest or other receivables or
accrues expenses or liabilities denominated in a foreign currency and the time
the Brinson Fund 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 the Brinson Fund's investment company taxable income to
be distributed to its shareholders, rather than increasing or decreasing the
amount of the Brinson Fund' capital gains or losses.
When the Brinson Fund writes a call, or purchases a put option, an
amount equal to the premium received or paid by it is included in its 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
25
<PAGE>
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 the Brinson Fund has
written expires on its stipulated expiration date, the Brinson Fund recognizes a
short-term capital gain. If the Brinson Fund enters into a closing purchase
transaction with respect to an option which it has written, the Brinson Fund
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 the Brinson Fund has written
is exercised, the Brinson Fund realizes a capital gain or loss from the sale of
the underlying security and the proceeds from such sale are increased by the
premium originally received.
The premium paid by the Brinson Fund for the purchase of a put option
is recorded in the Brinson Fund' 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 the Brinson
Fund has purchased expires on the stipulated expiration date, the Brinson Fund
realizes a short-term or long-term capital loss for Federal income tax purposes
in the amount of the cost of the option. If the Brinson Fund 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 the Brinson Fund 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 Brinson Fund 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.
If there is a constructive sale (e.g., short sale against the box) of
an appreciated financial position the taxpayer must recognize gain as if such
position were sold, assigned, or otherwise terminated at its fair market value
as of the date of the constructive sale and immediately repurchased.
Shareholders will be subject to federal income taxes on distributions made by
the Brinson Fund whether received in cash or additional shares of the Brinson
Fund. 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 Brinson Fund. A loss on the sale of shares held for six 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 the
Brinson Fund may qualify in part for the 70% dividends received deduction for
corporations provided, however, in respect of any dividend, that those shares
have been held for at least 46 days during the 90-day period that begins 45 days
before the stock becomes ex-dividend with respect to such dividend. The Brinson
Fund 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 the Brinson Fund will share proportionately in the
investment income and expenses of the Fund, except that the respective UBS
Investment Funds class and Brinson Fund-Class N will incur distribution fees
under their respective 12b-1 plans.
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 the
Brinson Fund's 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 as income derived
from U.S. sources. The limitation on the
26
<PAGE>
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 Brinson Fund. 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 Brinson Fund. Beginning in
1998, an individual with $300 or less ($600 or less for joint filers) of foreign
tax credits is generally exempt from the foreign tax credit limitation and
likely will not have to file Form 1116 in order to claim a foreign tax credit.
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 Brinson Fund, 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 UBS Investment Funds class, Brinson
Fund-Class N and Brinson Fund-Class I shares will vary due to the effect of
expense ratios on the performance calculations.
Total Return
Current yield and total return quotations used by the Brinson Fund
(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).
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:
27
<PAGE>
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 the Brinson Fund may be calculated by dividing the net
investment income per share earned by the Brinson Fund 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. The Brinson Fund's 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 Brinson Funds' Financial Statements for the fiscal year ended June
30, 1998 and the report thereon of Ernst & Young LLP, which are contained in The
Brinson Funds' Annual Reports dated June 30, 1998 (which do not include the
Brinson Fund, which had not commenced operations as of the time period
indicated) are incorporated herein by reference.
28
<PAGE>
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 susceptible to the adverse effects of
changes in circumstances and economic conditions.
A-29
<PAGE>
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.
A-30
<PAGE>
HIGH YIELD BOND FUND
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
UBS HIGH
YIELD BOND PRO FORMA PRO FORMA
FUND ADJUSTMENTS COMBINED
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investment in UBS Investor Portfolios Trust -
UBS High Yield Bond Portfolio, at value............................. $ 16,195,953 $ (16,195,953) (1) $ -
Investments, at value....................................................... - 16,195,953 (1) 16,195,953
Receivable from funds services agent........................................ 4,107 4,107
Receivable from fund shares sold............................................ 500,000 500,000
Deferred organization expenses.............................................. 11,806 (11,806) (2) -
Other assets................................................................ - 11,806 (2) 11,806
------------ ------------- -------------
Total Assets........................................................ 16,711,866 - 16,711,866
------------ ------------- -------------
LIABILITIES:
Administrative services fees payable........................................ 845 845
Dividends payable........................................................... 967 967
Payable from fund shares redeemed........................................... 223,740 223,740
Accrued expenses............................................................ 22,907 22,907
------------ ------------- -------------
Total Liabilities................................................... 248,459 248,459
------------ ------------- -------------
NET ASSETS.................................................................. $ 16,463,407 $ - $ 16,463,407
============ ============= =============
SHARES OUTSTANDING ($0.001 par value, shares authorized of 10 million and
unlimited, respectively)............................................ 160,991 1,485,350 (3) 1,646,341
============ ============= =============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE.............. $102.26 $ 10.00
============ =============
COMPOSITION OF NET ASSETS:
Paid-in capital............................................................. $ 16,256,995 $ - $ 16,256,995
Accumulated undistributed net investment income............................. 11,388 11,388
Accumulated undistributed net realized gains on securities.................. 199,336 199,336
Net unrealized depreciation of investments.................................. (4,312) (4,312)
------------ ------------- -------------
Net Assets.......................................................... $ 16,463,407 $ - $ 16,463,407
============ ============= =============
</TABLE>
See accompanying notes to the pro forma financial statements.
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND
PRO FORMA STATEMENT OF OPERATIONS
For the Period From September 30, 1997 (Commencement of Operations) through June 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
UBS
High Yield Pro Forma Pro-Forma
Bond Fund Adjustments Combined
--------------- ----------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 623,042 $ - $ 623,042
Dividends 2,514 2,514
--------------- ----------------- ------------
Total Income 625,556 625,556
--------------- ----------------- ------------
EXPENSES
Advisory 25,221 17,772 (a) 42,993
Administration 9,774 (9,774) (a) 0
Professional 59,412 (34,412) (b) 25,000
Registration 25,071 (71) (c) 25,000
Custodian 10,247 (10,007) (c) 240
Other 93,340 (85,150) (c) 8,190
--------------- ----------------- ------------
TOTAL EXPENSES 223,065 (121,642) 101,423
Expenses waived/reimbursed by Advisor (158,576) 107,312 (d) (51,264)
--------------- ----------------- ------------
NET EXPENSES 64,489 (14,330) 50,159
--------------- ----------------- ------------
NET INVESTMENT INCOME 561,067 14,330 575,397
--------------- ----------------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain 199,336 199,336
Change in net unrealized appreciation or depreciation (4,312) (4,312)
--------------- ----------------- ------------
Net realized and unrealized gain 195,024 195,024
--------------- ----------------- ------------
Net increase in net assets resulting from operations $ 756,091 $ 14,330 $ 770,421
=============== ================= ============
</TABLE>
See accompanying notes to the pro forma financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRINSON HIGH YIELD BOND FUND
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS
JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value
- -------------------------------- ----------------------------------
UBS HIGH BRINSON PRO FORMA UBS HIGH BRINSON PRO FORMA
YIELD BOND HIGH YIELD COMBINED YIELD BOND HIGH YIELD COMBINED
FUND BOND FUND FUND FUND BOND FUND FUND
- -------------------------------- ----------------------------------
Corporate Obligations - Domestic
<C> <C> <C> <S> <C> <C> <C>
Advertising - 4.6%
$364,178 - $364,178 Lamar Advertising Company, 8.625%, 9/15/07..................... $374,648 - $374,648
364,178 - 364,178 Outdoor Communications, Inc, 9.250%, 8/15/07................... 375,103 - 375,103
----------- ----------- ----------
749,751 - 749,751
----------- ----------- ----------
Apparel & Textiles - 2.7%
218,507 - 218,507 Dan River Inc, 10.125%, 12/15/03............................... 232,709 - 232,709
218,507 - 218,507 Galey & Lord, Inc, 9.125%, 3/01/08............................. 211,951 - 211,951
----------- ----------- ----------
444,660 - 444,660
----------- ----------- ----------
Automotive - 5.6%
320,476 - 320,476 Collins & Aikman Corporation, 11.500%, 4/15/06................. 355,729 - 355,729
364,178 - 364,178 Diamond Triumph Autoglass, Inc. (a), 9.250%, 4/01/08........... 372,371 - 372,371
182,089 - 182,089 Federal-Mogul Corporation, 7.875%, 7/01/10..................... 183,765 - 183,765
----------- ----------- ----------
911,865 - 911,865
----------- ----------- ----------
Broadcasting - 7.7%
364,178 - 364,178 Allbritton Communications Company, 8.875%, 2/01/08............. 393,311 - 393,311
291,342 - 291,342 Cumulus Media Inc, 10.375%, 7/01/08............................ 297,169 - 297,169
145,671 - 145,671 Interep National Radio Sales (a), 10.000%, 7/01/08............. 146,764 - 146,764
109,253 - 109,253 Sinclair Broadcast Group, Inc, 10.000%, 9/30/05................ 117,720 - 117,720
273,133 - 273,133 Young Broadcasting Inc., 8.750%, 6/15/07....................... 285,424 - 285,424
----------- ----------- ----------
1,240,388 - 1,240,388
----------- ----------- ----------
Building Materials - 7.8%
163,880 - 163,880 Building Materials Holding Corporation (0.00% until 7/01/99,
11.75% thereafter)**, due 07/01/04........................... 162,241 - 162,241
364,178 - 364,178 International Comfort Products Corporation (a), 8.625%,
5/15/08...................................................... 359,625 - 359,625
364,178 - 364,178 Nortek, Inc., 9.125%, 9/01/07.................................. 374,192 - 374,192
364,178 - 364,178 Wesco Distribution, Inc. (a), 9.125%, 6/01/08.................. 362,357 - 362,357
----------- ----------- ----------
1,258,415 - 1,258,415
----------- ----------- ----------
Cable TV - 7.6%
364,178 - 364,178 Adelphia Communications Corporation, 9.250%, 10/01/02.......... 379,655 - 379,655
98,328 - 98,328 CSC Holdings, Inc., 9.250%, 11/01/05........................... 105,211 - 105,211
218,507 - 218,507 Echostar Satellite Broadcast Corp. (0.00% until 3/15/00,
13.125% thereafter)**, due 3/15/04........................... 200,753 - 200,753
364,178 - 364,178 Mediacom, L.L.C. (a), 8.500%, 4/15/08.......................... 362,812 - 362,812
182,089 - 182,089 Pegasus Communications Corporation, 9.625%, 10/15/05........... 186,186 - 186,186
----------- ----------- ----------
1,234,617 - 1,234,617
----------- ----------- ----------
Chemicals - 1.2%
327,760 - 327,760 Trans-Resources, Inc. (0.00% until 3/15/03, 12.00% thereafter)
**, due 3/15/08.............................................. 191,739 - 191,739
----------- ----------- ----------
Consumer Goods & Services - 8.5%
218,507 - 218,507 Alliance Laundry Systems L.L.C. (a), 9.625%, 5/01/08........... 220,145 - 220,145
254,924 - 254,924 Bally Total Fitness Holding Corporation, 9.875%, 10/15/07...... 263,847 - 263,847
254,924 - 254,924 Iron Mountain, Inc., 10.125%, 10/01/06......................... 276,593 - 276,593
109,253 - 109,253 Rayovac Corporation, 10.250%, 11/01/06......................... 119,632 - 119,632
254,924 - 254,924 Ryder TRS, Inc., 10.000%, 12/01/06............................. 295,712 - 295,712
182,089 - 182,089 Simmons Company, 10.750%, 4/15/06.............................. 195,745 - 195,745
----------- ----------- ----------
1,371,674 - 1,371,674
----------- ----------- ----------
Cosmetics - 1.1%
182,089 - 182,089 Revlon, Inc., 8.625%, 2/01/08.................................. 182,089 - 182,089
----------- ----------- ----------
Drugs & Pharmaceuticals - 1.0%
163,880 - 163,880 NBTY, Inc., 8.625%, 9/15/07.................................... 167,157 - 167,157
----------- ----------- ----------
Entertainment - 8.4%
91,044 - 91,044 Grand Casinos, Inc., 10.125%, 12/01/03......................... 99,238 - 99,238
</TABLE>
See accompanying notes to the pro forma combining financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRINSON HIGH YIELD BOND FUND
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS
JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value
- -------------------------------- ----------------------------------
UBS HIGH BRINSON PRO FORMA UBS HIGH BRINSON PRO FORMA
YIELD BOND HIGH YIELD COMBINED YIELD BOND HIGH YIELD COMBINED
FUND BOND FUND FUND FUND BOND FUND FUND
- -------------------------------- ----------------------------------
Corporate Obligations - Domestic
<C> <C> <C> <S> <C> <C> <C>
145,671 - 145,671 Harvey Casino Resorts, 10.625%, 6/01/06........................ 162,059 - 162,059
262,208 - 262,208 Horseshoe Gaming, L.L.C., 9.375%, 6/15/07...................... 277,613 - 277,613
364,178 - 364,178 SFX Entertainment Inc. (a), 9.125%, 2/01/08.................... 358,715 - 358,715
200,298 - 200,298 Speedway Motorsports, Inc., 8.500%, 8/15/07.................... 208,310 - 208,310
72,836 - 72,836 Trump Atlantic City Association, 11.250%, 5/01/06.............. 70,833 - 70,833
182,089 - 182,089 United Artists Theatre Circuit Inc.* (a), 10.063%, 10/15/07.... 182,089 - 182,089
----------- ----------- ----------
1,358,857 - 1,358,857
----------- ----------- ----------
Food - 4.3%
291,342 - 291,342 Eagle Family Foods (a), 8.750%, 1/15/08........................ 285,515 - 285,515
182,089 - 182,089 Fresh Foods Inc. (a), 10.750%, 6/01/06......................... 182,999 - 182,999
218,507 - 218,507 Pilgrim's Pride Corporation, 10.875%, 8/01/03.................. 228,339 - 228,339
----------- ----------- ----------
696,853 - 696,853
----------- ----------- ----------
Health Care Providers - 1.1%
182,089 - 182,089 Insight Health Services Corp. (a), 9.625%, 6/15/08............. 181,634 - 181,634
----------- ----------- ----------
Household Appliances - 1.0%
163,880 - 163,880 Fedders North America, 9.375%, 8/15/07......................... 163,060 - 163,060
----------- ----------- ----------
Metals & Mining - 3.4%
364,178 - 364,178 Bayou Steel Corporation (a), 9.500%, 5/15/08................... 362,812 - 362,812
182,089 - 182,089 WCI Steel, Inc., 10.000%, 12/01/04............................. 187,096 - 187,096
----------- ----------- ----------
549,908 - 549,908
----------- ----------- ----------
Oil Services - 5.2%
182,089 - 182,089 Bayard Drilling Technologies, Inc. (a), 11.000%, 6/30/05....... 183,910 - 183,910
254,924 - 254,924 Newpark Resources, Inc., 8.625%, 12/15/07...................... 254,924 - 254,924
182,089 - 182,089 Parker Drilling Corp., 9.750%, 11/15/06........................ 186,641 - 186,641
218,507 - 218,507 Trico Marine Services, Inc., 8.500%, 8/01/05................... 211,951 - 211,951
----------- ----------- ----------
837,426 - 837,426
----------- ----------- ----------
Packaging - 1.8%
291,342 - 291,342 Indesco International, Inc. (a), 9.750%, 4/15/08............... 289,885 - 289,885
----------- ----------- ----------
Paper & Forest Products - 1.0%
160,238 - 160,238 Stone Container Corporation, 11.875%, 12/01/98................. 163,443 - 163,443
----------- ----------- ----------
Petroleum Production & Sales - 0.6%
109,253 - 109,253 Forcenergy Inc., 8.500%, 2/15/07............................... 104,064 - 104,064
----------- ----------- ----------
Printing & Publishing - 5.1%
364,178 - 364,178 Hollinger International Inc., 9.250%, 3/15/07.................. 384,207 - 384,207
291,342 - 291,342 Liberty Group Operating, 9.375%, 2/01/08....................... 298,626 - 298,626
145,671 - 145,671 R.H. Donnelly, Inc. (a), 9.125%, 6/01/08....................... 148,949 - 148,949
----------- ----------- ----------
831,782 - 831,782
----------- ----------- ----------
Real Estate - 2.2%
364,178 - 364,178 CB Richard Ellis Services, Inc., 8.875%, 6/01/06............... 361,446 - 361,446
----------- ----------- ----------
Retail - 1.6%
254,924 - 254,924 MTS, Inc. (a), 9.375%, 5/01/05................................. 253,012 - 253,012
----------- ----------- ----------
Technology - 2.3%
218,507 - 218,507 ICG Services, Inc. (0.00% until 2/15/03, 10.00% thereafter)**
(a), due 2/15/08............................................. 130,558 - 130,558
218,507 - 218,507 PSINet Inc., 10.000%, 2/15/05.................................. 223,969 - 223,969
----------- ----------- ----------
354,527 - 354,527
----------- ----------- ----------
Telecommunications - 7.9%
273,133 - 273,133 Intermedia Communications Inc. (0.00% until 7/15/02, 11.25%
thereafter)**, due 7/15/07................................. 199,387 - 199,387
182,089 - 182,089 Level 3 Communications, Inc. (a), 9.125%, 5/01/08.............. 177,081 - 177,081
243,999 - 243,999 McLeod USA Inc. (0.00% until 3/01/02, 10.50% thereafter)**,
due 3/01/07.................................................. 181,170 - 181,170
145,671 - 145,671 Nextel Communications, Inc. (0.00% until 9/15/02, 10.65%
thereafter)**, due 9/15/07.................................. 98,692 - 98,692
</TABLE>
See accompanying notes to the pro forma combining financial statements.
