<PAGE>
<TABLE>
<S> <C>
[WARBURG PINCUS LOGO] [LOGO]
</TABLE>
PROSPECTUS
COMMON CLASS
JANUARY 1, 2000
WARBURG PINCUS
EUROPEAN EQUITY FUND
/ /
WARBURG PINCUS
GLOBAL TELECOMMUNICATIONS FUND
As with all mutual funds, the Securities and Exchange Commission has
not approved these funds, nor has it passed upon the adequacy or
accuracy of this PROSPECTUS. It is a criminal offense to state
otherwise.
Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
KEY POINTS................. 4
Goals and Principal
Strategies............. 4
Investor Profile......... 4
A Word About Risk........ 5
PERFORMANCE SUMMARY........ 8
Year-by-Year Total
Returns................ 8
Average Annual Total
Returns................ 9
INVESTOR EXPENSES.......... 10
Fees and Fund Expenses... 10
Example.................. 11
THE FUNDS IN DETAIL........ 12
The Management Firm...... 12
Multi-Class Structure.... 12
Fund Information Key..... 13
EUROPEAN EQUITY FUND....... 14
GLOBAL TELECOMMUNICATIONS
FUND..................... 16
MORE ABOUT RISK............ 18
Introduction............. 18
Types of Investment
Risk................... 18
Certain Investment
Practices.............. 20
MEET THE MANAGERS.......... 22
ABOUT YOUR ACCOUNT......... 24
Share Valuation.......... 24
Buying and Selling
Shares................. 24
Account Statements....... 25
Distributions............ 25
Taxes.................... 25
OTHER INFORMATION.......... 27
About the Distributor.... 27
FOR MORE INFORMATION........back
cover
</TABLE>
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3
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KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
EUROPEAN EQUITY FUND Capital appreciation / / Invests in European equity
Risk factors: securities
FOREIGN SECURITIES / / Targets Western European
MARKET RISK countries
REGION FOCUS / / Uses both growth and value
criteria (seeks "growth at a
reasonable price")
/ / Portfolio managers look at
factors such as earnings growth,
stock price, relative
valuation and merger-and-
acquisition trends
GLOBAL Long-term appreciation / / Invests in equity securities
TELECOMMUNICATIONS FUND of capital of U.S. and foreign
Risk factors: telecommunications companies
FOREIGN SECURITIES / / May invest in companies of all
MARKET RISK sizes
NON-DIVERSIFIED STATUS
REGULATORY RISK
SECTOR CONCENTRATION
</TABLE>
INVESTOR PROFILE
These funds are designed for investors who:
/ /are investing for long-term goals
/ /are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
/ /are looking for capital appreciation
/ /want to diversify their portfolios internationally
They may NOT be appropriate if you:
/ /are investing for a shorter time horizon
/ /are uncomfortable with an investment that has a higher degree of volatility
/ /want to limit your exposure to foreign securities
/ /are looking for income
You should base your selection of a fund on your own goals, risk preferences
and time horizon.
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4
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A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund. As with any
mutual fund, you could lose money over any period of time.
Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
FOREIGN SECURITIES
BOTH FUNDS
A fund that invests in foreign securities carries additional risks that
include:
/ /Currency risk Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency-
denominated investments and may widen any losses. The fund may, but is not
required to, seek to reduce currency risk by hedging part or all of its
exposure to various foreign currencies.
/ /Information risk Key information about an issuer, security or market may be
inaccurate or unavailable.
/ /Political risk Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security prices
and impair a fund's ability to bring its capital or income back to the U.S.
Other political risks include economic policy changes, social and political
instability, military action and war.
MARKET RISK
BOTH FUNDS
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments--including stocks
and bonds, and the mutual funds that invest in them.
NON-DIVERSIFIED STATUS
GLOBAL TELECOMMUNICATIONS FUND
The fund is considered a non-diversified investment company under the
Investment Company Act of 1940 and is permitted to invest a greater proportion
of its assets in the securities of a smaller number of issuers. As a
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5
<PAGE>
result, the fund may be subject to greater volatility with respect to its
portfolio securities than a fund that is more broadly diversified.
REGION FOCUS
EUROPEAN EQUITY FUND
Focusing on a single country or region involves increased currency, political,
regulatory and other risks. Market swings in the targeted country or region will
be likely to have a greater effect on fund performance than they would in a more
geographically diversified equity fund.
REGULATORY RISK
GLOBAL TELECOMMUNICATIONS FUND
Governments, agencies or other regulatory bodies may adopt or change laws or
regulations that could adversely affect the issuer or market value of a fund
security, or the fund's performance.
SECTOR CONCENTRATION
GLOBAL TELECOMMUNICATIONS FUND
A fund that invests more than 25% of its net assets in a group of related
industries (market sector) is subject to increased risk.
/ /Fund performance will largely depend upon the sector's performance, which
may differ in direction and degree from that of the overall stock market.
/ /Financial, economic, business, political and other developments affecting
the sector will have a greater effect on the fund.
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6
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7
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PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in the Global Telecommunications Fund. The European Equity
Fund is not included in either the chart or table because it has not had at
least one full calendar year of performance. The bar chart shows you how fund
performance has varied from year to year for up to 10 years. The table compares
the fund's performance over time to that of a broadly based securities market
index. As with all mutual funds, past performance is not a prediction of the
future.
YEAR-BY-YEAR TOTAL RETURNS(*)
<TABLE>
<CAPTION>
YEAR ENDED 12/31: 1997 1998
<S> <C> <C> <C>
GLOBAL
TELECOMMUNICATIONS FUND
Best quarter: 41.91% (Q4 98)
Worst quarter: -12.27% (Q3 98)
Inception date: 12/4/96
Total return for the period 1/1/99 - 9/30/99: 51.73% (not
annualized) 32.32% 67.42%
</TABLE>
<TABLE>
<C> <S>
* The total returns shown include the total returns of the
Global Telecommunications Fund's predecessor, the Advisor
Shares of the Global Telecommunications portfolio of The RBB
Fund, Inc.
</TABLE>
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8
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AVERAGE ANNUAL TOTAL RETURNS(1)
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/98: 1998 1996-1998 FUND DATE
<S> <C> <C> <C> <C>
GLOBAL TELECOMMUNICATIONS FUND 67.42% N/A 46.58% 12/4/96
MSCI TELECOMMUNICATIONS INDEX(2) 52.47% N/A 36.85%
</TABLE>
<TABLE>
<C> <S>
(1) The total returns shown include the total returns of the
Global Telecommunications Fund's predecessor, the Advisor
Shares of the Global Telecommunications portfolio of The RBB
Fund, Inc.
(2) The Morgan Stanley Capital International Telecommunications
Index is an unmanaged index (with no defined investment
objective) of telecommunications equities that include
reinvestment of dividends and is compiled by Morgan
Stanley & Co., Incorporated.
</TABLE>
UNDERSTANDING PERFORMANCE
/ /Total return tells you how much an investment in a fund has changed in
value over a given time period. It assumes that all dividends and
capital gains (if any) were reinvested in additional shares. The change
in value can be stated either as a CUMULATIVE RETURN or as an AVERAGE
ANNUAL RATE OF RETURN.
/ /A cumulative total return is the actual return of an investment for a
specified period. The YEAR-BY-YEAR TOTAL RETURNS in the bar chart are
examples of one-year cumulative total returns.
/ /An average annual total return applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what CONSTANT annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, ASSUMING you held it for the entire
period.
/ /Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.
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9
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INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended August 31, 1999.
<TABLE>
<CAPTION>
GLOBAL
TELE-
EUROPEAN COMMUNI-
EQUITY CATIONS
FUND FUND
<S> <C> <C>
Shareholder fees
(paid directly from your investment)
Sales charge "load" on purchases NONE NONE
Deferred sales charge "load" NONE NONE
Sales charge "load" on reinvested distributions NONE NONE
Redemption fees NONE NONE
Exchange fees NONE NONE
Annual fund operating expenses
(deducted from fund assets)
Management fee 1.00% 1.00%
Distribution and service (12b-1) fee .25% .25%
Other expenses 1.39% 1.27%
Total annual fund operating expenses* 2.64% 2.52%
</TABLE>
<TABLE>
<C> <S>
* Fee waivers and expense reimbursements or credits reduced
expenses for the funds during 1999 but may be discontinued
at any time. Actual fees and expenses for the fiscal year
ended August 31, 1999 are shown below:
</TABLE>
<TABLE>
<CAPTION>
GLOBAL
TELE-
EUROPEAN COMMUNI-
EXPENSES AFTER WAIVERS AND EQUITY CATIONS
REIMBURSEMENTS FUND FUND
<S> <C> <C>
Management fee .00% .48%
Distribution and service (12b-1) fee .25% .25%
Other expenses 1.21% .92%
----- -----
Total annual fund operating expenses 1.46% 1.65%
</TABLE>
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<PAGE>
EXAMPLE
This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements or credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
EUROPEAN EQUITY FUND $267 $820 $1,400 $2,973
GLOBAL
TELECOMMUNICATIONS FUND $255 $785 $1,340 $2,856
</TABLE>
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THE FUNDS IN DETAIL
THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
/ /Investment adviser for the funds
/ /Responsible for managing each fund's assets according to its goal and
strategies and supervising the activities of the sub-investment adviser for
the European Equity Fund
/ /A member of Credit Suisse Asset Management (CSAM), the institutional asset
management and mutual fund arm of Credit Suisse Group, one of the world's
leading banks
/ /CSAM companies manage more than $58 billion in the U.S. and $186 billion
globally
/ /CSAM has offices in 14 countries, including SEC-registered offices in New
York and London; other offices (such as those in Budapest, Frankfurt, Milan,
Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and Zurich) are not registered
with the U.S. Securities and Exchange Commission
CREDIT SUISSE ASSET MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC3A 7JJ
/ /Sub-investment adviser for the European Equity Fund
/ /A member of CSAM
MULTI-CLASS STRUCTURE
This PROSPECTUS offers Common Class shares of the funds. Common Class shares
are no-load.
The European Equity Fund also offers Institutional Shares, which are described
in a separate prospectus.
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12
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Actual fund expenses for the 1999 fiscal year. Future expenses may be higher
or lower.
/ /Management fee The fee paid to the investment adviser for providing
investment advice to the fund. Expressed as a percentage of average net
assets after waivers.
/ /Distribution and service (12b-1) fees Fees paid by the fund to the
distributors for making shares of the fund available to you. Expressed as a
percentage of average net assets.
/ /Other Expenses Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets
after waivers, credits and reimbursements.
FINANCIAL HIGHLIGHTS
A table showing the fund's audited financial performance for up to five years.
/ /Total Return How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.
/ /Portfolio Turnover An indication of trading frequency. The funds may sell
securities without regard to the length of time they have been held. A high
turnover rate may increase the fund's transaction costs and negatively
affect its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.
The ANNUAL REPORT includes the auditor's report, along with the fund's
financial statements. It is available free upon request.
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EUROPEAN EQUITY FUND
GOAL AND STRATEGIES
The European Equity Fund seeks capital appreciation. To pursue this goal, the
fund invests primarily in equity securities of Western European companies.
The fund considers Western Europe to include the European Union, Norway and
Switzerland. The European Union currently consists of: Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Sweden and the United Kingdom.
Under normal market conditions, the fund invests at least 65% of assets in
equity securities of companies located in or conducting a majority of their
business in Western Europe or companies whose securities trade primarily in
Western European markets. To enhance return potential, the fund may also pursue
opportunities in other European countries.
The fund intends to diversify its investments across different countries.
However, at times the fund may invest a significant part of its assets in a
single country. The fund may invest in companies of any size, although most of
the fund's investments will be in medium to larger capitalization companies.
In choosing stocks, the portfolio managers consider a number of factors
including:
/ /stock price relative to the company's rate of earnings growth
/ /valuation relative to other European companies and market averages
/ /merger-and-acquisition trends on companies' business strategies
PORTFOLIO INVESTMENTS
This fund currently intends to invest at least 80% of assets in equity
securities of Western European companies. These equity securities include:
/ /common and preferred stocks
/ /securities convertible into common stocks
/ /securities such as rights and warrants, whose values are based on common
stocks
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
/ /market risk
/ /foreign securities
/ /region focus
The value of your investment will fluctuate in response to Western European
stock markets. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Targeting a single region could hurt the fund's performance or may cause the
fund to be more volatile than a more geographically diversified equity fund.
Fund performance is closely tied to economic and political conditions within
Europe.
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"More About Risk" details certain other investment practices the fund may use.
Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
Harold W. Ehrlich, J.H. Cullum Clark and Nancy Nierman manage the fund's
investment portfolio. You can find out more about them in "Meet the Managers."
INVESTOR EXPENSES
<TABLE>
<S> <C>
Management fee .00%
Distribution and
service (12b-1) fee .25%
All other expenses 1.21%
-----
Total expenses 1.46%
</TABLE>
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
PERIOD ENDED: 8/99(1)
<S> <C>
Per-share data
Net asset value, beginning of period $10.00
INVESTMENT ACTIVITIES:
Net investment income 0.08
Net gains or losses on investments and foreign currency
transactions
(both realized and unrealized) (0.29)
Total from investment activities (0.21)
DISTRIBUTIONS:
From net investment income -
From realized capital gains -
Total distributions -
Net asset value, end of period $9.79
Total return (2.10)%(2)
Ratios and supplemental data
Net assets, end of period (000s omitted) $24,588
Ratio of expenses to average net assets 1.46%(3),(4)
Ratio of net income to average net assets 1.41%(4)
Portfolio turnover rate 161%(2)
</TABLE>
<TABLE>
<C> <S>
(1) For the period January 29, 1999 (commencement of operations)
through August 31, 1999.
(2) Not annualized.
(3) Without the voluntary waiver of advisory fees and
administration fees, the ratios of expenses to average net
assets would have been 2.64% annualized for the period ended
August 31, 1999.
(4) Annualized.
</TABLE>
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GLOBAL TELECOMMUNICATIONS FUND
GOAL AND STRATEGIES
The Global Telecommunications Fund seeks long-term appreciation of capital. To
pursue this goal, it invests in equity securities of U.S. and foreign
telecommunications companies.
Telecommunications includes:
/ /communications equipment and service
/ /electronic components and equipment
/ /broadcast media
/ /computer equipment, mobile telecommunications, and cellular radio and paging
/ /electronic mail
/ /local and wide area networking, and linkage of work and data processing
systems
/ /publishing and information systems
/ /video and telex
/ /internet and other emerging technologies combining telephone, television
and/or computer systems
Under normal market conditions, the fund will invest at least 65% of assets in
equity securities of telecommunications companies from at least three countries,
including the U.S. The fund may invest in companies of all sizes.
PORTFOLIO INVESTMENTS
Equity holdings may include:
/ /common and preferred stocks
/ /convertible securities
/ /warrants
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
/ /foreign securities
/ /market risk
/ /non-diversified status
/ /regulatory risk
/ /sector concentration
The value of your investment will fluctuate in response to stock-market
movements. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Because this fund focuses on a single sector (telecommunications), you should
expect it to be more volatile than a broadly diversified global equity fund.
Additionally, telecommunications companies are often subject to regulatory risks
that could hurt the fund's performance.
Non-diversification might cause the fund to be more volatile than a
diversified mutual fund. To the extent that the fund invests in emerging markets
and start-up and other small companies, it takes on additional risks that could
hurt its performance. "More About Risk" details these and certain other
investment practices the fund may use. Please read that section carefully before
you invest.
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16
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PORTFOLIO MANAGEMENT
Richard Watt and Scott T. Lewis manage the fund's investment portfolio. You
can find out more about them in "Meet the Managers."
INVESTOR EXPENSES
<TABLE>
<S> <C>
Management fee .48%
Distribution and
service (12b-1) fee .25%
All other expenses .92%
-----
Total expenses 1.65%
</TABLE>
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
PERIOD ENDED: 8/99 8/98 8/97(1)
<S> <C> <C> <C>
Per-share data
Net asset value, beginning of period $20.54 $ 17.30 $ 15.00
INVESTMENT ACTIVITIES:
Net investment income (0.04) (0.01) 0.02
Net gains or losses on investments (both realized and
unrealized) 23.56 4.29 2.28
Total from investment activities 23.52 4.28 2.30
DISTRIBUTIONS:
From net investment income - - -
From realized capital gains (2.84) (1.04) -
Total distributions (2.84) (1.04)
Net asset value, end of period $41.22 $ 20.54 $ 17.30
Total return 120.73% 25.38% 15.33%(2)
Ratios and supplemental data
Net assets, end of period (000s omitted) $65,165 $718 $569
Ratio of expenses to average net assets 1.65%(3) 1.65%(3) 1.65%(3),(4)
Ratio of net income to average net assets (0.35)% (0.03)% 0.16%(4)
Portfolio turnover rate 203% 169% 43%(2)
</TABLE>
<TABLE>
<C> <S>
(1) For the period December 4, 1996 (commencement of operations)
through August 31, 1997.
(2) Not annualized.
(3) Without the voluntary waiver of advisory fees and
administration fees, the ratios of expenses to average net
assets would have been 2.52% and 6.86% for the years ended
August 31, 1999 and 1998, respectively, and 8.38% annualized
for the period ended August 31, 1997.
(4) Annualized.
</TABLE>
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MORE ABOUT RISK
INTRODUCTION
A fund's goal and principal strategies largely determine its risk profile. You
will find a concise description of each fund's risk profile in "Key Points." The
fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.
The funds may use certain investment practices that have higher risks
associated with them. However, each fund has limitations and policies designed
to reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.
TYPES OF INVESTMENT RISK
The following risks are referred to throughout this prospectus.
Access risk Some countries may restrict a fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to a fund.
Correlation risk The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
Credit risk The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
Currency risk Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-
currency-denominated investments and may widen any losses.
Exposure risk The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.
/ /Hedged Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can reduce
or eliminate losses, it can also reduce or eliminate gains.
/ /Speculative To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
Information risk Key information about an issuer, security or market may be
inaccurate or unavailable.
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<PAGE>
Interest-rate risk Changes in interest rates may cause a decline in the market
value of an investment. With bonds and other fixed-income securities, a rise in
interest rates typically causes a fall in values, while a fall in interest rates
typically causes a rise in values.
Liquidity risk Certain fund securities may be difficult or impossible to sell
at the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead or forego an investment opportunity. Any of
these could have a negative effect on fund management or performance.
Market risk The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments--including stocks and bonds, and the mutual funds that invest in
them.
Operational risk Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
fund to losses from fraud, negligence, delay or other actions.
Political risk Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.
Valuation risk The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.
Year 2000 processing risk The inability of a computer system to distinguish
the year 2000 from the year 1900 (the "Year 2000 Issue") could cause
difficulties for system users after December 31, 1999. Although this date has
passed, the impact of the failure by companies or foreign markets in which the
funds invest to address the Year 2000 Issue effectively could continue to be
felt into 2000 and may negatively impact a fund's performance.
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<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
/ / Permitted without limitation; does
not indicate actual use
/20%/ ITALIC TYPE (E.G., 20%) represents
an investment limitation as a
percentage of net fund assets;
does not indicate actual use
20% Roman type (e.g., 20%) represents
an investment limitation as a
percentage of total fund assets;
does not indicate actual use
/ / Permitted, but not expected to be
used to a significant extent
- -- Not permitted
<TABLE>
<CAPTION>
EUROPEAN GLOBAL
EQUITY TELECOMMUNICATIONS
FUND FUND
INVESTMENT PRACTICE LIMIT
<S> <C> <C>
Borrowing The borrowing of money from
banks to meet redemptions or for other
temporary or emergency purposes.
SPECULATIVE EXPOSURE RISK. 30% 33 1/3%
Country/region focus Investing a
significant portion of fund assets in a
single country or region. Market swings
in the targeted country or region will
be likely to have a greater effect on
fund performance than they would in a
more geographically diversified equity
fund. CURRENCY, MARKET, POLITICAL RISKS. /X/ /X/
Currency hedging Instruments, such as
options, futures, forwards or swaps,
intended to manage fund exposure to
currency risk. Options, futures or
forwards involve the right or obligation
to buy or sell a given amount of foreign
currency at a specified price and future
date. Swaps involve the right or
obligation to receive or make payments
based on two different currency
rates.(1) CORRELATION, CREDIT, CURRENCY,
HEDGED EXPOSURE, LIQUIDITY, POLITICAL,
VALUATION RISKS.(2) /X/ / /
Emerging markets Countries generally
considered to be relatively less
developed or industrialized. Emerging
markets often face economic problems
that could subject a fund to increased
volatility or substantial declines in
value. Deficiencies in regulatory
oversight, market infrastructure,
shareholder protections and company laws
could expose a fund to risks beyond
those generally encountered in developed
countries. ACCESS, CURRENCY,
INFORMATION, LIQUIDITY, MARKET,
OPERATIONAL, POLITICAL, VALUATION RISKS. 20% /X/
Futures and options on futures
Exchange-traded contracts that enable a
fund to hedge against or speculate on
future changes in currency values,
interest rates, securities or stock
indexes. Futures obligate the fund (or
give it the right, in the case of
options) to receive or make payment at a
specific future time based on those
future changes.(1) CORRELATION,
CURRENCY, HEDGED EXPOSURE,
INTEREST-RATE, MARKET, SPECULATIVE
EXPOSURE RISKS.(2) / / / /
Options Instruments that provide a right
to buy (call) or sell (put) a particular
security, currency or index of
securities at a fixed price within a
certain time period. A fund may purchase
or sell (write) both put and call
options for hedging or speculative
purposes.(1) CORRELATION, CREDIT, HEDGED
EXPOSURE, LIQUIDITY, MARKET, SPECULATIVE
EXPOSURE RISKS. / / / /
</TABLE>
--
20
<PAGE>
<TABLE>
<CAPTION>
EUROPEAN GLOBAL
EQUITY TELECOMMUNICATIONS
FUND FUND
INVESTMENT PRACTICE LIMIT
<S> <C> <C>
Privatization programs Foreign
governments may sell all or part of
their interests in enterprises they own
or control. ACCESS, CURRENCY,
INFORMATION, LIQUIDITY, OPERATIONAL,
POLITICAL, VALUATION RISKS. /X/ /X/
Restricted and other illiquid securities
Securities with restrictions on trading,
or those not actively traded. May
include private placements. LIQUIDITY,
MARKET, VALUATION RISKS. /15%/ /15%/
Securities lending Lending portfolio
securities to financial institutions; a
fund receives cash, U.S. government
securities or bank letters of credit as
collateral. CREDIT, LIQUIDITY, MARKET,
OPERATIONAL RISKS. 33 1/3% 33 1/3%
Start-up and other small companies
Companies with small relative market
capitalizations, including those with
continuous operations of less than three
years. INFORMATION, LIQUIDITY, MARKET,
VALUATION RISKS. /5%/ /5%/
Structured instruments Swaps, structured
securities and other instruments that
allow a fund to gain access to the
performance of a benchmark asset (such
as an index or selected stocks) that may
be more attractive or accessible than
the fund's direct investment. CREDIT,
CURRENCY, INFORMATION, INTEREST-RATE,
LIQUIDITY, MARKET, POLITICAL,
SPECULATIVE EXPOSURE, VALUATION RISKS. / / / /
Temporary defensive tactics Placing some
or all of a fund's assets in investments
such as money-market obligations and
investment-grade debt securities for
defensive purposes. Although intended to
avoid losses in adverse market,
economic, political or other conditions,
defensive tactics might be inconsistent
with a fund's principal investment
strategies and might prevent a fund from
achieving its goal. / / / /
Warrants Options issued by a company
granting the holder the right to buy
certain securities, generally common
stock, at a specified price and usually
for a limited time. LIQUIDITY, MARKET,
SPECULATIVE EXPOSURE RISKS. /15%/ / /
</TABLE>
(1) The funds are not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used
effectively or may be unable to be used for other reasons.
(2) Each fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.
--
21
<PAGE>
MEET THE MANAGERS
The following individuals are responsible for the day-to-day portfolio
management of the European Equity Fund:
[HAROLD W. EHRLICH PHOTO]
Harold W. Ehrlich, CFA, CIC
MANAGING DIRECTOR
/ /Co-Portfolio Manager, European Equity Fund since 1999
/ /Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ /With Warburg Pincus Asset Management since 1995
/ /Senior vice president, portfolio manager and analyst at Templeton Investment
Counsel Inc., 1987 to 1995
[J.H. CULLUM CLARK PHOTO]
J.H. Cullum Clark
DIRECTOR
/ /Co-Portfolio Manager, European Equity Fund since 1999
/ /Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ /With Warburg Pincus Asset Management since 1996
/ /Analyst and portfolio manager at Brown Brothers Harriman, 1993 to 1996
[NANCY NIERMAN PHOTO]
Nancy Nierman
DIRECTOR
/ /Co-Portfolio Manager, European Equity Fund since 1999
/ /Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ /With Warburg Pincus Asset Management since 1996
/ /Vice president at Fiduciary Trust Company International, 1992 to 1996
--
22
<PAGE>
The day-to-day portfolio management of the Global Telecommunications Fund is
the responsibility of the Credit Suisse Asset Management Global
Telecommunications Management Team. The team consists of the following
individuals:
[SCOTT T. LEWIS PHOTO]
Scott T. Lewis
MANAGING DIRECTOR
/ /Team member since 1999
/ /Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ /With Warburg Pincus Asset Management since 1986
[RICHARD WATT PHOTO]
Richard Watt
MANAGING DIRECTOR
/ /Team member since 1995
/ /With Credit Suisse Asset Management since 1995
/ /Director and Head of emerging markets investments and research at Gartmore
Investment Limited in London, 1992 to 1995
--
23
<PAGE>
ABOUT YOUR ACCOUNT
SHARE VALUATION
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (currently 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Common Class's total assets, less its
liabilities, by the number of Common Class shares outstanding.
Each fund values its securities based on market quotations when it calculates
its NAV. If market quotations are not readily available, securities and other
assets are valued by another method that the Board of Directors believes
accurately reflects fair value. Debt obligations that will mature in 60 days or
less are valued on the basis of amortized cost, unless the Board of Directors
determines that using this method would not reflect an investment's value.
Some fund securities may be listed on foreign exchanges that are open on days
(such as U.S. holidays) when the funds do not compute their prices. This could
cause the value of a fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.
BUYING AND
SELLING SHARES
The accompanying SHAREHOLDER GUIDE explains how to invest directly with the
funds. You will find information about purchases, redemptions, exchanges and
services.
The funds are open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (usually 4 p.m. Eastern Time), your transaction will be priced at that
day's NAV. If we receive it after that time, it will be priced at the next
business day's NAV.
FINANCIAL-SERVICES FIRMS
You can also buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The funds have authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the fund and will be priced at the next-computed NAV.
Financial-services firms may charge transaction fees or other fees that you
could avoid by investing directly with the fund. Please read their program
materials for any special provisions or additional service features that may
apply to your investment. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
Some of the firms through which the funds are available include:
/ /Charles Schwab & Co., Inc. Mutual Fund OneSource-Registered Trademark-
service
/ /Fidelity Brokerage Services, Inc. FundsNetwork-TM- Program
/ /Waterhouse Securities, Inc.
--
24
<PAGE>
ACCOUNT STATEMENTS
In general, you will receive account statements as follows:
/ /after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
/ /after any changes of name or address of the registered owner(s)
/ /otherwise, every calendar quarter
You will receive annual and semiannual financial reports.
DISTRIBUTIONS
As a fund investor, you will receive distributions.
Each fund earns dividends from stocks and interest from bond, money-market and
other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.
The funds distribute dividends annually. The funds typically distribute
capital gains annually in December.
Most investors have their distributions reinvested in additional shares of the
same fund. Distributions will be reinvested unless you choose on your account
application to have a check for your distributions mailed to you or sent by
electronic transfer.
TAXES
As with any investment, you should consider how your investment in a fund will
be taxed. If your account is not a tax-advantaged account, you should be
especially aware of the following potential tax implications. Please consult
your tax professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as a fund continues to meet the requirements for being a tax-
qualified regulated investment company, the fund pays no federal income tax on
the earnings it distributes to shareholders.
Distributions you receive from a fund, whether reinvested or taken in cash,
are generally considered taxable. Distributions from the fund's long-term
capital gains are taxed as long-term capital gains, regardless of how long you
have held fund shares. Distributions from other sources are generally taxed as
ordinary income. The funds will mostly make capital-gain distributions which
could be short-term or long-term.
If you buy shares shortly before or on the "record date"--the date that
establishes you as the person to receive the upcoming distribution--you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099 that is mailed to you every January details your distributions
and their federal tax category, including the portion taxable as long-term
capital gains.
--
25
<PAGE>
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
--
26
<PAGE>
OTHER INFORMATION
ABOUT THE DISTRIBUTOR
Provident Distributors, Inc., located at Four Falls Corporate Center, West
Conshohocken, PA 19428-2961, is the funds' distributor and is responsible for
making the funds available to you.
As part of their business strategies, the funds each have adopted a
Rule 12b-1 shareholder-servicing and distribution plan to compensate Credit
Suisse Asset Management Securities, Inc. (CSAMSI) for providing certain
shareholder and other services related to the sale of the Common Class. Under
the plan, CSAMSI receives fees at an annual rate of 0.25% of average daily net
assets of the fund's Common Class. Because the fees are paid out of a fund's
assets on an ongoing basis, over time they will increase the cost of your
investment and may cost you more than paying other types of sales charges.
--
27
<PAGE>
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28
<PAGE>
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--
29
<PAGE>
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--
30
<PAGE>
FOR MORE INFORMATION
More information about these funds is available free upon request, including
the following:
SHAREHOLDER GUIDE
Explains how to buy and sell shares. The SHAREHOLDER GUIDE is incorporated by
reference into (is legally part of) this PROSPECTUS.
