<PAGE>
As filed with the U.S. Securities and Exchange Commission
on November 2, 1999
Securities Act File No. 333-60683
Investment Company Act File No.811-08935
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 3 [x]
(Check appropriate box or boxes)
Warburg, Pincus Global Telecommunications Fund, Inc.
........................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
............................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Hal Liebes, Esq.
Warburg, Pincus Global Telecommunications Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
.........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE>
Approximate Date of Proposed Public Offering: December 31, 1999
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ x ] on December 31, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
- --------------------------------------------------------------------------------
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.
[LOGO]
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 ............................................ 21
MEET THE MANAGERS .......................................................... 24
ABOUT YOUR ACCOUNT ......................................................... 27
Share Valuation ......................................................... 27
Buying and Selling Shares ............................................... 27
Account Statements ...................................................... 28
Distributions ........................................................... 28
Taxes ................................................................... 28
OTHER INFORMATION .......................................................... 30
About the Distributor ................................................... 30
FOR MORE INFORMATION ................................................ back cover
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
- -------------------------------------------------------------------------------------------------------------
FUND/RISK FACTORS GOAL STRATEGIES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EUROPEAN EQUITY FUND Capital appreciation - Invests in European equity securities
Risk factors:
FOREIGN SECURITIES - Targets Western European countries
MARKET RISK
REGION FOCUS - Uses both growth and value criteria
(seeks "growth at a resonable price")
- Portfolio managers look at factors such
as earnings growth, stock price, relative
valuation and merger-and-acquisition trends
- -------------------------------------------------------------------------------------------------------------
GLOBAL Long-term appreciation of - Invests in equity securities of U.S. and
TELECOMMUNICATIONS capital foreign telecommunications companies
FUND
Risk factors: - May invest in companies of all sizes
FOREIGN SECURITIES
MARKET RISK
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.
4
<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 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 result, the
fund may be subject to greater volatility with respect to its portfolio
securities than a fund that is more broadly diversified.
5
<PAGE>
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.
6
<PAGE>
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7
<PAGE>
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 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 8/31: 1996 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL
TELECOMMUNICATIONS FUND
Best quarter: % (Q )
Worst quarter: % (Q ) CHART GOES HERE
Inception date: 12/4/96
- --------------------------------------------------------------------------------------
</TABLE>
* In the period January 1, 1999 to September 30, 1999, the total return for the
Global Telecommunications Fund was __% (not annualized).
8
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<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 % N/A % 12/4/96
- ----------------------------------------------------------------------------------
MSCI TELECOMMUNICATIONS INDEX* % N/A % 12/4/96
- ----------------------------------------------------------------------------------
</TABLE>
* 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.
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.
9
<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 year ended August 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
GLOBAL
TELE-
EUROPEAN COMMUNI-
EQUITY CATIONS
FUND FUND
- -------------------------------------------------------------------------------------
SHAREHOLDER FEES
(paid directly from your investment)
- -------------------------------------------------------------------------------------
<S> <C> <C>
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>
* Actual fees and expenses for the fiscal year ended August 31, 1999 are shown
below. Fee waivers and expense reimbursements or credits reduced expenses for
some funds during 1999 but may be discontinued at any time.
<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>
10
<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>
11
<PAGE>
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 $57 billion in the U.S. and $175 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.
12
<PAGE>
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.
13
<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, particularly trends related to the impact of
the introduction of the new single European currency, the euro, 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
14
<PAGE>
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.
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)
- -----------------------------------------------------------------------------------------
PER-SHARE DATA
- -----------------------------------------------------------------------------------------
<S> <C>
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>
(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.
15
<PAGE>
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.
16
<PAGE>
PORTFOLIO MANAGEMENT
- --------------------
Steven D. Bleiberg, Richard Watt, James Abate, Emily Alejos, Robert B.
Hrabchak and Scott T. Lewis manage the fund's investment portfolio. You can find
out more about him 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)
- -------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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>
(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.
17
<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 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.