<PAGE>
<TABLE>
<CAPTION>
BRINSON HIGH YIELD BOND FUND
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS
JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value
- -------------------------------- ----------------------------------
UBS HIGH BRINSON PRO FORMA UBS HIGH BRINSON PRO FORMA
YIELD BOND HIGH YIELD COMBINED YIELD BOND HIGH YIELD COMBINED
FUND BOND FUND FUND FUND BOND FUND FUND
- -------------------------------- ----------------------------------
Corporate Obligations - Domestic
<C> <C> <C> <S> <C> <C> <C>
291,342 - 291,342 Nextel Communications, Inc. (0.00% until 10/31/02, 9.75%
thereafter)**, due 10/31/07................................. 190,829 - 190,829
145,671 - 145,671 RCN Corporation (0.00% until 10/15/02, 11.125% thereafter)**,
due 10/15/07................................................. 93,594 - 93,594
291,342 - 291,342 Sprint Spectrum L.P., 11.000%, 8/15/06......................... 337,228 - 337,228
----------- ----------- ----------
1,277,981 - 1,277,981
----------- ----------- ----------
Total Corporate Obligations - Domestic 15,176,233 - 15,176,233
----------- ----------- ----------
Corporate Obligations - Foreign
Food - 1.6%
254,924 - 254,924 Cott Corporation, 9.375%, 7/01/05.............................. 257,474 - 257,474
----------- ----------- ----------
Telecommunications - 3.2%
218,507 - 218,507 Clearnet Communications Inc. (0.00% until
12/15/00, 14.75% thereafter)**, due 12/15/05................ 184,092 - 184,092
437,013 - 437,013 Microcell Telecommunications Inc. (0.00%
until 12/01/01, 14.00% thereafter)**, due 6/01/06........... 326,667 - 326,667
----------- ----------- ----------
510,759 - 510,759
----------- ----------- ----------
Total Corporate Obligations - Foreign.......................... 768,233 - 768,233
----------- ----------- ----------
<CAPTION>
Shares Shares
- ---------- -----------
Preferred Stock
<C> <C> <C> <S> <C> <C> <C>
Broadcasting - 1.5%
254,924 - 254,924 Paxson Communications Corporations (Cost $350,000)* (a) 250,463 - 250,463
Warrants
Natural Gas - 0.0%
347 - 347 Gothic Energy Corporation Warrant*............................. 4 - 4
1,020 - 1,020 Gothic Energy Corporation Warrant*............................. 1,020 - 1,020
------------ --------- ------------
1,024 - 1,024
------------ --------- ------------
Total Warrants................................................. 1,024 - 1,024
------------ --------- ------------
Total Investments At Market Value - 100.00%
(Cost $16,200,265)........................................... $16,195,953 - $16,195,953
============ ========= ============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
** Step coupon bond.
(a) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
See accompanying notes to the pro forma combining financial statements.
<PAGE>
HIGH YIELD BOND FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
The unaudited pro forma statement of assets and liabilities as of June 30, 1998,
statement of operations for the period from September 30, 1997 though June 30,
1998 and the schedule of investments at June 30, 1998 have been prepared to
reflect the reorganization of the UBS High Yield Bond Fund (the "UBS Fund") into
the High Yield Bond Fund (the "Brinson Fund") as if the proposed reorganization
occurred as of and for the period ended June 30, 1998. The Brinson Fund did not
have any assets or liabilities at June 30, 1998. These statements have been
prepared to conform to the presentation policy of the Brinson Funds. The pro
forma financial statements do not reflect the expenses of either fund in
carrying out its obligations under the Agreement and Plan of Reorganization or
any adjustment with respect to additional distributions that may be made prior
to reorganization. The pro forma statements of assets and liabilities, including
the pro forma schedule of investments, and of operations should be read in
conjunction with the historical financial statements of the UBS Fund and Brinson
Fund (incorporated by reference in the Statement of Additional Information).
UBS Investors Portfolios Trust, a master trust formed under New York law (the
"Trust"), was organized on February 9, 1996, and is an open-end management
investment company. At June 30, 1998, the Trust had established seven
portfolios, including the UBS High Yield Bond Portfolio (the "Portfolio"). The
UBS Fund invests in the Portfolio.
The pro forma statement of assets and liabilities reflects adjustments to show
the transfer of assets and liabilities from the UBS Fund to the Brinson Fund and
are explained below:
(1) Reflects the in-kind transfer of investments out of the Portfolio into the
Brinson Fund.
(2) Reflects the write off of unamortized organization costs of the UBS Fund.
The Brinson Fund will be reimbursed for this write off.
(3) Reflects the exchange of shares of the UBS Fund to the Brinson Fund.
For the pro forma statement of operations, income, expenses, and realized and
unrealized loss on investments allocated from the Portfolio were itemized and
combined with UBS Fund's operating expenses. The pro forma statement of
operations reflects the adjustments necessary to show expenses at the rates
which would have been in effect if the UBS Fund were included in the Brinson
Fund for the period from September 30, 1997 through June 30, 1998 and are
explained below:
(a) Investment advisory fees were adjusted to reflect the application of the
fee structure in effect as of June 30, 1998 for the Brinson Fund (.60% of
average net assets).
(b) Administration fees were adjusted to reflect the application of the fee
structure in effect as of June 30, 1998 for the Brinson Fund (.075% of
average net assets, subject to the expense limitation).
(c) Actual expenses incurred by the individual funds, for various expenses
included on a pro forma basis, were reduced to reflect estimated savings
arising from the merger.
(d) Waiver of investment advisory fees was adjusted to reflect the advisor's
commitment to voluntarily waive fees in excess of .70% for the Brinson
Fund.
The pro forma schedule of investments represents the UBS Fund's proportionate
interest in each of the securities held by the Portfolio as of June 30, 1998.
<PAGE>
- --------------------------------------------------------------------------------
UBS
HIGH YIELD
BOND
FUND
-----------
UBS
PRIVATE INVESTOR
FUNDS, INC.
ANNUAL REPORT
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<PAGE>
UBS Private Investor Funds, Inc.
Chairman's Letter
- --------------------------------------------------------------------------------
Dear Shareholder,
Thank you for your investment in the UBS High Yield Bond Fund, which is part of
the UBS Private Investor Funds.
We are pleased to provide you with the Fund's annual report for the period ended
December 31, 1997. This report contains a letter from the portfolio manager
discussing the performance of the Fund during the period September 30, 1997
(commencement of operations) through December 31, 1997 including a market
overview. In addition, it includes a complete set of audited financial
statements as well as a schedule of investments.
The UBS Private Investor Funds are an integral part of the asset allocation
service provided by The Private Bank* of Union Bank of Switzerland, the largest
bank in Switzerland. The Funds provide investment opportunities in U.S. and
international securities markets to enhance investment performance, diversify
risk and preserve capital within your investment objectives.
The UBS Private Investor Funds bring you:
The expertise of The Private Bank's professional money managers
Global investment perspective and knowledge
A high priority on financial stability and preservation of wealth
As you are aware, in December, 1997, Union Bank of Switzerland and Swiss Bank
Corporation ('SBC') announced their intention to merge. Early in February, 1998,
the shareholders of UBS and SBC overwhelmingly approved the proposed merger.
Completion of the merger is still subject to regulatory approvals which are
expected to be received soon.
This merger will create a top-tier global financial services group which will
concentrate on clearly defined core businesses. As private banking and asset
management are core businesses of the banks, shareholders of the UBS Private
Investor Funds will continue to see a commitment to growing and building the
mutual fund business.
We will continue to keep you informed of any new developments as they occur.
To learn more about the other UBS Private Investor Funds, please call (888)
UBS-FUND. You will be provided with a copy of the prospectus which contains more
complete information including charges and expenses. Please read it carefully
before investing.
We appreciate your continued confidence in the UBS Private Investor Funds.
Sincerely,
/s/ Dr. HansPeter Lochmeier
Dr. HansPeter Lochmeier
Chairman of the Board
UBS Private Investor Funds, Inc.
- ------------
* 'The Private Bank', as used in this document, refers to Union Bank of
Switzerland, New York Branch.
This annual report must be accompanied or preceded by the Fund's prospectus.
<PAGE>
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the period from inception (September 30, 1997) through December 31, 1997,
the UBS High Yield Bond Fund (the 'Fund') returned 2.34% versus 2.58% for the
Merrill Lynch All High Yield Bond Index (the 'Index').
This chart provides a comparison of the Fund's performance to that of the
Merrill Lynch All High Yield Bond Index. This chart compares total returns
(which includes changes in share price and reinvestment of all income dividends
and capital gains distributions) of a hypothetical $10,000 investment made on
September 30, 1997 (commencement of operations) and held through December 31,
1997.
[PERFORMANCE GRAPH]
UBS HIGH YIELD MERRILL LYNCH ALL
DATE BOND FUND HIGH YIELD BOND INDEX
---- -------------- ---------------------
9/30/97 10,000 10,000
10/31/97 9,954.05 10,066.4
11/30/97 10,055.3 10,161.7
12/31/97 10,234.3 10,258.2
ECONOMIC FORECAST
We expect the economy to grow at a 2.3% rate in the first half of 1998, after
growing at a 3.5% rate in the second half of 1997. Although domestic demand has
considerable momentum right now, the devaluations in Asia are expected to cause
a substantial widening in our trade deficit, which should lower growth by
approximately 0.6% this year. Additionally, manufacturers appear to have built
up inventories too rapidly in the second half of 1997. A downward inventory
adjustment should lower Gross Domestic Product growth by an additional 0.3%.
Finally, increasing volatility in the stock market should modestly lower the
pace of consumer spending growth in the first half. Core inflation, which ended
1997 at 2.2%, should trend lower to approximately 1.8% by year-end 1998 as the
Asian devaluations cause deflation in tradable goods prices. The combination of
slower growth and lower inflation should keep the Fed on hold through the next
six months. If events in Asia cause a greater slowdown than we have forecast,
one Fed easing is possible in the spring.
MARKET OVERVIEW
Spreads of high yield bond yields over Treasury bond yields ground steadily
tighter from early 1997 through mid-October, reaching their tightest levels of
+265 basis points (2.65%) in the third week of October. This tightening was
driven by strong credit performances, increased cash inflows into the high yield
mutual fund universe and an increase in the high yield allocation of insurance
companies and other typically high-grade investors.
When the emerging markets sold off in late October, the high yield bond market
sold off in sympathy, albeit to a much lesser extent. While emerging market
spreads over Treasury bonds widened
2
<PAGE>
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
approximately 350 b.p. during this period, high yield spreads over Treasury
bonds widened by only 100 b.p. Over the remainder of the fourth quarter, high
yield spreads over Treasury bonds tightened back, ending the year at +330 b.p.
STRATEGY
We continue to believe that the high yield bond market offers attractive total
return opportunities for investment, despite an expected economic slowdown
driven by Asian turmoil. However, we have underweighted cyclical industries in
the Fund and overweighted industries that we feel will outperform in the
expected economy of 1998. Most notably, we continue to maintain overweight
positions in the broadcasting, cable tv, telecommunications and petroleum
production and sales industries. We believe broadcasting and cable tv are
relatively non-cyclical industries and maintain investments in bonds issued by
such companies as Argyle Television and Century Communications. In the
telecommunications industry, we have benefited from consolidation activity which
continues to drive spreads to increasingly tight levels. Our investment in the
bonds of Teleport Communications, which recently agreed to be acquired by AT&T,
has appreciated significantly since purchase. Lastly, we continue to favor the
petroleum production and sales industry, which continues to generate impressive
quarterly and annual earnings and cash flow gains despite lower commodity
prices. We expect our investments in Parker Drilling, Pride International and
Newpark Resources to continue to generate strong total returns.
Kevin J. McCormick
Portfolio Manager
Kurtis W. Krestinski
Portfolio Manager
- ------------------------
The Fund is not insured by the FDIC and is not a deposit with, an obligation of,
or guaranteed by Union Bank of Switzerland. The Fund is subject to investment
risks, including possible loss of principal amount invested.
Shares of the Fund are distributed by First Fund Distributors, Inc. which is not
affiliated with Union Bank of Switzerland.
Unlike other mutual funds, the Fund seeks to achieve its investment objective by
investing all of its investable assets in UBS Investor Portfolios Trust -- UBS
High Yield Bond Portfolio (the 'Portfolio') which is a separate fund with an
identical investment objective.
Union Bank of Switzerland is voluntarily waiving all shareholder servicing fees
for the Fund and reimbursing a portion of the Fund's expenses. Union Bank of
Switzerland is also waiving all of its advisory fees for the Portfolio and
reimbursing a portion of the Portfolio's expenses. If Union Bank of Switzerland
had not waived fees and reimbursed expenses, total return would have been lower.
Past performance is not a guarantee of future results. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The Merrill Lynch All High Yield Bond Index is an unmanaged composite consisting
of publicly-issued, fixed-rate, non-convertible, domestic bonds that are rated
below investment grade.