ANNUAL/SEMIANNUAL
REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed performance
information.
The ANNUAL REPORT also contains a letter from the funds' managers discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.
OTHER INFORMATION
A current STATEMENT OF ADDITIONAL INFORMATION (SAI), which provides more
details about the funds, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact Warburg Pincus Funds to obtain, without charge, the SAI and
ANNUAL and SEMIANNUAL REPORTS and to make shareholder inquiries:
BY TELEPHONE:
800-WARBURG
(800-927-2874)
BY MAIL:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER
SERVICE:
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC file numbers:
Warburg Pincus European
Equity Fund 811-08903
Warburg Pincus Global
Telecommunications Fund 811-08935
[WARBURG PINCUS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) / / www.warburg.com
The distributor of Warburg Pincus Funds is Provident Distributors, Inc.,
which is not affiliated with Credit Suisse Asset Management, LLC. WPEGT-1-0100A
<PAGE>
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
Common Class
September 16, 1999
As Revised December 15, 1999
This Shareholder Guide is incorporated into and legally part of
each Warburg Pincus (Common Class) prospectus.
[Warburg Pincus Funds Logo]
Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC
<PAGE>
BUYING SHARES
OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Shareholder Service Center to receive
one by mail or fax. Or you can download it from our Internet Web site:
www.warburg.com.
You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.
ADDING TO AN ACCOUNT
You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.
INVESTMENT CHECKS
Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Funds. Unfortunately, we cannot accept "starter" checks that do not have
your name preprinted on them. We also cannot accept checks payable to you or to
another party and endorsed to the order of Warburg Pincus Funds. These types of
checks may be returned to you and your purchase order may not be processed.
Limited exceptions include properly endorsed government checks.
MINIMUM INITIAL INVESTMENT
<TABLE>
<S> <C>
Cash Reserve Fund: $ 1,000
New York Tax Exempt
Fund: $ 1,000
Balanced Fund: $ 1,000
Growth & Income Fund:* $ 1,000
WorldPerks(R) Funds: $ 5,000
Long-Short Fund: $ 25,000
All other funds: $ 2,500
IRAs: $ 500**
Transfers/Gifts to
Minors: $ 500**
</TABLE>
* The fund will be renamed "Value Fund" effective January 1, 2000.
** $25,000 minimum for Long-Short Fund.
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Warburg Pincus Fund Name]
DDA# 9904-649-2
F/F/C: [Account Number and Registration]
HOW TO REACH US
SHAREHOLDER SERVICE CENTER
Toll free: 800 -WARBURG
(800 -927-2874)
Fax: 212-370-9833
MAIL
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
INTERNET WEB SITE
www.warburg.com
2
<PAGE>
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
- - Complete the New Account Application. - Make your check payable to Warburg
For IRAs use the Universal IRA Pincus Funds.
Application. - Write the account number and the fund
- - Make your check payable to Warburg name on your check.
Pincus Funds. - Mail to Warburg Pincus Funds.
- - Mail to Warburg Pincus Funds. - Minimum amount is $100.
BY EXCHANGE
- - Call our Shareholder Service Center to - Call our Shareholder Service Center to
request an exchange. Be sure to read request an exchange.
the current prospectus for the new - Minimum amount is $250.
fund. Also please observe the minimum If you do not have telephone privileges,
initial investment. mail or fax a signed letter of
If you do not have telephone instruction.
privileges, mail or fax a signed letter
of instruction.
BY WIRE
- - Complete and sign the New Account - Call our Shareholder Service Center by
Application. 4 p.m. ET to inform us of the incoming
- - Call our Shareholder Service Center and wire. Please be sure to specify your
fax the signed New Account Application name, the account number and the fund
by 4 p.m. ET. name on your wire advice.
- - Shareholder Services will telephone you - Wire the money for receipt that day.
with your account number. Please be - Minimum amount is $500.
sure to specify your name, the account
number and the fund name on your wire
advice.
- - Wire your initial investment for
receipt that day.
- - Mail the original, signed application
to Warburg Pincus Funds.
This method is not available for IRAs.
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
- - Cannot be used to open an account. - Call our Shareholder Service Center to
request an ACH transfer from your bank.
- Your purchase will be effective at the
next NAV calculated after we receive your
order in proper form.
- Minimum amount is $50.
Requires ACH on Demand privileges.
</TABLE>
800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
3
<PAGE>
SELLING SHARES(*)
<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
<S> <C>
BY MAIL
Write us a letter of instruction that - Accounts of any type.
includes: - Sales of any amount.
- - your name(s) and signature(s) For IRAs please use the IRA Distribution
- - the fund name and account number Request Form.
- - the dollar amount you want to sell
- - how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling
Shares
in Writing").
Mail the materials to Warburg Pincus
Funds.
If only a letter of instruction is
required, you can fax it to the
Shareholder Service Center.
BY EXCHANGE
- - Call our Shareholder Service Center to - Accounts with telephone privileges.
request an exchange. Be sure to read the If you do not have telephone privileges,
current prospectus for the new fund. Also mail or fax a letter of instruction to
please observe the minimum initial exchange shares.
investment.
BY PHONE
Call our Shareholder Service Center to - Non-IRA accounts with telephone
request a redemption. You can receive the privileges.
proceeds as:
- - a check mailed to the address of record
- - an ACH transfer to your bank ($50
minimum)
- - a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for
details.
BY WIRE OR ACH TRANSFER
- - Complete the "Wire Instructions" or - Non-IRA accounts with wire-redemption
"ACH on Demand" section of your New or ACH on Demand privileges.
Account Application. - Requests by phone or mail.
- - For federal-funds wires, proceeds will
be wired on the next business day. For
ACH transfers, proceeds will be
delivered within two business days.
</TABLE>
(*) For the Japan Small Company Fund only: The fund imposes a 1.00% redemption
fee (short-term trading fee) on fund shares redeemed or exchanged less than six
months from purchase. This fee is calculated based on the shares' net asset
value at redemption and deducted from the redemption proceeds. The fee is paid
to the fund to offset costs associated with short-term shareholder trading. It
does not apply to shares acquired through reinvestment of distributions. For
purposes of computing the redemption fee, any shares bought through reinvestment
of distributions will be redeemed first without charging the fee, followed by
the shares held longest. The redemption fee applies to fund shares purchased on
or after November 17, 1999.
4
<PAGE>
SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
- accounts whose address of record has been changed within the past 30 days
- redemption in certain large amounts (other than by exchange)
- requests to send the proceeds to a different payee or address
- shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED SHARES
If the fund has not yet collected payment for the shares you are selling, it
will delay sending you the proceeds until your purchase payment clears. This may
take up to 10 calendar days after the purchase. To avoid the collection period,
consider buying shares by bank wire, bank check, certified check or money order.
LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum required to keep it open due
to redemptions or exchanges, the fund may ask you to increase your balance. If
it is still below the minimum after 60 days, the fund may close your account and
mail you the proceeds.
MINIMUM TO KEEP AN ACCOUNT OPEN
<TABLE>
<S> <C>
Cash Reserve Fund: $ 750
New York Tax Exempt Fund: $ 750
Balanced Fund: $ 500
Growth & Income Fund:* $ 500
WorldPerks Funds: $ 750
All other funds: $2,000
IRAs: $ 250
Transfers/Gifts to
Minors: $ 250
</TABLE>
* The fund will be renamed "Value Fund" on January 1, 2000.
800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
5
<PAGE>
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.
SAVEMYMONEY PROGRAM
SaveMyMoney is a low minimum, automatic investing program that makes it easy
to build a mutual fund portfolio. For an initial investment of $250 along with a
minimum $50 monthly investment, you can invest in certain Warburg Pincus funds.
The SaveMyMoney Program will automatically transfer the monthly investment
amount you designate from your bank account.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments ($50 minimum) from a designated bank
account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals of
$250 or more.
DISTRIBUTION SWEEP
For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
RETIREMENT PLANS
Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
- Traditional IRAs
- Roth IRAs
- Roth Conversion IRAs
- Spousal IRAs
- Rollover IRAs
- SEP IRAs
To transfer your IRA to Warburg Pincus, use the IRA Transfer/Direct Rollover
Form. If you are opening a new IRA, you will also need to complete the Universal
IRA Application. Please consult your tax professional concerning your IRA
eligibility and tax situation.
TRANSFERS/GIFTS TO MINORS
Depending on state laws, you can set up a custodial account under the Uniform
Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please
consult your tax professional about these types of accounts.
ACCOUNT CHANGES
Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.
6
<PAGE>
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned dividend distributions as soon as
your purchase order is executed. For the Intermediate Maturity Government, New
York Intermediate Municipal and Fixed Income Funds and the Money Market Funds,
you begin to earn dividend distributions the business day after your purchase
order is executed. However, if we receive your purchase order and payment to
purchase shares of a Money Market Fund before 12 p.m. (noon), you begin to earn
dividend distributions on that day.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:
- your investment check or ACH transfer does not clear
- you place a telephone order by 4 p.m. ET and we do not receive your wire that
day
If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
A fund reserves the right to:
-refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
-change or discontinue its exchange privilege after 30 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
-make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations
-suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)
-modify or waive its minimum investment requirements for investments through
certain financial-services firms and for employees and clients of its adviser,
sub-adviser, distributor and their affiliates and, for the Long-Short Fund,
investments through certain financial-services firms ($10,000 minimum) and
through retirement plan programs (no minimum)
-stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
7
<PAGE>
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) B www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC.,
DISTRIBUTOR. WPCOM-31-1299
(EFFECTIVE JANUARY 3, 2000, PROVIDENT DISTRIBUTORS, INC. WILL BE THE FUND
DISTRIBUTOR)
<PAGE>
[WARBURG PINCUS FUNDS LOGO][CREDIT SUISSE ASSET MANAGEMENT LOGO]
INTERNATIONAL GROWTH FUND
EUROPEAN EQUITY FUND
U.S. CORE EQUITY FUND
FOCUS FUND
LONG-SHORT MARKET NEUTRAL FUND
U.S. CORE FIXED INCOME FUND
HIGH YIELD FUND
MUNICIPAL BOND FUND
STRATEGIC GLOBAL FIXED INCOME FUND
JANUARY 1, 2000 PROSPECTUS
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR
As with all mutual funds, the Securities and Exchange Commission
has not approved these funds, nor has it passed upon the adequacy or
accuracy of this PROSPECTUS. It is a criminal offense to state otherwise.
INSTITUTIONAL SHARES
<PAGE>
CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................................................. 4
PERFORMANCE SUMMARY......................................... 10
Year-by-Year Total Returns ............................... 10
Average Annual Total Returns.............................. 11
INVESTOR EXPENSES........................................... 13
THE FUNDS IN DETAIL......................................... 17
The Management Firms...................................... 17
Multi-Class Structure..................................... 17
Fund Information Key...................................... 18
INTERNATIONAL GROWTH FUND................................... 20
EUROPEAN EQUITY FUND........................................ 22
U.S. CORE EQUITY FUND....................................... 24
FOCUS FUND.................................................. 26
LONG-SHORT MARKET NEUTRAL FUND.............................. 28
U.S. CORE FIXED INCOME FUND................................. 30
HIGH YIELD FUND............................................. 32
MUNICIPAL BOND FUND......................................... 36
STRATEGIC GLOBAL FIXED INCOME FUND.......................... 38
MORE ABOUT RISK............................................. 40
Introduction.............................................. 40
Types of Investment Risk.................................. 40
CERTAIN INVESTMENT PRACTICES ............................... 42
MEET THE MANAGERS........................................... 46
ABOUT YOUR ACCOUNT.......................................... 53
Share Valuation........................................... 53
Buying and Selling Shares................................. 53
Buying Fund Shares........................................ 53
Selling Fund Shares....................................... 54
Exchanging Fund Shares.................................... 54
Other Policies............................................ 55
Account Statements........................................ 55
Distributions............................................. 55
Taxes .................................................... 56
OTHER INFORMATION........................................... 57
About the Distributor..................................... 57
FOR MORE INFORMATION........................................ back cover
CREDIT SUISSE ASSET MANAGEMENT INSTITUTIONAL FUNDS IS THE
NAME UNDER WHICH THE INSTITUTIONAL CLASS OF SHARES OF
CERTAIN WARBURG PINCUS FUNDS ARE OFFERED.
</TABLE>
3
<PAGE>
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
INTERNATIONAL GROWTH FUND Long-term appreciation of capital / / Invests in foreign equity securities
Risk factors: / / Emphasizes developed countries, but
FOREIGN SECURITIES may also invest in emerging markets
MARKET RISK / / Combines top-down regional analysis with
NON-DIVERSIFIED STATUS bottom-up company research
/ / Seeks countries, sectors and companies with
solid growth prospects and attractive market
valuations
EUROPEAN EQUITY FUND Capital appreciation / / Invests in European equity securities
Risk factors: / / Targets Western European countries
FOREIGN SECURITIES / / Uses both growth and value criteria (seeks
MARKET RISK "growth at a resonable price")
REGION FOCUS / / Portfolio managers look at factors such as
earnings growth, stock price, relative
valuation and merger-and-acquisition trends
</TABLE>
- --- INVESTOR PROFILE
- ---------------------------
THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios internationally
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that has a higher degree of
volatility
- want to limit your exposure to foreign securities
- are looking for income
You should base your selection of a fund on your own goals, risk preferences and
time horizon.
4
<PAGE>
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
U.S. CORE EQUITY FUND Long-term appreciation of capital / / Invests primarily in U.S. equity securities
Risk factors: / / Focuses on large companies
MARKET RISK / / Stock-selection process uses quantitative
NON-DIVERSIFIED STATUS techniques to seek to identify companies with
improving momentum and reasonable relative
valuations
FOCUS FUND Long-term appreciation of capital / / Invests in securities of 40-60 U.S.
Risk factors: companies
MARKET RISK / / Focuses on companies and industry sectors
NON-DIVERSIFIED STATUS with favorable economic profit trends
/ / Uses both traditional value-based analyses
(such as price/book ratio), as well as the
economic profit of a company
</TABLE>
- --- INVESTOR PROFILE
- ---------------------------
THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios into common stocks
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that will fluctuate in value
- are looking for income
You should base your selection of a fund on your own goals, risk preferences and
time horizon.
5
<PAGE>
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
LONG-SHORT MARKET NEUTRAL FUND Long-term capital appreciation / / Seeks a total return greater than the return
Risk factors: while minimizing exposure to of the Salomon Smith Barney 1-Month Treasury
MARKET RISK general equity market risk Bill Index-TM-
NON-DIVERSIFIED STATUS / / Takes long positions in stocks that the
SHORT POSITIONS manager has identified as attractive
/ / Takes short positions in stocks that the
manager has identified as unattractive
/ / Seeks minimal net exposure to the general
U.S. equity market and low to neutral exposure
to any particular industry or specific
capitalization range
</TABLE>
- --- INVESTOR PROFILE
- ---------------------------
THIS FUND IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are investing for total return or capital appreciation
IT MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that will fluctuate in value
- are looking primarily for income
You should base your selection of a fund on your own goals, risk preferences and
time horizon.
6
<PAGE>
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
U.S. CORE FIXED High total return / / Invests primarily in fixed-income securities
INCOME FUND of U.S. issuers
Risk factors: / / Typically maintains a weighted-average
CREDIT RISK portfolio maturity of between five and
INTEREST-RATE RISK 15 years
MARKET RISK / / Focuses on high-grade securities (average
NON-DIVERSIFIED STATUS credit rating AA)
HIGH YIELD FUND High total return / / Invests primarily in high-yield, higher-risk
Risk factors: fixed-income securities (junk bonds)
CREDIT RISK / / Typically maintains a weighted-average
INTEREST-RATE RISK portfolio maturity of between five and
MARKET RISK 15 years
NON-DIVERSIFIED STATUS / / Emphasizes top-down analysis of industry
sectors and themes
/ / Seeks to allocate risk by investing among a
variety of industry sectors
MUNICIPAL BOND FUND High total return / / Invests primarily in municipal securities
Risk factors: / / Typically maintains a weighted-average
CREDIT RISK portfolio maturity of between 10 and 15 years
INTEREST-RATE RISK / / Focuses on high-grade securities (average
MARKET RISK credit rating AA)
NON-DIVERSIFIED STATUS
STRATEGIC GLOBAL FIXED INCOME FUND High total return / / Invests in U.S. and foreign fixed-income
Risk factors: securities denominated in various currencies
CREDIT RISK / / Seeks to maintain an average credit rating
FOREIGN SECURITIES of BBB or higher
INTEREST-RATE RISK / / Seeks to invest in countries exhibiting an
MARKET RISK attractive combination of fixed-income returns
NON-DIVERSIFIED STATUS and currency exchange rates
/ / Focuses on high-grade securities (average
credit rating AA)
</TABLE>
- --- INVESTOR PROFILE
- ---------------------------
THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
- are seeking investment income
- want to diversify their portfolios with fixed-income funds
- are willing to accept risk and volatility
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for maximum return over a long time horizon
- require stability of your principal
You should base your selection of a fund on your own goals, risk preferences and
time horizon.
BECAUSE THE HIGH YIELD FUND AND THE STRATEGIC GLOBAL FIXED INCOME FUND INVOLVE A
HIGHER LEVEL OF RISK, YOU SHOULD CONSIDER THEM ONLY FOR THE AGGRESSIVE PORTION
OF YOUR PORTFOLIO. THE HIGH YIELD FUND AND THE STRATEGIC GLOBAL FIXED INCOME
FUND MAY NOT BE APPROPRIATE FOR EVERYONE.
7
<PAGE>
- --- A WORD ABOUT RISK
- -----------------------------
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to the funds. As with any
mutual fund, you could lose money over any period of time.
Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
CREDIT RISK
U.S. CORE FIXED INCOME, HIGH YIELD, MUNICIPAL BOND AND STRATEGIC GLOBAL FIXED
INCOME FUNDS
The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation.
FOREIGN SECURITIES
INTERNATIONAL GROWTH, EUROPEAN EQUITY AND STRATEGIC GLOBAL FIXED INCOME FUNDS
A fund that invests outside the U.S. carries additional risks that include:
- CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses. A fund may, but is not
required to, seek to reduce currency risk by hedging part or all of its
exposure to various foreign currencies.
- INFORMATION RISK Key information about an issuer, security or market may
be inaccurate or unavailable.
- POLITICAL RISK Foreign governments may expropriate assets, impose capital
or currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security
prices and impair a fund's ability to bring its capital or income back to
the U.S. Other political risks include economic policy changes, social and
political instability, military action and war.
INTEREST-RATE RISK
U.S. CORE FIXED INCOME, HIGH YIELD, MUNICIPAL BOND AND STRATEGIC GLOBAL FIXED
INCOME FUNDS
Changes in interest rates may cause a decline in the market value of an
investment. With bonds and other fixed-income securities, a rise in interest
rates typically causes a fall in values, while a fall in interest rates
typically causes a rise in values.
MARKET RISK
ALL FUNDS
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments -- including stocks
and bonds, and the mutual funds that invest in them.
Bonds and other fixed-income securities generally involve less market risk
than stocks. The risk of bonds can vary significantly depending upon factors
such as issuer and maturity. The bonds of some companies may be riskier than the
stocks of others.
8
<PAGE>
NON-DIVERSIFIED STATUS
ALL FUNDS EXCEPT EUROPEAN EQUITY FUND
The funds are considered non-diversified investment companies under the
Investment Company Act of 1940 and are permitted to invest a greater proportion
of their assets in the securities of a smaller number of issuers. As a result,
the funds may be subject to greater volatility with respect to their respective
portfolio securities than a fund that is more broadly diversified.
SHORT POSITIONS
LONG-SHORT MARKET NEUTRAL FUND
The fund takes short positions by selling borrowed securities that it does
not currently own, with the intention of repurchasing them later for a profit on
the expectation that the market price will drop.
Because they expose the fund to risks associated with securities it does not
own, short positions involve speculative exposure risk. As a result, if the fund
takes short positions in stocks that increase in value, then it will be likely
to underperform similar stock mutual funds that do not take short positions. In
addition, short positions typically involve increased liquidity risk and
transaction costs.
REGION FOCUS
EUROPEAN EQUITY FUND
Focusing on a single region involves increased currency, political,
regulatory and other risks. Market swings in the targeted region (Western
Europe) will be likely to have a greater effect on fund performance than they
would in a more geographically diversified equity fund.
9
<PAGE>
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in certain of these funds. The European Equity, Focus and
Long-Short Market Neutral Funds have not been included in either the bar chart
or the table because they have not had at least one full calendar year of
performance. The bar chart shows you how fund performance has varied from year
to year for up to 10 years. The table compares each fund's performance over time
to that of a broadly based securities market index. As with all mutual funds,
past performance is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS(*)
<TABLE>
<CAPTION>
YEAR ENDED 12/31: 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL GROWTH FUND
Best quarter: 17.41% (Q1 98)
Worst quarter: -14.46% (Q3 98)
Inception date: 9/30/92
Total return for the period 1/1/99 - 9/30/99: 5.65%
(not annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1993 39.95%
1994 -8.37%
1995 4.34%
1996 11.76%
1997 15.17%
1998 20.67%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S. CORE EQUITY FUND
Best quarter: 18.04% (Q2 97)
Worst quarter: -9.73% (Q3 98)
Inception date: 8/31/94
Total return for the period 1/1/99 - 9/30/99: 4.03%
(not annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 35.63%
1996 21.89%
1997 30.23%
1998 24.72%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S. CORE FIXED INCOME FUND
Best quarter: 6.28% (Q2 95)
Worst quarter: -1.80% (Q2 94)
Inception date: 3/31/94
Total return for the period 1/1/99 - 9/30/99: .33%
(not annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 18.25%
1996 5.42%
1997 9.66%
1998 7.38%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
Best quarter: 9.43% (Q2 95)
Worst quarter: -7.02% (Q1 94)
Inception date: 2/26/93
Total return for the period 1/1/99 - 9/30/99: 1.50%
(not annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -7.96%
1995 16.20%
1996 12.73%
1997 14.85%
1998 -1.28%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL BOND FUND
Best quarter: 6.66% (Q1 95)
Worst quarter: -2.61% (Q1 96)
Inception date: 6/17/94
Total return for the period 1/1/99 - 9/30/99: -1.90%
(not annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 15.28%
1996 2.16%
1997 9.61%
1998 5.71%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
STRATEGIC GLOBAL FIXED INCOME FUND
Best quarter: 5.62% (Q2 95)
Worst quarter: -3.18% (Q1 97)
Inception date: 6/27/94
Total return for the period 1/1/99 - 9/30/99: -4.36%
(not annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 17.35%
1996 8.36%
1997 2.00%
1998 10.32%
</TABLE>
* The total returns shown include the total returns of each fund's
predecessor, the Institutional Shares of the corresponding investment
portfolio of The RBB Fund, Inc.
10
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS(1)
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/98: 1998 1996-1998 1994-1998 FUND DATE
<S> <C> <C> <C> <C> <C>
INTERNATIONAL GROWTH FUND 20.67% 15.81% 8.23% 12.30% 9/30/92
MSCI EUROPE, AUSTRALASIA AND
FAR EAST INDEX(2) 20.33% 9.30% 9.50% 11.84%
U.S. CORE EQUITY FUND 24.72% 25.57% N/A 24.67% 8/31/94
STANDARD & POOR'S 500
INDEX(3) 28.75% 28.26% N/A 27.11%
U.S. CORE FIXED INCOME FUND 7.38% 7.48% N/A 8.03% 3/31/94
LEHMAN BROTHERS AGGREGATE
BOND INDEX(4) 8.67% 7.28% N/A 8.33%
HIGH YIELD FUND -1.28% 8.50% 6.45% 9.15% 2/26/93
CS FIRST BOSTON DOMESTIC +
HIGH YIELD INDEX(5) .58% 8.38% 8.16% 9.29%
MUNICIPAL BOND FUND 5.71% 5.78% N/A 6.64% 6/17/94
LEHMAN BROTHERS MUNICIPAL
BOND INDEX(6) 6.48% 6.68% N/A 7.61%
STRATEGIC GLOBAL FIXED
INCOME FUND 10.32% 6.84% N/A 8.29% 6/27/94
JP MORGAN GLOBAL GOVERNMENT
BOND INDEX UNHEDGED(7) 15.31% 6.87% N/A 9.12%
</TABLE>
(1) The total returns shown include the total returns of each fund's
predecessor, the Institutional Shares of the corresponding investment
portfolio of The RBB Fund, Inc.
(2) The Morgan Stanley Capital International Europe, Australasia and Far East
Index is an unmanaged index (with no defined investment objective) of
international equities that includes reinvestments of dividends, and is the
exclusive property of Morgan Stanley Capital International & Co.,
Incorporated.
(3) The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of McGraw-Hill Co., Inc.
(4) The Lehman Brothers Aggregate Bond Index is composed of the Lehman
Brothers Government/Corporate Bond Index and the Lehman Brothers
Mortgage-Backed Securities Index. The Aggregate Bond Index includes U.S.
Treasury and agency issues, corporate bond issues and mortgage-backed
securities rated investment-grade or higher by Moody's Investors Service,
Standard & Poor's Corporation or Fitch Investors' Service.
(5) The Credit Suisse First Boston Domestic + High Yield Index is an unmanaged
index (with no defined investment objective) of domestic high yield bonds
and is compiled by Credit Suisse First Boston, an affiliate of the funds'
adviser.
(6) The Lehman Brothers Municipal Bond Index is an unmanaged index (with no
defined investment objective) of municipal bonds and is calculated by Lehman
Brothers Inc.
(7) The JP Morgan Global Government Bond Index Unhedged (including U.S. $) is
a market-capitalization index consisting of the government bond markets of
the following countries: Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, the U.K. and the U.S.
All issues have a remaining maturity of at least one year and the index is
rebalanced monthly.
11
<PAGE>
UNDERSTANDING PERFORMANCE
/ / TOTAL RETURN tells you how much an investment in a fund has changed in
value over a given time period. It assumes that all dividends and
capital gains (if any) were reinvested in additional shares. The change
in value can be stated either as a CUMULATIVE RETURN or as an AVERAGE
ANNUAL RATE OF RETURN.
/ / A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The YEAR-BY-YEAR TOTAL RETURNS in the bar chart are
examples of one-year cumulative total returns.
/ / An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what CONSTANT annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, ASSUMING you held it for the entire
period.
/ / Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.
------------------------------------------------------------------------------
12
<PAGE>
INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal period ending August 31, 1999.
<TABLE>
<CAPTION>
EUROPEAN
INTERNATIONAL EQUITY
GROWTH FUND FUND
<S> <C> <C>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
Sales charge "load" on purchases NONE NONE
Deferred sales charge "load" NONE NONE
Sales charge "load" on reinvested distributions NONE NONE
Redemption fees NONE NONE
Exchange fees NONE NONE
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management fee .80% 1.00%
Distribution and service (12b-1) fee NONE NONE
Other expenses .42% 1.29%
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.22% 2.29%
</TABLE>
* Fee waivers and expense reimbursements or credits reduced expenses for the
funds during 1999 but may be discontinued at any time. Actual fees and
expenses for the fiscal year ended August 31, 1999 are shown below:
<TABLE>
<CAPTION>
EUROPEAN
INTERNATIONAL EQUITY
EXPENSES AFTER WAIVERS AND REIMBURSEMENTS GROWTH FUND FUND
<S> <C> <C>
Management fee .80% .00%
Distribution and service (12b-1) fee NONE NONE
Other expenses .41% 1.16%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.21% 1.16%
</TABLE>
EXAMPLE
This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table above (before fee waivers and expense
reimbursements and credits), and you close your account at the end of each of
the time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH FUND $ 124 $ 387 $ 670 $1,477
EUROPEAN EQUITY FUND $ 232 $ 715 $1,225 $2,626
</TABLE>
13
<PAGE>
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended August 31, 1999.
<TABLE>
<CAPTION>
U.S. CORE
EQUITY FOCUS
FUND FUND
<S> <C> <C>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
Sales charge "load" on purchases NONE NONE
Deferred sales charge "load" NONE NONE
Sales charge "load" on reinvested distributions NONE NONE
Redemption fees NONE NONE
Exchange fees NONE NONE
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management fee .75% .75%
Distribution and service (12b-1) fee NONE NONE
Other expenses .47% .67%
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.22% 1.42%
</TABLE>
* Fee waivers and expense reimbursements or credits reduced expenses for the
funds during 1999 but may be discontinued at any time. Actual fees and
expenses for the fiscal year ended August 31, 1999 are shown below:
<TABLE>
<CAPTION>
U.S. CORE
EQUITY FOCUS
EXPENSES AFTER WAIVERS AND REIMBURSEMENTS FUND FUND
<S> <C> <C>
Management fee .53% .33%
Distribution and service (12b-1) fee NONE NONE
Other expenses .46% .66%
TOTAL ANNUAL FUND OPERATING EXPENSES .99% .99%
</TABLE>
EXAMPLE
This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table above (before fee waivers and expense
reimbursements or credits), and you close your account at the end of each of the
time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
U.S. CORE EQUITY FUND $ 124 $ 387 $ 670 $1,477
FOCUS FUND $ 145 $ 449 $ 776 $1,702
</TABLE>
14
<PAGE>
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended August 31, 1999.
<TABLE>
<CAPTION>
LONG-SHORT
MARKET
NEUTRAL
FUND
<S> <C>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
Sales charge "load" on purchases NONE
Deferred sales charge "load" NONE
Sales charge "load" on reinvested distributions NONE
Redemption fees NONE
Exchange fees NONE
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management fee 1.50%(1)
Distribution and service (12b-1) fee NONE
Other expenses(2) 2.43%
TOTAL ANNUAL FUND OPERATING EXPENSES(3) 3.93%
</TABLE>
(1) The basic management fee is 1.50%. The management fee of the fund may be
increased or decreased pursuant to the application of an adjustment formula
based upon the fund's investment performance as compared to the Salomon
Smith Barney 1-Month U.S. Treasury Bill Index-TM-. The management fee, as
adjusted, may range from 1.00% to 2.00%.