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
18
<PAGE>
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.
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.
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 Many services provided to the funds and their
shareholders by CSAM and certain of its affiliates (CSAM Service Providers) and
the funds' other service providers rely on the functioning of their respective
computer systems. Many computer systems cannot distinguish the year 2000 from
the year 1900, resulting in potential difficulty in performing various
calculations (Year 2000 Issue). The Year 2000 Issue affects practically all
companies, organizations, governments, markets and economies throughout the
world--including companies or governmental entities in which the funds invest
and markets in which they trade. The funds' operations are dependent upon
interactions among many participants in the financial-services and other related
industries, and the Year 2000 Issue could potentially have an adverse impact on
the handling of security trades, the payment of interest and dividends, pricing,
account services and other fund operations. It has been reported that foreign
institutions have made less progress in addressing the
19
<PAGE>
Year 2000 Issue than major U.S. entities, which could adversely affect the
funds' foreign investments. The CSAM Service Providers are monitoring this
progress with the assistance of the funds' custodian and are evaluating
appropriate actions.
The CSAM Service Providers recognize the importance of the Year 2000 Issue
and are taking appropriate steps in preparation for the year 2000. The CSAM
Service Providers anticipate that their systems and those of the funds' other
major service providers will be adapted in time for the Year 2000. The
CSAM Service Providers have completed mission critical systems testing and have
participated in industry-wide testing programs. In addition, the CSAM Service
Providers have formulated a contingency plan to address the Year 2000 Issue.
The CSAM Service Providers continue to monitor the Year 2000 Issue and its
potential impact on the funds. However, at this time no one knows precisely what
the degree of impact will be, and there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the funds nor can there be any
assurance that the Year 2000 Issue will not have an adverse effect on the funds'
investments or on global markets or economies, generally. To the extent that the
impact on a fund holding or on markets or economies is negative, it could
seriously affect a fund's performance.
20
<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>
- ------------------------------------------------------------------------------------------------------------------------------------
EUROPEAN EQUITY GLOBAL 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) / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EUROPEAN EQUITY GLOBAL TELECOMMUNICATIONS
FUND FUND
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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. / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
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% /X/
- ------------------------------------------------------------------------------------------------------------------------------------
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. / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EUROPEAN EQUITY GLOBAL TELECOMMUNICATIONS
FUND FUND
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
23
<PAGE>
MEET THE MANAGERS
The following individuals manage the European Equity Fund:
[PHOTO]
HAROLD W. EHRLICH
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, 1990 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
24
<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 following individuals manage the Global
Telecommunications Fund
[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]
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
[PHOTO]
JAMES ABATE
DIRECTOR
- - Team member since 1995
- - With Credit Suisse Asset Management since 1995
- - Managing director at VERT Independent Capital Research, 1993 to 1995
25
<PAGE>
[INSERT 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
[INSERT 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
- - Salomon Brothers, 1993 to 1995
26
<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. ET), 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.
27
<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.
28
<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.
29
<PAGE>
OTHER INFORMATION
ABOUT THE DISTRIBUTOR
- ---------------------
Credit Suisse Asset Management Securities, Inc., a wholly owned subsidiary of
Credit Suisse, is responsible for:
- - making the funds available to you
- - account servicing and maintenance
- - other administrative services related to sale of the Common Class
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 for the above services. Under the plan, Credit
Suisse Asset Management Securities 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.
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 fund's manager 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.
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
[LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR WPEGT-1-1299
- --------------------------------------------------------------------------------
<PAGE>
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
Common Class
September 16, 1999
This SHAREHOLDER GUIDE is incorporated into and legally part of each
Warburg Pincus (Common Class) prospectus.
[Warburg Pincus Funds Logo]
<PAGE>
Warburg Pincus Funds is a division of Credit Suisse Asset Management, LLC
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-Registered Trademark- Funds: $ 5,000
Long-Short Funds: $ 25,000
All other funds: $ 2,500
IRAs: $ 500*
Transfers/Gifts to Minors: $ 500*
</TABLE>
* $25,000 minimum for Long-Short Funds.