3
<PAGE>
UBS High Yield Bond Fund
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in UBS Investor Portfolios Trust --
UBS High Yield Bond Portfolio, at value............................................ $7,882,781
Receivable from sale of capital stock................................................ 8,000
Deferred organization expenses and other assets...................................... 30,855
----------
Total Assets............................................................... 7,921,636
----------
LIABILITIES:
Due to funds services agent.......................................................... 13,318
Administrative services fees payable................................................. 829
Organization costs payable........................................................... 20,000
Other accrued expenses............................................................... 26,228
----------
Total Liabilities.......................................................... 60,375
----------
NET ASSETS........................................................................... $7,861,261
----------
----------
SHARES OUTSTANDING ($0.001 par value, 10 million shares authorized).................. 78,181
----------
----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE....................... $100.55
----------
----------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par....................................................... $ 78
Additional paid-in capital........................................................... 7,809,648
Net unrealized appreciation of investments........................................... 31,878
Accumulated undistributed net investment income...................................... 2,277
Accumulated undistributed net realized gains on securities........................... 17,380
----------
Net Assets................................................................. $7,861,261
----------
----------
</TABLE>
- ------------------------
See notes to financial statements.
4
<PAGE>
UBS High Yield Bond Fund
Statement of Operations
For the Period September 30, 1997 (Commencement of Operations) through December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income and Expenses allocated from UBS Investor Portfolios
Trust -- UBS High Yield Bond Portfolio
Interest............................................................ $146,094
Dividends........................................................... 2,165
--------
Investment income.............................................. 148,259
Total expenses...................................................... $ 36,201
Less: Fee waiver and expense reimbursements......................... (19,792)
--------
Net expenses........................................................ 16,409
--------
Net Investment Income from UBS Investor Portfolios Trust --
UBS High Yield Bond Portfolio.......................................... 131,850
EXPENSES:
Shareholder service fees................................................. 4,558
Administrative services fees............................................. 1,185
Reports to shareholders expense.......................................... 15,550
Audit fees............................................................... 11,300
Registration fees........................................................ 9,188
Transfer agent fees...................................................... 3,750
Legal fees............................................................... 3,750
Fund accounting fees..................................................... 2,250
Amortization of organization expenses.................................... 1,008
Directors' fees.......................................................... 857
Miscellaneous expenses................................................... 1,250
--------
Total expenses...................................................... 54,646
Less: Fee waiver and expense reimbursements......................... (54,646)
--------
Net expenses........................................................ --
--------
Net investment income.................................................... 131,850
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM UBS INVESTOR
PORTFOLIOS TRUST -- UBS HIGH YIELD BOND PORTFOLIO
Net realized gains on securities transactions............................ 17,380
Net change in unrealized appreciation of investments..................... 31,878
--------
Net realized and unrealized gain on investments from UBS Investor
Portfolios Trust -- UBS High Yield Bond Portfolio...................... 49,258
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $181,108
--------
--------
</TABLE>
- ------------------------
See notes to financial statements.
5
<PAGE>
UBS High Yield Bond Fund
Statement of Changes in Net Assets
For the Period September 30, 1997 (Commencement of Operations) through December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income......................................................................... $ 131,850
Net realized gain on securities transactions.................................................. 17,380
Net change in unrealized appreciation of investments.......................................... 31,878
-----------------
Net increase in net assets resulting from operations.......................................... 181,108
-----------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income......................................................................... (129,573)
-----------------
TRANSACTIONS IN SHARES OF COMMON STOCK:
Net proceeds from sale of shares.............................................................. 7,756,774
Net asset value of shares issued to shareholders in reinvestment of dividends................. 129,246
Cost of shares redeemed....................................................................... (76,294)
-----------------
Net increase in net assets from transactions in shares of common stock........................ 7,809,726
-----------------
NET INCREASE IN NET ASSETS.................................................................... 7,861,261
NET ASSETS:
Beginning of period........................................................................... --
-----------------
End of period (including undistributed net investment income of $2,277)....................... $ 7,861,261
-----------------
-----------------
</TABLE>
- ------------------------
See notes to financial statements.
6
<PAGE>
UBS High Yield Bond Fund
Financial Highlights
For the Period September 30, 1997 (Commencement of Operations) through December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FOR A SHARE OUTSTANDING FOR THE PERIOD
Net asset value, beginning of period.......................................................... $100.00
-----------------
Income from investment operations:
Net investment income.................................................................... 1.80
Net realized and unrealized gain on investments.......................................... 0.52
-----------------
Total income from investment operations.................................................. 2.32
-----------------
Less dividends to shareholders from net investment income..................................... (1.77)
-----------------
Net asset value, end of period................................................................ $100.55
-----------------
-----------------
Total return.................................................................................. 2.34%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)................................................. $ 7,861
Ratio of expenses to average net assets(2)............................................... 0.90%(3)
Ratio of net investment income to average net assets(2).................................. 7.23%(3)
</TABLE>
- ------------------------
(1) Not annualized.
(2) Includes the Fund's share of UBS Investor Portfolios Trust -- UBS High Yield
Bond Portfolio expenses and net of fee waivers and expense reimbursements.
Such fee waivers and expense reimbursements had the effect of reducing the
ratio of expenses to average net assets and increasing the ratio of net
investment income to average net assets by 4.08% (annualized).The
annualization of these ratios is affected by the fact that the Investment
Advisory Agreement and Investment Sub-Advisory Agreement was not ratified
until December 22, 1997. Prior to this date, investment advisory services
were being provided without compensation.
(3) Annualized.
See notes to financial statements.
7
<PAGE>
UBS High Yield Bond Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. GENERAL
UBS High Yield Bond Fund (the 'Fund') is a diversified, no-load mutual fund
registered under the Investment Company Act of 1940. The Fund is one of several
series of UBS Private Investor Funds, Inc. (the 'Company'), an open-end
management investment company organized as a corporation under Maryland law. At
December 31, 1997, the Company included six other funds, UBS Bond Fund, UBS
Value Equity Fund, UBS Institutional International Equity Fund, UBS
International Equity Fund, UBS Small Cap Fund and UBS Large Cap Growth Fund.
These financial statements relate only to the Fund.
The Fund seeks to achieve its investment objective by investing substantially
all of its investable assets in the UBS High Yield Bond Portfolio of UBS
Investor Portfolios Trust (the 'Portfolio'), an open-end management investment
company that has the same investment objective as that of the Fund. At December
31, 1997, certain shares of the Fund were held by UBS or its affiliates on
behalf of its clients. Three shareholders, individually owning greater than 10%
of the shares of the Fund, collectively held 52.1% at December 31, 1997.
Investors Bank & Trust Company ('IBT') serves as the Fund's administrator and
First Fund Distributors, Inc. ('FFDI') serves as the Fund's distributor. Union
Bank of Switzerland, New York Branch ('UBS') serves as the funds services agent
to the Fund.
The financial statements of the Portfolio, including its Schedule of
Investments, are included elsewhere within this report and should be read in
conjunction with the Fund's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. Significant accounting policies
followed by the Fund are as follows:
A. INVESTMENT VALUATION -- The value of the Fund's investment in the Portfolio
included in the accompanying Statement of Assets and Liabilities reflects the
Fund's proportionate beneficial interest in the net assets of the Portfolio
(60.0% at December 31, 1997). Valuation of securities by the Portfolio is
discussed in Note 2A of the Portfolio's Notes to Financial Statements.
B. INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND
LOSSES -- The Fund records its share of the investment income, expenses and
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expenses and realized and unrealized gains and
losses are allocated daily to investors of the Portfolio based upon the amount
of their investment in the Portfolio.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the requirement to distribute substantially all of its taxable income, including
any net realized capital gains on investment transactions, to its shareholders.
Accordingly, no provision for federal income or excise taxes is necessary.
D. DIVIDENDS AND DISTRIBUTIONS -- The Fund declares dividends from net
investment income to shareholders of record on the day of declaration. Such
dividends are declared daily and paid monthly. Net realized gains, if any, will
be distributed at least annually. However, to the extent that net realized gains
of the Fund can be reduced by capital loss carryovers, such gains will not be
distributed. Dividends and distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted
8
<PAGE>
UBS High Yield Bond Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
accounting principles. These 'book/tax' differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the composition of net assets
based upon their federal tax-basis treatment; temporary differences do not
require reclassification. For the period ended December 31, 1997, there were no
permanent 'book/tax' differences.
E. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in connection
with its organization in the amount of approximately $20,000 have been deferred
and are being amortized on a straight line basis over five years from the Fund's
commencement of operations (September 30, 1997).
F. OTHER -- The Fund bears all costs of its operations other than expenses
specifically assumed by IBT, FFDI and UBS. Expenses incurred by the Company on
behalf of any two or more funds are allocated in proportion to the net assets of
each fund, except when allocations of direct expenses to each fund can otherwise
be made fairly. Expenses directly attributable to the Fund are charged directly
to the Fund.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Company, IBT provides overall administrative services and general
office facilities. As compensation for such services, the Company has agreed to
pay IBT a fee, accrued daily and payable monthly, at an annual rate of 0.065% of
the Fund's first $100 million average daily net assets and 0.025% of the next
$100 million average daily net assets. IBT does not receive a fee on average
daily net assets in excess of $200 million. For the period September 30, 1997
(commencement of operations) to December 31, 1997, the administrative services
fee amounted to $1,185.
B. DISTRIBUTION AGREEMENT -- Under the terms of a Distribution Agreement, FFDI
serves as the distributor of Fund shares. FFDI does not receive any fees from
the Fund for services provided pursuant to this agreement.
C. SHAREHOLDER SERVICING AGREEMENT -- The Fund has entered into a Shareholder
Servicing Agreement with UBS pursuant to which UBS provides certain services to
shareholders of the Fund. The Fund has agreed to pay UBS a fee for these
services, accrued daily and payable monthly, at an annual rate of 0.25% of the
average daily net assets of the Fund. For the period September 30, 1997
(commencement of operations) to December 31, 1997, the shareholder service fee
amounted to $4,558, all of which was waived.
D. FUNDS SERVICES AGREEMENT -- Under the terms of a Funds Services Agreement
with the Company, UBS has agreed to provide certain administrative services to
the Fund. UBS is not entitled to any additional compensation pursuant to this
agreement.
E. EXPENSE REIMBURSEMENTS -- UBS has voluntarily agreed to limit the total
operating expenses of the Fund, including its share of the Portfolio's expenses
and excluding extraordinary expenses, to an annual rate of 0.90% of the Fund's
average daily net assets. For the period September 30, 1997 (commencement of
operations) to December 31, 1997, UBS reimbursed the Fund for expenses totaling
$50,088 in connection with this voluntary limitation. UBS may modify or
discontinue this voluntary expense limitation at any time with 30 days' advance
notice to the Fund.
4. CAPITAL SHARE TRANSACTIONS
At December 31, 1997 there were 500 million shares of the Company's common stock
authorized, of which 10 million shares were classified as common stock of the
Fund. Transactions in shares of the Fund
9
<PAGE>
UBS High Yield Bond Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
during the period September 30, 1997 (commencement of operations) through
December 31, 1997 were as follows:
<TABLE>
<S> <C>
Shares subscribed................................................... 77,644
Shares issued in reinvestment of dividends.......................... 1,296
Shares redeemed..................................................... (759)
-------
Net increase in shares outstanding.................................. 78,181
-------
-------
</TABLE>
10
<PAGE>
UBS High Yield Bond Fund
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors
and Shareholders of
UBS Private Investor Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the UBS High Yield Bond Fund (the 'Fund') (one of the funds constituting UBS
Private Investor Funds, Inc.) at December 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for the
period September 30, 1997 (commencement of operations) through December 31,
1997, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of Americas
New York, New York
February 17, 1998
11
<PAGE>
UBS High Yield Bond Portfolio
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE COUPON MATURITY MARKET
VALUE SECURITY DESCRIPTION RATE DATE VALUE
- -------- ------------------------------------------------------------------- ------ -------- -----------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 91.0%
CORPORATE OBLIGATIONS -- DOMESTIC -- 88.1%
ADVERTISING -- 4.5%
$200,000 Lamar Advertising Company.......................................... 8.63% 9/15/07 $ 206,500
250,000 Outdoor Communications, Inc........................................ 9.25% 8/15/07 256,250
125,000 Outdoor Systems, Inc............................................... 8.88% 6/15/07 130,625
-----------
593,375
-----------
BROADCASTING -- 8.8%
105,000 Argyle Television, Inc............................................. 9.75% 11/01/05 117,600
300,000 Chancellor Media Corporation....................................... 8.75% 6/15/07 306,748
250,000 Jacor Communications Co.**......................................... 8.75% 6/15/07 256,250
225,000 Sinclair Broadcast Group, Inc.**................................... 9.00% 7/15/07 230,625
250,000 Young Broadcasting Inc............................................. 8.75% 6/15/07 246,250
-----------
1,157,473
-----------
BUILDING MATERIALS -- 7.2%
278,000 American Standard, Inc. (0.00% until 6/01/98, 10.50%
thereafter)(a)................................................... 0.00% 6/01/05 280,085
125,000 Building Materials Holding Corporation (0.00% until 7/01/99, 11.75%
thereafter)(a)................................................... 0.00% 7/01/04 118,125
300,000 Maxim Group, Inc.**................................................ 9.25% 10/15/07 297,000
250,000 Nortek, Inc.**..................................................... 9.13% 9/01/07 255,000
-----------
950,210
-----------
CABLE TV -- 14.7%
200,000 Adelphia Communications Corporation................................ 9.25% 10/01/02 205,000
135,000 Cablevision Systems Corporation.................................... 9.25% 11/01/05 143,100
200,000 Cablevision Systems Corporation**.................................. 7.88% 12/15/07 204,000
250,000 Century Communications Corp.**..................................... 8.75% 10/01/07 255,000
250,000 Comcast Corporation................................................ 9.13% 10/15/06 270,000
300,000 Echostar Satellite Broadcast Corp. (0.00% until 3/15/00, 13.125%
thereafter)(a)................................................... 0.00% 3/15/04 249,000
125,000 Marcus Cable Company, L.P (0.00% until 8/01/99, 13.50%
thereafter)(a)................................................... 0.00% 8/01/04 115,625
200,000 Pegasus Communications Corporation**............................... 9.63% 10/15/05 206,000
425,000 TCI Satellite Entertainment, Inc.** (0.00% until 2/15/02, 12.25%
thereafter)(a)................................................... 0.00% 2/15/07 280,500
-----------
1,928,225
-----------
CHEMICALS -- 1.7%
125,000 ISP Holdings, Inc.................................................. 9.00% 10/15/03 130,156
100,000 NL Industries, Inc. (0.00% until 10/15/98, 13.00% thereafter)(a)... 0.00% 10/15/05 99,500
-----------
229,656
-----------
CONSUMER GOODS & SERVICES -- 5.7%
250,000 Bally Total Fitness Holding Corporation**.......................... 9.88% 10/15/07 253,750
250,000 Iron Mountain, Inc.**.............................................. 8.75% 9/30/09 256,250
235,000 Ryder TRS, Inc..................................................... 10.00% 12/01/06 236,175
-----------
746,175
-----------
COSMETICS -- 2.0%
250,000 Revlon, Inc........................................................ 10.50% 2/15/03 266,250
-----------
DRUGS & PHARMACEUTICALS -- 1.7%
225,000 NBTY, Inc.**....................................................... 8.63% 9/15/07 226,125
-----------
</TABLE>
- ------------------------
See notes to financial statements.