(2) "Other expenses" and "Total annual fund operating expenses" include
dividend and interest expenses incured in connection with short sales, which
are included in and reduce the investment return of the fund.
(3) Fee waivers and expense reimbursements or credits reduced expenses for the
fund during 1999 but may be discontinued at any time. Actual fees and
expenses for the fiscal year ended August 31, 1999 are shown below:
<TABLE>
<CAPTION>
LONG-SHORT
MARKET
NEUTRAL
EXPENSES AFTER WAIVERS AND REIMBURSEMENTS FUND
<S> <C>
Management fee 1.00%
Distribution and service (12b-1) fee NONE
Other expenses 2.33%
TOTAL ANNUAL FUND OPERATING EXPENSES 3.33%
</TABLE>
EXAMPLE
This example may help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, the fund returns 5% annually, expense ratios remain
as listed in the first table above (before fee waivers and expense
reimbursements or credits), and you close your account at the end of each of the
time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
LONG-SHORT MARKET
NEUTRAL FUND $ 395 $1,198 $2,018 $4,147
</TABLE>
15
<PAGE>
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended August 31, 1999.
<TABLE>
<CAPTION>
STRATEGIC
U.S. CORE GLOBAL
FIXED MUNICIPAL FIXED
INCOME HIGH YIELD BOND INCOME
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
Sales charge "load" on purchases NONE NONE NONE NONE
Deferred sales charge "load" NONE NONE NONE NONE
Sales charge "load" on reinvested
distributions NONE NONE NONE NONE
Redemption fees NONE NONE NONE NONE
Exchange fees NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management fee .37% .70% .70% .50%
Distribution and service (12b-1) fee NONE NONE NONE NONE
Other expenses .25% .34% .73% .77%
TOTAL ANNUAL FUND OPERATING EXPENSES* .62% 1.04% 1.43% 1.27%
</TABLE>
* Fee waivers and expense reimbursements or credits reduced expenses for the
funds during 1999 but may be discontinued at any time. Actual fees and
expenses for the fiscal year ended August 31, 1999 are shown below:
<TABLE>
<CAPTION>
STRATEGIC
U.S. CORE GLOBAL
FIXED MUNICIPAL FIXED
EXPENSES AFTER WAIVERS AND INCOME HIGH YIELD BOND INCOME
REIMBURSEMENTS FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Management fee .21% .39% .28% .00%
Distribution and service (12b-1) fee NONE NONE NONE NONE
Other expenses .23% .30% .71% .74%
TOTAL ANNUAL FUND OPERATING EXPENSES .44% .69% .99% .74%
</TABLE>
EXAMPLE
This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table above (before fee waivers and expense
reimbursements or credits), and you close your account at the end of each of the
time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
U.S. CORE FIXED INCOME FUND $ 63 $ 199 $ 346 $ 774
HIGH YIELD FUND $ 106 $ 331 $ 574 $1,271
MUNICIPAL BOND FUND $ 146 $ 452 $ 782 $1,713
STRATEGIC GLOBAL FIXED
INCOME FUND $ 129 $ 403 $ 697 $1,534
</TABLE>
16
<PAGE>
THE FUNDS IN DETAIL
- --- THE MANAGEMENT FIRMS
- ----------------------------------
CREDIT SUISSE ASSET MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
- - Investment adviser for the funds
- - Responsible for managing each fund's assets according to its goal and strategy
and supervising the activities of the sub-investment adviser for the European
Equity and Strategic Global Fixed Income Funds
- - A member of Credit Suisse Asset Management (CSAM), the institutional asset
management and mutual fund arm of Credit Suisse Group, one of the world's
leading banks
- - CSAM companies manage more than $58 billion in the U.S. and $186 billion
globally
- - CSAM has offices in 14 countries, including SEC-registered offices in New York
and London; other offices (such as those in Budapest, Frankfurt, Milan,
Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and Zurich) are not registered
with the U.S. Securities and Exchange Commission
CREDIT SUISSE ASSET MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ
- - Sub-investment adviser for the European Equity and Strategic Global Fixed
Income Funds
- - A member of CSAM
- --- MULTI-CLASS STRUCTURE
- ----------------------------------
This PROSPECTUS describes the Institutional Class shares of the funds. The
Common Class shares of the funds, if offered, are described in separate
prospectuses.
17
<PAGE>
- --- FUND INFORMATION KEY
- ---------------------------------
Concise fund-by-fund descriptions begin on the following pages. Each
description provides the following information:
GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use
in pursuing that goal. Percentages of fund assets are based on total assets
unless indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser or sub-adviser to
handle the fund's day-to-day management.
INVESTOR EXPENSES
Actual expenses for the 1999 fiscal period. Future expenses may be higher or
lower.
- MANAGEMENT FEE The fee paid to the investment adviser and sub-adviser for
providing investment advice to the fund. Expressed as a percentage of
average net assets after waivers.
- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal, registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets
after waivers, credits and reimbursements.
FINANCIAL HIGHLIGHTS
A table showing each fund's audited financial performance for up to five
years.
- TOTAL RETURN How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.
- PORTFOLIO TURNOVER An indication of trading frequency. The funds may sell
securities without regard to the length of time they have been held. A
high turnover rate may increase a fund's transaction costs and negatively
affect its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.
The ANNUAL REPORT includes the auditor's report, along with each fund's
financial statements. It is available free upon request.
18
<PAGE>
This page intentionally left blank
19
<PAGE>
INTERNATIONAL GROWTH FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The International Growth Fund seeks long-term appreciation of capital. To
pursue this goal, it invests in equity securities of companies located or
conducting a majority of their business outside the U.S.
Although it is not an index fund and does not seek to replicate the
performance of any index, this fund expects to focus primarily, but not
exclusively, on countries represented in the Morgan Stanley Capital
International Europe Australasia and Far East (MSCI-EAFE) Index. Although the
fund may invest in emerging markets, it does not expect to invest more than 30%
of assets in securities of emerging-markets issuers.
Under normal market conditions, the fund will invest at least 80% of assets
in equity securities of issuers from at least three foreign countries. The fund
may invest in companies of all sizes.
In managing the fund's investments, the portfolio managers:
- combine top-down regional analysis with bottom-up company research
- look for countries, sectors and companies with solid growth prospects and
attractive market valuations
- focus research efforts on early identification of new investment
opportunities while seeking to manage risk
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Equity holdings may include:
- common and preferred stocks
- securities convertible into common or preferred stock
- rights and warrants
- depositary receipts
To a limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- foreign securities
- market risk
- non-diversified risk
The value of your investment will fluctuate in response to stock-market
movements. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies. Non-
diversification might cause the fund to be more volatile than a diversified
fund.
To the extent that the fund invests in emerging markets or focuses on a
single country or region, it takes on additional risks that could hurt its
performance. Investing in emerging markets involves access, operational and
other risks not generally encountered in developed countries. "More About Risk"
details these and certain other investment practices the fund may use. Please
read that section carefully before you invest.
20
<PAGE>
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Steven D. Bleiberg, Richard Watt, Emily Alejos, Robert B. Hrabchak and Alan
Zlatar manage the fund's investment portfolio. You can find out more about them
in "Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .80%
All other expenses .41%
----
Total expenses 1.21%
</TABLE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98 8/97 8/96 8/95
PERIOD ENDED: ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of year............. $ 22.70 $ 22.22 $ 19.41 $ 18.24 $ 20.73
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss)............... 0.14 0.15 0.18 0.19 0.06
Net gain (loss) on investments and foreign
currency transactions (both realized and
unrealized).............................. 2.90 3.26 2.89 1.05 (1.75)
-------- -------- -------- -------- --------
Total from investment operations........... 3.04 3.41 3.07 1.24 (1.69)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income....... (0.28) -- (0.26) (0.07) --
Distributions from capital gains........... (1.99) (2.93) -- -- (0.80)
-------- -------- -------- -------- --------
Total distributions........................ (2.27) (2.93) (0.26) (0.07) (0.80)
-------- -------- -------- -------- --------
Net asset value, end of year................... $ 23.47 $ 22.70 $ 22.22 $ 19.41 $ 18.24
======== ======== ======== ======== ========
Total return................................... 13.88% 16.74% 15.93% 6.81%(1) (8.06%)(1)
Ratios/supplemental data:
Net assets, end of year (000s omitted)....... $675,118 $623,482 $568,510 $682,271 $773,255
Ratio of expenses to average net assets...... 1.21%(2) 1.14%(2) 1.16%(2) 1.19%(2) 1.25%(2)
Ratio of net investment income (loss) to
average net assets......................... 0.60% 0.72% 0.71% 0.84% 0.35%
Fund turnover rate........................... 182% 141% 126% 86% 78%
</TABLE>
(1) Redemption fees not reflected in total return.
(2) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 1.22%, 1.23%, 1.25%, 1.22% and 1.26% for the years ended August
31, 1999, 1998, 1997, 1996 and 1995, respectively.
21
<PAGE>
EUROPEAN EQUITY FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The European Equity Fund seeks capital appreciation. To pursue this goal,
the fund invests primarily in equity securities of Western European companies.
The fund considers Western Europe to include the European Union, Norway and
Switzerland. The European Union currently consists of: Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Sweden and the United Kingdom.
Under normal market conditions, the fund invests at least 65% of assets in
equity securities of companies located in or conducting a majority of their
business in Western Europe or companies whose securities trade primarily in
Western European markets. To enhance return potential, the fund may also pursue
opportunities in other European countries.
The fund intends to diversify its investments across different countries.
However, at times the fund may invest a significant part of its assets in a
single country. The fund may invest in companies of any size, although most of
the fund's investments will be in medium to larger capitalization companies.
In choosing stocks, the portfolio managers consider a number of factors
including:
- stock price relative to the company's rate of earnings growth
- valuation relative to other European companies and market averages
- merger-and-acquisition trends on companies' business strategies
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
This fund currently intends to invest at least 80% of assets in equity
securities of Western European companies. These equity securities include:
- common and preferred stocks
- securities convertible into common stocks
- securities such as rights and warrants, whose values are based on common
stocks
To a limited extent, the fund may engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- market risk
- foreign securities
- region focus
The value of your investment will fluctuate in response to Western European
stock markets. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Targeting a single region could hurt the fund's performance or may cause the
fund to be more volatile than a more geographically diversified equity fund.
Fund performance is closely tied to economic and political conditions within
Europe.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
22
<PAGE>
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Harold W. Ehrlich, J.H. Cullum Clark and Nancy Nierman manage the fund's
investment portfolio. You can find out more about them in "Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee 0.00%
All other expenses 1.16%
----
Total expenses 1.16%
</TABLE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99(1)
PERIOD ENDED: ---------------
<S> <C>
PER-SHARE DATA
Net asset value, beginning of period........................ $10.00
------
Income from investment operations:
Net investment income (loss)............................ 0.09
Net gain (loss) on investments and foreign currency
transactions (both realized and unrealized)............ (0.29)
------
Total from investment operations........................ (0.20)
------
Less distributions:
Dividends from net investment income.................... --
Distributions from capital gains........................ --
------
Total distributions..................................... --
------
Net asset value, end of period.............................. $ 9.80
======
Total return................................................ (2.00%)(2)
Ratios/supplemental data:
Net assets, end of period (000s omitted).................. $98
Ratio of expenses to average net assets................... 1.16%(3,4)
Ratio of net income (loss) to average net assets.......... 1.67%(4)
Fund turnover rate........................................ 1.61%(2)
</TABLE>
(1) For the period January 29, 1999 (commencement of operations) through
August 31, 1999.
(2) Not annualized.
(3) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 2.29% annualized for the period ended August 31, 1999.
(4) Annualized.
23
<PAGE>
U.S. CORE EQUITY FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The U.S. Core Equity Fund seeks long-term appreciation of capital. To pursue
this goal, it invests in equity securities of large U.S. companies.
In choosing stocks, the fund's portfolio managers use quantitative
techniques to seek to identify companies with improving momentum and reasonable
relative valuations. They emphasize the following five factors:
- earnings
- valuation
- stability/consistency
- relative price strength/sentiment
- financial strength
The managers seek to maintain characteristics that roughly mirror the S&P
500 Index with respect to:
- market capitalization
- industry/sector weightings
- style exposure
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund invests at least 65% of assets in
U.S. equity securities. Equity holdings may consist of:
- common stocks
- preferred stocks
- securities convertible into common stocks
- securities such as rights and warrants, whose values are based on common
stocks
The fund may invest up to 35% of its assets in dollar-denominated American
Depositary Receipts (ADRs) and similar securities of foreign issuers. To a
limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- market risk
- non-diversified risk
The value of your investment will fluctuate in response to stock market
movements.
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the fund to be more volatile than a diversified
fund.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
24
<PAGE>
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
William W. Priest, Jr., Eric N. Remole, Marc Bothwell and Michael Welhoelter
manage the fund's investment portfolio. You can find out more about them in
"Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .53%
All other expenses .46%
----
Total expenses .99%
</TABLE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98 8/97 8/96 8/95
PERIOD ENDED: ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period............................. $ 21.73 $ 24.40 $ 19.05 $ 17.86 $ 15.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss)..... 0.07 0.01 0.14 0.20 0.22
Net gain (loss) on investments
(both realized and
unrealized).................... 7.56 0.88 6.82 2.81 2.72
-------- -------- -------- -------- --------
Total from investment
operations..................... 7.63 0.89 6.96 3.01 2.94
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income......................... (0.04) (0.13) (0.20) (0.21) (0.08)
Distributions from realized
capital gains.................. (9.74) (3.43) (1.41) (1.61) --
-------- -------- -------- -------- --------
Total distributions.............. (9.78) (3.56) (1.61) (1.82) (0.08)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 19.58 $ 21.73 $ 24.40 $ 19.05 $ 17.86
======== ======== ======== ======== ========
Total return......................... 38.07% 3.18% 38.32% 17.59% 19.75%
Ratios/supplemental data:
Net assets, end of period (000s
omitted)......................... $70,081 $63,514 $86,182 $59,015 $31,644
Ratio of expenses to average net
assets........................... 0.99%* 1.00%* 1.00%* 1.00%* 1.00%*
Ratio of net investment income
(loss) to average net assets..... 0.32% 0.23% 0.67% 1.25% 1.59%
Fund turnover rate................. 110% 164% 93% 127% 123%
</TABLE>
* Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 1.22%, 1.18%, 1.18% and 1.34% for the years ended August 31, 1999,
1998, 1997 and 1996, respectively, and 1.51% annualized for the period ended
August 31, 1995.
25
<PAGE>
FOCUS FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The Focus Fund seeks long-term appreciation of capital. To pursue this goal,
the fund invests in securities of approximately 40-60 U.S. companies. The "top
ten" (largest company holdings) in the fund's portfolio may account for 40% or
more of the fund's assets. In addition, the fund's portfolio managers search for
industry sectors with favorable economic profit trends and may focus the
portfolio in these sectors.
In choosing stocks, the fund's portfolio managers use both traditional
value-based analyses (such as
price/book ratio), as well as the economic profit of a company measured by its
cash flow relative to its capital assets. The managers look for companies that:
- earn rates of return exceeding their risk-adjusted costs of capital, as
opposed to earning more than they have spent (accounting profits)
- create shareholder value by gaining the most from their investment
spending, or use their cost of capital as a competitive advantage
- have current market valuations that do not fully recognize future
economically profitable growth
The managers believe this approach allows them to identify companies with
low disappointment risk, as well as those with potential restructuring
opportunities. The portfolio managers construct the fund's portfolio by
weighting selected securities based on results of a proprietary analysis and
risk-scoring system.
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund invests at least 65% of assets in
U.S. equity securities. Equity holdings may consist of:
- common stocks
- preferred stocks
- securities convertible into common stocks
- securities such as rights and warrants, whose values are based on common
stocks
The fund may invest without limit in foreign securities, including
dollar-denominated ADRs of foreign issuers. To a limited extent, the fund may
also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- market risk
- non-diversified risk
The value of your investment will vary with changes in interest rates and
other factors.
Compared to a diversified mutual fund, a non-diversified fund may invest a
greater portion of its assets in the securities of fewer issuers. Because this
fund is non-diversified, its share price and yield might fluctuate more than
they would for a diversified fund.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
James A. Abate and D. Susan Everly manage the fund's investment portfolio.
You can find out more about them in "Meet the Managers."
26
<PAGE>
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .33%
All other expenses .66%
----
Total expenses .99%
</TABLE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98(1)
PERIOD ENDED: ----------- -----------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period........................ $ 13.17 $ 15.00
------- -------
Income from investment operations:
Net investment income (loss)............................ 0.08 0.01
Net gain (loss) on investments (both realized and
unrealized)........................................... 6.92 (1.84)
------- -------
Total from investment operations........................ 7.00 (1.83)
------- -------
Less distributions:
Dividends from net investment income.................... (0.02) --
Distributions from capital gains........................ -- --
------- -------
Total distributions..................................... (0.02) --
------- -------
Net asset value, end of period.............................. $ 20.15 $ 13.17
======= =======
Total return................................................ 53.21% (12.20%)(2)
Ratios/supplemental data:
Net assets, end of period (000s omitted).................. $35,394 $22,659
Ratio of expenses to average net assets................... 0.99%(3) 1.00%(3,4)
Ratio of net investment income (loss) to average net
assets.................................................. 0.47% 0.92%(4)
Fund turnover rate........................................ 209% 52%(2)
</TABLE>
(1) For the period August 3, 1998 (commencement of operations) through August
31, 1998.
(2) Not annualized.
(3) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 1.42% for the year ended August 31, 1999 and 1.30% annualized for
the period ended August 31, 1998.
(4) Annualized.
27
<PAGE>
LONG-SHORT MARKET NEUTRAL FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The Long-Short Market Neutral Fund seeks long-term capital appreciation
while minimizing exposure to general equity market risk. This fund seeks a total
return greater than the return of the Salomon Smith Barney 1-Month Treasury Bill
Index-TM-.
To pursue its goal, the fund takes long positions in stocks that the
portfolio manager has identified as attractive and short positions in stocks
that the manager has identified as unattractive. In doing so, the fund attempts
to minimize directional market risks associated with investing in the equity
market by neutralizing the effects of general stock market movements on its
performance.
In choosing long and short positions for the fund, the portfolio managers
use quantitative techniques to analyze the tradeoff between the attractiveness
of each position and its impact on the risk of the overall portfolio. The
managers seek to construct a portfolio that has:
- minimal net exposure to the general U.S. equity market
- low to neutral exposure to any particular industry or specific
capitalization range (e.g., large cap, mid cap and small cap)
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund takes long and short positions in
equity securities that are principally traded in U.S. markets. These securities
may include:
- common stocks of U.S. issuers
- American depositary receipts of foreign issuers
To a limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- market risk
- non-diversified risk
- short positions
The value of your investment will fluctuate in response to stock market
movements.
Although all mutual funds are subject to the risk that the fund's portfolio
managers will not make good investments, the fund's strategy of taking both long
and short positions increases this risk because long positions could decline in
value at the same time short positions increase. As with other mutual funds,
taking long positions in stocks that decline in value would hurt the fund's
performance. Additionally, however, if the fund were to take short positions in
stocks that increase in value, then it would be likely to underperform similar
stock mutual funds that do not take short positions. Short sales also involve
expenses that will decrease the fund's return.
An investment in the fund involves greater volatility and significantly more
risks than investing in one-month U.S. Treasury bills. Unlike Treasury bills:
- an investment in the fund is not guaranteed by the U.S. government
- the fund does not provide a fixed rate of return
- you can lose money by investing in the fund
28
<PAGE>
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the fund to be more volatile than a diversified
fund.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
William W. Priest, Jr., Eric N. Remole, Marc Bothwell and Michael Welhoelter
manage the fund's investment portfolio. You can find out more about them in
"Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee 1.00%*
All other expenses 2.33%
----
Total expenses 3.33%
</TABLE>
* The basic management fee is 1.50%. The management fee of the fund may be
increased or decreased pursuant to the application of an adjustment formula
based upon the fund's investment performance as compared to the Salomon
Smith Barney 1-Month U.S. Treasury Bill Index-TM-. The management fee, as
adjusted, may range from 1.00% to 2.00%.
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98(1)
PERIOD ENDED: --------- ----------------
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period........................ $ 15.27 $15.00
------- ------
Income from investment operations:
Net investment income (loss)............................ 0.39(2) 0.05
Net gain (loss) on investments and securities sold short
(both realized and unrealized)........................ (1.25) 0.22
------- ------
Total from investment operations........................ (0.86) 0.27
------- ------
Less distributions:
Dividends from net investment income.................... (0.07) --
Distributions from capital gains........................ (0.13) --
------- ------
Total distributions..................................... (0.20) --
------- ------
Net asset value, end of period.............................. $ 14.21 $15.27
======= ======
Total return................................................ (5.68%) 1.80%(3)
Ratios/supplemental data:
Net assets, end of period (000s omitted).................. $5,901 $6,302
Ratio of expenses to average net assets (including
dividend expenses)...................................... 3.33%(4) 4.32%(4,5)
Ratio of expenses to average net assets (excluding
dividend expenses)...................................... 2.00%(4) 2.00%(4,5)
Ratio of net investment income (loss) to average net
assets.................................................. 2.65% 1.96%(5)
Fund turnover rate........................................ 705% 130%(3)
</TABLE>
(1) For the period August 3, 1998 (commencement of operations) through August
31, 1998.
(2) Per share information is calculated using the average share outstanding
method.
(3) Not annualized.
(4) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 2.56% (excluding dividend expense) and 3.93% (including dividend
expense) for the year ended August 31, 1999 and 5.12% (excluding dividend
expense) and 7.44% (including dividend expense) annualized for the period
ended August 31, 1998.
(5) Annualized.
29
<PAGE>
U.S. CORE FIXED INCOME FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The U.S. Core Fixed Income Fund seeks high total return. To pursue this
goal, it invests primarily in fixed-income securities of U.S. issuers.
The fund seeks to maintain a weighted-average credit rating comparable to
the AA rating of Standard & Poor's Ratings Services. The fund's weighted-average
maturity will typically be between five and 15 years.
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund invests at least 65% of assets in
U.S. fixed-income securities such as:
- corporate bonds, debentures and notes
- government and agency securities
- mortgage-backed securities
The fund may invest:
- up to 35% of assets in debt securities of foreign issuers
- up to 20% of assets in securities denominated in foreign currency
- up to 10% of assets in non-investment-grade debt securities (junk bonds)
of issuers located in emerging markets
- up to 10% of assets in bonds convertible into equity securities
- up to 10% of assets in preferred stocks
To a limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- credit risk
- interest-rate risk
- market risk
- non-diversified risk
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
principal or interest to the fund.
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the fund to be more volatile than a diversified
fund.
To the extent that it invests in certain securities, the fund may be
affected by additional risks:
- mortgage-backed securities: extension and prepayment risks
- junk bonds: above-average credit, information, market and other risks
- foreign securities: currency, information and political risks
- equity securities (including convertible bonds and preferred stocks):
information, market and other risks
30
<PAGE>
These risks are defined in "More About Risk." That section also details
certain other investment practices the fund may use. Please read "More About
Risk" carefully before you invest.
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Gregg M. Diliberto, Mark K. Silverstein, Jo Ann Corkran and Jose A.
Rodriguez manage the fund's investment portfolio. You can find out more about
them in "Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .21%
All other expenses .23%
----
Total expenses .44%
</TABLE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98 8/97 8/96 8/95
PERIOD ENDED: --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of year...... $ 15.72 $ 15.65 $ 15.06 $ 15.42 $ 14.77
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income (loss)........ 0.93 0.84 0.92 0.95 0.88
Net gain (loss) on investments,
futures and foreign currency
transactions (both realized and
unrealized)....................... (0.56) 0.33 0.76 (0.16) 0.61
-------- -------- -------- -------- -------
Total from investment operations.... 0.37 1.17 1.68 0.79 1.49
-------- -------- -------- -------- -------
Less distributions:
Dividends from net investment
income............................ (0.91) (0.87) (0.97) (0.93) (0.84)
Distributions from capital gains.... (0.17) (0.23) (0.12) (0.22) --
-------- -------- -------- -------- -------
Total distributions................. (1.08) (1.10) (1.09) (1.15) (0.84)
-------- -------- -------- -------- -------
Net asset value, end of year............ $ 15.01 $ 15.72 $ 15.65 $ 15.06 $ 15.42
======== ======== ======== ======== =======
Total return............................ 2.37% 7.77% 11.53% 5.23% 10.60%
Ratios/supplemental data:
Net assets, end of year (000s
omitted)............................ $350,844 $393,533 $177,219 $118,596 $99,250
Ratio of expenses to average net
assets.............................. 0.44%* 0.47%* 0.50%* 0.50%* 0.50%*
Ratio of net investment income (loss)
to average net assets............... 5.90% 5.87% 6.31% 6.43% 6.47%
Fund turnover rate.................... 569% 372% 372% 201% 304%
</TABLE>
* Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been .62%, .74%, .78%, .78% and .84% for the years ended August 31,
1999, 1998, 1997, 1996 and 1995, respectively.
31
<PAGE>
HIGH YIELD FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The High Yield Fund seeks high total return. To pursue this goal, it invests
primarily in fixed-income securities rated below investment grade by primary
ratings services such as Standard & Poor's Ratings Services and Moody's
Investors Service. These high-yield, higher-risk securities are commonly known
as "junk bonds."
In choosing investments for the fund, the portfolio managers:
- emphasize top-down analysis of industry sectors and themes to determine
which sectors may benefit from current and future changes in the economy
- seek to allocate risk by investing among a variety of industry sectors
- look at the financial condition of the issuers (including debt/equity
ratios), as well as features of the securities themselves
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund invests at least 65% of assets in
high-yield, higher-risk fixed-income securities issued by U.S. and foreign
corporations, governments and agencies.
The fund may invest:
- without limit in junk bonds, including their unrated equivalents
- up to 35% of assets in equity and equity-related securities, including
preferred stocks, securities convertible into equity securities, warrants,
rights and options
To a limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- credit risk
- interest-rate risk
- market risk
- non-diversified risk
The value of your investment will vary with changes in interest rates and
other factors. Typically, a rise in interest rates causes a decline in the
market value of fixed-income securities. You should expect greater fluctuations
in share price, yield and total return compared with less aggressive bond funds.
These fluctuations, whether positive or negative, may be sharp and
unanticipated. Like equity markets, junk-bond markets may react strongly to
adverse news about an issuer or the economy, or to the expectation of adverse
news.
Junk bonds generally provide higher yields than higher-rated debt securities
of similar maturity, but are subject to greater credit, liquidity and valuation
risks. These risks are defined in "More About Risk."
Junk bonds are considered speculative with respect to the issuer's
continuing ability to meet principal and interest payments. In the event of a
payment problem by an issuer of junk bonds, more senior debt (such as bank loans
and investment-grade bonds) will likely be paid a greater portion of payments
owed to it. Because investing in junk bonds involves greater investment risk,
achieving the fund's investment objective will depend more on the portfolio
managers' analysis than would be the case if the fund were investing in
higher-quality bonds.
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows it to invest a greater
share of its assets in the securities of fewer companies. Non-diversification
might cause the fund to be more volatile than a diversified fund.
32
<PAGE>
To the extent that the fund invests in foreign securities and securities of
start-up and other small companies, it takes on further risks that could hurt
its performance. "More About Risk" details these and certain other investment
practices the fund may use. Please read that section carefully before you
invest.
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Richard Lindquist, Marianne Rossi, Misia Dudley, John Tobin and Mary Ann
Thomas manage the fund's investment portfolio. You can find out more about them
in "Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .39%
All other expenses .30%
----
Total expenses .69%
</TABLE>
ANALYSIS OF CREDIT QUALITY
During the fiscal period ended August 31, 1999, the percentage of fund
securities holdings by rating category based upon a weighted monthly average
was:
<TABLE>
<CAPTION>
BONDS-S&P RATING:
<S> <C>
AAA......................................................... .00%
AA.......................................................... .00%
A........................................................... .00%
BBB......................................................... 2.57%
BB.......................................................... 10.81%
B........................................................... 59.17%
CCC......................................................... .00%
CC.......................................................... .00%
C........................................................... .00%
Below C or unrated.......................................... 22.32%
Cash/Governments/Agencies................................... 5.13%
------
TOTAL....................................................... 100.00%
</TABLE>
33
<PAGE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98 8/97 8/96 8/95
PERIOD ENDED --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of year...... $ 16.60 $ 17.08 $ 16.09 $ 15.72 $ 15.94
------- ------- ------- ------- --------
Income from investment operations:
Net investment income (loss)........ 1.42 1.43 1.37 1.47 1.42
Net gain (loss) on investments (both
realized and unrealized).......... (1.33) (0.49) 0.96 0.40 (0.30)
------- ------- ------- ------- --------
Total from investment operations.... 0.09 0.94 2.33 1.87 1.12
------- ------- ------- ------- --------
Less distributions:
Dividends from net investment
income............................ (1.37) (1.42) (1.34) (1.50) (1.34)
Distributions from realized capital
gains............................. -- -- -- -- --
------- ------- ------- ------- --------
Total distributions................. (1.37) (1.42) (1.34) (1.50) (1.34)
------- ------- ------- ------- --------
Net asset value, end of year............ $ 15.32 $ 16.60 $ 17.08 $ 16.09 $ 15.72
======= ======= ======= ======= ========
Total return............................ 0.67% 5.48% 15.17% 12.42% 7.79%(1)
Ratios/supplemental data:
Net assets, end of year (000s
omitted)............................ $95,129 $94,044 $92,630 $75,849 $153,621
Ratio of expenses to average net
assets.............................. 0.69%(2) 0.70%(2) 0.70%(2) 0.88%(2) 1.00%(2)
Ratio of net investment income (loss)
to average net assets............... 9.10% 8.12% 8.44% 8.92% 9.37%
Fund turnover rate.................... 40% 60% 84% 143% 70%
</TABLE>
(1) Redemption fees not reflected in total return.