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
- --------------------------------------------------------------------------------------------
BY CHECK
- --------------------------------------------------------------------------------------------
<S> <C>
- - 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
fund. Also please observe the minimum - Minimum amount is $250.
initial investment.
If you do not have telephone privileges,
If you do not have telephone mail or fax a signed letter of
privileges, mail or fax a signed letter instruction.
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
wire. Please be sure to specify your
- - Call our Shareholder Service Center and name, the account number and the fund
fax the signed NEW ACCOUNT APPLICATION name on your wire advice.
by 4 p.m. ET.
- Wire the money for receipt that day.
- - Shareholder Services will telephone you
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
- --------------------------------------------------------------------------------------------
BY MAIL
- --------------------------------------------------------------------------------------------
<S> <C>
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
current prospectus for the new fund. Also If you do not have telephone privileges,
please observe the minimum initial mail or fax a letter of instruction to
investment. exchange shares.
- --------------------------------------------------------------------------------------------
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>
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.
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
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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 Funds, 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
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[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-31-0999
8
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 2, 1999
STATEMENT OF ADDITIONAL INFORMATION
January 1, 2000
Common Shares of the
WARBURG PINCUS GLOBAL TELECOMMUNICATIONS FUND
WARBURG PINCUS HIGH YIELD FUND
WARBURG PINCUS MUNICIPAL BOND FUND
WARBURG PINCUS FOCUS FUND
WARBURG PINCUS LONG-SHORT MARKET NEUTRAL FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call 800-WARBURG
This combined STATEMENT OF ADDITIONAL INFORMATION provides
information about Warburg Pincus Global Telecommunications Fund ("Global
Telecommunications Fund"), Warburg Pincus High Yield Fund ("High Yield Fund"),
Warburg Pincus Municipal Bond Fund ("Municipal Bond Fund"), Warburg Pincus Focus
Fund ("Focus Fund") and Warburg Pincus Long-Short Market Neutral Fund
("Long-Short Neutral Fund") (each a "Fund" and collectively, the "Funds") that
supplements information contained in the PROSPECTUSES for the Common Shares of
High Yield and Municipal Bond Funds, dated January 1, 2000, Focus Fund, dated
January 1, 2000 and Global Telecommunications Fund, dated January 1, 2000 and
the combined PROSPECTUS for the Common and Institutional Shares of the
Long-Short Neutral Fund dated January 1, 2000, as amended or supplemented from
time to time, and is incorporated by reference in its entirety into those
PROSPECTUSES.
Each 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.
This STATEMENT OF ADDITIONAL INFORMATION is not itself a
prospectus and no investment in shares of the Funds should be made solely upon
the information contained herein. Copies of the PROSPECTUSES, ANNUAL REPORTS and
information regarding each Fund's current performance may be obtained by writing
or telephoning:
COMMON SHARES ADVISOR SHARES
Warburg Pincus Funds Warburg Pincus Advisor Funds
P.O. Box 9030 P.O. Box 9030
Boston, Massachusetts 02205-9030 Boston, Massachusetts 02205-9030
800-WARBURG Attn: Institutional Services
800-222-8977
<PAGE>
CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES.............................................1
Common Investment Objectives and Policies -- All Funds.........................1
Non-Diversified Status......................................................1
Temporary Investments.......................................................1
Repurchase Agreements.......................................................2
Reverse Repurchase Agreements and Dollar Rolls..............................2
Illiquid Securities.........................................................3
Rule 144A Securities.....................................................4
Emerging Growth and Smaller Capitalization Companies; Unseasoned
Issuers.....................................................................5
Lending of Portfolio Securities.............................................5
Borrowing...................................................................6
Securities of Other Investment Companies....................................6
Options Generally...........................................................6
Securities Options..........................................................6
Securities Index Options...................................................10
Common Investment Objectives and Policies -- Global Telecommunications,
High Yield, Municipal Bond and Focus Funds.................................10
When-Issued Securities, Delayed Delivery Transactions And Forward
Commitments................................................................10
Stand-By Commitment Agreements.............................................11
Common Investment Objectives and Policies -- Global Telecommunications,
High Yield, and Focus and Long-Short Neutral Funds.........................12
U.S. Government Securities.................................................12
Foreign Investments........................................................13
Foreign Debt Securities.................................................13
Foreign Currency Exchange...............................................14