12
<PAGE>
UBS High Yield Bond Portfolio
Schedule of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE COUPON MATURITY MARKET
VALUE SECURITY DESCRIPTION RATE DATE VALUE
- -------- ------------------------------------------------------------------- ------ -------- -----------
<C> <S> <C> <C> <C>
ENTERTAINMENT -- 9.0%
$150,000 Fox Kids Worldwide Inc.**.......................................... 9.25% 11/01/07 $ 145,500
225,000 Grand Casinos, Inc.**.............................................. 9.00% 10/15/04 226,125
250,000 Horseshoe Gaming, L.L.C............................................ 12.75% 9/30/00 277,500
275,000 Speedway Motorsports, Inc.......................................... 8.50% 8/15/07 281,875
125,000 Trump Atlantic City Association.................................... 11.25% 5/01/06 123,438
125,000 United Artists Entertainment Company............................... 11.50% 5/01/02 130,313
-----------
1,184,751
-----------
FOOD -- 1.2%
150,000 AmeriServ Food Company**........................................... 8.875 % 10/15/06 151,500
-----------
HEALTH CARE PROVIDERS -- 1.0%
125,000 Tenet Healthcare Corporation....................................... 10.13% 3/01/05 136,563
-----------
HOUSEHOLD APPLIANCES -- 1.8%
225,000 Fedders North America**............................................ 9.38% 8/15/07 230,625
-----------
MANUFACTURING -- 3.8%
250,000 RBX Corp.**........................................................ 12.00% 1/15/03 255,625
250,000 Unicco Service Co.................................................. 9.88% 10/15/07 250,313
-----------
505,938
-----------
METALS & MINING -- 1.9%
250,000 WCI Steel, Inc..................................................... 10.00% 12/01/04 255,625
-----------
OIL SERVICES -- 0.8%
100,000 Trico Marine Services.............................................. 8.50% 8/01/05 100,500
-----------
PAPER & FOREST PRODUCTS -- 2.9%
150,000 Gaylord Container Corporation**.................................... 9.75% 6/15/07 146,250
220,000 Stone Container Corporation........................................ 11.88% 12/01/98 228,800
-----------
375,050
-----------
PETROLEUM PRODUCTION & SALES -- 10.9%
250,000 Belko Oil & Gas Corporation**...................................... 8.88% 9/15/07 255,625
125,000 Chesapeake Energy Corporation...................................... 10.50% 6/01/02 134,375
150,000 Forcenergy Inc..................................................... 8.50% 2/15/07 151,500
100,000 Gothic Energy Corporation**........................................ 12.25% 9/01/04 104,250
250,000 Newpark Resources, Inc.**.......................................... 8.63% 12/15/07 253,750
250,000 Parker Drilling Corp............................................... 9.75% 11/15/06 268,125
250,000 Pride Petroleum Services, Inc...................................... 9.38% 5/01/07 268,750
-----------
1,436,375
-----------
PRINTING & PUBLISHING -- 1.6%
200,000 Transwestern Publishing Co.**...................................... 9.63% 11/15/07 209,000
-----------
TECHNOLOGY -- 1.6%
200,000 Details Inc.**..................................................... 10.00% 11/15/05 205,500
-----------
TELECOMMUNICATIONS -- 5.3%
300,000 McLeod USA Inc. (0.00% until 3/01/02, 10.50% thereafter)(a)........ 0.00% 3/01/07 218,250
200,000 Nextel Communications, Inc.** (0.00% until 9/15/02, 10.65%
thereafter)(a)................................................... 0.00% 9/15/07 126,500
125,000 Rogers Communications, Inc.**...................................... 8.88% 7/15/07 125,000
275,000 Teleport Communications Group Inc. (0.00% until 7/01/01, 11.125%
thereafter)(a)................................................... 0.00% 7/01/07 224,125
-----------
693,875
-----------
TOTAL CORPORATE OBLIGATIONS -- DOMESTIC (COST $11,531,859)......... 11,582,791
-----------
</TABLE>
- ------------------------
See notes to financial statements.
13
<PAGE>
UBS High Yield Bond Portfolio
Schedule of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE COUPON MATURITY MARKET
VALUE SECURITY DESCRIPTION RATE DATE VALUE
- -------- ------------------------------------------------------------------- ------ -------- -----------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS -- FOREIGN -- 2.9%
ENTERTAINMENT -- 0.9%
$125,000 Livent, Inc.**..................................................... 9.38% 10/15/04 $ 125,625
-----------
FOOD -- 2.0%
250,000 Cott Corporation................................................... 9.38% 7/01/05 260,625
-----------
TOTAL CORPORATE OBLIGATIONS -- FOREIGN (COST $386,328)............. 386,250
-----------
TOTAL CORPORATE OBLIGATIONS (COST $11,918,187)..................... 11,969,041
-----------
SHARES
- --------
PREFERRED STOCK -- 1.0%
TELECOMMUNICATIONS -- 1.0%
125 Hyperion Telecommunications, Inc. (Cost $125,000)**................ 126,250
-----------
WARRANTS -- 0.0%
PETROLEUM PRODUCTION & SALES -- 0.0%
1,400 Gothic Energy Corporation Warrant (Cost $2,019).................... 2,800
-----------
TOTAL INVESTMENTS AT MARKET VALUE -- 92.0%
(COST $12,045,206)................................................. 12,098,091
OTHER ASSETS IN EXCESS OF LIABILITIES -- 8.0%...................... 1,045,200
-----------
NET ASSETS -- 100.0%............................................... $13,143,291
-----------
-----------
</TABLE>
- ------------------------
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1997, the value of these securities amounted to $5,407,625 or 41.14% of net
assets.
(a) Step coupon bond.
Note: Based upon the cost of investments of $12,045,206 for Federal Income Tax
purposes at December 31, 1997, the aggregate gross unrealized appreciation
and depreciation was $102,956 and $50,071, respectively, resulting in net
unrealized appreciation of $52,885.
See notes to financial statements.
14
<PAGE>
UBS High Yield Bond Portfolio
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment, at value (cost $12,045,206).......................................... $12,098,091
Cash............................................................................. 837,762
Dividends and interest receivable................................................ 219,245
Receivable from Investment Advisor............................................... 21,780
Deferred organization expenses and other assets.................................. 4,550
-----------
Total Assets........................................................... 13,181,428
-----------
LIABILITIES:
Administrative services fees payable............................................. 1,391
Organization expenses payable.................................................... 5,000
Other accrued expenses........................................................... 31,746
-----------
Total Liabilities...................................................... 38,137
-----------
NET ASSETS....................................................................... $13,143,291
-----------
-----------
</TABLE>
- ------------------------
See notes to financial statements.
15
<PAGE>
UBS High Yield Bond Portfolio
Statement of Operations
For the Period September 30, 1997 (Commencement of Operations) through December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................................................ $215,326
Dividends............................................................... 3,613
--------
Total income....................................................... 218,939
EXPENSES
Investment advisory fees................................................ $ 1,611
Administrative services fees............................................ 1,870
Audit fees.............................................................. 24,500
Fund accounting fees.................................................... 8,750
Custodian fees and expenses............................................. 6,000
Legal fees.............................................................. 3,750
Trustees' fees.......................................................... 1,000
Insurance expense....................................................... 375
Amortization of organization expenses................................... 252
Miscellaneous expenses.................................................. 1,000
--------
Total expenses..................................................... 49,108
Less: Fee waiver and expense reimbursements........................ (23,391)
--------
Net expenses....................................................... 25,717
--------
Net investment income................................................... 193,222
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on securities transactions............................ 28,936
Net change in unrealized appreciation of investments.................... 52,885
--------
Net realized and unrealized gain on investments......................... 81,821
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $275,043
--------
--------
</TABLE>
- ------------------------
See notes to financial statements.
16
<PAGE>
UBS High Yield Bond Portfolio
Statement of Changes in Net Assets
For the Period September 30, 1997 (Commencement of Operations) through December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS FROM:
<S> <C>
OPERATIONS:
Net investment income......................................................................... $ 193,222
Net realized gain on securities transactions.................................................. 28,936
Net change in unrealized appreciation of investments.......................................... 52,885
-----------------
Net increase in net assets resulting from operations.......................................... 275,043
-----------------
CAPITAL TRANSACTIONS:
Proceeds from contributions................................................................... 12,987,656
Value of withdrawals.......................................................................... (119,408)
-----------------
Net increase in net assets from capital transactions.......................................... 12,868,248
-----------------
NET INCREASE IN NET ASSETS.................................................................... 13,143,291
NET ASSETS:
Beginning of period........................................................................... --
-----------------
End of period................................................................................. $13,143,291
-----------------
-----------------
</TABLE>
- ------------------------
See notes to financial statements.
17
<PAGE>
UBS High Yield Bond Portfolio
Financial Highlights
For the Period September 30, 1997 (Commencement of Operations) through December
31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)................................................. $13,143
Ratio of expenses to average net assets(1)............................................... 0.96%(2)
Ratio of net investment income to average net assets(1).................................. 7.23%(2)
Portfolio turnover....................................................................... 80%
</TABLE>
- ------------------------
(1) Net of fee waiver and expense reimbursements. Such fee waiver and expense
reimbursements had the effect of reducing the ratio of expenses to average
net assets and increasing the ratio of net investment income to average net
assets by 0.88% (annualized). The annualization of these ratios is affected
by the fact that the Investment Advisory Agreement and Investment
Sub-Advisory Agreement was not ratified until December 22, 1997. Prior to
this date, investment advisory services were being provided without
compensation.
(2) Annualized.
See notes to financial statements.
18
<PAGE>
UBS High Yield Bond Portfolio
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. GENERAL
UBS High Yield Bond Portfolio (the 'Portfolio'), a separate series of UBS
Investor Portfolios Trust (the 'Trust'), is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Trust is organized as a trust under the laws of the State of New York. At
December 31, 1997, all of the beneficial interests in the Portfolio were held by
UBS High Yield Bond Fund and UBS High Yield Bond Fund, Ltd.
The investment adviser of the Portfolio is Union Bank of Switzerland, New York
Branch ('UBS'); UBS Asset Management (New York) Inc. ('UBSAM') is the
sub-advisor of the portfolio. Investors Fund Services (Ireland) Limited ('IBT
Ireland') acts as the Portfolio's administrator.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements:
A. INVESTMENT VALUATION -- Debt securities with remaining maturities of more
than 60 days are normally valued by a pricing service approved by the
Portfolio's Board of Trustees (the 'Trustees'). Such pricing service will
consider various factors when arriving at a valuation for a security. Such
factors include yields and prices of comparable securities, indications as to
values from dealers in such securities and general market conditions. In the
event a pricing service is unable to price a security, the security will be
valued by taking the average of the bid and ask prices as provided by a dealer
in such security.
Debt securities that mature in 60 days or less are valued at amortized cost,
which approximates market value. The amortized cost method involves valuing a
security at its cost on the date of purchase or, in the case of securities
purchased with more than 60 days until maturity, at their market value each day
until the 61st day prior to maturity, and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and such valuation.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision of the Trustees.
B. ACCOUNTING FOR INVESTMENTS -- Securities transactions are accounted for on
trade date. Realized gains and losses on security transactions are determined on
the identified cost basis. Interest income, adjusted for amortization of
premiums and accretion of discounts on investments, is accrued daily.
C. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code (the 'Code'). As such, each investor in the
Portfolio will be taxed on its share of the Portfolio's ordinary income and
capital gains. Accordingly, no provision for federal income taxes is necessary.
It is intended that the Portfolio will be managed in such a way that an investor
will be able to satisfy the requirements of the Code applicable to regulated
investment companies.
D. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Portfolio in
connection with its organization in the amount of approximately $5,000 have been
deferred and are being amortized on a straight line basis over five years from
the Portfolio's commencement of operations (September 30, 1997).
E. OTHER -- The Portfolio bears all costs of its operations other than expenses
specifically assumed by UBS, UBSAM and IBT Ireland. Expenses incurred by the
Trust on behalf of any two or more portfolios are allocated in proportion to net
assets of each portfolio, except when allocations of direct expenses to
19
<PAGE>
UBS High Yield Bond Portfolio
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
each portfolio can otherwise be made fairly. Expenses directly attributable to
the Portfolio are charged directly to the Portfolio.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY AGREEMENT -- Effective December 22, 1997, the Portfolio
has retained the services of UBS as investment adviser and UBSAM as investment
sub-advisor. UBS and UBSAM were not entitled to receive any investment advisory
fee prior to the approval of the Investment Advisory Agreement and Investment
Sub-Advisory Agreement by the Shareholders of the Fund. UBSAM makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments and
operations subject to the supervision of UBS and the Trustees. As compensation
for overall investment management services, the Trust has agreed to pay UBS an
investment advisory fee, accrued daily and payable monthly, at an annual rate of
0.45% of the Portfolio's average daily net assets. UBS, in turn, has agreed to
pay UBSAM a fee, accrued daily and payable monthly, at an annual rate of 0.25%
of the Portfolio's first $25 million average daily net assets, 0.20% of the
Portfolio's next $25 million average daily net assets and 0.15% of the
Portfolio's average daily net assets in excess of $50 million. For the period
December 22, 1997 through December 31, 1997, the investment advisory fee
amounted to $1,611, all of which was waived.
B. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Trust, IBT Ireland provides overall administrative services and general
office facilities to the Portfolio and the Trust. As compensation for such
services, the Portfolio has agreed to pay IBT Ireland an administrative services
fee, accrued daily and payable monthly, at an annual rate of 0.07% of the
Portfolio's first $100 million average daily net assets and 0.05% of the
Portfolio's average daily net assets in excess of $100 million. For the period
September 30, 1997 (commencement of operations) through December 31, 1997, the
administrative services fee amounted to $1,870.
4. PURCHASES AND SALES OF INVESTMENTS
For the period September 30, 1997 (commencement of operations) through December
31, 1997, purchases and sales of investment securities, excluding short-term
investments, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- ----------
<S> <C> <C>
U.S. Government Securities................................................. $ 2,019,063 $2,002,031
Corporate obligations...................................................... 18,325,115 6,351,871
----------- ----------
Total................................................................. $20,344,178 $8,353,902
----------- ----------
----------- ----------
</TABLE>
20
<PAGE>
UBS High Yield Bond Portfolio
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Trustees
and Investors of
UBS Investor Portfolios Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the UBS High Yield Bond Portfolio
(the 'Portfolio') (one of the portfolios constituting UBS Investor Portfolios
Trust) at December 31, 1997, and the results of its operations, the changes in
its net assets and the financial highlights for the period September 30, 1997
(commencement of operations) through December 31, 1997, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as 'financial
statements') are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1997 by correspondence with the custodian and
brokers, and the application of alternative auditing procedures where
confirmations from brokers were not received, provides a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE
Chartered Accountants
Toronto, Ontario
February 17, 1998
21
<PAGE>
Special Meeting of Shareholders (Unaudited)
- --------------------------------------------------------------------------------
A special meeting of the shareholders of UBS Private Investor Funds, Inc. with
respect to UBS Small Cap Fund, UBS Large Cap Growth Fund and UBS High Yield Bond
Fund was held Monday, December 22, 1997. The results of votes taken among
shareholders of UBS High Yield Bond Fund on Proposals 5 and 6 are listed below.