(2) Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 1.04%, 1.14%, 1.13%, 1.11% and 1.08% for the years ended
August 31, 1999, 1998, 1997, 1996 and 1995, respectively.
34
<PAGE>
This page intentionally left blank
35
<PAGE>
MUNICIPAL BOND FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The Municipal Bond Fund seeks high total return. To pursue this goal, it
invests in municipal securities -- debt obligations issued by state and local
governments within the U.S.
The fund seeks to maintain a weighted-average credit rating comparable to
the AA rating of Standard & Poor's Ratings Services. The fund's weighted average
maturity will typically be between 10 and 15 years.
Holdings may include both general-obligation and revenue securities. General
obligation securities are secured by the issuing government's full faith and
credit, as well as its taxing power. Revenue securities are payable only from
specific revenue sources related to the project being financed.
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund invests at least 80% of assets in
municipal securities.
The fund may invest:
- up to 40% of assets in municipal securities issued to finance private
activities
- without limit in securities rated below investment grade (junk bonds),
including their unrated equivalents
To a limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- credit risk
- interest-rate risk
- market risk
- non-diversified status
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
principal or interest to the fund.
Compared to a diversified mutual fund, a non-diversified fund may invest a
greater portion of its assets in the securities of fewer issuers. Because the
fund is non-diversified, its share price and yield might fluctuate more than
they would for a diversified fund.
A portion of the fund's assets may generate income that could be taxable to
you. "More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Gregg M. Diliberto, Mark K. Silverstein, Jo Ann Corkran and Jose A.
Rodriguez manage the fund's investment portfolio. You can find out more about
them in "Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .28%
All other expenses .71%
----
Total expenses .99%
</TABLE>
36
<PAGE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98 8/97 8/96 8/95
PERIOD ENDED: --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of year...... $ 15.12 $ 14.84 $ 14.65 $ 15.46 $ 15.06
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss)........ 0.67 0.70 0.72 0.73 0.71
Net gain (loss) on investments (both
realized and unrealized).......... (0.60) 0.40 0.65 (0.37) 0.50
------- ------- ------- ------- -------
Total from investment operations.... 0.07 1.10 1.37 0.36 1.21
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income............................ (0.68) (0.71) (0.72) (0.74) (0.76)
Distributions from capital gains.... (0.21) (0.11) (0.46) (0.43) (0.05)
------- ------- ------- ------- -------
Total distributions................. (0.89) (0.82) (1.18) (1.17) (0.81)
------- ------- ------- ------- -------
Net asset value, end of year............ $ 14.30 $ 15.12 $ 14.84 $ 14.65 $ 15.46
======= ======= ======= ======= =======
Total return............................ 0.36% 7.62% 9.74% 2.27% 8.42%
Ratios/supplemental data
Net assets, end of year (000s
omitted)............................ $22,423 $22,229 $19,810 $19,581 $48,978
Ratio of expenses to average net
assets.............................. 0.99%* 1.00%* 1.00%* 1.00%* 1.00%*
Ratio of net investment income (loss)
to average net assets............... 4.49% 4.72% 4.88% 4.62% 4.76%
Fund turnover rate.................... 26% 57% 43% 34% 25%
</TABLE>
* Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 1.43%, 1.39%, 1.37%, 1.42% and 1.19% for the years ended
August 31, 1999, 1998, 1997, 1996 and 1995, respectively.
37
<PAGE>
STRATEGIC GLOBAL FIXED INCOME FUND
- --- GOAL AND STRATEGIES
- -------------------------------
The Strategic Global Fixed Income Fund seeks high total return. To pursue
this goal, it invests in fixed-income securities of U.S. and foreign issuers
denominated in various currencies.
This fund may invest in any country or region, including emerging markets.
The portfolio managers generally seek to invest in countries exhibiting an
attractive combination of fixed-income returns and currency exchange rates. If
the currency trend is unfavorable, the managers may seek to reduce the currency
risk through hedging. In addition, the portfolio managers may also engage in
currency transactions to seek to generate income.
The fund seeks to maintain a weighted-average credit rating comparable to at
least the BBB rating of Standard & Poor's Ratings Services.
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
Under normal market conditions, this fund invests at least 65% of assets in
fixed-income securities of corporate, government and agency issuers located in
at least three countries, including the U.S.
Fixed-income holdings may include:
- corporate bonds, debentures and notes
- U.S. and foreign government and agency securities
- securities of supranational organizations
- preferred stocks
- securities convertible into equity securities
- mortgage-backed and asset-backed securities
The fund may:
- concentrate its investments in a single country or region
- invest without limit in fixed-income securities rated below
investment-grade (junk bonds)
To a limited extent, the fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
This fund's principal risk factors are:
- credit risk
- foreign securities
- interest-rate risk
- market risk
- non-diversified status
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
either principal or interest to the fund.
International investing, particularly in emerging markets, carries
additional risks, including currency, information and political risks. These
risks are defined in "More About Risk."
38
<PAGE>
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the fund to be more volatile than a diversified
fund.
To the extent that the fund invests in junk bonds and securities of start-up
and other small companies, it takes on further risks that could hurt its
performance. "More About Risk" details these and certain other investment
practices the fund may use. Please read that section carefully before you
invest.
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Gregg M. Diliberto, Mark K. Silverstein, Jo Ann Corkran, Jose A. Rodriguez
and Dilip K. Rasgotra manage the fund's investment portfolio. You can find out
more about them in "Meet the Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .00%
All other expenses .74%
----
Total expenses .74%
</TABLE>
- --- FINANCIAL HIGHLIGHTS
- --------------------------------
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP, whose report on the fund's financial statements is
included in the ANNUAL REPORT.
<TABLE>
<CAPTION>
8/99 8/98 8/97 8/96 8/95
PERIOD ENDED: --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of year...... $ 15.10 $ 15.41 $ 15.75 $ 15.67 $ 15.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss)........ 0.79 0.87 0.85 0.87 1.06
Net gain (loss) on investments,
futures and foreign currency
transactions (both realized and
unrealized)....................... (0.35) (0.25) (0.16) 0.58 0.49
------- ------- ------- ------- -------
Total from investment operations.... 0.44 0.62 0.69 1.45 1.55
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income............................ (0.29) (0.45) (0.71) (1.22) (0.88)
Distributions from realized capital
gains............................. (0.28) (0.48) (0.32) (0.15) --
------- ------- ------- ------- -------
Total distributions................. (0.57) (0.93) (1.03) (1.37) (0.88)
------- ------- ------- ------- -------
Net asset value, end of year............ $ 14.97 $ 15.10 $ 15.41 $ 15.75 $ 15.67
======= ======= ======= ======= =======
Total return............................ 2.78% 4.19% 4.48% 9.65% 10.72%
Ratios/supplemental data
Net assets, end of year (000s
omitted)............................ $27,342 $28,483 $44,285 $38,348 $19,565
Ratio of expenses to average net
assets.............................. 0.74%* 0.75%* 0.75%* 0.75%* 0.75%*
Ratio of net investment income (loss)
to average net assets............... 4.96% 5.30% 5.31% 7.37% 7.26%
Fund turnover rate.................... 305% 283% 98% 87% 91%
</TABLE>
* Without the voluntary waiver of advisory fees and administration fees, the
ratios of expenses to average net assets for the Institutional Class would
have been 1.27%, 1.17%, 0.98%, 1.07% and 1.29% for the years ended
August 31, 1999, 1998, 1997, 1996 and 1995, respectively.
39
<PAGE>
MORE ABOUT RISK
- --- INTRODUCTION
- ----------------------
A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of each fund's risk profile in "Key Points."
The fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.
The funds may use certain investment practices that have higher risks
associated with them. However, each fund has limitations and policies designed
to reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.
- --- TYPES OF INVESTMENT RISK
- -------------------------------------
The following risks are referred to throughout this PROSPECTUS.
ACCESS RISK Some countries may restrict a fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to the fund.
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can
reduce or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, a fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
EXTENSION RISK An unexpected rise in interest rates may extend the life of
a mortgage-backed security beyond the expected prepayment time, typically
reducing the security's value.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
LIQUIDITY RISK Certain fund securities may be difficult or impossible to
sell at the time and the price that the fund would like. A fund may have to
lower the price, sell other securities instead or forego an investment
opportunity. Any of these could have a negative effect on fund management or
performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most investments --
including stocks and bonds, and the mutual funds that invest in them.
40
<PAGE>
Bonds and other fixed-income securities generally involve less market risk
than stocks. However, the risk of bonds can vary significantly depending upon
factors such as issuer and maturity. The bonds of some companies may be riskier
than the stocks of others.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital
or currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security prices and
impair a fund's ability to bring its capital or income back to the U.S. Other
political risks include economic policy changes, social and political
instability, military action and war.
PREPAYMENT RISK Securities with high stated interest rates may be prepaid
prior to maturity. During periods of falling interest rates, a fund would
generally have to reinvest the proceeds at lower rates.
REGULATORY RISK Governments, agencies or other regulatory bodies may adopt
or change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.
VALUATION RISK The lack of an active trading market may make it difficult
to obtain an accurate price for a fund security.
YEAR 2000 PROCESSING RISK The inability of a computer system to distinguish
the year 2000 from the year 1900 (the "Year 2000 Issue") could cause
difficulties for system users after December 31, 1999. Although this date has
passed, the impact of the failure by companies or foreign markets in which the
funds invest to address the Year 2000 Issue effectively could continue to be
felt into 2000 and may negatively impact a fund's performance.
41
<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable
investment limitation. Risks are indicated for each practice.
KEY TO TABLE:
/x/ Permitted without limitation; does not indicate actual use
/20%/ ITALIC TYPE (E.G., 20%) represents an investment limitation as a
percentage of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a
percentage of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
- -- Not permitted
<TABLE>
<CAPTION>
INTERNATIONAL
GROWTH FUND
INVESTMENT PRACTICE LIMIT
- ---------------------------------------------------------------------------------------------------
<S> <C>
BORROWING The borrowing of money from banks to meet redemptions or for other
temporary or emergency purposes. SPECULATIVE EXPOSURE RISK. 33 1/3%
COUNTRY/REGION FOCUS Investing a significant portion of fund assets in a
single country or region. Market swings in the targeted country or region will
be likely to have a greater effect on fund performance than they would in a
more geographically diversified equity fund. CURRENCY, MARKET, POLITICAL RISKS. /x/
CURRENCY HEDGING Instruments, such as options, futures, forwards or swaps,
intended to manage fund exposure to currency risk. Options, futures or
forwards involve the right or obligation to buy or sell a given amount of
foreign currency at a specified price and future date. Swaps involve the right
or obligation to receive or make payments based on two different currency
rates.(1) CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY, POLITICAL,
VALUATION RISKS. /x/
EMERGING MARKETS Countries generally considered to be relatively less
developed or industrialized. Emerging markets often face economic problems
that could subject the fund to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market infrastructure,
shareholder protections and company laws could expose the fund to risks beyond
those generally encountered in developed countries. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, MARKET, OPERATIONAL, POLITICAL, VALUATION RISKS. 30%
EQUITY AND EQUITY-RELATED SECURITIES Common stocks and other securities
representing or related to ownership in a company. May also include warrants,
rights, options, preferred stocks and convertible debt securities. These
investments may go down in value due to stock market movements or negative
company or industry events. LIQUIDITY, MARKET, VALUATION RISKS. /x/
FOREIGN SECURITIES Securities of foreign issuers. May include depositary
receipts. CURRENCY, INFORMATION, LIQUIDITY, MARKET, POLITICAL, VALUATION RISKS. /x/
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts that enable the fund to
hedge against or speculate on future changes in currency values, interest
rates or stock indexes. Futures obligate the fund (or give it the right, in the
case of options) to receive or make payment at a specific future time based
on those future changes.(1) CORRELATION, CURRENCY, HEDGED EXPOSURE, INTEREST-RATE,
MARKET, SPECULATIVE EXPOSURE RISKS.(2) / /
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated within the four highest
grades (AAA/Aaa through BBB/Baa) by Standard & Poor's or Moody's rating
service, and unrated securities of comparable quality. CREDIT, INTEREST-
RATE, MARKET RISKS. / /
MORTGAGE-BACKED AND ASSET-BACKED (3) SECURITIES Debt securities backed by
pools of mortgages, including passthrough certificates and other
senior classes of collateralized mortgage obligations (CMOs), or other
receivables. CREDIT, EXTENSION, INTEREST-RATE, LIQUIDITY, PREPAYMENT RISKS. / /
MUNICIPAL SECURITIES Debt obligations issued by or on behalf of states,
territories and possessions of the U.S. and the District of Columbia and their
political subdivisions, agencies and instrumentalities. Municipal securities
may be affected by uncertainties regarding their tax status, legislative
changes or rights of municipal-securities holders. CREDIT, INTEREST-RATE, MARKET,
REGULATORY RISKS. / /
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities and convertible
securities rated below the fourth-highest grade (BBB/Baa) by Standard & Poor's or
Moody's rating service, and unrated securities of comparable quality.
Commonly referred to as junk bonds. CREDIT, INFORMATION, INTEREST-RATE,
LIQUIDITY, MARKET, VALUATION RISKS. / /
OPTIONS Instruments that provide a right to buy (call) or sell (put) a particular
security, currency or index of securities at a fixed price within a certain time
period. The fund may purchase or sell (write) both put and call options for
hedging or speculative purposes.(1) CORRELATION, CREDIT, HEDGED EXPOSURE,
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
STRATE-
LONG- U.S. GIC
EURO- U.S. SHORT- CORE MUNICI- GLOBAL
PEAN CORE MARKET FIXED HIGH PAL FIXED
EQUITY EQUITY FOCUS NEUTRAL INCOME YIELD BOND INCOME
FUND FUND FUND FUND FUND FUND FUND FUND
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BORROWING The borrowing of money from
banks to meet redemptions or for other
temporary or emergency purposes.
SPECULATIVE EXPOSURE RISK. 30% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
COUNTRY/REGION FOCUS Investing a
significant portion of fund assets in a
single country or region. Market swings
in the targeted country or region will
be likely to have a greater effect on
fund performance than they would in a
more geographically diversified equity
fund. CURRENCY, MARKET, POLITICAL RISKS. /x/ /x/ /x/ /x/ /x/ / / -- /x/
CURRENCY HEDGING Instruments, such as
options, futures, forwards or swaps,
intended to manage fund exposure to
currency risk. Options, futures or
forwards involve the right or obligation
to buy or sell a given amount of foreign
currency at a specified price and future
date. Swaps involve the right or
obligation to receive or make payments
based on two different currency rates.(1)
CORRELATION, CREDIT, CURRENCY, HEDGED
EXPOSURE, LIQUIDITY, POLITICAL,
VALUATION RISKS. /x/ / / / / / / /x/ / / -- /x/
EMERGING MARKETS Countries generally
considered to be relatively less
developed or industrialized. Emerging
markets often face economic problems
that could subject the fund to increased
volatility or substantial declines in
value. Deficiencies in regulatory
oversight, market infra-structure,
shareholder protections and company laws
could expose the fund to risks beyond
those generally encountered in developed
countries. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, MARKET, OPERATIONAL,
POLITICAL, VALUATION RISKS. 20% / / / / / / / / / / -- /x/
EQUITY AND EQUITY-RELATED SECURITIES
Common stocks and other securities
representing or related to ownership in
a company. May also include warrants,
rights, options, preferred stocks and
convertible debt securities. These
investments may go down in value due
to stock market movements or negative
company or industry events. LIQUIDITY,
MARKET, VALUATION RISKS. /x/ /x/ /x/ /x/ / / / / / / / /
FOREIGN SECURITIES Securities of foreign
issuers. May include depositary receipts.
CURRENCY, INFORMATION, LIQUIDITY, MARKET,
POLITICAL, VALUATION RISKS. /x/ / / 35% / / 35% / / -- /x/
FUTURES AND OPTIONS ON FUTURES Exchange-
traded contracts that enable the fund to
hedge against or speculate on future
changes in currency values, interest
rates or stock indexes. Futures obligate
the fund (or give it the right, in the
case of options) to receive or make
payment at a specific future time based
on those future changes.(1) CORRELATION,
CURRENCY, HEDGED EXPOSURE, INTEREST-RATE,
MARKET, SPECULATIVE EXPOSURE RISKS.(2) / / / / / / / / / / / / -- / /
INVESTMENT-GRADE DEBT SECURITIES Debt
securities rated within the four highest
grades (AAA/Aaa through BBB/Baa) by
Standard & Poor's or Moody's rating
service, and unrated securities of
comparable quality. CREDIT, INTEREST-
RATE, MARKET RISKS. / / / / / / / / / / / / / / / /
MORTGAGE-BACKED AND ASSET-BACKED (3)
SECURITIES Debt securities backed by
pools of mortgages, including
passthrough certificates and other
senior classes of collateralized
mortgage obligations (CMOs), or other
receivables. CREDIT, EXTENSION, INTEREST-
RATE, LIQUIDITY, PREPAYMENT RISKS. -- / / / / -- /x/ / / -- /x/
MUNICIPAL SECURITIES Debt obligations
issued by or on behalf of states,
territories and possessions of the U.S.
and the District of Columbia and their
political subdivisions, agencies and
instrumentalities. Municipal securities
may be affected by uncertainties
regarding their tax status, legislative
changes or rights of municipal-securities
holders. CREDIT, INTEREST-RATE, MARKET,
REGULATORY RISKS. -- / / / / -- / / / / /x/ / /
NON-INVESTMENT-GRADE DEBT SECURITIES
Debt securities and convertible
securities rated below the fourth-highest
grade (BBB/Baa) by Standard & Poor's or
Moody's rating service, and unrated
securities of comparable quality.
Commonly referred to as junk bonds.
CREDIT, INFORMATION, INTEREST-RATE,
LIQUIDITY, MARKET, VALUATION RISKS. /20%/ / / / / -- / / /x/ -- / /
OPTIONS Instruments that provide a right
to buy (call) or sell (put) a particular
security, currency or index of securities
at a fixed price within a certain time
period. The fund may purchase or sell
(write) both put and call options for
hedging or speculative purposes.(1)
CORRELATION, CREDIT, HEDGED EXPOSURE,
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE
RISKS. / / / / / / / / / / / / -- / /
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
INTER-
NATIONAL
GROWTH
FUND
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------------
<S> <C>
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of their
interests in enterprises they own or control. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, OPERATIONAL, POLITICAL, VALUATION RISKS. /x/
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with restrictions on trading,
or those not actively traded. May include private placements. LIQUIDITY, MARKET,
VALUATION RISKS. /15%/
SECURITIES LENDING Lending portfolio securities to financial institutions;
the fund receives cash, U.S. government securities or bank letters of credit as
collateral. CREDIT, LIQUIDITY, MARKET, OPERATIONAL RISKS. 33 1/3%
SHORT POSITIONS Selling borrowed securities with the intention of
repurchasing them for a profit on the expectation that the market price will
drop. If a fund were to take short positions in stocks that increase in
value, then it would be likely to underperform similar mutual funds
that do not take short positions. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE
RISKS. / /
SHORT SALES "AGAINST THE BOX" A short sale when the fund owns enough shares
of the security involved to cover the borrowed securities, if necessary.
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
SHORT-TERM TRADING Selling a security shortly after purchase. A fund engaging
in short-term trading will have higher turnover and transaction expenses.
Increased short-term capital gains distributions could raise shareholders'
income tax liability. / /
START-UP AND OTHER SMALL COMPANIES Companies with small relative market
capitalizations, including those with continuous operations of less than
three years. INFORMATION, LIQUIDITY, MARKET, VALUATION RISKS. /5%/
STRUCTURED INSTRUMENTS Swaps, structured securities and other
instruments that allow the fund to gain access to the performance of a benchmark
asset (such as an index or selected stocks) where the fund's direct invest-
ment is restricted. CREDIT, CURRENCY, INFORMATION,
INTEREST-RATE, LIQUIDITY, MARKET, POLITICAL, SPECULATIVE EXPOSURE,
VALUATION RISKS. / /
TEMPORARY DEFENSIVE TACTICS Placing some or all of the fund's assets in
investments such as money-market obligations and investment-grade debt
securities for defensive purposes. Although intended to avoid losses in
adverse market, economic, political or other conditions, defensive tactics
might be inconsistent with the fund's principal investment strategies and
might prevent the fund from achieving its goal. / /
WARRANTS Options issued by a company granting the holder the right to buy
certain securities, generally common stock, at a specified price and usually
for a limited time. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of
securities for delivery at a future date; market value may change before
delivery. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. /25%/
ZERO-COUPON BONDS Debt securities that pay no cash income to holders
for either an intial period or until maturity and are issued at a discount
from maturity value. At maturity, return comes from the difference between
purchase price and maturity value. INTEREST-RATE, MARKET RISKS. / /
</TABLE>
(1) The fund is not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used
effectively or may be unable to be used for other reasons.
(2) The Fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the
Commodity Futures Trading Commission.
(3) Although there is no stated investment limitation with respect to
mortgage-backed securities, each fund will limit its investments in
asset-backed securities to 25% of total assets.
44
<PAGE>
<TABLE>
<CAPTION>
STRATE-
LONG- U.S. GIC
EURO- U.S. SHORT- CORE MUNICI- GLOBAL
PEAN CORE MARKET FIXED HIGH PAL FIXED
EQUITY EQUITY FOCUS NEUTRAL INCOME YIELD BOND INCOME
FUND FUND FUND FUND FUND FUND FUND FUND
INVESTMENT PRACTICE LIMIT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIVATIZATION PROGRAMS Foreign govern-
ments may sell all or part of their
interests in enterprises they own or
control. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, OPERATIONAL, POLITICAL,
VALUATION RISKS. /x/ / / / / / / / / / / -- / /
RESTRICTED AND OTHER ILLIQUID SECURITIES
Securities with restrictions on trading,
or those not actively traded. May include
private placements. LIQUIDITY, MARKET,
VALUATION RISKS. /15%/ /15%/ /15%/ /15%/ /15%/ /15%/ /15%/ /15%/
SECURITIES LENDING Lending portfolio
securities to financial institutions;
the fund receives cash, U.S. government
securities or bank letters of credit as
collateral. CREDIT, LIQUIDITY, MARKET,
OPERATIONAL RISKS. 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3% 33 1/3%
SHORT POSITIONS Selling borrowed
securities with the intention of
repurchasing them for a profit on the
expectation that the market price will
drop. If a fund were to take short
positions in stocks that increase in
value, then it would be likely to
underperform similar mutual funds
that do not take short positions.
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE
RISKS. / / / / / / /x/ / / / / -- / /
SHORT SALES "AGAINST THE BOX" A short
sale when the fund owns enough shares
of the security involved to cover the
borrowed securities, if necessary.
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE
RISKS. / / / / / / / / / / / / -- / /
SHORT-TERM TRADING Selling a security
shortly after purchase. A fund engaging
in short-term trading will have higher
turnover and transaction expenses.
Increased short-term capital gains
distributions could raise shareholders'
income tax liability. /x/ / / / / / / / / / / / / / /
START-UP AND OTHER SMALL COMPANIES
Companies with small relative market
capitalizations, including those with
continuous operations of less than
three years. INFORMATION, LIQUIDITY,
MARKET, VALUATION RISKS. /5%/ /5%/ /5%/ /5%/ /5%/ /5%/ /5%/ /5%/
STRUCTURED INSTRUMENTS Swaps,
structured securities and other
instruments that allow the fund to gain
access to the performance of a benchmark
asset (such as an index or selected
stocks) where the fund's direct invest-
ment is restricted. CREDIT, CURRENCY,
INFORMATION,
INTEREST-RATE, LIQUIDITY, MARKET,
POLITICAL, SPECULATIVE EXPOSURE,
VALUATION RISKS. / / / / / / / / / / / / -- / /
TEMPORARY DEFENSIVE TACTICS Placing
some or all of the fund's assets in
investments such as money-market
obligations and investment-grade debt
securities for defensive purposes.
Although intended to avoid losses in
adverse market, economic, political or
other conditions, defensive tactics
might be inconsistent with the fund's
principal investment strategies and
might prevent the fund from achieving
its goal. / / / / / / / / / / / / / / / /
WARRANTS Options issued by a company
granting the holder the right to buy
certain securities, generally common
stock, at a specified price and usually
for a limited time. LIQUIDITY, MARKET,
SPECULATIVE EXPOSURE RISKS. /15%/ / / / / / / / / / / / / / /
WHEN-ISSUED SECURITIES AND FORWARD
COMMITMENTS The purchase or sale of
securities for delivery at a future
date; market value may change before
delivery. LIQUIDITY, MARKET, SPECULATIVE
EXPOSURE RISKS. 20% /25%/ /25%/ / / /25%/ /25%/ /25%/ /25%/
ZERO-COUPON BONDS Debt securities
that pay no cash income to holders
for either an intial period or until
maturity and are issued at a discount
from maturity value. At maturity, return
comes from the difference between
purchase price and maturity value.
INTEREST-RATE, MARKET RISKS. / / / / / / / / / / / / -- / /
</TABLE>
45
<PAGE>
MEET THE MANAGERS
The day-to-day portfolio management of the International Growth Fund is the
responsibility of the Credit Suisse Asset Management International Equity
Management Team. The team consists of the following individuals:
[PHOTO]
STEVEN D. BLEIBERG
MANAGING DIRECTOR
/ / Team member since 1991
/ / With Credit Suisse Asset Management since 1991
[PHOTO]
RICHARD WATT
MANAGING DIRECTOR
/ / Team member since 1995
/ / With Credit Suisse Asset Management since 1995
/ / Director and head of emerging markets investments and research at Gartmore
Investment Limited in London, 1992 to 1995
[PHOTO]
EMILY ALEJOS
DIRECTOR
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Vice president and emerging markets portfolio manager with Bankers Trust,
1993 to 1997
[PHOTO]
ROBERT B. HRABCHAK
DIRECTOR
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Senior portfolio manager at Merrill Lynch Asset Management, 1995 to 1997
/ / Associate at Salomon Brothers, 1993 to 1995
[PHOTO]
ALAN ZLATAR
VICE PRESIDENT
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / European equity analyst at Credit Suisse Group in Zurich, 1994 to 1997
46
<PAGE>
The following individuals are primarily responsible for the day-to-day
portfolio management of the European Equity Fund:
[PHOTO]
HAROLD W. EHRLICH, CFA, CIC
MANAGING DIRECTOR
/ / Co-Portfolio Manager, European Equity Fund since 1999
/ / Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ / With Warburg Pincus Asset Management since 1995
/ / Senior vice president, portfolio manager and analyst at Templeton
Investment Counsel Inc., 1987 to 1995
[PHOTO]
NANCY NIERMAN
DIRECTOR
/ / Co-Portfolio Manager, European Equity Fund since 1999
/ / Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ / With Warburg Pincus Asset Management since 1996
/ / Vice president at Fiduciary Trust Company International, 1992 to 1996
[PHOTO]
J.H. CULLUM CLARK
DIRECTOR
/ / Co-Portfolio Manager, European Equity Fund since 1999
/ / Joined Credit Suisse Asset Management in 1999 as a result of CSAM's
acquisition of Warburg Pincus Asset Management
/ / With Warburg Pincus Asset Management since 1996
/ / Analyst and portfolio manager at Brown Brothers Harriman, 1993 to 1996
47
<PAGE>
The day-to-day portfolio management of the U.S. Core Equity Fund is the
responsibility of the Credit Suisse Asset Management Equity Management Team. The
team consists of the following individuals:
[PHOTO]
WILLIAM W. PRIEST, JR.
CEO, MANAGING DIRECTOR
/ / Team member since 1972
/ / With Credit Suisse Asset Management for more than 25 years
[PHOTO]
ERIC N. REMOLE
MANAGING DIRECTOR
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Managing director and portfolio manager of Chancellor LGT Asset Management,
Inc., 1983 to 1997
[PHOTO]
MARC E. BOTHWELL
VICE PRESIDENT
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Vice president and portfolio manager at Chancellor LGT Asset Management,
Inc., 1994 to 1997
[PHOTO]
MICHAEL A. WELHOELTER
VICE PRESIDENT
/ / Team member since 1993
/ / With Credit Suisse Asset Management since 1997
/ / Vice president and portfolio manager at Chancellor LGT Asset Management,
Inc., 1986 to 1997
48
<PAGE>
The day-to-day portfolio management of the Focus Fund is the responsibility
of the Credit Suisse Asset Management Value Equity Management Team. The team
consists of the following individuals:
[PHOTO]
JAMES A. ABATE
MANAGING DIRECTOR
/ / Team member since 1995
/ / With Credit Suisse Asset Management since 1995
/ / Managing director at VERT Independent Capital Research, 1993 to 1995
[PHOTO]
D. SUSAN EVERLY
DIRECTOR
/ / Team member since 1998
/ / With Credit Suisse Asset Management since 1998
/ / Securities analyst at Goldman Sachs, 1996 to 1998
/ / Financial analyst at First Boston, 1991 to 1994
49
<PAGE>
The day-to-day portfolio management of the Long-Short Market Neutral Fund is
the responsibility of the Credit Suisse Asset Management Structured Equity Team.
The team consists of the following individuals:
[PHOTO]
WILLIAM W. PRIEST, JR.