Information.............................................................14
Political Instability...................................................14
Foreign Markets.........................................................15
Increased Expenses......................................................15
Dollar-Denominated Debt Securities of Foreign Issuers...................15
Depositary Receipts.....................................................15
Brady Bonds.............................................................15
Emerging Markets........................................................16
Sovereign Debt..........................................................16
Convertible Securities.....................................................17
Debt Securities............................................................18
Below Investment Grade Securities..........................................18
Mortgage-Backed Securities.................................................20
Asset-Backed Securities.................................................21
Loan Participations and Assignments.....................................22
Structured Notes, Bonds or Debentures...................................22
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Collateralized Mortgage Obligations.....................................22
Zero Coupon Securities..................................................23
Futures Activities.........................................................24
Futures Contracts.......................................................24
Options on Futures Contracts............................................25
Currency Exchange Transactions.............................................26
Forward Currency Contracts..............................................26
Currency Options........................................................27
Currency Hedging........................................................27
Hedging Generally..........................................................28
Short Sales "Against the Box..................................................29
Section 4(2) Paper.........................................................29
Supplemental Investment Objectives and Policies -- Global Telecommunications
and Focus Funds............................................................30
Rights Offerings and Purchase Warrants.....................................30
Supplemental Investment Objectives and Policies -- Global Telecommunications
Fund.......................................................................30
Supplemental Investment Objectives and Policies -- Municipal Bond Fund........31
Supplemental Investment Objectives and Policies -- Long-Short Neutral Fund....32
INVESTMENT RESTRICTIONS.......................................................33
PORTFOLIO VALUATION...........................................................35
PORTFOLIO TRANSACTIONS........................................................36
PORTFOLIO TURNOVER............................................................39
MANAGEMENT OF THE FUNDS.......................................................40
Officers and Board of Directors............................................40
Directors' Total Compensation for Fiscal Year Ended August 31, 1999........44
Investment Adviser and Co-Administrators...................................45
Custodian and Transfer Agent...............................................50
Organization of the Funds..................................................50
Distribution and Shareholder Servicing.....................................52
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................54
Automatic Cash Withdrawal Plan.............................................54
EXCHANGE PRIVILEGE............................................................55
ADDITIONAL INFORMATION CONCERNING TAXES.......................................55
The Funds and Their Investments............................................56
Special Tax Considerations.................................................60
Straddles...............................................................60
Options and Section 1256 Contracts......................................60
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Foreign Currency Transactions...........................................61
Passive Foreign Investment Companies....................................62
Asset Diversification Requirement.......................................62
Foreign Taxes...........................................................63
Fund Taxes on Swaps.....................................................63
Dividends and Distributions.............................................63
Sales of Shares.........................................................64
Backup Withholding......................................................64
NOTICES.................................................................64
Other Taxation..........................................................65
DETERMINATION OF PERFORMANCE..................................................65
Total Return...............................................................65
Yield......................................................................67
INDEPENDENT ACCOUNTANTS AND COUNSEL...........................................70
MISCELLANEOUS.................................................................70
FINANCIAL STATEMENTS..........................................................73
APPENDIX A ---- DESCRIPTION OF RATINGS.......................................A-1
APPENDIX B ---- DESCRIPTION OF FUTURES TRANSACTIONS..........................B-1
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INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the descriptions of each
Fund's investment objectives and policies in the PROSPECTUSES. There are no
assurances that the Funds will achieve their investment objectives.
