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Filed with Exhibits on October 30, 2000
File No. 811-9036
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 15
Brinson Relationship Funds
==========================
(Exact name of Registrant as Specified in Charter)
209 South LaSalle Street
Chicago, Illinois 60604-1295
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code 312-220-7100
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Carolyn M. Burke
Brinson Relationship Funds
209 South LaSalle Street
Chicago, Illinois 60604-1295
----------------------------
(Name and Address of Agent for Service)
COPIES TO:
Bruce G. Leto, Esq.
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
============================================================================
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended. However, shares
of beneficial interest in the Registrant are not being registered under the
Securities Act of 1933, as amended (the "Securities Act"), because such shares
will be issued solely in private placement transactions that do not involve a
"public offering" within the meaning of Section 4(2) of the Securities Act. The
shares have not been registered under any state securities laws in reliance upon
various exemptions provided by those laws. Investments in the shares of the
Registrant may only be made by "accredited investors" within the meaning of
Regulation D under the Securities Act which include common or commingled trust
funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any shares of the Registrant.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON BOND PLUS FUND
PART A
October 30, 2000
[LOGO]
Brinson Bond Plus Fund (the "Fund") issues its beneficial interests ("shares")
only in private placement transactions that do not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus is not offering to sell, or soliciting
any offer to buy, any security to the public within the meaning of the
Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
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INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment objective and goals Maximize total U.S. dollar return,
consisting of capital appreciation
and current income, while controlling
risk.
Performance benchmark Salomon Smith Barney Broad Investment
Grade Bond Index. This benchmark is
a broad based, capitalization
weighted index which consists of
investment grade U.S. bonds with
maturities of over one year. Brinson
Partners, Inc. (the "Advisor"), the
Fund's investment advisor, may change
the benchmark to one or more other
indices that the Advisor believes
more accurately reflect the
applicable global markets.
Principal investments The Fund will invest at least 65% of
its assets in fixed income
securities. These securities may
include:
[_] U.S. investment grade fixed income
securities
[_] Below investment grade securities
[_] Fixed income securities
denominated in a currency other than
the U.S. dollar
[_] Emerging market fixed income
securities, including fixed income
securities issued by governments,
government-related entities,
corporations and entities organized to
restructure outstanding emerging market
debt.
CREDIT QUALITY: The Fund invests
primarily in investment grade
securities but may invest up to 15%
of its net assets in higher risk,
below investment grade securities.
These securities are commonly known
as "junk bonds."
MATURITY/DURATION: The Advisor does
not manage the Fund with a target
maturity or duration. Individual
securities may be of any maturity or
duration.
Principal strategies The Advisor's investment style is
singularly focused on investment
fundamentals. The Advisor believes
that investment fundamentals
determine and describe future cash
flows that define fundamental
investment value. The Advisor tries
to identify and exploit periodic
discrepancies between market prices
and fundamental value. These
price/value discrepancies are used as
the building blocks for portfolio
construction.
The Advisor chooses investments for
the Fund by:
[_] Identifying asset classes that
appear to be temporarily underpriced.
[_] Analyzing the fundamental value of
individual securities in order to
estimate their relative value and
attractiveness, and to identify
securities for investment that are
underpriced relative to their
fundamental value. When determining
fundamental value, the Advisor
considers broadly based indices that
represent asset classes or markets
and economic variables such as
productivity, inflation and global
competitiveness. The valuation of
asset classes reflects an integrated,
fundamental analysis of global
markets.
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PRINCIPAL STRATEGIES
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Principal strategies The Fund will principally invest in
securities in the Fund's benchmark.
However, the Fund will normally
invest opportunistically in
securities not included in the
benchmark. Thus, the relative
weightings of different types of
securities in the Fund's portfolio
will not necessarily match those of
the benchmark. In deciding which
securities to emphasize, the Advisor
uses both quantitative and
fundamental analysis to identify
securities that are underpriced
relative to their fundamental value.
The Fund may invest in all types of
fixed income securities of U.S. and
foreign issuers. The Advisor
emphasizes fixed income market
sectors and selects for the Fund
securities that appear to be most
undervalued relative to their yields
and potential risks. In analyzing
the relative attractiveness of
sectors and securities, the Advisor
considers:
[_] Potential for capital appreciation.
[_] Current credit quality as well as
possible credit upgrades or
downgrades.
[_] Narrowing or widening of spreads
between sectors, securities of
different credit quality or
securities of different maturities.
[_] For mortgage-related and
asset-backed securities, anticipated
changes in average prepayment rates.
Under normal market conditions, the Fund expects to allocate assets according to
the following mix:
<TABLE>
<CAPTION>
Asset Class Strategy
Asset Class Ranges
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<S> <C>
U.S. Investment Grade Bonds 70-100%
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High Yield Bonds 0-15%
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Non-Dollar Bonds 0-15%
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Emerging Market Debt 0-5%
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</TABLE>
The "Asset Class Strategy Ranges" indicated above are the ranges within which
the Fund expects to allocate its assets to specific asset classes. However, the
Fund may exceed its strategy ranges under unusual market conditions and may
change them in the future.
The Fund's currency strategy allocation range will be 0-15% non-U.S. dollars and
85-100% U.S. dollars. The Fund's allocation among different currencies will be
identical to that of the benchmark index if the Advisor believes that global
currency markets are fairly priced relative to each other and associated risks.
However, the Fund may actively depart from this normal currency allocation when,
based on the Advisor's research, the Advisor believes that currency prices
deviate from their fundamental values.
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PRINCIPAL INVESTMENT RISKS
================================================================================
While investing primarily in
investment grade fixed income
securities can bring benefits, it may
also involve risks. Investors can
lose money in the Fund or the Fund's
performance may fall below that of other
possible investments. Below is a
discussion of the potential risks of the
Fund.
Management risk [_] The Advisor's judgments about
asset allocation or the fundamental
value of securities acquired by the
Fund may prove to be incorrect.
Risks of fixed income investments [_] Interest rates in countries where
the Fund's investments are
principally traded may go up. To the
extent that interest rates rise, the
prices of fixed income securities in
the Fund's portfolio will fall.
[_] The issuer of a fixed income
security in the Fund's portfolio may
default on its obligation to pay
principal or interest, may have its
credit rating downgraded by a rating
organization or may be perceived by the
market to be less creditworthy. These
risks are higher for below investment
grade securities.
[_] As a result of declining interest
rates, the issuer of a security
exercises its right to prepay
principal earlier than scheduled,
forcing the Fund to reinvest in lower
yielding securities. This is known
as call or prepayment risk.
[_] When interest rates are rising, the
average life of securities backed by
debt obligations is extended because
of slower than expected principal
payments. This will lock in a
below-market interest rate, increase
the security's duration and reduce
the value of the security. This is
known as extension risk.
[_] Many foreign countries in which the
Fund may invest have markets that are
less liquid and more volatile than
markets in the U.S. In some foreign
countries, less information is
available about foreign issuers and
markets because of less rigorous
accounting and regulatory standards
than in the U.S. Currency
fluctuations could erase investment
gains or add to investment losses.
The risk of investing in foreign
securities is greater in the case of
emerging markets.
Non-diversification The Fund is not diversified, which
means that it can invest a higher
percentage of its assets in any one
issuer than a diversified fund.
Being non-diversified may magnify the
Fund's losses from adverse events
affecting a particular issuer.
No government guarantee An investment in the Fund is not a
bank deposit and is not insured or
guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in
price and the value of your
investment in the Fund will go up and
down.
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MORE ABOUT THE FUND'S INVESTMENTS
Fixed Income Securities
Fixed income securities acquired by the Fund may be U.S. dollar and non-
U.S. dollar denominated, may have coupons payable in any currency and may be of
any maturity or duration. The Fund's fixed income securities may have all types
of interest rate payment and reset terms, including fixed rate, adjustable rate,
zero coupon, pay in kind and auction rate features. The Fund's non-U.S. dollar
denominated fixed income securities will typically be invested in securities
issued by governments, governmental entities, supranational issuers and
corporations. These fixed income securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] real estate mortgage conduits
[_] asset-backed securities
[_] structured notes and leveraged derivative securities
[_] convertible securities
[_] preferred stock and trust certificates
[_] participations in loans made by financial institutions
[_] repurchase agreements
[_] Eurodollar securities
[_] Brady bonds
Credit Quality
Securities are investment grade if:
[_] They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
[_] They have received a comparable short-term or other rating.
[_] They are unrated securities that the Advisor believes are of comparable
quality.
Securities are below investment grade if they are not investment grade.
The issuers of below investment grade securities may be highly leveraged and
have difficulty servicing their debt, especially during prolonged economic
recessions or periods of rising interest rates. The prices of below investment
grade securities are volatile and may go down due to market perceptions of
deteriorating issuer creditworthiness or economic conditions. Below investment
grade securities may become illiquid and hard to value in down markets. The Fund
may choose not to sell securities that are downgraded, after their purchase,
below the Fund's minimum acceptable credit rating.
Foreign Country and Emerging Market Risks
The values of the Fund's foreign and emerging market investments may go
down or be very volatile because of:
[_] A decline in the value of foreign currencies relative to the U.S. dollar.
[_] Vulnerability to economic downturns and instability due to undiversified
economies; trade imbalances; inadequate infrastructure; heavy debt loads
and dependence on foreign capital
A-5
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inflows; governmental corruption and mismanagement of the economy; and
difficulty in mobilizing political support for economic reforms.
[_] Adverse governmental actions such as nationalization or expropriation of
property; confiscatory taxation; currency devaluations, interventions and
controls; asset transfer restrictions; restrictions on investments by non-
citizens; arbitrary administration of laws and regulations; and unilateral
repudiation of sovereign debt.
[_] Political and social instability, war and civil unrest.
[_] Higher transaction costs; settlement delays; difficulty in pricing
securities and monitoring corporate actions; and less effective
governmental supervision.
Equity Securities
The Fund's investments in common stock will primarily result from purchases
of unit offerings of fixed income securities which include equity components.
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and debt securities convertible into
common stock, rights, warrants and sponsored or unsponsored American Depository
Receipts, European Depository Receipts and Global Depository Receipts.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest that portion of its assets allocated to emerging market
investments by purchasing shares of Brinson Emerging Markets Debt Fund.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate and currency swaps;
and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when interest rates, stock prices or currency rates are changing. The
Fund may not fully benefit from or may lose money on derivatives if changes in
their value do not correspond accurately to changes in the value of the Fund's
portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
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Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.05% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
A-7
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DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
A-8
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Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities will be required to recognize a taxable gain 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. The Trust will
not accept securities in exchange for shares of the Fund unless: (1) such
securities are, at the time of the exchange, eligible to be included in the
Fund's investment portfolio and current market quotations are readily available
for such securities; and (2) the Investor represents and warrants that all
securities offered to be exchanged are not subject to any restrictions upon
their sale by the Fund under the Securities Act or under the laws of the country
in which the principal market for such securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
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All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
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If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. CASH MANAGEMENT PRIME FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Cash Management Prime Fund (the "Fund") issues its beneficial
interests ("shares") only in private placement transactions that do not involve
a public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"). This prospectus is not offering to
sell, or soliciting any offer to buy, any security to the public within the
meaning of the Securities Act. The Fund is a series of Brinson Relationship
Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment objective and goals Maximize current income consistent with
preservation of capital. The Fund seeks
to maintain a stable $1 share price.
Performance benchmark Salomon Smith Barney 1 Month Treasury
Bill Rate.
Principal investments The Fund may invest in all types of
money market securities, including
commercial paper, certificates of
deposit, bankers' acceptances, mortgage-
backed and asset-backed securities,
repurchase agreements and other short-
term fixed income securities.
Minimum credit quality The Fund invests exclusively in U.S.
dollar-denominated money market
securities rated in the two highest
short-term credit rating categories (and
their unrated equivalents). The Fund
limits its investments to securities
that the Trust's Board of Trustees
determines present minimal credit risks.
Maximum maturity Each security must have a maximum
maturity of 397 days or less. The Fund
maintains an average dollar-weighted
portfolio maturity of 90 days or less.
Securities that meet these standards
include the following:
[_] commercial paper
[_] corporate and municipal obligations
[_] obligations of U.S. and foreign
banks
[_] securities of the U.S. government,
its agencies or instrumentalities
and related repurchase agreements
The Fund may also invest substantially
all of its assets in Brinson U.S. Cash
Management Prime Fund, a money market
series of Brinson Supplementary Trust,
an unregistered investment company with
the same investment objective as the
Fund.
Principal strategies Brinson Partners, Inc. is the Fund's
investment advisor (the "Advisor"). The
Advisor generally intends to diversify
the Fund's portfolio widely across
issuers and sectors. The Advisor chooses
investments for the Fund by:
[_] Selecting securities that appear to
offer the best relative value based on
an analysis of their credit quality,
interest rate sensitivity, yield and
price.
[_] Overweighting or emphasizing
investments in particular types of
issuers, securities or maturities to
increase current yields.
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PRINCIPAL INVESTMENT RISKS
================================================================================
Investors can lose money by investing in
the Fund or the Fund's performance may
fall below that of other possible
investments. Below is a discussion of
the potential risks of the Fund.
Management risk [_] The Advisor's judgments about the
relative value of securities acquired by
the Fund may prove to be incorrect.
[_] The Advisor's judgments about the
allocation of investments across types
of issuers, securities or maturities may
prove to be incorrect.
Interest rate risk [_] There is a sudden or sharp increase
in interest rates.
Credit risk [_] An issuer of the Fund's securities
could default, or have its credit rating
downgraded.
Foreign securities risk [_] The value of the Fund's foreign
securities go down because of
unfavorable foreign government actions,
political instability or the more
limited availability of accurate
information about foreign issuers.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed
by the Federal Deposit Insurance
Corporation or any other government
agency.
THERE CAN BE NO ASSURANCE THAT THE FUND
WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. Although
the Fund seeks to preserve the value of
your investment at $1.00 per share, it
is possible to lose money by investing
in the Fund.
MORE ABOUT THE FUND'S INVESTMENTS
Money Market Securities
In selecting money market securities for the Fund's portfolio, the Advisor
looks for securities that provide a high level of current income. Money market
securities acquired by the Fund are U.S. dollar denominated and have a maximum
maturity of 397 days. The Fund's money market securities may include:
[_] securities of the U.S. government, its agencies or instrumentalities
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] real estate mortgage conduits
[_] asset-backed securities
[_] bank obligations and time deposits
[_] corporate obligations
[_] commercial paper
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[_] when-issued securities
[_] Eurodollar securities
[_] repurchase agreements
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this expense
limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund currently intends to allocate income, gains and losses daily and
to make distributions to Investors monthly. Unless Chase Global Funds Services
Company ("CGFSC") is notified otherwise, all Investor distributions will
automatically be reinvested in additional Fund shares at net asset value.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it
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has received or will receive a corresponding distribution of cash or property
from the Fund. In general, distributions of money by the Fund to an Investor
will represent a non-taxable return of capital up to the amount of an Investor's
adjusted tax basis.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares. The
Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of
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the same time. All dividends, interest, subscription, or other rights pertaining
to such securities after such transfers to the Fund will become the property of
the Fund and must be delivered to the Fund by the Investor upon receipt from the
issuer. Investors that are permitted to transfer such securities may be required
to recognize a taxable gain 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 but will not be permitted to recognize any loss.
The Trust will not accept securities in exchange for shares of the Fund unless:
(1) such securities are, at the time of the exchange, eligible to be included in
the Fund's investment portfolio and current market quotations are readily
available for such securities; and (2) the Investor represents and warrants that
all securities offered to be exchanged are not subject to any restrictions upon
their sale by the Fund under the Securities Act or under the laws of the country
in which the principal market for such securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of two hours prior to the close of
regular trading on the New York Stock Exchange ("NYSE") (generally 2:00 p.m.
Eastern time) on days when the NYSE is open. The net asset value per share is
computed by adding the value of all securities and other assets in the
portfolio, deducting any liabilities (expenses and fees are accrued daily) and
dividing by the number of shares outstanding.
In the absence of extraordinary or unusual circumstances, the Fund utilizes
the amortized cost method of valuing the Fund's money market securities. Under
the amortized cost method, assets are valued by constantly amortizing over the
remaining life of an instrument the difference between the principal amount due
at maturity and the cost of the instrument to the Fund. The Board of Trustees
(the "Board") of the Trust will, from time to time, review the extent of any
deviation from net asset value, as determined on the basis of the amortized cost
method, from net asset value as determined on the basis of available market
quotations. If a deviation of 1/2 of 1% or more were to occur or there were any
other deviation that the Board believed would result in a material dilution to
Investors or purchasers, the Board will promptly consider what action, if any,
should be initiated. These actions may include: selling portfolio instruments
prior to maturity to realize gains or losses or to shorten the Fund's average
portfolio maturity; withholding dividends; splitting, combining or otherwise
recapitalizing outstanding shares or calculating net asset value based on market
quotations rather than amortized cost.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if the
Investor has previously signed a telephone authorization. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. The Fund reserves the right to restrict the frequency of, or
otherwise modify, condition, terminate or impose charges upon the exchange
privilege and/or telephone transfer privileges upon 60 days' prior written
notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure
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<PAGE>
designed to confirm that telephone transactions are genuine. As a result of this
policy, the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, CGFSC, fails
to employ this and other appropriate procedures, the Fund or CGFSC may be liable
for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, two hours prior to the close of regular trading hours
(generally 2:00 p.m. Eastern time) on the NYSE on any day that the NYSE is open
for regular trading. Requests for exchanges received prior to the close of
regular trading hours on the NYSE will be processed at the net asset value
computed on the date of receipt. Requests received after 2:00 p.m. will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 2:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after 2:00 p.m. will be executed at the next
determined net asset value. The Fund normally sends redemption proceeds on the
next business day. In any event, redemption proceeds, except as set forth below,
are sent within seven calendar days of receipt of a redemption request in proper
form. There is no charge for redemptions by wire. Please note, however, that the
Investor's bank may impose a fee for wire service. The right of any Investor to
receive payment with respect to any redemption may be suspended or the payment
of the redemption proceeds postponed during any period when the NYSE is closed
(other than weekends or holidays) or trading on the NYSE is restricted, or, to
the extent otherwise permitted by the Investment Company Act of 1940, if an
emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON EMERGING MARKETS DEBT FUND
BRINSON EMERGING MARKETS EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson Emerging Markets Equity Fund and Brinson Emerging Markets Debt Fund (the
"Funds") issue beneficial interests ("shares") only in private placement
transactions that do not involve a public offering within the meaning of Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"). This
prospectus is not offering to sell, or soliciting any offer to buy, any security
to the public within the meaning of the Securities Act. Each Fund is a series
of Brinson Relationship Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Funds. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of either Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Funds' shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
====================================================================================================================================
BRINSON EMERGING BRINSON EMERGING
MARKETS DEBT FUND MARKETS EQUITY FUND
<S> <C> <C>
Investment objective To maximize total U.S. dollar return, consisting of capital appreciation and current income,
and goals while controlling risk.
Performance J.P. Morgan Emerging Markets Bond Morgan Stanley Capital International Emerging Markets
benchmark Index Global. This benchmark tracks total (Free) Index (MSCI-EMF). MSCI-EMF is a market
returns for U.S. dollar-denominated debt capitalization weighted index which captures 60% of a
instruments issued by emerging market country's total capitalization while maintaining the
sovereign and quasi-sovereign entities: overall risk structure of the market.
Brady bonds, loans, Eurobonds, and local
market instruments.
Principal The Fund invests primarily in: The Fund invests primarily in:
investments
[_] Fixed income securities issued by [_] Equity securities of issuers in emerging markets.
governments, government-related entities,
corporations and entities organized to [_] Securities whose return is derived from these
restructure outstanding emerging market equity securities, such as equity swaps and equity
debt. These include participations in index swaps.
loans between governments and financial
institutions. The Fund may invest up to 35% of its assets in the
same type of securities that Brinson Emerging
[_] Securities whose return is derived Markets Debt Fund may purchase, including higher risk,
primarily from emerging market instruments, below investment grade securities.
such as interest rate swaps and currency swaps.
The Fund may invest without limit in higher
risk, below investment grade securities.
Where the funds In issuers located in at least three emerging market countries, which may be located in Asia, Europe,
invest Latin America, Africa or the Middle East.
</TABLE>
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<TABLE>
<CAPTION>
BRINSON EMERGING BRINSON EMERGING
MARKETS DEBT FUND MARKETS EQUITY FUND
<S> <C> <C>
What is an emerging A country defined as an emerging or developing economy by any of the World Bank, the International
market? Finance Corporation or the United Nations or its authorities. The countries included in this definition
will change over time.
What is an emerging A security issued by a government or other issuer that, in the opinion of the Advisor, has one or more
market security? of the following characteristics:
[_] The security's principal trading market is an emerging market.
[_] At least 50% of the issuer's revenue is generated from goods produced or sold, investments made, or
services performed in emerging market countries.
[_] At least 50% of the issuer's assets are located in emerging market countries.
Principal strategies Brinson Partners, Inc. is the Funds' investment advisor, (the "Advisor"). The Advisor's investment style
is singularly focused on investment fundamentals. The Advisor believes that investment fundamentals
determine and describe future cash flows that define fundamental investment value. The Advisor tries to
identify and exploit periodic discrepancies between market prices and fundamental value. These price/value
discrepancies are used as the building blocks for portfolio construction.
To implement this style, the Advisor purchases for each Fund those securities (generally contained in the
Fund's benchmark) that appear to be underpriced relative to their fundamental values. The Advisor attempts
to identify and exploit discrepancies between market price and fundamental value by analyzing investment
fundamentals that determine future cash flows.
In selecting individual securities for investment, the Advisor considers:
[_] Current credit quality and possible [_] A company's potential cash generation
credit upgrades or downgrades
[_] Above average long-term earnings outlook
[_] Interest rate exposure
[_] Expected sustainable return on investments
[_] Narrowing or widening of spreads between
sectors, securities of different credit [_] Expected sustainable growth rates
quality or securities of different
maturities [_] Stock prices versus a company's asset or franchise
values
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL INVESTMENT RISKS
====================================================================================================================================
BRINSON EMERGING BRINSON EMERGING
MARKETS DEBT FUND MARKETS EQUITY FUND
<S> <C> <C>
While investing in emerging market securities can bring benefits, it may also involve risks. Investors can
lose money in a Fund or the Fund's performance may fall below that of other possible investments. Below is
a discussion of the potential risks of each Fund.
Management risk [_] The Advisor's judgments about the fundamental value of securities acquired by a Fund may prove to be
incorrect.
Risks of equity and [_] Interest rates in emerging market [_] The stock markets where the Fund's investments are
fixed income countries may go up, or rates may rise faster principally traded may go down, or go down more than the
investments than in the U.S. and other developed markets. U.S. or other developed countries' markets.
To the extent that interest rates rise, the
prices of fixed income securities in the [_] An adverse event, such as negative press reports
Fund's portfolio will fall. about a company in the Fund's portfolio, may depress
the value of the company's stock.
[_] The issuer of a fixed income security
in the Fund's portfolio may default on its
obligation to pay principal or interest, may
have its credit rating downgraded by a rating
organization or may be perceived by the market
to be less credit worthy.
[_] As a result of declining interest rates, the
issuer of a security may exercise its right to
prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities.
This is known as call or prepayment risk.
[_] When interest rates are rising, the average life
of securities backed by debt obligations is extended
because of slower than expected payments. This will
lock in a below-market interest rate, increase the
security's duration and reduce the value of the
security. This is known as extension risk.
</TABLE>
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<TABLE>
<CAPTION>
BRINSON EMERGING BRINSON EMERGING
MARKETS DEBT FUND MARKETS EQUITY FUND
<S> <C> <C>
Foreign country and The values of a Fund's foreign and emerging market investments may go down or be very volatile because of:
emerging market
risks [_] A decline in the value of foreign currencies relative to the U.S. dollar.
[_] Vulnerability to economic downturns and instability due to undiversified economies; trade imbalances;
inadequate infrastructure; heavy debt loads and dependence on foreign capital inflows; governmental
corruption and mismanagement of the economy; and difficulty in mobilizing political support for economic
reforms.
[_] Adverse governmental actions such as nationalization or expropriation of property; confiscatory
taxation; currency devaluations, interventions and controls; asset transfer restrictions; restrictions on
investments by non-citizens; arbitrary administration of laws and regulations; and unilateral repudiation
of sovereign debt.
[_] Political and social instability, war and civil unrest.
[_] Less liquid and efficient securities markets; higher transaction costs; settlement delays; lack of
accurate publicly available information and uniform financial reporting standards; difficulty in pricing
securities and monitoring corporate actions; and less effective governmental supervision.
Non-diversification The Funds are not diversified, which means that each Fund can invest a higher percentage of its assets in
any one issuer than a diversified fund. Being non-diversified may magnify each Fund's losses from adverse
events affecting a particular issuer.
No government An investment in a Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit
guarantee Insurance Corporation or any other government agency.
Fluctuating value The Funds' investments fluctuate in price and the value of your investment in the Funds will go up and
down.
</TABLE>
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MORE ABOUT THE FUNDS' INVESTMENTS
Equity Securities
Equity securities in which the Emerging Markets Equity Fund may invest
include common stock, shares of collective trusts and investment companies,
preferred stock and fixed income securities convertible into common stock,
rights, warrants and sponsored or unsponsored American Depository Receipts,
European Depository Receipts and Global Depository Receipts. The Emerging
Markets Equity Fund may invest in issuers at all capitalization levels.
The Emerging Markets Equity Fund may also invest a portion of its assets in
securities of other series offered by the Trust. The Emerging Markets Equity
Fund will invest in other series only to the extent that the Advisor determines
that it is more efficient for the Fund to gain exposure to a particular asset
class through investing in the series of the Trust as opposed to investing
directly in individual securities.
Fixed Income Securities
In selecting fixed income securities for each Fund's portfolio, the Advisor
looks for securities that provide both a high level of current income and the
potential for capital appreciation due to a perceived or actual improvement in
the creditworthiness of the issuer. Each Fund may invest in all types of fixed
income securities of issuers from all countries, including emerging markets.
These include:
[_] Fixed income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in
emerging market countries.
[_] Participations in loans between emerging market governments and financial
institutions.
[_] Fixed income securities issued by government owned, controlled or sponsored
entities located in emerging market countries.
[_] Interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any
of the above issuers.
[_] Brady Bonds.
[_] Fixed income securities issued by corporate issuers, banks and finance
companies located in emerging market countries.
[_] Fixed income securities issued by supranational entities such as the World
Bank. (A supranational entity is a bank, commission or company established
or financially supported by the national governments of one or more
countries to promote reconstruction or development.)
Fixed income securities acquired by a Fund may be denominated or have
coupons payable in any currency and may be of any maturity or duration. Each
Fund's fixed income securities may have all types of interest rate payment and
reset terms, including fixed rate, adjustable rate, zero coupon, pay in kind and
auction rate features. These fixed income securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] structured notes and leveraged derivative securities
[_] convertible securities
[_] zero coupon securities
[_] pay-in-kind and when-issued securities
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[_] preferred stock and trust certificates
[_] participations in loans made by financial institutions
[_] repurchase and reverse repurchase agreements
The Emerging Markets Equity Fund may invest up to 35% of its assets and the
Emerging Markets Debt Fund may invest substantially all of its assets in U.S.
and non-U.S. dollar denominated, fixed income securities that are higher
risk, below investment grade securities rated by a nationally recognized
statistical rating organization below its top four long-term rating categories
or determined by the Advisor to be of comparable quality. Below investment grade
securities are commonly known as "junk bonds". The issuers of below investment
grade securities may be highly leveraged and have difficulty servicing their
debt, especially during prolonged economic recessions or periods of rising
interest rates. The prices of these securities are volatile and may go down due
to market perceptions of deteriorating issuer creditworthiness or economic
conditions. Below investment grade securities may become illiquid and hard to
value in down markets. A Fund may choose not to sell securities that are
downgraded, after their purchase, below the Fund's minimum acceptable credit
rating.
Management of Currency Exposure
Each Fund's allocation among different currencies will be identical to that
of its benchmark index. However, each Fund may actively depart from this normal
currency allocation when, based on the Advisor's research, the Advisor believes
that currency prices deviate from their fundamental values. As described below,
each Fund may use derivatives to manage its currency exposure.
Derivative Contracts
A derivative contract will obligate or entitle a Fund to deliver or receive
an asset or a cash payment that is based on the change in value of a designated
security, index or currency. Examples of derivative contracts are futures
contracts; options; forward contracts; interest rate, currency and equity swaps;
and caps, collars, floors and swaptions.
Each Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates, stock
market prices or currency exchange rates, in the market value of securities
held by or to be bought for a Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of a Fund's fixed
income portfolio.
Even a small investment in derivative contracts, if it is leveraged, can
have a big impact on a portfolio's interest rate, stock market and currency
exposure. Therefore, using derivatives can disproportionately increase portfolio
losses and reduce opportunities for gains when interest rates, stock prices or
currency rates are changing. A Fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond accurately to changes
in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can also
make a Fund's portfolio less liquid and harder to value, especially in declining
markets.
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Defensive Investing
In response to adverse market, economic, political or other conditions,
each Fund may depart from its principal investment strategies by taking
temporary defensive positions. Each Fund may invest up to 100% of its assets in
all types of money market and short-term fixed income securities. By taking
these temporary defensive positions, a Fund may affect its ability to achieve
its investment objective.
Impact of High Portfolio Turnover
Each Fund may engage in active and frequent trading to achieve its
principal investment strategies. Frequent trading increases transaction costs,
including brokerage commissions, which could detract from the Fund's
performance. In addition, high portfolio turnover may result in more taxable
capital gains being distributed to Investors subject to tax than would otherwise
result if a Fund engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap each of the Fund's total operating
expenses at 0.50% of each Fund's average net assets. The Advisor may discontinue
this expense limitation at any time.
Investment decisions for the Funds are made by an investment management
team of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
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DIVIDENDS AND DISTRIBUTIONS
Neither Brinson Emerging Markets Equity Fund nor Brinson Emerging Markets
Debt Fund currently intends to declare and pay dividends or pay distributions to
Investors except as may be determined by the Board of Trustees (the "Board") of
the Trust.
FEDERAL INCOME TAXES
As a partnership, neither Fund is subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of a Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on a Fund).
Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from a Fund. In general, distributions of money
by a Fund to an Investor will represent a non-taxable return of capital up to
the amount of an Investor's adjusted tax basis. Neither Fund, however, currently
intends to declare and pay distributions to Investors except as may be
determined by the Board.
When you sell shares of either Fund, you may have a capital gain or loss.
For tax purposes, an exchange of your shares in a Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in either
Fund is taxable as a sale or exchange only to the extent the amount of money
received exceeds the tax basis of your entire interest in the Fund. Any loss may
be recognized only if you redeem your entire interest in a Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that either Fund borrows money
to acquire property or invests in assets that produce UBTI.
Neither Fund will be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Funds are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in a Fund may be
made only by "accredited investors" within the meaning of Regulation D under the
Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration
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statement of which this prospectus is a part does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" to the public
within the meaning of the Securities Act.
Shares of each Fund may be purchased directly by eligible Investors at the
respective net asset value next determined after receipt of the order in proper
form by the Trust plus the applicable transaction charge described below. The
minimum initial purchase amount is $10,000,000. In the sole discretion of the
Advisor, the minimum purchase amount may be waived or modified. There is no
sales load in connection with the purchase of shares. The Trust reserves the
right to reject any purchase order and to suspend the offering of shares of the
Funds.
At the discretion of the Fund, Investors may be permitted to purchase
Fund shares by transferring securities to the Fund that meet the Fund's
investment objective and policies. Securities transferred to the Fund will be
valued in accordance with the same procedures used to determine the Fund's net
asset value at the time of the next determination of net asset value after such
receipt. Shares issued by the Fund in exchange for securities will be issued at
net asset value determined as of the same time. All dividends, interest,
subscription, or other rights pertaining to such securities after such transfers
to the Fund will become the property of the Fund and must be delivered to the
Fund by the Investor upon receipt from the issuer. Investors that are permitted
to transfer such securities may be required to recognize a taxable gain 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 but
will not be permitted to recognize any loss. The Trust will not accept
securities in exchange for shares of the Fund unless: (1) such securities are,
at the time of the exchange, eligible to be included in the Fund's investment
portfolio and current market quotations are readily available for such
securities; and (2) the Investor represents and warrants that all securities
offered to be exchanged are not subject to any restrictions upon their sale by
the Fund under the Securities Act or under the laws of the country in which the
principal market for such securities exists, or otherwise.
TRANSACTION CHARGES
Investors in Brinson Emerging Markets Equity Fund are subject to a transaction
charge on all purchases equal to 1.50% of the net asset value of purchases of
the Fund's shares. Investors in Brinson Emerging Markets Equity Fund are also
subject to a transaction charge upon redemption of the Fund's shares equal to
1.50% of the net asset value of the redeemed shares.
Investors in Brinson Emerging Markets Debt Fund are subject to a transaction
charge on all purchases equal to 0.50% of the net asset value of purchases of
the Fund's shares. There is no transaction charge for redeeming shares of
Brinson Emerging Markets Debt Fund.
Shares of each Fund are sold at net asset value plus the applicable transaction
charge. Redemption requests for Brinson Emerging Markets Equity Fund are paid at
net asset value less the transaction charge.
Purchases of shares by other series of the Trust investing in Brinson Emerging
Markets Equity Fund or in Brinson Emerging Markets Debt Fund are subject to a
transaction charge as set forth above. Redemptions of shares owned by other
series of the Trust investing in Brinson Emerging Markets Equity Fund are not
subject to a transaction charge. Purchases and redemptions made in-kind with
securities are not subject to the transaction charges.
Net Asset Value
The net asset value of each Fund is computed as of the close of regular
trading on the New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern
time) on days when the NYSE is open. The net asset value per share of each Fund
is computed by adding the value of all securities and other
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assets in each Fund's portfolio, deducting any liabilities (expenses and fees
are accrued daily) and dividing by the number of shares outstanding. Fund
securities for which market quotations are available are priced at market value.
Fixed income securities are priced at fair value by an independent pricing
service using methods approved by the Board. Short-term investments having a
maturity of less than 60 days are valued at amortized cost, which approximates
market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of each 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. This means that a Fund will not use the last
market quotation for the securities, but will value the securities by including
the effect of the intervening event. Finally, some securities held by each Fund
may be primarily listed and traded on a foreign exchange that trades on weekends
or other days when the Fund does not price its shares. Changes in the values of
such securities may affect the net asset value of each Fund's shares on days
when shareholders of the Fund may not be able to purchase or redeem the Fund's
shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of each Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if the
Investor has previously signed a telephone authorization. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. Each Fund reserves the right to restrict the frequency of, or
otherwise modify, condition, terminate or impose charges upon the exchange
privilege and/or telephone transfer privileges upon 60 days' prior written
notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that a
Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. Each Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy, the
Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to
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exchange. Requests for telephone exchanges must be received by the transfer
agent, CGFSC, by the close of regular trading hours (generally 4:00 p.m. Eastern
time) on the NYSE on any day that the NYSE is open for regular trading. Requests
for exchanges received prior to the close of regular trading hours on the NYSE
will be processed at the net asset value computed on the date of receipt.
Requests received after the close of regular trading hours will be processed at
the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Funds'
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of either Fund without charge (except as
noted below) on any business day the NYSE is open by furnishing a request to the
Trust. Shares will be redeemed at the net asset value next calculated after an
order is received by the Fund's transfer agent in good order. Redemption
requests for Brinson Emerging Markets Equity Fund are paid at net asset value
less a transaction charge equal to 1.50% of the net asset value of the redeemed
shares. Redemption requests received prior to the close of regular trading hours
(generally 4:00 p.m. Eastern time) on the NYSE will be executed at the net asset
value computed on the date of receipt. Redemption requests received after the
close of regular trading hours will be executed at the next determined net asset
value. Each Fund normally sends redemption proceeds on the next business day. In
any event, redemption proceeds, except as set forth below, are sent within seven
calendar days of receipt of a redemption request in proper form. There is no
charge for redemptions by wire. Please note, however, that the Investor's bank
may impose a fee for wire service. The right of any Investor to receive payment
with respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period when the NYSE is closed (other than
weekends or holidays) or trading on the NYSE is restricted, or, to the extent
otherwise permitted by the Investment Company Act of 1940, if an emergency
exists.
If a Fund determines that it would be detrimental to the best interests of
the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON GLOBAL BOND FUND
PART A
October 30, 2000
[LOGO]
Brinson Global Bond Fund (the "Fund") issues its beneficial interests ("shares")
only in private placement transactions that do not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus is not offering to sell, or soliciting
any offer to buy, any security to the public within the meaning of the
Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective and Goals Maximize total U.S. dollar return, consisting
of capital appreciation and current income,
while controlling risk.
Performance Benchmark Salomon Smith Barney World Government Bond
Index. The benchmark is a broad-based, market
capitalization weighted index which measures
the broad global markets for fixed income
securities of U.S. and non-U.S. governments.
Brinson Partners, Inc. (the "Advisor"), the
Fund's investment advisor, may change the
benchmark to one or more indices that the
Advisor believes more accurately reflect the
applicable global markets.
Principal Investments The Fund will principally invest in fixed
income securities issued by U.S. and non-U.S.
governments, governmental agencies, entities
organized to restructure outstanding emerging
market debt and supranational entities such
as the World Bank. These include
participations in loans between governments
and financial institutions and Brady Bonds.
CREDIT QUALITY: The Fund may purchase fixed
income securities of any quality. The Fund
may invest up to 15% of its net assets in
U.S. dollar denominated, higher risk, below
investment grade securities and it may invest
up to an additional 15% of its net assets in
non-U.S. dollar denominated, higher risk,
below investment grade securities.
Where the Fund Invests The Fund maintains a global portfolio and,
under normal market conditions, invests at
least 65% of its assets in bonds of issuers
in at least three countries, one of which may
be the United States. The Fund may also
invest in fixed income securities of emerging
market issuers.
Principal Strategies The Advisor's investment style is singularly
focused on investment fundamentals. The
Advisor believes that investment fundamentals
determine and describe future cash flows that
define fundamental investment value. The
Advisor tries to identify and exploit
periodic discrepancies between market prices
and fundamental value. These price/value
discrepancies are used as the building blocks
for portfolio construction.
To implement this style the Advisor purchases
for the Fund securities (generally contained
in the Fund's benchmark index) by using
active asset allocation strategies across
global fixed income markets and active
security selection within each market. Thus,
the relative weightings of different types of
securities in the Fund's portfolio will not
necessarily match those of the benchmark. In
deciding which securities to emphasize, the
Advisor uses both quantitative and
fundamental analysis to identify securities
that are underpriced relative to their
fundamental value.