CEO, MANAGING DIRECTOR
/ / Team member since 1972
/ / With Credit Suisse Asset Management for more than 25 years
[PHOTO]
ERIC N. REMOLE
MANAGING DIRECTOR
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Managing director and portfolio manager of Chancellor LGT Asset Management,
Inc., 1983 to 1997
[PHOTO]
MARC E. BOTHWELL
VICE PRESIDENT
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Vice president and portfolio manager at Chancellor LGT Asset Management,
Inc., 1994 to 1997
[PHOTO]
MICHAEL A. WELHOELTER
VICE PRESIDENT
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Vice president and portfolio manager at Chancellor LGT Asset Management,
Inc., 1986 to 1997
50
<PAGE>
The day-to-day portfolio management of the High Yield Fund is the
responsibility of the Credit Suisse Asset Management High Yield Management Team.
The team consists of the following individuals:
[PHOTO]
RICHARD LINDQUIST
MANAGING DIRECTOR
/ / Team member since 1989
/ / Joined Credit Suisse Asset Management in 1995 as a result of CSAM's
acquisition of CS First Boston Investment Corp.
/ / With First Boston since 1989
[PHOTO]
MISIA DUDLEY
DIRECTOR
/ / Team member since 1989
/ / Joined Credit Suisse Asset Management in 1995 as a result of CSAM's
acquisition of CS First Boston Investment Corp.
/ / With First Boston since 1989
[PHOTO]
MARIANNE ROSSI
MANAGING DIRECTOR
/ / Team member since 1991
/ / Joined Credit Suisse Asset Management in 1995 as a result of CSAM's
acquisition of CS First Boston Investment Corp.
/ / With First Boston since 1991
[PHOTO]
MARY ANN THOMAS
DIRECTOR
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Vice president and high yield bond analyst at Prudential Insurance Company
of America, 1994 to 1997
[PHOTO]
JOHN TOBIN
DIRECTOR
/ / Team member since 1990
/ / Joined Credit Suisse Asset Management in 1995 as a result of CSAM's
acquisition of CS First Boston Investment Corp.
/ / With First Boston since 1990
51
<PAGE>
The Credit Suisse Asset Management Fixed Income Management Team is
responsible for the day-to-day portfolio management of the Municipal Bond Fund
and the U.S. Core Fixed Income Fund and supervising the activities of Credit
Suisse Asset Management Limited, the sub-investment adviser for the Strategic
Global Fixed Income Fund. The team consists of the following individuals:
[PHOTO]
JO ANN CORKRAN
MANAGING DIRECTOR
/ / Team member since 1997
/ / With Credit Suisse Asset Management since 1997
/ / Director of mortgage- and asset-backed research at Morgan Stanley, 1994 to
1997
[PHOTO]
GREGG M. DILIBERTO
MANAGING DIRECTOR
/ / Team member since 1984
/ / With Credit Suisse Asset Management since 1984
[PHOTO]
MARK K. SILVERSTEIN
MANAGING DIRECTOR
/ / Team member since 1991
/ / With Credit Suisse Asset Management since 1991
[PHOTO]
JOSE A. RODRIGUEZ
DIRECTOR
/ / Team member since 1999
/ / With Credit Suisse Asset Management since 1999
/ / Managing director and senior portfolio manager at Prudential Investments,
1988 to 1999
SUB-INVESTMENT ADVISER
PORTFOLIO MANAGER
STRATEGIC GLOBAL FIXED INCOME FUND
DILIP K. RASGOTRA manages the Strategic Global Fixed Income Fund's
investments. Mr. Rasgotra is a Managing Director of Credit Suisse Asset
Management Limited, the fund's sub-investment adviser. Mr. Rasgotra has
been with Credit Suisse Asset Management Limited since 1983.
----------------------------------
52
<PAGE>
ABOUT YOUR ACCOUNT
- --- SHARE VALUATION
- --------------------------
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the total assets of the Institutional
Class, less its liabilities, by the number of Institutional Class shares
outstanding.
The funds value their securities based on market quotations when they
calculate their NAV. If market quotations are not readily available, securities
and other assets are valued by another method that the Board believes accurately
reflects fair value. Debt obligations that will mature in 60 days or less are
valued on the basis of amortized cost, unless the Board determines that using
this method would not reflect an investment's value.
Some fund securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when a fund does not compute its price. This could
cause the value of the fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.
- --- BUYING AND SELLING SHARES
- ---------------------------------------
The funds are open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (usually 4 p.m. Eastern Time), your transaction will be priced at that
day's NAV. If we receive it after that time, it will be priced at the next
business day's NAV.
The funds have authorized financial-services firms, such as banks, brokers
and financial advisors (and other intermediaries that the firms may designate)
to accept orders. When an authorized firm or its designee has received your
order, it is considered received by a fund and will be priced at the
next-computed NAV.
- --- BUYING FUND SHARES
- ------------------------------
INVEST BY WIRE
Institutional Class shares are generally available only to investors who
have entered into an investment management agreement with the adviser. Investors
should complete an account application and forward it to CSAM Institutional
Shares. After calling a fund to place an order, you may wire funds to:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
CSAM Institutional Shares
DDA# 9905-227-6
F/F/C: [ACCOUNT NUMBER AND REGISTRATION]
You can also purchase shares by mailing a check or Federal Reserve draft to:
CSAM Institutional Shares
P.O. Box 8500
Boston, Massachusetts 02266-8500
or overnight to:
Boston Financial
Attn: CSAM Institutional Shares
66 Brooks Drive
Braintree, Massachusetts 02184
Please use either a personal, company or bank check payable in U.S. dollars.
Unfortunately, we cannot accept checks that are not pre-printed or checks that
are payable to you or another party. These types of checks may be returned to
you and your purchase order may not be processed. Limited exceptions include IRA
Rollover and government checks. Federal Reserve drafts are available at national
banks and at state Federal Reserve member banks. Please indicate the fund's name
on any check or Federal Reserve draft. The application contains further
instructions.
53
<PAGE>
INVEST BY PURCHASES IN KIND
With the adviser's permission, investors may acquire Institutional
Class shares in exchange for fund portfolio securities. The portfolio securities
must meet the following requirements:
- - Match the investment objectives and policies of the fund to be purchased
- - Be considered by the fund's adviser or sub-adviser to be an appropriate fund
investment
- - Be easily valued, liquid and not subject to restrictions on transfer
You may have to pay administrative or custody costs if you make purchases in
kind and the execution of your purchase order may be delayed.
MINIMUM INVESTMENTS
Minimum investments for Institutional Class shares are the following,
including investment by purchases in-kind and by exchange (described below):
<TABLE>
<S> <C>
Initial investment $3,000,000
Subsequent investment $ 100,000
</TABLE>
Clients of the adviser, along with the adviser's affiliates, client officers
and certain other related persons, may purchase shares without entering into an
investment management agreement with the adviser subject to a minimum initial
investment of $100,000 and a minimum subsequent investment of $1,000. The
minimum investments for Institutional Shares of certain funds may be waived or
modified by the fund's Board of Directors for former holders of the fund's
Common Shares who have exchanged such shares for Institutional Shares at the
request of the Board.
You must maintain an account balance in the fund of at least $500. If your
account balance falls below the minimum required to keep it open due to
redemptions or exchanges, the fund may ask you to increase your balance. If it
is still below the minimum after 30 days, the fund may close your account and
mail you the proceeds.
- --- SELLING FUND SHARES
- -------------------------------
SELL FUND SHARES IN WRITING
You can sell (redeem) your shares on any day the funds are open by writing
to CSAM Institutional Shares. The request must be signed by all record owners
(exactly as registered) or by an authorized person such as an investment adviser
or other agent. Additional documents may be required for redemption by a
corporation, partnership, trust, fiduciary, executor or administrator or in
certain other cases.
REDEMPTION PROCEEDS
After selling fund shares you will receive the proceeds by either wire or
check, mailed within seven days of the redemption. For shares purchased by
check, if the fund has not yet collected payment for the shares you are selling
it will delay sending you the proceeds until your purchase payment clears. This
may take up to 10 calendar days after the purchase.
- --- EXCHANGING FUND SHARES
- ------------------------------------
You may exchange Institutional Class shares for Institutional Class shares
in any other CSAM Fund by writing to CSAM Institutional Shares. If you are
purchasing shares in a new fund by exchange, the new fund account will be
registered exactly as the fund from which you are exchanging. If you want to
change account information or privileges you must specify this in the redemption
request and have all signatures guaranteed. You can obtain a signature guarantee
from most banks or securities dealers, but not from a notary public.
54
<PAGE>
- --- OTHER POLICIES
- ------------------------
TRANSACTION DETAILS
Your purchase order will be canceled and you may be liable for losses or
fees incurred by a fund if:
- your investment check or Federal Reserve draft does not clear
- you place a telephone order by 4 p.m. Eastern Time and we do not receive
your wire that day
If you wire money without first calling the fund to place an order, and your
wire arrives after the close of regular trading on the NYSE, then your order
will not be executed until the end of the next business day. In the meantime,
your payment will be held uninvested. Your bank or other financial-services firm
may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
Each fund reserves the right to:
- refuse any purchase or exchange request, including those from any person
or group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 60 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind" -- payment in portfolio securities rather than
cash -- for certain large redemptions that could hurt fund operations
- suspend redemptions or postpone payment dates as permitted by the
Investment Company Act of 1940 (such as during periods other than weekends
or holidays when the NYSE is closed, or when trading on the NYSE is
restricted, or any other time that the SEC permits)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
ACCOUNT CHANGES
You should update your account records whenever you change your address. You
can call 800-222-8977 to change your account information or privileges.
- --- ACCOUNT STATEMENTS
- -------------------------------
In general, you will receive account statements as follows:
- after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
- after any changes of name or address of the registered owner(s)
- otherwise, every quarter
You will receive annual and semiannual financial reports.
- --- DISTRIBUTIONS
- ----------------------
As a fund investor, you will receive distributions.
55
<PAGE>
Each fund earns dividends from stocks and interest from bond, money-market
and other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.
The U.S. Core Fixed Income, High Yield and Strategic Global Fixed Income
Funds declare and pay dividend distributions quarterly. The Municipal Bond Fund
declares and pays dividend distributions monthly. The other funds typically
distribute dividends annually, usually in December. Each of the funds typically
distribute capital gains annually in December.
Most investors have their distributions reinvested in additional shares of
the same fund. Distributions will be reinvested unless you choose on your
account application to have a check for your distributions mailed to you or sent
by electronic transfer.
- --- TAXES
- ------------
As with any investment, you should consider how your investment in a fund
will be taxed. If your account is not a tax-advantaged account, you should be
especially aware of the following potential tax implications. Please consult
your tax professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as a fund continues to meet the requirements for being a
tax-qualified regulated investment company, the fund pays no federal income tax
on the earnings it distributes to shareholders.
Distributions you receive from a fund, whether reinvested or taken in cash,
are generally considered taxable. Distributions from a fund's long-term capital
gains are taxed as long-term capital gains, regardless of how long you have held
fund shares. Distributions from other sources are generally taxed as ordinary
income. The funds will mostly make capital-gain distributions, which could be
short-term or long-term.
If you buy shares shortly before or on the "record date" -- the date that
establishes you as the person to receive the upcoming distribution -- you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099 that is mailed to you every January details your distributions
and their federal tax category, including the portion taxable as long-term
capital gains.
Any gain or loss from a fund's short positions will be short-term gain or
loss, regardless of the length of time the short positions remain open. Thus,
net gain from short positions will potentially increase the amount of the fund's
ordinary income dividends, while net losses would potentially reduce the amount
of the fund's long-term gain distributions.
MUNICIPAL BOND FUND -- SPECIAL TAX MATTERS
The Municipal Bond Fund intends to pay federally tax-exempt distributions
derived from qualifying municipal securities.
Some income from the fund that is exempt from federal tax may be subject to
state and local income taxes. In addition, the fund may invest a portion of its
assets in securities that generate income that is not exempt from federal or
state income tax. The interest earned by the fund from its investments in
private entities is a tax-preference item for purposes of the federal
alternative-minimum tax.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
56
<PAGE>
OTHER INFORMATION
- --- ABOUT THE DISTRIBUTOR
- ----------------------------------
Provident Distributors, Inc., located at Four Falls Corporate Center, West
Conshohocken, PA 19428-2961, is the funds' distributor and is responsible for
making the funds available to you.
57
<PAGE>
FOR MORE INFORMATION
More information about these funds is available free upon request, including
the following:
- --- ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
- ---------------------------------------------------------------
Includes financial statements, portfolio investments and detailed
performance information.
The ANNUAL REPORT also contains a letter from the funds' managers discussing
market conditions and investment strategies that significantly affected fund
performance during their past fiscal year.
- --- OTHER INFORMATION
- ------------------------------
A current STATEMENT OF ADDITIONAL INFORMATION (SAI) which provides more
details about the funds is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet website (www.sec.gov) to view the SAI,
material incorporated by reference and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact CSAM Institutional Shares to obtain, without charge, the SAI
and ANNUAL and SEMIANNUAL REPORTS and to make shareholder inquiries:
<TABLE>
<S> <C>
BY TELEPHONE:
800-222-8977
BY MAIL:
CSAM Institutional Shares
P.O. Box 8500
Boston, MA 02266-8500
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: CSAM Institutional Shares
66 Brooks Drive
Braintree, MA 02171
SEC FILE NUMBER:
CSAM Institutional Shares/Warburg Pincus
International Growth Fund 811-08933
European Equity Fund 811-08903
U.S. Core Equity Fund 811-08919
Focus Fund 811-08921
Long-Short Market Neutral Fund 811-08925
U.S. Core Fixed Income Fund 811-08917
High Yield Fund 811-08927
Municipal Bond Fund 811-08923
Strategic Global Fixed Income Fund 811-08931
</TABLE>
<TABLE>
<C> <S>
[LOGO]
P.O. BOX 8500, BOSTON, MA 02266-8500
800-222-8977
</TABLE>
The distributor of Warburg Pincus Funds is Provident Distributors, Inc.,
which is not affiliated with Credit Suisse Asset Management, LLC. CSISB-1-0100
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January 1, 2000
-------------------------------
WARBURG PINCUS EUROPEAN EQUITY FUND
WARBURG PINCUS CENTRAL & EASTERN EUROPE FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call 800-WARBURG
-------------------------------
CSAM INSTITUTIONAL SHARES
WARBURG PINCUS EUROPEAN EQUITY FUND
WARBURG PINCUS CENTRAL & EASTERN EUROPE FUND
P.O. Box 8500, Boston, Massachusetts 02266-85000
For information, call 800-222-8977
-------------------------------
This combined STATEMENT OF ADDITIONAL INFORMATION is meant to
be read in conjunction with the PROSPECTUS for the Common Shares of Warburg
Pincus European Equity Fund (the "European Equity Fund" or the "Fund"), and with
the PROSPECTUS for the Institutional Shares of the Fund, each dated January 1,
2000, as amended or supplemented from time to time (collectively, the
"PROSPECTUS"), and is incorporated by reference in its entirety into the
PROSPECTUS. Shares of the Warburg Pincus Central & Eastern Europe Fund (the
"Central & Eastern Europe Fund;" together with the European Equity Fund, the
"Funds"), however, are not currently offered. This STATEMENT OF ADDITIONAL
INFORMATION is not a prospectus. It should be read in conjunction with the
PROSPECTUS, copies of which can be obtained by calling Warburg Pincus Funds at
800-WARBURG (Common Shares) or CSAM Institutional Shares at 800-222-8977
(Institutional Shares). Information regarding the status of shareholder accounts
may also be obtained by calling the above numbers or by writing to a Fund, P.O.
Box 9030, Boston, Massachusetts 02205-9030 (Common Shares) or P.O. Box 8500,
Boston, Massachusetts 02266-8500 (Institutional Shares).
<PAGE>
TABLE OF CONTENTS
Page
GENERAL.......................................................................1
INVESTMENT OBJECTIVES AND POLICIES............................................1
THE EUROPEAN EQUITY FUND.............................................1
THE CENTRAL & EASTERN EUROPE FUND....................................1
General Investment Strategies...........................................2
Options, Futures and Currency Exchange Transactions..................2
SECURITIES OPTIONS...................................................2
SECURITIES INDEX OPTIONS.............................................5
OTC OPTIONS..........................................................6
FUTURES ACTIVITIES...................................................6
FUTURES CONTRACTS.............................................7
OPTIONS ON FUTURES CONTRACTS..................................8
CURRENCY EXCHANGE TRANSACTIONS.......................................8
FORWARD CURRENCY CONTRACTS....................................9
CURRENCY OPTIONS..............................................9
CURRENCY HEDGING..............................................9
Swaps...............................................................10
HEDGING GENERALLY...................................................11
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND
OPTIONS ON FUTURES.................................................12
Additional Information on Other Investment Practices...................13
Foreign Investments.................................................13
FOREIGN CURRENCY EXCHANGE....................................13
EURO CONVERSION..............................................13
INFORMATION..................................................14
POLITICAL INSTABILITY........................................14
EMERGING MARKETS.............................................14
DELAYS.......................................................14
INCREASED EXPENSES...........................................15
FOREIGN DEBT SECURITIES......................................15
GENERAL......................................................15
SOVEREIGN DEBT...............................................16
PRIVATIZATIONS...............................................17
Central and Eastern European Countries..............................17
Fixed Income Securities.............................................21
Below Investment Grade Securities...................................21
Securities of Other Investment Companies............................23
Lending of Portfolio Securities.....................................23
When-Issued Securities, Delayed-Delivery Transactions and
Forward Commitments.................................................24
Brady Bonds.........................................................24
Repurchase Agreements...............................................25
Loan Participations and Assignments.................................25
(i)
<PAGE>
Convertible Securities..............................................26
Structured Notes....................................................27
Short Sales.........................................................27
Emerging Growth and Smaller Capitalization Companies; Unseasoned
Issuers............................................................28
Depositary Receipts.................................................28
Temporary Investments...............................................28
Rights Offerings and Purchase Warrants..............................29
Non-Publicly Traded and Illiquid Securities.........................29
RULE 144A SECURITIES.........................................30
Borrowing...........................................................30
Stand-By Commitments................................................30
OTHER INVESTMENT LIMITATIONS.................................................31
PORTFOLIO VALUATION..........................................................33
PORTFOLIO TRANSACTIONS.......................................................34
PORTFOLIO TURNOVER...........................................................36
MANAGEMENT OF THE FUNDS......................................................36
Officers and Board of Directors........................................36
Directors' Compensation Through August 31, 1999........................40
Portfolio Managers.....................................................40
Investment Advisers and Co-Administrators..............................41
Custodians and Transfer Agents.........................................44
Organization of the Funds..............................................44
Distribution and Shareholder Servicing.................................45
Distributor.........................................................45
Common Shares.......................................................45
Advisor Shares......................................................46
General.............................................................47
Institutional Shares................................................47
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................47
Automatic Cash Withdrawal Plan.........................................48
EXCHANGE PRIVILEGE...........................................................48
ADDITIONAL INFORMATION CONCERNING TAXES......................................49
The Funds and Their Investments........................................49
Passive Foreign Investment Companies...................................51
Dividends and Distributions............................................52
Sales of Shares........................................................52
Foreign Taxes..........................................................53
Fund Taxes on Swaps....................................................53
Backup Withholding.....................................................53
Notices................................................................53
Other Taxation.........................................................54
DETERMINATION OF PERFORMANCE.................................................54
(ii)
<PAGE>
INDEPENDENT ACCOUNTANTS AND COUNSEL..........................................57
MISCELLANEOUS................................................................57
FINANCIAL STATEMENTS.........................................................58
APPENDIX - DESCRIPTION OF RATINGS...........................................A-1
(iii)
<PAGE>
GENERAL
The Funds are diversified open-end management investment
companies that were incorporated under the laws of the State of Maryland on July
27, 1998. Each Fund is authorized to offer three classes of shares, one of
which, the Institutional Shares, is offered as the "CSAM Institutional Shares."
Unless otherwise indicated, references to a "Fund" apply to all classes of
shares of that Fund as a group, including its Institutional Shares. As of the
date of this STATEMENT OF ADDITIONAL INFORMATION, the Central & Eastern Europe
Fund has not commenced operations.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objectives and policies in the PROSPECTUS. There are no
assurances that the Funds will achieve their investment objectives.
The investment objective of the European Equity Fund is
capital appreciation, which it seeks to achieve by investing primarily in equity
securities of Western European companies. The investment objective of the
Central & Eastern Europe Fund is capital appreciation, which it seeks to achieve
by investing primarily in equity securities of Central and Eastern European
companies.
THE EUROPEAN EQUITY FUND: The European Equity Fund, under
normal circumstances, will invest at least 65% of its total assets in equity
securities of companies (i) whose principal trading market is in any Western
European country, provided that, alone or on a consolidated basis, they derive
50% or more of their annual revenue from either goods produced, sales made or
services performed in Western European markets, or which have at least 50% of
their assets situated in one or more Western European markets; (ii) that are
organized under the laws of, and with a principal office in, a Western European
country; or (iii) the principal securities trading market for which is in a
Western European market. Determinations as to eligibility will be made by Credit
Suisse Asset Management, LLC ("CSAM") or, if applicable, Credit Suisse Asset
Management Ltd. ("CSAM Ltd."), each Fund's investment adviser and sub-investment
adviser, respectively (each an "Adviser") based on publicly available
information and inquiries made to the companies. The European Equity Fund
intends to invest at least 80% of its assets in equity securities of Western
European companies. The Fund considers Western Europe to currently include the
European Union, Norway and Switzerland. The European Equity Fund may also invest
in other European countries. The European Equity Fund has not established
limitations on the allocation of investments among the Western European
countries, but intends to diversify its investments across different countries.
At times, it may invest a significant amount of its assets in a single country.
THE CENTRAL & EASTERN EUROPE FUND: The Central & Eastern
Europe Fund, under normal circumstances, will invest at least 65% of its total
assets in equity securities of companies (i) whose principal trading market is
in any Central or Eastern European country, provided that, alone or on a
consolidated basis, they derive 50% or more of their annual revenue from either
goods produced, sales made or services performed in Central or Eastern European
markets, or which have at least 50% of their assets situated in one or more
Central
<PAGE>
and Eastern European markets; (ii) that are organized under the laws of,
and with a principal office in, a Central or Eastern European country; or (iii)
the principal securities trading market for which is in a Central or Eastern
European market. Determinations as to eligibility will be made by the Fund's
Adviser based on publicly available information and inquiries made to the
companies. The Fund considers Central Europe to be the area north of Italy and
the former Yugoslavia, west of Romania and the former Soviet Union, east of
Switzerland and Germany and south of the Baltic Sea. The Fund considers Eastern
Europe to be currently comprised of, but not limited to, the countries of the
former Warsaw Pact and the European successor states of the former Soviet Union.
Investment companies that invest principally in securities of Central or Eastern
European companies will also be considered to be Central or Eastern European
companies, as will American Depositary Receipts and Global Depositary Receipts
with respect to those securities. By investing in shares of investment companies
that invest in Central and Eastern Europe, the Fund will indirectly pay a
portion of the operating expenses, management expenses and brokerage costs of
such companies.
GENERAL INVESTMENT STRATEGIES
Unless otherwise indicated, each Fund is permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below. Any percentage limitation on a Fund's
ability to invest in debt securities will not be applicable during periods when
the Fund pursues a temporary defensive strategy as discussed below.
The Funds are not obligated to pursue any of the following
strategies and do not represent that these techniques are available now or will
be available at any time in the future.
OPTIONS, FUTURES AND CURRENCY EXCHANGE TRANSACTIONS
The Funds may purchase and write (sell) options on securities,
securities indices and currencies for hedging purposes or to increase total
return. The Fund may enter into futures contracts and options on futures
contracts on securities, securities indices and currencies and may engage in
currency exchange transactions for these same purposes, which may involve
speculation. The amount of assets considered to be "at risk" in these
transactions is, in the case of purchasing options, the amount of the premium
paid, and, in the case of writing options, the value of the underlying
obligation.
SECURITIES OPTIONS. Each Fund may write covered put and call
options on stock and debt securities and may purchase covered put and call
options that are traded on foreign and U.S. exchanges, as well as
over-the-counter ("OTC").
Each Fund will realize fees (referred to as "premiums") for
granting the rights evidenced by the options it has written. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price for
a specified time period or at a specified time. In contrast, a call option
embodies the right of its purchaser to compel the writer of the option to sell
to the option holder an underlying security at a specified price for a specified
time period or at a specified time.
2
<PAGE>
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved from its use. However, for an option writer the exposure to adverse
price movements in the underlying security or index is potentially unlimited
during the exercise period. Writing securities options may result in substantial
losses to a Fund, force the sale or purchase of portfolio securities at
inopportune times or at less advantageous prices, limit the amount of
appreciation the Fund could realize on its investments or require the Fund to
hold securities it would otherwise sell.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund, as
the writer of a covered call option, forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). A Fund that
writes call options retains the risk of a decline in the price of the underlying
security. The size of the premiums that a Fund may receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by a Fund that are deemed
covered by virtue of a Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stock with respect to which a Fund
has written options may exceed the time within which a Fund must make delivery
in accordance with an exercise notice. In these instances, a Fund may purchase
or temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, a Fund will not bear any market risk, since a Fund will
have the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but a Fund may incur
additional transaction costs or interest expenses in connection with any such
purchase or borrowing.
Additional risks exist with respect to certain of the
securities for which a Fund may write covered call options. For example, if a
Fund writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, a Fund will compensate for the decline in the value of the cover by
purchasing an appropriate additional amount of mortgage-backed securities.
Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money,"
3
<PAGE>
"at-the-money" and "out-of-the-money," respectively. Each Fund may write (i)
in-the-money call options when a Fund's Adviser expects that the price of the
underlying security will remain flat or decline moderately during the option
period, (ii) at-the-money call options when the Adviser expects that the price
of the underlying security will remain flat or advance moderately during the
option period and (iii) out-of-the-money call options when the Adviser expects
that the premiums received from writing the call option plus the appreciation in
market price of the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security alone. In any of
the preceding situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be used in the
same market environments that such call options are used in equivalent
transactions. To secure its obligation to deliver the underlying security when
it writes a call option, each Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by a Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which a Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When a Fund has purchased an option and engages
in a closing sale transaction, whether a Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium a Fund initially paid for the original option plus the
related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. A Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of a Fund under an option it has written
would be terminated by a closing purchase transaction, but a Fund would not be
deemed to own an option as a result of the transaction. So long as the
obligation of a Fund as the writer of an option continues, a Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring a Fund to deliver the underlying security against payment of the
exercise price. This obligation terminates when the option expires or a Fund
effects a closing purchase transaction. A Fund cannot effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options, no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
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anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Fund's ability to terminate options positions established in the OTC market
may be more limited than for exchange-traded options and may also involve the
risk that securities dealers participating in OTC transactions would fail to
meet their obligations to the Fund. Each Fund, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by its Adviser
are considered to be investment grade. If, as a covered call option writer, a
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security and would continue to be at
market risk on the security and could face higher transaction costs, including
brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
Funds and other clients of their Advisers and certain of their affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Funds will
be able to purchase on a particular security.
SECURITIES INDEX OPTIONS. Each Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the securities index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the index and the exercise price of the option times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Securities
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index options may be offset by entering into closing transactions as described
above for securities options.
OTC OPTIONS. Each Fund may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by a Fund, a Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid
market while OTC or dealer options do not. Consequently, a Fund will generally
be able to realize the value of a dealer option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when a
Fund writes a dealer option, it generally will be able to close out the option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to which a Fund originally wrote the option. Although each Fund
will seek to enter into dealer options only with dealers who will agree to and
that are expected to be capable of entering into closing transactions with a
Fund, there can be no assurance that a Fund will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to a Fund. Until
a Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair a Fund's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when such
sale might be advantageous.
FUTURES ACTIVITIES. Each Fund may enter into foreign currency,
interest rate and securities index futures contracts and purchase and write
(sell) related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These futures contracts are standardized contracts for the future
delivery of a non-U.S. currency, an interest rate sensitive security or, in the
case of index futures contracts or certain other futures contracts, a cash
settlement with reference to a specified multiple times the change in the index.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract. These transactions may
be entered into for "bona fide hedging" purposes as defined in CFTC regulations
and other permissible purposes including hedging against changes in the value of
portfolio securities due to anticipated changes in currency values, interest
rates and/or market conditions as well as for the purpose of increasing total
return, which may involve speculation.
No Fund will enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) required
to establish positions other than those considered to be "bona fide hedging" by
the CFTC exceed 5% of a Fund's net asset
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value after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. Each Fund reserves the right to engage in
transactions involving futures contracts and options on futures contracts to the
extent allowed by CFTC regulations in effect from time to time and in accordance
with a Fund's policies. There is no overall limit on the percentage of a Fund's
assets that may be at risk with respect to futures activities.
The OTC market in forward foreign currency exchange contracts
offers less protection against defaults by the other party to such instruments
than is available for currency instruments traded on an exchange. Such contracts
are subject to the risk that the counterparty to the contract will default on
its obligations. Since these contracts are not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a Fund of unrealized
profits, transaction costs or the benefits of a currency hedge or force a Fund
to cover its purchase or sale commitments, if any, at the current market price.
Currency exchange rates may fluctuate significantly over short periods of time.
They generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries,
actual or perceived changes in interest rates and other complex factors as seen
from an international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments
in the U.S. or abroad.
FUTURES CONTRACTS. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities listed
represented in the indexes. A securities index futures contract is an agreement
to be settled by delivery of an amount of cash equal to a specified multiplier
times the difference between the value of the index at the close of the last
trading day on the contract and the price at which the agreement is made.