The investment objective of the Global Telecommunications Fund
and Focus Fund (formerly, the Warburg Pincus Select Economic Value Equity Fund)
is to provide long-term appreciation of capital.
The investment objective of the High Yield and Municipal Bond
Funds is to provide high total return.
The investment objective of the Long-Short Neutral Fund is to
seek long-term capital appreciation while minimizing exposure to general
equity market risk.
Unless otherwise indicated, all of the Funds are permitted,
but not obligated, to engage in the following investment strategies, subject to
any percentage limitations set forth below. The Funds do not represent that
these techniques are available now or will be available at any time in the
future.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- ALL FUNDS
NON-DIVERSIFIED STATUS. Each Fund is classified as
non-diversified within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), which means that each Fund is not limited by such Act
in the proportion of its assets that it may invest in securities of a single
issuer. As a non-diversified fund, each Fund may invest a greater proportion of
its assets in the obligations of a smaller number of issuers and, as a result,
may be subject to greater risk with respect to portfolio securities. The
investments of these Funds will be limited, however, in order to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). See "Additional Information Concerning Taxes." To
qualify, a Fund will comply with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of its total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer and the Fund will not own
more than 10% of the outstanding voting securities of a single issuer.
TEMPORARY INVESTMENTS. To the extent permitted by its
investment objectives and policies, each of the Funds may hold cash or cash
equivalents pending investment or to meet redemption requests. In addition, for
defensive purposes due to abnormal market conditions or economic situations as
determined by the Credit Suisse Asset Management, LLC ("CSAM"), the Fund's
adviser (the "Adviser"), each Fund may
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reduce its holdings in other securities and invest up to 100% of its assets in
cash or certain short-term (less than twelve months to maturity) and medium-term
(not greater than five years to maturity) interest-bearing instruments or
deposits of the United States and foreign issuers. The short-term and
medium-term debt securities in which a 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
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.
REPURCHASE AGREEMENTS. The Funds may invest in repurchase
agreement transactions with member banks of the Federal Reserve System and
certain non-bank dealers. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. Under the terms of a typical repurchase
agreement, a Fund would acquire any underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Fund to resell, the obligation at an agreed-upon price
and time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which
the Fund seeks to assert this right. The Adviser, acting under the supervision
of the Fund's Board of Directors (the "Board"), monitors the creditworthiness of
those bank and non-bank dealers with which each Fund enters into repurchase
agreements to evaluate this risk. A repurchase agreement is considered to be a
loan under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each Fund may
enter into reverse repurchase agreements with member banks of the Federal
Reserve System with respect to portfolio securities for temporary purposes (such
as to obtain cash to meet redemption requests when the liquidation of portfolio
securities is deemed disadvantageous or inconvenient by the Adviser) and "dollar
rolls." The Funds do not presently intend to invest more than 5% of net assets
in reverse repurchase agreements or dollar rolls during the coming year.
Reverse repurchase agreements involve the sale of securities
held by a Fund pursuant to such Fund's agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time a Fund enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with an approved custodian containing cash or
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liquid securities having a value not less than the repurchase price (including
accrued interest). The segregated assets will be marked-to-market daily and
additional assets will be segregated on any day in which the assets fall below
the repurchase price (plus accrued interest). The segregated assets will be
marked-to-market daily and additional assets will be segregated on any day in
which the assets fall below the repurchase price (plus accrued interest). A
Fund's liquidity and ability to manage its assets might be affected when it sets
aside cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities a Fund has sold but
is obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce a Fund's obligation to repurchase the securities, and a Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
Each Fund also may enter into "dollar rolls," in which it
sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, a
Fund would forgo principal and interest paid on such securities. A Fund would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time a Fund enters into a dollar roll
transaction, it will segregate with an approved custodian, cash or liquid
securities having a value not less than the repurchase price (including accrued
interest) and will subsequently monitor the segregated assets to ensure that its
value is maintained. Reverse repurchase agreements and dollar rolls that are
accounted for as financings are considered to be borrowings under the 1940 Act.