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PRINCIPAL STRATEGIES AND INVESTMENT RISKS
===============================================================================
Principal strategies When determining fundamental value, the
Advisor considers broadly based indices that
represent asset classes or markets and
economic variables such as productivity,
inflation and global competitiveness. The
valuation of asset classes reflects an
integrated, fundamental analysis of global
markets.
The Fund's allocation among different
currencies will be identical to that of the
benchmark index if the Advisor believes that
global currency markets are fairly priced
relative to each other and associated risks.
However, the Fund may actively depart from
this normal currency allocation when, based
on the Advisor's research, the Advisor
believes that currency prices deviate from
their fundamental values.
The Fund may invest in all types of fixed
income securities of U.S. and foreign
issuers. The Advisor emphasizes those fixed
income market sectors and selects for the
Fund those securities that appear to be most
undervalued relative to their yields and
potential risks. The Advisor selects
individual securities for investment by using
duration, yield curve and sector analysis. In
analyzing the relative attractiveness of
sectors and securities, the Advisor
considers:
[_] Duration.
[_] Yield.
[_] Potential for capital appreciation.
[_] Current credit quality as well as
possible credit upgrades or downgrades.
[_] Narrowing or widening of spreads between
sectors, securities of different credit
quality or securities of different
maturities.
[_] For mortgage-related and asset-backed
securities, anticipated changes in average
prepayment rates.
Principal Investment Risks While investing in global fixed income
securities can bring benefits, it may also
involve risks. Investors can lose money in
the Fund or the Fund's performance may fall
below that of other possible investments.
Below is a discussion of the potential risks
of the Fund.
Management risk [_] The Advisor's judgments about asset or
currency allocations or the fundamental value
of securities acquired by the Fund may prove
to be incorrect.
Risks of fixed income investments [_] The issuer of a fixed income security in
the Fund's portfolio may default on its
obligation to pay principal or interest, may
have its credit rating downgraded by a rating
organization or may be perceived by the
market to be less creditworthy. These risks
are higher for below investment grade
securities.
[_] As a result of declining interest rates,
the issuer of a security exercises its right
to prepay principal earlier than scheduled,
forcing the Fund to reinvest in lower
yielding securities. This is known as call or
prepayment risk.
[_] When interest rates are rising, the
average life of securities backed by debt
obligations is extended because of slower
than expected principal
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payments. This will lock in a below-market
interest rate, increase the security's
duration and reduce the value of the
security. This is known as extension risk.
Foreign country and The values of the Fund's foreign and
emerging market risks emerging market investments may go down or
be very volatile because of:
[_] A decline in the value of foreign
currencies relative to the U.S. dollar.
[_] Vulnerability to economic downturns and
instability due to undiversified economies;
trade imbalances; inadequate infrastructure;
heavy debt loads and dependence on foreign
capital inflows; governmental corruption and
mismanagement of the economy; and difficulty
in mobilizing political support for economic
reforms.
[_] Adverse governmental actions such as
nationalization or expropriation of property;
confiscatory taxation; currency devaluations,
interventions and controls; asset transfer
restrictions; restrictions on investments by
non-citizens; arbitrary administration of
laws and regulations; and unilateral
repudiation of sovereign debt.
[_] Political and social instability, war and
civil unrest.
[_] Less liquid and efficient securities
markets; higher transaction costs; settlement
delays; lack of accurate publicly available
information and uniform financial reporting
standards; difficulty in pricing securities
and monitoring corporate actions; and less
effective governmental supervision.
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its
assets in any one issuer than a diversified
fund. Being non-diversified may magnify the
Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
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MORE ABOUT THE FUND'S INVESTMENTS
Fixed Income Securities
The Fund's fixed income securities may have all types of interest rate
payment and reset terms, including fixed rate, adjustable rate, zero coupon, pay
in kind and auction rate features. These fixed income securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] structured notes and leveraged derivative securities
[_] when-issued securities
[_] inflation indexed securities
[_] convertible securities
[_] zero coupon securities
[_] pay in kind and when issued securities
[_] preferred stock and trust certificates
[_] participations in loans made by financial institutions
[_] repurchase agreements
[_] Brady bonds
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest that portion of its assets allocated to emerging market
investments by purchasing shares of Brinson Emerging Markets Debt Fund.
Credit Quality
Securities are investment grade if:
[_] They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
[_] They have received a comparable short-term or other rating.
[_] They are unrated securities that the Advisor believes are of comparable
quality.
Securities are below investment grade if they are not investment grade. The
Fund may choose not to sell securities that are downgraded, after their
purchase, below the Fund's minimum acceptable credit rating.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
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The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when interest rates or currency rates are changing. The Fund may not
fully benefit from or may lose money on derivatives if changes in their value do
not correspond accurately to changes in the value of the Fund's portfolio
holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
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Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.05% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
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For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $25,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
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outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the
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close of regular trading hours (generally 4:00 p.m. Eastern time) on the NYSE on
any day that the NYSE is open for regular trading. Requests for exchanges
received prior to the close of regular trading hours on the NYSE will be
processed at the net asset value computed on the date of receipt. Requests
received after the close of regular trading hours will be processed at the next
determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON INTERNATIONAL EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson International Equity Fund (the "Fund") issues its beneficial interests
("shares") only in private placement transactions that do not involve a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). This prospectus is not offering to sell, or
soliciting any offer to buy, any security to the public within the meaning of
the Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective and Goals Maximize total U.S. dollar return, consisting
of capital appreciation and current income,
while controlling risk.
Performance Benchmark Morgan Stanley Capital International (MSCI)
World ex-USA (Free) Index ("MSCI Index").
The MSCI Index is a broad, capitalization-
weighted measure of foreign stocks.
Principal Investments The Fund will principally invest in:
[_] Equity securities of issuers outside of
the United States.
[_] Securities whose return is derived
primarily from foreign instruments.
Where the Fund Invests The Fund maintains an international portfolio
and, under normal market conditions, invests
at least 65% of its assets in securities of
issuers in at least three countries other
than the United States.
Principal Strategies Brinson Partners, Inc. (the "Advisor") is the
Fund's investment advisor. The Advisor's
investment style is singularly focused on
investment fundamentals. The Advisor believes
that investment fundamentals determine and
describe future cash flows that define
fundamental investment value. The Advisor
tries to identify and exploit periodic
discrepancies between market prices and
fundamental value. These price/value
discrepancies are used as the building blocks
for portfolio construction.
To implement this style, the Advisor
generally purchases for the Fund securities
contained in the Fund's benchmark index, the
MSCI Index. The Advisor will attempt to
enhance the Fund's long-term return and risk
relative to the benchmark. This active
management process is intended to produce
superior performance relative to the
benchmark. In deciding which stocks to
emphasize, the Advisor uses both quantitative
and fundamental analysis to identify
securities that are underpriced relative to
their fundamental value.
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PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in foreign securities can
bring benefits, it may also involve risks.
Investors can lose money in the Fund or the
Fund's performance may fall below that of
other possible investments. Below is a
discussion of the potential risks of the
Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities acquired by
the Fund may prove to be incorrect.
Risks of equity investments [_] The stock markets where the Fund's
investments are principally traded go down.
[_] Value stocks are temporarily out of favor
in the markets where the Fund invests.
[_] An adverse event, such as negative press
reports about a company in the Fund's
portfolio, depresses the value of the
company's stock.
Foreign country and emerging The values of the Fund's foreign and emerging
market risks market investments may go down or be very
volatile because of:
[_] A decline in the value of foreign
currencies relative to the U.S. dollar.
[_] Vulnerability to economic downturns and
instability due to undiversified economies;
trade imbalances; inadequate infrastructure;
heavy debt loads and dependence on foreign
capital inflows; governmental corruption and
mismanagement of the economy; and difficulty
in mobilizing political support for economic
reforms.
[_] Adverse governmental actions such as
nationalization or expropriation of property;
confiscatory taxation; currency devaluations,
interventions and controls; asset transfer
restrictions; restrictions on investments by
non-citizens; arbitrary administration of
laws and regulations; and unilateral
repudiation of sovereign debt.
[_] Political and social instability, war and
civil unrest.
[_] Less liquid and efficient securities
markets; higher transaction costs; settlement
delays; lack of accurate publicly available
information and uniform financial reporting
standards; difficulty in pricing securities
and monitoring corporate actions; and less
effective governmental supervision.
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its
assets in any one issuer than a diversified
fund. Being non-diversified may magnify the
Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
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MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights, warrants and sponsored or unsponsored American
Depository Receipts, European Depository Receipts and Global Depository
Receipts.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest its assets in emerging market investments by purchasing
shares of Brinson Emerging Markets Equity Fund.
Management of Currency Exposure
The Fund's allocation among different currencies will be identical to that
of the benchmark index if the Advisor believes that global currency markets are
fairly priced relative to each other and associated risks. However, the Fund may
actively depart from this normal currency allocation when, based on the
Advisor's research, the Advisor believes that currency prices deviate from their
fundamental values. As described below, the Fund may use derivatives to manage
its currency exposure.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; foreign forward currency contracts or forward
contracts; interest rate, currency and equity swaps; and caps, collars, floors
and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing stock market prices or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
Even a small investment in derivative contracts can have a big impact on a
portfolio's stock market and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when stock prices or currency rates are changing. The Fund may not fully
benefit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
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Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.06% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
Until October 30, 2000, Brinson International Equity Fund was known as
Brinson Global (Ex-U.S.) Equity Fund. Until March 1, 1999, the Fund was known as
Brinson Non-U.S. Equity Fund.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
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<PAGE>
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades
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<PAGE>
on weekends or other days when the Fund does not price its shares. Changes in
the values of such securities may affect the net asset value of the Fund's
shares on days when shareholders of the Fund may not be able to purchase or
redeem the Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than
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<PAGE>
weekends or holidays) or trading on the NYSE is restricted, or, to the extent
otherwise permitted by the Investment Company Act of 1940, if an emergency
exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON GLOBAL SECURITIES FUND
PART A
October 30, 2000
[LOGO]
Brinson Global Securities Fund (the "Fund") issues its beneficial interests
("shares") only in private placement transactions that do not involve a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). This prospectus is not offering to sell, or
soliciting any offer to buy, any security to the public within the meaning of
the Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective Maximize total U.S. dollar return, consisting of
and Goals capital appreciation and current income, without
assuming undue risk, through a diversified
portfolio of U.S. and non-U.S. stocks and fixed
income securities.
Performance GSMI Relationship Funds Index. This benchmark is
Benchmark compiled by Brinson Partners, Inc.(the "Advisor"),
the Fund's investment advisor and consists of
seven indexes: Wilshire 5000 Index, MSCI World Ex
USA (Free) Index, Salomon Smith Barney Broad
Investment Grade (BIG) Bond Index, Salomon Smith
Barney Non-U.S. Government Bond Index, MSCI
Emerging Markets Free Index, JP Morgan Emerging
Markets Bond Index Global and Merrill Lynch
High Yield Master Index each representing a
distinct asset class of the primary wealth-holding
public securities markets. These asset classes are
U.S. equity, global (ex-U.S.) equity, U.S. fixed
income, global (ex-U.S.) fixed income, emerging
market equities, emerging market debt, high yield
fixed income and cash equivalents.
Principal Investments The Fund will principally invest in:
[_] Equity securities of both U.S. and non-U.S.
issuers.
[_] Fixed income securities issued by
governments, government-related entities,
corporations and entities organized to restructure
outstanding emerging market debt. These include
participations in loans between governments and
financial institutions and Brady Bonds.
[_] Securities whose return is derived
primarily from foreign instruments.
Where the Fund The Fund maintains a global portfolio and, under
Invests normal market conditions, invests at least 65% of
its assets in securities of issuers in at least
three countries, one of which may be the United
States.
Principal Strategies The Advisor's investment style is singularly
focused on investment fundamentals. The Advisor
believes that investment fundamentals determine
and describe future cash flows that define
fundamental investment value. The Advisor tries to
identify and exploit periodic discrepancies
between market prices and fundamental value. These
price/value discrepancies are used as the building
blocks for portfolio construction.
To implement this style, the Advisor purchases for
the Fund securities (generally contained in the
Fund's benchmark, the GSMI Relationship Funds
Index) by using active asset allocation strategies
across global equity, fixed income and money
markets and active security selection within each
market. The Advisor chooses investments for the
Fund by:
[_] Identifying asset classes that appear to be
temporarily underpriced.
[_] Analyzing the fundamental value of individual
securities in order to estimate their relative
value and attractiveness, and to identify
securities for investment that are underpriced
relative to their fundamental value.
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<PAGE>
PRINCIPAL STRATEGIES AND PRINCIPAL INVESTMENT RISKS
================================================================================
Under normal market conditions, the Fund expects to allocate assets according to
the following mix:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Asset Class Strategy
Asset Class Normal Allocation Mix Ranges
--------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Equities 40% +/-30%
--------------------------------------------------------------------------------------
Global (ex-U.S.) Equities 22% 0 to +30%
--------------------------------------------------------------------------------------
Emerging Market Equities 3% 0 to +10%
--------------------------------------------------------------------------------------
U.S. Fixed Income 21% 0 to +30%
--------------------------------------------------------------------------------------
Global Ex-U.S. Fixed Income 9% 0 to +30%
--------------------------------------------------------------------------------------
High Yield Fixed Income 3% 0 to +10%
--------------------------------------------------------------------------------------
Emerging Market Debt 2% 0 to +10%
--------------------------------------------------------------------------------------
Cash Equivalents 0% 0 to +50%
--------------------------------------------------------------------------------------
</TABLE>
The "Asset Class Strategy Ranges" indicated above are the ranges within which
the Fund expects to make its active asset allocations to specific asset classes.
However, the Fund may exceed its strategy ranges under unusual market conditions
and may change them in the future.
Principal Investment While investing in a global portfolio can bring
Risks benefits, it may also involve risks. Investors
can lose money in the Fund or the Fund's
performance may fall below that of other possible
investments. Below is a discussion of the
potential risks of the Fund.
Management risk [_] The Advisor's judgments about the fundamental
value of securities acquired by the Fund may
prove to be incorrect.
[_] The Advisor's judgments about the Fund's
asset allocation may prove to be incorrect.
Risks of equity [_] The stock markets where the Fund's
investments investments are principally traded go down.
[_] Value stocks are temporarily out of favor in
the markets where the Fund invests.
[_] An adverse event, such as negative press
reports about a company in the Fund's portfolio,
depresses the value of the company's stock.
Risks of fixed income [_] Interest rates in countries where the Fund's
investments investments are principally traded may go up. To
the extent that interest rates rise, the prices of
fixed income securities in the Fund's portfolio
will fall.
[_] The issuer of a fixed income security in the
Fund's portfolio may default on its obligation to
pay principal or interest, may have its credit
rating downgraded by a rating organization or may
be perceived by the market to be less
creditworthy. This risk is greater for high yield,
below investment grade debt securities.
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<PAGE>
[_] As a result of declining interest rates, the
issuer of a security exercises its right to prepay
principal earlier than scheduled, forcing the Fund
to reinvest in lower yielding securities. This is
known as call or prepayment risk.
[_] As a result of rising interest rates, the
average life of securities backed by debt
obligations is extended because of slower than
expected principal payments. This will lock in a
below-market interest rate and reduce the value of
the security. This is known as extension risk.
Foreign country and The values of the Fund's foreign and emerging
emerging market risks market investments may go down or be very volatile
because of:
[_] A decline in the value of foreign currencies
relative to the U.S. dollar.
[_] Vulnerability to economic downturns and
instability due to undiversified economies; trade
imbalances; inadequate infrastructure; heavy debt
loads and dependence on foreign capital inflows;
governmental corruption and mismanagement of the
economy; and difficulty in mobilizing political
support for economic reforms.
[_] Adverse governmental actions such as
nationalization or expropriation of property;
confiscatory taxation; currency devaluations,
interventions and controls; asset transfer
restrictions; restrictions on investments by non-
citizens; arbitrary administration of laws and
regulations; and unilateral repudiation of
sovereign debt.
[_] Political and social instability, war and
civil unrest.
[_] Less liquid and efficient securities markets;
higher transaction costs; settlement delays; lack
of accurate publicly available information and
uniform financial reporting standards; difficulty
in pricing securities and monitoring corporate
actions; and less effective governmental
supervision.
Non-diversification The Fund is not diversified, which means that it
can invest a higher percentage of its assets in
any one issuer than a diversified fund. Being non-
diversified may magnify the Fund's losses from
adverse events affecting a particular issuer.
No government An investment in the Fund is not a bank deposit
guarantee and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and the
value of your investment in the Fund will go up
and down.
A-4
<PAGE>
MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights, warrants and sponsored or unsponsored American
Depository Receipts, European Depository Receipts and Global Depository
Receipts. The Fund may invest in issuers at all capitalization levels.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest that portion of its assets allocated to emerging market
investments by purchasing shares of Brinson Emerging Markets Equity Fund and
Brinson Emerging Markets Debt Fund.
Emerging Market Securities
The Fund may invest in a broad range of equity and fixed income securities
of foreign issuers, including emerging market issuers. An emerging market is
any country defined as an emerging or developing economy by the World Bank,
International Finance Corporation or United Nations.
Fixed Income Securities
In selecting fixed income securities for the Fund's portfolio, the Advisor
looks for fixed income securities that provide both a high level of current
income and the potential for capital appreciation due to a perceived improvement
in the creditworthiness of the issuer. The Fund may invest in all types of
fixed income securities of issuers from all countries, including emerging
markets. These include:
[_] Fixed income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions.
[_] Participations in loans between governments and financial institutions.
[_] Fixed income securities issued by government owned, controlled or sponsored
entities.
[_] Interests in entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by any
of the above issuers.
[_] Brady Bonds.
[_] Fixed income securities issued by corporate issuers, banks and finance
companies.
[_] Fixed income securities issued by supranational entities such as the World
Bank or the European Economic Community. (A supranational entity is a
bank, commission or company established or financially supported by the
national governments of one or more countries to promote reconstruction or
development.)
Fixed income securities acquired by the Fund may be denominated or have
coupons payable in any currency and may be of any maturity or duration. The
Fund's fixed income securities may have all types of interest rate payment and
reset terms, including fixed rate, adjustable rate, zero coupon, pay in kind and
auction rate features. These fixed income securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
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<PAGE>
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] structured notes and leveraged derivative securities
[_] convertible securities
[_] preferred stock and trust certificates
[_] participations in loans made by financial institutions
[_] repurchase agreements
[_] inflation indexed securities
Credit Quality
The Fund may invest up to 15% of its net assets in U.S. dollar, fixed
income securities that are low grade, high yield securities rated by a rating
organization below its top four long term rating categories or determined by the
Advisor to be of equivalent quality. Below investment grade securities are
commonly known as "junk bonds." The issuers of below investment grade securities
may be highly leveraged and have difficulty servicing their debt, especially
during prolonged economic recessions or periods of rising interest rates. The
prices of below investment grade securities are volatile and may go down due to
market perceptions of deteriorating issuer creditworthiness or economic
conditions. Below investment grade securities may become illiquid and hard to
value in down markets. The Fund may choose not to sell securities that are
downgraded, after their purchase, below the Fund's minimum acceptable credit
rating.
Management of Currency Exposure
The Fund's allocation among different currencies will be identical to that
of the benchmark index if the Advisor believes that global currency markets are
fairly priced relative to each other and associated risks. However, the Fund may
actively depart from this normal currency allocation when, based on the
Advisor's research, the Advisor believes that currency prices deviate from their
fundamental values. As described below, the Fund may use derivatives to manage
its currency exposure.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates, stock
market prices or currency exchange rates, in the market value of securities
held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
fixed income portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate, stock market and currency exposure. Therefore, using
derivatives can disproportionately increase portfolio losses and reduce
opportunities for gains when interest rates, stock prices or currency rates
A-6
<PAGE>
are changing. The Fund may not fully benefit from or may lose money on
derivatives if changes in their value do not correspond accurately to changes in
the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of debt securities. Derivatives can also make
the Fund's portfolio less liquid and harder to value, especially in declining
markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking such
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The
A-7
<PAGE>
Advisor does not receive any compensation under the Advisory Agreement. The
Advisor has agreed to cap the Fund's total operating expenses at 0.05% of the
Fund's average net assets. The Advisor may discontinue this expense limitation
at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board of the Trust.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
Fund is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invest in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B of this Registration Statement.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
A-8
<PAGE>
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $25,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares. The
Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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. The Trust will
not accept securities in exchange for shares of the Fund unless: (1) such
securities are, at the time of the exchange, eligible to be included in the
Fund's investment portfolio and current market quotations are readily available
for such securities; and (2) the Investor represents and warrants that all
securities offered to be exchanged are not subject to any restrictions upon
their sale by the Fund under the Securities Act or under the laws of the country
in which the principal market for such securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
A-9
<PAGE>
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange, that trades
on weekends or other days when the Fund does not price its shares. Changes in
value of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege the Investor agrees that the
Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
A-10
<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON HIGH YIELD FUND
PART A
October 30, 2000
[LOGO]
Brinson High Yield Fund (the "Fund") issues its beneficial interests ("shares")
only in private placement transactions that do not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus is not offering to sell, or soliciting
any offer to buy, any security to the public within the meaning of the
Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective Maximize total U.S. dollar return, consisting of
and goals capital appreciation and current income, while
controlling risk.
Performance Merrill Lynch High Yield Master Index. The
Benchmark benchmark is a broad-based index of high yield
securities consisting of issues in the form of
publicly placed nonconvertible, coupon-bearing
U.S. domestic debt carrying a term to maturity of
at least one year. The benchmark has been designed
to provide a representative indication of the
performance of the high yield market in the United
States.
Principal Investments The Fund principally invests in dollar
denominated, high yield securities of U.S. and
foreign companies, banks and governments,
including those in emerging markets. The Fund
primarily invests in cash payment, zero coupon and
pay-in-kind fixed income securities, but may
invest in convertibles, preferred stock and common
stock equivalents and in bank loans.
CREDIT QUALITY: The Fund predominantly invests in
below investment grade, high yield securities
including corporate fixed income securities that
are commonly known as "junk bonds."
MATURITY: Individual securities may be of
any maturity.
The Fund may invest in all types of fixed income
securities of issuers from all countries,
including emerging markets. These securities
include fixed income securities issued by
corporations, governments, governmental entities,
entities organized to restructure outstanding
emerging market debt and supranational entities
such as the World Bank or the European Economic
Community. These also include participations in
loans between governments and financial
institutions, and Brady Bonds.
Principal Strategies Brinson Partners, Inc. is the Fund's investment
advisor (the "Advisor"). The Advisor's investment
style is based on the premise that inefficiencies
exist within the high yield bond market that a
fundamental value-based investment process can
exploit. The Advisor tries to identify and exploit
periodic discrepancies between market prices and
fundamental value. These price/value discrepancies
are used as the building blocks for portfolio
construction. The Advisor believes that investment
fundamentals determine and describe future cash
flows that define fundamental investment value.
The Advisor combines both a top-down and bottom-up
analysis. The Advisor may invest in securities of
any quality, including unrated securities. The
Advisor believes that diversifying the Fund's
portfolio by security type, industry, quality and
maturity as opposed to investing in any one sector
will better enable the Fund to control risk. The
Advisor will consider investments across a wide
spectrum of industries.
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The Advisor will attempt to enhance the Fund's
long-term return and risk relative to the
benchmark. This active management process is
intended to produce superior performance relative
to the benchmark. In deciding which securities to
emphasize, the Advisor uses both quantitative and
fundamental analysis to identify securities that
are underpriced relative to their fundamental
value.
In selecting fixed income securities for the
Fund's portfolio, the Advisor looks for fixed
income securities that provide both a high level
of current income and the potential for capital
appreciation due to a perceived improvement in the
creditworthiness of the issuer. The Advisor also
considers and uses the following data to assess
the issuer's future cash flows:
[_] Management strength
[_] Market position
[_] Competitive environment
[_] Financial flexibility
[_] Ability to deleverage
[_] Historical operating results
The Advisor compiles this data to assess the
issuer's future cash flows.
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in high yield securities can bring
benefits, it may also involve risks. Investors can
lose money in the Fund or the Fund's performance
may fall below that of other possible investments.
Below is a discussion of the potential risks of
the Fund.
Management risk [_] The Advisor's judgments about the fundamental
values of securities acquired by the Fund may
prove to be incorrect.
[_] The Advisor's judgments about the allocation
of the Fund's portfolio across industries,
maturities or credit categories may prove to be
incorrect.
Risks of high [_] The Fund's investments in below investment
yield/higher risk grade securities may be considered speculative
securities because they have a higher risk of default, tend
to be less liquid, and may be more difficult to
value.
[_] Changes in economic conditions or other
circumstances may lead to a weakened capacity to
make principal and interest payments.
[_] Issuers of below investment grade securities
may be highly leveraged and have difficulty
servicing their debt, especially during prolonged
economic recessions or periods of rising interest
rates.
[_] Prices of below investment grade securities
are volatile and may go down due to market
perceptions of deteriorating issuer
creditworthiness or economic conditions.
[_] Below investment grade securities may become
illiquid and hard to value in down markets.
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<PAGE>
Risks of fixed income [_] Interest rates in countries in whose
investments currencies the Fund's investments are denominated
may go up. To the extent that interest rates rise,
the prices of fixed income securities in the
Fund's portfolio will fall.
[_] The issuer of a fixed income security in the
Fund's portfolio may default on its obligation to
pay principal or interest, may have its credit
rating downgraded by a rating organization or may
be perceived by the market to be less
creditworthy.
[_] When interest rates are declining, the issuer
of a security may exercise its option to prepay
principal earlier than scheduled, forcing the Fund
to reinvest in lower yielding securities. This is
known as call or prepayment risk.
[_] As a result of rising interest rates, the
average life of securities backed by debt
obligations is extended because of slower than
expected principal payments. This will lock in a
below-market interest rate and reduce the value of
the security. This is known as extension risk.
Foreign country and The values of the Fund's foreign and emerging
emerging market market investments may go down or be very
risks volatile because of unfavorable foreign government
actions, political, economic or market instability
or the absence of accurate information about
foreign companies.
Also, a decline in the value of foreign currencies
relative to the U.S. dollar will reduce the value
of securities denominated in those currencies.
Foreign securities are sometimes less liquid and
harder to value than securities of U.S. issuers.
These risks are more severe for securities of
issuers in emerging market countries.
Non-diversification The Fund is not diversified, which means that it
can invest a higher percentage of its assets in
any one issuer than a diversified fund. Being non-
diversified may magnify the Fund's losses from
adverse events affecting a particular issuer.
No government guarantee An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and the
value of your investment in the Fund will go up
and down.
MORE ABOUT THE FUND'S INVESTMENTS
Fixed Income Securities
Fixed income securities acquired by the Fund are U.S. dollar denominated
and may have coupons payable in any currency and may be of any maturity or
duration. The Fund's fixed income securities may have all types of interest
rate payment and reset terms, including fixed rate, adjustable rate, zero
coupon, pay-in-kind and auction rate features. These fixed income securities
may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
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[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] convertible securities
[_] preferred stock and trust certificates
[_] repurchase agreements
[_] bank loans (generally in the form of loan participations and assignments)
Credit Quality
Securities are below investment grade if:
[_] They are rated below the top four long-term rating categories of a
nationally recognized statistical rating organization.
[_] They have received a comparable short-term or other rating.
[_] They are unrated securities that the Advisor believes are of comparable
quality.
Foreign Securities
The Fund may invest in a broad range of securities of foreign issuers,
including emerging market issuers. An emerging market is any country defined as
an emerging or developing economy by the World Bank, International Finance
Corporation or United Nations.
Equity Securities
The Fund's investments in equity securities will occur primarily as a
result of the purchase of unit offerings of fixed income securities which
include equity components. The Fund may invest in equity securities of U.S. and
non-U.S. issuers including common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights and warrants.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
A-5
<PAGE>
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when interest rates or currency rates are changing. The Fund may not
fully benefit from or may lose money on derivatives if changes in their value do
not correspond accurately to changes in the value of the Fund's portfolio
holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
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<PAGE>
Pursuant to its investment advisory agreement with the Trust (the "Advisory
Agreement"), the Advisor manages the investment and reinvestment of the assets
of the Fund. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to pay all of the Fund's total operating
expenses. The Advisor may discontinue this assumption of expenses at any
time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
THE SUB-ADVISOR
The Advisor employs UBS Asset Management (New York), Inc. ("UBS New York")
to serve as sub-advisor to the Fund. UBS New York is a wholly-owned subsidiary
of UBS AG. As of June 30, 2000, UBS New York had approximately USD 14.98 billion
in assets under management. UBS New York is located at 10 East 50/th/ Street,
New York, NY. Subject to the Advisor's control and supervision, UBS New York is
responsible for managing the investment and reinvestment of that portion of the
Fund's portfolio that the Advisor designates from time to time, including
placing orders for the purchase and sale of portfolio securities. UBS New York
also furnishes the Advisor with investment recommendations, asset allocation
advice, research and other investment services subject to the direction of the
Trust's Board and officers. UBS New York does not receive any compensation
pursuant to the Sub-Advisory Agreement between the Advisor and UBS New York.
While UBS New York does not presently serve as an investment advisor to any
investment companies, it has done so in the past. For additional information
about UBS New York, see Item 15 in Part B.
Investment decisions for the Fund made by the Sub-Advisor are made by an
investment management team of the Sub-Advisor. No member of the investment
management team is primarily responsible for making recommendations for
portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAX
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board of the Trust.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
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<PAGE>
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Fund securities for which market quotations are available
are priced at market value. Fixed income securities are priced at fair value by
an independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at
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<PAGE>
amortized cost, which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
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<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-10
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. INTERMEDIATE CAPITALIZATION EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Intermediate Capitalization Equity Fund (the "Fund") issues its
beneficial interests ("shares") only in private placement transactions that do
not involve a public offering within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). This prospectus is
not offering to sell, or soliciting any offer to buy, any security to the public
within the meaning of the Securities Act. The Fund is a series of Brinson
Relationship Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective and Goals Maximize total U.S. dollar return,
consisting of capital appreciation
and current income, while controlling
risk.
Performance Benchmark Frank Russell Mid-Cap Index. This
benchmark is a broad capitalization
weighted index which primarily
includes U.S. common stocks in a
defined capitalization range.
Principal Investments The Fund primarily invests in equity
securities of U.S. companies that are
traded on major stock exchanges and
the over-the-counter markets. The
Fund focuses on intermediate
capitalization companies but may also
invest in small capitalization
companies.
Principal Strategies Brinson Partners, Inc. is the Fund's
investment advisor (the "Advisor").
The Advisor's investment style is
singularly focused on investment
fundamentals. The Advisor believes
that investment fundamentals
determine and describe future cash
flows that define fundamental
investment value. The Advisor tries
to identify and exploit periodic
discrepancies between market prices
and fundamental value. These
price/value discrepancies are used as
the building blocks for portfolio
construction.
The Advisor will attempt to enhance the
Fund's long-term return and risk
relative to the benchmark. This active
management process is intended to
produce superior performance relative to
the benchmark. In deciding which stocks
to emphasize, the Advisor uses both
quantitative and fundamental analysis to
identify securities that are underpriced
relative to their fundamental value.
In selecting individual companies for
investment, a team of equity
professionals and security analysts
utilize both quantitative and
fundamental research to determine the
long-term valuation of an individual
security. Additionally, company
visits and other sources of information
are utilized to determine a company's
ability to generate profit and to
grow its business into the future.
Some of the factors considered in the
Advisor's valuation are the following:
[_] Low market valuations measured by
the Advisor's fundamental analysis
and valuation models
[_] Experienced and effective management
[_] Effective research, product
development and marketing
[_] Global competitive advantages
[_] Future strong cash flow
[_] Innovative and positive changes in
management, products and strategy
[_] Long-term focus
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<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in equity securities
of intermediate capitalization
companies can bring benefits, it may
also involve risks. Investors can lose
money in the Fund or the Fund's
performance may fall below that of other
possible investments. Below is a
discussion of the potential risks of the
Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities
acquired by the Fund may prove to be
incorrect.
Risks of equity investments [_] The U.S. stock market goes down.
[_] Intermediate or small
capitalization stocks are temporarily
out of favor.
[_] An adverse event, such as negative
press reports about a company in the
Fund's portfolio, depresses the value
of the company's stock.
Special risks of unseasoned and small The Fund may invest in relatively new
capitalization companies or unseasoned companies that are in
their early stages of development.
Securities of unseasoned companies
present greater risks than securities
of larger, more established
companies. The companies may have
greater risks because they:
[_] May be dependent on a small number
of products or services
[_] May lack substantial capital
reserves
[_] Do not have proven track records
Small companies are often volatile
and may suffer significant losses as
well as realize substantial growth.
In a declining market, these stocks
may be harder to sell, which may
further depress their prices.
Non-diversification The Fund is not diversified, which
means that it can invest a higher
percentage of its assets in any one
issuer than a diversified fund.
Being non-diversified may magnify the
Fund's losses from adverse events
affecting a particular issuer.
No government guarantee An investment in the Fund is not a
bank deposit and is not insured or
guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in
price and the value of your
investment in the Fund will go up and
down.
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<PAGE>
MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights, warrants and sponsored or unsponsored American
Depository Receipts, European Depository Receipts and Global Depository
Receipts.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest that portion of its assets allocated to investments in post-
venture companies by purchasing shares of Brinson U.S. Small Capitalization
Equity Fund.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes in the market value of securities held by
or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
Even a small investment in derivative contracts can have a big impact on a
portfolio's stock market exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when stock prices are changing. The Fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
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<PAGE>
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the
United Kingdom, in addition to Brinson Partners' principal office at 209 South
LaSalle Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned
subsidiary of UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an
internationally diversified organization with operations in many aspects of the
financial services industry. UBS AG was formed by the merger of Union Bank of
Switzerland and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
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<PAGE>
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board of the Trust.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be
A-6
<PAGE>
waived or modified. There is no sales load in connection with the purchase of
shares. The Trust reserves the right to reject any purchase order and to suspend
the offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Fund securities for which market quotations are available
are priced at market value. Debt securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
A-7
<PAGE>
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-8
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. VALUE EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Value Equity Fund (the "Fund") issues its beneficial interests
("shares") only in private placement transactions that do not involve a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). This prospectus is not offering to sell, or
soliciting any offer to buy, any security to the public within the meaning of
the Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective and Goals Maximize total U.S. dollar return, consisting
of capital appreciation and current income,
while controlling risk.
Performance Benchmark Russell 1000 Value Index. This benchmark is a
broad-based, capitalization weighted index
which primarily includes U.S. common stocks.
Principal Investments The Fund primarily invests in value oriented
large capitalization equity securities of
U.S. companies that are traded on major stock
exchanges and the over-the-counter markets.
Value oriented securities tend to exhibit
higher price-to-book and price earnings
ratios, higher dividend yields and lower
forecasted growth values than securities in a
growth universe.
Principal Strategies Brinson Partners, Inc. is the Fund's
investment advisor (the "Advisor"). The
Advisor's investment style is singularly
focused on investment fundamentals. The
Advisor believes that investment fundamentals
determine and describe future cash flows that
define fundamental investment value. The
Advisor tries to identify and exploit
periodic discrepancies between market prices
and fundamental value. These price/value
discrepancies are used as the building blocks
for portfolio construction.
Most of the Fund's investments will be stocks
in the Fund's benchmark index. The Advisor
will attempt to enhance the Fund's long-term
return and risk relative to the benchmark.
This active management process is intended to
produce superior performance relative to the
benchmark. In deciding which stocks to
emphasize, the Advisor uses both quantitative
and fundamental analysis to identify
securities that are underpriced relative to
their fundamental value.
In selecting individual companies for
investment, a team of equity professionals
and security analysts utilize both
quantitative and fundamental research to
determine the long-term valuation of an
individual security. Additionally, company
visits and other sources of information are
utilized to determine a company's ability
to generate profit and to grow its
business into the future. Some of the
factors considered in the Advisor's
valuation are the following:
. Low market valuations measured by the
Advisor's fundamental analysis and
valuation models
. Experienced and effective management
. Effective research, product development
and marketing
. Global competitive advantages
. Future strong cash flow
. Liquidity
. Innovative and positive changes in
management, products and strategy
. Long-term focus
The Advisor also employs a disciplined review
process to identify and remove from the
Fund's portfolio any investment if the
Advisor determines the company's stock has
reached full or excessive valuation levels.
A-2
<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in value oriented securities
can bring benefits, it may also involve
risks. Investors can lose money in the Fund
or the Fund's performance may fall below that
of other possible investments. Below is a
discussion of the potential risks of the
Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities acquired by
the Fund may prove to be incorrect.
Risks of equity investments [_] The U.S. stock market goes down.
[_] Value or large capitalization stocks are
temporarily out of favor.
[_] An adverse event, such as negative press
reports about a company in the Fund's
portfolio, depresses the value of the
company's stock.
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its
assets in any one issuer than a diversified
fund. Being non-diversified may magnify the
Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights, warrants and sponsored or unsponsored American
Depository Receipts, European Depository Receipts and Global Depository
Receipts.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
A-3
<PAGE>
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes caused by stock market prices in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
Even a small investment in derivative contracts can have a big impact on a
portfolio's stock market exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when stock prices are changing. The Fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds,
A-4
<PAGE>
Fort Dearborn Income Securities, Inc., Governor Funds International Equity Fund
and Villanova Mutual Fund Trust - Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
A-5
<PAGE>
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
Until April 14, 2000, Brinson U.S. Value Equity Fund was known as Brinson
U.S. Large Capitalization Value Equity Fund.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are
A-6
<PAGE>
valued at amortized cost, which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
A-7
<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-8
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. LARGE CAPITALIZATION EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Large Capitalization Equity Fund (the "Fund") issues its beneficial
interests ("shares") only in private placement transactions that do not involve
a public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"). This prospectus is not offering to
sell, or soliciting any offer to buy, any security to the public within the
meaning of the Securities Act. The Fund is a series of Brinson Relationship
Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL RISKS
================================================================================
Investment Objective and Goals Maximize total U.S. dollar return, consisting
of capital appreciation and current income,
while controlling risk.
Performance Benchmark Standard & Poor's 500 Stock Index. This
benchmark is a broad-based, capitalization
weighted index which includes primarily U.S.
common stocks.
Principal Investments The Fund primarily invests in large
capitalization equity securities of U.S.
companies that are traded on major stock
exchanges and the over-the-counter markets.
The Fund focuses on large capitalization
companies but may also invest in medium
capitalization companies.
Principal Strategies Brinson Partners, Inc. is the Fund's
investment advisor (the "Advisor"). The
Advisor's investment style is singularly
focused on investment fundamentals. The
Advisor believes that investment fundamentals
determine and describe future cash flows that
define fundamental investment value. The
Advisor tries to identify and exploit
periodic discrepancies between market prices
and fundamental value. These price/value
discrepancies are used as the building blocks
for portfolio construction.