No consideration is paid or received by a Fund upon entering
into a futures contract. Instead, a Fund is required to deposit in a segregated
account with its custodian an amount of cash or liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to a Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if a Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or securities
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." A Fund will also incur brokerage costs in connection with
entering into futures transactions.
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At any time prior to the expiration of a futures contract, a
Fund may elect to close the position by taking an opposite position, which will
operate to terminate a Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although each
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting a Fund to substantial losses. In such event, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such situations, if a Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances a
Fund may realize a loss on a futures contract or option that is not offset by an
increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect a Fund's
performance.
OPTIONS ON FUTURES CONTRACTS. Each Fund may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an 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 exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of
the assets of a Fund that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and a Fund may incur costs in connection with conversion
between various currencies. Currency exchange transactions
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may be from any non-U.S. currency into U.S. dollars or into other appropriate
currencies. Each Fund will conduct its currency exchange transactions (i) on a
spot (I.E., cash) basis at the rate prevailing in the currency exchange market,
(ii) through entering into futures contracts or options on such contracts (as
described above), (iii) through entering into forward contracts to purchase or
sell currency or (iv) by purchasing exchange-traded currency options.
FORWARD CURRENCY CONTRACTS. A forward 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 as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.
At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to enter into an offsetting
transaction. If a Fund retains the portfolio security and engages in an
offsetting transaction, a Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Forward currency contracts are highly volatile, and a
relatively small price movement in a forward currency contract may result in
substantial losses to a Fund. To the extent a Fund engages in forward currency
contracts to generate current income, the Fund will be subject to these risks
which the Fund might otherwise avoid (E.G., through the use of hedging
transactions).
CURRENCY OPTIONS. Each Fund may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
CURRENCY HEDGING. Each Fund's currency hedging will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of a Fund generally accruing in connection with
the purchase or sale of its portfolio securities. Position hedging is the sale
of forward currency with respect to portfolio security positions. No Fund may
position hedge to an extent greater than the aggregate market value (at the time
of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in
which a Fund's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.
The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange
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that can be achieved in the future. For example, in order to protect against
diminutions in the U.S. dollar value of non-dollar denominated securities it
holds, a Fund may purchase foreign currency put options. If the value of the
foreign currency does decline, a Fund will have the right to sell the currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on the U.S. dollar value of its securities that otherwise would
have resulted. Conversely, if a rise in the U.S. dollar value of a currency in
which securities to be acquired are denominated is projected, thereby
potentially increasing the cost of the securities, a Fund may purchase call
options on the particular currency. The purchase of these options could offset,
at least partially, the effects of the adverse movements in exchange rates. The
benefit to a Fund derived from purchases of currency options, like the benefit
derived from other types of options, will be reduced by premiums and other
transaction costs. Because transactions in currency exchange are generally
conducted on a principal basis, no fees or commissions are generally involved.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Although currency hedges limit the risk
of loss due to a decline in the value of a hedged currency, at the same time,
they also limit any potential gain that might result should the value of the
currency increase. If a devaluation is generally anticipated, a Fund may not be
able to contract to sell a currency at a price above the devaluation level it
anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of a Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of a Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
bond denominated in a foreign currency against a decline in the particular
currency, but will not protect a Fund against a price decline if the issuer's
creditworthiness deteriorates.
SWAPS. Each Fund may enter into swaps relating to indexes,
currencies and equity interests of issuers without limit. A swap transaction is
an agreement between a Fund and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by a Fund with
another party of the respective amounts payable with respect to a notional
principal amount related to one or more indexes. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values. An equity swap is an agreement to exchange streams
of payments computed by reference to a notional amount based on the performance
of a basket of stocks or a single stock. Each Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its assets, to protect against currency fluctuations, as a duration
management technique or to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date. Each Fund may also use
these transactions for speculative purposes, such as to obtain the price
performance of a security without actually purchasing the security in
circumstances, for example, the subject security is illiquid, is unavailable for
direct investment or available only on less attractive terms. Swaps have risks
associated with them including possible default by the counterparty to the
transaction, illiquidity and, where swaps are used as hedges, the risk that the
use of a swap could result in losses greater than if the swap had not been
employed.
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Each Fund will usually enter into swaps on a net basis (I.E.,
the two payment streams are netted out in a cash settlement on the payment date
or dates specified in the agreement, with a Fund receiving or paying, as the
case may be, only the net amount of the two payments). Swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps is limited to the net amount of payments that
a Fund is contractually obligated to make. If the counterparty to a swap
defaults, a Fund's risk of loss consists of the net amount of payments that a
Fund is contractually entitled to receive. Where swaps are entered into for good
faith hedging purposes, the Adviser believes such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to a Fund's borrowing restrictions. Where swaps are entered into
for other than hedging purposes, a Fund will segregate an amount of cash or
liquid securities having a value equal to the accrued excess of its obligations
over entitlements with respect to each swap on a daily basis.
HEDGING GENERALLY. In addition to entering into options,
futures and currency exchange transactions for other purposes, including
generating current income to offset expenses or increase return, each Fund may
enter into these transactions as hedges to reduce investment risk, generally by
making an investment expected to move in the opposite direction of a portfolio
position. A hedge is designed to offset a loss in a portfolio position with a
gain in the hedged position; at the same time, however, a properly correlated
hedge will result in a gain in the portfolio position being offset by a loss in
the hedged position. As a result, the use of options, futures, contracts and
currency exchange transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, since the value of
portfolio securities will far exceed the value of the futures contracts sold by
a Fund, an increase in the value of the futures contracts could only mitigate,
but not totally offset, the decline in the value of a Fund's assets.
In hedging transactions based on an index, whether a Fund will
realize a gain or loss depends upon movements in the level of securities prices
in the stock market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular security.
The risk of imperfect correlation increases as the composition of a Fund's
portfolio varies from the composition of the index. In an effort to compensate
for imperfect correlation of relative movements in the hedged position and the
hedge, a Fund's hedge positions may be in a greater or lesser dollar amount than
the dollar amount of the hedged position. Such "over hedging" or "under hedging"
may adversely affect a Fund's net investment results if market movements are not
as anticipated when the hedge is established. Securities index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the securities index and
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movements in the price of securities index futures, a correct forecast of
general market trends by each Fund's Adviser still may not result in a
successful hedging transaction.
Each Fund will engage in hedging transactions only when deemed
advisable by its Adviser, and successful use by a Fund of hedging transactions
will be subject to its Adviser's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to predict correctly
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect a Fund's
performance.
To the extent that a Fund engages in the strategies described
above, the Fund may experience losses greater than if these strategies had not
been utilized. In addition to the risks described above, these instruments may
be illiquid and/or subject to trading limits, and the Fund may be unable to
close out a position without incurring substantial losses, if at all. The Funds
are also subject to the risk of a default by a counterparty to an off-exchange
transaction.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND
OPTIONS ON FUTURES. Each Fund will comply with guidelines established by the
U.S. Securities and Exchange Commission (the "SEC") and other applicable
regulatory bodies with respect to coverage of forward currency contracts;
options written by a Fund on currencies, securities, if applicable, and indexes;
and currency, interest rate and index futures contracts and options on these
futures contracts. These guidelines may, in certain instances, require
segregation by a Fund of cash or liquid securities.
For example, a call option written by a Fund on securities may
require a Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by a Fund on an index
may require a Fund to own portfolio securities that correlate with the index or
to segregate assets (as described above) equal to the excess of the index value
over the exercise price on a current basis. A put option written by a Fund may
require a Fund to segregate assets (as described above) equal to the exercise
price. A Fund could purchase a put option if the strike price of that option is
the same or higher than the strike price of a put option sold by a Fund. If a
Fund holds a futures or forward contract, a Fund could purchase a put option on
the same futures or forward contract with a strike price as high or higher than
the price of the contract held. A Fund may enter into fully or partially
offsetting transactions so that its net position, coupled with any segregated
assets (equal to any remaining obligation), equals its net obligation. Asset
coverage may be achieved by other means when consistent with applicable
regulatory policies.
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ADDITIONAL INFORMATION ON OTHER INVESTMENT PRACTICES
FOREIGN INVESTMENTS.
Investors should recognize that investing in foreign
companies, whether in emerging or more developed countries, involves certain
risks, including those discussed below, which are in addition to those
associated with investing in U.S. issuers. These risks include currency exchange
rates and exchange control regulations, less publicly available information,
different accounting and reporting standards, less liquid markets, more volatile
markets, higher brokerage commissions and other fees, possibility of
nationalization or expropriation, confiscatory taxation, political instability,
and less protection provided by the judicial system.
FOREIGN CURRENCY EXCHANGE. Since the Funds will invest in
securities denominated in currencies other than the U.S. dollar, and since the
Funds may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Funds may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Funds' assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Funds. Unless otherwise contracted, the rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. Changes in the exchange rate
may result over time from the interaction of many factors directly or indirectly
affecting economic and political conditions in the United States and a
particular foreign country, including economic and political developments in
other countries. Of particular importance are rates of inflation, interest rate
levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by the
governments of the United States and foreign countries important to
international trade and finance. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their currencies
to float freely in response to economic forces. Sovereign governments use a
variety of techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. The Funds may use hedging techniques with the objective of
protecting against loss through the fluctuation of the value of foreign
currencies against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures. See "Currency Transactions" and
"Futures Activities" above.
EURO CONVERSION. The Adviser believes that the introduction of
a single European currency, the euro, on January 1, 1999 for participating
European nations in the Economic and Monetary Union may create new economic
opportunities for investors, such as (i) lower interest rates; (ii)mergers and
acquisitions; (iii) corporate restructurings; (iv) share buybacks; (v) more
efficient distribution and product packaging; and (vi) greater competition. The
introduction of the euro, however, also presents unique risks and uncertainties
for investors in those countries, including; (i) the creation of suitable
clearing and settlement
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payment schemes for the euro; (ii) the legal treatment of outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; (iii) the fluctuation of the euro relative to non-euro currencies
during the transition period from January 1, 1999 to December 31, 2000 and
beyond; and (iv) whether the interest rate, tax and labor regimes of the
European countries participating in the euro will converge over time. Further,
the conversion of the currencies of other Economic and Monetary Union countries,
such as the United Kingdom, and the admission of other countries, including
Central and Eastern European countries, to the Economic and Monetary Union could
adversely affect the euro. These or other factors may cause market disruptions
before or after the introduction of the euro and could adversely affect the
value of European securities and currencies held by the Funds.
INFORMATION. The majority of the securities held by the Funds
will not be registered with, nor will the issuers thereof be subject to
reporting requirements of the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally not subject to uniform financial
reporting standards, practices and requirements comparable to those applicable
to U.S.
companies.
POLITICAL INSTABILITY. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Funds, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
EMERGING MARKETS. Investing in securities of issuers located
in "emerging markets" (less developed countries located outside of the U.S.)
involves not only the risks described above with respect to investing in foreign
securities, but also other risks, including exposure to economic structures that
are generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. For example,
many investments in emerging markets experienced significant declines in value
due to political and currency volatility in emerging markets countries during
the latter part of 1997 and the first half of 1998. Other characteristics of
emerging markets that may affect investment include certain national policies
that may restrict investment by foreigners in issuers or industries deemed
sensitive to relevant national interests and the absence of developed structures
governing private and foreign investments and private property. The typically
small size of the markets for securities of issuers located in emerging markets
and the possibility of a low or nonexistent volume of trading in those
securities may also result in a lack of liquidity and in price volatility of
those securities.
DELAYS. Securities of some foreign companies are less liquid
and their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of the Funds to market and foreign exchange fluctuations brought about
by such delays, and due to the corresponding negative impact on the Funds'
liquidity, the Funds will take reasonable steps to mitigate investing in
countries which are known to experience settlement delays which may expose the
Funds to unreasonable risk of loss.
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INCREASED EXPENSES. The operating expenses of the Funds can be
expected to be higher than that of an investment company investing exclusively
in U.S. securities, since the expenses of the Funds, such as custodial costs,
valuation costs and communication costs, as well as the rate of the investment
advisory fees, though similar to such expenses of some other international
funds, are higher than those costs incurred by other investment companies not
investing in foreign securities.
FOREIGN DEBT SECURITIES. Each Fund may invest in debt
securities (other than money market obligations) and preferred stocks that are
not convertible into common stock for the purpose of seeking capital
appreciation. Each Fund's holdings of debt securities will be considered
investment grade at the time of purchase, except that each Fund may purchase a
certain amount of below investment grade securities (see "Below Investment Grade
Securities"). A security will be deemed to be investment grade if it is rated
within the four highest grades by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Service ("S&P") or, if unrated, is determined to be of
comparable quality by a Fund's Adviser. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those countries
and the effect of gains and losses in the denominated currencies against the
U.S. dollar, which have had a substantial impact on investment in foreign
fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Funds may
invest generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union to reflect changes in relative values of the
underlying currencies.
GENERAL. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. The Funds
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may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
SOVEREIGN DEBT. Investments in sovereign debt involve special
risks. The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due in accordance with the terms of such debt, and a Fund may have limited
legal recourse in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in
one or more of the countries issuing sovereign debt could adversely affect a
Fund's investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While the Adviser intends to manage the Funds in a manner
that will minimize the exposure to such risks, there can be no assurance that
adverse political changes will not cause a Fund to suffer a loss of interest or
principal on any of its holdings.
Investors should also be aware that certain sovereign debt
instruments in which a Fund may invest involve great risk. Sovereign debt issued
by issuers in many emerging markets generally is deemed to be the equivalent in
terms of quality to securities rated below investment grade by Moody's and S&P.
Such securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such sovereign debt, which may not be paying interest currently or may
be in payment default, may be comparable to securities rated "D" by S&P or "C"
by Moody's. A Fund may have difficulty disposing of certain sovereign debt
obligations because there may be a limited trading market for such securities.
Because there is no liquid secondary market for many of these securities, the
Funds anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on the market price of such securities and a Fund's
ability to dispose of particular issues when necessary to meet a Fund's
liquidity needs
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or in response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing a Fund's portfolio and calculating its
net asset value. When and if available, fixed income securities may be purchased
by a Fund at a discount from face value. However, the Funds do not intend to
hold such securities to maturity for the purpose of achieving potential capital
gains, unless current yields on these securities remain attractive. From time to
time, a Fund may purchase securities not paying interest at the time acquired
if, in the opinion of its Adviser, such securities have the potential for future
income or capital appreciation.
PRIVATIZATIONS. Each Fund may invest in privatizations (I.E.,
foreign government programs of selling interests in government-owned or
controlled enterprises). The ability of U.S. entities, such as the Funds, to
participate in privatizations may be limited by local law, or the terms for
participation may be less advantageous than for local investors. There can be no
assurance that privatization programs will be available or successful.
CENTRAL AND EASTERN EUROPEAN COUNTRIES. Both Funds will be
exposed to the risks of investing in Central and Eastern Europe although to a
different extent. The risks normally associated with investing in foreign
securities are increased in Central and Eastern European countries due to the
infancy of political and economic structures. As noted in the PROSPECTUS, the
Funds may invest in Russia, a country facing serious economic and political
issues and whose stock markets have experienced extreme volatility and
illiquidity in recent months. Many of these countries lack the political and
economic stability characteristic of more developed countries, and political or
social developments may adversely affect the value of a Fund's investment in a
material way. The small size and inexperience of the securities markets and the
limited volume of trading in such securities may make a Fund's investments
illiquid and more volatile than investments in more developed countries. There
may be little financial or accounting information available with respect to
companies located in certain Central and Eastern European countries and it may
be difficult to assess the value of an investment in such companies. These
securities markets are substantially smaller, less liquid and significantly more
volatile than U.S. or Western European markets. As a result, obtaining prices on
portfolio securities from independent sources may be more difficult. These
factors may make it more difficult for a Fund to calculate an accurate net asset
value on a daily basis and to respond to significant shareholder redemptions.
The value of a Fund's assets may be materially adversely
affected by political, economic, and social factors, changes in the law or
regulations of Central and Eastern European countries and the status of
political and economic foreign relations of Central and Eastern European
countries. Communist factions continue to play a role in the political structure
of some of these countries and there is also speculation that organized crime
exerts significant influence on certain countries in this region. Developments
in the region may also affect the value of a Fund's assets. Actions of Central
and Eastern European governments could significantly adversely affect private
sector companies and the Funds, market conditions, and prices and yields of
securities in each Fund's portfolio. Despite privatization programs that have
been implemented, the governments of Central and Eastern European countries have
exercised and continue to exercise significant influence over many aspects of
the local economies, and the number of public sector enterprises in Central and
Eastern Europe is
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substantial. New governments and new economic policies may also have an
unpredictable adverse impact on Central and Eastern European economies and,
consequently, on a Fund's investments.
Many of the countries in Central and Eastern Europe
experienced extremely high rates of inflation, particularly in the early 1990s
when central planning was first being replaced by the capitalist free market
system. As a result, the exchange rates of such countries experienced
significant depreciation relative to the U.S. dollar. The possibility of
significant loss arising from foreign currency depreciation or devaluation must
be considered as a serious risk. Although Central and Eastern European
governments are currently implementing reforms directed at political and
economic liberalization, there is no assurance that these reforms will continue
or, if continued, will be successful.
The economies of Central and Eastern European countries are
heavily dependent on the manufacturing sector, and adverse developments
affecting this sector in a particular country could adversely affect the economy
as a whole. Labor unrest resulting from economic instability in the region could
adversely affect the profitability and success of businesses in this and other
sectors. In addition, these economies generally are heavily dependent upon
international trade and have been and may continue to be adversely affected by
trade barriers and other protectionist measures, exchange controls and relative
currency values. These economies may also be adversely affected by economic or
political developments in or controversies with neighboring countries and major
trading partners. The economies of certain Central and Eastern European
countries are heavily dependent on oil and gas imported from Russia via
pipelines through the Ukraine and the Slovak Republic. Political or economic
turmoil in any one of these nations could result in an energy crisis that could
affect the economic stability of certain Central and Eastern European countries,
and consequently adversely affect the Funds. Political or economic turmoil in
nearby regions could also lead to an influx of refugees to one or more Central
or Eastern European countries with adverse economic and political effects on
such countries.
Investments in Central and Eastern European countries may
include the securities of both large and small companies. Small companies may
offer greater opportunities for capital appreciation than larger companies, but
these investments may involve certain special risks. Small companies may have
limited product lines, markets, or financial resources and may be dependent on a
limited management group. Securities issued by small companies may trade less
frequently and in smaller volume than more widely held securities issued by
large companies. Also, the values of securities issued by small companies may
fluctuate more sharply than those issued by larger companies, and a Fund may
experience some difficulty in establishing or closing out positions in small
company securities at prevailing prices.
Central and Eastern European countries may be subject to a
greater amount of social, political and economic instability resulting from
extra-constitutional changes or attempted changes in government, popular unrest
and hostile relations with neighboring countries or territories. Investments in
Central and Eastern Europe could also be adversely affected by developments in
other emerging markets, such as Asia or Latin America.
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Some Central and Eastern European countries, especially
Russia, have substantial external debt. Although, some countries have entered
into debt restructuring agreements with foreign creditors and some are
negotiating the rescheduling of their debt, there can be no assurance that such
negotiations will succeed. In many cases, it may be necessary to adopt economic
policies to facilitate debt service requirements (such as taking steps to
control inflation) and these measures may lead to periods of lower economic
growth. Central and Eastern European countries have been characterized by
declining real gross domestic product, high inflation, rising unemployment and
declining personal income (in real terms). Countries in this region lack a
developed infrastructure, telecommunications generally are poor and banks and
financial systems are not well developed. There is also a limited supply of
domestic savings in the region and businesses can experience difficulty in
obtaining working capital.
Many Central and Eastern European currencies are not fully
convertible. Some currencies have depreciated in value substantially against the
U.S. dollar and could depreciate further in the future. Since the net asset
value of each Fund will be calculated and reported in U.S. dollars, depreciation
in these currencies could adversely impact a Fund's performance.
Changes in local exchange control regulations, tax laws,
withholding taxes and economic or monetary policies may also affect the value of
an investment in the Funds, and may give rise to a capital gains tax liability
on a Fund's investment gains. The tax laws and regulations are not well drafted
and are difficult to comply with, and a company may incur substantial penalties
despite using all reasonable efforts to ensure compliance. The tax laws and
regulations may be given retroactive effect which could result in additional
taxes that are not taken into account when calculating a Fund's net asset value.
The system of taxation in certain Central and Eastern European countries may
deter investment and hinder financial stability by concentrating on the taxation
of industry with relatively little emphasis on individual taxation. Finally,
accounting standards do not generally correspond to generally accepted
accounting principles or accepted international accounting standards, and a Fund
may have access to less financial information on investments than would normally
be the case in more sophisticated markets.
Many Central and Eastern European businesses do not have
established histories of operating within a market-oriented economy. These
businesses generally lack experience operating in the free market environment,
modern technology and a sufficient capital base with which to develop and expand
operations. Many of these countries are in need of restructuring their
industries to, among other things, close out-dated facilities and increase
investment in technology and management.
The securities in which a Fund may invest may not be listed or
traded on any securities market for the foreseeable future and, in some cases,
may not be registered for resale under the securities laws of any country. There
may be significant disparities between the prices paid for securities in private
transactions and the prices at which the same securities trade on an exchange or
in an OTC market. These factors may limit a Fund's ability to obtain accurate
market quotations for purposes of valuing its portfolio securities and
calculating its net asset value. Although, many Central and Eastern European
countries are developing stock exchanges and formulating rules and regulations,
it is unlikely that these stock exchanges will, in the foreseeable future, offer
the liquidity available in western securities markets.
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Accordingly, there may be no readily available market for the timely liquidation
of investments made by a Fund, particularly in periods when the relevant market
is declining.
The lack of environmental controls in Central and Eastern
Europe has led to widespread pollution and the legislative framework for
environmental liability and the extent of any exposure of businesses to the
costs of pollution clean-up have not been fully established. The extent of
responsibility, if any, for pollution-related liabilities of any business may
not be determinable at the time a Fund is considering an investment.
Environmental liability could have a significant adverse effect on the
performance of companies in which a Fund invests.
Legislative change in Central and Eastern Europe has been
rapid, but it is difficult to anticipate the impact of legislative reforms on
the companies in which a Fund will invest. Although there appears to be
political support for legislative change to a market economy, it is not certain
that legislation when enacted will advance this objective or that this support
will continue. It will be more difficult for a Fund to obtain effective redress
or enforcement of its rights in certain Central and Eastern European countries
than in western jurisdictions. Also, the judicial and civil procedure system in
this region has not been modernized to a material extent and many courts lack
experience in commercial dispute resolution. Further, many of the procedural
remedies for enforcement and the protection of legal rights typically found in
western jurisdictions are not available in Central and Eastern Europe.
Employment and labor legislation can be pro-employee,
particularly in matters such as termination of employment, maternity benefits,
overtime restrictions and trade union participation. Laws regulating ownership,
control and corporate governance of companies as well as protection of minority
shareholders have been adopted recently and have virtually never been tested in
the courts. The judicial systems have very limited experience with the
adjudication of securities claims and corporate disputes. Consequently, it may
be more difficult for a Fund to obtain a judgment in a court outside the U.S. to
the extent that there is a default with respect to a security of a Central or
Eastern European issuer or a Fund has any other claim against such an issuer.
Disclosure and reporting requirements are minimal and
anti-fraud and insider trading legislation is generally rudimentary. Due to the
newness of Central and Eastern European securities markets, there is a low level
of monitoring and regulation of the markets and the activities of investors in
such markets, and there has been no or very limited enforcement to date of
existing regulations. The concept of fiduciary duties on the part of management
or directors to their companies as a whole is undeveloped. The regulatory
requirements for participants in the securities markets in the region as well as
the structure of relevant regulatory authorities are subject to constant change.
This may result in challenges to the validity of any license, permission,
consent or registration which is required in the particular country and which
were originally obtained in compliance with the laws.
Foreign investment in the securities of Central and Eastern
European companies is restricted and controlled to varying degrees. These
restrictions or controls may limit or preclude foreign investment in certain
cases, may require government approval prior to foreign investment, or may give
preferential treatment to nationals over foreign investors.
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Issuers in certain Central and Eastern Europe countries are allowed by law to
restrict the rights of foreign investors to participate in the subscription of
securities. This may result in the disenfranchisement of foreign investors in
respect of their rights to participate in bonus issues, rights and issues or
other corporate actions. This may result in dilution of holdings and loss of
voting power. A high proportion of the shares of many Central and Eastern
European companies are held by a limited number of investment funds and other
institutional investors, which may limit the number of shares available for
investment by the Funds. In addition, minority shareholders in companies, such
as the Funds, have limited rights against actions taken by controlling parties,
and those actions may adversely affect the value of a Fund's holdings. A limited
number of issuers represents a disproportionately large percentage of market
capitalization and trading value.
The prices at which a Fund may acquire investments may be
affected by the market's anticipation of a Fund's investing. In addition,
trading on material non-public information and securities transactions by
brokers in anticipation of transactions by a Fund in particular securities may
impact such prices. These and other factors may also affect the rate at which a
Fund can initially invest its assets.
Shareholders should be aware that settlement and safe custody
of securities in Central and Eastern Europe involves certain risks and
considerations which do not normally apply in more developed countries.
Verification and perfection of legal ownership in securities also differs and
are less effective than in Western Europe. In certain countries, securities are
issued only in bearer form. In other countries, no certificates are issued and
legal ownership of shares is perfected through registration either in the share
register of the company or at a central depository, in either case by a third
party over whom a Fund may not have control. In certain countries, the market
practice is settlement against production of evidence of title in the form of
extracts from the shareholders' register. Such extracts do not in themselves
constitute securities or constitute definitive evidence of title or ownership
rights. As such, these extracts do not guarantee that title to the securities
has in fact passed. In addition, fraudulent or incorrect registration may result
in title being removed from the securities register of an issuer. Access to
securities registers may also be limited and therefore registers may be
difficult to check.
FIXED INCOME SECURITIES. The value of the securities held by a
Fund, and thus the net asset value of the shares of a Fund, generally will vary
inversely in relation to changes in prevailing interest rates. Thus, if interest
rates have increased from the time a debt or other fixed income security was
purchased, such security, if sold, might be sold at a price less than its cost.
Conversely, if interest rates have declined from the time such a security was
purchased, such security, if sold, might be sold at a price greater than its
cost. Also, the value of such securities may be affected by changes in real or
perceived creditworthiness of the issuers. Thus, if creditworthiness is
enhanced, the price may rise. Conversely, if creditworthiness declines, the
price may decline. A Fund is not restricted to any maximum or minimum time to
maturity in purchasing portfolio securities, and the average maturity of a
Fund's assets will vary based on its Adviser's assessment of economic and market
conditions.
BELOW INVESTMENT GRADE SECURITIES. The European Equity Fund
may invest up to 20% of its net assets and the Central & Eastern Europe Fund may
invest up to 35% of its net assets in below investment grade securities
(securities that are rated below the fourth
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highest grade at the time of purchase by Moody's or S&P, or, if unrated, deemed
by the Adviser to be of comparable quality). Subsequent to its purchase by a
Fund, an issue of securities may cease to be rated or its rating may be reduced.
Neither event will require a sale of such securities by a Fund, although its
Adviser will consider such event in its determination of whether a Fund should
continue to hold the securities. The widespread expansion of government,
consumer and corporate debt within the economy has made the corporate sector,
especially cyclically sensitive industries, more vulnerable to economic
downturns or increased interest rates. Because lower-rated securities involve
issuers with weaker credit fundamentals (such as debt-to-equity ratios, interest
charge coverage, earnings history and the like), an economic downturn, or
increases in interest rates, could severely disrupt the market for lower-rated
securities and adversely affect the value of outstanding securities and the
ability of the issuers to repay principal and interest.
The market values of below investment grade securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of investment grade securities and the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than below
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. Issuers of these securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
below investment grade securities generally are unsecured and frequently are
subordinated to prior payment of senior indebtedness. If the issuer of a
security owned by a Fund defaulted, a Fund could incur additional expenses in
seeking recovery with no guarantee of recovery. Also, a recession could disrupt
severely the market for such securities and may adversely affect the value of
such securities and the ability of the issuers of such securities to repay
principal and pay interest thereon. Lower-rated securities also present risks
based on payment expectations. For example, lower-rated securities may contain
redemption or call provisions. If an issuer exercises these provisions in a
declining interest rate market, a Fund would have to replace the security with a
lower yielding security, resulting in a decreased return for investors.
The Funds may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Funds
anticipate that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for investment grade securities. The lack of a liquid secondary market,
as well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and a Fund's ability to
dispose of particular issues when necessary to meet liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Funds to obtain
accurate market quotations for purposes of valuing the Funds and calculating net
asset value.
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The market value of securities rated below investment grade is
more volatile than that of investment grade securities. Factors adversely
impacting the market value of these securities will adversely impact a Fund's
net asset value. The Funds will rely on the judgment, analysis and experience of
their Advisers in evaluating the creditworthiness of an issuer. In this
evaluation, an Adviser will consider, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
Normally, below investment grade securities and comparable unrated securities
are not intended for short-term investment. The Funds may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings of such securities.
At times, adverse publicity regarding lower-rated securities has depressed the
prices for such securities to some extent.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest
in securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, each Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of each Fund's total assets and
(iii) when added to all other investment company securities held by each Fund,
do not exceed 10% of the value of a Fund's total assets.
LENDING OF PORTFOLIO SECURITIES. The Funds may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by each
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of the value of the Fund's total assets (including the loan
collateral). No Fund will lend portfolio securities to affiliates of CSAM or
CSAM Ltd. unless it has applied for and received specific authority to do so
from the SEC. Loans of portfolio securities will be collateralized by cash or
liquid securities, which are maintained at all times in an amount equal to at
least 102% of the current market value of loaned U.S. securities and at least
105% of the current market value of loaned non-U.S. securities. Any gain or loss
in the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Funds. From time to time, the Funds may
return a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party that is unaffiliated
with the Funds and that is acting as a "finder."