ILLIQUID SECURITIES. Each Fund is authorized, but does not
presently intend to, invest 15% of its net assets in 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. Companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection requirements
3
<PAGE>
applicable to companies whose securities are publicly traded. 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 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 Securities and Exchange Commission (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. The 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 the Funds' 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).
Investing in Rule 144A securities could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers are unavailable or uninterested in purchasing such
securities from the Funds. The Boards may adopt guidelines and delegate to
the Adviser the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although each Board will retain ultimate responsibility
for liquidity determinations.
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EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES;
UNSEASONED ISSUERS. Each 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. The term "unseasoned" refers to issuers which, together
with their predecessors, have been in operation for less than three years.
Such investments involve considerations 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.
Although investing in securities of unseasoned issuers 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. Therefore, an investment in a Fund
may involve a greater degree of risk than an investment in other mutual funds
that seek growth of capital or capital appreciation by investing in
better-known, larger companies.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of the Funds' total assets (including the loan collateral). The
Funds will not lend portfolio securities to the Adviser or its affiliates unless
it has applied for and received specific authority to do so from the SEC. Loans
of portfolio securities will be collateralized by cash, letters of credit or
U.S. government securities, which are maintained at all times in an amount equal
to at least 100% of the current market value of the loaned 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) the Fund must receive at least 100% cash collateral or equivalent securities
of the type discussed in the preceding paragraph from the borrower;
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(ii) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (iii) the Fund must be able
to terminate the loan at any time; (iv) the 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) the Fund may pay
only reasonable custodian 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.
BORROWING. Each Fund may borrow up to 331/3 percent 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.
Additional 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.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Fund may invest
in securities issued by other investment companies to the extent permitted by
the 1940 Act. As a shareholder of another investment company, each Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund bears directly in
connection with its own operations.
OPTIONS GENERALLY. The Funds may purchase and write (sell)
options on securities, securities indices and currencies for both hedging
purposes and to increase total return, which may involve speculation.
SECURITIES OPTIONS. Each Fund may write covered put and call
options on stock and debt securities and each Fund may purchase such options
that are traded on
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foreign and U.S. exchanges, as well as OTC options. A Fund realizes 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.
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 its 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 an increase in the price of the
underlying security. The size of the premiums that the Funds 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 decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by a Fund that are deemed
covered by virtue of the 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 the Fund
has written options may exceed the time within which the 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, the Fund will not bear any market risk, since the 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 the
Fund may incur
7
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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 the
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, the 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," "at-the- money" and
"out-of-the-money," respectively. Each Fund that can write put and call options
on securities may write (i) in-the-money call options when the 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 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 the 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 the 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
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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 (the 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, the Fund may be assigned an exercise notice by
the broker-dealer through which the option was sold, requiring the Fund to
deliver the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the 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
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Options Clearing Corporation
(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. The Funds,
however, intend to purchase OTC options only from dealers whose debt securities,
as determined by the 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.
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 the Adviser and certain of its 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
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other sanctions. These limits may restrict the number of options the Funds will
be able to purchase on a particular security.
SECURITIES INDEX OPTIONS. 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 index options may
be offset by entering into closing transactions as described above for
securities options.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS, HIGH
YIELD, MUNICIPAL BOND AND FOCUS FUNDS
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS. Each Fund may purchase securities on a when-issued basis or
on a forward commitment basis, and it may purchase or sell securities for
delayed delivery (I.E., payment or delivery occur beyond the normal settlement
date at a stated price and yield). Each Fund currently anticipates that
when-issued securities will not exceed 25% of its net assets. Each Fund does not
intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objectives.
In these transactions, payment for and delivery of the
securities occur beyond the regular settlement dates, normally within 30-45 days
after the transaction. The Funds will not enter into a when-issued or
delayed-delivery transaction for the
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purpose of leverage, but may sell the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or receive
securities in a delayed-delivery transaction before the settlement date if
the Adviser deems it advantageous to do so. The payment obligation and the
interest rate that will be received on when-issued and delayed-delivery
transactions 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
or delayed-delivery 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. Each Fund will establish
a segregated account with its custodian consisting of cash or liquid
securities in an amount equal to its when-issued and delayed-delivery
purchase commitments and will segregate the securities underlying
commitments to sell securities for delayed delivery.