PROPOSAL 5
To approve a proposal to adopt an Investment Advisory Agreement between the
Trust and UBS, with respect to the assets of UBS High Yield Bond Portfolio.
<TABLE>
<CAPTION>
# OF SHARES VOTED % OF SHARES
----------------- -----------
<S> <C> <C>
Affirmative.............. 53,720.962 71.14%
Against.................. 1,089.691 1.44%
Abstain.................. 0 0.00%
</TABLE>
PROPOSAL 6
To adopt an Investment Sub-Advisory Agreement between UBS and UBSAM, with
respect to the assets of UBS High Yield Bond Portfolio.
<TABLE>
<CAPTION>
# OF SHARES VOTED % OF SHARES
----------------- -----------
<S> <C> <C>
Affirmative.............. 53,720.962 71.14%
Against.................. 1,089.691 1.44%
Abstain.................. 0 0.00%
</TABLE>
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
UBS HIGH YIELD BOND FUND
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
INVESTMENT ADVISER Union Bank of Switzerland,
New York Branch
1345 Avenue of the Americas
New York, NY 10105
ADMINSTRATOR Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
DISTRIBUTOR First Fund Distributors, Inc.
4455 East Camelback Road
Phoenix, AZ 85018
CUSTODIAN AND TRANSFER AGENT Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
<PAGE>
- --------------------------------------------------------------------------------
UBS
HIGH YIELD
BOND
FUND
-----------
UBS
PRIVATE INVESTOR
FUNDS, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1998
- --------------------------------------------------------------------------------
<PAGE>
Chairman's Letter
- --------------------------------------------------------------------------------
Dear Shareholder,
Thank you for your investment in the UBS High Yield Bond Fund, which is part of
the UBS Private Investor Funds.
We are pleased to provide you with the Fund's semi-annual report for the six
months ended June 30, 1998. This report contains a letter from the portfolio
manager discussing the performance of the Fund for the six months ended June 30,
1998, including a market overview. In addition, it includes a complete set of
financial statements as well as a schedule of investments.
The UBS Private Investor Funds are an integral part of the asset allocation
service provided by The Private Bank* of Union Bank of Switzerland, the largest
bank in Switzerland. The Funds provide investment opportunities in U.S. and
international securities markets to enhance investment performance, diversify
risk and preserve capital within your investment objectives.
The UBS Private Investor Funds bring you:
The expertise of The Private Bank's professional money managers
Global investment perspective and knowledge
A high priority on financial stability and preservation of wealth
As you are aware, in December, 1997, Union Bank of Switzerland and Swiss Bank
Corporation ('SBC') announced their intention to merge. Early in February, 1998,
the shareholders of UBS and SBC overwhelmingly approved the proposed merger. The
merger was completed on Monday June 29, 1998, creating UBS A.G.
UBS A.G. is a top-tier global financial services company which concentrates on
clearly defined core businesses. As private banking and asset management are
core businesses of the bank, shareholders of the UBS Private Investor Funds will
continue to see a commitment to growing and building the mutual fund business.
We will continue to keep you informed of any new developments as they occur.
To learn more about the other UBS Private Investor Funds, please call (888)
UBS-FUND. You will be provided with a copy of the prospectus which contains more
complete information including charges and expenses. Please read it carefully
before investing.
We appreciate your confidence in the UBS Private Investor Funds.
Sincerely,
Dr. HansPeter Lochmeier
Dr. HansPeter Lochmeier
Chairman of the Board
UBS Private Investor Funds, Inc.
- ------------------------
* 'The Private Bank', as used in this document, refers to Union Bank of
Switzerland, New York Branch.
The semi-annual report must be accompanied or preceded by the Fund's prospectus.
<PAGE>
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the period January 1 through June 30, 1998 the UBS High Yield Fund (the
'Fund') returned 5.70% versus 4.51% for the Merrill Lynch High Yield Master
Index (the 'Index').
This chart provides a comparison of the Fund's performance to that of the
Merrill Lynch All High Yield Bond Index. This chart compares total returns
(which includes changes in share price and reinvestment of all dividends and
capital gains distributions) of a hypothetical $10,000 investment made on
September 30, 1997* and held through June 30, 1998.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
UBS
High Yield Merrill Lynch All
Bond Fund High Yield Bond Index
--------- ---------------------
<S> <C> <C>
$10,000 $10,000
9,954 10,066
10,055 10,162
10,234 10,258
10,473 10,411
10,542 10,454
10,668 10,544
10,684 10,594
10,709 10,668
10,818 10,721
</TABLE>
Average Annual Total Return:
<TABLE>
<CAPTION>
UBS MERRILL LYNCH
HIGH YIELD ALL HIGH YIELD
BOND FUND BOND INDEX
---------- --------------
<S> <C> <C>
Six months ended June 30, 1998.................................. 5.70% 4.51%
Since inception* through June 30, 1998.......................... 8.18% 7.21%
</TABLE>
- ------------
* Commencement of operations -- September 30, 1997.
2
<PAGE>
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
ECONOMIC OVERVIEW:
Despite continued volatility and growing concern about the economic outlook in
Japan, we expect the U.S. economy to grow at a 2.5-3.0% pace over the next few
quarters, driven by strength in consumer spending and housing, which represents
over two-thirds of the economy. These sectors are expected to grow at a 3.5-4.5%
pace over the balance of 1998, supported by the continued strong growth of real
earnings, as wage gains continue to outpace inflation as well as by low
long-term interest rates and the rising value of household financial assets in
the last few years. We expect slower export growth due to decreased demand from
Asia and a downward adjustment in inventory investments to pull growth back into
the high 2% range. Inflation should remain low through the remainder of the year
owing to a strong trade-weighted dollar and continued solid productivity growth.
We expect the core CPI inflation rate to end 1998 at around 2.0-2.5%. The
Federal Reserve Bank's most likely response to our economic scenario is to leave
the funds rate unchanged through the remainder of the year.
MARKET OVERVIEW:
The spreads offered in the high yield bond market widened sharply during the
first half of 1998, increasing from +330bp to +350bp. During the second quarter
in particular, high yield spreads widened in response to a surge in primary
market issuance and an increase in the default rate versus prior periods. In
particular, telecommunications-related issuers and cyclical issuers fared poorly
in the first half, while broadcasters enjoyed strong relative performance.
Through the first half of 1998, approximately $100 billion in new issuance
entered the high yield market, increasing the overall high yield market to more
than $500 billion in outstandings.
STRATEGY:
We continue to believe that the high yield bond market offers attractive total
return opportunities, particularly for actively managed portfolios. During the
first half, we reduced our holdings in petroleum production and service
companies based on our concerns about near-term financial performance given weak
oil prices. This strategy, combined with an underweight position in steel and
paper companies and an overweight position in broadcasting companies served the
Fund well during the first half and should continue to generate superior
returns.
In addition, we continue to believe that attractive refinancing candidates exist
in the market. During the first half of 1998, the Fund benefited from several
tender offers for, among others, Petersen Publishing, Ryder TRS and Showboat
Inc. We continue to maintain investments in certain high yield issues which we
believe may benefit from tender offers in the second half of 1998.
Kevin J. McCormick
Portfolio Manager
Kurtis W. Krestinski
Portfolio Manager
3
<PAGE>
UBS Private Investor Funds, Inc.
Fund Commentary
- --------------------------------------------------------------------------------
The Fund is not insured by the FDIC and is not a deposit with, an obligation of,
or guaranteed by Union Bank of Switzerland. The Fund is subject to investment
risks, including possible loss of principal amount invested.
Shares of the Fund are distributed by First Fund Distributors, Inc. which is not
affiliated with Union Bank of Switzerland.
Unlike other mutual funds, the Fund seeks to achieve its investment objective by
investing all of its investable assets in UBS Investor Portfolios Trust -- UBS
High Yield Bond Portfolio (the 'Portfolio') which is a separate fund with an
identical investment objective.
Union Bank of Switzerland is voluntarily waiving all shareholder servicing fees
for the Fund and reimbursing a portion of the Fund's expenses. Union Bank of
Switzerland is also waiving all of its advisory fees for the Portfolio. If Union
Bank of Switzerland had not waived fees and reimbursed expenses, total return
would have been lower. Past performance is not a guarantee of future results.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The Merrill Lynch All High Yield Bond Index is an unmanaged composite consisting
of publicly-issued, fixed-rate, non-convertible, domestic bonds that are rated
below investment grade.
4
<PAGE>
UBS High Yield Bond Fund
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in UBS Investor Portfolios Trust -- UBS High Yield Bond
Portfolio, at value............................................................... $16,195,953
Receivable from funds services agent................................................ 4,107
Receivable from sale of capital stock............................................... 500,000
Deferred organization expenses and other assets..................................... 11,806
-----------
Total Assets.............................................................. 16,711,866
-----------
LIABILITIES:
Administrative services fees payable................................................ 845
Dividends payable................................................................... 967
Payable from purchase of capital stock.............................................. 223,740
Other accrued expenses.............................................................. 22,907
-----------
Total Liabilities......................................................... 248,459
-----------
NET ASSETS.......................................................................... $16,463,407
-----------
-----------
SHARES OUTSTANDING ($0.001 par value, 10 million shares authorized)................. 160,991
-----------
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE...................... $ 102.26
-----------
-----------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par...................................................... $ 161
Additional paid-in capital.......................................................... 16,256,834
Net unrealized depreciation of investments.......................................... (4,312)
Accumulated undistributed net investment income..................................... 11,388
Accumulated undistributed net realized gains on securities.......................... 199,336
-----------
Net Assets................................................................ $16,463,407
-----------
-----------
</TABLE>
- ------------------------
See notes to financial statements.
5
<PAGE>
UBS High Yield Bond Fund
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income and Expenses allocated from UBS Investor
Portfolios Trust -- UBS High Yield Bond Portfolio
Interest....................................................... $ 476,948
Dividends...................................................... 349
----------
Investment income......................................... 477,297
Total expenses................................................. $ 60,185
Less: Fee waiver and expense reimbursements.................... (24,173)
----------
Net expenses................................................... 36,012
----------
Net Investment Income from UBS Investor Portfolios Trust -- UBS High
Yield Bond Portfolio.............................................. 441,285
EXPENSES:
Shareholder service fees............................................ 13,356
Administrative services fees........................................ 3,472
Registration fees................................................... 15,883
Reports to shareholders expense..................................... 11,021
Transfer agent fees................................................. 7,357
Legal fees.......................................................... 5,411
Audit fees.......................................................... 5,112
Fund accounting fees................................................ 4,463
Directors' fees..................................................... 1,700
Miscellaneous expenses.............................................. 4,258
----------
Total expenses................................................. 72,033
Less: Fee waiver and expense reimbursements.................... (59,965)
----------
Net expenses................................................... 12,068
----------
Net investment income............................................... 429,217
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS FROM UBS
INVESTOR PORTFOLIOS TRUST -- UBS HIGH YIELD BOND PORTFOLIO
Net realized gains on securities transactions....................... 181,956
Net change in unrealized depreciation of investments................ (36,190)
----------
Net realized and unrealized gain on investments from UBS Investor
Portfolios Trust -- UBS High Yield Bond Portfolio................. 145,766
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $ 574,983
----------
----------
</TABLE>
- ------------------------
See notes to financial statements.
6
<PAGE>
UBS High Yield Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30, 1997*
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income......................................... $ 429,217 $ 131,850
Net realized gain on securities transactions.................. 181,956 17,380
Net change in unrealized (depreciation) appreciation of
investments................................................. (36,190) 31,878
------------- -------------
Net increase in net assets resulting from operations.......... 574,983 181,108
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................................... (420,106) (129,573)
TRANSACTIONS IN SHARES OF COMMON STOCK:
Net proceeds from sale of shares.............................. 9,377,090 7,756,774
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions................. 414,926 129,246
Cost of shares redeemed....................................... (1,344,747) (76,294)
------------- -------------
Net increase in net assets from transactions in shares of
common stock................................................ 8,447,269 7,809,726
------------- -------------
NET INCREASE IN NET ASSETS.................................... 8,602,146 7,861,261
NET ASSETS:
Beginning of period........................................... 7,861,261 --
------------- -------------
End of period (including undistributed net investment income
of $11,388 and $2,277, respectively)........................ $ 16,463,407 $ 7,861,261
------------- -------------
------------- -------------
</TABLE>
- ------------------------
* Commencement of operations.
See notes to financial statements.
7
<PAGE>
UBS High Yield Bond Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30, 1997*
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------- -------------------
<S> <C> <C>
FOR A SHARE OUTSTANDING FOR THE PERIOD
Net asset value, beginning of period.......................... $100.55 $100.00
------- -------
Income from investment operations:
Net investment income.................................... 4.00 1.80
Net realized and unrealized gain on investments.......... 1.67 0.52
------- -------
Total income from investment operations.................. 5.67 2.32
------- -------
Less dividends to shareholders from net investment income..... (3.96) (1.77)
------- -------
Net asset value, end of period................................ $102.26 $100.55
------- -------
------- -------
Total return.................................................. 5.70%(1) 2.34%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)................. $16,463 $ 7,861
Ratio of expenses to average net assets(2)............... 0.90%(4) 0.90%(3)(4)
Ratio of net investment income to average net
assets(2).............................................. 8.03%(4) 7.23%(3)(4)
</TABLE>
- ------------------------
* Commencement of operations.
(1) Not annualized.
(2) Includes the Fund's share of UBS Investor Portfolio Trust -- UBS High Yield
Bond Portfolio expenses and net of fee waivers and expense reimbursements.
Such fee waivers and expense reimbursements had the effect of reducing the
ratio of expenses to average net assets and increasing the ratio of net
investment income to average net assets by 1.57% (annualized) and 4.08%
(annualized) for the respective periods.
(3) The annualization of these ratios is affected by the fact that the
Investment Advisory Agreement and Investment Sub-Advisory Agreement were not
ratified by shareholders until December 22, 1997. Prior to this date,
investment advisory services were being provided without compensation.
(4) Annualized.
See notes to financial statements.
8
<PAGE>
UBS High Yield Bond Fund
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. GENERAL
UBS High Yield Bond Fund (the 'Fund') is a diversified, no-load mutual fund
registered under the Investment Company Act of 1940. The Fund is one of several
series of UBS Private Investor Funds, Inc. (the 'Company'), an open-end
management investment company organized as a corporation under Maryland law. At
June 30, 1998, the Company included six other funds, UBS Bond Fund, UBS Value
Equity Fund, UBS Institutional International Equity Fund, UBS International
Equity Fund, UBS Small Cap Fund and UBS Large Cap Growth Fund. These financial
statements relate only to the Fund.
The Fund seeks to achieve its investment objective by investing substantially
all of its investable assets in the UBS High Yield Bond Portfolio of UBS
Investor Portfolios Trust (the 'Portfolio'), an open-end management investment
company that has the same investment objective as that of the Fund. At June 30,
1998, certain shares of the Fund were held by UBS or its affiliates on behalf of
its clients.
Investors Bank & Trust Company ('IBT') serves as the Fund's administrator and
First Fund Distributors, Inc. ('FFDI') serves as the Fund's distributor. Union
Bank of Switzerland, New York Branch ('UBS') serves as the funds services agent
to the Fund.