By lending its securities, each Fund can increase its income
by continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Each Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) each Fund must receive cash collateral or equivalent securities of the type
discussed in the preceding paragraph from the borrower; (ii) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (iii) each Fund must be able to terminate the loan
at any time; (iv) each Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities
and any increase in market value; (v) each Fund may pay only reasonable
custodian
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fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon a Fund's ability to recover the loaned securities or
dispose of the collateral for the loan. Default by or bankruptcy of a borrower
would expose the Funds to possible loss because of adverse market action,
expenses and/or delays in connection with the disposition of the underlying
securities. Any loans of a Fund's securities will be fully collateralized and
marked to market daily.
WHEN-ISSUED SECURITIES, DELAYED-DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS. Each Fund may utilize up to 20% of its total assets to
purchase securities on a "when-issued" basis, for delayed delivery (I.E.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield) or on a forward commitment basis. Each Fund does not intend to engage
in these transactions for speculative purposes, but only in furtherance of its
investment objectives. These transactions occur when securities are purchased or
sold by a Fund with payment and delivery taking place in the future to secure
what is considered an advantageous yield and price to a Fund at the time of
entering into the transaction. The payment obligation and the interest rate that
will be received on when-issued securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued, delayed-delivery basis or forward commitment
basis, the prices obtained on such securities may be higher or lower than the
prices available in the market on the dates when the investments are actually
delivered to the buyers.
When a Fund agrees to purchase when-issued, delayed-delivery
securities or securities on a forward commitment basis, its custodian will set
aside cash or liquid securities equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of a Fund's
commitment. The assets contained in the segregated account will be
marked-to-market daily. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. When a Fund engages in
when-issued, delayed-delivery or forward commitment transactions, it relies on
the other party to consummate the trade. Failure of the seller to do so may
result in a Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
BRADY BONDS. Each Fund may invest in so-called "Brady Bonds,"
which are securities created through the exchange of existing commercial bank
loans to public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are currently actively traded in the OTC
secondary market for debt instruments.
Dollar-denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are collateralized in full
as to principal by U.S.
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Treasury zero coupon bonds having the same maturity as the bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter.
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 constituting the "residual risk").
REPURCHASE AGREEMENTS. Each Fund may agree to purchase
securities from a bank or recognized securities dealer and simultaneously commit
to resell the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased securities ("repurchase agreements"). Such Fund would maintain
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to would be, in effect, secured by such securities. If the value of such
securities were less than the repurchase price, plus interest, the other party
to the agreement would be required to provide additional collateral so that at
all times the collateral is at least 102% of the repurchase price plus accrued
interest. Default by or bankruptcy of a seller would expose a Fund to possible
loss because of adverse market action, expenses and/or delays in connection with
the disposition of the underlying obligations. The financial institutions with
which a Fund may enter into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by a Fund's Adviser. A Fund's Adviser will continue to
monitor the creditworthiness of the seller under a repurchase agreement, and
will require the seller to maintain during the term of the agreement the value
of the securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, a Fund's Adviser
will require that the value of this collateral, after transaction costs
(including loss of interest) reasonably expected to be incurred on a default, be
equal to 102% or greater than the repurchase price (including accrued premium)
provided in the repurchase agreement or the daily amortization of the difference
between the purchase price and the repurchase price specified in the repurchase
agreement. A Fund's Adviser will mark-to-market daily the value of the
securities. There are no percentage limits on a Fund's ability to enter into
repurchase agreements. Repurchase agreements are considered to be loans by the
Fund under the 1940 Act.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government and one or more financial institutions ("Lenders").
The majority of the Funds' investments in Loans are expected to be in the form
of participations in Loans ("Participations") and assignments of portions of
Loans from third parties ("Assignments"). Participations typically will result
in a Fund having a contractual relationship only with the Lender, not with the
borrower. A participating 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
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connection with purchasing Participations, a Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan ("Loan Agreement"), nor any rights of set-off against the
borrower, and a Fund may not directly benefit from any collateral supporting the
Loan in which it has purchased the Participation. As a result, participating
Funds will assume the credit risk of both the borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, a 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. The Funds
will acquire Participations only if the Lender interpositioned between the Funds
and the borrower is determined by the Adviser to be creditworthy. Each Fund
currently anticipates that it will not invest more than 5% of its net assets in
Loan Participations and Assignments.
CONVERTIBLE SECURITIES. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. While no
securities investment is completely without risk, investments in convertible
securities generally entail less risk than the corporation's common stock,
although the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a
fixed-income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock since they have
fixed-income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. Most
convertible securities currently are issued by U.S. companies, although a
substantial Eurodollar convertible securities market has developed, and the
markets for convertible securities denominated in local currencies are
increasing.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors also may have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be
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increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed-income security.
A convertible security might be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by a Fund is called for
redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. The Funds will invest in convertible securities without regard to their
credit rating.
STRUCTURED NOTES. The Funds may invest in structured notes.
The distinguishing feature of a structured note is that the amount of interest
and/or principal payable on the notes is based on the performance of a benchmark
asset or market other than fixed-income securities or interest rates. Examples
of a benchmark include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows a Fund to gain exposure
to the benchmark asset or market, such as investments in certain emerging
markets that restrict investment by foreigners. The structured note fixes the
maximum loss that a Fund may experience in the event that the market does not
perform as expected. The performance tie can be a straight relationship or
leveraged, although the Adviser generally will not use leverage in its
structured note strategies. Depending on the terms of the note, a Fund may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this foregone interest
and/or principal. An investment in a structured note involves risks similar to
those associated with a direct investment in the benchmark asset. Structured
notes will be treated as illiquid securities for investment limitation purposes.
SHORT SALES. In a short sale, a Fund sells a borrowed security
and has a corresponding obligation to the lender to return the identical
security. The seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If a
Fund engages in a short sale, the collateral for the short position will be
maintained by the Funds' custodian or qualified sub-custodian. While the short
sale is open, a Fund will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. These
securities constitute a Fund's long position.
While a short sale is made by selling a security a Fund does
not own, a short sale is "against the box" to the extent that a Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. A Fund may make a short sale as a hedge when it
believes that the price of a security may decline, causing a decline in the
value of a security owned by a Fund (or a security convertible or exchangeable
for such security). In such case, any future losses in a Fund's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position. The extent
to which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount each Fund owns. There will be certain
additional transactions costs associated with short sales against the box, but
the Funds will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
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If a Fund effects a short sale of securities at a time when it
has an unrealized gain on the securities, it may be required to recognize that
gain as if it had actually sold the securities (as a "constructive sale") on the
date it effects the short sale. However, such constructive sale treatment may
not apply if a Fund closes out the short sale with securities other than the
appreciated securities held at the time of the short sale and if certain other
conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which the Funds may effect short
sales.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES;
UNSEASONED ISSUERS. A Fund will not invest in securities of unseasoned issuers,
including equity securities of unseasoned issuers which are not readily
marketable, if the aggregate investment in such securities would exceed 5% of
such Fund's net assets. Investments in securities of small- and medium-sized,
emerging growth companies and companies with continuous operations of less than
three years ("unseasoned issuers") involve risks that are not applicable to
investing in securities of established, larger-capitalization issuers, including
reduced and less reliable information about issuers and markets, less stringent
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of these companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile. Because such
companies normally have fewer shares outstanding than larger, more established
companies, it may be more difficult for the Fund to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices. These
companies may have limited product lines, markets or financial resources and may
lack management depth. In addition, these companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies. Although investing in securities of these companies
offers potential for above-average returns if the companies are successful, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value.
DEPOSITARY RECEIPTS. The assets of each Fund may be invested
in the securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts, are receipts
issued in Europe, and IDRs, which are sometimes referred to as Global Depositary
Receipts, are issued outside the United States. EDRs and IDRs are typically
issued by non-U.S. banks and trust companies and evidence ownership of either
foreign or domestic securities. Generally, ADRs in registered form are designed
for use in U.S. securities markets and EDRs and IDRs in bearer form are designed
for use in European and non-U.S. securities markets, respectively.
TEMPORARY INVESTMENTS. The short-term and medium-term debt
securities in which each Fund may invest for temporary defensive purposes
consist of: (a) obligations of the United States or foreign governments, their
respective agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and
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bankers' acceptances) of U.S. or foreign banks denominated in any currency; (c)
floating rate securities and other instruments denominated in any currency
issued by international development agencies; (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of U.S. and
foreign corporations; and (e) repurchase agreements with banks and
broker-dealers with respect to such securities.
RIGHTS OFFERINGS AND PURCHASE WARRANTS. Each Fund may invest
up to 15% of its net assets in rights and warrants to purchase newly created
equity securities consisting of common and preferred stock. The equity security
underlying a right or warrant is outstanding at the time the right or warrant is
issued or is issued together with the right or warrant.
Investing in rights and warrants can provide a greater
potential for profit or loss than an equivalent investment in the underlying
security, and, thus, can be a speculative investment. The value of a right or
warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or
other policies of the company whose equity underlies the warrant or a change in
the perception as to the future price of the underlying security, or any
combination thereof. Rights and warrants generally pay no dividends and confer
no voting or other rights other than to purchase the underlying security.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. No Fund may
invest more than 15% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, repurchase agreements which have a maturity of longer
than seven days, certain Rule 144A Securities (as defined below), and time
deposits maturing in more than seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days without borrowing. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The
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fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
RULE 144A SECURITIES. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Each Fund's Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and use of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to a Fund's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board or its
delegates may consider, INTER alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) 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 the transfer).
BORROWING. Each Fund may borrow up to 30% of its total assets
for temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Investments
(including roll-overs) will not be made when borrowings exceed 5% of a Fund's
net assets. Although the principal of such borrowings will be fixed, a Fund's
assets may change in value during the time the borrowing is outstanding. Each
Fund expects that some of its borrowings may be made on a secured basis. In such
situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
STAND-BY COMMITMENTS. Each Fund may acquire "stand-by
commitments" with respect to securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase at a Fund's option specified securities
at a specified price. A Fund's right to exercise stand-by commitments is
unconditional and unqualified. Stand-by commitments acquired by a Fund may also
be referred to as "put" options. A stand-by commitment is not transferable by a
Fund, although a Fund can sell the underlying securities to a third party at any
time.
The principal risk of stand-by commitments is that the writer
of a commitment may default on its obligation to repurchase the securities
acquired with it. The Funds intend to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of their Advisers, present
minimal credit risks. In evaluating the creditworthiness of the issuer of a
stand-by commitment, each Fund's Adviser will periodically review relevant
financial information concerning the issuer's assets, liabilities and contingent
claims. A Fund will
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acquire stand-by commitments only in order to facilitate portfolio liquidity and
does not intend to exercise its rights under stand-by commitments for trading
purposes.
The amount payable to a Fund upon its exercise of a stand-by
commitment is normally (i) a Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period a Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
Each Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in a Fund's portfolio will not
exceed 1/2 of 1% of the value of a Fund's total assets calculated immediately
after each stand-by commitment is acquired.
A Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by a Fund would be valued at zero in determining net asset value. Where
a Fund paid any consideration directly or indirectly for a stand-by commitment,
its cost would be reflected as unrealized depreciation for the period during
which the commitment was held by a Fund. Stand-by commitments would not affect
the average weighted maturity of a Fund's portfolio.
OTHER INVESTMENT LIMITATIONS
The investment limitations numbered 1 through 9 may not be
changed without the affirmative vote of the holders of a majority of each Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares. Investment limitations 10 through 13 may be
changed by a vote of the Board at any time.
Each Fund may not:
1. Borrow money except that the Fund may borrow from banks for
temporary or emergency purposes provided that any such borrowing by the Fund may
not exceed 30% of the value of the Fund's total assets at the time of such
borrowing. For purposes of this restriction, short sales and the entry into
currency transactions, options, futures contracts, options on futures contracts,
and forward commitment transactions that are not accounted for as financings
(and the segregation of assets in connection with any of the foregoing) shall
not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting
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their principal business activities in the same industry; provided that there
shall be no limit on the purchase of U.S. Government securities.
3. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including structured securities, lend portfolio
securities (in an amount up to 50% of its total assets immediately before the
making of such loans) and enter into repurchase agreements.
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indices, and options on futures contracts, securities, currencies or
indices, and purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are
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no readily available market quotations. For purposes of this limitation,
repurchase agreements with maturities greater than seven days shall be
considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage
limitations set forth in No. 1 and No. 12) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of a Fund's
assets will not constitute a violation of such restriction.
PORTFOLIO VALUATION
The PROSPECTUS discusses the time at which the net asset value
of each Fund is determined for purposes of sales and redemptions. The following
is a description of the procedures used by each Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an OTC market will be valued at the most recent
sale as of the time the valuation is made or, in the absence of sales, at the
mean between the bid and lowest asked quotations. If there are no such
quotations, the value of the highest securities will be taken to be the most
recent bid quotation on the exchange or market. Options contracts will be valued
similarly. Futures contracts will be valued at the most recent settlement price
at the time of valuation. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Short-term obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined by
the Fund's Board. Amortized cost involves valuing a portfolio instrument at its
initial cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The amortized cost method of valuation may
also be used with respect to other debt obligations with 60 days or less
remaining to maturity. Notwithstanding the foregoing, in determining the market
value of portfolio investments, the Funds may employ outside organizations (a
"Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Funds under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time.
Securities, options and futures contracts for which market quotations are not
available and certain other assets of the Funds will be valued at their fair
value as determined in good faith pursuant to consistently applied procedures
established by the Board. In addition, the Board or its delegates may value a
security at fair value if it determines that such security's value determined by
the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is
completed at various times prior to the close of business on each business day
in New York (I.E., a day on which The New York Stock Exchange, Inc. (the "NYSE")
is open for trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New
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York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and days on which a Fund's net asset value is
not calculated. As a result, calculation of a Fund's net asset value does not
take place contemporaneously with the determination of the prices of the
majority of a Fund's securities. All assets and liabilities initially expressed
in foreign currency values will be converted into U.S. dollar values at the
prevailing exchange rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for establishing, reviewing and,
where necessary, modifying each Fund's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by a Fund to underwriters of newly
issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign OTC markets, but the price of securities traded in OTC markets includes
an undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality. No brokerage commissions are typically
paid on purchases and sales of U.S. Government Securities.
In selecting broker-dealers, the Adviser does business
exclusively with those broker-dealers that, in the Adviser's judgment, can be
expected to provide the best service. The service has two main aspects: the
execution of buy and sell orders and the provision of research. In negotiating
commissions with broker-dealers, the Adviser will pay no more for execution and
research services that it considers either, or both together, to be worth. The
worth of execution service depends on the ability of the broker-dealer to
minimize costs of securities purchased and to maximize prices obtained for
securities sold. The worth of research depends on its usefulness in optimizing
portfolio composition and its changes over time. Commissions for the combination
of execution and research services that meet the Adviser's standards may be
higher than for execution services alone or for services that fall below the
Adviser's standards. The Adviser believes that these arrangements may benefit
all clients and not necessarily only the accounts in which the particular
investment transactions occur that are so executed. Further, the Adviser will
only receive brokerage or research service in connection with securities
transactions that are consistent with the "safe harbor"
34
<PAGE>
provisions of Section 28(e) of the Securities Exchange Act of 1934 when paying
such higher commissions.
All orders for transactions in securities or options on behalf
of a Fund are placed by the Adviser with broker-dealers that it selects,
including Credit Suisse Asset Management Securities, Inc. ("CSAMSI") and
affiliates of Credit Suisse Group ("Credit Suisse"). A Fund may utilize CSAMSI
or affiliates of Credit Suisse in connection with a purchase or sale of
securities when the Adviser believes that the charge for the transaction does
not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
Investment decisions for the Funds concerning specific
portfolio securities are made independently from those for other clients advised
by the Adviser. Such other investment clients may invest in the same securities
as the Funds. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each client, including a
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtained or sold
for a Fund. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for such other investment clients in order to obtain best execution.
Transactions for each Fund may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Funds will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
The Funds may participate, if and when practicable, in bidding
for the purchase of securities for each Fund's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. A Fund will engage in this practice, however, only when its
Adviser, in its sole discretion, believes such practice to be otherwise in a
Fund's interest.
From its inception of investment operations on January 28,
1999 to the end of its fiscal year on August 31, 1999, the European Equity Fund
has paid $219,750 in brokerage commissions.
In no instance will portfolio securities be purchased from or
sold to CSAM, CSAM Ltd., CSAMSI, Credit Suisse First Boston ("CS First Boston"),
or any affiliated person of such companies except as permitted by the SEC
exemptive order or by applicable law. In addition, the Funds will not give
preference to any institutions with whom a Fund
35
<PAGE>
enters into distribution or shareholder servicing agreements concerning the
provision of administrative and other support services.
PORTFOLIO TURNOVER
The Funds do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Funds
deem it desirable to sell or purchase securities. Each Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Funds could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold. To the extent that its
portfolio is traded for the short-term, the Funds will be engaged essentially in
trading activities based on short-term considerations affecting the value of an
issuer's stock instead of long-term investments based on fundamental valuation
of securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held. Consequently, the
annual portfolio turnover rate of the Funds may be higher than mutual funds
having a similar objective that do not utilize these strategies.
It is not possible to predict the Funds' portfolio turnover
rates. High portfolio turnover rates (100% or more) may result in higher
brokerage commission, higher dealer markups or underwriting commissions as well
as other transaction costs. In addition, gains realized from portfolio turnover
may be taxable to shareholders.
MANAGEMENT OF THE FUNDS
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of each Fund is managed by its Board
of Directors in accordance with the laws of the State of Maryland. Each Board
elects officers who are responsible for the day-to-day operations of a Fund and
who execute policies authorized by the Board. Under each Fund's Charter, a Board
may classify or reclassify any unissued shares of the Funds into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. A Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Funds.
The names (and ages) of each Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
36
<PAGE>
Richard H. Francis (67) DIRECTOR
40 Grosvenor Road Currently retired; Executive Vice
Short Hills, New Jersey 07078 President and Chief Financial Officer
of Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991;
Director of The Infinity Mutual Funds,
BISYS Group Incorporated;
Director/Trustee of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
Jack W. Fritz (72) DIRECTOR
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc.
Wilson, Wyoming 83014 and Fritz Communications (developers
and operators of radio stations);
Director of Advo, Inc. (direct mail
advertising); Director/Trustee of
other Warburg Pincus Funds.
Jeffrey E. Garten (53) DIRECTOR
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993
to October 1995; Professor at Columbia
University from September 1992 to
November 1993; Director/Trustee of
other Warburg Pincus Funds.
James S. Pasman, Jr. (69) DIRECTOR
29 The Trillium Currently retired; President and Chief
Pittsburgh, Pennsylvania 15238 Operating Officer of National
InterGroup, Inc. from April 1989 to
March 1991; Chairman of Permian Oil Co.
from April 1989 to March 1991; Director
of Education Management Corp., Tyco
International Ltd.; Trustee, BT
Insurance Funds Trust; Director/Trustee
of other Warburg Pincus Funds and other
CSAM-advised investment companies.
37
<PAGE>
William W. Priest* (58) CHAIRMAN OF THE BOARD
153 East 53rd Street Chairman- Management Committee, Chief
New York, New York 10022 Executive Officer and Managing Director
of CSAM (U.S.) since 1990; Director of
TIG Holdings, Inc.; Director/Trustee of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
Steven N. Rappaport (51) DIRECTOR
40 East 52nd Street President of Loanet, Inc. since 1997;
New York, New York 10022 Executive Vice President of Loanet,
Inc. from 1994 to 1997; Director,
President, North American Operations,
and former Executive Vice President
from 1992 to 1993 of Worldwide
Operations of Metallurg Inc.; Executive
Vice President, Telerate, Inc. from
1987 to 1992; Partner in the law firm
of Hartman & Craven until 1987;
Director/Trustee of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
Alexander B. Trowbridge (70) DIRECTOR
1317 F Street, N.W., Currently retired; President of
5th Floor Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) from January 1990 to
November 1996; Director or Trustee of
New England Mutual Life Insurance Co.,
ICOS Corporation (biopharmaceuticals),
IRI International (energy services),
The Rouse Company (real estate
development), Harris Corp. (electronics
and communications equipment), The
Gillette Co. (personal care products)
and Sunoco, Inc. (petroleum refining
and marketing); Director/Trustee of
other Warburg Pincus Funds.
Eugene L. Podsiadlo (42) PRESIDENT
466 Lexington Avenue Managing Director of CSAM; Associated
New York, New York 10017-3147 with CSAM since CSAM acquired the
Funds' predecessor adviser in July
1999; with the predecessor adviser
since 1991; Vice President of Citibank,
N.A. from 1987 to 1991; Officer of
CSAMSI and of other Warburg Pincus
Funds.
-----------------------------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
38
<PAGE>
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
153 East 53rd Street Managing Director and General Counsel
New York, New York 10022 of CSAM; Associated with Lehman
Brothers, Inc. from 1996 to 1997;
Associated with CSAM from 1995 to 1996;
Associated with CS First Boston
Investment Management from 1994 to
1995; Associated with Division of
Enforcement, U.S. Securities and
Exchange Commission from 1991 to 1994;
Officer of CSAMSI, other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Michael A. Pignataro (40) TREASURER AND CHIEF FINANCIAL OFFICER
153 East 53rd Street Vice President and Director of Fund
New York, New York 10022 Administration of CSAM; Associated with
CSAM since 1984; Officer of other
Warburg Pincus Funds and other
CSAM-advised investment companies.
Stuart J. Cohen, Esq. (31) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of
New York, New York 10017-3147 CSAM; Associated with CSAM since CSAM
acquired the Funds' predecessor adviser
in July 1999; with the predecessor
adviser since 1997; Associated with the
law firm of Gordon Altman Butowsky
Weitzen Shalov & Wein from 1995 to
1997; Officer of other Warburg Pincus
Funds.
Rocco A. DelGuercio (36) ASSISTANT TREASURER
153 East 53rd Street Assistant Vice President and
New York, New York 10022 Administrative Officer of CSAM;
Associated with CSAM since June 1996;
Assistant Treasurer, Bankers Trust
Corp. -- Fund Administration from March
1994 to June 1996; Mutual Fund
Accounting Supervisor, Dreyfus
Corporation from April 1987 to March
1994; Officer of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
No employee of CSAM, CSAM Ltd., PFPC Inc. and Credit Suisse
Asset Management Service, Inc., the Funds' co-administrators ("PFPC" and
"CSAMSI," respectively), or any of their affiliates, receives any compensation
from the Funds for acting as an officer or director of a Fund. Each Director who
is not a director, trustee, officer or employee of CSAM, CSAM Ltd., PFPC, CSAMSI
or any of their affiliates receives an annual fee of $750 and $250 for each
meeting of the Boards attended by him for his services as Director, and is
reimbursed for expenses incurred in connection with his attendance at Board
39
<PAGE>
meetings. Each member of the Audit Committee receives an annual fee of $250, and
the chairman of the Audit Committee receives an annual fee of $325.
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION THROUGH AUGUST 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
All Investment
Companies in the
European Central & Eastern CSAM Fund
Name of Director Equity Fund Europe Fund Complex*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William W. Priest** None None None
- --------------------------------------------------------------------------------------------------------------------------------
Arnold M. Reichman*** None None None
- --------------------------------------------------------------------------------------------------------------------------------
Richard N. Cooper**** $1,125 None $73,250
- --------------------------------------------------------------------------------------------------------------------------------
Richard H. Francis***** 750 None $16,500
- --------------------------------------------------------------------------------------------------------------------------------
Jack W. Fritz $2,000 None $73,250
- --------------------------------------------------------------------------------------------------------------------------------
Jeffrey E. Garten $2,000 None $73,250
- --------------------------------------------------------------------------------------------------------------------------------
James S. Pasman, Jr.***** 750 None $16,500
- --------------------------------------------------------------------------------------------------------------------------------
Steven N. Rappaport***** 750 None $16,500
- --------------------------------------------------------------------------------------------------------------------------------
Alexander B. Trowbridge $2,075 None $76,025
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
* Each Director serves as a Director or Trustee of 51 investment
companies or portfolios in the CSAM Fund Complex.
** Mr. Priest receives compensation as an affiliate of CSAM, and,
accordingly, receives no compensation from any Fund or any other
investment company advised by CSAM.
*** Mr. Reichman resigned as a Director of each Fund effective August 18,
1999.
**** Mr. Cooper resigned as a Director of each Fund effective July 6, 1999.
***** Messrs. Francis, Pasman and Rappaport became Directors of the Funds
effective July 6, 1999.
As of September 30, 1999, the Directors and officers of each
Fund as a group owned less than 1% of the outstanding shares of each Fund.
PORTFOLIO MANAGERS
The Co-Portfolio Managers of the fund are Nancy Nierman, J.H.
Cullum Clark, and Harold W. Ehrlich.
Ms. Nierman has been associated with CSAM or its predecessor
since 1996. Ms. Nierman was a vice president at Fiduciary Trust Company
International from 1990 to 1996 and an international equity trader at TIAA-CREF
from 1985 to 1990. She received her B.B.A. degree from Baruch College in 1985.
Mr. Clark has been associated with CSAM or its predecessor
since 1996. Mr. Clark was an analyst and portfolio manager at Brown Brothers
Harriman from 1993 to
40
<PAGE>
1996 and a research assistant at the U.S. Senate Select Committee on
Intelligence from 1992 to 1993. Mr. Clark received an A.M. degree from Harvard
University and a B.A. degree from Yale University. Mr. Clark also studied at the
Stanford Inter-University Center for Japanese Language Studies in 1990.
Mr. Ehrlich has been associated with CSAM or its predecessor
since 1995. Mr. Ehrlich was a senior vice president, portfolio manager and
analyst at Templeton Investment Counsel Inc. from 1987 to 1995. Mr. Ehrlich
earned a B.S.B.A. degree from the University of Florida and earned his Chartered
Financial Analyst designation in 1990.
The Portfolio Managers of the Central & Eastern Europe Fund
are Glenn Wellman and Isabel Knight. Mr. Wellman joined CSAM Ltd. in 1993. From
1987-1993, Mr. Wellman was a Managing Director and Chief Investment Officer of
Alliance Capital Limited. Ms. Knight joined CSAM Ltd. in 1997. From 1995-1997,
she was a Senior Fund Manager for emerging Europe with Foreign & Colonial
Emerging Markets, and from 1992-1995, she was a Portfolio Manager for Morgan
Stanley Asset Management.
INVESTMENT ADVISERS AND CO-ADMINISTRATORS
CSAM renders advisory and administrative services to each Fund
pursuant to Investment Advisory Agreements and CSAM Ltd. serves as
sub-investment adviser to each Fund pursuant to Sub-investment Advisory
Agreements (collectively, the "Advisory Agreements").
CSAM, located at 153 East 53rd Street, New York, New York
10022, is an indirect wholly-owned U.S. subsidiary of Credit Suisse. Credit
Suisse is a global financial services company, providing a comprehensive range
of banking and insurance products. Active on every continent and in all major
financial centers, Credit Suisse comprises five business units -- Credit Suisse
Asset Management (asset management); Credit Suisse First Boston (investment
banking); Credit Suisse Private Banking (private banking); Credit Suisse (retail
banking); and Winterthur (insurance). Credit Suisse has approximately $680
billion of global assets under management and employs approximately 62,000
people worldwide. The principal business address of Credit Suisse is Paradeplatz
8, CH 8070, Zurich, Switzerland.
CSAM, together with its predecessor firms, has been engaged in
the investment advisory business for over 60 years.
CSAM and CSAM Ltd. have investment discretion for the Funds
and will make all decisions affecting assets in the Funds under the supervision
of the Funds' Board of Directors and in accordance with each Fund's stated
policies. The Adviser will select investments for the Funds and will place
purchase and sale orders on behalf of the Funds.
For the services provided by CSAM to the European Equity Fund,
the Fund pays a fee calculated at an annual rate of 1.00% of the Fund's average
daily net assets computed daily and payable quarterly (out of which CSAM pays
CSAM Ltd. for its sub-investment advisory services). CSAM and CSAM Ltd. may
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne by a Fund.
41
<PAGE>
Under the Advisory Agreements, neither CSAM nor CSAM Ltd. will
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the matters to which the Advisory Agreements
relate. The Advisory Agreements for the Funds were approved on July 20, 1998 by
vote of the Funds' Board of Directors, including a majority of those directors
who are not parties to the Advisory Agreements or interested persons (as defined
in the 1940 Act) of such parties. The Advisory Agreements were also approved by
each Fund's initial shareholder. The CSAM Advisory Agreements are terminable by
vote of the Funds' Board of Directors or by the holders of a majority of the
outstanding voting securities of the relevant Fund, and at any time without
penalty, on 60 days' written notice to CSAM. The CSAM Advisory Agreements may
also be terminated by CSAM on 90 days' written notice to a fund. The CSAM
Advisory Agreements terminate automatically in the event of an assignment. The
CSAM Ltd. Sub-Advisory Agreements are terminable by CSAM on 60 days' written
notice to the Fund and CSAM Ltd., by vote of the Funds' Board of Directors or by
the holders of a majority of the outstanding voting securities of the relevant
Fund on 60 days' written notice to CSAM and CSAM Ltd., or by CSAM Ltd. upon 60
days' written notice to a Fund and CSAM. The CSAM Ltd. Sub-Advisory Agreements
terminate automatically in the event of an assignment.