When a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities that are
acceptable as collateral to the appropriate regulatory authority 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 the Fund's commitment. 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 or delayed-delivery transactions, it relies on the
other party to consummate the trade. Failure of the seller to do so may result
in the Funds' incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
STAND-BY COMMITMENT AGREEMENTS. Each Fund may from time to
time enter into stand-by commitment agreements. The Funds do not presently
intend to invest more than 5% of net assets in stand-by commitment agreements
during the coming year.
Such agreements commit a Fund, for a stated period of time, to
purchase a stated amount of a fixed income securities which may be issued and
sold to the Fund at the option of the issuer. The price and coupon of the
security is fixed at the time of the commitment. At the time of entering into
the agreement, a Fund is paid a commitment fee, regardless of whether or not the
security is ultimately issued. A Fund will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price that is considered advantageous to a Fund. Each Fund will not enter
into a stand-by commitment with a remaining term in excess of 45 days and it
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value of
portfolio securities subject to legal restrictions on resale, will not exceed
10% of its assets taken at the time of acquisition of such commitment or
security.
Each Fund will at all times maintain a segregated account with
its custodian consisting of cash or liquid securities denominated in U.S.
dollars or non-U.S. currencies
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in an aggregate amount equal to the purchase price of the securities underlying
the commitment. The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which assets fall below the amount of the purchase price. A Fund's
liquidity and ability to manage its assets might be affected when it sets aside
cash or portfolio securities to cover such commitments.
There can be no assurance that the securities subject to a
stand-by commitment will be issued and the value of the security, if issued, on
the delivery date may be more or less than its purchase price. Because the
issuance of the security underlying the commitment is at the option of the
issuer, a Fund may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a stand-by commitment
agreement and the related commitment fee will be recorded on the date on which
the security can reasonably be expected to be issued, and the value of the
security will be adjusted by the amount of the commitment fee. In the event the
security is not issued, the commitment fee will be recorded as income on the
expiration date of the stand-by commitment.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS, HIGH
YIELD, AND FOCUS AND LONG-SHORT NEUTRAL FUNDS
U.S. GOVERNMENT SECURITIES. The obligations issued or
guaranteed by the U.S. government in which a Fund may invest include direct
obligations of the U.S. Treasury and obligations issued by U.S. government
agencies and instrumentalities. Included among direct obligations of the United
States are Treasury Bills, Treasury Notes and Treasury Bonds, which differ in
terms of their interest rates, maturities and dates of issuance. Treasury Bills
have maturities of less than one year, Treasury Notes have maturities of one to
10 years and Treasury Bonds generally have maturities of greater than 10 years
at the date of issuance. Included among the obligations issued by agencies and
instrumentalities of the United States are instruments that are supported by the
full faith and credit of the United States (such as certificates issued by the
Government National Mortgage Association ("GNMA")); instruments that are
supported by the right of the issuer to borrow from the U.S. Treasury (such as
securities of Federal Home Loan Banks); and instruments that are supported by
the credit of the instrumentality (such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") bonds).
Other U.S. government securities the Funds may invest in
include securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory
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Board and Student Loan Marketing Association. Because the U.S. government is not
obligated by law to provide support to an instrumentality it sponsors, a Fund
will invest in obligations issued by such an instrumentality only if the Adviser
determines that the credit risk with respect to the instrumentality does not
make its securities unsuitable for investment by the Fund.
FOREIGN INVESTMENTS. Investors should recognize that investing
in foreign companies involves certain risks, including those discussed below,
which are in addition to those associated with investing in U.S. issuers.