Most of the Fund's investments will be stocks
contained in the Fund's benchmark index. The
Advisor will attempt to enhance the Fund's
long-term return and risk relative to the
benchmark. This active management process is
intended to produce superior performance
relative to the benchmark. In deciding which
stocks to emphasize, the Advisor uses both
quantitative and fundamental analysis to
identify securities that are underpriced
relative to their fundamental value.
In selecting individual companies for
investment, a team of equity professionals
and security analysts utilize both
quantitative and fundamental research to
determine the long-term valuation of an
individual security. Additionally, company
visits and other sources of information are
utilized to determine a company's ability to
generate profit and to grow its business into
the future. Some of the factors considered in
the Advisor's valuation are the following:
[_] Low market valuations measured by the
Advisor's fundamental analysis and
valuation models
[_] Experienced and effective management
[_] Effective research, product development
and marketing
[_] Global competitive advantages
[_] Future strong cash flow
[_] Liquidity
[_] Innovative and positive changes in
management, products and strategy
[_] Long-term focus
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PRINCIPAL RISKS
================================================================================
Principal Investment Risks While investing in equity securities of large
capitalization issuers can bring benefits, it
may also involve risks. Investors can lose
money in the Fund or the Fund's performance
may fall below that of other possible
investments. Below is a discussion of the
potential risks of the Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities acquired by
the Fund may prove to be incorrect.
Risks of equity investments [_] The U.S. stock market goes down.
[_] Value or large capitalization
stocks are temporarily out of favor.
[_] An adverse event, such as negative press
reports about a company in the Fund's
portfolio, depresses the value of the
company's stock.
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its
assets in any one issuer than a diversified
fund. Being non-diversified may magnify the
Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights, warrants and sponsored or unsponsored American
Depository Receipts, European Depository Receipts and Global Depository
Receipts.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
A-3
<PAGE>
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by stock market prices in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
Even a small investment in derivative contracts can have a big impact on a
portfolio's stock market exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when stock prices are changing. The Fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds,
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<PAGE>
Fort Dearborn Income Securities, Inc., Governor Funds International Equity Fund
and Villanova Mutual Fund Trust - Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
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<PAGE>
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Fund securities for which market quotations are available
are priced at market value. Fixed income securities are priced at fair value by
an independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are
A-6
<PAGE>
valued at amortized cost, which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
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<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-8
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON SHORT-TERM FUND
PART A
October 30, 2000
[LOGO]
Brinson Short-Term Fund (the "Fund") issues its beneficial interests ("shares")
only in private placement transactions that do not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus is not offering to sell, or soliciting
any offer to buy, any security to the public within the meaning of the
Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
===============================================================================
Investment Objective and Goals Maximize total U.S. dollar return, consisting
of capital appreciation and current income,
while controlling risk.
Performance Benchmark The Fund's benchmark is calculated based on
the British Bankers' Association ("BBA") 30-
day U.S. dollar London InterBank Offered Rate
(LIBOR). BBA Interest Settlement Rates are
based on the offered deposit rates quoted by
certain banks to prime banks in the London
interbank market.
Principal Investments The Fund will principally invest In U.S.
dollar and non-U.S. dollar denominated fixed
income securities of corporations,
governments and governmental entities.
CREDIT QUALITY: The Fund may invest up to 50%
of its net assets in U.S. dollar, and up to
50% of its net assets in non-U.S. dollar,
denominated, higher risk, below investment
grade securities. These securities are
commonly known as "junk bonds."
MATURITY: The Fund will invest at least 65%
of assets in securities having an average
weighted maturity of not more than three
years. However, individual securities may be
of any maturity.
The Fund may invest in all types of fixed
income securities of U.S. and non-U.S.
issuers. These include:
[_] Fixed income securities issued by
corporate issuers, banks and finance
companies
[_] Fixed income securities issued or
guaranteed by governments, governmental
agencies or instrumentalities and political
subdivisions, including loan participations
[_] Fixed income securities issued by
government owned, controlled or sponsored
entities, or supranational entities such as
the World Bank or the European Economic
Community
[_] Brady Bonds
Principal Strategies Brinson Partners, Inc. is the Fund's
investment advisor (the "Advisor"). The
Advisor actively manages the Fund by using a
fundamental value-based process. This
involves identifying fixed income securities
that appear to be temporarily underpriced
relative to their value and attractiveness.
The Advisor also compares the relative
yields and risk characteristics of various
obligations. In selecting individual
securities, the Advisor considers many
factors, including maturity, current yield,
interest rate sensitivity, credit quality,
yield curve analysis and individual issue
selection.
The Advisor attempts to enhance the long-
term return and risk performance of the
Fund by:
[_] Actively managing portfolio maturity
structure
[_] Emphasizing careful security selection,
credit risk management and efficient
execution of transactions
[_] Selecting countries to invest in based
on economic variables such as productivity,
inflation and global competitiveness
[_] Managing currency
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<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in fixed income securities
can bring benefits, it may also involve
risks. Investors can lose money in the Fund
or the Fund's performance may fall below that
of other possible investments. Below is a
discussion of the potential risks of the
Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities acquired by
the Fund may prove to be incorrect.
Risks of fixed income investments [_] Interest rates in countries where the
Fund's investments are principally traded may
go up. To the extent that interest rates
rise, the prices of fixed income securities
in the Fund's portfolio will fall.
[_] The issuer of a fixed income security in
the Fund's portfolio may default on its
obligation to pay principal or interest, may
have its credit rating downgraded by a rating
organization or may be perceived by the
market to be less creditworthy. These risks
are higher for below investment grade
securities.
[_] As a result of declining interest rates,
the issuer of a security exercises its right
to prepay principal earlier than scheduled,
forcing the Fund to reinvest in lower
yielding securities. This is known as call or
prepayment risk.
[_] When interest rates are rising, the
average life of securities backed by debt
obligations is extended because of slower
than expected principal payments. This will
lock in a below-market interest rate,
increase the security's duration and reduce
the value of the security. This is known as
extension risk.
Risks of foreign securities The values of the Fund's foreign investments
may go down or be very volatile because of:
[_] A decline in the value of foreign
currencies relative to the U.S. dollar
[_] Vulnerability to economic downturns and
instability due to undiversified economies;
trade imbalances; inadequate infrastructure;
heavy debt loads and dependence on foreign
capital inflows; governmental corruption and
mismanagement of the economy; and difficulty
in mobilizing political support for economic
reforms
[_] Adverse governmental actions such as
nationalization or expropriation of property;
confiscatory taxation; currency devaluations,
interventions and controls; asset transfer
restrictions; restrictions on investments by
non-citizens; arbitrary administration of
laws and regulations; and unilateral
repudiation of sovereign debt
[_] Political and social instability, war and
civil unrest
[_] Less liquid and efficient securities
markets; higher transaction costs; settlement
delays; lack of accurate publicly available
information and uniform financial reporting
standards; difficulty in pricing securities
and monitoring corporate actions; and less
effective governmental supervision
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<PAGE>
Risks of high yield/higher risk [_] Below investment grade securities have
securities a higher risk of default and may become
illiquid or difficult to value, especially in
down markets
[_] The issuers of below investment grade
securities may be highly leveraged and have
difficulty servicing their debt, especially
during prolonged economic recessions or
periods of rising interest rates
[_] The prices of below investment grade
securities are volatile and may go down due
to market perceptions of deteriorating issuer
creditworthiness or economic conditions
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its
assets in any one issuer than a diversified
fund. Being non-diversified may magnify the
Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
MORE ABOUT THE FUND'S INVESTMENTS
Fixed Income Securities
Fixed income securities acquired by the Fund may be denominated or have
coupons payable in any currency and may represent a broad range of credit
qualities and sectors. The Fund's fixed income securities may have all types of
interest rate payment and reset terms, including fixed rate, adjustable rate,
floating rate, zero coupon, and when-issued features. These fixed income
securities may include:
[_] demand notes
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] bank instruments
[_] structured notes and leveraged derivative securities
[_] convertible securities
[_] repurchase agreements
[_] commercial paper
[_] when-issued securities
[_] Eurodollar securities
Credit Quality
Securities are below investment grade if:
[_] They are rated below the top four long-term rating categories of a
nationally recognized statistical rating organization.
[_] They have received a comparable short-term or other rating.
[_] They are unrated securities that the Advisor believes are of comparable
quality.
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<PAGE>
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; forward contracts; interest rate, currency and index swaps;
and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when interest rates or currency rates are changing. The Fund may not
fully benefit from or may lose money on derivatives if changes in their value do
not correspond accurately to changes in the value of the Fund's portfolio
holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000 USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds,
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<PAGE>
Fort Dearborn Income Securities, Inc., Governor Funds International Equity Fund
and Villanova Mutual Fund Trust - Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.05% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
A-6
<PAGE>
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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, but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at
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<PAGE>
amortized cost, which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
A-8
<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. BOND FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Bond Fund (the "Fund") issues its beneficial interests ("shares")
only in private placement transactions that do not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus is not offering to sell, or soliciting
any offer to buy, any security to the public within the meaning of the
Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective Maximize total U.S. dollar return, consisting
and Goals of capital appreciation and current income,
while controlling risk.
Performance Benchmark Salomon Smith Barney Broad Investment Grade
Bond Index (the "Salomon Index"). The benchmark
is a market driven broad-based index which
includes investment grade U.S. bonds with
maturities of over one year.
Principal Investments The Fund will principally invest in U.S. dollar
denominated fixed income securities of U.S.
corporate and governmental issuers. It may also
invest in U.S. dollar denominated fixed income
securities of foreign issuers.
CREDIT QUALITY: The Fund will invest only in
investment grade securities.
MATURITY/DURATION: The Fund will invest at
least 65% of its assets in U.S. fixed income
securities with an initial maturity of over one
year. The Fund's remaining securities may be of
any maturity or duration.
Principal Strategies Brinson Partners, Inc. (the "Advisor") uses an
investment style singularly focused on
investment fundamentals. The Advisor believes
that investment fundamentals determine and
describe future cash flows that define
fundamental investment value. The Advisor tries
to identify and exploit periodic discrepancies
between market prices and fundamental value.
These price/value discrepancies are used as the
building blocks for portfolio construction.
To implement this strategy, the Advisor
generally purchases for the Fund securities
contained in the Fund's benchmark, the Salomon
Index. The Advisor will attempt to enhance the
Fund's long-term return and risk relative to
that of the benchmark. Thus, the relative
weightings of different types of securities in
the Fund's portfolio will not necessarily match
those of the benchmark. In deciding which
securities to emphasize, the Advisor uses both
quantitative and fundamental analysis to
identify securities that are underpriced
relative to their fundamental value.
The Fund may invest in all types of fixed
income securities of U.S. and foreign issuers.
The Advisor emphasizes fixed income market
sectors and selects for the Fund those
securities that appear to be most undervalued
relative to their yields and potential risks.
In analyzing the relative attractiveness of
sectors and securities, the Advisor considers:
[_] Duration.
[_] Current yield.
[_] Potential for capital appreciation.
[_] Current credit quality as well as possible
credit upgrades or downgrades.
[_] Narrowing or widening of spreads between
sectors, securities of different credit
quality or securities of different
maturities.
[_] For mortgage-related and asset-backed
securities, anticipated changes in average
prepayment rates.
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<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in fixed income securities can
bring benefits, it may also involve risks.
Investors can lose money in the Fund or the
Fund's performance may fall below that of other
possible investments. Below is a discussion of
the potential risks of the Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities acquired by the
Fund may prove to be incorrect.
Risks of fixed income [_] Interest rates may go up. To the extent
that investments interest rates rise, the
prices of fixed income securities in the Fund's
portfolio will fall.
[_] The issuer of a fixed income security in
the Fund's portfolio may default on its
obligation to pay principal or interest, may
have its credit rating downgraded by a rating
organization or may be perceived by the market
to be less creditworthy.
[_] As a result of declining interest rates,
the issuer of a security exercises its right to
prepay principal earlier than scheduled,
forcing the Fund to reinvest in lower yielding
securities. This is known as call or prepayment
risk.
[_] When interest rates are rising, the
average life of securities backed by debt
obligations is extended because of slower than
expected principal payments. This will lock in
a below-market interest rate, increase the
security's duration and reduce the value of the
security. This is known as extension risk.
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its assets
in any one issuer than a diversified fund.
Being non-diversified may magnify the Fund's
losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
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<PAGE>
MORE ABOUT THE FUND'S INVESTMENTS
Fixed Income Securities
The Fund's fixed income securities may have all types of interest rate
payment and reset terms, including fixed rate, adjustable rate, zero coupon,
pay-in-kind and auction rate features. These fixed income securities may
include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] real estate mortgage conduits
[_] asset-backed securities
[_] leveraged derivative securities
[_] convertible securities
[_] when-issued securities
[_] Eurodollar securities
[_] repurchase agreements
Credit Quality
Securities are investment grade if:
[_] They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
[_] They have received a comparable short-term or other rating.
[_] They are unrated securities that the Advisor believes are of comparable
quality.
The Fund may choose not to sell securities that are downgraded, after their
purchase, below the Fund's minimum acceptable credit rating.
Foreign Securities
The values of the Fund's foreign and emerging market investments may go
down or be very volatile because of unfavorable foreign government actions,
political, economic or market instability or the absence of accurate information
about foreign companies. Also, a decline in the value of foreign currencies
relative to the U.S. dollar will reduce the value of securities denominated in
those currencies. Foreign securities are sometimes less liquid and harder to
value than securities of U.S. issuers. These risks are more severe for
securities of issuers in emerging market countries.
Investment in Other Series
While the Fund will not normally invest in equity securities, the Fund is
permitted to invest a portion of its assets in securities of other series
offered by the Trust. The Fund will invest in other series only to the extent
that the Advisor determines that it is more efficient for the Fund to gain
exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest that portion of its assets allocated to short and
intermediate investments by purchasing shares of Brinson U.S. Short/Intermediate
Fixed Income Fund.
A-4
<PAGE>
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate swaps; and caps,
collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates, in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when interest rates are changing. The Fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can also
make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000 USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
A-5
<PAGE>
organization with operations in many aspects of the financial services industry.
UBS AG was formed by the merger of Union Bank of Switzerland and Swiss Bank
Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team of
the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund is
taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
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<PAGE>
The Fund will not be a "regulated investment company" for federal income tax
purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke, 209
South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call 312-
220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in private
placement transactions that do not involve a "public offering" within the
meaning of Section 4(2) of the Securities Act. Investments in the Fund may be
made only by "accredited investors" within the meaning of Regulation D under the
Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the net
asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the New
York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when the
NYSE is open. The net asset value
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<PAGE>
per share is computed by adding the value of all securities and other assets in
the portfolio, deducting any liabilities (expenses and fees are accrued daily)
and dividing by the number of shares outstanding. Fund securities for which
market quotations are available are priced at market value. Fixed income
securities are priced at fair value by an independent pricing service using
methods approved by the Board. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value.
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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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 Trust's Board. This means that the Fund will not use
the last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange, that trades
on weekends or other days when the Fund does not price its shares. Changes in
value of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that the
Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then offering
its shares for sale in the Investor's state of residence and are subject to the
minimum initial investment requirement and the payment of any transaction
charges that may be due to such series of the Trust. For federal income tax
purposes, an exchange of shares would be treated as if the Investor had redeemed
shares of the Fund and reinvested in shares of another series of the Trust.
Gains or losses on the shares exchanged are realized by the Investor at the time
of the exchange. Any Investor wishing to make an exchange should first obtain
and review the prospectus of the series into which the Investor wishes to
exchange.
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<PAGE>
Requests for telephone exchanges must be received by the transfer agent, CGFSC,
by the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE on any day that the NYSE is open for regular trading. Requests for
exchanges received prior to the close of regular trading hours on the NYSE will
be processed at the net asset value computed on the date of receipt. Requests
received after the close of regular trading hours will be processed at the next
determined net assets value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's shares
are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any business
day the NYSE is open by furnishing a request to the Trust. Shares will be
redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests of
the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-9
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Equity Fund (the "Fund") issues its beneficial interests ("shares")
only in private placement transactions that do not involve a public offering
within the meaning of Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"). This prospectus is not offering to sell, or soliciting
any offer to buy, any security to the public within the meaning of the
Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective Maximize total U.S. dollar return, consisting
and Goals of capital appreciation and current income,
while controlling risk.
Performance Benchmark Wilshire 5000 Index. This benchmark is a
broad-based, capitalization weighted index
which includes all U.S. common stocks.
Principal Investments The Fund invests primarily in equity
securities of U.S. companies. Equity
securities include exchange traded and over-
the-counter common stocks and preferred
stock, fixed income securities convertible
into equity securities and warrants and
rights relating to equity securities. The
Fund may also invest in depositary receipts
representing interests in securities of
foreign issuers.
The Fund focuses on large and medium
capitalization companies but may also invest
in small capitalization companies.
Principal Strategies Brinson Partners, Inc. (the "Advisor") is the
Fund's investment advisor. The Advisor's
investment style is singularly focused on
investment fundamentals. The Advisor believes
that investment fundamentals determine and
describe future cash flows that define
fundamental investment value. The Advisor
tries to identify and exploit periodic
discrepancies between market prices and
fundamental value. These price/value
discrepancies are used as the building blocks
for portfolio construction.
Most of the Fund's investments will be stocks
contained in the Fund's benchmark index.
However, the Fund's portfolio may deviate
from the mix of stocks in the index by
overweighting some of these stocks while
underweighting or excluding other index
stocks. The Advisor will attempt to enhance
the Fund's long-term return and risk relative
to the benchmark. This active management
process is intended to produce superior
performance relative to the benchmark. In
deciding which index stocks to emphasize, the
Advisor uses both quantitative and
fundamental analysis to identify securities
that are underpriced relative to their
fundamental value.
In selecting individual companies for
investment, the Advisor looks for:
. Low market valuations measured by the
Advisor's fundamental analysis and
valuation models
. Experienced and effective management
. Effective research, product development and
marketing
. Competitive advantages
. Strong cash flow
. Positive changes in management, products or
strategy not yet recognized by the
marketplace
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<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in equity securities can
bring benefits, it may also involve risks.
Investors can lose money in the Fund or the
Fund's performance may fall below that of
other possible investments. Below is a
discussion of the potential risks of the
Fund.
Management risk [_] The Advisor's judgments about the
fundamental value of securities acquired by
the Fund may prove to be incorrect.
Risks of equity investments [_] The U.S. stock market goes down.
[_] Value stocks are temporarily out of
favor.
[_] An adverse event, such as negative press
reports about a company in the Fund's
portfolio, depresses the value of the
company's stock.
Non-diversification The Fund is not diversified, which means that
it can invest a higher percentage of its
assets in any one issuer than a diversified
fund. Being non-diversified may magnify the
Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank
deposit and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or
any other government agency.
Fluctuating value The Fund's investments fluctuate in price and
the value of your investment in the Fund will
go up and down.
MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
The Fund's equity investments may also include investments in securities of
other series offered by the Trust. The Fund will invest in other series only to
the extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance,
the Fund may invest a portion of its assets in shares of Brinson U.S. Large
Capitalization Equity Fund, Brinson U.S. Intermediate Capitalization Equity Fund
and Brinson U.S. Small Capitalization Equity Fund.
Special Risks of Small Capitalization Issuers
The Fund may invest in relatively new or unseasoned companies that are in
their early stages of development. Securities of unseasoned companies present
greater risks than securities of larger, more established companies. The
companies may have greater risks because they:
[_] May have recently commenced operations
[_] May be dependent on a small number of products or services
[_] May lack substantial capital reserves
[_] Do not have proven track records
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<PAGE>
Due to these and other factors, small capitalization companies may suffer
significant losses as well as realize substantial growth. Investments in these
companies tend to be volatile and therefore, speculative.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by stock market prices, in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
Even a small investment in derivative contracts can have a big impact on a
portfolio's stock market exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when stock prices are changing. The Fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
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<PAGE>
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire
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<PAGE>
interest in the Fund. Any loss may be recognized only if you redeem your entire
interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
A-6
<PAGE>
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Fund securities for which market quotations are available
are priced at market value. Fixed income securities are priced at fair value by
an independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
A-7
<PAGE>
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-8
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. SHORT/INTERMEDIATE FIXED INCOME FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Short/Intermediate Fixed Income Fund (the "Fund") issues its
beneficial interests ("shares") only in private placement transactions that do
not involve a public offering within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). This prospectus is
not offering to sell, or soliciting any offer to buy, any security to the public
within the meaning of the Securities Act. The Fund is a series of Brinson
Relationship Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective Maximize total U.S. dollar return, consisting of
and Goals capital appreciation and current income, while
controlling risk.
Performance Benchmark A composite consisting of equal parts U.S.
dollar 3 month London InterBank bid rate
and the Merrill Lynch 1-3 Year U.S. Treasury
Index. The London InterBank bid rate is the rate
at which major international banks are willing to
take deposits from one another.
Principal Investments The Fund will invest principally in investment
grade securities issued by U.S. corporations, the
U.S. government, its agencies and its
instrumentalities.
CREDIT QUALITY: The Fund will invest only in
investment grade securities.
MATURITY: The Fund will invest at least 65% of
its assets in securities with initial maturities
of more than one year. The Fund's remaining
securities may be of any maturity.
Principal Strategies Brinson Partners, Inc. (the "Advisor") uses an
investment style that is singularly focused on
investment fundamentals. The Advisor believes that
investment fundamentals determine and describe
future cash flows that define fundamental
investment value. The Advisor tries to identify
and exploit periodic discrepancies between market
prices and fundamental value. These price/value
discrepancies are used as the building blocks for
portfolio construction.
The Fund may invest in all types of fixed income
securities of U.S. issuers. The Advisor emphasizes
those fixed income market sectors and selects for
the Fund those securities that appear to be most
undervalued relative to their yields and potential
risks. In analyzing the relative attractiveness of
sectors and securities, the Advisor considers:
[_] Available yields
[_] Potential for capital appreciation
[_] Current credit quality as well as possible
credit upgrades or downgrades
[_] Narrowing or widening of spreads between
sectors, securities of different credit
quality or securities of different maturities
[_] For mortgage-related and asset-backed
securities, anticipated changes in average
prepayment rates
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<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in fixed income securities can
bring benefits, it may also involve risks.
Investors can lose money in the Fund or the
Fund's performance may fall below that of other
possible investments. Below is a discussion of the
potential risks of the Fund.
Management risk [_] The Advisor's judgments about the fundamental
value of securities acquired by the Fund may prove
to be incorrect.
Risks of fixed income [_] U.S. interest rates may go up. To the extent
investments that interest rates rise, the prices of fixed
income securities in the Fund's portfolio will
fall.
[_] The issuer of a fixed income security in the
Fund's portfolio may default on its obligation to
pay principal or interest, may have its credit
rating downgraded by a rating organization or may
be perceived by the market to be less
creditworthy.
[_] As a result of declining interest rates, the
issuer of a security exercises its right to prepay
principal earlier than scheduled, forcing the Fund
to reinvest in lower yielding securities. This is
known as call or prepayment risk.
[_] When interest rates are rising, the average
life of securities backed by debt obligations is
extended because of slower than expected payments.
This will lock in a below-market interest rate,
increase the security's duration and reduce the
value of the security. This is known as extension
risk.
Non-diversification The Fund is not diversified, which means that it
can invest a higher percentage of its assets in
any one issuer than a diversified fund. Being non-
diversified may magnify the Fund's losses from
adverse events affecting a particular issuer.
No government guarantee An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and the
value of your investment in the Fund will go up
and down.
MORE ABOUT THE FUND'S INVESTMENTS
Fixed Income Securities
Fixed income securities acquired by the Fund will be U.S. dollar
denominated or have coupons payable in U.S. currency. The Fund may invest in
all types of fixed income securities of U.S. and non-U.S. issuers. The Fund's
investments will represent a range of maturities, credit qualities and sectors.
The Fund's fixed income securities may have all types of interest rate payment
and reset terms, including fixed rate, adjustable rate, variable rate, floating
rate, zero coupon, pay-in-kind and auction rate features. These fixed income
securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
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[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] leveraged derivative securities
[_] convertible securities
[_] when-issued securities
[_] repurchase agreements
[_] Eurodollar securities
Credit Quality
Securities are investment grade if:
[_] They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization
[_] They have received a comparable short-term or other rating
[_] They are unrated securities that the Advisor believes are of comparable
quality
The Fund may choose not to sell securities that are downgraded, after their
purchase, below the Fund's minimum acceptable credit rating.
Investment in Securities of Other Series
Although the Fund will not ordinarily invest in equity securities, it is
permitted to invest a portion of its assets in securities of other series
offered by the Trust. The Fund will invest in other series only to the extent
that the Advisor determines that it is more efficient for the Fund to gain
exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates, in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when interest rates are changing. The Fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the Fund's portfolio holdings.
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<PAGE>
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of the Fund's assets in
money market and short-term fixed income securities. By taking these temporary
defensive positions, the Fund may affect its ability to achieve its investment
objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
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Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or
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commingled trust funds, investment companies, registered broker-dealers,
investment banks, commercial banks, corporations, group trusts or similar
organizations or entities. The registration statement of which this prospectus
is a part does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally,
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some securities held by the Fund may be primarily listed and traded on a foreign
exchange that trades on weekends or other days when the Fund does not price its
shares. Changes in the values of such securities may affect the net asset value
of the Fund's shares on days when shareholders of the Fund may not be able to
purchase or redeem the Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment
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of the redemption proceeds postponed during any period when the NYSE is closed
(other than weekends or holidays) or trading on the NYSE is restricted, or, to
the extent otherwise permitted by the Investment Company Act of 1940, if an
emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. SMALL CAPITALIZATION EQUITY FUND
PART A
October 30, 2000
[LOGO]
Brinson U.S. Small Capitalization Equity Fund (the "Fund") issues its beneficial
interests ("shares") only in private placement transactions that do not involve
a public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"). This prospectus is not offering to
sell, or soliciting any offer to buy, any security to the public within the
meaning of the Securities Act. The Fund is a series of Brinson Relationship
Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective Maximize total U.S. dollar return, consisting of
and Goals capital appreciation and current income, while
controlling risk.
Performance Russell 2000 Index. This benchmark is an index
Benchmark composed of the 2,000 smallest companies in the
Russell 3000 Index, which represents approximately
8% of the total market capitalization of the
Russell 3000 Index.
The Fund will invest primarily in publicly traded
companies represented in the Russell 2000 Index
and at least 65% of its assets in small
capitalization equity securities.
Principal Investments The Fund will invest primarily in publicly traded
companies represented in the Wilshire Small Stock
Index and at least 75% of its assets in small
capitalization equity securities.
The Fund may invest up to 20% of its assets in
small capitalization equity securities of publicly
traded foreign corporations that were financed by
venture capital partnerships. The Fund may also
invest up to 10% of its net assets in equity
securities or interests in non-public companies
that are expected to have an initial public
offering within 18 months.
Principal Strategies Brinson Partners, Inc. (the "Advisor") selects for
the Fund those equity securities that appear to be
undervalued based upon internal research and
proprietary valuation systems. The Advisor's
research focuses on several levels of analysis
including understanding wealth shifts that occur
within the equity market and researching
individual companies.
Generally, the Advisor will select for the Fund
those securities in the Fund's benchmark. However,
the Advisor will attempt to enhance the Fund's
long-term return and risk relative to the
benchmark. This active management process is
intended to produce superior performance relative
to the benchmark. In deciding which index stocks
to emphasize, the Advisor uses both quantitative
and fundamental analysis to identify securities
that are underpriced relative to their fundamental
value.
In deciding whether to buy a company for the Fund,
the Advisor:
[_] Quantifies its expectations of a company's
ability to generate profit and to grow business
into the future.
[_] Calculates an expected rate of return from
the investment in order to estimate intrinsic
value.
[_] Compares the estimated intrinsic value to
observed market price and ranks the company
against other stocks accordingly.
The Advisor looks for companies with the following
characteristics:
[_] Strong management teams
[_] Significant competitive strengths in growing
markets
[_] Strong financial positions
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The Advisor attempts to identify target companies
that exhibit:
[_] Innovative management
[_] Reasonable price-earnings multiples in
relation to long-term earnings prospects
[_] Strong balance sheets
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in small capitalization stocks can
bring benefits, it may also involve risks.
Investors can lose money in the Fund or the Fund's
performance may fall below that of other possible
investments. Below is a discussion of the
potential risks of the Fund.
Management risk [_] The Advisor's judgments about the fundamental
value of securities acquired by the Fund may prove
to be incorrect.
Risks of equity [_] The U.S. stock market goes down.
investments
[_] Small capitalization stocks are temporarily
out of favor.
[_] An adverse event, such as negative press
reports about a company in the Fund's portfolio,
depresses the value of the company's stock.
Special risks of The Fund invests primarily in relatively new or
unseasoned and small unseasoned companies when compared to companies
capitalization companies included in the Standard & Poor's 500 Stock Index.
Securities of unseasoned companies present greater
risks than securities of larger, more established
companies. The companies may have greater risks
because they:
[_] May be dependent on a small number of
products or services.
[_] May lack substantial capital reserves.
[_] Do not have proven track records.
Small companies are often volatile and may suffer
significant losses as well as realize substantial
growth. In a declining market, these stocks may be
harder to sell, which may further depress their
prices.
Special risks of non- Investing in unlisted securities, including
publicly traded investments in new and early stage companies, may
securities involve a high degree of business and financial
risk that can result in substantial losses.
Investing in securities of non-public companies
involves risks such as:
[_] A less liquid market for the securities than
for publicly traded securities. The Fund may not
be able to resell its investments.
[_] Less disclosure is required from non-public
companies.
[_] Although the securities may be resold in
private transactions, the prices realized from the
sale may be less than what the Fund considers the
fair value of the securities.
Foreign country risks The values of the Fund's foreign investments may
go down or be very volatile because of:
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[_] A decline in the value of foreign currencies
relative to the U.S. dollar.
[_] Vulnerability to economic downturns and
instability due to undiversified economies; trade
imbalances; inadequate infrastructure; heavy debt
loads and dependence on foreign capital inflows;
governmental corruption and mismanagement of the
economy; and difficulty in mobilizing political
support for economic reforms.
[_] Adverse governmental actions such as
nationalization or expropriation of property;
confiscatory taxation; currency devaluations,
interventions and controls; asset transfer
restrictions; restrictions on investments by non-
citizens; arbitrary administration of laws and
regulations; and unilateral repudiation of
sovereign debt.
[_] Political and social instability, war and
civil unrest.
[_] Less liquid and efficient securities markets;
higher transaction costs; settlement delays; lack
of accurate publicly available information and
uniform financial reporting standards; difficulty
in pricing securities and monitoring corporate
actions; and less effective governmental
supervision.
Non-diversification The Fund is not diversified, which means that it
can invest a higher percentage of its assets in
any one issuer than a diversified fund. Being non-
diversified may magnify the Fund's losses from
adverse events affecting a particular issuer.
No government An investment in the Fund is not a bank deposit
guarantee and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and the
value of your investment in the Fund will go up
and down.
MORE ABOUT THE FUND'S INVESTMENTS
Equity Securities
Equity securities include common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights, warrants and sponsored or unsponsored American
Depository Receipts, European Depository Receipts and Global Depository
Receipts.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
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The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing stock market prices or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
Even a small investment in derivative contracts can have a big impact on a
portfolio's stock market and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when stock prices or currency rates are changing. The Fund may not fully
benefit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can
also make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong
Kong, Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the
United Kingdom in addition to Brinson Partners' principal office at 209 South
LaSalle Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned
subsidiary of UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an
internationally diversified organization with operations in many aspects of the
financial services industry. UBS AG was formed by the merger of Union Bank of
Switzerland and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
Agreement"), the Advisor is authorized, at its own expense, to obtain
statistical and other factual information and advice
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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. The Advisor does not receive any
compensation under the Advisory Agreement. The Advisor has agreed to pay all of
the Fund's total operating expenses. The Advisor may discontinue this assumption
of expenses at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
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INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
Until April 14, 2000, Brinson U.S. Small Capitalization Equity Fund was
known as Brinson Post-Venture Fund.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares.
The Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the number of
shares outstanding. Fund securities for which market quotations are available
are priced at market value. Fixed income securities are priced at fair value by
an independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are
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valued at amortized cost, which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the
last market quotation for the securities, but will value the securities by
including the effect of the intervening event. Finally, some securities held by
the Fund may be primarily listed and traded on a foreign exchange that trades on
weekends or other days when the Fund does not price its shares. Changes in the
values of such securities may affect the net asset value of the Fund's shares on
days when shareholders of the Fund may not be able to purchase or redeem the
Fund's shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy,
the Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
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Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
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OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON DEFENSIVE HIGH YIELD FUND
PART A
October 30, 2000
[LOGO]
Brinson Defensive High Yield Fund (the "Fund") issues its beneficial interests
("shares") only in private placement transactions that do not involve a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). This prospectus is not offering to sell, or
soliciting any offer to buy, any security to the public within the meaning of
the Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
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INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective and Maximize total U.S. dollar return, consisting of
Goals capital appreciation and current income, while
controlling risk.
Performance Benchmark The benchmark is a customized index consisting of
a 70% weighting of the London 30 day U.S. dollar
InterBank Bid Rate ("LIBID") plus 200 basis points
and a 30% weighting of the Merrill Lynch High
Yield Master Index (the "Index"). LIBID is the
rate at which major international banks are
willing to take deposits from other international
banks. The Index is a broad-based index of high
yield securities consisting of issues in the form
of publicly-placed nonconvertible, coupon-bearing
U.S. domestic debt carrying a term to maturity of
at least one year. The benchmark has been designed
to provide a representative indication of the
performance of the defensive high yield market in
the United States.
Principal Investments The Fund principally invests in dollar-
denominated, high yield securities of U.S. and
foreign companies, banks and governments,
including those in emerging markets. High yield
securities have a substantial amount of credit
rate and interest rate risk. The Fund also invests
in defensive high yield securities and strategies.
The Fund also invests in cash payment, zero coupon
and pay-in-kind fixed income securities and may
invest in convertibles, preferred stock and common
stock equivalents and in bank loans.
Credit quality: The Fund predominantly invests in
below investment grade, high yield securities
including corporate fixed income securities that
are commonly known as "junk bonds."
Maturity: Individual securities may be of any
maturity.
The Fund may invest in all types of fixed income
securities of issuers from all countries,
including emerging markets. These securities
include fixed income securities issued by
corporations, governments, governmental entities,
entities organized to restructure outstanding
emerging market debt and supranational entities
such as the World Bank or the European Economic
Community. These securities also include
participations in loans between governments and
financial institutions, and Brady Bonds.
Principal Strategies Brinson Partners, Inc. is the Fund's investment
advisor (the "Advisor"). The Advisor's investment
style is based on the premise that inefficiencies
exist within the high yield bond market that a
fundamental value-based investment process can
exploit. The Advisor tries to identify and exploit
periodic discrepancies between market prices and
fundamental value. These price/value discrepancies
are used as the building blocks for portfolio
construction. The Advisor believes that investment
fundamentals determine and describe future cash
flows that define fundamental investment value. To
implement this style, the Advisor purchases
securities for the Fund using active asset
allocation strategies. Two asset classes that the
Fund predominantly invests in are high yield
securities and defensive high yield strategies.
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The Advisor combines both a top-down and bottom-up
analysis. The Advisor may invest in securities of
any quality, including unrated securities. The
Advisor believes that diversifying the Fund's
portfolio by security type, industry, quality and
maturity as opposed to investing in any one sector
will better enable the Fund to control risk. The
Advisor will consider investments across a wide
spectrum of industries.
The Advisor will attempt to enhance the Fund's
long-term return and risk relative to the
benchmark. This active management process is
intended to produce superior performance relative
to the benchmark. In deciding which securities to
emphasize, the Advisor uses both quantitative and
fundamental analysis to identify securities that
are underpriced relative to their fundamental
value.
Fundamental analysis of a company's capital
structure may identify relative mispricing of the
company's securities. Defensive high yield
investing strategies attempt to take advantage of
these opportunities. Examples of such strategic
opportunities include the following:
[_] Capital Structure Arbitrage: Two securities
of a single issuer may be so mispriced
relative to one another that superior returns
can be achieved by selling short the
overpriced security and buying the
undervalued security. The risk associated
with these positions may be moderate when
compared with an outright long or short
position.
[_] Low Volatility High Yield: From time to time,
securities in the high yield market become
available which offer attractive yields.
However, due to features such as
collateralization, sinking funds, monthly
paydowns, short maturities or other
characteristics of the issuer, these
securities are relatively insensitive to
interest rates and overall market movements.
These securities, when carefully selected,
can enhance the Fund's returns without
significantly increasing volatility.
[_] "Yield-to-Call" High Yield: Most high yield
bonds are callable prior to their final
maturity date. Investors may
opportunistically refinance high-coupon bonds
at the call date with lower cost debt. High
yield bonds priced to the call date usually
produce low volatility returns.
[_] Intra-Industry Bond Positions: If the ratings
of Moody's Investors Service, Inc. or
Standard & Poor's Ratings Group does not
accurately reflect the credit quality of an
issuer, its bonds may be relatively over or
under priced. The Fund expects to take
advantage of its credit research capabilities
to short bonds of relatively overvalued
securities and buy bonds of undervalued
securities within the same industry.
[_] Bank Loans: The Fund may invest in bank loans
through participations or assignments. Many
high yield companies borrow through the bond
market and the loan market. Typically the
bank loan is a floating interest rate coupon
structure and has senior creditor status;
both features tend to
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reduce price volatility.
In selecting fixed income securities for the
Fund's portfolio, the Advisor looks for fixed
income securities that provide both a high level
of current income and the potential for capital
appreciation due to a perceived improvement in the
creditworthiness of the issuer. The Advisor also
considers and uses the following data to assess
the issuer's future cash flows:
[_] Management strength
[_] Market position
[_] Competitive environment
[_] Financial flexibility
[_] Ability to deleverage
[_] Historical operating results
The Advisor compiles this data to assess the
issuer's future cash flows.
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in high yield securities can bring
benefits, it may also involve risks. Investors can
lose money in the Fund or the Fund's performance
may fall below that of other possible investments.
Below is a discussion of the potential risks of
the Fund.
Management risk [_] The Advisor's judgments about the fundamental
values of securities acquired by the Fund may
prove to be incorrect.
[_] The Advisor's judgments about the allocation
of the Fund's portfolio across industries,
maturities or credit categories may prove to be
incorrect.
Risks of high [_] The Fund's investments in below investment
yield/higher risk grade securities may be considered speculative
securities because they have a higher risk of default, tend
to be less liquid, and may be more difficult to
value.