CSAMSI and PFPC, an indirect, wholly owned subsidiary of PNC
Bank Corp., both serve as co-administrators to each Fund pursuant to separate
written agreements (the "CSAMSI Co-Administration Agreement" and the "PFPC
Co-Administration Agreement", respectively). CSAMSI became co-administrator to
each Fund on November 1, 1999. Prior to that, Counsellors Funds Service, Inc.
("Counsellors Service") served as Co-administrator to the Funds. CSAMSI provides
shareholder liaison services to each Fund including responding to shareholder
inquiries and providing information on shareholder investments. CSAMSI also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing certain corporate secretarial services, which
include preparing materials for meetings of the Board, assisting with proxy
statements and annual and semiannual reports, assisting in the preparation of
tax returns and monitoring and developing certain compliance procedures for the
Funds. As compensation, the Common Shares of each Fund pay CSAMSI a fee
calculated at an annual rate of .10% of the Common Shares' average daily net
assets. CSAMSI provides co-administration services to the CSAM Institutional
Funds without compensation.
PFPC calculates each Fund's net asset value, provides all
accounting services for each Fund and assists in related aspects of each Fund's
operations. As compensation, each Fund pays PFPC a fee calculated at an annual
rate of .12% of a Fund's first $250 million in average daily net assets, .10% of
the next $250 million in average daily net assets, .08% of the next $250 million
in average daily net assets, and .05% of average daily net assets over $750
million, subject in each case to a minimum annual fee and exclusive of
out-of-pocket expenses.
Each class of Shares of a Fund bears its proportionate share
of fees payable to CSAM, CSAM Ltd. and PFPC in the proportion that its assets
bear to the aggregate assets of a Fund at the time of calculation. These fees
are calculated at an annual rate based on a percentage of a Fund's average daily
net assets. Each Fund's co-administrators may
42
<PAGE>
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne by a Fund.
ADVISORY FEES PAID TO CSAM
(portions of fees waived, if any, are noted
in parenthesis next to the amount earned)
<TABLE>
<CAPTION>
Fiscal period ended
August 31, 1999
------------------------------------
<S> <C> <C>
European Equity Fund $ 0 ($152,482)
Central & Eastern Europe Fund $ N/A ($ N/A)
</TABLE>
CO-ADMINISTRATION FEES PAID TO PFPC
(portions of fees waived, if any, are noted
in parenthesis next to the amount earned)
<TABLE>
<CAPTION>
Fiscal period ended
August 31, 1999
------------------------------------
<S> <C> <C>
European Equity Fund $2,894 ($ 0 )
Central & Eastern Europe Fund $ N/A ($ N/A)
</TABLE>
CO-ADMINISTRATION FEES PAID TO COUNSELLORS SERVICE
<TABLE>
<CAPTION>
Fiscal period ended
August 31, 1999
------------------------------------
<S> <C> <C>
European Equity Fund $7,596 ($ 7,596)
Central & Eastern Europe Fund $ N/A ($ N/A)
</TABLE>
The Advisory Agreements, including the Sub-investment Advisory
Agreements, if applicable, for the Funds were approved on July 20, 1998 by vote
of the Funds' Board of Directors, including a majority of those directors who
are not parties to the Advisory Agreements or interested persons (as defined in
the 1940 Act) of such parties. The Advisory Agreements were approved by each
Fund's initial shareholder. Each investment advisory agreement is terminable by
vote of the Funds' Board of Directors or by the holders of a majority of the
outstanding voting securities of the relevant Fund, at any time without penalty,
on 60 days' written notice to CSAM. Each of the investment advisory agreements
may also be terminated by CSAM on 60 days' written notice to the Fund. Each
Sub-investment Advisory Agreement is terminable, at any time without penalty, by
(i) vote of the Funds' Board of
43
<PAGE>
Directors or by the holders of a majority of the outstanding voting securities
of the relevant Fund on 60 days' written notice to CSAM or (ii) CSAM on 60 days'
written notice to the Fund. Each of the Advisory Agreements terminates
automatically in the event of assignment thereof.
CUSTODIANS AND TRANSFER AGENTS
Brown Brothers Harriman & Co. ("BBH") acts as custodian for
each Fund and also acts as the custodian for each Fund's foreign securities
pursuant to a written Custodian Agreement (the "Custodian Agreement"). BBH will
(i) maintain a separate account or accounts in the name of each Fund, (ii) hold
and transfer portfolio securities on account of each Fund, (iii) accept receipts
and disbursements of money on behalf of each Fund, (iv) collect and receive all
income and other payments and distributions for the account of each Fund's
portfolio securities and (v) make periodic reports to the Board concerning each
Fund's custodial arrangements. BBH is authorized to select one or more foreign
banking institutions and foreign securities depositories to serve as
sub-custodian on behalf of the Funds, provided that BBH remains responsible for
the performance of all its duties under the Custodian Agreement and holds the
Funds harmless from the negligent acts and omissions of any sub-custodian. For
its services to the Funds under the Custodian Agreement, BBH receives a fee
which is calculated based upon each Fund's average daily gross assets, exclusive
of transaction charges and out-of-pocket expenses, which are also charged to the
Funds. BBH's principal business address is 40 Water Street, Boston,
Massachusetts 02109.
State Street Bank and Trust Company ("State Street") will
serve as each Fund's shareholder servicing, transfer and dividend disbursing
agent pursuant to a Transfer Agency and Service Agreement, under which State
Street (i) issues and redeems shares of the Funds, (ii) addresses and mails all
communications by the Funds to record owners of each Fund shares, including
reports to shareholders, dividend and distribution notices and proxy material
for meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Funds. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
("BFDS"), responsibility for most shareholder servicing functions. State
Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
ORGANIZATION OF THE FUNDS
Each Fund's Charter authorizes the Board to issue three
billion full and fractional shares of capital stock, $.001 par value per share,
of which one billion shares are designated Common Shares, one billion shares are
designated Institutional Shares and one billion are designated Advisor Shares.
The European Equity Fund currently offers Common and Institutional Shares.
Shareholders of each Fund in the class, upon liquidation, will participate
ratably in the Fund's net assets. Shares do not have cumulative voting rights,
which means that holders of more than 50% of the shares voting for the election
of Directors can elect all Directors. Shares are transferable, but have no
preemptive, conversion or subscription rights.
44
<PAGE>
Investors in each Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of each
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a Fund may be removed from office
upon the vote of shareholders holding at least a majority of the relevant Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of a Fund.
DISTRIBUTION AND SHAREHOLDER SERVICING
DISTRIBUTOR. Provident Distributors, Inc. ("PDI") serves as
distributor of the Fund's shares. PDI offers the Fund's shares on a continuous
basis. No compensation is payable by the Fund to PDI for distribution services;
however, pursuant to a separate agreement with CSAM, PDI is compensated for the
services provided to the Fund. PDI's principal business address is Four Falls
Corporate Center, West Conshohocken, Pennsylvania 19428-2961.
COMMON SHARES. Each Fund has entered into a Shareholder
Servicing and Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which each Fund will pay CSAMSI under the CSAMSI
Co-Administration Agreement, in consideration for Services (as defined below), a
fee calculated at an annual rate of .25% of the average daily net assets of the
Common Shares of each Fund. Services performed by CSAMSI under the CSAMSI
Co-Administration Agreement include (i) the sale of the Common Shares, as set
forth in the 12b-1 Plan ("Selling Services"), (ii) ongoing servicing and/or
maintenance of the accounts of Common Shareholders of a Fund, as set forth in
the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer agency services,
subaccounting services or administrative services related to the sale of the
Common Shares, as set forth in the 12b-1 Plan ("Administrative Services" and
collectively with Selling Services and Administrative Services, "Services")
including, without limitation, (a) payments reflecting an allocation of overhead
and other office expenses of CSAMSI related to providing Services; (b) payments
made to, and reimbursement of expenses of, persons who provide support services
in connection with the distribution of the Common Shares including, but not
limited to, office space and equipment, telephone facilities, answering routine
inquiries regarding a Fund, and providing any other Shareholder Services; (c)
payments made to compensate selected dealers or other authorized persons for
providing any Services; (d) costs relating to the formulation and implementation
of marketing and promotional activities for the Common Shares, including, but
not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, and related travel and entertainment
expenses; (e) costs of printing and distributing prospectuses, statements of
additional information and reports of the Funds to prospective shareholders of
the Funds; and (f) costs involved in obtaining whatever information, analyses
and reports with respect to marketing and promotional activities that the Funds
may, from time to time, deem advisable.
45
<PAGE>
Payments under the 12b-1 Plan are not tied exclusively to the
distribution expenses actually incurred by CSamsi under the CSAMSI
Co-Administration Agreement and the payments may exceed distribution expenses
actually incurred.
Pursuant to the 12b-1 Plan, CSAMSI will provide each Fund's
Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made. The Common Shares 12b-1 Plan was
adopted on November 1, 1999.
The 12b-1 Plans will continue in effect for so long as their
continuance is specifically approved at least annually by each Fund's Board,
including a majority of the Directors/Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the 12b-1 Plan ("Independent Directors/Trustees"). The Board of each Fund
evaluates the appropriateness of the 12b-1 Plan on a continuing basis and in
doing so considers all relevant factors, including expenses borne by CSAMSI and
amounts received under the 12b-1 Plan. Any material amendment of the 12b-1 Plan
would require the approval of the Board in the manner described above. The 12b-1
Plan may not be amended to increase materially the amount to be spent thereunder
without shareholder approval of the Common Shares. The 12b-1 Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors/Trustees or by a vote of the majority of the outstanding
voting securities of the Common Shares of a Fund.
CSAM or its affiliate may, at its own expense, provide
promotional incentives for qualified recipients who support the sale of shares
of a Fund, consisting of securities dealers who have sold Fund shares or others,
including banks and other financial institutions, under special arrangements.
Incentives may include opportunities to attend business meetings, conferences,
sales or training programs for recipients' employees or clients and other
programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. CSAM or its affiliate may pay for
travel, meals and lodging in connection with these promotional activities. In
some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of Fund shares.
ADVISOR SHARES. Each Fund may, in the future, enter into
agreements ("Agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries ("Institutions") to provide certain
distribution, shareholder servicing, administrative and/or accounting services
for their clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. Agreements will be
governed by a distribution plan (the "Distribution Plan") pursuant to Rule 12b-1
under the 1940 Act. The Distribution Plan requires the Board, at least
quarterly, to receive and review written reports of amounts expended under the
Distribution Plan and the purpose for which such expenditures were made.
An Institution with which a Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year);
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<PAGE>
(ii) transaction fees (a fixed amount per transaction processed); (iii)
compensation balance requirements (a minimum dollar amount a Customer must
maintain in order to obtain the services offered); or (iv) account maintenance
fees (a periodic charge based upon the percentage of assets in the account or of
the dividend paid on those assets). Services provided by an Institution to
Customers are in addition to, and not duplicative of, the services to be
provided under each Fund's co-administration and distribution and shareholder
servicing arrangements. A Customer of an Institution should read the Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature describing the services and related fees that would be
provided by the Institution to its Customers prior to any purchase of Fund
shares. Prospectuses are available from a Fund's distributor upon request. No
preference will be shown in the selection of a Fund's portfolio investments for
the instruments of Institutions.
GENERAL. The Distribution Plan and the 12b-1 Plan will
continue in effect for so long as their continuance is specifically approved at
least annually by each Board, including a majority of the Directors who are not
interested persons of a Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plans or the 12b-1 Plans, as the
case may be ("Independent Directors"). Any material amendment of the
Distribution Plan or 12b-1 Plan would require the approval of the Board in the
same manner. Neither the Distribution Plan nor the 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Distribution Plan or 12b-1 Plan
may be terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of each Fund.
INSTITUTIONAL SHARES. The Institutional Shares will be
distributed under the name "CSAM Institutional Shares." CSAMSI serves without
compensation as distributor of the Institutional Shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Fund's shares is equal to the per
share net asset value of the relevant class of shares of a Fund.
Under the 1940 Act, the Funds may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (A Fund may also suspend or postpone the recordation of
an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If a Board determines that conditions exist which make payment
of redemption proceeds wholly in cash unwise or undesirable, a Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
47
<PAGE>
proceeds. The Funds will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.
With respect to the Central & Eastern Europe Fund only, a
short-term trading fee of 1.0% of the amount of shares redeemed will be deducted
from the redemption amount if a shareholder sells shares of the Central &
Eastern Europe Fund after holding them less than six months. This fee, which is
currently being waived, is paid to the Central & Eastern Europe Fund to offset
costs associated with short-term shareholder trading. It does not apply to
shares acquired through reinvestment of distributions. If a shareholder
purchased shares of the Central & Eastern Europe Fund on different days, any
shares purchased through reinvestment of distributions would be redeemed first,
without charging the fees, followed by the shares of the Central & Eastern
Europe Fund held the longest.
AUTOMATIC CASH WITHDRAWAL PLAN. An automatic cash withdrawal
plan (the "Plan") is available to the holders of Common Shares of each Fund who
wish to receive specific amounts of cash periodically. Withdrawals may be made
under the Plan by redeeming as many Common Shares of a Fund as may be necessary
to cover the stipulated withdrawal payment. To the extent that withdrawals
exceed dividends, distributions and appreciation of a shareholder's investment
in a Fund, there will be a reduction in the value of the shareholder's
investment and continued withdrawal payments may reduce the shareholder's
investment and ultimately exhaust it. Withdrawal payments should not be
considered as income from investment in the Funds.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by CSAM
is available to investors in each Fund. A Common Shareholder may exchange Common
Shares of a Fund for Common Shares of another Warburg Pincus fund at their
respective net asset values. An Institutional Shareholder may exchange
Institutional Shares of a Fund for Institutional Shares of another CSAM fund at
their respective net asset values.
The exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. Subject to the restrictions
on exchange purchases contained in the Prospectus and any other applicable
restrictions, this privilege is available to shareholders residing in any state
in which the Common Shares, Institutional Shares or Advisor Shares being
acquired, as relevant, may legally be sold. Prior to any exchange, the investor
should obtain and review a copy of the current prospectus of the relevant class
of a Fund into which an exchange is being considered. Shareholders may obtain a
prospectus of the relevant class of a Fund into which they are contemplating an
exchange by calling 800-WARBURG (Common Shares) or 800-222-8977 (Institutional
Shares).
Subject to the restrictions described above, upon receipt of
proper instructions and all necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset value of the relevant class
and the proceeds are invested on the same day, at a price as described above, in
shares of the relevant class of a Fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.
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<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in the Funds. Each prospective shareholder is urged to
consult his own tax adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in the Funds. The summary is based on
the laws in effect on the date of this Statement of Additional Information,
which are subject to change.
THE FUNDS AND THEIR INVESTMENTS
Each Fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under Part I of Subchapter M of
the Code. To so qualify, a Fund must, among other things: (a) derive at least
90% of its gross income in each taxable year from dividends, interest, payments
with respect to securities loans, and gains from the sale or other disposition
of stock or securities or foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each quarter of a Fund's
taxable year, (i) at least 50% of the market value of a Fund's assets is
represented by cash, securities of other regulated investment companies, United
States Government securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of a
Fund's assets and not greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its assets is invested in
the securities (other than United States Government securities or securities of
other regulated investment companies) of any one issuer or any two or more
issuers that a Fund controls and are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.
As a regulated investment company, each Fund will not be
subject to United States federal income tax on its net investment income (I.E.,
income other than its net realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if any, that it distributes to
its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (I.E., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed, but will be subject to
tax at regular corporate rates on any taxable income or gains that it does not
distribute. Any dividend declared by a Fund in October, November or December of
any calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by a Fund not later than
such December 31, provided that such dividend is actually paid by a Fund during
January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. Each Board will
determine annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). Each Fund currently expects to distribute any excess annually
to its shareholders. However, if a Fund retains for investment an amount
49
<PAGE>
equal to all or a portion of its net long-term capital gains in excess of its
net short-term capital losses and capital loss carryovers, it will be subject to
a corporate tax (currently at a rate of 35%) on the amount retained. In that
event, each Fund will designate such retained amounts as undistributed capital
gains in a notice to its shareholders who (a) will be required to include in
income for United Stares federal income tax purposes, as long-term capital
gains, their proportionate shares of the undistributed amount, (b) will be
entitled to credit their proportionate shares of the 35% tax paid by a Fund on
the undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their pro rata share of
such taxes paid by a Fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS"). Even if a Fund makes such an
election, it is possible that a Fund may incur an excise tax as a result of not
having distributed net capital gains.
The Code imposes a 4% nondeductible excise tax on each Fund to
the extent a Fund does not distribute by the end of any calendar year at least
98% of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. The balance of such income must be
distributed during the next calendar year. For this purpose, however, any income
or gain retained by a Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. Each Fund anticipates that it
will pay such dividends and will make such distributions as are necessary in
order to avoid the application of this tax.
With regard to a Fund's investments in foreign securities,
exchange control regulations may restrict repatriations of investment income and
capital or the proceeds of securities sales by foreign investors such as each
Fund and may limit a Fund's ability to pay sufficient dividends and to make
sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
If, in any taxable year, a Fund fails to qualify as a
regulated investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by a Fund in computing
its taxable income. In addition, in the event of a failure to qualify, each
Fund's distributions, to the extent derived from each Fund's current or
accumulated earnings and profits would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains.
If a Fund fails to qualify as a regulated investment company in any year, it
must pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In addition, if a Fund failed
to qualify as a regulated investment company for a period greater than one
taxable year, a Fund may be required to recognize any net built-in gains (the
excess of the aggregate gains,
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including items of income, over aggregate losses that would have been realized
if it had been liquidated) in order to qualify as a regulated investment company
in a subsequent year.
Each Fund's short sales against the box, if any, and
transactions in foreign currencies, forward contracts, options and futures
contracts (including options and futures contracts on foreign currencies) will
be subject to special provisions of the Code that, among other things, may
affect the character of gains and losses realized by the Funds (I.E., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to a Funds and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require each Fund to mark-to-market certain types of the positions
in its portfolio (I.E., treat them as if they were closed out) and (b) may cause
each Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of a
Fund as a regulated investment company.
PASSIVE FOREIGN INVESTMENT COMPANIES.
If a Fund purchases shares in certain foreign investment
entities, called "passive foreign investment companies" (a "PFIC"), it may be
subject to United States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by a Fund to its shareholders. Additional
charges in the nature of interest may be imposed on a Fund in respect of
deferred taxes arising from such distributions or gains. If a Fund were to
invest in a PFIC and elected to treat the PFIC as a "qualified electing fund"
under the Code, in lieu of the foregoing requirements, a Fund might be required
to include in income each year a portion of the ordinary earnings and net
capital gains of the qualified election fund, even if not distributed to a Fund,
and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, each Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain.
Alternatively, a Fund may make a mark-to-market election that
will result in a Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, each Fund would report gains
as ordinary income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective for all
subsequent taxable years of a Fund, unless revoked with the consent of the IRS.
By making the election, each Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
company stock. Each Fund may have to distribute this "phantom" income and gain
to satisfy its distribution requirement and to avoid imposition of the 4% excise
tax.
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<PAGE>
Each Fund will make the appropriate tax elections, if
possible, and take any additional steps that are necessary to mitigate the
effect of these rules.
DIVIDENDS AND DISTRIBUTIONS.
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that a Fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has held shares of a Fund.
Dividends and distributions paid by a Fund (except for the portion thereof, if
any, attributable to dividends on stock of U.S. corporations received by the
Fund) will not qualify for the deduction for dividends received by corporations.
Distributions in excess of a Fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free return of capital, to the
extent of a shareholder's basis in his shares of a Fund, and as a capital gain
thereafter (if the shareholder holds his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in the form
of additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in a Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (I.E., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date a Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, each Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
SALES OF SHARES.
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in a Fund, within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired will be
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<PAGE>
increased to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a Fund share held by the shareholder for six months or less will be
treated for United States federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
FOREIGN TAXES.
A Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders if more than 50% of the
Fund's total assets at the close of its fiscal year consists of stock or
securities of foreign corporations. A Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years. If a Fund were
to make an election, shareholders of the Fund would be required to take into
account an amount equal to their pro rata portions of such foreign taxes in
computing their taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction or as a foreign tax credit against
their U.S. federal income taxes. Shortly after any year for which it makes such
an election, a Fund will report to its shareholders the amount per share of such
foreign income tax that must be included in each shareholder's gross income and
the amount which will be available for the deduction or credit. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
FUND TAXES ON SWAPS
As a result of entering into index swaps, the funds may make
or receive periodic net payments. They may also make or receive a payment when a
swap is terminated prior to maturity through an assignment of the swap or other
closing transaction. Periodic net payments will constitute ordinary income or
deductions, while termination of a swap will result in capital gain or loss
(which will be a long-term capital gain or loss if a fund has been a party to
the swap for more than one year).
BACKUP WITHHOLDING.
Each Fund may be required to withhold, for United States
federal income tax purposes, 31% of the dividends, distributions and redemption
proceeds payable to shareholders who fail to provide the Fund with their correct
taxpayer identification number or to make required certifications, or who have
been notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
NOTICES.
Shareholders will be notified annually by each Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions attributable to undistributed capital gains (discussed
above in "The Funds and Their Investments") made by the Fund to its
shareholders.
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OTHER TAXATION
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED
TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF
AN INVESTMENT IN THE FUNDS.
DETERMINATION OF PERFORMANCE
From time to time, each Fund may quote the total return of its
Common Shares, Institutional Shares and/or Advisor Shares in advertisements or
in reports and other communications to shareholders. The net asset value of
Common Shares is listed in THE WALL STREET JOURNAL each business day under the
heading "Warburg Pincus Funds." Current total return figures may be obtained by
calling Warburg Pincus Funds at 800-WARBURG. The net asset value of
Institutional Shares is listed in THE WALL STREET JOURNAL each business day
under the heading "BEA Institutional Funds." Current total return figures may be
obtained by calling CSAM Institutional Shares at 800-222-8977.
With respect to a Funds' Common and Institutional Shares, the
Fund's average annual total returns for the period ended August 31, 1999 were as
follows (performance figures calculated without the waiver of fees, if any, are
noted in parenthesis):
PERFORMANCE (COMMON SHARES)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement
of operations
---------------------------
<S> <C> <C>
European Equity Fund
(commenced operations on January 28, 1999) -2.10% (-2.90%)
</TABLE>
PERFORMANCE (INSTITUTIONAL SHARES)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement of
operations
---------------------------
<S> <C> <C>
European Equity Fund
(commenced operations on January 28, 1999) -2.00% (-2.70%)
</TABLE>
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These total return figures show the average percentage change
in value of an investment in the Common Shares from the beginning of the
measuring period to the end of the measuring period. The figures reflect changes
in the price of Common Shares assuming that any income dividends and/or capital
gain distributions made by the Fund during the period were reinvested in Common
Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year, quarterly or current
year-to-date basis).
These figures are calculated by finding the average annual
compounded rates of return for the one-, five- and ten- (or such shorter period
as the relevant class of shares has been offered) year periods that would equate
the initial amount invested to the ending redeemable value according to the
following formula: P (1 + T) to the power of n = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year
periods (or fractional portion thereof). Total return or "T" is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period and assumes that all dividends and distributions are reinvested
during the period.
When considering average total return figures for periods
longer than one year, it is important to note that the annual total return for
one year in the period might have been greater or less than the average for the
entire period. When considering total return figures for periods shorter than
one year, investors should bear in mind that each Fund seeks long-term
appreciation and that such return may not be representative of any Fund's return
over a longer market cycle. Each Fund may also advertise aggregate total return
figures of its Common Shares for various periods, representing the cumulative
change in value of an investment in the Common Shares of the specific period
(again reflecting changes in share prices and assuming reinvestment of dividends
and distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(I.E., change in value of initial investment, income dividends and capital gain
distributions).
Each Fund may advertise, from time to time, comparisons of the
performance of its Common Shares, Institutional Shares and/or Advisor Shares
with that of one or more other mutual funds with similar investment objectives.
Each Fund may advertise average annual calendar year-to-date and calendar
quarter returns, which are calculated according to the formula set forth in the
preceding paragraph, except that the relevant measuring period would be the
number of months that have elapsed in the current calendar year or most recent
three months, as the case may be. Investors should note that this performance
may not be representative of a Fund's total return in longer market cycles.
Yield is calculated by annualizing the net investment income
generated by a Fund over a specified thirty-day period according to the
following formula:
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6
YIELD = 2[( a-b +1) -1]
-------
cd
For purposes of this formula: "a" is dividends and interest
earned during the period; "b" is expenses accrued for the period (net of
reimbursements); "c" is the average daily number of shares outstanding during
the period that were entitled to receive dividends; and "d" is the maximum
offering price per share on the last day of the period.
The performance of a class of a Fund's shares will vary from
time to time depending upon market conditions, the composition of a Fund's
portfolio and operating expenses allocable to it. As described above, total
return is based on historical earnings and is not intended to indicate future
performance. Consequently, any given performance quotation should not be
considered as representative of performance for any specified period in the
future. Performance information may be useful as a basis for comparison with
other investment alternatives. However, a Fund's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in a Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
In addition, reference may be made in advertising a class of
Fund shares to opinions of Wall Street economists and analysts regarding
economic cycles and their effects historically on the performance of small
companies, both as a class and relative to other investments. A Fund may also
discuss its beta, or volatility relative to the market, and make reference to
its relative performance in various market cycles in the United States.
Each Fund may compare its performance with (i) that of other
mutual funds with similar investment objectives and policies, which may be based
on the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds; (ii) in the
case of the European Equity Fund, with the Morgan Stanley Capital International
Europe Index (a market capitalization-weighted index of 15 European Countries);
or (iii) other appropriate indexes of investment securities or with data
developed by CSAM derived from such indexes. A Fund may also include evaluations
of the Fund published by nationally recognized ranking services and by financial
publications such as BARRON'S, BUSINESS WEEK, FINANCIAL TIMES, FORBES, FORTUNE,
INC., INSTITUTIONAL INVESTOR, INVESTOR'S BUSINESS DAILY, MONEY, MORNINGSTAR,
MUTUAL FUND MAGAZINE, SMARTMONEY, THE WALL STREET JOURNAL and WORTH.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, each Fund may from time to time compare
the expense ratio of its Common Shares to that of investment companies with
similar objectives and policies, based on data generated by Lipper Analytical
Services, Inc. or similar investment services that monitor mutual funds.
In its reports, investor communications or advertisements,
each Fund may include: (i) its total return performance; (ii) its performance
compared with various indexes or other mutual funds; (iii) published evaluations
by nationally recognized ranking services and financial publications; (iv)
descriptions and updates concerning its strategies and portfolio investments;
(v) its goals, risk factors and expenses compared with other mutual funds; (vi)
analysis of its investments by industry, country, credit quality and other
characteristics; (vii) a
56
<PAGE>
discussion of the risk/return continuum relating to different investments;
(viii) the potential impact of adding foreign stocks to a domestic portfolio;
(ix) the general biography or work experience of the portfolio managers of the
Funds; (x) portfolio manager commentary or market updates; (xi) discussion of
macroeconomic factors affecting the Fund and its investments; and (xii) other
information of interest to investors.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the
independent accountant for each Fund. The financial statements of the European
Equity Fund for the fiscal year ended August 31, 1999 that are incorporated by
reference in this Statement of Additional Information have been audited by PwC,
whose report thereon appears elsewhere herein and has been incorporated by
reference herein in reliance upon the report of such firm of independent
accountants given upon their authority as experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for each Fund and
provides legal services from time to time for CSAM, CSAMSI and Counsellors
Service.
MISCELLANEOUS
The Funds are not sponsored, endorsed, sold or promoted by
Warburg, Pincus & Co. Warburg, Pincus & Co. makes no representation or warranty,
express or implied, to the owners of the Funds or any member of the public
regarding the advisability of investing in securities generally or in the Funds
particularly. Warburg, Pincus & Co. licenses certain trademarks and trade names
of Warburg, Pincus & Co., and is not responsible for and has not participated in
the calculation of the Funds' net asset value, nor is Warburg, Pincus & Co. a
distributor of the Funds. Warburg, Pincus & Co. has no obligation or liability
in connection with the administration, marketing or trading of the Funds.
As of October 29, 1999, the names, address and percentage of
ownership of each person that owns of record 5% or more of a class of each
Fund's outstanding shares were as follows:
<TABLE>
<CAPTION>
Percent Owned
as of
Fund Name and Address October 29, 1999
---- ---------------- ----------------
<S> <C> <C>
Central and Eastern Credit Suisse Asset Mgmt Intl 100.00%
Europe Holding Attn: Thomas Federer
(Institutional Uetliebergstrasse 231
Shares) Postbach 800 CH-8070
Zurich
European Equity Charles Schwab & Co Inc 79.70%
(Common Shares) Special Custody Account for
the Exclusive Benefit of Customers
Attn: Mutual Funds
57
<PAGE>
<CAPTION>
<S> <C> <C>
101 Montgomery St
San Francisco, CA 94104-4112
European Equity Credit Suisse Asset Mgmt Intl 99.97%
(Institutional Shares) Holding Attn: Thomas Federer
Uetliebergstrasse 231
Postbach 800 CH-8070
Zurich
</TABLE>
FINANCIAL STATEMENTS
The European Equity Fund's audited annual report, dated
August 31, 1999, which either accompanies this Statement of Additional
Information or has previously been provided to the investor to whom this
Statement of Additional Information is being sent, is incorporated herein by
reference with respect to all information regarding the Fund included therein.
The European Equity Fund will furnish without charge a copy of the annual report
upon request by calling Warburg Pincus Funds at 800-WARBURG.
58
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
CORPORATE BOND RATINGS
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance,
as predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment 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 and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that 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
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 that 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.
A-2
<PAGE>
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
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B." The modifier 1 indicates that the bond
being rated 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 bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist 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 comprise 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.
A-3