The financial statements of the Portfolio, including its Schedule of
Investments, are included elsewhere within this report and should be read in
conjunction with the Fund's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. Significant accounting policies
followed by the Fund are as follows:
A. INVESTMENT VALUATION -- The value of the Fund's investment in the Portfolio
included in the accompanying Statement of Assets and Liabilities reflects the
Fund's proportionate beneficial interest in the net assets of the Portfolio
(70.84% at June 30, 1998). Valuation of securities by the Portfolio is discussed
in Note 2A of the Portfolio's Notes to Financial Statements.
B. INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND
LOSSES -- The Fund records its share of the investment income, expenses and
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expenses and realized and unrealized gains and
losses are allocated daily to investors of the Portfolio based upon the amount
of their investment in the Portfolio.
C. FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies, including
the requirement to distribute substantially all of its taxable income, including
any net realized capital gains on investment transactions, to its shareholders.
Accordingly, no provision for federal income or excise taxes is necessary.
D. DIVIDENDS AND DISTRIBUTIONS -- The Fund declares dividends from net
investment income to shareholders of record on the day of declaration. Such
dividends are declared daily and paid monthly. Net realized gains, if any, will
be distributed at least annually. However, to the extent that net realized gains
of the Fund can be reduced by capital loss carryovers, such gains will not be
distributed. Dividends and distributions are recorded on the ex-dividend date.
The amounts of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These 'book/tax'
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based upon their federal tax-basis
treatment; temporary differences do not require reclassification.
9
<PAGE>
UBS High Yield Bond Fund
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
E. OTHER -- The Fund bears all costs of its operations other than expenses
specifically assumed by IBT, FFDI and UBS. Expenses incurred by the Company on
behalf of any two or more funds are allocated in proportion to the net assets of
each Fund, except when allocations of direct expenses to each fund can otherwise
be made fairly. Expenses directly attributable to the Fund are charged directly
to the Fund.
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Company, IBT provides overall administrative services and general
office facilities. As compensation for such services, the Company has agreed to
pay IBT a fee, accrued daily and payable monthly, at an annual rate of 0.065% of
the Fund's first $100 million average daily net assets and 0.025% of the next
$100 million average daily net assets. IBT does not receive a fee on average
daily net assets in excess of $200 million. For the six months ended June 30,
1998, the administrative services fee amounted to $3,472.
B. DISTRIBUTION AGREEMENT -- Under the terms of a Distribution Agreement, FFDI
serves as the distributor of Fund shares. FFDI does not receive any fees from
the Fund for services provided pursuant to this agreement.
C. SHAREHOLDER SERVICING AGREEMENT -- The Fund has entered into a Shareholder
Servicing Agreement with UBS pursuant to which UBS provides certain services to
shareholders of the Fund. The Fund has agreed to pay UBS a fee for these
services, accrued daily and payable monthly, at an annual rate of 0.25% of the
average daily net assets of the Fund. For the six months ended June 30, 1998,
the shareholder service fee amounted to $13,356, all of which was waived.
D. FUNDS SERVICES AGREEMENT -- Under the terms of a Funds Services Agreement
with the Company, UBS has agreed to provide certain administrative services to
the Fund. UBS is not entitled to any additional compensation pursuant to this
agreement.
E. EXPENSE REIMBURSEMENTS -- UBS has voluntarily agreed to limit the total
operating expenses of the Fund, including its share of the Portfolio's expenses
and excluding extraordinary expenses, to an annual rate of 0.90% of the Fund's
average daily net assets. For the six months ended June 30, 1998, UBS reimbursed
the Fund for expenses totaling $46,609 in connection with this voluntary
limitation. UBS may modify or discontinue this voluntary expense limitation at
any time with 30 days' advance notice to the Fund.
4. CAPITAL SHARE TRANSACTIONS
At June 30, 1998 there were 500 million shares of the Company's common stock
authorized, of which 10 million shares were classified as common stock of the
Fund. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD FROM SEPTEMBER 30, 1997
JUNE 30, 1998 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) THROUGH DECEMBER 31, 1997
------------- ------------------------------
<S> <C> <C>
Shares subscribed.................................. 91,877 77,644
Shares issued to shareholders from dividends and
distributions.................................... 4,056 1,296
Shares redeemed.................................... (13,123) (759)
---------- -------
Net increase in shares outstanding................. 82,810 78,181
---------- -------
---------- -------
</TABLE>
10
<PAGE>
UBS High Yield Bond Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE COUPON MATURITY MARKET
VALUE SECURITY DESCRIPTION RATE DATE VALUE
- -------- ------------------------------------------------------------------- ------ -------- -----------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS -- DOMESTIC -- 91.2%
ADVERTISING -- 4.5%
$500,000 Lamar Advertising Company.......................................... 8.625% 9/15/07 $ 514,375
500,000 Outdoor Communications, Inc........................................ 9.250% 8/15/07 515,000
-----------
1,029,375
-----------
APPAREL & TEXTILES -- 2.7%
300,000 Dan River Inc...................................................... 10.125% 12/15/03 319,500
300,000 Galey & Lord, Inc.................................................. 9.125% 3/01/08 291,000
-----------
610,500
-----------
AUTOMOTIVE -- 5.5%
440,000 Collins & Aikman Corporation....................................... 11.500% 4/15/06 488,400
500,000 Diamond Triumph Autoglass, Inc. (a)................................ 9.250% 4/01/08 511,250
250,000 Federal-Mogul Corporation.......................................... 7.875% 7/01/10 252,302
-----------
1,251,952
-----------
BROADCASTING -- 7.5%
500,000 Allbritton Communications Company.................................. 8.875% 2/01/08 539,999
400,000 Cumulus Media Inc.................................................. 10.375% 7/01/08 408,000
200,000 Interep National Radio Sales (a)................................... 10.000% 7/01/08 201,500
150,000 Sinclair Broadcast Group, Inc...................................... 10.000% 9/30/05 161,625
375,000 Young Broadcasting Inc............................................. 8.750% 6/15/07 391,875
-----------
1,702,999
-----------
BUILDING MATERIALS -- 7.6%
225,000 Building Materials Holding Corporation (0.00% until 7/01/99, 11.75%
thereafter)**.................................................... 0.000% 7/01/04 222,750
500,000 International Comfort Products Corporation (a)..................... 8.625% 5/15/08 493,750
500,000 Nortek, Inc........................................................ 9.125% 9/01/07 513,750
500,000 Wesco Distribution, Inc. (a)....................................... 9.125% 6/01/08 497,500
-----------
1,727,750
-----------
CABLE TV -- 7.4%
500,000 Adelphia Communications Corporation................................ 9.250% 10/01/02 521,250
135,000 CSC Holdings, Inc.................................................. 9.250% 11/01/05 144,450
300,000 Echostar Satellite Broadcast Corp. (0.00% until 3/15/00, 13.125%
thereafter)**.................................................... 0.000% 3/15/04 275,625
500,000 Mediacom, L.L.C. (a)............................................... 8.500% 4/15/08 498,125
250,000 Pegasus Communications Corporation................................. 9.625% 10/15/05 255,625
-----------
1,695,075
-----------
CHEMICALS -- 1.1%
450,000 Trans-Resources, Inc. (0.00% until 3/15/03, 12.00% thereafter)**... 0.000% 3/15/08 263,250
-----------
CONSUMER GOODS & SERVICES -- 8.2%
300,000 Alliance Laundry Systems L.L.C. (a)................................ 9.625% 5/01/08 302,250
350,000 Bally Total Fitness Holding Corporation............................ 9.875% 10/15/07 362,250
350,000 Iron Mountain, Inc................................................. 10.125% 10/01/06 379,750
150,000 Rayovac Corporation................................................ 10.250% 11/01/06 164,250
350,000 Ryder TRS, Inc..................................................... 10.000% 12/01/06 406,000
250,000 Simmons Company.................................................... 10.750% 4/15/06 268,750
-----------
1,883,250
-----------
COSMETICS -- 1.1%
250,000 Revlon, Inc........................................................ 8.625% 2/01/08 250,000
-----------
DRUGS & PHARMACEUTICALS -- 1.0%
225,000 NBTY, Inc.......................................................... 8.625% 9/15/07 229,500
-----------
</TABLE>
- ------------------------
See notes to financial statements.
11
<PAGE>
UBS High Yield Bond Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE COUPON MATURITY MARKET
VALUE SECURITY DESCRIPTION RATE DATE VALUE
- -------- ------------------------------------------------------------------- ------ -------- -----------
<C> <S> <C> <C> <C>
ENTERTAINMENT -- 8.2%
$125,000 Grand Casinos, Inc................................................. 10.125% 12/01/03 $ 136,250
200,000 Harvey Casino Resorts.............................................. 10.625% 6/01/06 222,500
360,000 Horseshoe Gaming, L.L.C............................................ 9.375% 6/15/07 381,150
500,000 SFX Entertainment Inc. (a)......................................... 9.125% 2/01/08 492,500
275,000 Speedway Motorsports, Inc.......................................... 8.500% 8/15/07 286,000
100,000 Trump Atlantic City Association.................................... 11.250% 5/01/06 97,250
250,000 United Artists Theatre Circuit Inc.* (a)........................... 10.063% 10/15/07 250,000
-----------
1,865,650
-----------
FOOD -- 4.2%
400,000 Eagle Family Foods (a)............................................. 8.750% 1/15/08 392,000
250,000 Fresh Foods Inc. (a)............................................... 10.750% 6/01/06 251,250
300,000 Pilgrim's Pride Corporation........................................ 10.875% 8/01/03 313,500
-----------
956,750
-----------
HEALTH CARE PROVIDERS -- 1.1%
250,000 Insight Health Services Corp. (a).................................. 9.625% 6/15/08 249,375
-----------
HOUSEHOLD APPLIANCES -- 1.0%
225,000 Fedders North America.............................................. 9.375% 8/15/07 223,875
-----------
METALS & MINING -- 3.3%
500,000 Bayou Steel Corporation (a)........................................ 9.500% 5/15/08 498,125
250,000 WCI Steel, Inc..................................................... 10.000% 12/01/04 256,875
-----------
755,000
-----------
OIL SERVICES -- 5.0%
250,000 Bayard Drilling Technologies, Inc. (a)............................. 11.000% 6/30/05 252,500
350,000 Newpark Resources, Inc............................................. 8.625% 12/15/07 350,000
250,000 Parker Drilling Corp............................................... 9.750% 11/15/06 256,250
300,000 Trico Marine Services, Inc......................................... 8.500% 8/01/05 291,000
-----------
1,149,750
-----------
PACKAGING -- 1.7%
400,000 Indesco International, Inc. (a).................................... 9.750% 4/15/08 398,000
-----------
PAPER & FOREST PRODUCTS -- 1.0%
220,000 Stone Container Corporation........................................ 11.875% 12/01/98 224,400
-----------
PETROLEUM PRODUCTION & SALES -- 0.6%
150,000 Forcenergy Inc..................................................... 8.500% 2/15/07 142,875
-----------
PRINTING & PUBLISHING -- 5.0%
500,000 Hollinger International Inc........................................ 9.250% 3/15/07 527,500
400,000 Liberty Group Operating............................................ 9.375% 2/01/08 410,000
200,000 R.H. Donnelly, Inc. (a)............................................ 9.125% 6/01/08 204,500
-----------
1,142,000
-----------
REAL ESTATE -- 2.2%
500,000 CB Richard Ellis Services, Inc..................................... 8.875% 6/01/06 496,250
-----------
RETAIL -- 1.5%
350,000 MTS, Inc. (a)...................................................... 9.375% 5/01/05 347,375
-----------
TECHNOLOGY -- 2.1%
300,000 ICG Services, Inc. (0.00% until 2/15/03, 10.00% thereafter)**(a)... 0.000% 2/15/08 179,250
300,000 PSINet Inc......................................................... 10.000% 2/15/05 307,500
-----------
486,750
-----------
</TABLE>
- ------------------------
See notes to financial statements.
12
<PAGE>
UBS High Yield Bond Portfolio
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE COUPON MATURITY MARKET
VALUE SECURITY DESCRIPTION RATE DATE VALUE
- -------- ------------------------------------------------------------------- ------ -------- -----------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS -- 7.7%
$375,000 Intermedia Communications Inc. (0.00% until 7/15/02, 11.25%
thereafter)**.................................................... 0.000% 7/15/07 $ 273,750
250,000 Level 3 Communications, Inc. (a)................................... 9.125% 5/01/08 243,125
335,000 McLeod USA Inc. (0.00% until 3/01/02, 10.50% thereafter)**......... 0.000% 3/01/07 248,738
200,000 Nextel Communications, Inc. (0.00% until 9/15/02, 10.65%
thereafter)**.................................................... 0.000% 9/15/07 135,500
400,000 Nextel Communications, Inc. (0.00% until 10/31/02, 9.75%
thereafter)**.................................................... 0.000% 10/31/07 262,000
200,000 RCN Corporation (0.00% until 10/15/02, 11.125% thereafter)**....... 0.000% 10/15/07 128,500
400,000 Sprint Spectrum L.P................................................ 11.000% 8/15/06 463,000
-----------
1,754,613
-----------
TOTAL CORPORATE OBLIGATIONS -- DOMESTIC (COST $20,824,200)......... 20,836,314
-----------
CORPORATE OBLIGATIONS -- FOREIGN -- 4.6%
FOOD -- 1.5%
350,000 Cott Corporation................................................... 9.375% 7/01/05 353,500
-----------
TELECOMMUNICATIONS -- 3.1%
300,000 Clearnet Communications Inc. (0.00% until 12/15/00, 14.75%
thereafter)**.................................................... 0.000% 12/15/05 252,750
600,000 Microcell Telecommunications Inc. (0.00% until 12/01/01, 14.00%
thereafter)**.................................................... 0.000% 6/01/06 448,500
-----------
701,250
-----------
TOTAL CORPORATE OBLIGATIONS -- FOREIGN (COST $1,077,447)........... 1,054,750
-----------
<CAPTION>
SHARES
- --------
<C> <S> <C>
PREFERRED STOCK -- 1.5%
BROADCASTING -- 1.5%
350,000 Paxson Communications Corporations (Cost $350,000)*(a)............. 343,875
-----------
WARRANTS -- 0.0%
NATURAL GAS -- 0.0%
476 Gothic Energy Corporation Warrant*................................. 5
1,400 Gothic Energy Corporation Warrant*................................. 1,400
-----------
1,405
-----------
TOTAL WARRANTS (COST $2,028)....................................... 1,405
-----------
TOTAL INVESTMENTS AT MARKET VALUE -- 97.3%
(COST $22,253,675).......................................................... 22,236,344
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.7%................................. 626,109
-----------
NET ASSETS -- 100.0%.......................................................... $22,862,453
-----------
-----------
</TABLE>
- ------------------------
* Non-income producing security.
** Step coupon bond.
(a) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 1998,
the value of these securities amounted to $6,606,250 or 28.90% of net
assets.
Note: Based upon the cost of investments of $22,253,675 for Federal Income Tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $173,642 and $190,973, respectively, resulting in net
unrealized depreciation of $17,331.
See notes to financial statements.