[_] Changes in economic conditions or other
circumstances may lead to a weakened capacity to
make principal and interest payments.
[_] Issuers of below investment grade securities
may be highly leveraged and have difficulty
servicing their debt, especially during prolonged
economic recessions or periods of rising interest
rates.
[_] Prices of below investment grade securities
are volatile and may go down due to market
perceptions of deteriorating issuer
creditworthiness or economic conditions.
[_] Below investment grade securities may become
illiquid and hard to value in down markets.
Risks of fixed income [_] Interest rates may go up. To the extent that
investments interest rates rise, the prices of fixed income
securities in the Fund's portfolio will fall.
[_] The issuer of a fixed income security in the
Fund's portfolio may default on its obligation to
pay principal or interest, may have its credit
rating downgraded by a rating organization or may
be perceived by the market to be less
creditworthy.
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[_] When interest rates are declining, the issuer
of a security may exercise its option to prepay
principal earlier than scheduled, forcing the Fund
to reinvest in lower yielding securities. This is
known as call or prepayment risk.
As a result of rising interest rates, the average
life of securities backed by debt obligations may
be extended because of slower than expected
principal payments. This will lock in a below-
market interest rate and reduce the value of the
security. This is known as extension risk.
Foreign country and The values of the Fund's foreign and emerging
emerging market risks market investments may go down or be very volatile
because of unfavorable foreign government actions,
political, economic or market instability or the
absence of accurate information about foreign
companies.
Also, a decline in the value of foreign currencies
relative to the U.S. dollar will reduce the value
of securities denominated in those currencies.
Foreign securities are sometimes less liquid and
harder to value than securities of U.S. issuers.
These risks are more severe for securities of
issuers in emerging market countries.
Non-diversification The Fund is not diversified, which means that it
can invest a higher percentage of its assets in
any one issuer than a diversified fund. Being non-
diversified may magnify the Fund's losses from
adverse events affecting a particular issuer.
No government guarantee An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and the
value of your investment in the Fund will go up
and down.
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More About the Fund's Investments
Fixed Income Securities
Fixed income securities acquired by the Fund may have coupons payable in
any currency and may be of any maturity or duration. The Fund's fixed income
securities may have all types of interest rate payment and reset terms,
including fixed rate, adjustable rate, zero coupon, pay-in-kind and auction rate
features. These fixed income securities may include:
[_] bills, notes and corporate bonds
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] convertible securities
[_] preferred stock and trust certificates
[_] repurchase agreements
[_] bank loans
The Fund may also invest in the Brinson High Yield Fund, which is another
series offered by the Trust. The Fund will only invest in the Brinson High Yield
Fund to the extent that the Advisor determines that it is more efficient for the
Fund to gain exposure to the high yield fixed income asset class by investing in
the series as opposed to investing directly in individual high yield securities.
Credit Quality
Securities are below investment grade if:
[_] They are rated below the top four long-term rating categories of a
nationally recognized statistical rating organization;
[_] they have received a comparable short-term or other rating; or
[_] they are unrated securities that the Advisor believes are of comparable
quality.
Foreign Securities
The Fund may invest in a broad range of securities of foreign issuers,
including emerging market issuers. An emerging market is any country defined as
an emerging or developing economy by the World Bank, International Finance
Corporation or United Nations.
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Equity Securities
The Fund's investments in equity securities will occur primarily as a
result of the purchase of unit offerings of fixed income securities which
include equity components. The Fund may invest in equity securities of U.S. and
non-U.S. issuers, including common stock, shares of collective trusts and
investment companies, preferred stock and fixed income securities convertible
into common stock, rights and warrants.
The Fund may also invest a portion of its assets in securities of other
series offered by the Trust. The Fund will invest in other series only to the
extent that the Advisor determines that it is more efficient for the Fund to
gain exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates or
currency exchange rates, in the market value of securities held by or to be
bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate and currency exposure. Therefore, using derivatives
can disproportionately increase portfolio losses and reduce opportunities for
gains when interest rates or currency rates are changing. The Fund may not fully
benefit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the Fund's portfolio holdings.
For example, if the value of securities sold short by the Fund increases, the
Fund will lose the opportunity to participate in the gain.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can also
make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of its assets in all types
of money market and short-term fixed income securities. By taking these
temporary defensive positions, the Fund may affect its ability to achieve its
investment objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result in the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199
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<PAGE>
billion, primarily for institutional pension and profit sharing funds. Brinson
Partners and its predecessor entities have managed domestic and international
investment assets since 1974 and global investment assets since 1982. Brinson
Partners has offices in Australia, Austria, Bahrain, Brazil, France, Germany,
Hong Kong, Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and
the United Kingdom, in addition to Brinson Partners' principal office at 209
South LaSalle Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned
subsidiary of UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an
internationally diversified organization with operations in many aspects of the
financial services industry. UBS AG was formed by the merger of Union Bank of
Switzerland and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
Agreement"), the Advisor manages the investment and reinvestment of the assets
of the Fund. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this expense
limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
THE SUB-ADVISOR
The Advisor employs UBS Asset Management (New York), Inc. ("UBS New York")
to serve as sub-advisor to the Fund. UBS New York is a wholly-owned subsidiary
of UBS AG. As of June 30, 2000, UBS New York had approximately USD 14.98 billion
in assets under management. UBS New York is located at 10 East 50/th/ Street,
New York, NY. Subject to the Advisor's control and supervision, UBS New York is
responsible for managing the investment and reinvestment of that portion of the
Fund's portfolio that the Advisor designates from time to time, including
placing orders for the purchase and sale of portfolio securities. UBS New York
also furnishes the Advisor with investment recommendations, asset allocation
advice, research and other investment services subject to the direction of the
Trust's Board and officers. UBS New York does not receive any compensation
pursuant to the Sub-Advisory Agreement between the Advisor and UBS New York.
While UBS New York does not presently serve as an investment advisor to any
investment companies, it has done so in the past. For additional information
about UBS New York, see Item 15 in Part B.
Investment decisions for the Fund made by the Sub-Advisor are made by an
investment management team of the Sub-Advisor. No member of the investment
management team is primarily responsible for making recommendations for
portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAX
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board of the Trust.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
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A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares. The
Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio
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and current market quotations are readily available for such securities; and (2)
the Investor represents and warrants that all securities offered to be exchanged
are not subject to any restrictions upon their sale by the Fund under the
Securities Act or under the laws of the country in which the principal market
for such securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the last
market quotation for the securities, but will value the securities by including
the effect of the intervening event. Finally, some securities held by the Fund
may be primarily listed and traded on a foreign exchange that trades on weekends
or other days when the Fund does not price its shares. Changes in the values of
such securities may affect the net asset value of the Fund's shares on days when
shareholders of the Fund may not be able to purchase or redeem the Fund's
shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if the
Investor has previously signed a telephone authorization. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. The Fund reserves the right to restrict the frequency of, or
otherwise modify, condition, terminate or impose charges upon the exchange
privilege and/or telephone transfer privileges upon 60 days' prior written
notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy, the
Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its
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transfer agent, Chase Global Funds Services Company ("CGFSC"), fails to employ
this and other appropriate procedures, the Fund or CGFSC may be liable for any
losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after regular trading hours will be executed at the
next determined net asset value. The Fund normally sends redemption proceeds on
the next business day. In any event, redemption proceeds, except as set forth
below, are sent within seven calendar days of receipt of a redemption request in
proper form. There is no charge for redemptions by wire. Please note, however,
that the Investor's bank may impose a fee for wire service. The right of any
Investor to receive payment with respect to any redemption may be suspended or
the payment of the redemption proceeds postponed during any period when the NYSE
is closed (other than weekends or holidays) or trading on the NYSE is
restricted, or, to the extent otherwise permitted by the Investment Company Act
of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-11
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON U.S. TREASURY INFLATION PROTECTED SECURITIES FUND
PART A
October 30, 2000
[LOGO APPEARS HERE]
Brinson U.S. Treasury Inflation Protected Securities Fund (the "Fund") issues
its beneficial interests ("shares") only in private placement transactions that
do not involve a public offering within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). This prospectus is
not offering to sell, or soliciting any offer to buy, any security to the public
within the meaning of the Securities Act. The Fund is a series of Brinson
Relationship Funds (the "Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
A-1
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================================================
<S> <C>
Investment Objective Maximize total U.S. dollar return, consisting of capital appreciation and
and Goals current income, while controlling risk.
Performance Salomon Smith Barney Inflation Linked Securities Index. The benchmark is a
Benchmark broad-based index comprised of U.S. Treasury securities that measures the
return of securities with fixed rate coupon payments that adjust for
inflation as measured by the Consumer Price Index.
Principal Investments The Fund will invest at least 65% of its assets in Treasury Inflation
Protected Securities ("TIPS") issued by the U.S. Treasury. The Fund may also
invest in fixed income securities issued by U.S. corporations and the U.S.
government, its agencies and its instrumentalities.
Credit quality: The Fund will invest only in investment grade securities.
Maturity: Brinson Partners, Inc. (the "Advisor") does not manage the Fund
with a target maturity or duration. The Fund's securities may be of any maturity.
Principal Strategies The Advisor uses an investment style that is singularly focused on
investment fundamentals. The Advisor believes that investment fundamentals
determine and describe future cash flows that define fundamental investment
value. The Advisor tries to identify and exploit periodic discrepancies
between market prices and fundamental value. These price/value
discrepancies are used as the building blocks for portfolio construction.
The Fund may invest in all types of fixed income securities of U.S. issuers.
The Advisor emphasizes those fixed income market sectors and selects for the
Fund those securities that appear to be most undervalued relative to their
yields and potential risks. In analyzing the relative attractiveness of
sectors and securities, the Advisor considers:
[_] Available yields
[_] For TIPS, the anticipated rate of inflation
[_] Potential for capital appreciation
[_] Narrowing or widening of spreads between sectors, securities of different
credit quality or securities of different maturities
[_] Current credit quality as well as possible credit upgrades or downgrades
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL INVESTMENT RISKS
===================================================================================================
<S> <C>
While investing in fixed income securities can bring benefits, it may
also involve risks. Investors can lose money in the Fund or the Fund's
performance may fall below that of other possible investments. Below
is a discussion of the potential risks of the Fund.
Management risk [_] The Advisor's judgments about the fundamental value of securities
acquired by the Fund may prove to be incorrect.
Risks of fixed income [_] U.S. interest rates may go up. To the extent that interest rates rise,
investments the prices of fixed income securities in the Fund's portfolio will fall.
[_] The issuer of a fixed income security in the Fund's portfolio may default
on its obligation to pay principal or interest, may have its credit rating
downgraded by a rating organization or may be perceived by the market to be
less creditworthy.
[_] As a result of declining interest rates, the issuer of a security
exercises its right to prepay principal earlier than scheduled, forcing the
Fund to reinvest in lower yielding securities. This is known as call or
prepayment risk.
[_] When interest rates are rising, the average life of securities backed by
debt obligations is extended because of slower than expected payments. This
will lock in a below-market interest rate, increase the security's duration
and reduce the value of the security. This is known as extension risk.
Non-diversification The Fund is not diversified, which means that it can invest a higher
percentage of its assets in any one issuer than a diversified fund. Being
non-diversified may magnify the Fund's losses from adverse events affecting a
particular issuer.
No government guarantee An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Fluctuating value The Fund's investments fluctuate in price and the value of your investment in
the Fund will go up and down.
</TABLE>
More About the Fund's Investments
Treasury Inflation Protected Securities
TIPS are securities issued by the U.S. Treasury designed to provide
investors a long-term vehicle that is not vulnerable to inflation. The interest
rate paid by TIPS is fixed while the principal value rises or falls based on
changes in a published Consumer Price Index. If inflation occurs, the principal
and interest payments on the TIPS are adjusted accordingly to protect investors
from inflationary loss. During a deflationary period, the principal and interest
payments decrease, although the TIPS' principal will not drop below its face
amount at maturity.
A-3
<PAGE>
Fixed Income Securities
Fixed income securities acquired by the Fund will be U.S. dollar
denominated or have coupons payable in U.S. currency. The Fund may invest in all
types of fixed income securities of U.S. issuers. The Fund's investments will
represent a range of maturities, credit qualities and sectors. The Fund's fixed
income securities may have all types of interest rate payment and reset terms,
including fixed rate, adjustable rate, variable rate, floating rate, inflation-
indexed, zero coupon, pay-in-kind and auction rate features. These fixed income
securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] leveraged derivative securities
[_] convertible securities
[_] when-issued securities
[_] repurchase agreements
Credit Quality
Securities are investment grade if:
[_] They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization
[_] They have received a comparable short-term or other rating
[_] They are unrated securities that the Advisor believes are of comparable
quality
The Fund may choose not to sell securities that are downgraded, after their
purchase, below the Fund's minimum acceptable credit rating.
Investment in Securities of Other Series
Although the Fund will not ordinarily invest in equity securities, it is
permitted to invest a portion of its assets in securities of other series
offered by the Trust. The Fund will invest in other series only to the extent
that the Advisor determines that it is more efficient for the Fund to gain
exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes, caused by changing interest rates, in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
A-4
<PAGE>
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when interest rates are changing. The Fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the Fund's portfolio holdings.
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can also
make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of the Fund's assets in
money market and short-term fixed income securities. By taking these temporary
defensive positions, the Fund may affect its ability to achieve its investment
objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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
A-5
<PAGE>
advice or recommendations regarding the purchase or sale of securities from such
subsidiaries. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this
expense limitation at any time.
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
A-6
<PAGE>
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares. The
Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
A-7
<PAGE>
which approximates market value. 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.
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the last
market quotation for the securities, but will value the securities by including
the effect of the intervening event. Finally, some securities held by the Fund
may be primarily listed and traded on a foreign exchange that trades on weekends
or other days when the Fund does not price its shares. Changes in the values of
such securities may affect the net asset value of the Fund's shares on days when
shareholders of the Fund may not be able to purchase or redeem the Fund's
shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if
the Investor has previously signed a telephone authorization. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate or impose charges upon
the exchange privilege and/or telephone transfer privileges upon 60 days' prior
written notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy, the
Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
A-8
<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-9
<PAGE>
OFFEREE NO. ____
BRINSON RELATIONSHIP FUNDS
BRINSON LIMITED DURATION FUND
PART A
October 30, 2000
[LOGO]
Brinson Limited Duration Fund (the "Fund") issues its beneficial interests
("shares") only in private placement transactions that do not involve a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). This prospectus is not offering to sell, or
soliciting any offer to buy, any security to the public within the meaning of
the Securities Act. The Fund is a series of Brinson Relationship Funds (the
"Trust").
Only "accredited investors," as defined in Regulation D under the Securities
Act, may invest in the Fund. Accredited investors include common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts and similar organizations. Each
accredited investor that holds shares of the Fund is referred to in this
prospectus as an Investor.
The Securities and Exchange Commission has not approved or disapproved the
Fund's shares as an investment or determined whether this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
A-1
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
================================================================================
Investment Objective and Maximize total U.S. dollar return, consisting of
Goals capital appreciation and current income, while
controlling risk.
Performance Benchmark Salomon Smith Barney 1 Year Treasury Bill Rate.
Principal Investments The Fund will invest principally in investment
grade securities issued by U.S. corporations, the
U.S. government, its agencies and its
instrumentalities.
Credit quality: The Fund will invest only in
investment grade securities.
Maturity: The Fund will normally have a maximum
weighted average maturity of 5 years. The duration
of the Fund will generally range from .5 to 2 times
the duration of the benchmark.
Principal Strategies Brinson Partners, Inc. (the "Advisor") uses an
investment style that is singularly focused on
investment fundamentals. The Advisor believes that
investment fundamentals determine and describe
future cash flows that define fundamental
investment value. The Advisor tries to identify and
exploit periodic discrepancies between market
prices and fundamental value. These price/value
discrepancies are used as the building blocks for
portfolio construction.
The Fund may invest in all types of fixed income
securities of U.S. issuers. The Advisor emphasizes
those fixed income market sectors and selects for
the Fund those securities that appear to be most
undervalued relative to their yields and potential
risks. In analyzing the relative attractiveness of
sectors and securities, the Advisor considers:
[_] Available yields
[_] Potential for capital appreciation
[_] Current credit quality as well as possible
credit upgrades or downgrades
[_] Narrowing or widening of spreads between
sectors, securities of different credit quality or
securities of different maturities
[_] For mortgage-related and asset-backed
securities, anticipated changes in average
prepayment rates
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<PAGE>
PRINCIPAL INVESTMENT RISKS
================================================================================
While investing in fixed income securities can bring
benefits, it may also involve risks. Investors can lose
money in the Fund or the Fund's performance may fall
below that of other possible investments. Below is a
discussion of the potential risks of the Fund.
Management risk [_] The Advisor's judgments about the fundamental
value of securities acquired by the Fund may prove to
be incorrect.
Risks of fixed income [_] U.S. interest rates may go up. To the extent that
investments interest rates rise, the prices of fixed income
securities in the Fund's portfolio will fall.
[_] The issuer of a fixed income security in the
Fund's portfolio may default on its obligation to pay
principal or interest, may have its credit rating
downgraded by a rating organization or may be perceived
by the market to be less creditworthy.
[_] As a result of declining interest rates, the
issuer of a security exercises its right to prepay
principal earlier than scheduled, forcing the Fund to
reinvest in lower yielding securities. This is known as
call or prepayment risk.
[_] When interest rates are rising, the average life
of securities backed by debt obligations is extended
because of slower than expected payments. This will
lock in a below-market interest rate, increase the
security's duration and reduce the value of the
security. This is known as extension risk.
Non-diversification The Fund is not diversified, which means that it can
invest a higher percentage of its assets in any one
issuer than a diversified fund. Being non-diversified
may magnify the Fund's losses from adverse events
affecting a particular issuer.
No government guarantee An investment in the Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
Fluctuating value The Fund's investments fluctuate in price and the value
of your investment in the Fund will go up and down.
More About the Fund's Investments
Fixed Income Securities
Fixed income securities acquired by the Fund will be U.S. dollar
denominated or have coupons payable in U.S. currency. The Fund may invest in all
types of fixed income securities of U.S. and non-U.S. issuers. The Fund's
investments will represent a range of maturities, credit qualities and sectors.
The Fund's fixed income securities may have all types of interest rate payment
and reset terms, including fixed rate, adjustable rate, variable rate, floating
rate, zero coupon, pay-in-kind and auction rate features. These fixed income
securities may include:
[_] bills, notes and bonds
[_] government agency and privately issued mortgage-backed securities
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<PAGE>
[_] collateralized mortgage and bond obligations
[_] asset-backed securities
[_] leveraged derivative securities
[_] convertible securities
[_] when-issued securities
[_] repurchase agreements
[_] Eurodollar securities
Credit Quality
Securities are investment grade if:
[_] They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization
[_] They have received a comparable short-term or other rating
[_] They are unrated securities that the Advisor believes are of comparable
quality
The Fund may choose not to sell securities that are downgraded, after their
purchase, below the Fund's minimum acceptable credit rating.
Investment in Securities of Other Series
Although the Fund will not ordinarily invest in equity securities, it is
permitted to invest a portion of its assets in securities of other series
offered by the Trust. The Fund will invest in other series only to the extent
that the Advisor determines that it is more efficient for the Fund to gain
exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities.
Derivative Contracts
A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts; options; forward contracts; interest rate, currency and
equity swaps; and caps, collars, floors and swaptions.
The Fund may, but is not required to, use derivative contracts for any of
the following purposes:
[_] To hedge against adverse changes caused by changing interest rates in the
market value of securities held by or to be bought for the Fund.
[_] As a substitute for purchasing or selling securities.
[_] To shorten or lengthen the effective maturity or duration of the Fund's
portfolio.
Even a small investment in derivative contracts can have a big impact on a
portfolio's interest rate exposure. Therefore, using derivatives can
disproportionately increase portfolio losses and reduce opportunities for gains
when interest rates are changing. The Fund may not fully benefit from or may
lose money on derivatives if changes in their value do not correspond accurately
to changes in the value of the Fund's portfolio holdings.
A-4
<PAGE>
Counterparties to over-the-counter derivative contracts present the same
types of credit risk as issuers of fixed income securities. Derivatives can also
make the Fund's portfolio less liquid and harder to value, especially in
declining markets.
Defensive Investing
In response to adverse market, economic, political or other conditions, the
Fund may depart from its principal investment strategies by taking temporary
defensive positions. The Fund may invest up to 100% of the Fund's assets in
money market and short-term fixed income securities. By taking these temporary
defensive positions, the Fund may affect its ability to achieve its investment
objective.
Impact of High Portfolio Turnover
The Fund may engage in active and frequent trading to achieve its principal
investment strategies. Frequent trading increases transaction costs, including
brokerage commissions, which could detract from the Fund's performance. In
addition, high portfolio turnover may result in more taxable capital gains being
distributed to Investors subject to tax than would otherwise result if the Fund
engaged in less portfolio turnover.
THE ADVISOR
Brinson Partners has been appointed by the Trust as its investment advisor
and furnishes investment advisory and asset management services to the Trust
with respect to its series. Brinson Partners, a Delaware corporation, is an
investment management firm managing, as of June 30, 2000, USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessor entities have managed domestic and international investment
assets since 1974 and global investment assets since 1982. Brinson Partners has
offices in Australia, Austria, Bahrain, Brazil, France, Germany, Hong Kong,
Ireland, Italy, Japan, Luxembourg, Singapore, Switzerland, Taiwan and the United
Kingdom, in addition to Brinson Partners' principal office at 209 South LaSalle
Street, Chicago, IL 60604-1295. Brinson Partners is a wholly-owned subsidiary of
UBS AG. UBS AG, with headquarters in Zurich, Switzerland, is an internationally
diversified organization with operations in many aspects of the financial
services industry. UBS AG was formed by the merger of Union Bank of Switzerland
and Swiss Bank Corporation in June 1998.
Brinson Partners also serves as the investment advisor to four other
investment companies: The Brinson Funds, Fort Dearborn Income Securities, Inc.,
Governor Funds International Equity Fund and Villanova Mutual Fund Trust -
Prestige Large Cap Value Fund.
Pursuant to its investment advisory agreement with the Trust (the "Advisory
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. The Advisor does not receive any compensation under the Advisory
Agreement. The Advisor has agreed to cap the Fund's total operating expenses at
0.01% of the Fund's average net assets. The Advisor may discontinue this expense
limitation at any time.
A-5
<PAGE>
Investment decisions for the Fund are made by an investment management team
of the Advisor. No member of the investment management team is primarily
responsible for making recommendations for portfolio purchases or sales.
DIVIDENDS AND DISTRIBUTIONS
The Fund does not currently intend to declare and pay dividends or pay
distributions to Investors except as may be determined by the Board of Trustees
(the "Board") of the Trust.
FEDERAL INCOME TAXES
As a partnership, the Fund is not subject to U.S. federal income tax.
Instead, each Investor reports separately on its own income tax return its
distributive share of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund). Each Investor is required to report its distributive share of such items
regardless of whether it has received or will receive a corresponding
distribution of cash or property from the Fund. In general, distributions of
money by the Fund to an Investor will represent a non-taxable return of capital
up to the amount of an Investor's adjusted tax basis. The Fund, however, does
not currently intend to declare and pay distributions to Investors except as may
be determined by the Board.
When you sell shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your shares in the Fund for shares of a different
series of the Trust is the same as a sale.
A distribution in partial or complete redemption of your shares in the Fund
is taxable as a sale or exchange only to the extent the amount of money received
exceeds the tax basis of your entire interest in the Fund. Any loss may be
recognized only if you redeem your entire interest in the Fund for money.
An allocable share of a tax-exempt Investor's income will be "unrelated
business taxable income" ("UBTI") to the extent that the Fund borrows money to
acquire property or invests in assets that produce UBTI.
The Fund will not be a "regulated investment company" for federal income
tax purposes.
For a more complete discussion of the federal income tax consequences of
investing in the Fund, see Item 19 in Part B.
INVESTOR INQUIRIES
Investor inquiries should be addressed to the Trust, c/o Carolyn M. Burke,
209 South LaSalle Street, Chicago, Illinois 60604-1295, or an Investor may call
312-220-7100.
A-6
<PAGE>
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
Purchase of Securities Being Offered
Shares of the Fund are restricted securities and are issued solely in
private placement transactions that do not involve a "public offering" within
the meaning of Section 4(2) of the Securities Act. Investments in the Fund may
be made only by "accredited investors" within the meaning of Regulation D under
the Securities Act, which include, but are not limited to, common or commingled
trust funds, investment companies, registered broker-dealers, investment banks,
commercial banks, corporations, group trusts or similar organizations or
entities. The registration statement of which this prospectus is a part does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" to the public within the meaning of the Securities Act.
Shares of the Fund may be purchased directly by eligible Investors at the
net asset value next determined after receipt of the order in proper form by the
Trust. The minimum initial purchase amount is $10,000,000. In the sole
discretion of the Advisor, the minimum purchase amount may be waived or
modified. There is no sales load in connection with the purchase of shares. The
Trust reserves the right to reject any purchase order and to suspend the
offering of shares of the Fund.
At the discretion of the Fund, Investors may be permitted to purchase Fund
shares by transferring securities to the Fund that meet the Fund's investment
objective and policies. Securities transferred to the Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such receipt.
Shares issued by the Fund in exchange for securities will be issued at net asset
value determined as of the same time. All dividends, interest, subscription, or
other rights pertaining to such securities after such transfers to the Fund will
become the property of the Fund and must be delivered to the Fund by the
Investor upon receipt from the issuer. Investors that are permitted to transfer
such securities may be required to recognize a taxable gain 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 but will not be
permitted to recognize any loss. The Trust will not accept securities in
exchange for shares of the Fund unless: (1) such securities are, at the time of
the exchange, eligible to be included in the Fund's investment portfolio and
current market quotations are readily available for such securities; and (2) the
Investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act or under the laws of the country in which the principal market for such
securities exists, or otherwise.
Net Asset Value
The net asset value is computed as of the close of regular trading on the
New York Stock Exchange ("NYSE") (generally 4:00 p.m. Eastern time) on days when
the NYSE is open. The net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Fund securities for which market quotations are available are
priced at market value. Fixed income securities are priced at fair value by an
independent pricing service using methods approved by the Board. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. 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.
A-7
<PAGE>
Because of time zone differences, foreign exchanges and securities markets
will usually be closed prior to the time of the closing of the NYSE. Thus,
values of foreign securities, foreign futures and foreign options will be
determined as of the earlier closing of such exchanges and securities markets.
Events affecting the values of such foreign securities may occasionally occur,
however, between the earlier closings of such exchanges and securities markets
and the computation of the net asset value of the 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. This means that the Fund will not use the last
market quotation for the securities, but will value the securities by including
the effect of the intervening event. Finally, some securities held by the Fund
may be primarily listed and traded on a foreign exchange that trades on weekends
or other days when the Fund does not price its shares. Changes in the values of
such securities may affect the net asset value of the Fund's shares on days when
shareholders of the Fund may not be able to purchase or redeem the Fund's
shares.
All other securities are valued at their fair value as determined in good
faith and pursuant to a method approved by the Board. For a detailed
description, see Item 18 in Part B.
Exchanges of Shares
Shares of the Fund may be exchanged for shares of the other series of the
Trust on the basis of current net asset values per share at the time of
exchange. Fund shares may be exchanged by written request or by telephone if the
Investor has previously signed a telephone authorization. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. The Fund reserves the right to restrict the frequency of, or
otherwise modify, condition, terminate or impose charges upon the exchange
privilege and/or telephone transfer privileges upon 60 days' prior written
notice to Investors.
By exercising the telephone exchange privilege, the Investor agrees that
the Fund will not be liable for following instructions communicated by telephone
that the Fund reasonably believes to be genuine. The Fund provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone transactions are genuine. As a result of this policy, the
Investor may bear the risk of any financial loss resulting from such
transaction; provided, however, if the Fund or its transfer agent, Chase Global
Funds Services Company ("CGFSC"), fails to employ this and other appropriate
procedures, the Fund or CGFSC may be liable for any losses incurred.
Exchanges may be made only for shares of a series of the Trust then
offering its shares for sale in the Investor's state of residence and are
subject to the minimum initial investment requirement and the payment of any
transaction charges that may be due to such series of the Trust. For federal
income tax purposes, an exchange of shares would be treated as if the Investor
had redeemed shares of the Fund and reinvested in shares of another series of
the Trust. Gains or losses on the shares exchanged are realized by the Investor
at the time of the exchange. Any Investor wishing to make an exchange should
first obtain and review the prospectus of the series into which the Investor
wishes to exchange. Requests for telephone exchanges must be received by the
transfer agent, CGFSC, by the close of regular trading hours (generally 4:00
p.m. Eastern time) on the NYSE on any day that the NYSE is open for regular
trading. Requests for exchanges received prior to the close of regular trading
hours on the NYSE will be processed at the net asset value computed on the date
of receipt. Requests received after the close of regular trading hours will be
processed at the next determined net asset value.
A-8
<PAGE>
Redemption or Repurchase of Shares
As stated above in "Purchase of Securities Being Offered," the Fund's
shares are restricted securities which may not be sold to investors other than
"accredited investors" within the meaning of Regulation D under the Securities
Act unless registered under, or pursuant to another available exemption from,
the Securities Act.
An Investor may redeem its shares of the Fund without charge on any
business day the NYSE is open by furnishing a request to the Trust. Shares will
be redeemed at the net asset value next calculated after an order is received by
the Fund's transfer agent in good order. Redemption requests received prior to
the close of regular trading hours (generally 4:00 p.m. Eastern time) on the
NYSE will be executed at the net asset value computed on the date of receipt.
Redemption requests received after the close of regular trading hours will be
executed at the next determined net asset value. The Fund normally sends
redemption proceeds on the next business day. In any event, redemption proceeds,
except as set forth below, are sent within seven calendar days of receipt of a
redemption request in proper form. There is no charge for redemptions by wire.
Please note, however, that the Investor's bank may impose a fee for wire
service. The right of any Investor to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period when the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted, or, to the extent otherwise permitted by the
Investment Company Act of 1940, if an emergency exists.
If the Fund determines that it would be detrimental to the best interests
of the remaining Investors of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities of the Fund.
A-9
<PAGE>
BRINSON RELATIONSHIP FUNDS
PART B
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 30, 2000
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
Brinson Relationship Funds (the "Trust") is a no-load, open-end management
investment company which currently offers shares of nineteen separate and
distinct series representing separate portfolios of investments (individually
referred to as a "Fund" and collectively referred to as the "Funds"). Each Fund
has its own investment objective and is non-diversified, (except for Brinson
U.S. Cash Management Prime Fund, which is diversified) as defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
nineteen Funds are: Brinson Global Securities Fund, Brinson Global Bond Fund,
Brinson U.S. Equity Fund, Brinson U.S. Large Capitalization Equity Fund, Brinson
U.S. Intermediate Capitalization Equity Fund, Brinson U.S. Value Equity Fund
(formerly known as the Brinson U.S. Large Capitalization Value Equity Fund),
Brinson U.S. Small Capitalization Equity Fund (formerly known as the Brinson
Post-Venture Fund), Brinson International Equity Fund (formerly known as the
Brinson Global (Ex-U.S.) Equity Fund), Brinson Emerging Markets Equity Fund,
Brinson Bond Plus Fund, Brinson U.S. Bond Fund, Brinson U.S. Short/Intermediate
Fixed Income Fund, Brinson Limited Duration Fund, Brinson Short-Term Fund,
Brinson U.S. Treasury Inflation Protected Securities Fund, Brinson U.S. Cash
Management Prime Fund, Brinson High Yield Fund, Brinson Defensive High Yield
Fund and Brinson Emerging Markets Debt Fund. Information concerning the Funds is
included in the separate Parts A of this Registration Statement (each, a "Part
A" and collectively, the "Parts A") dated October 30, 2000.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Trust's current Parts A relating to the Funds dated
October 30, 2000. Much of the information contained herein expands upon subjects
discussed in the Parts A. No investment in shares of the Funds should be made
without first reading the applicable Part A. A free copy of each Fund's Part A,
Annual Report and Semi-Annual Report may be obtained from the Trust at 209 South
LaSalle Street, Chicago, IL 60604-1295, or by calling the Trust collect at 312-
220-7100.
All terms used in this Part B and not otherwise defined herein have the meanings
assigned to them in the Parts A. Certain information from the Funds' Annual
Report and Semi-Annual Report is incorporated herein by reference.
<TABLE>
<CAPTION>
<S> <C> <C>
Item 11. Trust History........................................... B-2
Item 12. Description of the Funds and Their Investments and
Risks.................................................. B-2
Item 13. Management of the Trust................................. B-25
Item 14. Control Persons and Principal Holders of Securities..... B-29
Item 15. Investment Advisory and Other Services.................. B-35
Item 16. Brokerage Allocation and Other Practices................ B-39
Item 17. Capital Stock and Other Securities...................... B-41
Item 18. Purchase, Redemption and Pricing of Shares.............. B-43
Item 19. Tax Status.............................................. B-46
Item 20. Underwriters............................................ B-48
Item 21. Calculation of Performance Data......................... B-49
Item 22. Financial Statements.................................... B-51
Appendix A - Investment Practices.................................... B-52
Appendix B - Corporate Debt Ratings.................................. B-62
</TABLE>
<PAGE>
ITEM 11. TRUST HISTORY.
The Trust is a Delaware business trust established on August 16, 1994.
ITEM 12. DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS.
Each of the Funds, except the U.S. Cash Management Prime Fund (the "Prime Fund")
series of the Trust, is classified as "non-diversified," as defined in the
Investment Company Act so that it does not limit the proportion of a Fund's
assets that it may invest in the obligations of a single issuer. To the extent
that a Fund's investment portfolio at times includes the securities of a
smaller number of issuers than permissible if the Fund were "diversified" (as
defined in the Investment Company Act), the Fund may be subject to greater
investment and credit risk than an investment company that invests in a broader
range of securities. In particular, changes in the financial condition or market
assessment of a single issuer may cause greater fluctuations in the net asset
value of the Fund's shares.
The Funds do not concentrate investments in a particular industry. Each Fund
does not issue senior securities except to the extent consistent with its
policies described below and only as permitted under the Investment Company Act.
Each Fund's investment objective, its policies concerning the percentage of the
Fund's portfolio securities that may be loaned, and its policies concerning
borrowing, the issuance of senior securities and concentration are
"fundamental." This means that they may not be changed without the affirmative
vote of the holders of a majority of the Fund's outstanding voting shares. As
used in this Part B, a vote of "a majority of the outstanding voting shares" of
the Trust or a Fund means the affirmative vote of the lesser of: (i) more than
50% of the outstanding shares of the Trust or Fund, or (ii) 67% of the shares of
the Trust or Fund present at a meeting at which more than 50% of the outstanding
shares of the Trust or Fund are represented in person or by proxy.
INVESTMENT OBJECTIVES AND POLICIES
The following disclosure supplements disclosure contained in the applicable
Parts A relating to the Funds:
GLOBAL SECURITIES FUND. The Fund's benchmark (the "Benchmark") consists of
seven indices of varying weight that are compiled by an independent data
provider. The indices comprising the Benchmark are as follows:
. Wilshire 5000 Index;
. Morgan Stanley Capital International World Ex-USA (Free)
Index;
. Salomon Smith Barney Broad Investment Grade (BIG)
Bond Index;
. Salomon Smith Barney Non-U.S. Government Bond Index
(unhedged);
. MSCI Emerging Markets Free Index;
. JP Morgan Emerging Markets Bond Index Global; and
. Merrill Lynch High Yield Master Index;
Each index represents a distinct asset class of the primary wealth-holding
public securities markets. These asset classes are U.S. equity, global (ex-U.S.)
equity, U.S. fixed income securities, global (ex-U.S.) fixed income securities,
emerging markets equities, emerging markets fixed income securities, high yield
fixed income securities and cash equivalents. From time to time, the Funds'
investment advisor, Brinson Partners, Inc. (the "Advisor"), may substitute an
equivalent index within a given asset class when it believes that such index
more accurately reflects the relevant global market. In order to compile the
Benchmark, the Advisor determines current relative market capitalizations in the
world markets and then weights each relevant index. Based on this weighting the
Advisor determines the return of the relevant indices, applies the index
weighting and then determines the return of the Benchmark.
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<PAGE>
The Advisor will attempt to enhance the long-term return and risk performance of
the Fund relative to the Benchmark by deviating from the normal Benchmark mix of
asset classes and currencies in reaction to discrepancies between current market
prices and fundamental values. Active asset allocation strategy for the Fund
will be defined relative to the Benchmark weights, which represent the Fund's
normal mix. Decisions to deviate from the normal mix are a blend of rigorous
quantitative analysis, an understanding of the fundamental relationships among
global markets and the expertise of investment professionals. In the absence of
views as to the relative attractiveness across asset classes, the actual Fund
weights will be equal to the Benchmark weights. The active management process
is intended, by the Advisor, to produce superior performance relative to the
Benchmark. The Advisor believes that, over the long term, investing across
global equity and fixed income markets based upon discrepancies between market
prices and fundamental values may achieve enhanced return and risk relative to
the Benchmark.
Fundamental value is considered to be the current value of long-term sustainable
future cash flows derived from a given asset class or security. In determining
fundamental value, the Advisor takes into consideration broadly based indices
representing asset classes or markets and various economic variables such as
productivity, inflation and global competitiveness. The valuation of asset
classes reflects an integrated, fundamental analysis of global markets.
Investment decisions are based on comparisons of current market prices to
fundamental values.
The normal asset allocation mix represents the asset allocation that the Fund
would expect to maintain when, in the judgment of the Advisor, global capital
markets are fairly priced relative to each other and relative to the associated
risks.
EQUITY INVESTMENTS. The Fund expects its U.S. equity investments to emphasize
both large and intermediate capitalization companies. In addition, the U.S.
equity component may invest in small capitalization issues. The equity markets
in the non-U.S. component of the Fund will typically include available shares of
larger capitalization companies. Capitalization levels are measured relative to
specific markets. Thus large and intermediate capitalization ranges vary
country-by-country and may, with respect to certain countries, include
capitalization levels that would be included in the small capitalization range
in the U.S. market.
The Fund may invest in a broad range of equity securities of emerging market
issuers, or securities with respect to which the return is derived primarily
from the equity securities of issuers in emerging markets, including common and
preferred stocks. The 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. The Fund may invest indirectly in emerging market equity
securities by purchasing securities of open-end and closed-end investment
companies.
FIXED INCOME INVESTMENTS. The Fund may invest in all types of fixed income
securities of U.S. and non-U.S. issuers, including governments and governmental
entities and supranational issuers as well as corporations and other business
organizations. The Fund may purchase U.S. dollar denominated securities that
reflect a broad range of investment maturities, qualities and sectors.
B-3
<PAGE>
The non-U.S. fixed income component of the Fund will typically be invested in
government and supranational issues. The Fund may also invest in all debt
securities of emerging market issuers, including government and government-
related entities (including participations in loans between governments and
financial institutions), corporations and entities organized to restructure
outstanding debt of issuers in emerging markets, or debt securities on which the
return is derived primarily from other emerging market instruments. The Fund
may invest indirectly in emerging market debt securities by purchasing
securities of open-end and closed-end investment companies.
GLOBAL BOND FUND. The Advisor's perspective for the Fund is that periodically
there are exploitable discrepancies between market price and fundamental value.
Those price/value discrepancies then become the building blocks for portfolio
construction. The successful identification of price/value discrepancies should
result in enhanced total performance.
Although the Fund may invest anywhere in the world, it is expected that the
Fund's assets will be primarily invested in fixed income markets listed in the
Fund's benchmark.
U.S. SMALL CAPITALIZATION EQUITY FUND. Each company selected for inclusion in
the Fund's portfolio is scrutinized through on-site visits, discussions with
investment banking firms and venture capitalists and intensive valuation
techniques. The Fund's emphasizes companies that were developed with the
assistance of professional venture capitalists. The Advisor monitors and
assesses the degree to which the Fund's portfolio emphasizes industries or
common types of stocks, and adjusts the portfolio to balance the price/value
opportunities with such industries. The Advisor imposes limits on the degree of
investment in specific industries, although the Fund does not intend to
concentrate its investments in a particular industry.
HIGH YIELD FUND AND DEFENSIVE HIGH YIELD. Each Fund will maintain a high yield
portfolio and under normal market conditions, at least 65% of each Fund's assets
will be invested in high yield securities. The Funds do not intend to limit
their respective investments in below investment grade, U.S. dollar denominated
fixed income securities. The Advisor believes that inefficiencies exist within
the high yield bond market that a fundamental value-based investment process can
exploit. The Advisor's portfolios are constructed using both top-down and
bottom-up investment processes. The Advisor considers macroeconomic variables
and industry outlooks in its top-down analysis. The bottom-up approach is the
most integral to portfolio construction and forms the basis for credit
selection. The Advisor will identify those securities which are believed to have
market prices that differ from their fundamental value and invest accordingly.
The Advisor uses a disciplined investment approach to pursue each Fund's
investment objective. The Advisor believes that diversification is one of the
most important components in the construction of a high yield portfolio.
U.S. CASH MANAGEMENT PRIME FUND. The Prime Fund will not invest more than 5% of
its total assets in the securities of a single issuer, other than U.S.
government securities, rated in the highest rating category by the requisite
NRSROs. The Prime Fund may not invest more than 5% of its total
B-4
<PAGE>
assets (taken at amortized cost) in securities of issuers not in the highest
rating category as determined by the requisite number of NRSROs or, if unrated,
of comparable quality, with investment in any one such issuer being limited to
no more than 1% of such total assets or $1 million, whichever is greater.
U.S. GOVERNMENT SECURITIES. The Prime Fund may invest in U.S. government
securities, which consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the U.S.
government ("U.S. government securities"). Certain of these obligations,
including U.S. Treasury bills, notes and bonds and securities of the Government
National Mortgage Association (popularly called "GNMAs" or "Ginnie Maes") and
the Federal Housing Administration, are issued or guaranteed by the U.S.
government and supported by the full faith and credit of the U.S. government.
Other U.S. government securities are issued or guaranteed by federal agencies or
U.S. government-sponsored enterprises and are not direct obligations of the U.S.
government, but involve sponsorship or guarantees by government agencies or
enterprises. These obligations include securities that are supported by the
right of the issuer to borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and securities that are supported by the credit of the
instrumentality, such as Fannie Mae ("FNMA," formerly known as the Federal
National Mortgage Association) bonds. In this connection, the Prime Fund may
use any portion of its assets invested in U.S. government securities to
concurrently enter into repurchase agreements with respect to such securities.
BANK OBLIGATIONS. The Prime Fund may also invest in bank obligations or
instruments secured by bank obligations. These instruments consist of fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits and bankers' acceptances issued by banks and savings institutions with
assets of at least one billion dollars. Bank obligations may be obligations of
U.S. banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as "Yankee Dollar
Investments"), and foreign branches of foreign banks ("Foreign Bank
Investment"). When investing in a bank obligation issued by a branch, the
parent bank must have assets of at least five billion dollars.
The Prime Fund may invest only up to 25% of its assets in obligations of foreign
branches of U.S. banks or foreign banks. Investments in obligations of U.S.
branches of foreign banks which are considered domestic banks may only be made
if such branches have a federal or state charter to do business in the United
States and are subject to U.S. regulatory authorities.
Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. banking institution for a specified period of time at a stated interest
rate. The Prime Fund may invest not more than 10% of its net assets in time
deposits with maturities in excess of seven days.
COMMERCIAL PAPER. The Prime Fund may invest in commercial paper of domestic or
foreign issuers which is considered by the Fund to present minimal credit risks.
Commercial paper must be rated within the two highest rating categories by
NRSROs or, if unrated, determined by the Advisor to be of comparable quality.
CORPORATE OBLIGATIONS. The corporate obligations which the Prime Fund may
purchase are fixed, floating or variable rate bonds, debentures or notes which
are considered by the Prime Fund to present minimal credit risks. They must be
rated within the two highest rating categories by NRSROs, or if unrated,
determined by the Advisor to be of comparable quality. These corporate
obligations must
B-5
<PAGE>
mature in 397 calendar days or less. Generally, the higher an instrument is
rated, the greater its safety and the lower its yield.
GUARANTEED INVESTMENT CONTRACTS. A "guaranteed investment contract" (also known
as a "guaranteed interest contract," "guaranteed income contract," "guaranteed
insurance contract," or "guaranteed return contract") ("GIC") is a deferred
annuity contract issued by an insurance company under which (a) the contract
holder places funds on deposit with the insurer, and (b) the insurer promises to
repay the contract holder's deposit(s) plus interest at a guaranteed rate
according to a schedule specified in the contract. The terms and conditions of
GICs can vary in a variety of ways, including, by way of example, the length of
the guarantee period, the period during which the contract holder may make
deposits which will be subject to the same guarantee, the extent to which
withdrawals are permitted during the guarantee period, and the timing of the
insurer's repayment obligation. To the extent that the Prime Fund cannot
dispose of a GIC in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the GIC, it will treat the
GIC as illiquid and subject to its overall limit on illiquid investments of 10%
of the Fund's net assets.
INVESTMENT PRACTICES
The following disclosure supplements disclosure contained in the applicable
Parts A relating to the Funds:
U.S. AND NON-U.S. EQUITY SECURITIES
Each Fund (except the Prime Fund and U.S. Treasury Inflation Protected
Securities Fund) may invest in a broad range of equity securities of U.S. and
non-U.S. issuers, including common stock of companies or closed-end investment
companies, preferred stock, fixed income securities convertible into or
exchangeable for common stock, securities such as warrants or rights that are
convertible into common stock and sponsored or unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") or Global Depositary
Receipts ("GDRs") for those securities.
ADRs are receipts issued by a U.S. bank or trust company evidencing ownership of
underlying securities issued by foreign issuers. ADRs may be listed on a
national securities exchange or may be traded in the over-the-counter market.
EDRs also represent securities of foreign issuers and are designated for use in
European markets. A GDR represents ownership in a non-U.S. company's publicly
traded securities that are traded on foreign stock exchanges or foreign over-
the-counter markets. Holders of unsponsored ADRs, EDRs or GDRs generally bear
all the costs of such facilities. The depository of an unsponsored facility
frequently is under no obligation to distribute investor communications received
from the issuer of the deposited security or to pass through voting rights to
the holders of depositary receipts in respect of the deposited securities.
SPECIAL RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES
Certain Funds may invest in relatively new or unseasoned companies which are in
their early stages of development (sometimes referred to as "post-venture
companies"), or small companies positioned in new and emerging industries where
the opportunity for rapid growth is expected to be above average. Securities of
unseasoned companies present greater risks than securities of larger, more
established companies. The companies in which a Fund may invest may have
relatively small revenues, limited product lines, and a small share of the
market for their products or services. Post-venture companies
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may lack depth of management or may be unable to generate internally funds
necessary for growth or potential development or to generate these funds through
external financing on favorable terms. Post-venture companies may be developing
or marketing new products or services for which markets are not yet established
and may never become established. Due to these and other factors, these
companies may suffer significant losses as well as realize substantial growth.
Investments in these companies tend to be volatile and are therefore
speculative.
Historically, small capitalization stocks have been more volatile in price than
the larger capitalization stocks. Among the reasons for the greater price
volatility of these securities are the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of small companies to changing economic conditions. Besides
exhibiting greater volatility, the values of post-venture company stocks may, to
a degree, fluctuate independently of prices for larger company stocks.
Therefore, the value of a Fund's shares may be more volatile than the shares of
a fund that invests in larger capitalization stocks.
CONVERTIBLE SECURITIES (EACH FUND EXCEPT U.S. EQUITY FUND)
Each Fund may, to varying degrees, invest in convertible securities. Convertible
securities are fixed income securities (i.e., a bond or preferred stock) which
may be exchanged for a specified number of shares of common stock, usually of
the same company, at specified prices within a certain period of time. The
provisions of any convertible security determine its seniority in a company's
capital structure. In the case of subordinated convertible debentures, the
holder's claims on the company's 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 claims on the company's assets and earnings are subordinated to the
claims of all creditors but are senior to the claims of common shareholders.
While providing a fixed income (generally higher in yield than the income
derivable from common stock but lower than the income afforded by a similar non-
convertible security) a convertible security enables the investor also to
participate in capital appreciation should the market price of the underlying
common stock rise.
U.S. AND NON-U.S. FIXED INCOME SECURITIES (ALL FUNDS)
Each Fund may invest in all types of fixed income securities of U.S. and
non-U.S. issuers, including governments and governmental entities and
supranational issuers (the only government securities in which the Prime Fund
may invest are U.S. government securities) as well as corporations and other
issuers. The Funds may purchase U.S. dollar denominated securities that reflect
a broad range of investment securities, qualities and sectors. The U.S. Treasury
Inflation Protected Securities Fund will only invest in securities of U.S.
issuers.
Each Fund's non-U.S. fixed income component(except the Prime Fund and U.S.
Treasury Inflation Protected Securities Fund) will typically be invested in
government 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 Intra-
Development Bank, the Export-Import Bank and the Asian Development Bank.
The Funds (except the Prime Fund and U.S. Treasury Inflation Protected
Securities Fund) may also invest in debt securities of emerging market issuers,
including government and government-related entities (including participations
in loans between governments and financial institutions), corporations and
entities organized to restructure outstanding debt of issuers in emerging
markets, or debt securities on which the return is derived primarily from other
emerging market instruments. The Funds may invest indirectly in emerging market
debt securities by purchasing securities of open-end and closed-end investment
companies. The Funds may also invest a portion of their assets in securities of
other series offered by the Trust. A Fund will invest in other series only to
the extent the Advisor determines that it is more efficient for the Fund to gain
exposure to a particular asset class through investing in the series of the
Trust as opposed to investing directly in individual securities. For instance, a
Fund may invest its assets in emerging market investments by purchasing shares
of Brinson Emerging Markets Debt Fund.
HIGH YIELD/HIGHER RISK DEBT SECURITIES (GLOBAL SECURITIES FUND, GLOBAL BOND
FUND, INTERNATIONAL EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS
DEBT FUND, SHORT-TERM FUND, HIGH YIELD FUND AND DEFENSIVE HIGH YIELD FUND)
As set forth in the Parts A, these Funds may invest, to varying extent, a
portion of their net assets in convertible and other debt securities rated below
"Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard &
Poor's Ratings Group ("S&P") or, if unrated, deemed to be of comparable quality
by the Advisor (referred to herein as "below investment grade securities").
Ratings
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represent S&P's and Moody's respective opinions as to the quality of the debt
securities they undertake to rate. However, the ratings are general and are not
absolute standards of quality. Securities rated below "Baa" by Moody's and "BBB"
by S&P are classified as below investment grade securities and are commonly
referred to as "junk bonds." These securities are considered to be of poor
standing and predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the debt
securities and involve major risk exposure to adverse conditions. Such
securities are subject to a substantial degree of credit risk. Below investment
grade securities held by the Funds may be issued as a consequence of corporate
restructurings, such as leveraged buy-outs, mergers, acquisitions, debt
recapitalizations or similar events. Also, below investment grade 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.
Below investment grade securities generally offer a higher current yield than
that available from higher grade securities, but involve greater risk. In the
past, the high yields from below investment grade securities have more than
compensated for the higher default rates on such securities. However, there can
be no assurance that the Funds will be protected from widespread bond defaults
brought about by a sustained economic downturn, or that yields will continue to
offset default rates on below investment grade securities in the future.
Issuers of these securities are often highly leveraged, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. In addition, such issuers may
not have more traditional methods of financing available to them and may be
unable to repay debt at maturity by refinancing. The risk of loss due to default
by the issuer is significantly greater for the holders of below investment grade
securities because such securities may be unsecured and may be subordinated to
other creditors of the issuer. Past economic recessions have resulted in default
levels with respect to such securities in excess of historic averages.
The value of below investment grade 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, below investment grade securities may decline in market value
due to investors' heightened concern over credit quality, regardless of
prevailing interest rates.
Especially at such times, trading in the secondary market for below investment
grade securities may become thin and market liquidity may be significantly
reduced. Even under normal conditions, the market for below investment grade
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 below investment grade securities are concentrated among a smaller
group of securities dealers and institutional investors.
In periods of reduced secondary market liquidity, below investment grade
securities prices may become more volatile and the Funds' ability to dispose of
particular issues when necessary to meet the Funds' liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer may be adversely affected.
Below investment grade securities frequently have call or redemption features
which would permit an issuer to repurchase the security from the Funds. If a
call were exercised by the issuer during a period
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of declining interest rates, the Funds likely would have to replace such called
security with a lower yielding security, thus decreasing the net investment
income to the Funds.
Besides credit and liquidity concerns, prices for below investment grade
securities may be affected by legislative and regulatory developments. For
example, from time to time, Congress has considered legislation to restrict or
eliminate the corporate tax deduction for interest payments or to regulate
corporate restructurings such as takeovers or mergers. Such legislation may
significantly depress the prices of outstanding below investment grade
securities.
Below investment grade securities issued by foreign issuers also entail greater
risks than higher rated securities, including the risk of untimely interest and
principal payments, default and price volatility. These securities may present
problems of liquidity and valuation. A description of various bond ratings
appears in Appendix A.
TREASURY INFLATION PROTECTED SECURITIES (ALL FUNDS)
Each Fund may, to varying degrees, invest in Treasury Inflation Protected
Securities ("TIPS") which are securities issued by the U.S. Treasury. The U.S.
Treasury Inflation Protected Securities Fund will invest, under normal
circumstances, at least 65% of its assets in TIPS. The interest rate paid by
TIPS is fixed, while the principal value rises or falls based on changes in a
published Consumer Price Index. Thus, if inflation occurs, the principal and
interest payments on the Tips are adjusted accordingly to protect investors from
inflationary loss. During a deflationary period, the principal and interest
payments decrease, although the TIPS' principal amount will not drop below its
face amount at maturity.
In exchange for the inflation protection, TIPS generally pay lower interest
rates than typical Treasury securities. Only if inflation occurs will TIPS
offer a higher real yield than a conventional Treasury bond of the same
maturity. In addition, it is not possible to predict with assurance how the
market for TIPS will develop; initially, the secondary market for these
securities may not be as active or liquid as the secondary market for
conventional Treasury securities. Principal appreciation and interest payments
on TIPS will be taxed annually as ordinary interest income for Federal income
tax calculations. As a result, any appreciation in principal must be counted as
interest income in the year the increase occurs, even though the investor will
not receive such amounts until the TIPS are sold or mature. Principal
appreciation and interest payments will be exempt from state and local income
taxes.
CASH EQUIVALENTS (ALL FUNDS)
Each Fund may invest a portion of its assets in short-term debt securities of
corporations, governments or agencies and banks and finance companies which may
be denominated in U.S. or non-U.S. currencies (except for the Prime Fund, which
may invest only in U.S. dollar denominated securities and the U.S. Treasury
Inflation Protected Securities Fund, which may invest only in U.S. dollar
denominated securities and Eurodollar securities). When unusual market
conditions warrant, a Fund may make substantial temporary defensive investments
in cash equivalents up to a maximum exposure of 100% of the Fund's assets. A
Fund's investment in temporary defensive investments may affect the Fund's
ability to attain its investment objective.
The short-term debt securities in which a Fund may invest include demand notes,
bank instruments, commercial paper and floating rate instruments. Demand notes
are securities issued with a maturity date but callable for repayment by the
lender or the borrower at a predetermined interval. Bank instruments in which
the Fund may invest include bank loan participations, bank holding company
commercial paper, deposits, bank notes and other bank related securities. Bank
loan participations are loans sold by lending banks to investors. Bank holding
company commercial paper is a form of short-term promissory note which is a
direct obligation of a bank holding company. Deposits are obligations of a bank
or its branches. Corporate commercial paper is a form of short-term promissory
note issued by corporations primarily to finance short-term credit needs. Rates
vary according to the credit standing of the issuers and money market
conditions. Floating rate instruments are obligations with various final
maturities and interest rates that are tied to other assorted market indices.
Each Fund will not invest more than 15% of the value of its net assets (except
the Prime Fund, which will not invest more than 10% of the value of its net
assets) in floating or variable rate demand obligations as to which it cannot
exercise the demand feature on not more than seven days' notice if there is no
secondary market available for these obligations, and in other securities that
are not readily marketable.
Pursuant to an exemptive order (the "Cash Management Order") issued by the
U.S. Securities and Exchange Commission (the "Commission"), in lieu of
investing directly in the cash and cash equivalents described above, each Fund
may invest a portion of its assets in Brinson Short-Term Fund (the "Short-Term
Fund"), a series of the Trust. Any investment by a Fund in the Short-Term Fund
would not be subject to the limitations imposed by the Investment Company Act on
investments in other investment companies. See the discussion below
under "Investment Company Securities" for a description of these limitations.
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Under the terms of a second exemptive order issued by the Commission, certain
Funds may invest cash:
(a) held for temporary defensive purposes;
(b) not invested pending investment in securities;
(c) that is set aside to cover an obligation or commitment of the Funds to
purchase securities or other assets at a later date;
(d) to be invested on a strategic management basis ((a)-(d) are herein
referred to as "Uninvested Cash"); and
(e) collateral that the Funds receive from the borrowers of their portfolio
securities in connection with the Funds' securities lending program, in
a series of Brinson Supplementary Trust (the "Supplementary Trust
Series").
Brinson Supplementary Trust is a private investment company that has retained
the Advisor to manage the Supplementary Trust Series' investments. The Trustees
of the Trust also serve as trustees of 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. A
Fund's investment of Uninvested Cash in shares of the Supplementary Trust Series
will not exceed 25% of the Fund's total assets. The Prime Fund may invest all of
its assets in the Brinson U.S. Cash Management Prime Fund series of the Brinson
Supplementary Trust.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
(EACH FUND EXCEPT SHORT-TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME FUND,
LIMITED DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND AND THE
PRIME FUND)
Certain Funds may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities and
limited partnerships. Investing in unregistered or unlisted securities,
including investments in new and early stage companies, may involve a high
degree of business and financial risk that can result in substantial losses. As
a result of the absence of a public trading market for these securities, they
may be less liquid than publicly traded securities. Although these securities
may be resold in privately negotiated transactions, the prices realized from
these sales could be less than those originally paid by a Fund, or less than
what may be considered the fair value of such securities. Furthermore,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which would be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, a Fund may be required to bear the expense of registration.
RULE 144A AND ILLIQUID SECURITIES (ALL FUNDS)
Generally, an illiquid security is any security that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the security. Some examples of illiquid securities
are securities purchased under Rule 144A under the Securities Act of 1933 (the
"Securities Act") ("Rule 144A Securities"), over-the-counter options and certain
interest rate swaps. While maintaining oversight, the Board of Trustees (the
"Board") has delegated to the Advisor the day-to-day function of determining
whether or not Rule 144A Securities are liquid for purposes of each Fund's
limitation on investments in illiquid assets. The Board has instructed the
Advisor to consider the following factors in determining the liquidity of a Rule
144A Security:
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(a) the frequency of trades and trading volume for the security;
(b) whether at least three dealers are willing to purchase or sell the
security and the number of potential purchasers;
(c) whether at least two dealers are making a market in the security; and
(d) 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 it has delegated the day-to-day liquidity determination to the Advisor,
the Board will continue to monitor and will periodically review the Advisor's
selection of Rule 144A Securities, as well as the Advisor's determination as to
their liquidity.
If the Advisor determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed the Fund's applicable 15% limit (or 10% limit, in
the case of the Prime Fund) on investment in such securities, the Advisor will
determine what action shall be taken to ensure that the Fund continues to adhere
to such limitation. This may include disposing of illiquid assets, including
illiquid Rule 144A Securities.
Rule 144A Securities are traded among qualified institutional buyers. Investing
in Rule 144A Securities could have the effect of increasing the level of the
Funds' illiquidity to the extent that qualified institutional buyers become, for
a time, uninterested in purchasing these securities. After the purchase of a
Rule 144A Security, however, the Board and the Advisor will continue to monitor
the liquidity of that security to ensure that each Fund has no more than 15% of
its net assets (and no more than 10% of the Prime Fund's net assets) invested in
illiquid securities.
Each Fund will limit investments in securities that may not be sold to the
public without registration under the Securities Act ("restricted securities")
to no more than 15% of each Fund's net assets (and no more than 10% of the Prime
Fund's net assets), excluding restricted securities eligible for resale pursuant
to Rule 144A that have been determined to be liquid by the Board.
INVESTMENT COMPANY SECURITIES (ALL FUNDS)
The Funds may invest in securities issued by open-end and closed-end investment
companies. Under Section 12(d)(1) of the Investment Company Act, a Fund's
investment in such securities, subject to certain exceptions, currently is
limited to: (i) no more than 3% of the total voting stock of any one such
investment company, (ii) no more than 5% of the Fund's net assets invested in
any one such investment company, and (iii) no more than 10% of the Fund's net
assets invested in other investment companies in the aggregate. Investments in
the securities of other investment companies may involve duplication of certain
fees and expenses.
The Trust has received an exemptive order from the Commission which permits each
Fund to invest its assets in securities of other series offered by the Trust. A
Fund will invest in such series only to the extent that the Advisor determines
that it is more efficient for the Fund to gain exposure to a particular asset
class through investment in a series of the Trust as opposed to investment
directly in individual securities. Investments by the Fund in another series of
the Trust may involve transaction costs, but not duplication of other fees and
expenses because the Advisor and other service providers will waive fees or
reimburse expenses to avoid such duplication.
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A Fund's investments in any other series of the Trust, each of which invests
primarily in one asset class (a "Core Series"), will not be subject to the
percentage limitations described above. To the extent that a Fund invests in
the Trust's other series ("Other Series") and particular open-end investment
companies other than the Core Series, the Fund will be subject to the percentage
limitations described above and the Fund's investments in such other investment
companies will be aggregated with its investments in the Other Series for
purposes of these limitations.
FOREIGN AND EMERGING MARKET INVESTMENTS (GLOBAL SECURITIES FUND, GLOBAL BOND
FUND, INTERNATIONAL EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS
DEBT FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest in securities of foreign issuers that are not publicly
traded in the United States, and of governmental and supranational entities
(entities established or financially supported by national governments of two or
more countries to promote reconstruction or development). Certain Funds may
also invest in debt securities in which the return is derived primarily from
other emerging market instruments.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investing in foreign issuers involves
risks, including those set forth in the Funds' Parts A, that are not typically
associated with investing in U.S. issuers. There is generally less information
available to the public about non-U.S. issuers and less government regulation
and supervision of non-U.S. stock exchanges, brokers and listed companies. Non-
U.S. companies are not subject to uniform global accounting, auditing and
financial reporting standards, practices and requirements. Securities of some
non-U.S. companies are less liquid and their prices more volatile than
securities of comparable U.S. companies. Securities trading practices abroad
may offer less protection to investors. Settlement of transactions in some non-
U.S. markets may be delayed or may be less frequent than in the United States,
which could affect the liquidity of the Fund. Additionally, in some countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of securities, property or other assets of the Fund, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. The Advisor will take these factors into
consideration in managing the Fund's investments. Each Fund reserves the right
to invest a substantial portion of its assets in one or more countries if
economic and business conditions warrant such investments.
The securities of foreign issuers are frequently denominated in foreign
currencies, and the Funds may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the Funds 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 U.S. dollar market value of a Fund's investments and of dividends and
interest earned by the Fund may be significantly affected by changes in currency
exchange rates. The Funds may, but are not required to, enter into forward
foreign currency exchange contracts, futures, options or swaps in order to
hedge, or enhance returns from, portfolio holdings and commitments against
changes in currency rates. Although a Fund may attempt to manage currency
exchange rate risk, there is no assurance that the Fund will do so at an
appropriate time or that it will be able to predict exchange rates accurately.
In the past, there has been and there may be again, an interest equalization tax
levied by the United States in connection with the purchase of foreign
securities such as those purchased by the Funds. Payment of such interest
equalization tax, if imposed, would reduce the Funds' rates of return on
investment. Dividends paid by foreign issuers may be subject to withholding and
other foreign taxes
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which may decrease the net return on such investments as compared to dividends
paid to the Funds by U.S. issuers.
RISKS OF INVESTING IN EMERGING MARKETS. The ability of a foreign government or
government-related issuer to make timely and ultimate payments on its external
debt obligations will be strongly influenced by the issuer's balance of
payments, including export performance, its access to international credits and
investments, fluctuations in interest rates and the extent of its foreign
reserves. A country whose exports are concentrated in a few commodities or whose
economy depends on certain strategic imports could be vulnerable to fluctuations
in international prices of these commodities or imports. To the extent that a
country receives payment for its exports in currencies other than dollars, its
ability to make debt payments denominated in dollars could be adversely
affected. If a foreign government or government-related issuer cannot generate
sufficient earnings from foreign trade to service its external debt, it may need
to depend on continuing loans and aid from foreign governments, commercial
banks, and multilateral organizations, and inflows of foreign investment.
The commitment on the part of these foreign governments, multilateral
organizations and others to make such disbursements may be conditioned on the
government's implementation of economic reforms and/or economic performance and
the timely service of its obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due may curtail the willingness of such third parties to lend funds, which may
further impair the issuer's ability or willingness to service its debts in a
timely manner.
The cost of servicing external debt will also generally be adversely affected by
rising international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a governmental issuer
to obtain sufficient foreign exchange to service its external debt.
As a result of the foregoing, a governmental issuer may default on its
obligations. If such a default occurs, a 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.
RUSSIAN SECURITIES TRANSACTIONS (GLOBAL SECURITIES FUND, INTERNATIONAL EQUITY
FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND AND BOND PLUS
FUND)
Certain Funds may invest in securities of Russian companies. The registration,
clearing and settlement of securities transactions in Russia are subject to
significant risks not normally associated with securities transactions in the
United States and other more developed markets. Ownership of shares in Russian
companies is evidenced by entries in a company's share register (except where
shares are held through depositories that meet the requirements of the
Investment Company Act) and the issuance of extracts from the register or, in
certain limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable and the Fund could possibly lose its
registration through
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oversight, negligence or fraud. Moreover, Russia lacks a centralized registry to
record securities transactions and registrars located throughout Russia or the
companies themselves maintain share registers. Registrars are under no
obligation to provide extracts to potential purchasers in a timely manner or at
all and are not necessarily subject to state supervision. In addition, while
registrars are liable under law for losses resulting from their errors, it may
be difficult for a Fund to enforce any rights it may have against the registrar
or issuer of the securities in the event of loss of share registration. Although
Russian companies with more than 1,000 shareholders are required by law to
employ an independent company to maintain share registers, in practice, such
companies have not always followed this law. Because of this lack of
independence of registrars, management of a Russian company may be able to exert
considerable influence over who can purchase and sell the company's shares by
illegally instructing the registrar to refuse to record transactions on the
share register. Furthermore, these practices may prevent a Fund from investing
in the securities of certain Russian companies deemed suitable by the Advisor
and could cause a delay in the sale of Russian securities by the Fund if the
company deems a purchaser unsuitable, which may expose the Fund to potential
loss on its investment.
In light of the risks described above, the Board has approved certain procedures
concerning a Fund's investments in Russian securities. Among these procedures is
a requirement that a Fund will not invest in the securities of a Russian company
unless that issuer's registrar has entered into a contract with the Fund's sub-
custodian containing certain protective conditions including, among other
things, the sub-custodian's right to conduct regular share confirmations on
behalf of the Fund. This requirement will likely have the effect of precluding
investments in certain Russian companies that a Fund would otherwise make.
BRADY BONDS (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL EQUITY
FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS FUND,
HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest in Brady Bonds, which are securities created through
the exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Bulgaria, Brazil, Costa Rica,
Jordan, Mexico, Nigeria, the Philippines, Poland, Uruguay, Panama, Peru and
Venezuela. Brady Bonds have been issued only during recent years, and for that
reason do not have a very 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. The Funds will only invest in 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 may be viewed as speculative. There can be no assurance that the Brady
Bonds in which a Fund invests will not be subject to restructuring or to
requests for a new
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credit arrangement which may cause the Fund to suffer a loss of interest or
principal in any of its holdings.
STRUCTURED SECURITIES (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest a portion of their assets in entities organized and
operated solely for the purpose of restructuring the investment characteristics
of sovereign debt obligations. This type of restructuring involves the deposit
with, or purchase by, an entity, such as a corporation or trust, of specified
instruments (such as commercial bank loans or Brady Bonds) and the issuance by
that entity of one or more classes of securities ("Structured Securities")
backed by, or representing interests in, the underlying instruments. The cash
flow of the underlying instruments may be apportioned among the newly issued
Structured Securities to create securities with different investment
characteristics, such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to Structured
Securities is dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in which the Funds
anticipate investing typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. The Funds
are 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. Thus, a Fund's investments in
Structured Securities will be limited by the Fund's prohibition on investing
more than 15% of its net assets in illiquid securities.
CURRENCY MANAGEMENT (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, U.S. BOND FUND, SHORT-TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME
FUND, LIMITED DURATION FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
To manage exposure to currency fluctuations, a Fund may alter fixed income or
money market exposures, enter into forward currency exchange contracts, buy or
sell options, futures or options on futures relating to foreign currencies and
purchase securities indexed to currency baskets. A Fund may also, but is not
required to, 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 a Fund
to segregate liquid assets in accordance with Commission positions to cover its
obligations.
EURODOLLAR SECURITIES (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, U.S. BOND FUND, SHORT-TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME
FUND, LIMITED DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND,
the PRIME FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest in Eurodollar securities, which are fixed income
securities of a U.S. issuer or a foreign issuer that are issued outside the
United States. Interest and dividends on Eurodollar securities are payable in
U.S. dollars.
ZERO COUPON AND DELAYED INTEREST SECURITIES (GLOBAL SECURITIES FUND, GLOBAL BOND
FUND, INTERNATIONAL EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING
MARKETS DEBT FUND, BOND PLUS
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<PAGE>
FUND, U.S. BOND FUND, SHORT-TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME
FUND, LIMITED DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND,
the PRIME FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds 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, their entire
income, which consists of accretion of discount, comes from the difference
between the purchase price and value at maturity. The discount varies depending
on the time remaining until maturity or cash payment date, prevailing interest
rates, liquidity of the security and the perceived credit quality of the issuer.
The discount, in the absence of 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 quality that pay
interest periodically. Current federal income tax law requires that a holder of
a zero coupon or delayed interest security report as income each year the
portion of the original issue discount on such security (other than tax-exempt
original issue discount) that accrues that year, even though the holder receives
no cash payments of interest during the year.
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 unmatured interest coupons and receipts for underlying principal ("coupons")
of U.S. Treasury securities, which have been separated by their holder,
typically a custodian bank or investment brokerage firm. A holder will separate
the interest coupons from the underlying principal (the "corpus") of the U.S.
Treasury security. A number of securities firms and banks have stripped the
interest coupons and receipts and then resold them in custodial receipt programs
with a number of different names, including "Treasury Income Growth Receipts"
("TIGRs") and Certificate of Accrual on Treasuries ("CATs"). The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are owned ostensibly by the bearer or holder thereof), in trust
on behalf of the owners thereof. The staff of the Commission does not consider
such privately stripped obligations to be U.S. government securities, as defined
in the Investment Company 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 U.S. Treasury securities through the
Federal Reserve book-entry record-keeping system. The Federal Reserve program as
established by the U.S. Treasury is known as "Separate Trading of Registered
Interest and Principal of Securities" or "STRIPS." Under the STRIPS program, a
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.
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When U.S. Treasury securities 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 federal tax purposes.
PAY-IN-KIND BONDS (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, U.S. BOND FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME FUND, LIMITED
DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND, the PRIME
FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest in pay-in-kind bonds. Pay-in-kind bonds are securities
which pay interest through the issuance of additional bonds. A Fund will be
deemed to receive interest over the life of such bonds and 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 Fund until the cash
payment date or until the bonds mature.
MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES (GLOBAL
SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL EQUITY FUND, EMERGING MARKETS
EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS FUND, U.S. BOND FUND, U.S.
SHORT/INTERMEDIATE FIXED INCOME FUND, LIMITED DURATION FUND, U.S. TREASURY
INFLATION PROTECTED SECURITIES FUND, the PRIME FUND, HIGH YIELD FUND and
DEFENSIVE HIGH YIELD FUND)
Certain Funds may 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
Funds 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 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 Funds' 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 Mortgage
Corporation ("FHLMC") are supported by the issuer's right to borrow from the
U.S. Treasury; while others such as those issued by Fannie Mae, are supported
only by the credit of the issuer. 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.
Unscheduled or early payments on the underlying mortgage may shorten the
securities' effective maturities and reduce returns. The Funds may agree to
purchase or sell these securities with payment
B-17
<PAGE>
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 a Fund to a
lower rate of return upon reinvestment. To the extent that such mortgage-backed
securities are held by a Fund, the prepayment right of mortgagors may limit
the increase in net asset value of a Fund, because the value of the mortgage-
backed securities held by the Fund may not appreciate as rapidly as the price of
noncallable debt securities.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS") (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, U.S. BOND FUND, SHORT TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME
FUND, LIMITED DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND,
the PRIME FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest in CMOs and REMICs. A CMO is a debt security on which
interest and prepaid principal are paid, in most cases, semiannually. 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.
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, are 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.
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 Funds will purchase only regular interests in REMICs. REMIC regular
interests are treated as debt of the REMIC and income/discount thereon must be
accounted for on the "catch-up method," using a reasonable prepayment assumption
under the original issue discount rules of the Code.
OTHER MORTGAGE-RELATED SECURITIES. Certain Funds may invest in other mortgage-
related 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 each Fund's investment objective, policies and
quality standards, consider making investments in such new types of mortgage-
related securities. The Advisor will not purchase any such other mortgage-backed
securities until the applicable Fund's Part A and this Part B have been
supplemented.
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<PAGE>
ASSET-BACKED SECURITIES (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, U.S. BOND FUND, SHORT-TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME
FUND, LIMITED DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND,
the PRIME FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds may invest a portion of their assets in debt obligations known as
"asset-backed securities." The credit quality of most asset-backed securities
depends primarily on the credit quality of the assets underlying such
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.
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 adequately or in many cases, ever, be established.
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 issuance of asset-backed securities is generally based on
historical credit information about the degree 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 issuance of asset-
backed securities.
WHEN-ISSUED SECURITIES (GLOBAL SECURITIES FUND, GLOBAL BOND FUND, INTERNATIONAL
EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT FUND, BOND PLUS
FUND, U.S. BOND FUND, SHORT-TERM FUND, U.S. SHORT/INTERMEDIATE FIXED INCOME
FUND, LIMITED DURATION FUND, U.S. TREASURY INFLATION PROTECTED SECURITIES FUND,
the PRIME FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD FUND)
Certain Funds 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. A Fund does not earn interest on such securities it has
committed to purchase until they are paid for and delivered on the settlement
date. While when-issued or forward delivery securities may be sold prior to the
settlement date, it is intended that the Funds will commit to purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time a 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 a
Fund's net asset value or
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<PAGE>
income will be adversely affected by its purchase of securities on a when-issued
or forward delivery basis.
REPURCHASE AGREEMENTS (ALL FUNDS)
Each Fund may enter into repurchase agreements with banks or broker-dealers.
When a Fund enters into a repurchase agreement, it purchases securities from a
bank or broker-dealer which simultaneously agrees to repurchase the securities
at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement.
As a result, a repurchase agreement provides a fixed rate of return insulated
from market fluctuations during the term of the agreement. The term of a
repurchase agreement generally is short, possibly overnight or for a few days,
although it may extend over a number of months (up to one year) from the date of
delivery. Repurchase agreements are considered under the Investment Company Act
to be collateralized loans by the Fund to the seller, secured by the securities
transferred to the Fund. In accordance with the Investment Company Act,
repurchase agreements will be fully collateralized, and the collateral will be
marked-to-market daily. A Fund may not enter into a repurchase agreement having
more than seven days remaining to maturity if, as a result, such agreement,
together with any other securities which are not readily marketable (illiquid
securities), would exceed 15% of the value of the net assets of such Fund (or
would exceed 10% of the value of the net assets of Prime Fund).
In the event of bankruptcy or other default by the seller of the security under
a repurchase agreement, a 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 a
Fund would be dependent upon intervening fluctuations of the market value of,
and the accrued interest on, the underlying security. Although a 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 a Fund to recover damages from a seller in bankruptcy or
otherwise in default would be reduced.
REVERSE REPURCHASE AGREEMENTS (ALL FUNDS)
Each Fund may enter into reverse repurchase agreements with banks or broker-
dealers. Reverse repurchase agreements involve sales of portfolio securities of
a Fund to member banks of the Federal Reserve System or securities dealers
believed creditworthy, concurrently with an agreement by the Fund to repurchase
the same securities at a later date at a fixed price which is generally equal to
the original sales price plus interest. The Funds retain record ownership and
the right to receive interest and principal payments on the portfolio security
involved. During the reverse repurchase period, the Fund continues to receive
principal and interest payments on these securities. In connection with each
reverse repurchase transaction, cash or other liquid assets will be segregated
in accordance with Commission positions in an amount equal to the repurchase
price. Reverse repurchase agreements have the same risk characteristics as
borrowing transactions of a Fund.