13
<PAGE>
UBS High Yield Bond Portfolio
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment, at value (cost $22,253,675).......................................... $22,236,344
Cash............................................................................. 153,718
Dividends and interest receivable................................................ 393,200
Receivable for investment securities sold........................................ 967,469
Deferred organization expenses and other assets.................................. 159
-----------
Total Assets................................................................ 23,750,890
-----------
LIABILITIES:
Administrative services fees payable............................................. 1,286
Payable for investment securities purchased...................................... 854,875
Other accrued expenses........................................................... 32,276
-----------
Total Liabilities........................................................... 888,437
-----------
NET ASSETS....................................................................... $22,862,453
-----------
-----------
</TABLE>
- ------------------------
See notes to financial statements.
14
<PAGE>
UBS High Yield Bond Portfolio
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................ $754,359
Dividends............................................................... 572
--------
Total income....................................................... 754,931
EXPENSES:
Investment advisory fees................................................ $ 38,222
Administrative services fees............................................ 5,946
Audit fees.............................................................. 18,661
Fund accounting fees.................................................... 17,356
Custodian fees and expenses............................................. 9,263
Legal fees.............................................................. 2,036
Trustees' fees.......................................................... 1,984
Insurance expense....................................................... 738
Miscellaneous expenses.................................................. 1,511
--------
Total expenses..................................................... 95,717
Less: Fee waiver and expense reimbursements........................ (38,222)
--------
Net expenses....................................................... 57,495
--------
Net investment income................................................... 697,436
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities transactions............................ 295,762
Net change in unrealized depreciation of investments.................... (70,216)
--------
Net realized and unrealized gain on investments......................... 225,546
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $922,982
--------
--------
</TABLE>
- ------------------------
See notes to financial statements.
15
<PAGE>
UBS High Yield Bond Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30, 1997*
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income......................................... $ 697,436 $ 193,222
Net realized gain on security transactions.................... 295,762 28,936
Net change in unrealized (depreciation) appreciation of
investments................................................. (70,216) 52,885
------------- ---------------
Net increase in net assets resulting from operations.......... 922,982 275,043
------------- ---------------
CAPITAL TRANSACTIONS:
Proceeds from contributions................................... 11,350,751 12,987,656
Value of withdrawals.......................................... (2,554,571) (119,408)
------------- ---------------
Net increase in net assets from capital transactions.......... 8,796,180 12,868,248
------------- ---------------
NET INCREASE IN NET ASSETS.................................... 9,719,162 13,143,291
NET ASSETS:
Beginning of period........................................... $ 13,143,291 $ --
------------- ---------------
End of period................................................. $ 22,862,453 $13,143,291
------------- ---------------
------------- ---------------
</TABLE>
- ------------------------
* Commencement of operations.
See notes to financial statements.
16
<PAGE>
UBS High Yield Bond Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30, 1997*
JUNE 30, 1998 THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------- -------------------
<S> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted)................................ $22,862 $13,143
Ratio of expenses to average net assets(1).............................. 0.68%(2) 0.96%(2)(3)
Ratio of net investment income to average net assets(1)................. 8.21%(2) 7.23%(2)(3)
Portfolio turnover...................................................... 155% 80%
</TABLE>
- ------------------------
* Commencement of operations.
(1) Net of fee waivers. Such fee waivers had the effect of reducing the ratio of
expenses to average net assets and increasing the ratio of net investment
income to average net assets by 0.45% (annualized) and 0.88% (annualized)
for the respective periods.
(2) Annualized.
(3) The annualization of these ratios is affected by the fact that the
Investment Advisory Agreement and Investment Sub-Advisory Agreement were not
ratified by shareholders until December 22, 1997. Prior to this date,
investment advisory services were being provided without compensation.
See notes to financial statements.
17
<PAGE>
UBS High Yield Bond Portfolio
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. GENERAL
UBS High Yield Bond Portfolio (the 'Portfolio'), a separate series of UBS
Investor Portfolios Trust (the 'Trust'), is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Trust is organized as a trust under the laws of the State of New York. At
June 30, 1998, all of the beneficial interests in the Portfolio were held by UBS
High Yield Bond Fund and UBS High Yield Bond Fund, Ltd.
The investment adviser of the Portfolio is Union Bank of Switzerland, New York
Branch ('UBS'); UBS Asset Management (New York) Inc. ('UBSAM') is the
sub-advisor of the portfolio. Investors Fund Services (Ireland) Limited ('IBT
Ireland') acts as the Portfolio's administrator.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements:
A. INVESTMENT VALUATION -- Debt securities with remaining maturities of more
than 60 days are normally valued by a pricing service approved by the
Portfolio's Board of Trustees (the 'Trustees'). Such pricing service will
consider various factors when arriving at a valuation for a security. Such
factors include yields and prices of comparable securities, indications as to
values from dealers in such securities and general market conditions. In the
event a pricing service is unable to price a security, the security will be
valued by taking the average of the bid and ask prices as provided by a dealer
in such security.
Debt securities that mature in 60 days or less are valued at amortized cost,
which approximates market value. The amortized cost method involves valuing a
security at its cost on the date of purchase or, in the case of securities
purchased with more than 60 days until maturity, at their market value each day
until the 61st day prior to maturity, and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and such valuation.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision of the Trustees.
B. ACCOUNTING FOR INVESTMENTS -- Securities transactions are accounted for on
trade date. Realized gains and losses on security transactions are determined on
the identified cost basis. Interest income, adjusted for amortization of
premiums and accretion of discounts on investments, is accrued daily.
C. U.S. FEDERAL INCOME TAXES -- The Portfolio is considered a partnership under
the U.S. Internal Revenue Code (the 'Code'). As such, each investor in the
Portfolio will be taxed on its share of the Portfolio's ordinary income and
capital gains. Accordingly, no provision for federal income taxes is necessary.
It is intended that the Portfolio will be managed in such a way that an investor
will be able to satisfy the requirements of the Code applicable to regulated
investment companies.
D. OTHER -- The Portfolio bears all costs of its operations other than expenses
specifically assumed by UBS, UBSAM and IBT Ireland. Expenses incurred by the
Trust on behalf of any two or more portfolios are allocated in proportion to net
assets of each portfolio, except when allocations of direct expenses to each
portfolio can otherwise be made fairly. Expenses directly attributable to the
Portfolio are charged directly to the Portfolio.
18
<PAGE>
UBS High Yield Bond Portfolio
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
A. INVESTMENT ADVISORY AGREEMENT -- The Portfolio has retained the services of
UBS as investment adviser and UBSAM as investment sub-advisor. UBSAM makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments and
operations subject to the supervision of UBS and the Trustees. As compensation
for overall investment management services, the Trust has agreed to pay UBS an
investment advisory fee, accrued daily and payable monthly, at an annual rate of
0.45% of the Portfolio's average daily net assets. UBS, in turn, has agreed to
pay UBSAM a fee, accrued daily and payable monthly, at an annual rate of 0.25%
of the Portfolio's first $25 million average daily net assets, 0.20% of the
Portfolio's next $25 million average daily net assets and 0.15% of the
Portfolio's average daily net assets in excess of $50 million. For the six
months ended June 30, 1998, the investment advisory fee amounted to $38,222, all
of which was waived.
B. ADMINISTRATION AGREEMENT -- Under the terms of an Administration Agreement
with the Trust, IBT Ireland provides overall administrative services and general
office facilities to the Portfolio and the Trust. As compensation for such
services, the Portfolio has agreed to pay IBT Ireland an administrative services
fee, accrued daily and payable monthly, at an annual rate of 0.07% of the
Portfolio's first $100 million average daily net assets and 0.05% of the
Portfolio's average daily net assets in excess of $100 million. For the six
months ended June 30, 1998, the administrative services fee amounted to $5,946.
4. PURCHASE AND SALES OF INVESTMENTS
For the six months ended June 30, 1998, purchases and sales of investment
securities, excluding short-term investments, aggregated to $35,151,250 and
$24,884,509, respectively.
19
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- --------------------------------------------------------------------------------
UBS High Yield Bond Fund
200 Clarendon Street
Boston, Massachusetts 02116
Investment Adviser Union Bank of Switzerland,
New York Branch
1345 Avenue of the Americas
New York, NY 10105
Administrator Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Distributor First Fund Distributors, Inc.
4455 East Camelback Road
Phoenix, AZ 85018
Custodian and Transfer Agent Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
The accompanying financial statements dated as of June 30, 1998 were not audited
and, accordingly, no opinion is expressed on them.
- --------------------------------------------------------------------------------
<PAGE>
PART C. OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Indemnification of the Registrant's Trustees is provided for in
Article VII, Sections 2 and 3 of the Registrant's Agreement and
Declaration of Trust dated August 9, 1993, as amended through August
24, 1998, as follows:
Section 2. Indemnification and Limitation of Liability. The Trustees
shall not be responsible or liable in any event for any neglect or
wrong-doing of any officer, agent, employee, Manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, and, subject to the provisions
of the Bylaws, the Trust out of its assets may indemnify and hold
harmless each and every Trustee and officer of the Trust from and
against any and all claims, demands, costs, losses, expenses, and
damages whatsoever arising out of or related to such Trustee's
performance of his or her duties as a Trustee or officer of the Trust;
provided that nothing herein contained shall indemnify, hold harmless
or protect any Trustee or officer from or against any liability to the
Trust or any Shareholder to which he or she would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with
the Trust shall be conclusively deemed to have been issued, executed
or done only in or with respect to their or his or her capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers hereunder shall
be binding upon everyone interested in or dealing with the Trust. A
Trustee shall be liable to the Trust and to any Shareholder solely for
his or her own wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office
of Trustee and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration
of Trust and shall be under no liability for any act or omission in
accordance with such advice nor for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
C-1
<PAGE>
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 until May 9, 1997 under the following
documents:
(a) Section 12 of Accounting Services Agreement, between the
Registrant and Fund/Plan Services, Inc., incorporated herein
by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637), Exhibit 9(c) as filed electronically
with the Commission on February 14, 1996.
(b) Section 8 of Administration Agreement between the Registrant
and Fund/Plan Services, Inc., incorporated herein by
reference to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637), Exhibit 9(b) as filed electronically with the
Commission on February 15, 1996.
(c) Section 14 of Custodian Agreement between the Registrant and
Bankers Trust Company, incorporated herein by reference to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-47287 and 811-6637),
Exhibit Nos. 8(a) and 8(b) as filed electronically with the
Commission 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 Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637), Exhibit 9(a) as filed electronically
with the Commission 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 on Form N-1A (File Nos. 33-47287 and
811-6637), Exhibit No. (6) as filed electronically with the
Commission on February 15, 1996.
C-2
<PAGE>
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) Sections I.8(a), I.8(c)(iii), I.10, II.A.2, II.B.5, II.C.6,
III.1., III.2.(b) through III.2.(e), III.4.(e) and III.9.(b)
of the Multiple Services Agreement dated May 9, 1997, as
amended through January 23, 1998, between Morgan Stanley
Trust Company and the Registrant on behalf of each of the
series of the Registrant is incorporated herein by reference
to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998.
Effective February 24, 1997, indemnification of Registrant's
distributor against certain stated liabilities is provided for in the
following document:
(b) Section 1.10 of the Distribution Agreement between Funds
Distributor, Inc. and the Registrant on behalf of each
series of the Registrant dated February 24, 1997, as amended
through August 24, 1998, is incorporated herein by reference
to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998.
ITEM 16. EXHIBITS.
(1) Copies of the charter of the registrant as now in effect.
(a) Certificate of Trust of the Registrant dated August 9, 1993,
as filed with the Office of the Secretary of State of the
State of Delaware on August 13, 1993, is incorporated herein
by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(b) Agreement and Declaration of Trust dated August 19, 1993, as
amended through August 24, 1998, of the Registrant is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(c) Certificates of the Secretary of the Registrant dated April
14, 1998 are incorporated herein by reference to Post-
Effective Amendment
C-3
<PAGE>
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(2) By-Laws.
By-Laws of The Brinson Funds dated August 9, 1993, are
incorporated hereby by reference to Exhibit 2 to Post-Effective
Amendment No. 17 to Registrant's Registration Statement on Form
N-1A (File Nos. 33-47287 and 811-6637), as electronically filed
with the Commission on August 29, 1996.
(3) Voting Trust Agreement.
Not applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it:
Form of Agreement and Plan of Reorganization is filed herewith as
Exhibit A to the Combined Prospectus/Proxy Statement.
(5) Instruments Defining the Rights of Security Holders.
(a) Form of Specimen Share Certificate of The Brinson Funds is
incorporated herein by reference to Post-Effective Amendment
No. 9 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed with the
Commission on July 21, 1994 and is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998.
The rights of security holders of The Brinson Funds are
further defined in the following sections of The Brinson
Funds By-Laws and Agreement and Declaration of Trust :
a. By-Laws.
See Article II "Voting," Section 7 and Section 10.
b. Agreement and Declaration of Trust.
See Article III "Shares," Section 1, Section 2 and
Section 6.
(6) Investment Advisory Contracts.
C-4
<PAGE>
(a) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global Fund (f/k/a Brinson Global Fund) series, and
Secretary's Certificate relating thereto, is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(b) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global Bond Fund (f/k/a Brinson Global Bond Fund) series,
and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(c) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global (ex-U.S.) Equity Fund (f/k/a Non-U.S. Equity Fund)
series, and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(d) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
Global Equity Fund (f/k/a Brinson Global Equity Fund)
series, and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(e) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
U.S. Equity Fund (f/k/a Brinson U.S. Equity Fund) series,
and Secretary's Certificate relating thereto, is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(f) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
U.S.
C-5
<PAGE>
Balanced Fund (f/k/a Brinson U.S. Balanced Fund) series, and
Secretary's Certificate relating thereto, is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(g) Investment Advisory Agreement dated April 25, 1995 between
Brinson Partners, Inc. and the Registrant on behalf of the
U.S. Bond Fund (f/k/a Brinson U.S. Bond Fund) series, and
Secretary's Certificate relating thereto, is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998.
(h) Investment Advisory Agreement dated November 24, 1997
between Brinson Partners, Inc. and the Registrant on behalf
of the U.S. Large Capitalization Equity Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 15, 1998.
(i) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the U.S. Large Capitalization Growth Fund series
is incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-47287 and 811-6637) as filed
electronically with the Commission on September 18, 1998.
(j) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the U.S. Small Capitalization Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(k) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the High Yield Bond Fund series is incorporated
herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 18, 1998.
C-6
<PAGE>
(l) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the Emerging Markets Equity Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(m) Form of Investment Advisory Agreement dated December __,
1998 between Brinson Partners, Inc. and the Registrant on
behalf of the Emerging Markets Debt Fund series is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(7) Underwriting or Distribution Contracts.
Distribution Agreement dated February 24, 1997, as amended
through August 24, 1998, between Funds Distributor, Inc. and the
Registrant on behalf of each series is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and 811-
6637) as filed electronically with the Commission on September
15, 1998.
(8) Bonus, Profit Sharing, Pension or Other Similar Contracts.
Not applicable.
(9) Custodian Agreements.
Custodial arrangements are provided under the Multiple Services
Agreement dated May 9, 1997, as amended through January 23, 1998,
between Morgan Stanley Trust Company and the Registrant on behalf
of each series of the Registrant which is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and 811-
6637) as filed electronically with the Commission on September
15, 1998, and forms of amendments to Schedule B1 and Schedule F
are incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A (File
Nos. 33-47287 and 811-6637) as filed electronically with the
Commission on September 18, 1998.