Reverse repurchase agreements involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
the 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 Fund's use of the proceeds of the agreement
may be
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<PAGE>
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
BORROWING (ALL FUNDS)
All Funds are authorized to borrow money from time to time as a temporary
measure for extraordinary purposes or to facilitate redemptions in amounts up to
33 1/3% of the value of each Fund's total assets. The Funds have no intention
of increasing net income through borrowing. Any borrowing will be from a bank
with the required asset coverage of at least 300%. In the event that such asset
coverage falls below 300%, a Fund will, within three days thereafter (not
including Sundays and holidays) or such longer period as the Commission may
prescribe by rules and regulations, reduce the amount of its borrowings to such
an extent that the asset coverage of such borrowings will be at least 300%.
The use of borrowing by a Fund involves special risks that may not be associated
with other portfolios having similar objectives. Since substantially all the
assets of the Funds fluctuate in value while the interest obligations remain
fixed, an increase or decrease of the asset value per share of a Fund will be
greater than would be the case if the Fund did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds.
Under adverse market conditions, a Fund might have to sell portfolio securities
in order to meet interest or principal payments, or to satisfy restrictions on
borrowings, at a time when investment considerations would otherwise not favor
such sales.
For Global Securities Fund, U.S. Equity Fund, U.S. Large Capitalization Equity
Fund, U.S. Intermediate Capitalization Equity Fund, U.S. Small Capitalization
Equity Fund, Emerging Markets Equity Fund, Emerging Markets Debt Fund, Bond Plus
Fund, U.S. Bond Fund and the Prime Fund. Each Fund may not purchase additional
investment securities while the Fund has outstanding borrowings that exceed 5%
of the Fund's total assets.
LOANS OF PORTFOLIO SECURITIES (ALL FUNDS)
All Funds may lend portfolio securities to broker-dealers and financial
institutions provided the following conditions are satisfied: (1) the loan is
secured continuously by collateral in the form of cash or U.S. government
securities marked-to-market daily and maintained in an amount at least equal to
the current market value of the loaned securities; (2) after giving three
business days' notice the applicable Fund may call the loan and receive the
securities loaned; (3) the applicable Fund will receive any interest or
dividends paid on the loaned securities; (4) the aggregate market value of
securities loaned by the applicable Fund will not at any time exceed 33 1/3% of
the total assets of such Fund; and (5) the Fund must pay only reasonable
custodian fees in connection with the loan.
Collateral will consist of cash, U.S. government securities or other liquid
assets permitted by the Commission. Loans of securities involve a risk that the
borrower may fail to return the loaned securities or may fail to maintain the
proper amount of collateral. Therefore, a Fund will enter into portfolio
securities loans only after a review of all pertinent facts by the Advisor and
the lending agent, subject to the overall supervision by the Board. Such reviews
will be monitored on an ongoing basis. In addition, the lending agent is
obligated to replace the loaned securities with a like amount of securities of
the same issuer, class and denomination in the event the loaned securities are
not returned by a borrower in accordance with the arrangements between the
borrower and the lending agent. Creditworthiness of the borrower will be
monitored on an ongoing basis by the Advisor or the lending agent.
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Cash received through loan transactions may be invested in any security in which
the Fund is authorized to invest. Investing cash subjects that investment to
market risk (i.e., capital appreciation or depreciation).
LOAN PARTICIPATIONS AND ASSIGNMENTS (GLOBAL SECURITIES FUND, GLOBAL BOND FUND,
INTERNATIONAL EQUITY FUND, EMERGING MARKETS EQUITY FUND, EMERGING MARKETS DEBT
FUND, BOND PLUS FUND, SHORT-TERM FUND, HIGH YIELD FUND and DEFENSIVE HIGH YIELD
FUND)
Certain Funds may invest in fixed rate and floating rate loans ("Loans")
arranged through private negotiations between an issuer of sovereign debt
obligations and one or more financial institutions ("Lenders"). A Fund's
investment in Loans is expected in most instances to be in the form of
participations in loans ("Participations") and assignments of all or a portion
of Loans ("Assignments") from third parties.
A 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 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. A Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Advisor
to be creditworthy. When the 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
Fund as the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender.
Because there may be no liquid market for Participations and Assignments, the
Funds anticipate 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 a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value. To the extent
that a Fund cannot dispose of a Participation or Assignment in the ordinary
course of business within seven days at approximately the value at which it has
valued the Participation or Assignment, it will treat the Participation or
Assignment as illiquid and subject to its overall limit on illiquid investments
of 15% of its net assets.
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OTHER INVESTMENT VEHICLES AVAILABLE TO THE FUNDS
The Board may, in the future, authorize a Fund to invest in securities other
than those listed in Parts A or Part B of this Registration Statement, provided
such investment would be consistent with the applicable Fund's investment
objective and would not violate any fundamental investment policies or
restrictions applicable to such Fund. The investment policies described above,
except for the discussion of percentage limitations with respect to portfolio
lending transactions and borrowing, are not fundamental and may be changed by
the Board without the approval of the Investors.
INVESTMENT PRACTICES AVAILABLE TO THE FUNDS
Certain Funds may buy and sell put and call options and may attempt to manage
the overall risk of portfolio investments through hedging strategies, enhance
income, or replicate a fixed income return by using swaps, options, futures
contracts and forward currency contracts. Hedging strategies may also be used
in an attempt to manage the Funds' average durations, foreign currency exposures
and other risks of the Funds' investments which can affect fluctuations in the
Funds' net asset values. The Funds intend to use such investment practices at
the discretion of the Advisor. A detailed discussion of these various
investment practices, the limitations on the portion of the Funds' assets that
may be used in connection with these investment practices and the risks
associated with such investment practices is included in the Funds' Parts A and
Appendix A of this Part B.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
The Trust has filed a notice of eligibility for exclusion from the definition of
"commodity pool operator" within the meaning provided in the Commodity Exchange
Act and regulations promulgated thereunder by the Commodity Futures Trading
Commission and the National Futures Association, which regulate trading in the
futures markets. The Funds intend to comply with Section 4.5 of the regulations
under the Commodity Exchange Act, which limits, in non-hedging situations, the
extent to which the Funds can commit assets to initial margin deposits and
options premiums.
INVESTMENT RESTRICTIONS OF THE FUNDS
Each Fund is subject to the investment restrictions set forth below adopted by
the Board, which constitute fundamental policies and may not be changed, as to a
Fund, without the approval of a majority of the outstanding voting shares of the
Fund. As used in this Part B, a vote of "a majority of the outstanding voting
shares" of the Trust or a Fund means the affirmative vote of the lesser of: (i)
more than 50% of the outstanding shares of the Trust or Fund, or (ii) 67% of the
shares of the Trust or Fund present at a meeting at which more than 50% of the
outstanding shares of the Trust or Fund are represented in person or by proxy.
Unless otherwise indicated, all percentage limitations listed below apply to the
Funds and apply only at the time of the transaction. Accordingly, if a
percentage restriction is adhered to at the time of investment, a later increase
or decrease in the percentage which results from a relative change in values or
from a change in a Fund's total assets will not be considered a violation.
Except as set forth in the Parts A, in this Part B, or in an exception below the
Global Securities Fund, Global Bond Fund, U.S. Equity Fund, U.S. Large
Capitalization Equity Fund, U.S. Intermediate Capitalization Equity Fund, U.S.
Value Equity Fund (formerly known as the U.S. Large Capitalization Value Equity
Fund), U.S. Small Capitalization Equity Fund (formerly known as the Post-Venture
Fund), International Equity Fund (formerly known as the Global (Ex-U.S.) Equity
Fund), Emerging Markets Equity Fund, Bond Plus Fund, U.S. Bond Fund, U.S.
Short/Intermediate Fixed Income Fund, Limited Duration Fund, Short-Term Fund,
U.S. Treasury Inflation Protected Securities Fund, U.S. Cash Management Prime
Fund, and Emerging Markets Debt Fund may not:
(i) Invest in real estate or interests in real estate (provided that this
will not prevent a Fund from investing in publicly-held real estate
investment trusts or marketable
B-23
<PAGE>
securities of companies which may represent indirect interests in
real estate), interests in oil, except gas and/or mineral
exploration or development programs or leases (except the
prohibition on investing in interests in oil, gas and/or mineral
exploration or development programs or leases does not apply to the
U.S. Treasury Inflation Protected Securities Fund and Limited
Duration Fund);
(ii) Purchase or sell commodities or commodity contracts, except each
Fund may enter into futures contracts and options thereon in
accordance with this Registration Statement and may engage in
forward foreign currency contracts and swaps;
(iii) Make investments in securities for the purpose of exercising control
over or management of the issuer (except for the U.S. Treasury
Inflation Protected Securities Fund and Limited Duration Fund);
(iv) Sell securities short, except "short sales against the box" or
purchase securities on margin, and also except such short-term
credits as are necessary for the clearance of transactions (except
for the U.S. Treasury Inflation Protected Securities Fund and
Limited Duration Fund). For this purpose, the deposit or payment by
a 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;
(v) 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;
(vi) Borrow money except as a temporary measure for extraordinary or
emergency purposes or to facilitate redemptions and in no event in
excess of 33 1/3% of the value of its total assets. All borrowings
will be from a bank and to the extent that such borrowing exceeds 5%
of the value of a Fund's assets, asset coverage of at least 300% is
required. Except for the U.S. Value Equity Fund, Global Bond Fund,
Short-Term Fund, International Equity Fund, U.S. Treasury Inflation
Protected Securities Fund and Limited Duration Fund, a Fund will not
purchase securities while borrowings exceed 5% of that Fund's total
assets;
(vii) Issue senior securities as defined in the Investment Company Act
except that this restriction will not prevent the Funds from
entering into repurchase agreements or reverse repurchase
agreements, borrowing money in accordance with restriction (vi)
above or purchasing when-issued, delayed delivery or similar
securities;
(viii) 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 or by foreign governments or their political
subdivisions, or by supranational organizations) if immediately
after such purchase the value of a Fund's investments in such
industry would exceed 25% of the value of the total assets of the
Fund;
(ix) Act as an underwriter of securities issued by other persons, except
that, in connection with the disposition of a security, a Fund may
technically be deemed to be an "underwriter" as that term is defined
in the Securities Act, in selling a portfolio security; and
(x) Invest in securities of any open-end or closed-end investment
company, except in accordance with the Investment Company Act or any
exemptive order therefrom
B-24
<PAGE>
obtained from the Commission which permits investment by a Fund in
other funds or other investment companies or series thereof advised by
the Advisor, and also may invest in the securities of closed-end
investment companies at customary brokerage commission rates.
Except as set forth in the Parts A, in this Part B, or in an exception below,
the High Yield Fund and Defensive High Yield Fund may not:
(i) Purchase or sell real estate, except that a Fund may purchase or sell
securities of real estate investment trusts;
(ii) Purchase or sell commodities except that a Fund may purchase or sell
currencies, may enter into futures contracts on securities,
currencies and other indices or any other financial instruments, and
may purchase and sell options on such futures contracts;
(iii) Issue securities senior to a Fund's presently authorized shares of
beneficial interest. Except that this restriction shall not be deemed
to prohibit a Fund from (a) making any permitted borrowings, loans,
mortgages or pledges, (b) entering into options, futures contracts,
forward contracts, repurchase transactions or reverse repurchase
transactions or (c) making short sales of securities to the extent
permitted by the Investment Company Act and any rule or order
thereunder or Commission staff interpretations thereof;
(iv) Make loans to other persons, except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities,
loan participations and/or engaging in direct corporate loans in
accordance with its investment objectives and policies and (c) to the
extent the entry into a repurchase agreement is deemed to be a loan.
The Fund may also make loans to affiliated investment companies to
the extent permitted by the Investment Company Act or any exemption
therefrom that may be granted by the Commission;
(v) Borrow money, except that the Fund may borrow money from banks to the
extent permitted by the Investment Company Act, or to the extent
permitted by any exemptions therefrom which may be granted by the
Commission, or for temporary or emergency purposes and then in an
amount not exceeding 33 1/3% of the value of the Fund's total assets
(including the amount borrowed);
(vi) Concentrate (invest more than 25% of its net assets) in securities
of issuers in a particular industry (other than securities issued or
guaranteed by the U.S. government or any of its agencies); and
(vii) Act as an underwriter, except to the extent the Fund may be deemed to
be an underwriter when disposing of securities it owns or when
selling its own shares.
ITEM 13. MANAGEMENT OF THE TRUST.
The Trust is a Delaware business trust. Under Delaware law, the Board has
overall responsibility for managing the business and affairs of the Trust,
including general supervision and review of its investment activities. The
Trustees elect the officers of the Trust, who are responsible for administering
the day-to-day operations of the Trust and the Funds.
The Trustees and executive officers of the Trust, along with their
principal occupations over the past five years and their affiliations, if any,
with Brinson Partners, are listed below. There are no Trustees who are deemed to
be "interested persons" as defined in the Investment Company Act.
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name & Address Age Registrant During Past 5 Years
-------------- --- ---------- -------------------
<S> <C> <C> <C>
Walter E. Auch 79 Trustee Retired; prior thereto, Chairman and CEO of
6001 N. 62nd Place Chicago Board of Options Exchange 1979-1986;
Paradise Valley, AZ 85253 Trustee of the Trust since 1994; Trustee,
The Brinson Funds since 1994; Trustee,
Brinson Supplementary Trust since 1997;
Director, Thomson Asset Management Corp.
since 1987; Director, Fort Dearborn Income
Securities, Inc. 1987-1995; Director, Smith
Barney VIP Fund since 1991; Director, SB
Advisers since 1992; Director, SB Trak since
1992; Director, Banyan Realty Trust since
1988; Director, Banyan Land Fund II since
1988; Director, Banyan Mortgage Investment
Fund since 1989; Director, Express
America Holdings Corp. since 1992;
Nicholas/Applegate Funds and Legend
Properties, Inc.; Director, Geotek
Industries, Inc. 1987-1998.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Andrew J. O'Reilly * 38 Trustee Director, Treasurer, Chief Financial Officer
Brinson Partners, Inc. and Managing Director, Brinson Partners since
209 South LaSalle Street 1999; Trustee of The Brinson Funds since 2000;
Chicago, IL 60604 Trustee of the Trust since 2000; Trustee of the
Brinson Supplementary Trust since 2000; Private
Banker, UBS AG 1998; Controller, Swiss Bank
Corporation, 1996-1998; Public Accountant, Price
Waterhouse, 1991-1996.
</TABLE>
______________
* Mr. O'Reilly is an "interested person" of the Trust, as that term is defined
in the Investment Company Act.
B-25
<PAGE>
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name & Address Age Registrant During Past 5 Years
-------------- --- ---------- -------------------
<S> <C> <C> <C>
Frank K. Reilly 64 Chairman Professor, University of Notre Dame since 1982;
College of Business and Trustee of the Trust since 1994; Trustee, The
Administration Trustee Brinson Funds since 1993; Trustee, Brinson
University of Notre Dame Supplementary Trust since 1997; Director of
Notre Dame, IN 46556-0399 The Brinson Funds, Inc. 1992-1993; Director,
Fort Dearborn Income Securities, Inc. since
1993; Director, Greenwood Trust Company since
1993; and Director, Dean Witter Trust, FSB
since 1996.
Edward M. Roob 66 Trustee Retired; prior thereto, Senior Vice President,
841 Woodbine Lane Daiwa Securities America Inc. 1986-1993;
Northbrook, IL 60062 Trustee of the Trust since 1995; Trustee, The
Brinson Funds since 1995; Trustee, Brinson
Supplementary Trust since 1997; Director, Fort
Dearborn Income Securities, Inc. since 1993;
Director, Brinson Trust Company since 1993;
Committee Member, Chicago Stock Exchange since
1993.
</TABLE>
B-26
<PAGE>
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name & Address Age Registrant During Past 5 Years
-------------- --- ---------- -------------------
<S> <C> <C> <C>
Thomas J. Digenan 36 President Executive Director, Brinson Partners, Inc. since
209 South LaSalle Street 1999; Director, Brinson Partners, Inc. 1993-
Chicago, IL 60604 1999; President, The Brinson Funds since 2000;
Vice President, The Brinson Funds 1997-2000;
Assistant Treasurer, The Brinson Funds 1995-
1997; Assistant Secretary, The Brinson Funds
1993-1995; President, Brinson Relationship
Funds since 2000; Vice President, Brinson
Relationship Funds 1994-1995 and 1997-2000;
Assistant Treasurer and Assistant Secretary,
Brinson Relationship Funds 1995-1997; President,
Brinson Supplementary Trust since 2000; Vice
President, Brinson Supplementary Trust 1997-2000.
Carolyn M. Burke 33 Vice Director, Brinson Partners, Inc. since 1997;
209 South LaSalle Street President, Associate, Brinson Partners, Inc. 1995-1996;
Chicago, IL 60604 Secretary Vice President, The Brinson Funds since 2000;
and Secretary, Treasurer and Principal Accounting
Treasurer Officer, The Brinson Funds since 1997; Assistant
Secretary, The Brinson Funds 1996-1997; Vice
President, Brinson Relationship Funds since 2000;
Secretary, Treasurer and Principal Accounting
Officer, Brinson Relationship Funds since 1997;
Assistant Secretary, Brinson Relationship Funds
1996-1997; Vice President, Brinson Supplementary
Trust since 2000; Secretary, Treasurer and
Principal Accounting Officer, Brinson Supplementary
Trust since 1997; Financial Analyst, Van Kampen
American Capital Investment Advisory Corp. 1992-
1995.
David E. Floyd 31 Assistant Associate Director, Brinson Partners, Inc.
209 South LaSalle Street Secretary since 1998; Associate, Brinson Partners, Inc.,
Chicago, IL 60604 1994-1998; Assistant Trust Officer, Brinson
Trust Company since 1993; Assistant Secretary,
The Brinson Funds since 1998; Assistant
Secretary, Brinson Relationship Funds since
1998; Assistant Secretary, Brinson
Supplementary Trust since 1998.
</TABLE>
B-27
<PAGE>
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation(s)
Name & Address Age Registrant During Past 5 Years
-------------- --- ---------- -------------------
<S> <C> <C> <C>
Mark F. Kemper 42 Assistant Assistant Secretary, Brinson Partners, Inc.
209 South LaSalle Street Secretary since 1993; Assistant Secretary, Brinson Trust
Chicago, IL 60604 Company since 1993; Secretary, UBS Brinson
since 1998; Assistant Secretary, Brinson
Holdings, Inc. 1993-1998; Assistant Secretary,
The Brinson Funds since 1999; Assistant
Secretary, Brinson Relationship Funds since
1999; Assistant Secretary, Brinson Supplementary
Trust since 1999.
Alanna N. Palmer 25 Assistant Employee, Brinson Partners, Inc. since 1998; Assistant
209 South LaSalle Street Secretary Secretary, The Brinson Funds since 2000; Assistant
Chicago, IL 60604 Secretary, Brinson Relationship Funds since 2000;
Assistant Secretary, Brinson Supplementary Trust since 2000.
</TABLE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Pension or Total
Compensation Retirement Compensation
From Trust for Benefits Accrued From Trust and
Fiscal Year ended As Part of Fund Fund Complex
Name and Position Held December 31, 1999/1/ Expenses Paid to Trustees
---------------------- -------------------- -------- ----------------
<S> <C> <C> <C>
Walter E. Auch, Trustee $19,800 N/A $46,200
Frank K. Reilly, Trustee $19,800 N/A $56,700
Edward M. Roob, Trustee $19,800 N/A $58,200
</TABLE>
/1/ This amount represents the aggregate amount of compensation paid to the
Trustees for: (a) service on the Board for the Trust's fiscal year ended
December 31, 1999; and (b) service on the Board of Directors/Trustees of three
other investment companies managed by the Advisor for the calendar year ending
December 31, 1999. Mr. O'Reilly was not a Trustee during the periods shown.
The amount of the Trust's shares owned by the Trustees and officers is less than
1% of the Trust's issued and outstanding shares. No officer or Trustee of the
Trust who is also an officer or employee of the Advisor receives any
compensation from the Funds for services to the Funds. The Trust pays each
Trustee who is not affiliated with Brinson Partners a fee of $6,000 per year,
plus $300 per Fund per meeting and reimburses each Trustee and officer for out-
of-pocket expenses in connection with travel to and from and attendance at Board
meetings.
Each of the Trustees, except Mr. O'Reilly, sits on the Trust's Audit Committee,
which has the responsibility, among other things, to (i) recommend the selection
of the Funds' independent auditors; (ii) review and approve the scope of the
independent auditors' audit activity; (iii) review the financial statements
which are the subject of the independent auditors' certification; and (iv)
review with such independent auditors the
B-28
<PAGE>
adequacy of the Funds' basic accounting system and the effectiveness of the
Funds' internal accounting controls. There is no separate Nominating or
Investment Committee. Items pertaining to these Committees are submitted to the
full Board.
Item 14. Control Persons and Principal Holders of Securities.
As of October 6, 2000, the officers and Trustees, individually and as a group,
owned beneficially less than 1% of the voting securities of each of Brinson
Global Securities Fund, Brinson U.S. Equity Fund, Brinson U.S. Large
Capitalization Equity Fund, Brinson U.S. Value Equity Fund, Brinson U.S. Small
Capitalization Equity Fund, Brinson International Equity Fund, Brinson Emerging
Markets Equity Fund, Brinson U.S. Short/Intermediate Fixed Income Fund, Brinson
Short-Term Fund, the Prime Fund, Brinson High Yield Fund, and Brinson Emerging
Markets Debt Fund.
As of October 6, 2000, the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of each of the Funds listed below.
(The Funds not listed below either had not commenced operations as of such date,
or there was no person who owned of record or beneficially more than 5% of the
Fund's outstanding voting shares.)
BRINSON GLOBAL SECURITIES FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Brinson Trust Company Collective 50.84%
Investment Trust for Pension & Profit
Sharing Trusts - Global Securities Fund
Chicago, IL
Town of West Hartford, 14.29%
Pension Plan
West Hartford, CT
UBS Cayman Islands Ltd. For UBS 11.08%
Brinson Global Frontier Port. Ltd.
Georgetown, Grand Cayman
UBS Cayman Islands Ltd. For UBS 9.98%
Brinson Global Frontier Port. Ltd.
Georgetown, Grand Cayman
BRINSON U.S. EQUITY FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Mary Hitchcock Memorial Hospital 73.03%
Lebanon, NH
Suntrust Bank 13.55%
Florida Health Sciences Center
Atlanta, GA
Florida Health Sciences Center 9.49%
Non-Pension
Atlanta, GA
B-29
<PAGE>
BRINSON U.S. LARGE CAPITALIZATION EQUITY FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*District Board of Trustees of Miami 81.48%
Dade Community College
Miami, FL
Osteopathic Heritage Foundation 18.52%
of Nelsonville
Columbus, OH
BRINSON U.S. VALUE EQUITY FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Brinson Trust Company Collective 86.78%
Investment Trust for Pension & Profit
Sharing Trusts - U.S. Value Equity Fund
Chicago, IL
Strafe & Co. 12.22%
Indianapolis Symphony Orchestra Foundation
Westerville, OH
BRINSON U.S. SMALL CAPITALIZATION EQUITY FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Brinson Trust Company Collective 53.98%
Investment Trust for Pension & Profit
Sharing Trusts - U.S. Small Cap Equity Fund
Chicago, IL
Brinson Trust Company Collective 24.72%
Investment Trust for Pension &
Profit Sharing Trusts - U.S. Equity Fund
Chicago, IL
North Dakota State Investment Board 7.02%
Bismark, ND
UBS Pension Fund 6.98%
Basel, Switzerland
B-30
<PAGE>
BRINSON INTERNATIONAL EQUITY FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Board of Regents of the 48.20%
University of Wisconsin System
Madison, WI
*The McConnell Foundation 28.59%
Redding, CA
Baptist Health System Inc. 18.37%
Birmingham, AL
BRINSON EMERGING MARKETS EQUITY FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Brinson Trust Company Collective 39.79%
Investment Trust for Pension &
Profit Sharing Trusts - Brinson Emerging
Markets Equity Fund
Chicago, IL
U.S. West Pension Trust, Brinson Partners 13.32%
International Equity Account
Englewood, CO
Brinson Trust Company Collective 9.66%
Investment Trust for Pension &
Profit Sharing Trusts - MAP Fund
Chicago, IL
Brinson Relationship Funds 8.60%
Brinson Global Securities Fund
Chicago, IL
PECO Energy Company Service Annuity Fund 5.52%
Philadelphia, PA
BRINSON U.S. BOND FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Baylor Oral Health Foundation 99.99%
Dallas, TX
B-31
<PAGE>
BRINSON SHORT-TERM FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Bruker Daltonics 95.69%
Billerica, MA
BRINSON U.S. CASH MANAGEMENT PRIME FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Brinson Trust Company Collective 27.37%
Investment Trust for Pension & Profit
Sharing Trusts - U.S. Cash Mgmt. Prime Fund
Chicago, IL
*Wilmington Trust Trustee for 26.34%
The Brinson Partners Supplemental
Incentive Compensation Plan
Wilmington, DE
Perot Systems Corporation 18.26%
Dallas, TX
Bruker Daltonics 6.53%
Billerica, MA
Grand Victoria Foundation 5.07%
Elgin, IL
BRINSON HIGH YIELD FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
*Brinson Trust Company Collective 30.84%
Investment Trust for Pension &
Profit Sharing Trusts - U.S. High Yield Fund
Chicago, IL
Brinson Trust Company Collective 12.76%
Investment Trust for Pension &
Profit Sharing Trusts - MAP Fund
Chicago, IL
Brinson Relationship Funds 11.27%
Brinson Global Securities Fund
Chicago, IL
Employees' Retirement System 8.78%
Honolulu, HI
B-32
<PAGE>
Telias Pensionsstiftelse 5.88%
Marbackagatan II
Farsta, Sweden
State of Nebraska Investment 5.70%
Council Pension
Lincoln, NE
Northeastern Utilities Co. 5.51%
Retirement Plan
Pittsburgh, PA
BRINSON EMERGING MARKETS DEBT FUND
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
Brinson Trust Company Collective 21.17%
Investment Trust for Pension &
Profit Sharing Trusts - Brinson Emerging
Markets Bond Fund
Chicago, IL
State of Wisconsin 17.93%
Investment Board
Madison, WI
Brinson Trust Company Collective 15.56%
Investment Trust for Pension &
Profit Sharing Trusts - MAP Fund
Chicago, IL
Brinson Relationship Funds 12.53%
Brinson Global Securities Fund
Chicago, IL
Telias Pensionsstiftelse 5.81%
Marbackagatan II
Farsta, Sweden
State of Nebraska Investment 5.31%
Council Pension
Lincoln, NE
* Person deemed to control the Fund under the provisions of the Investment
Company Act. Note that a controlling person possesses the ability to control the
outcome of matters submitted for shareholder vote of the Fund.
B-33
<PAGE>
As of October 6, 2000, the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the Trust:
Name & Address of Beneficial and Record Owners Percentage
---------------------------------------------- ----------
Brinson Trust Company Collective 10.31%
Investment Trust for Pension & Profit
Sharing Trusts - Global Securities Fund
Chicago, IL
Brinson Trust Company Collective 7.81%
Investment Trust for Pension & Profit
Sharing Trusts - U.S. Small Cap Equity Fund
Chicago, IL
Brinson Trust Company Collective 7.33%
Investment Trust for Pension & Profit
Sharing Trusts - U.S. Cash Mgmt. Prime Fund
Chicago, IL
Wilmington Trust Trustee for 7.06%
The Brinson Partners Supplemental
Incentive Compensation Plan
Wilmington, DE
Any person who owns beneficially, either directly or through one or more
controlled companies, more than 25% of the voting securities of the Trust is
presumed to control the Trust under the provisions of the Investment Company
Act. Note that a controlling person possesses the ability to control the outcome
of matters submitted for shareholder vote of the Trust or a particular Fund.
B-34
<PAGE>
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR
Brinson Partners, Inc. manages the assets of the Trust pursuant to Investment
Advisory Agreements with the Trust (the "Advisory Agreements"). Brinson Partners
is an investment management firm managing as of June 30, 2000 USD 199 billion,
primarily for institutional pension and profit sharing funds. Brinson Partners
and its predecessors, have managed investment portfolios since 1974. Brinson
Partners also serves as the investment advisor or sub-advisor to several nine
other investment companies.
Under the Advisory Agreements, the Advisor is responsible for the management of
the investment and reinvestment of the assets of each Fund, subject to the
control of the Trust's officers and Board. The Advisor receives no fees from
the Funds or the Trust for providing investment advisory services and the
Advisor is responsible for paying the Advisor's own expenses.
The Advisory Agreements provide that they will terminate in the event of their
assignment (as defined in the Investment Company Act) and that they may be
terminated by the Trust (by the Board or vote of a majority of the outstanding
voting shares of the Trust) or the Advisor upon 60 days' written notice, without
payment of any penalty. The Advisory Agreements provide that they will continue
in effect for a period of more than two years from their execution only so long
as such continuance is specifically approved at least annually in conformity
with the Investment Company Act.
The Advisory Agreements for the Defensive High Yield Fund and High Yield Fund
permit the Advisor to engage the services of sub-advisors to assist in managing
the assets of the Funds.
Sub-Advisor
Effective October 30, 2000, the Advisor entered into a sub-advisory
agreement with UBS Asset Management (New York), Inc. ("UBS New York" or the
"Sub-Advisor"), 10 East 50/th/ Street, New York, New York. The Sub-Advisor is an
affiliate of the Advisor. Under the direction of the Advisor, the Sub-Advisor is
responsible for managing the investment and reinvestment of that portion of a
Fund's portfolio that the Advisor designates from time to time. UBS New York
serves as sub-advisor to the Defensive High Yield Fund and High Yield Fund. The
Sub-Advisor furnishes the Advisor with investment recommendations, asset
allocation advice, research and other investment services subject to the
direction of the Trust's Board and officers.
B-35
<PAGE>
ADMINISTRATIVE, ACCOUNTING, TRANSFER AGENCY AND CUSTODIAN SERVICES
The Trust, on behalf of each Fund, has entered into a Multiple Services
Agreement (the "Services Agreement") with The Chase Manhattan Bank, 270 Park
Avenue, New York, New York 10017 ("Chase" or the "Administrator"), pursuant to
which Chase is required to provide general administrative, accounting, portfolio
valuation, transfer agency and custodian services to each Fund, including the
coordination and monitoring of any third party service providers.
Chase provides custodian services for the securities, cash and other assets of
each Fund. The custody fee schedule is based primarily on the net amount of
assets held during the period for which payment is being made.
As authorized under the Services Agreement, Chase has entered into a Mutual
Funds Service Agreement (the "CGFSC Agreement") with Chase Global Funds Services
Company ("CGFSC"), a corporate affiliate of Chase, under which CGFSC provides
administrative, accounting, portfolio valuation, and transfer agency services to
each Fund. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913. Subject to the supervision of the Board of the Trust, Chase
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 each 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 each Fund's shares,
acting as dividend and distribution disbursing agent and performing
other service functions.
For its administrative, accounting, portfolio valuation, transfer agency and
custodian services, Chase receives the following as compensation from the Trust
on an annual basis: 0.0025% of the average weekly U.S. net assets of the Trust;
0.06% of the average weekly non-U.S. net assets of the Trust; 0.325% of the
average weekly emerging markets net equity assets of the Trust; and 0.019% of
the average weekly emerging markets debt net assets of the Trust. Chase receives
an additional fee of 0.075% of the average weekly net assets of the Trust for
administrative duties, the latter subject to the expense limitation applicable
to the Trust. No fee (asset based or otherwise) is charged on any investments
made by any Fund into any other fund sponsored or managed by the Advisor and
assets of a Fund that are invested in another investment company or series
thereof sponsored or managed by the Advisor will not be counted in determining
the 0.075% administrative duties fee or the applicability of the expense
limitation on such fee. The foregoing fees include all out-of-pocket expenses or
transaction charges incurred by Chase and any third party service provider in
providing such services. Pursuant to the CGFSC Agreement, Chase pays CGFSC for
the services CGFSC provides to Chase in fulfilling its obligations under the
Services Agreement.
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<PAGE>
Until October 1, 1998, Morgan Stanley Trust Company ("MSTC"), One Pierrepont
Plaza, Brooklyn, New York 11201, served as administrator of the Funds. Effective
October 1, 1998, MSTC was acquired by Chase and Chase assumed all of MSTC's
rights and obligations under the Services Agreement. Aggregate fees paid to
MSTC, the predecessor to Chase, for the periods May 10, 1997 through December
31, 1997 and January 1, 1998 through September 30, 1998 and to Chase for the
period October 1 through December 31, 1998 for administration, accounting,
portfolio valuation and transfer agency services under the Services Agreement
were as follows:
<TABLE>
<CAPTION>
Period January 1, 1998 October 1, 1998 January 1, 1998
May 10, 1997 to through through through
Fund December 31, 1997 September 30, 1998 December 31, 1998 December 31, 1998
---- ----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
Brinson Global Securities Fund $123,927 $151,012 $ 60,738 $280,498
Brinson U.S. Small Capitalization $ 0 $ 0 $ 0 $ 0
Equity Fund
Brinson High Yield Fund $ 0 $ 0 $ 0 $ 0
Brinson Emerging Markets Equity $160,098 $250,374 $ 71,985 $249,233
Fund
Brinson Emerging Markets Debt $109,050 $251,748 $ 78,163 $314,108
Fund
Brinson U.S. Equity Fund $ 0 $ 0 $ 0 $ 0
Brinson U.S. Cash Management $ 0 $ 0 $ 0 $ 0
Prime Fund
Brinson U.S. Value Equity Fund $ 0 $ 0 $ 0 $ 0
Brinson International Equity $ 0 $ 0 $ 0 $ 0
Fund
Brinson U.S. Short/Intermediate $ 0 $ 0 $ 0 $ 0
Fixed Income Fund
Brinson Short-Term Fund $ 0 $ 0 $ 0 $ 0
Brinson U.S. Large Capitalization $ 0 $ 0 $ 0 $ 0
Equity Fund
Total $393,075 $653,134 $210,886 $843,839
</TABLE>
Until May 9, 1997, FPS Services, Inc. served as administrator of the following
Funds and provided the administration, fund accounting and portfolio valuation
and transfer agency services described above.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 223 South Wacker Drive, Chicago, Illinois, is
the independent accounting and auditing firm which services the Trust.
EXPENSES
Each Fund will be responsible for all of its own expenses other than those borne
by the Advisor pursuant to the Advisory Agreement and organizational expenses.
Such expenses may include, but are not limited to, legal expenses, audit fees,
printing costs (e.g., cost of printing annual reports and semi-annual reports
which are distributed to existing Investors), brokerage commissions, fees and
expenses of the Administrator and the expenses of obtaining quotations of
portfolio securities and of pricing the Fund's shares. General expenses which
are not associated directly with any particular series of the Trust (e.g.,
insurance premiums, Trustees' fees, expenses of maintaining the Trust's legal
existence and
B-37
<PAGE>
of Investors' meetings and fees and expenses of industry organizations) are
allocated among the various Funds of the Trust based upon their relative net
assets.
The Advisor has agreed to pay the amount, if any, by which the total operating
expenses of a Fund for any fiscal year exceed the percentages shown below for
each Fund's average net assets. The Advisor, however, may discontinue this
expense limitation at any time in its sole discretion.
<TABLE>
<CAPTION>
Limitation on Total Operating
Expenses as a Percentage of
Fund Average Net Assets
---- ------------------
<S> <C>
Brinson Global Securities Fund 0.05%
Brinson U.S. Small Capitalization Equity Fund 0.00%
Brinson High Yield Fund 0.00%
Brinson Defensive High Yield Fund 0.01%
Brinson Emerging Markets Equity Fund 0.50%
Brinson Emerging Markets Debt Fund 0.50%
Brinson U.S. Equity Fund 0.01%
Brinson U.S. Cash Management Prime Fund 0.01%
Brinson U.S. Value Equity Fund 0.01%
Brinson International Equity Fund 0.06%
Brinson U.S. Short/Intermediate Fixed Income Fund 0.01%
Brinson Limited Duration Fund 0.01%
Brinson U.S. Treasury Inflation Protected Securities Fund 0.01%
Brinson Short-Term Fund 0.05%
Brinson Global Bond Fund 0.05%
Brinson U.S. Large Capitalization Equity Fund 0.01%
Brinson U.S. Intermediate Capitalization Equity Fund 0.01%
Brinson Bond Plus Fund 0.05%
Brinson U.S. Bond Fund 0.01%
</TABLE>
OTHER SERVICES
The Administrator also serves as the Funds' transfer agent (in such capacity,
the "Transfer Agent"), accounting/pricing agent, and dividend and distribution
disbursing agent pursuant to the Services Agreement. Until May 9, 1997, Bankers
Trust Company, One Bankers Trust Plaza, New York, New
B-38
<PAGE>
York 10006-1107, was the custodian for the securities, cash and other assets of
the Funds that had commenced operations prior to such date pursuant to a
Custodian Agreement with the Trust. From May 10, 1997 until September 30, 1998,
MSTC served as the custodian of the Trust pursuant to the Services Agreement.
Effective October 1, 1998, Chase became the custodian of the Trust pursuant to
the Services Agreement as a result of the merger of MSTC into Chase.
CODE OF ETHICS
The Trust, the Advisor and the Sub-Advisor have each adopted a Code of
Ethics. Each Code of Ethics establishes standards by which certain access
persons must abide when engaging in personal securities trading conduct.
Under each Code of Ethics, access persons are prohibited from engaging in
certain conduct, including, but not limited to: (1) investing in companies in
which the Funds 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 Funds have business relationships if the investment
might create, or give the appearance of creating, a conflict of interest; (3)
participating in an initial public offering; (4) entering into a securities
transaction when the access person knows or should know that such activity will
anticipate, parallel or counter any securities transaction of a Fund; (5)
entering into any securities transaction, without prior approval, in connection
with any security which has been designated as restricted; (6) entering into a
net short position with respect to any security held by a 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 or the
Investors.
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 and Sub-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 or
Sub-Advisor of the Trust, the Advisor and the Sub-Advisor are required to file
the following reports: 1) an initial holdings report disclosing all securities
owned by the access persons and any securities accounts maintained by the access
persons, which must be filed within ten days of becoming an access person, and
then annually thereafter; and 2) quarterly reports of security investment
transactions and new securities accounts. Trustees or officers who are not
"interested persons" of the Trust, as defined in the Investment Company 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 official duties as a Trustee or officer, that, during the 15-day
period immediately preceding or after the date of the transaction by the Trustee
or officer, such security was purchased or sold by a Fund, or was being
considered for purchase or sale by a Fund.
Copies of each of the Trust's, the Advisor's and the Sub-Advisor's Codes of
Ethics have been filed with and are available through the Commission.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Advisor is responsible for decisions to buy and sell securities for each
Fund and for the placement of portfolio business with broker-dealers and the
negotiation of commissions, if any, paid on such transactions. Subject to the
direction of Brinson Partners, the Sub-Advisor is responsible for decisions to
buy and sell securities and for the placement of portfolio business and the
negotiation of commissions, if any, paid on such transactions for the portions
of each Fund's assets which the Sub-Advisor manages. Portfolio transactions
placed by the Sub-Advisor may be effected through Brinson Partner's or the Sub-
Advisor's trading desk. Fixed income securities in which the Funds invest are
traded in the over-the-counter market. These securities are generally traded on
a net basis with dealers acting as principal for their own accounts without a
stated commission, although the bid/ask spread quoted on securities includes an
implicit profit to the dealers. In over-the-counter transactions, orders are
placed directly with a principal market-maker unless a better price and
execution can be obtained by using a broker. Brokerage commissions are paid on
transactions in listed securities, futures contracts and options thereon. The
Advisor and the Sub-Advisor are responsible for effecting portfolio transactions
and will do so in a manner deemed fair and reasonable to the Funds. Under the
Advisory Agreements with the High Yield Fund and the Defensive High Yield Fund,
the Advisor is authorized to utilize the trading desk of its foreign
subsidiaries to direct foreign securities transactions, but monitors the
selection by such subsidiaries of brokers and dealers used to execute
transactions for a Fund.
B-39
<PAGE>
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 and the Sub-
Advisor consider the broker-dealer's reliability, the quality of its execution
services on a continuing basis and its financial condition. When more than one
broker-dealer is believed to meet these criteria, preference may be given to
brokers who provide research or statistical material or other services to the
Funds, to the Advisor, or to the Sub-Advisor. 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 or the performance of accounts. This allows the Advisor and
the Sub-Advisor to supplement their own investment research activities and
obtain the views and information of others prior to making investment decisions.
The Advisor and the Sub-Advisor are of the opinion that, because this material
must be analyzed and reviewed by their staff, their receipt and use does not
tend to reduce expenses but may benefit the Funds by supplementing the Advisor's
and the Sub-Advisor's research.
The following table depicts brokerage commissions paid by the Funds.
Brokerage Commissions
Fiscal Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Brinson Global Securities Fund
(commenced operations April 28, 1995) $1,766,763 $1,311,347 $1,485,767
Brinson U.S. Small
Capitalization Equity Fund
(commenced operations April 28, 1995) $2,031,573 $ 928,532 $ 752,226
Brinson Emerging Markets Equity Fund
(commenced operations April 28, 1995) $2,968,862 $3,592,872 $3,095,413
Brinson U.S. Equity Fund
(commenced operations August 29, 1997) $ 274,376 $ 149,303 $ 33,074
Brinson U.S. Value Equity Fund
(commenced operations June 25, 1998 $ 275,288 $ 209,438 N/A
Brinson International Equity Fund
(commenced operations June 26, 1998) $ 326,385 $ 122,468 N/A
Brinson U.S. Large Capitalization
Equity Fund
(commenced operations April 30, 1999) $ 15,382 N/A N/A
Total $7,658,629 $6,313,960 $5,366,480
</TABLE>
For the fiscal year ended December 31, 1999, the Global Securities Fund and the
U.S. Equity Fund paid brokerage commissions to Warburg Dillon Read, an
affiliated broker-dealer, as follows:
<TABLE>
<CAPTION>
Aggregate
Dollar Amount Of % Of Aggregate % Of Aggregate Dollar
Commissions Paid Commissions Amount Paid To
Series To Warburg Paid To Warburg Warburg
------ ---------- --------------- -------
<S> <C> <C> <C>
Global Securities Fund $ 6,978 0.39% 0.21%
U.S. Equity Fund $44,617 16.26% 9.78%
</TABLE>
For the fiscal years ended December 31, 1997 and December 31, 1998, none of the
Funds paid any brokerage commissions to an affiliated broker-dealer.
Brinson Partners and the Sub-Advisor direct portfolio transactions for other
investment companies and advisory accounts. Research services furnished by
broker-dealers through whom the Funds direct their securities transactions may
be used by Brinson Partners or the Sub-Advisor in servicing all of their
accounts; not all such services may
B-40
<PAGE>
be used in connection with the Funds. In the opinion of Brinson Partners, it is
not possible to measure separately the benefits from research services to each
of such accounts (including the Funds). Brinson Partners and the Sub-Advisor
will attempt to equitably allocate portfolio transactions among the Funds and
others whenever concurrent decisions are made to purchase or sell securities by
the Funds and other accounts. In making such allocations between the Funds 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 Funds and others. In some cases, this procedure
could have an adverse effect on the Funds. In the opinion of Brinson Partners
and the Sub-Advisor, however, the results of such procedures will, on the whole,
be in the best interest of each of their clients.
When buying or selling securities, the Funds may pay commissions to brokers who
are affiliated with the Advisor, the Sub-Advisor or the Funds. The Funds may
purchase securities in certain underwritten offerings for which an affiliate of
the Funds, the Advisor or the Sub-Advisor may act as an underwriter. The Funds
may effect future transactions through, and pay commissions to, futures
commission merchants who are affiliated with the Advisor, the Sub-Advisor or the
Funds in accordance with procedures adopted by the Board.
PORTFOLIO TURNOVER
The Funds are free to dispose of their portfolio securities at any time, subject
to complying with the Code and the Investment Company Act, when changes in
circumstances or conditions make such turnover desirable in light of each Fund's
investment objective. The Funds 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 Funds'
investment objectives.
While it is the policy of the Funds generally not to engage in trading for
short-term gains, the Funds will effect portfolio transactions without regard to
the holding period if, in the judgment of the Advisor, such transactions are
advisable in light of a change in circumstances of a particular company, within
a particular industry or country, or in general market, economic or political
conditions. The rate of portfolio turnover for a Fund is calculated by dividing:
(a) the lesser of purchases or sales of portfolio securities for the particular
fiscal year by (b) the monthly average of the value of the portfolio securities
owned by that Fund during the particular fiscal year. Such monthly average is
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. Although
the portfolio turnover rates for each Fund may vary greatly from year to year,
the Funds expect that, under normal circumstances, the portfolio turnover rate
will not exceed 250% with respect to Brinson Global Securities Fund, Brinson
Global Bond Fund, Brinson U.S. Equity Fund, Brinson U.S. Large Capitalization
Equity Fund, Brinson U.S. Intermediate Capitalization Equity Fund, Brinson U.S.
Value Equity Fund, Brinson U.S. Bond Fund, Brinson Bond Plus Fund and Brinson
U.S. Short/Intermediate Fixed Income Fund, 150% with respect to Brinson U.S.
Treasury Inflation Protected Securities Fund and 100% with respect to all other
Funds. It is expected that, under normal circumstances, the portfolio turnover
rate of Brinson Limited Duration Fund and Brinson Defensive High Yield Fund may
exceed 100%. High portfolio turnover rates will increase aggregate brokerage
commission expenses which must be borne directly by a Fund and ultimately by
that Fund's Investors and the incidence of short-term capital gains (which are
taxable to Investors at the same rate as ordinary income).
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES.
The Trust was organized as a Delaware business trust on August 16, 1994. The
Declaration of Trust permits the Board to issue an unlimited number of shares of
beneficial interest with no par value. The Board has the power to designate one
or more series or sub-series/classes of shares of beneficial interest and to
classify or reclassify any unissued shares with respect to such series.
Currently, the Trust is offering shares of nineteen series: Brinson Global
Securities Fund, Brinson Global Bond Fund, Brinson U.S. Equity Fund, Brinson
U.S. Large Capitalization Equity Fund, Brinson U.S.
B-41
<PAGE>
Intermediate Capitalization Equity Fund, Brinson U.S. Value Equity Fund
(formerly known as the Brinson U.S. Large Capitalization Value Equity Fund),
Brinson U.S. Small Capitalization Equity Fund (formerly known as the Brinson
Post-Venture Fund), Brinson International Equity Fund (formerly known as the
Brinson Global (Ex-U.S.) Equity Fund), Brinson Emerging Markets Equity Fund,
Brinson Bond Plus Fund, Brinson U.S. Bond Fund, Brinson U.S. Short/Intermediate
Fixed Income Fund, Brinson Limited Duration Fund, Brinson Short-Term Fund,
Brinson U.S. Treasury Inflation Protected Securities Fund, Brinson U.S. Cash
Management Prime Fund, Brinson High Yield Fund, Brinson Defensive High Yield
Fund and Brinson Emerging Markets Debt Fund.
The shares of the Trust, when issued, will be fully paid and non-assessable, and
within each series, have no preference as to conversion, exchange, dividends,
retirement or other features. Any shares the issuance of which the Board may,
from time to time, authorize, shall have no preemptive rights. The shares are
not transferable except to the Trust.
Pursuant to the Investment Company Act, a control person possesses the ability
to control the outcome of matters submitted for shareholder vote.
VOTING RIGHTS AND INVESTOR MEETINGS. The shares of the Trust have non-
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of members of the Board can elect 100% of the
Trustees if they choose to do so. An Investor is entitled to vote based on the
ratio the shares of such Investor bear to the shares of all Investors entitled
to vote. On any matter submitted to a vote of Investors, all shares of the
Trust then issued and outstanding and entitled to vote on a matter shall vote by
individual series except that, if required by the Investment Company Act, the
shares shall be voted in the aggregate. If the Board determines that a matter
to be voted on does not affect the interests of all series, only the Investors
of the affected series shall be entitled to vote on the matter. The Declaration
of Trust gives Investors certain voting powers only with respect to: (i) the
election and removal of Trustees; (ii) a termination of the Trust; (iii)
amendments reducing payments upon liquidation or diminishing voting rights; (iv)
mergers, consolidations or sales of assets; (v) the incorporation of the Trust;
(vi) additional matters relating to the Trust as required by the Investment
Company Act; and (vii) such other matters as the Board considers necessary or
desirable.
The Trust does not presently intend to hold annual or special meetings of
Investors except when required to elect members of the Board, or with respect to
additional matters relating to the Trust, as required under the Investment
Company Act. Pursuant to the Declaration of Trust, Investor meetings will also
be called upon request of Investors holding in the aggregate 10% or more of the
outstanding shares. Subject to certain conditions, Investors may apply to the
Trust to communicate with other Investors to request an Investor meeting.
As with any mutual fund, certain Investors of the Funds could control the
results of voting in certain instances. For example, a vote by certain
Investors holding a majority of shares in a Fund to change the Fund's investment
objective could result in an Investor's withdrawal of its investment in the
Fund, and in increased costs and expenses for the remaining Investors.
Additionally, the failure by certain Investors to approve a change in their
investment objectives and policies parallel to a change that has been approved
for the Fund (thus requiring such Investors to redeem their shares of the Fund)
could lead to a number of adverse consequences, such as the inability of such
Investors to find another investment company in which to invest their assets or
an equivalent investment advisor to manage the assets.
Certain Investors in the Funds may be unregistered investment companies, which
invest in the Funds pursuant to exemptions under the federal securities laws.
In order to take advantage of such exemptions, it may be necessary for such
funds to provide for pass-through voting for their investors on matters
submitted to a vote of Fund or Trust shareholders, or to provide for echo
voting. Echo voting refers to the investing fund's determination to vote its
shares in the Fund or Trust in the same percentage as all other shareholders of
the Fund or Trust vote their shares. Shareholders availing themselves of this
exemption should contact the Trust.
B-42
<PAGE>
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SHARES.
PURCHASES
Beneficial interests in the Funds are issued solely in private placement
transactions that do not involve a "public offering" within the meaning of
Section 4(2) of the Securities Act. Investments in a Fund may only be made by
common or commingled trust funds, investment companies, registered broker-
dealers, investment banks, commercial banks, corporations, group trusts or
similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the Securities Act. See "Purchase of Securities
Being Offered" in each Fund's Part A.
Investors in Brinson Emerging Markets Equity Fund and Brinson Emerging Markets
Debt Fund are subject to a transaction charge equal to 1.50% and 0.50%,
respectively, of the Fund's offering price on Fund share purchases. The
transaction shares are paid to the Series and used by them to defray the
transaction costs associated with the purchase and sale of securities within the
Series
NET ASSET VALUE. The net asset value per share is calculated separately for
each Fund. The net asset value per share of a Fund is computed by dividing the
value of the assets of the Fund, less its liabilities, by the number of shares
of the Fund outstanding.
Presented below is the computation of the net asset value/offering price per
shares as of December 31, 1999 for each Fund that had commenced operations as of
December 31, 1999, using the following formula: Total Assets - Total
Liabilities/Outstanding Shares = Net Asset Value/Offering Price.
Brinson Global Securities Fund
$1,591,752,768 - $280,151,771/77,945,681 shares = $16.8271 (NAV/offering price)
Brinson U.S. Small Capitalization Equity Fund
$565,061,027 - $436,226/28,971,208 shares = $19.4892 (NAV/offering price)
Brinson High Yield Fund
$304,850,093 - $39,054/22,142,460 shares = $13.7659 (NAV/offering price)
Brinson Emerging Markets Equity Fund
$488,952,285 - $618,952/42,083,664 shares = $11.6039 (NAV/offering price)
Brinson Emerging Markets Debt Fund
$450,171,943 - $1,956,802/19,406,828 shares = $23.0957 (NAV/offering price)
Brinson U.S. Equity Fund
$204,836,232 - $11,060/17,189,281 shares = $11.9159 (NAV/offering price)
Brinson U.S. Cash Management Prime Fund
$524,776,275 - $990,424/523,785,851 shares = $1.000 (NAV/offering price)
Brinson U.S. Value Equity Fund
$99,515,765 - $9,989/9,517,568 shares = $10.4550 (NAV/offering price)
Brinson International Equity Fund
$119,128,860 - $31,602/9,527,148 shares = $12.5008 (NAV/offering price)
Brinson U.S. Short/Intermediate Fixed Income Fund
$2,006,770 - $11,308/191,686 shares = $10.4100 (NAV/offering price)
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<PAGE>
Brinson Short-Term Fund
$4,781,975 - $7,026/452,359 shares = $10.5557 (NAV/offering price)
Brinson U.S. Large Capitalization Equity Fund
$877,510 - $15,889/105,123 shares = $8.1963 (NAV/offering price)
Fund securities are valued and net asset value per share is determined for all
Funds with the exception of the Prime Fund, as of the close of regular trading
on the New York Stock Exchange ("NYSE"), which generally is 4:00 p.m. (Eastern
time), on each day the NYSE is open for trading. Fund securities are valued and
net asset value per share is determined for the Prime Fund as of two hours prior
to the close of the NYSE, which generally is 2:00 p.m. (Eastern time), on each
day the NYSE is open for trading. The NYSE is open for trading on every day
except Saturdays, Sundays and the following holidays: New Year's Day, 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.
Fund securities listed on a national or foreign securities exchange and over-
the-counter securities carried as NASDAQ National Market system issues are
valued on the basis of the last sale prior to the time net asset value is
determined on the date the valuation is made. Other portfolio securities which
are traded in the over-the-counter market are valued at the last available bid
price prior to the time net asset value is determined. Valuations of fixed
income and equity securities may be obtained from a pricing service when such
prices are believed to reflect the fair value of such securities. Use of a
pricing service has been approved by the Board. Securities traded on securities
exchanges are valued at the last sale price or, if there has been no sale that
day, at the last reported bid price, using prices as of the close of trading on
their respective exchanges. Price information on listed securities is generally
taken from the closing price on the exchange where the security is primarily
traded. Futures contracts and options thereon are valued at their daily quoted
settlement price. Forward foreign currency contracts are valued daily at forward
exchange rates and an unrealized gain or loss is recorded; the Fund realizes a
gain or loss upon settlement of the contracts. Each Fund's obligations under a
swap agreement will be accrued daily (offset by any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the Fund's segregation of cash or liquid securities in accordance
with Commission positions. 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. 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 Board.
B-44
<PAGE>
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. Events affecting the
values of such foreign securities may occasionally occur, however, 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
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.
Where a foreign securities market remains open at the time that the Funds value
their 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 Funds may be used.
The Prime Fund utilizes the amortized cost valuation method of valuing portfolio
instruments. Under the amortized cost method, assets are valued by constantly
amortizing over the remaining life of an instrument the difference between the
principal amount due at maturity and the cost of the instrument to the Fund. In
order to value its investments at amortized cost, the Fund purchases only
securities with a maturity of 397 calendar days or less and maintains a dollar-
weighted average portfolio maturity of 90 days or less. In addition, the Fund
limits portfolio investments to securities that meet the quality and
diversification requirements of Rule 2a-7 under the Investment Company Act.
The Advisor will determine at least weekly the extent of any deviation of the
net asset value, as determined on the basis of the amortized cost method, from
net asset value as it would be determined on the basis of available market
quotations. If a deviation of 1/2 of 1% or more occurs between the Prime Fund's
net asset value per share calculated by reference to market-based values and the
Fund's $1.00 per share net asset value, or if there is any other deviation which
may result in material dilution or other unfair results to Investors, the Board
will take such actions as it deems appropriate to eliminate or reduce, to the
extent reasonably practicable, such dilution or unfair results. These actions
may include redeeming shares in kind, selling portfolio instruments prior to
their maturity to realize capital gains or losses, adjusting or withholding
distributions, utilizing available market quotations to determine net asset
value per share or adjusting the number of shares through a capital
contribution.
Redemptions
Under normal circumstances, Investors may redeem their shares at any time
without a fee except as noted below. The redemption price will be based upon the
net asset value per share next determined after receipt of the redemption
request in good order. Redemption requests for the Brinson Emerging Markets
Equity Fund are paid at net asset value less a transaction charge equal to 1.50%
of the net asset value of the redeemed shares. The transaction charge is paid to
the Series and used by it to defray the transaction costs associated with the
purchase and sale of securities within the Series. Except for the Prime Fund,
redemption requests received prior to the close of regular trading hours
(generally 4:00 p.m. Eastern time) on the NYSE will be executed at the net asset
value computed on the date of receipt. Redemption requests received after the
close of regular trading hours will be executed at the next determined net asset
value. For the Prime Fund, redemption requests received two hours prior to the
close of regular trading hours (generally 2:00 p.m. Eastern time) will be
executed at the net asset value computed on the date of receipt. Redemption
requests received after 2:00 p.m. will be executed at the next determined net
asset value. The redemption price may be more or less than the Investor's cost,
depending upon the net asset value per share at the time of redemption.
Payment for shares tendered for redemption is regularly made by check or wire
within seven calendar 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 seven calendar days in certain circumstances,
as disclosed in the Funds' Parts A. The Trust has also reserved the right,
subject to certain restrictions, to redeem its shares "in kind" rather than in
cash. See "Redemption or Repurchase of Shares" in the Funds' Parts A.
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<PAGE>
ITEM 19. TAX STATUS.
GENERAL
The following discussion summarizes certain anticipated material U.S. federal
income tax consequences of investing in the Funds. The discussion is based on
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder, Internal Revenue Service ("IRS")
positions and court decisions in effect as of the date of this Part B. All the
authorities are subject to change by legislative or administrative action,
possibly with retroactive effect. This summary does not address all tax
considerations that may be relevant to prospective Investors or to certain types
of Investors subject to special treatment under the U.S. federal income tax
laws. The discussion does not constitute legal or tax advice. Furthermore the
tax consequences of investing in the Funds may vary depending on the particular
Investor's status. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS
OWN TAX ADVISOR AS TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF INVESTING IN THE FUNDS.
CLASSIFICATION OF THE FUNDS
Each Fund is intended to be treated as a separate partnership for federal income
tax purposes rather than as an association taxable as a corporation. The Funds
will not be "regulated investment companies" for federal income tax purposes.
Each Fund intends to monitor the number of its Investors so as not to be treated
as a "publicly traded partnership" under certain safe harbors provided in
Treasury Regulations.
TAXATION OF PARTNERSHIP OPERATIONS GENERALLY
As partnerships, the Funds will not be subject to U.S. federal income tax.
Instead, each Investor in a Fund will be required to report separately on its
own income tax return its distributive share of items of such Fund's income,
gain, losses, deductions and credits. Each Investor will be required to report
its distributive share of such items regardless of whether it has received or
will receive corresponding distributions of cash or property from a Fund. In
general, cash distributions by a Fund to an Investor will represent a non-
taxable return of capital up to the amount of such Investor's adjusted tax basis
in its Fund shares.
INVESTMENT IN COMPLEX SECURITIES
The Funds may invest in complex securities. Such investments may be subject to
numerous special and complicated tax rules. These rules could affect whether
gains and losses recognized by a Fund are treated as ordinary income or capital
gain and/or accelerate the recognition of income to a Fund or defer a Fund's
ability to recognize losses. In turn, these rules may affect the amount timing
or character of the income, gain or loss which makes up the distributive share
allocable to Investors.
CALCULATION OF INVESTOR'S "ADJUSTED BASIS" AND AT "RISK BASIS"
Each Investor's adjusted basis in its share in a Fund will equal its purchase
price thereof, increased by the amount of its share of items of income and gain
of the Fund and reduced, but not below zero, by: (a) the amount of its share of
Fund deductions and losses; (b) expenditures which are neither properly
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deductible nor properly chargeable to its capital account; and (c) the amount of
any distributions received by such Investor.
CURRENT DISTRIBUTIONS BY THE FUNDS; REDEMPTIONS
Current Distributions. A current cash distribution by a Fund with respect to
---------------------
shares held by an Investor will result in gain to the distributee Investor only
to the extent that the amount of cash distributed exceeds the Investor's
adjusted basis in its Fund shares owned. A current distribution will reduce the
distributee Investor's adjusted basis in its Fund shares, but not below zero.
Gain recognized as a result of such distributions will be considered as gain
from the sale or exchange of such Investor's shares in the Fund. Loss will not
be recognized by an Investor as a result of a current distribution by the Fund.
Liquidation of an Investor's Entire Interest in a Fund. Generally, a
------------------------------------------------------
distribution or series of distributions by a Fund to an Investor that results in
termination of its entire interest in such Fund will result in gain to the
distributee Investor only to the extent that money, if any, distributed exceeds
the Investor's adjusted basis in its Fund shares. When only money and unrealized
receivables are distributed, loss will be recognized to the extent that the
Investor's adjusted basis in its Fund shares exceeds the amount of cash
distributed and the basis to the Investor of any unrealized receivables
distributed. Any gain or loss recognized as a result of such distributions will
be considered as gain or loss from the sale or exchange of the distributee
Investor's Fund shares and generally will be capital gain or loss.
TAX TREATMENT OF CAPITAL GAINS AND LOSSES
Amounts realized from the sale or exchange of assets of a Fund will generally be
treated as amounts realized from the sale or exchange of capital assets. A net
capital loss allocated to an Investor may be used to offset other capital gains.
For corporate investors, present law taxes both long-term and short-term capital
gains at the rates applicable to ordinary income. However, for Investors other
than corporations, net capital gains from assets held for more than one year are
taxed at a maximum rate of 20%. Short-term capital gains are taxed at a maximum
marginal rate of 39.6%. For a taxpayer other than a corporation, a capital loss
also may be used to offset ordinary income up to $3,000 per year. In general,
for taxpayers other than corporations, the unused portion of such loss may be
carried forward indefinitely, by not carried back.
TAX-EXEMPT INVESTORS
The Code imposes a tax on the "unrelated business taxable income" ("UBTI") of
certain tax-exempt organizations. Income from certain types of investments made
by the Funds which is allocated to tax-exempt Investors may be treated as UBTI
subject to tax. In addition, if and to the extent that a Fund borrows in
connection with the acquisition of any property, income from such debt-financed
property will be subject to the tax on UBTI. While it is anticipated that the
Advisor generally will attempt to make investments in a manner which does not
give rise to the tax imposed on UBTI, the Advisor may make investments in assets
the income from which gives rise to UBTI or may borrow in connection with the
acquisition of property if the Advisor believes that the returns on such
investments justify incurring, or the risk of incurring UBTI. The Funds
anticipate that they will distribute annually to each such tax-exempt Investor
after the end of the Funds' fiscal year, the information necessary for that
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<PAGE>
Investor to determine the portion of its distributive share of each item of
income, gain and deduction that is to be taken into account in the determination
of UBTI.
FOREIGN INCOME TAXES
The Funds may pay or accrue foreign income taxes in connection with trading.
Such amounts will be deemed to be received by Investors and paid to the foreign
government. An Investor may (subject to certain limitations) elect each taxable
year to treat its share of these foreign income taxes as a credit against its
U.S. income tax liability or to deduct such amount from its U.S. taxable income.
However, an Investor's ability to obtain a credit for such taxes depends on the
particular circumstances applicable to that Investor, and it is possible that an
Investor may get little or no foreign tax credit benefit with respect to its
share of foreign taxes paid or accrued by the Funds.
NON-U.S. INVESTORS
Non-U.S. Investors in a Fund will generally be subject to a 30% withholding tax
(unless reduced by an applicable treaty) on their distributive share of U.S.
source dividends and other fixed and determinable income that is not effectively
connected with the conduct of a U.S. trade or business. Capital gains and
certain "portfolio" interest are not subject to U.S. withholding tax. Non-U.S.
Investors that are individuals may also be subject to U.S. estate taxes as a
result of an investment in a Fund.
STATE AND LOCAL TAXATION
An Investor's distributive share of a Fund's taxable income or loss generally
will have to be taken into account in determining the Investor's state and local
income tax liability, if any, applicable in the jurisdiction in which such
Investor is a resident. In addition, a state or other taxing jurisdiction in
which an Investor is not a resident, but in which the Investor may be deemed to
be engaged in business may impose a tax on that Investor with respect to its
share of Fund income derived from that state or other taxing jurisdiction.
The Funds themselves may also be subject to state and/or local tax on some or
all of their net income, depending on the nature and extent of a Fund's
activities in the particular state or locality. Any such tax imposed on the
Funds will be an expense paid out of the Funds' income and allocated among the
Investors in accordance with the Trust Agreement.
Prospective Investors should consult their own tax advisors concerning the state
and local tax consequences of investing in a Fund.
THE FOREGOING ANALYSIS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL INCOME TAX
PLANNING. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE EFFECTS OF THIS INVESTMENT ON THEIR OWN TAX SITUATIONS.
ITEM 20. UNDERWRITERS.
Not applicable.
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ITEM 21. CALCULATION OF PERFORMANCE DATA.
TOTAL RETURN. Current yield and total return quotations used by the Funds are
based on standardized methods of computing performance mandated by Commission
rules and Form N-1A under the Investment Company Act. 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 Commission formula:
P(1+T)/n/=ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
Based on the foregoing calculations, the average annual total return for
the one year period ended June 30, 2000, the three year period ended June 30,
2000, the five year period ended June 30, 2000 and for the period from inception
through June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Fund One Year Three Years Five Years Since Inception
---- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Brinson Global Securities Fund 0.71% 5.03% 8.91% 10.89%
(Performance inception April 30, 1995)
Brinson U.S. Small Capitalization Equity Fund 6.26% 6.20% 13.82% 14.88%
(Performance inception April 30, 1995)
Brinson High Yield Fund 1.39% 1.26% 5.91% 6.15%
(Performance inception April 30, 1995)
Brinson Emerging Markets Equity Fund 14.47% -4.30% -0.08% 1.45%
(Performance inception June 30, 1995)
Brinson Emerging Markets Debt Fund 27.11% 9.85% 20.08% 21.04%
(Performance inception June 30, 1995)
Brinson U.S. Equity Fund -15.58% N/A N/A 4.97%
(Performance inception August 31, 1997)
Brinson U.S. Value Equity Fund -13.32% N/A N/A 1.08%
(Performance inception June 30, 1998)
Brinson International Equity Fund 14.05% N/A N/A 9.93%
(Performance inception June 30, 1998)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Brinson U.S. Bond Fund N/A N/A N/A 1.86%*
(performance inception April 30, 2000)
Brinson Short-Term Fund
(performance inception December 31, 1998) 6.20% N/A N/A 5.86%
Brinson U.S. Large Capitalization Equity
Fund -23.43% N/A N/A -20.65%
(performance inception April 30, 1999)
</TABLE>
* This figure represents cumulative total return since inception.
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 (or one-month) base periods. According to the Commission
formula:
YIELD = 2[(a - b + 1)/6/- 1]
-----
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yield of the Funds may be calculated by dividing the net investment income
per share earned by the particular 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 semiannual basis. A 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.
YIELD OF THE PRIME FUND. The yield of the Prime Fund for a seven-day period
(the "base period") will be computed by determining the net change in value
(calculated as set forth below) of a hypothetical account having a balance of
one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, and multiplying the base period return by 365/7 with the
resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, but will not include
realized gains or losses or unrealized appreciation or depreciation on portfolio
investments. The current yield of the Prime Fund for the 7-day period ended
June 30, 2000 was 6.75%.
Yield may also be calculated on a compound basis (the "effective yield"), which
assumes that net income is reinvested in shares of the Prime Fund at the same
rate as net income is earned for the base period. The effective yield of the
Prime Fund for the 7-day period ended June 30, 2000 was 6.98%.
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<PAGE>
The yield and effective yield of the Prime Fund will vary in response to
fluctuations in interest rates and in the expenses of the Fund. Actual yields
will also depend on such variables as investment quality, average maturity, the
type of instruments the Prime Fund invests in and other factors. For comparative
purposes, the current and effective yields should be compared to current and
effective yields offered by competing financial instruments for the same base
period and calculated by the methods described above. Yields of other investment
vehicles may not be comparable because of the factors set forth above,
differences in the time periods computed, and differences in the methods used in
valuing portfolio instruments, computing net asset values and calculating
yields.
ITEM 22. FINANCIAL STATEMENTS.
The Funds' unaudited Financial Statements for the six month period ended June
30, 2000, which are contained in the Fund's Semi-Annual Report, dated June 30,
2000 (filed with the Commission on September 1, 2000 (Accession Number
0001021408-00-002698)), are incorporated herein by reference. The Financial
Statements and the Report of Independent Auditors thereon for the fiscal year
ended December 31 1999, (as filed with the Commission on March 3, 2000
(Accession Number 0000950109-00-000763)) contained in the Funds' Annual Report,
dated December 31, 1999, are incorporated herein by reference.
B-51
<PAGE>
APPENDIX A
INVESTMENT PRACTICES
Set forth below is a discussion of various hedging and fixed income strategies
that may be pursued by the Advisor on behalf of some or all of the Funds. The
discussion herein is general in nature and describes hedging and fixed income
strategies of the Funds in both U.S. and non-U.S. markets; certain of the Funds
limit their investments to the United States. Not all Funds engage in some or
all of the strategies discussed in this Appendix and the discussion below should
therefore be read in conjunction with the applicable Parts A. The Funds will not
be obligated to pursue any of these investment strategies and make no
representation as to the availability of these techniques at this time or at any
time in the future.
Certain Funds may buy and sell put and call options traded on U.S. or foreign
exchanges or over-the-counter and may attempt to manage the overall risk of the
portfolio investments through hedging strategies. The Funds may engage in
certain options strategies involving securities, stock and fixed income indexes,
futures and currencies and may enter into forward currency contracts in order to
attempt to enhance income or to hedge the Funds' investments. The Funds also may
use futures contracts, forward currency contracts, and non-deliverable forwards,
and use options and futures contracts for hedging purposes or in other
circumstances permitted by the Commodity Futures Trading Commission ("CFTC").
The foregoing instruments are sometimes referred to collectively as "Hedging
Instruments" and certain special characteristics of and risks associated with
using Hedging Instruments are discussed below. Hedging Instruments may also be
used in an attempt to manage the Funds' average duration, foreign currency
exposure and other risks of investment which can affect fluctuations in the
Funds' net asset values.
In addition to the investment limitations of the Funds described herein, use of
these instruments may be subject to applicable regulations of the Commission,
the several options and futures exchanges upon which options and futures
contracts are traded, and other regulatory authorities. In addition to the
products, strategies and risks described herein, the Advisor may become aware of
additional opportunities in connection with options, futures contracts, forward
currency contracts and other hedging techniques. The Advisor may utilize these
opportunities to the extent that they are consistent with the Funds' investment
objectives and permitted by the Funds' investment limitations and applicable
regulatory authorities.
Options and futures can be volatile investments and may not perform as expected.
If the Advisor applies a hedge at an appropriate time or price trends are judged
incorrectly, options, futures and similar strategies may lower the Fund's
return. Options and futures traded on foreign exchanges generally are not
regulated by U.S. authorities and may offer less liquidity and less protection
to the Fund in the event of default by the other party to the contract. The
Fund could also experience losses if the prices of its options or futures
positions are poorly correlated with its other investments, or if it cannot
close out its positions because of an illiquid secondary market. The loss from
investing in futures transactions is potentially unlimited.
COVER FOR OPTIONS AND FUTURES STRATEGIES. The Funds generally will not use
leverage in their options and futures strategies. In the case of a transaction
entered into as a hedge, the Funds will hold securities, currencies or other
options or futures positions whose values are expected to offset ("cover")
obligations under the transaction. A Fund will not enter into an option or a
futures strategy that
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<PAGE>
exposes the Fund to an obligation to another party unless it owns (1) an
offsetting ("covered") position in securities, currencies or other options or
futures contracts or (2) cash or other liquid assets with a value sufficient at
all times to cover its potential obligations. The Funds will comply with
guidelines established by the Commission with respect to coverage of option and
futures strategies by mutual funds and, if such guidelines so require, will
segregate cash or other liquid assets in the amount prescribed. Securities,
currencies or other options or futures positions used for cover and segregated
securities cannot be sold or closed out while the option or futures strategy is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that the use of cover or segregation involving a large percentage
of the Funds' assets could impede fund management or the Funds' ability to meet
current obligations.
OPTION INCOME AND HEDGING STRATEGIES. The Funds (other than the Prime Fund) may
purchase and write (sell) options traded on a U.S. or, where applicable, foreign
exchange or over-the-counter.
These Funds may purchase call options on securities that the Advisor intends to
include in the Funds' portfolio in order to fix the cost of a future purchase.
A call option enables the purchaser, in return for the premium paid, to purchase
securities from the writer of the option at an agreed price at any time during a
period ending on an agreed date. A call option enables a purchaser to hedge
against an increase in the price of securities it ultimately wishes to buy or to
take advantage of a rise in a particular index. Call options also may be
purchased as a means of enhancing returns by, for example, participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the Funds' potential loss to the option premium paid; conversely, if the market
price of the underlying security increases above the exercise price and a Fund
either sells or exercises the option, any profit eventually realized will be
reduced by the premium paid.
The Funds may purchase put options on securities in order to attempt to hedge
against a decline in the market value of securities held in their portfolios or
to enhance return. A put option would enable the Funds to sell the underlying
security at a predetermined exercise price; thus the potential for loss to the
Funds below the exercise price would be limited to the option premium paid. If
the market price of the underlying security were higher than the exercise price
of the put option, any profit the Funds realize on the sale of the security
would be reduced by the premium paid for the put option less any amount for
which the put option may be sold.
The Funds may write covered call options on securities in which they may invest
for hedging purposes or to increase income in the form of premiums received from
the purchasers of the options. Because it can be expected that a call option
will be exercised if the market value of the underlying security increases to a
level greater than the exercise price, the Funds will generally write covered
call options on securities when the Advisor believes that the premium received
by the Funds, plus anticipated appreciation in the market price of the
underlying security up to the exercise price of the option, will be greater than
the total appreciation in the price of the security. The strategy may also be
used to provide limited protection against a decrease in the market price of the
security in an amount equal to the premium received for writing the call option
less any transactional costs. Thus, in the event that the market price of the
underlying security held by the Funds declines, the amount of such decline will
be offset wholly or in part by the amount of the premium received by the Funds.
If, however, there is an increase in the market price of the underlying security
and the option is exercised, the Funds would
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<PAGE>
be obligated to sell the security at less than its market value. The Funds would
give up the ability to sell the portfolio securities used to cover the call
option while the call option is outstanding. In addition, the Funds could lose
the ability to participate in an increase in the value of such securities above
the exercise price of the call option because such an increase would likely be
offset by an increase in the cost of closing out the call option (or could be
negated if the buyer chose to exercise the call option at an exercise price
below the securities' current market value).
IN THE CASE OF OVER-THE-COUNTER OPTIONS WRITTEN BY THE FUNDS, SUCH SECURITIES
WOULD ALSO BE CONSIDERED ILLIQUID. SIMILARLY, ASSETS USED TO "COVER" OVER-THE-
COUNTER OPTIONS WRITTEN BY THE FUNDS WILL BE TREATED AS ILLIQUID UNLESS THE
OVER-THE-COUNTER OPTIONS ARE SOLD TO QUALIFIED DEALERS WHO AGREE THAT A FUND MAY
REPURCHASE ANY OVER-THE-COUNTER OPTIONS IT WRITES FOR A MAXIMUM PRICE TO BE
CALCULATED BY A FORMULA SET FORTH IN THE OPTION AGREEMENT. THE "COVER" FOR AN
OVER-THE-COUNTER OPTION WRITTEN SUBJECT TO THIS PROCEDURE WOULD BE CONSIDERED
ILLIQUID ONLY TO THE EXTENT THAT THE MAXIMUM REPURCHASE PRICE UNDER THE FORMULA
EXCEEDS THE INTRINSIC VALUE OF THE OPTION.
The Funds may write put options. A put option gives the purchaser of the option
the right to sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price during the option period. So long as the
obligation of the writer continues, the writer may be assigned an exercise
notice by the purchaser of options requiring the writer to make payment of the
exercise price against delivery of the underlying security or take delivery. The
operation of put options in other respects, including their related risks and
rewards, is substantially identical to that of call options. If the put option
is not exercised, the Funds will realize income in the amount of the premium
received. This technique could be used to enhance current return during periods
when the Advisor expects that the price of the security will not fluctuate
greatly. The risk in such a transaction would be that the market price of the
underlying security would decline below the exercise price less the premium
received, in which case the Funds would expect to suffer a loss.
The Funds may purchase put and call options and write put and covered call
options on indices in much the same manner as the options discussed above,
except that index options may serve as a hedge against overall fluctuations in
the securities markets (or a market sector) rather than anticipated increases or
decreases in the value of a particular security. An index assigns a value to
the securities included in the index and fluctuates with changes in such values.
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. The
effectiveness of hedging techniques using index options will depend on the
extent to which price movements in the index selected correlate with price
movements of the securities in which the Funds invest.
The Funds may purchase and write covered straddles on securities or indexes. A
long straddle is a combination of a call and a put option purchased on the same
security. The Funds would enter into a long straddle when the Advisor believes
that it is likely that the price of the underlying security will be more
volatile during the term of the options than the option pricing implies. A short
straddle is a combination of a call and a put written on the same security.