(10) Rule 12b-1 Plan and Rule 18f-3 Plan.
C-7
<PAGE>
(a) Amended Distribution Plan dated February 21, 1995, as
amended through August 24, 1998, relating to the UBS
Investment Fund class of shares (f/k/a the SwissKey Fund
Class) of each series of the Registrant is incorporated
herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File Nos.
33-47287 and 811-6637) as filed electronically with the
Commission on September 15, 1998 and form of amendment to
Schedule A is incorporated herein by reference to Post-
Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-47287 and 811-6637) as
filed electronically with the Commission on September 18,
1998.
(b) Distribution Plan dated June 30, 1997, as amended through
August 24, 1998, relating to the Brinson Fund-Class N shares
of each series of the Registrant is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 15, 1998 and amendment to Schedule A is
incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(c) Selected Dealer and Selling Agreement as last approved on
August 24, 1998 for the UBS Investment Fund class of shares
(f/k/a SwissKey Fund Class) of each series of the Registrant
is incorporated herein by reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-47287 and 811-6637) as filed
electronically with the Commission on September 15, 1998 and
amendment to Exhibits A and B are incorporated herein by
reference to Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-47287 and
811-6637) as filed electronically with the Commission on
September 18, 1998.
(d) The Selected Dealer and Selling Agreements as approved
November 24, 1997 on behalf of each series of The Brinson
Funds are incorporated herein by reference to Post-Effective
Amendment No. 21 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-47287 and 811-6637) as filed
electronically with the Commission on September 15, 1998.
(e) Revised Multiple Class Plan dated May 19, 1997, as amended
through August 24, 1998, pursuant to Rule 18f-3 on behalf of
each series of the Registrant is incorporated herein by
reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement (File Nos. 33-47287 and 811-6637) as
filed electronically with the Commission on September 15,
1998 and amendment to Appendix A is incorporated herein by
reference to Post-Effective Amendment No. 22 to Registrant's
Registration Statement (File Nos. 33-47287 and 811-6637) as
filed electronically with the Commission on September 18,
1998.
(11) Opinion of Counsel.
C-8
<PAGE>
Legal opinion of Stradley, Ronon, Stevens & Young, LLP, counsel
to the Registrant, as to the legality of the securities being
registered, is incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form
N-1A (File Nos. 33-47287 and 811-6637) as filed electronically
with the Commission on September 18, 1998.
(12) Opinion of Counsel Supporting the Tax Matters and Consequences to
Shareholders.
Form of tax opinion of Stradley, Ronon, Stevens & Young, LLP,
counsel to the Registrant, supporting the tax matters and
consequences to shareholders discussed in the prospectus is filed
electronically herewith as EX-8.
(13) Other Material Contracts.
Not applicable.
(14) Other Opinions and Consents.
(a) Consent of Ernst & Young LLP, independent auditors to the
Registrant, is filed electronically herewith as EX-23.1.
(b) Consent of PricewaterhouseCoopers, LLP, independent auditors
to the UBS Private Investor Funds, Inc., is filed
electronically herewith as EX-23.2.
(c) Consent of PricewaterhouseCoopers, independent auditors to
the UBS Investor Portfolios Trust, is electronically filed
herewith as EX-23.3.
(15) Omitted Financial Statements.
Not applicable.
(16) Power of Attorney.
(a) Power-of-Attorney appointing Karl Hartmann, Lloyd Lipsett,
Kathleen O'Neill, Eddie Wang and Paul Roselli as attorneys-
in-fact and agents is filed electronically herewith as EX-
24.
(b) Certificate of Secretary and resolution relating to the
appointment of power of attorney is filed electronically
herewith as EX-24.1.
C-9
<PAGE>
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c],
the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment shall
be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
C-10
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Chicago, and State of Illinois, on the 21st day
of September 1998.
THE BRINSON FUNDS
By: /s/ E. Thomas McFarlan
-----------------------------
E. Thomas McFarlan
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE: TITLE: DATE:
/s/ E. Thomas McFarlan* President, September 21, 1998
- -----------------------------
E. Thomas McFarlan
/s/ Frank K. Reilly* Chairman and Trustee September 21, 1998
- -----------------------------
Frank K. Reilly
/s/ Walter E. Auch* Trustee September 21, 1998
- -----------------------------
Walter E. Auch
/s/ Edward M. Roob* Trustee September 21, 1998
- -----------------------------
Edward M. Roob
/s/ Carolyn M. Burke* Principal Accounting September 21, 1998
- ----------------------------- Officer, Secretary and
Carolyn M. Burke Treasurer
*By: Lloyd Lipsett
-----------------------
As Attorney-in-Fact and Agent Pursuant to Power
of Attorney
4
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Document Page
- ----------- -------- ------------
Ex-8 Form of tax opinion of Stradley, Ronon, Stevens &
Young, LLP
Ex-23.1 Consent of Ernst & Young LLP, independent
auditors, relating to The Brinson Funds
Ex-23.2 Consent of PricewaterhouseCoopers, LLP independent
auditors, relating to the UBS Private Investor Funds, Inc.
Ex-23.3 Consent of PricewaterhouseCoopers, independent auditors,
relating to UBS Investor Portfolios Trust
Ex-24 Power of Attorney
Ex-24.1 Certificate of Secretary and resolution relating to
appointment of Power of Attorney
5
<PAGE>
Ex-8
FORM OF OPINION
, 1998
Board of Directors
UBS Private Investor Funds, Inc. - UBS High Yield Bond Fund
200 Clarendon Street
Boston, MA 02116
Board of Trustees
The Brinson Funds - High Yield Bond Fund
209 South LaSalle Street
Chicago, IL 60604
Re: AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF THE DAY OF
, 1998, BY AND BETWEEN UBS PRIVATE INVESTOR FUNDS, INC. (THE
"CORPORATION") ON BEHALF OF THE UBS HIGH YIELD BOND FUND ("ACQUIRED
FUND") AND THE BRINSON FUNDS (THE "TRUST") ON BEHALF OF HIGH YIELD
BOND FUND ("ACQUIRING FUND")
----------------------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Acquired Fund whereby, Acquired Fund will
transfer substantially all of its property, assets, and goodwill and liabilities
to Acquiring Fund in exchange solely for Class I Shares of Acquiring Fund (the
"Acquiring Fund Shares"), followed by the distribution by Acquired Fund of
Acquiring Fund Shares to the shareholders of Acquired Fund, the cancellation of
all of the outstanding Shares of beneficial interest of Acquired Fund (the
"Acquired Fund Shares") and the liquidation of Acquired Fund (the
"Reorganization").
<PAGE>
, 1998
Page 2
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization, dated as of the th day of
, 1998, by and between the Corporation and the Trust ("Agreement"), (b) the
proxy materials provided to stockholders of Acquired Fund in connection with the
Special Meeting of Stockholders of Acquired Fund held on , 1998, (c)
certain representations concerning the Reorganization made to us by Custodian
Funds and the Acquired Fund in a letter dated , 1998 (the "Representation
Letter"), (d) all other documents, financial and other reports and corporate
minutes which we deemed relevant or appropriate, and (e) such statutes,
regulations, rulings and decisions as we deemed material to the rendition of
this opinion. All terms used herein, unless otherwise defined, are used as
defined in the Agreement.
For purposes of this opinion, we have assumed that Acquired Fund on the
effective date of the Reorganization satisfies, and following the
Reorganization, Acquiring Fund will continue to satisfy, the requirements of
subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company.
Under regulations to be prescribed by the Secretary of Treasury under
Section 1276(d) of the Code, certain transfers of market discount bonds will be
excepted from the requirement that accrued market discount be recognized on
disposition of a market discount bond under Section 1276(a) of the Code. Such
regulations are to provide, in part, that accrued market discount will not be
included in income if no gain is recognized under Section 361(a) of the Code
where a bond is transferred in an exchange qualifying as a tax-free
reorganization. As of the date hereof, the Secretary has not issued any
regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried out in
accordance with the applicable laws of the State of Maryland and the State of
Delaware, the Agreement and the Representation Letter, it is our opinion that:
1. The Reorganization will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code, and Acquired Fund and Acquiring Fund will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code.
2. No gain or loss will be recognized by Acquired Fund upon the transfer
of all of its assets to Acquiring Fund in exchange solely for Acquiring Fund
Shares pursuant to Section 361(a) and Section 357(a) of the Code. We express no
opinion as to whether any accrued market discount will be required to be
recognized as ordinary income pursuant to Section 1276 of the Code.
3. No gain or loss will be recognized by Acquiring Fund upon the receipt
by it of all of the assets of Acquired Fund in exchange solely for Acquiring
Fund Shares pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Acquired Fund received by Acquiring Fund
will be the same as the basis of such assets to Acquired Fund immediately prior
to the exchange pursuant to Section 362(b) of the Code.
5. The holding period of the assets of Acquired Fund received by Acquiring
Fund will include the period during which such assets were held by Acquired Fund
pursuant to Section 1223(2) of the Code.
<PAGE>
, 1998
Page 3
6. No gain or loss will be recognized by the stockholders of Acquired Fund
upon the exchange of their Acquired Fund Shares for Acquiring Fund Shares
(including fractional shares to which they may be entitled), pursuant to Section
354(a) of the Code.
7. The basis of the Acquiring Fund Shares received by the stockholders of
Acquired Fund (including fractional shares to which they may be entitled) will
be the same as the basis of the Acquired Fund Shares exchanged therefor pursuant
to Section 358(a)(1) of the Code.
8. The holding period of the Acquiring Fund Shares received by the
stockholders of Acquired Fund (including fractional shares to which they may be
entitled) will include the holding period of the Acquired Fund Shares
surrendered in exchange therefor, provided that the Acquired Fund Shares were
held as a capital asset on the effective date of the Reorganization, pursuant to
Section 1223(1) of the Code.
9. Acquiring Fund will succeed to and take into account as of the date of
the proposed transfer (as defined in Section 1.381(b)-1(b) of the Income Tax
Regulations) the items of Acquired Fund described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381(b) and (c),
382, 383 and 384 of the Code.
Our opinion is based upon the Code, the applicable Treasury Regulations
promulgated thereunder, the present position of the Internal Revenue Service as
set forth in published revenue rulings and revenue procedures, present
administrative positions of the Internal Revenue Service, and existing judicial
decisions, all of which are subject to change either prospectively or
retroactively. We do not undertake to make any continuing analysis of the facts
or relevant law following the date of this letter.
Our opinion is conditioned upon the performance by Acquiring Fund and
Acquired Fund of their undertakings in the Agreement and the Representation
Letter.
This opinion is being rendered to Acquiring Fund and Acquired Fund and may
be relied upon only by such funds and the stockholders of each.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By:___________________________________
William P. Zimmerman, a Partner
<PAGE>
Ex-23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our reports for The Brinson
Funds (comprised of Global Fund, Global Equity Fund, Global Bond Fund, U.S.
Balanced Fund, U.S. Equity Fund, U.S. Large Capitalization Equity Fund, U.S.
Bond Fund and Non-U.S. Equity Fund) dated August 7, 1998, in the Registration
Statement (Form N-14) and related Proxy Statement and Prospectus, filed with the
Securities and Exchange Commission under the Securities Act of 1933
(Registration No. 33-47287).
ERNST & YOUNG LLP
Chicago, Illinois
September 18, 1998
6
<PAGE>
Ex-23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-14 (the "Registration Statement on Form N-14") of our report
dated February 17, 1998 relating to the financial statements and financial
highlights of the UBS High Yield Bond Fund appearing in the December 31, 1997
Annual Report to Shareholders of The UBS Private Investor Funds, Inc.-High
Yield Bond Fund, which is also incorporated by reference into the Registration
Statement on Form N-14.
PRICEWATERHOUSECOOPERS LLP
New York, New York
September 21, 1998
7
<PAGE>
Ex-23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-14 (the "Registration Statement on Form N-14") of our report
dated February 17, 1998 relating to the financial statements and financial
highlights of the UBS High Yield Bond Portfolio appearing in the December 31,
1997 Annual Report to Shareholders of The UBS Private Investor Funds, Inc. High
Yield Bond Fund, which is also incorporated by reference into the Registration
Statement on Form N-14.
PRICEWATERHOUSECOOPERS
Chartered Accountants
Toronto, Ontario
September 21, 1998
8
<PAGE>
Ex-24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Karl Hartmann, Lloyd Lipsett, Kathleen O'Neill, Eddie Wang and Paul
Rosselli and each of them, with full power to act without the other, as a true
and lawful attorney-in-fact and agent, with full and several power of
substitution, on behalf of The Brinson Funds (the "Trust") and on behalf of each
of the undersigned, to take any appropriate action to execute and file with the
U.S. Securities and Exchange Commission ("Commission") any amendment to the
registration statement of the Trust, execute and file any request for exemptive
relief from state and federal regulations, execute and file any Rule 24f-2
notices to register shares of the Trust with the Commission, execute and file
any registration statement on Form N-14 with the Commission, and perform any and
all such acts as such attorneys-in-fact may deem necessary or advisable in order
to comply with the applicable laws of the United States or any individual state,
and in connection therewith to execute and file all requisite papers and
documents, including but not limited to, applications, reports, notices, surety
bonds, irrevocable consents and appointments of attorneys for service of
process; granting to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act requisite and necessary
to be done in connection therewith, as fully as each of the Trust and the
undersigned persons might or could do itself or in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on
the 24th day of August, 1998.
THE BRINSON FUNDS
/s/ Frank K. Reilly /s/ E. Thomas McFarlan
- -------------------------------- -----------------------------------
Frank K. Reilly, Chairman E. Thomas McFarlan, President, on behalf
of the Trust and himself, as President of
the Trust
/s/ Walter E. Auch
- --------------------------------
Walter E. Auch, Trustee
/s/ Edward M. Roob /s/ Carolyn M. Burke
- -------------------------------- -----------------------------------
Edward M. Roob, Trustee Carolyn M. Burke, Principal Accounting
Officer Secretary and Treasurer
9
<PAGE>
ACKNOWLEDGMENT
--------------
State of Illinois )
)
County of Cook )
On this, the 24th day of August, 1998, before me, a notary public, the
undersigned officer, personally appeared the above-named persons, known to me
(or satisfactorily proven) to be the persons whose names are subscribed to the
foregoing instrument, and that each individual executed the same for the
purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Rebecca Wardlaw
-----------------------------------
Notary Public
In and for the County of Cook
State of Illinois
My commission expires 6/22/99
---------
10
<PAGE>
Ex-24.1
CERTIFICATE OF THE SECRETARY
OF
THE BRINSON FUNDS
RESOLUTION AUTHORIZING
APPOINTMENT OF AN ATTORNEY-IN-FACT
I hereby confirm that the resolution of the Board of Trustees (the "Board")
of The Brinson Funds (the "Trust"), with respect to the Power of Attorney
appointing Karl Hartmann, Lloyd Lipsett, Kathleen O'Neill, Eddie Wong and Paul
Rosselli as attorneys-in-fact for the Trust, adopted at the regularly scheduled
August 24, 1998 Board meeting, and previously filed as an exhibit to the Trust's
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended, continues in full force and effect as of the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
signed on this 21st day of September, 1998.
/s/ Carolyn M. Burke
--------------------
Carolyn M. Burke, Secretary
The Brinson Funds