The Funds would enter into a short straddle when the Advisor believes that it is
unlikely the price of the underlying security will be as volatile during the
term of the options as the option pricing implies.
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<PAGE>
The writing of a call option on a futures contract constitutes a partial hedge
against the declining price of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at the
expiration of the option is below the exercise price, the Funds will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the value of a Fund's investment portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against the increasing price of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures price
at the expiration of the option is higher than the exercise price, the Funds
will retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Funds intend to
purchase.
Options on a stock index futures contract give the holder the right to receive
cash. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing price of the futures contract on the expiration date.
If a put or call option which a Fund has written is exercised, the Fund may
incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options positions, a Fund's
losses from existing options on futures may, to some extent, be reduced or
increased by changes in the value of portfolio securities. For example, a Fund
will purchase a put option on an interest rate futures contract to hedge the
Fund's investment portfolio against the risk of rising interest rates.
Furthermore, with respect to options on futures contracts, a Fund may seek to
close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. A Fund may effectively
terminate its right or obligation under an option by entering into a closing
transaction. If a Fund wishes to terminate its obligation to purchase or sell
securities under a put or call option it has written, the Fund may purchase a
put or call option of the same series (i.e., an option identical in its terms to
the option previously written); this is known as a closing purchase transaction.
Conversely, in order to terminate its right to purchase or sell specified
securities or currencies under a call or put option it has purchased, a Fund may
write an option of the same series as the option held; this is known as a
closing sale transaction. Closing transactions essentially permit the Funds to
realize profits or limit losses on options positions prior to the exercise or
expiration of the option. Whether a profit or loss is realized from a closing
transaction depends on the price movement of the underlying security or currency
and the market value of the option.
In considering the use of options to enhance income or to hedge the Funds'
investments, particular note should be taken of the following:
(1) The value of an option position will reflect, among other things, the
current market price of the underlying security, or index, the time remaining
until expiration, the relationship of the
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exercise price, the term structure of interest rates, estimated price volatility
of the underlying security, or index and general market conditions. For this
reason, the successful use of options as a hedging strategy depends upon the
Advisor's ability to forecast the direction of price fluctuations in the
underlying securities or, in the case of index options, fluctuations in the
market sector represented by the selected index.
(2) Options normally have expiration dates of up to 90 days. The exercise
price of the options may be below, equal to or above the current market value of
the underlying securities, index or currencies. Purchased options that expire
unexercised have no value. Unless an option purchased by the Funds is exercised
or unless a closing transaction is effected with respect to that position, the
Funds will realize a loss in the amount of the premium paid and any transaction
costs.
(3) A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Although the
Funds intend to purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular option at any specific time. Closing
transactions may be effected with respect to options traded in the over-the-
counter markets (currently the primary markets for options on debt securities)
only by negotiating directly with the other party to the option contract, or in
a secondary market for the option if such a market exists. Although the Funds
will enter into over-the-counter options only with dealers that are expected to
be capable of entering into closing transactions with the Funds, there can be no
assurance that the Funds will be able to liquidate an over-the-counter option at
a favorable price at any time prior to expiration. In the event of insolvency
of the counter-party, the Funds may be unable to liquidate an over-the-counter
option. Accordingly, it may not be possible to effect closing transactions with
respect to certain options, with the result that the Funds would have to
exercise those options which they have purchased in order to realize any profit.
With respect to options written by the Funds, the inability to enter into a
closing transaction may result in material losses to the Funds. For example,
because the Funds must maintain a covered position with respect to any call
option they write on a security, index, currency or future, the Funds may not
sell the underlying security or currency (or invest any cash, government
securities or short-term debt securities used to cover an index option) during
the period they are obligated under the option. This requirement may impair the
Funds' ability to sell the security or make an investment at a time when such a
sale or investment might be advantageous.
(4) Index options are typically settled in cash. If a Fund writes a call
option on an index, the Fund will not know in advance the difference, if any,
between the closing value of the index on the exercise date and the exercise
price of the call option itself and thus will not know the amount of cash
payable upon settlement. In addition, a holder of an index option who exercises
it before the closing index value for that day is available runs the risk that
the level of the underlying index may subsequently change.
(5) Index prices may be distorted if trading of a substantial number of
securities included in the index is interrupted causing the trading of options
on that index to be halted. If a trading halt occurred, a Fund would not be
able to close out options which it had purchased and the 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.
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(6) If a 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 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 a 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.
(7) The Funds' (with the exception of the Prime Fund) activities in the
options markets may result in higher fund turnover rates and additional
brokerage costs; however, the Funds may also save on commissions by using
options as a hedge rather than buying or selling individual securities in
anticipation or as a result of market movements.
INVESTMENT LIMITATIONS ON OPTIONS TRANSACTIONS. The ability of the Funds to
engage in options transactions is subject to certain limitations. A Fund may
purchase call options to the extent that premiums paid by the Fund do not
aggregate more than 20% of such Fund's total assets. A Fund will write call
options only on a covered basis, which means that such Fund will own the
underlying security subject to a call option at all times during the option
period. The Funds may only purchase put options to the extent that the premiums
on all outstanding put options do not exceed 20% of each Fund's total assets.
With regard to the writing of call and put options, the Funds will limit the
aggregate value of the obligations underlying such call and put options to 40%
of each Fund's total net assets. A Fund will at all times during which it holds
a put option, own the security underlying the option. Each of the Funds will
invest in over-the-counter options only to the extent consistent with the 15% of
the Fund's net assets limit on investments in illiquid securities.
FORWARD FOREIGN CURRENCY CONTRACTS. The Funds (except the Prime 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. A Fund may enter into forward contracts for hedging
purposes as well as for non-hedging purposes. For hedging purposes, the Fund may
enter into contracts to deliver or receive foreign currency it will receive from
or require for its normal investment activities. It may also use contracts in a
manner intended to protect foreign currency-denominated securities from declines
in value due to unfavorable exchange rate movements. The Fund may also enter
into contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes in exchange rates.
The Funds may conduct 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 forward contracts. A Fund may convert currency on a
spot basis from time to time which will involve costs to the Fund. A forward
foreign currency contract involves an obligation to purchase or sell a specific
currency 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. These contracts are traded in the interbank 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
generally charged at any stage for trades. The Funds will account for these
contracts by marking-to-market each day at current forward values.
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<PAGE>
Although the contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate these contracts. In such event, the
Funds' ability to utilize forward foreign currency exchange contracts may be
restricted. The Funds will comply with guidelines established by the Commission
with respect to coverage of forward contracts entered into by mutual funds and,
if such guidelines so require, will segregate cash or other liquid assets in the
amount prescribed. Under normal circumstances, consideration of the prospect
for currency parities will be incorporated into the longer term investment
decisions made with regard to overall diversification strategies. The Advisor,
however, believes that it is important to have the flexibility to enter into
such forward contracts when it determines that the best interests of the Funds
will be served.
At the maturity of a forward contract, the Funds may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
At or before the maturity date of a forward contract requiring the Funds to sell
a currency, the Funds may either sell the portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset
their contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Funds will obtain, on the same maturity date, the
same amount of the currency that they are obligated to deliver. Similarly, a
Fund may close out a forward contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. The Funds
would realize a gain or loss as a result of entering into such an offsetting
forward currency contract under either circumstance to the extent the exchange
rate or rates between the currencies involved moved between the execution dates
of the first contract and the offsetting contract.
The cost to the Funds of engaging in forward currency contracts will vary with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts will not eliminate fluctuations in the
prices of the underlying securities a Fund owns or intends to acquire, but it
will fix a rate of exchange in advance. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
NON-DELIVERABLE FORWARDS. The Funds may, from time to time, engage in non-
deliverable forward transactions to manage currency risk. A non-deliverable
forward is a transaction that represents an agreement between a Fund and a
counterparty (usually a commercial bank) to buy or sell a specified (notional)
amount of a particular currency at an agreed upon foreign exchange rate on an
agreed upon future date. Unlike other currency transactions, there is no
physical delivery of the currency on the settlement of a non-deliverable forward
transaction. Rather, the Fund and the counterparty agree to net the settlement
by making a payment in U.S. dollars or another fully convertible currency that
represents any differential between the foreign exchange rate agreed upon at the
inception of the non-deliverable forward agreement and the actual exchange rate
on the agreed upon future date. Thus, the actual gain or loss of a given non-
deliverable forward transaction is calculated by multiplying the transaction's
notional amount by the difference between the agreed upon forward exchange rate
and the actual exchange rate when the transaction is completed.
When a Fund enters into a non-deliverable forward transaction, the Fund's
custodian will place Segregated Assets in a segregated account of the Fund in an
amount not less than the value of the Fund's total assets committed to the
consummation of such non-deliverable forward transaction. If the additional
Segregated Assets placed in the segregated account decline in value or the
amount of the Fund's commitment increases because of changes in currency rates,
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 Fund's commitments
under the non-deliverable forward agreement.
Since a Fund generally may only close out a non-deliverable forward with
the particular counterparty, there is a risk that the counterparty will default
on its obligation under the agreement. If the counterparty defaults a Fund will
have contractual remedies pursuant to the agreement related to the transaction,
but there is no assurance that contract counterparties will be able to meet
their obligations pursuant to such agreements or that, in the event of a default
a Fund will succeed in pursuing contractual remedies. The Fund thus assumes the
risk that it may be delayed or prevented from obtaining payments owed to it
pursuant non-deliverable forward transactions.
In addition, where the currency exchange rates that are the subject of a
given non-deliverable forward transaction do not move in the direction or to the
extent anticipated, a Fund could sustain losses on the non-deliverable forward
transaction. A Fund's investment in a particular non-deliverable forward
transaction will be affected favorably or unfavorably by factors that affect the
subject currencies, including economic, political and legal developments that
impact the applicable countries, as well as exchange control regulations of the
applicable countries. These risks are heightened when a non-deliverable forward
transaction involves currencies of emerging market countries because such
currencies can be volatile and there is a greater risk that such currencies will
be devalued against the U.S. dollar or other currencies.
FUTURES CONTRACTS. Each Fund, other than the Prime Fund, may enter into
contracts for the purchase or sale for future delivery of securities, including
index contracts, or foreign currencies. Each Fund may enter into futures
contracts and engage in options transactions related thereto for hedging
purposes and non-hedging purposes, to the extent that not more than 5% of the
Fund's net assets are required as futures contract margin deposits and premiums
on options on futures. The purchase of a futures contract by the Fund represents
the acquisition of a contractual right to obtain delivery of the securities or
foreign currency called for by the contract at a specified price on a specified
future date. When a futures contract is sold, the Fund incurs a contractual
obligation to deliver the securities or foreign currency underlying the contract
at a specified price on a specified future date. While futures contracts provide
for the delivery of securities, deliveries usually do not occur. Futures
contracts are generally terminated by entering into offsetting
transactions.
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When a Fund enters into a futures transaction, it must deliver to the futures
commission merchant selected by the Fund an amount referred to as "initial
margin." This amount is maintained by the futures commission merchant in a
segregated account. Thereafter, a "variation margin" may be paid by the Fund
to, or drawn by the 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 Funds may enter into such futures contracts to protect against the adverse
affects of fluctuations in security prices, interest rates or foreign exchange
rates without actually buying or selling the securities or foreign currency.
For example, if interest rates are expected to increase, a 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 Funds. 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 Funds
would increase at approximately the same rate, thereby keeping the net asset
value of a 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 Funds 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 Funds could then buy debt securities on the cash market.
A stock index futures contract obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement was made. Open
futures contracts are valued on a daily basis and a Fund may be obligated to
provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in
the future.
To the extent that market prices move in an unexpected direction, the Funds may
not achieve the anticipated benefits of futures contracts or may realize a loss.
For example, if a 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, such 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 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. A Fund may be required to sell securities at a time when it may be
disadvantageous to do so.
In addition, when a Fund engages in futures transactions, to the extent required
by the Commission, it will segregate assets in accordance with Commission
positions to cover its obligations with respect to such contracts, which assets
will consist of cash or other liquid assets from its portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contracts and the aggregate value of the initial and variation margin maintained
by the Fund with respect to such futures contracts.
A Fund will enter into futures transactions on domestic exchanges and to the
extent such transactions have been approved by the CFTC, on foreign
exchanges.
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SWAPS. (All Funds, except for Brinson U.S. Equity Fund, Brinson U.S. Large
Capitalization Equity Fund, Brinson U.S. Intermediate Capitalization Equity
Fund, Brinson U.S. Value Equity Fund and the Prime Fund.) The Funds may engage
in swaps, including but not limited to interest rate, currency, and equity swaps
and the purchase or sale of related caps, floors and collars and other
derivative instruments. To the extent that a Fund cannot dispose of a swap in
the ordinary course of business within seven days at approximately the value at
which the Fund has valued the swap, it will treat the swap as illiquid and
subject to its overall limit on illiquid investments of 15% of net assets. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of their portfolios, to protect
against currency fluctuations, as a technique for managing portfolio duration
(i.e., the price sensitivity to changes in interest rates) or to protect against
any increase in the price of securities the Funds anticipate purchasing at a
later date, or to gain exposure to certain markets.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to receive or pay interest (e.g., an exchange of fixed
rate payments for floating rate payments) with respect to a notional amount of
principal. Currency swaps involve the exchange of cash flows on a notional
amount based on changes in the values of referenced currencies.
The purchase of an interest rate cap entitles the purchaser to receive payments
on a notional principal amount from the party selling the cap to the extent that
a specified index exceeds a predetermined interest rate or amount. The purchase
of an interest rate floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The use of swaps involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. If the Advisor is
incorrect in its forecasts of market values, interest rates or other applicable
factors, the investment performance of a Fund will be less favorable than it
would have been if this investment technique were not used. Swaps do not
involve the delivery of securities or other underlying assets or principal.
Thus, if the other party to a swap defaults, a Fund's risk of loss consists of
the net amount of payments that the Fund is contractually entitled to receive.
Under Internal Revenue Service rules, any lump sum payment received or due under
the notional principal contract must be amortized over the life of the contract
using the appropriate methodology prescribed the Internal Revenue Service.
The equity swaps in which a Fund may invest involve agreements with a
counterparty. The return to the Fund on any equity swap contract will be the
total return on the notional amount of the contract as if it were invested in
the stocks comprising the contract index in exchange for an interest component
based on the notional amount of the agreement. The Fund will only enter into an
equity swap contract on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of the payments. Payments under the equity swap contracts may be made at
the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to a swap contract, a Fund will be
limited to contractual remedies pursuant to the agreements related to the
transaction. There is no assurance that a swap contract counterparty will be
able to meet its obligations pursuant to a swap contract or that, in the event
of default, the Fund will succeed in pursuing contractual remedies. The Fund
thus assumes the
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risk that it may be delayed in or prevented from obtaining payments owed to it
pursuant to a swap contract. However, the amount at risk is only the net
unrealized gain, if any, on the swap, not the entire notional amount. The
Advisor will closely monitor, subject to the oversight of the Board, the
creditworthiness of swap counterparties in order to minimize the risk of swaps.
The Advisor and the Trust do not believe that a Fund's obligations under swap
contracts are senior securities and, accordingly, a Fund will not treat them as
being subject to its borrowing or senior securities restrictions. However, the
net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each swap contract will be accrued on a daily basis
and an amount of cash or other liquid assets having an aggregate market value at
least equal to the accrued excess will be segregated in accordance with
Commission positions.
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APPENDIX B
CORPORATE DEBT RATINGS
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 bonds. 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.
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NOTE: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
----
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
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.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lend
to inadequate capacity to meet timely interest and principal payments.
B -- Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC -- Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest or repay principal.
CC - The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in default, or is expected to default upon maturity or
payment date.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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BRINSON RELATIONSHIP FUNDS
Form N-1A
Part C. Other Information
Item 22. Financial Statements.
(a) Registration Statement.
Included in Part A:
None.
Included in Part B:
(b) Annual Report.
Brinson Global Securities Fund
------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal years ended December
31, 1998 and December 31, 1999.
(5) Financial Highlights for the fiscal years ended December 31, 1999,
December 31, 1998, December 31, 1997, December 31, 1996 and for the
period April 28, 1995 (commencement of operations) to December 31,
1995.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
<PAGE>
Brinson U.S. Small Capitalization Equity Fund
---------------------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal years ended
December 31, 1998 and December 31, 1999.
(5) Financial Highlights for the fiscal years ended December 31, 1999,
December 31, 1998, December 31, 1997, December 31, 1996, and the
period April 28, 1995 (commencement of operations) to December 31,
1995.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson High Yield Fund
-----------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal years ended
December 31, 1998 and December 31, 1999.
(5) Financial Highlights for the fiscal years ended December 31, 1999,
December 31, 1998, December 31, 1997, December 31, 1996, and the
period April 28, 1995 (commencement of operations) to December 31,
1995.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson Emerging Markets Equity Fund
------------------------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal years ended December
31, 1998 and December 31, 1999.
(5) Financial Highlights for the fiscal years ended December 31, 1999,
December 31, 1998, December 31, 1997, December 31, 1996, and the
period June 30, 1995 (commencement of operations) to December 31,
1995.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson Emerging Markets Debt Fund
----------------------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal years ended December
31, 1998 and December 31, 1999.
(5) Financial Highlights for the fiscal years ended December 31, 1999,
December 31, 1998, December 31, 1997, December 31, 1996, and the
period June 30, 1995 (commencement of operations) to December 31,
1995.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson U.S. Equity Fund
---------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal years ended December
31, 1998 and December 31, 1999.
(5) Financial Highlights for the fiscal years ended December 31, 1999,
December 31, 1998, and the period August 29, 1997 (commencement of
operations) to December 31, 1997.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson U.S. Cash Management Prime Fund
---------------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the period ended December 31,
1998 and the fiscal year ended December 31, 1999.
(5) Financial Highlights for the fiscal year ended December 31, 1999, and
the period February 18, 1998 (commencement of operations) to December
31, 1998.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson U.S. Value Equity Fund
------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the period ended December 31,
1998 and the fiscal year ended December 31, 1999.
(5) Financial Highlights for the fiscal year ended December 31, 1999, and
the period June 25, 1998 (commencement of operations) to December 31,
1998.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson International Equity Fund (formerly Brinson Global (Ex-U.S.)
--------------------------------------------------------------------
Equity Fund)
------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the period ended December 31,
1998 and the fiscal year ended December 31, 1999.
(5) Financial Highlights for the fiscal year ended December 31, 1999, and
the period June 26, 1998 (commencement of operations) to December 31,
1998.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson Short-Term Fund
-----------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the fiscal year ended December 31, 1999.
(4) Statement of Changes in Net Assets for the fiscal year ended December
31, 1999.
(5) Financial Highlights for the fiscal year ended December 31, 1999.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
Brinson U.S. Large Capitalization Equity Fund+
----------------------------------------------
Annual Financial Statements (audited)*
(1) Schedule of Investments at December 31, 1999.
(2) Statement of Assets and Liabilities at December 31, 1999.
(3) Statement of Operations for the period ended December 31, 1999.
(4) Statement of Changes in Net Assets for the period ended December 31,
1999.
(5) Financial Highlights for the period ended December 31, 1999.
(6) Notes to Financial Statements dated December 31, 1999.
(7) Report of Independent Auditors relating to the Financial Statements at
December 31, 1999.
+ The Fund commenced operations on April 30, 1999.
* Incorporated by reference to the Trust's Financial Statements contained
in the Trust's Annual Report to Shareholders dated December 31, 1999 as
filed electronically with the Securities and Exchange Commission ("SEC")
on March 3, 2000 (Accession No. 0000950109-00-000763).
(c) Semi-Annual Report.
Brinson Global Securities Fund
------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson U.S. Small Capitalization Equity Fund
----------------------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson High Yield Fund
-----------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson Emerging Markets Equity Fund
------------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson Emerging Markets Debt Fund
----------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson U.S. Equity Fund
------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson U.S. Cash Management Prime Fund
---------------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson U.S. Bond Fund +
-----------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the period ended June 30, 2000.
(4) Statement of Changes in Net Assets for the period ended June 30, 2000.
(5) Financial Highlights for the period ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
+ The Fund commenced operations on April 28, 2000.
Brinson U.S. Value Equity Fund
------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson International Equity Fund (formerly Brinson Global (Ex-U.S)
-------------------------------------------------------------------
Equity Fund)
------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson Short-Term Fund
-----------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
Brinson U.S. Large Capitalization Equity Fund
---------------------------------------------
Semi-Annual Financial Statements (unaudited) *
(1) Schedule of Investments at June 30, 2000.
(2) Statement of Assets and Liabilities at June 30, 2000.
(3) Statement of Operations for the six months ended June 30, 2000.
(4) Statement of Changes in Net Assets for the six months ended June 30,
2000.
(5) Financial Highlights for the six months ended June 30, 2000.
(6) Notes to Financial Statements dated June 30, 2000.
* Incorporated by reference to the Trust's Financial Statements contained
in the Trust's Semi-Annual Report to Shareholders dated June 30, 2000 as
filed electronically with the SEC on September 1, 2000 (Accession Number
0001021408-00-002698).
Item 23. Exhibits
-----------------
Exhibits filed pursuant to Form N-1A
Exhibit Description
------- -----------
(a) Articles of Incorporation.
(1) Amended and Restated Agreement and Declaration of Trust dated August
15, 1994, as amended on May 20, 1996 (the "Declaration")./2/
(a) Amendment dated August 21, 2000 to the Declaration is filed
electronically herewith as EX-99.a.1(a).
(2) Certificates of the Secretary and Resolutions pertaining to the
Declaration:
(a) Initial Consent effective as of August 16, 1994 re: the
authorization and designation of the initial two (2) series of
shares of the Trust known as the: (i) Brinson Global Securities
Fund and (ii) Brinson Short-Term Fund (Amendment No. 1)./3/
(b) Meeting held April 21, 1995 re: the authorization and designation
of four (4) additional series of shares of the Trust known as
the: (i) Brinson Post-Venture Fund; (ii) Brinson High Yield Fund;
(iii) Brinson Emerging Markets Equity Fund; and (iv) Brinson
Emerging Markets Debt Fund; and, the issuance of shares of the
Brinson Global Securities Fund (Amendment No. 2)./3/
(c) Meeting held June 26, 1997 re: the authorization and designation
of nine (9) additional series of shares of the Trust known as
the: (i) Brinson Global Equity Fund; (ii) Brinson U.S. Equity
Fund; (iii) Brinson U.S. Large Capitalization Equity Fund; (iv)
Brinson U.S Intermediate Capitalization Equity Fund; (v) Brinson
EXDEX(R) Fund; (vi) Brinson Non-U.S. Equity Fund; (vii) Brinson
Bond Plus Fund; (viii) Brinson U.S. Bond Fund; and (ix) Brinson
U.S. Short/Intermediate Fixed Income Fund (Amendment No. 3)./3/
(d) Meeting held January 27, 1998 re: the authorization and
designation of one (1) additional series of shares of the Trust
known as the Brinson U.S. Cash Management Prime Fund (Amendment
No. 4)./3/
(e) Meeting held June 1, 1998 re: the elimination of the: (i) Brinson
Global Equity Fund; and (ii) Brinson Short Term-Fund (Amendment
No. 5)/3/
(f) Meeting held June 1, 1998 re: the authorization and designation
of three (3) additional series of shares of the Trust known as
the: (i) Brinson U.S. Large Capitalization Value Equity Fund;
(ii) Brinson Global Bond Fund; and (iii) Brinson Short-Term Fund
(Amendment No. 6)./3/
(g) Meeting held August 28, 1998 re: the name change of the Brinson
Non-U.S. Equity Fund to the Brinson Global (ex-U.S.) Equity Fund
(Amendment No. 7)./3/
(h) Meeting held February 28, 2000 re: the authorization and
designation of three (3) additional series of shares of the Trust
known as the: (i) Brinson U.S. Treasury Inflation Protected
Securities Fund; (ii) Brinson Defensive High Yield Fund; and
(iii) Brinson Limited Duration Fund (Form of Amendment No.
8) is filed electronically herewith as EX-99.a2(h).
(i) Meeting held February 28, 2000 re: the name changes of the (i)
Brinson Post-Venture Fund to the Brinson U.S. Small
Capitalization Equity Fund and (ii) Brinson U.S. Large
Capitalization Value Equity Fund to Brinson U.S. Value Equity
Fund (Amendment No. 9) is filed electronically herewith as
EX-99.a2(i).
(j) Meeting held February 28, 2000 re: the elimination of the Brinson
EXDEX(R) Fund (Form of Amendment No. 10) is filed electronically
herewith as EX-99.a2(j).
(k) Meeting held August 21, 2000 re: the name change of the Brinson
Global (Ex-U.S.) Equity Fund to the Brinson International Equity
Fund (Form of Amendment No. 11) is filed electronically herewith
as EX-99.a2(k).
(b) By-laws.
By-Laws dated August 22, 1994./1/
(c) Instruments Defining Rights of Security Holders.
The rights of security holders of the Trust are further defined in the
following sections of the Trust's By-laws and Declaration:
a. By-laws
See Article I - "Meetings of Holders Article VI, "Interest".
b. Declaration of Trust
See Article III, "Powers of Trustees",
See Article V, "Limitations of Liability",
See Article VI - "Units in the Trust,"
See Article IX - "Holders,"
See Article VIII, "Determination of Book Capital Account,
Balance, Net Income and Distributions".
(d) Investment Advisory Contracts.
(1) Investment Advisory Agreement dated April 26, 1995 between the
Registrant and Brinson Partners, Inc. on behalf of the Brinson
Global Securities Fund, Brinson Short-Term Fund, Brinson Post-
Venture Fund, Brinson High Yield Fund, Brinson Emerging Markets
Equity Fund and Brinson Emerging Markets Debt Fund./1/
(2) Amendment No. 1 dated June 26, 1997 to Schedule A of the Investment
Advisory Agreement dated April 26, 1995 between the Registrant and
Brinson Partners, Inc. reflecting the addition of the Brinson U.S.
Equity Fund, Brinson U.S. Large Capitalization Equity Fund, Brinson
U.S. Intermediate Capitalization Equity Fund, Brinson EXDEX(R) Fund,
Brinson Non-U.S. Equity Fund, Brinson Bond Plus Fund, Brinson U.S.
Bond Fund and Brinson U.S. Short/Intermediate Fixed Income Fund./2/
(3) Amendment No. 2 dated January 27, 1998 to Schedule A of the
Investment Advisory Agreement dated April 26, 1995 between the
Registrant and Brinson Partners, Inc. reflecting the addition of the
Brinson U.S. Cash Management Prime Fund./2/
(4) Amendment No. 3 dated June 1, 1998 to Schedule A of the Investment
Advisory Agreement dated April 26, 1995 between the Registrant and
Brinson Partners, Inc. reflecting the addition of the Brinson U.S.
Large Capitalization Value Equity Fund and the Brinson Global Bond
Fund and the elimination of the Brinson Short-Term Fund and the
Brinson Global Equity Fund./2/
(5) Amendment No. 4 dated June 1, 1998 to Schedule A of the Investment
Advisory Agreement dated April 26, 1995 between the Registrant and
Brinson Partners, Inc. reflecting the addition of the Brinson Short-
Term Fund./2/
(6) Amendment No. 5 dated February 28, 2000 to Schedule A of the
Investment Advisory Agreement dated April 26, 1995 between the
Registrant and Brinson Partners, Inc. reflecting the addition of the
(i) Brinson U.S. Treasury Inflation Protected Securities Fund, (ii)
Brinson Defensive High Yield Fund and (iii) Brinson Limited Duration
Fund; (iv) the elimination of the Brinson EXDEX(R) Fund; (v) the
name change of the Brinson Post-Venture Fund to the Brinson U.S.
Small Capitalization Equity Fund; and (vi) the name change of the
Brinson U.S. Large Capitalization Value Equity Fund to the Brinson
U.S. Value Equity Fund is filed electronically herewith as
EX-99.d.6.
(7) Form of Amendment No. 6 dated August 21, 2000 to Schedule A of the
Form of Investment Advisory Agreement dated April 26, 1995 between
the Form of Registrant and Brinson Partners, Inc. reflecting the
name change of the Brinson Global (Ex-U.S.) Equity Fund to the
Brinson International Equity Fund is filed electronically herewith
as EX-99.d.7.
(8) Form of Amendment No. 7 dated October 30, 2000 to Schedule A of the
Investment Advisory Agreement dated April 26, 1995 between the
Registrant and Brinson Partners, Inc. reflecting the deletion of the
Brinson High Yield Fund and the Brinson Defensive High Yield Fund is
filed electronically herewith as EX-99.d.8.
(9) Form of Investment Advisory Agreement dated October 30, 2000 between
the Form of Registrant and Brinson Partners, Inc. on behalf of the
Brinson High Yield Fund and the Brinson Defensive High Yield Fund is
filed electronically herewith as EX-99.d.9.
(10) Form of Sub-Advisory Agreement dated October 30, 2000 between the
Registrant Form of and UBS Asset Management (New York), Inc. on
behalf of the Brinson High Yield Fund and the Brinson Defensive High
Yield Fund. is filed electronically herewith as EX-99.d.10.
(e) Underwriting Contracts.
Not applicable.
(f) Bonus or Profit Sharing Contracts.
Not applicable.
(g) Custodian Agreements.
(1) Custodian arrangements are provided under a Multiple Services
Agreement effective May 9, 1997 (the "Agreement"), as amended through
January 27, 1999, between the Registrant and Morgan Stanley Trust
Company ("MSTC") on behalf of each series of the Registrant. Effective
October 1, 1998, MSTC was acquired by The Chase Manhattan Bank
("Chase"), and Chase assumed all of MSTC's rights and obligations
under the Agreement./2/
(a) Amendment dated May 9, 2000 to the Registrant's Agreement
relating to Fee Obligation and Continuation of the Agreement is
filed electronically herewith as EX-99.g.1(a).
(b) Amendment to Schedule (Securities Lending Authorization) of the
Registrant's Agreement dated February 28, 2000 to reflect the
addition of Brinson U.S. Treasury Inflation Protected Securities
Fund, Brinson Defensive High Yield Fund and Brinson Limited
Duration Fund, the elimination of the Brinson EXDEX (R) Fund, the
name change of Brinson Post-Venture Fund to Brinson U.S. Small
Capitalization Equity Fund and the name change of Brinson U.S.
Large Capitalization Value Equity Fund to Brinson U.S. Value
Equity Fund is filed electronically herewith as EX-99.g.1(b).
(c) Amendment to Schedules B1 (List of Series) and F (Fee Schedule)
of the Registrant's Agreement dated February 28, 2000 to reflect
the addition of Brinson U.S. Treasury Inflation Protected
Securities Fund, Brinson Defensive High Yield Fund and Brinson
Limited Duration Fund, the elimination of the Brinson EXDEX (R)
Fund, the name change of Brinson Post-Venture Fund to Brinson
U.S. Small Capitalization Equity Fund and the name change of
Brinson U.S. Large Capitalization Value Equity Fund to Brinson
U.S. Value Equity Fund is filed electronically herewith as EX-
99.g.1(c).
(d) Amendment to Schedule B3 (Authorized Persons) of the Agreement as
approved through February 28, 2000 is filed electronically
herewith as EX-99.g.1(d).
(e) Amendment to Schedule B3 (Authorized Persons) of the Registrant's
Agreement as approved through August 21, 2000 is filed
electronically herewith as EX-99.g.1(e).
(h) Other Material Contracts.
Not applicable.
(i) Legal Opinion.
Not applicable.
<PAGE>
(j) Other Opinions.
Not applicable.
(k) Omitted Financial Statements.
Not applicable.
(l) Initial Capital Agreements.
Not applicable.
(m) Rule 12b-1 Plan.
Not applicable.
(n) Rule 18f-3 Plan.
Not applicable.
(o) Reserved
(p) Codes of Ethics.
(1) Code of Ethics of the Registrant dated February 21, 1995, as approved
on February 28, 2000./3/
(2) Integrity Policy of UBS Brinson effective February 4, 2000, approved
on February 28, 2000./3/
(q) Power of Attorney.
Power of Attorney dated August 21, 2000 appointing Karl Hartmann, Lloyd
Lipsett, Kathleen O'Neill, Patricia Leyne, Eddie Wang and Kelli Meidhof as
attorneys-in-fact and agents is filed electronically herewith as EX-99.q.
-------------------------------------------------
/1/ Incorporated herein by reference to Item 24(b)(9)(2) to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form N-1A
(File No. 811-9036) as filed electronically with the SEC on April 30, 1997.
/2/ Incorporated herein by reference to Post Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File No. 811-9036) as
filed electronically with the SEC on June 12, 1998.
/3/ Incorporated herein by reference to Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form N-1A (File No. 811-9036) as
filed electronically with the SEC on April 14, 2000.
Item 24. Persons Controlled by or Under Common Control with the Fund.
None.
<PAGE>
Item 25. Indemnification.
As permitted by Sections 17(h) and (i) of the Investment Company Act
of 1940, as amended (the "1940 Act"), indemnification provisions for each of the
Registrant's Trustees, officers, employees, agents and persons who serve at the
Trust's request as directors, officers or trustees of other organizations in
which the Trust has any interest as a shareholder, creditor or otherwise are set
forth in Article V, Sections 5.2 and 5.3 of the Registrant's Declaration as
amended on May 20, 1996 and August 21, 2000. (included in Item 23(a)(1)
above).
Pursuant to Article V, Section 5.2 of the Registrant's Declaration,
the Trust shall indemnify each of its Trustees, officers, employees, and agents
against all liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him, her or it in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he, she or it may be involved or with which he, she or it may be
threatened, while in office or thereafter, by reason of his, her or its being or
having been such a Trustee, officer, employee or agent, except with respect to
any matter as to which he, she or it shall have been adjudicated to have acted
in bad faith, with wilful misfeasance, gross negligence or reckless disregard of
his, her or its duties to the Registrant.
"Director and Officer" liability policies purchased by the Registrant
insure the Registrant's Trustees and officers, subject to the policies' coverage
limits, exclusions and deductibles, against loss resulting from claims by reason
of any act, error, omission, misstatement, misleading statement, neglect or
breach of duty.
<PAGE>
The Registrant hereby undertakes that it will apply the
the indemnification provision of the Declaration, in a manner consistent with
Release 11,330 of the SEC under the 1940 Act, so long as the interpretation of
Sections 17(h) and 17(i) of the 1940 Act remains in effect.
Item 26. Business and Other Connections of the Investment Advisor.
Brinson Partners, Inc. provides investment advisory services for a
variety of individuals and institutions and as of had consisting of portfolio
management billion in assets under management. It presently acts as investment
advisor to four other investment companies: The Brinson Funds; Governor Funds
International Equity Fund and Villanova Mutual Fund Trust - Prestige Large Cap
Value Fund.
For information as to any other business, profession, vocation or
employment of a substantial nature in which the Registrant's investment advisor,
Brinson Partners, Inc., and each director or officer of the Registrant's
investment advisor is or has been engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee within the last two
fiscal years, reference is made to the Form ADV (File #801-34910) filed by it
under the Investment Advisers Act of 1940, as amended.
Item 27. Principal Underwriters.
Not Applicable.
Item 28. Location of Accounts and Records.
All records described in Section 31(a) [15 U.S.C. 80a-30(a)] and
the rules under that section, are maintained by the Registrant's investment
advisor, Brinson Partners, Inc., 209 South LaSalle Street, Chicago, IL 60604-
1295, except for those maintained by the Registrant's Custodian, Chase, 270 Park
Avenue, New York, New York 10017.
Chase provides general administrative, accounting, portfolio
valuation, transfer agency and custodian services to the Registrant, including
the coordination and monitoring of any third party service providers and
maintains all such records relating to these services.
Item 29. Management Services.
The Registrant is not a party to any management-related service contracts not
discussed in Part A or Part B.
Item 30. Undertakings.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act, the Fund has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Chicago and State of Illinois on
the 30th day of October, 2000.
BRINSON RELATIONSHIP FUNDS
By /s/ Thomas J. Digenan*
-----------------------
Thomas J. Digenan
President
By /s/ Lloyd Lipsett
-----------------------------
Lloyd Lipsett
*as Attorney-in-Fact and Agent
pursuant to Power of Attorney
<PAGE>
BRINSON RELATIONSHIP FUNDS
Post-Effective Amendment No.15
EXHIBIT INDEX
Exhibit No. Exhibit Description
----------- -------------------
EX-99.a.1(a) Amendment to the Amended and Restated Agreement and Declaration
of Trust of the Registrant.
EX-99.a.2(h) Certificate of the Secretary and resolutions relating to the
authorization and designation of the U.S. Treasury Inflation
Protected Securities Fund, Defensive High Yield Fund and Limited
Duration Fund.
EX-99.a.2(i) Certificate of the Secretary and resolutions relating to the re-
designation of the Post-Venture Fund and the U.S. Large
Capitalization Value Equity Fund to the U.S. Small Capitalization
Equity Fund and the U.S. Value Equity Fund, respectively.
EX-99.a.2(j) Form of Certificate of the Secretary and resolutions relating to
the elimination of the EXDEX(R) Fund.
EX-99.a.2(k) Form of Certificate of the Secretary and resolutions relating to
the re-designation of the Global (Ex-U.S.) Equity Fund to the
International Equity Fund.
EX-99.d.6 Amendment #5 dated February 28, 2000 to the Investment Advisory
Agreement dated April 26, 1995 between Brinson Partners, Inc. and
the Registrant.
EX-99.d.7 Form of Amendment #6 dated October 30, 2000 to the Investment
Advisory Agreement dated April 26, 1995 between Brinson Partners,
Inc. and the Registrant.
EX-99.d.8 Form of Amendment #7 dated October 30, 2000 to the Investment
Advisory Agreement dated April 26, 1995 between Brinson Partners,
Inc. and the Registrant.
EX-99.d.9 Form of the Investment Advisory Agreement dated October 30, 2000
between Brinson Partners, Inc. and the Registrant.
EX-99.d.10 Form of the Sub-Advisory Agreement dated October 30, 2000 between
Brinson Partners, Inc. and UBS Asset Management (New York), Inc.
EX-99.g.1(a) Amendment dated May 9, 2000 relating to Fee Obligation and
Continuation of Multiple Services Agreement between The Chase
Manhattan Bank and the Registrant.
EX-99.g.1(b) Amendment dated February 28, 2000 to the Multiple Services
Agreement's Schedule A (Securities Lending Authorization),
between The Chase Manhattan Bank and the Registrant.
EX-99.g.1(c) Amendment dated February 28, 2000 to Schedules B1 (List of
Series) and F (Fee Schedule) of the Registrant's Multiple
Services Agreement.
EX-99.g.1(d) Amendment to Schedule B3 (Authorized Persons) of the Registrant's
Multiple Services Agreement as approved through August 21, 2000.
EX-99.q Power of Attorney dated August 21, 2000.