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. In addition, foreign investments by the Funds are subject to the risk
that natural disasters (such as an earthquake) will weaken a country's economy
and cause investments in that country to lose money. Natural disaster risks
are, of course, not limited to foreign investments and may apply to a Fund's
domestic investments as well. The Funds 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.
For the purposes of this investment policy, foreign
investments include investments in companies located or conducting a majority
of their business outside of the U.S., companies which have issued securities
traded principally outside of the U.S., or non-U.S. governments, governmental
entities or political subdivisions.
FOREIGN DEBT SECURITIES. 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
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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 euro, the new single currency
for eleven Economic and Monetary Union member states. The euro represents
specified amounts of the currencies of certain member states of the Economic and
Monetary Union and was introduced on January 1, 1999. National currencies of the
eleven member states participating in the euro will become subdivisions of the
euro, but will continue to circulate as legal tender until January 1, 2002, when
they will be withdrawn permanently.
FOREIGN CURRENCY EXCHANGE. Since the Funds may invest in
securities denominated in currencies of non-U.S. countries, 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 Fund 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 a Fund. 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. 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 the yen against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures.
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 subject to financial reporting
standards, practices and requirements that are either not uniform or less
rigorous than 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.
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FOREIGN MARKETS. 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 which may result
in increased exposure to market and foreign exchange fluctuations and increased
illiquidity.
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 cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges, 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. In addition,
foreign securities may be subject to foreign government taxes that would reduce
the net yield on such securities.
DOLLAR-DENOMINATED DEBT SECURITIES OF FOREIGN ISSUERS. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. 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.
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 ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are issued outside the United States. EDRs (CDRs)
and IDRs (GDRs) 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 (CDRs)
and IDRs (GDRs) in bearer form are designed for use in European and non-U.S.
securities markets, respectively.
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. 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. Brady Bonds have been issued only recently and therefore do not
have a
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long payment history. In light of the history of commercial bank loan defaults
by Latin American public and private entities, investments in Brady Bonds may be
viewed as speculative.
EMERGING MARKETS. Each Fund may invest in securities of
issuers located in "emerging markets" (less developed countries located outside
of the U.S.). Investing in emerging markets 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 of
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.
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
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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 Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Services ("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 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 the Adviser,
such securities have the potential for future income or capital appreciation.
CONVERTIBLE SECURITIES. Convertible securities in which a fund
may invest, including both convertible debt and convertible preferred stock, may
be converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although the Adviser will consider such event in its determination
of whether a Fund should continue to hold the securities.
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DEBT SECURITIES. Each Fund may invest in investment grade debt
securities (other than money market obligations) for the purpose of seeking
capital appreciation. 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. Each Fund may invest to a
limited extent in zero coupon securities and government zero coupon securities.
See "Additional Information Concerning Taxes" for a discussion of the tax
consequences to shareholders of a Fund that invests in zero coupon securities.
The interest income to be derived may be considered as one
factor in selecting debt securities for investment by the Adviser. Because the
market value of debt obligations can be expected to vary inversely to changes
in prevailing interest rates, investing in debt obligations may provide an
opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon the Adviser's
ability to forecast accurately changes in interest rates. The market value of
debt obligations may also be expected to vary depending upon, among other
factors, the ability of the issuer to repay principal and interest, any change
in investment rating and general economic conditions.
A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's or S&P or, if unrated, is
determined to be of comparable quality by the Adviser. Securities rated in the
fourth highest grade may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. Subsequent to its purchase by a Fund, an issue of securities
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Fund. Neither event will require sale of such securities,
although the Adviser will consider such event in its determination of whether
the Fund should continue to hold the securities.
BELOW INVESTMENT GRADE SECURITIES. The High Yield and
Municipal Bond Funds have established no rating criteria for the debt securities
in which they may invest.
Below investment grade debt securities may be rated as low as
C by Moody's or D by S&P, or be deemed by the Adviser to be of equivalent
quality. Securities that are rated C by Moody's are the lowest rated class and
can be regarded as having extremely poor prospects of ever attaining any real
investment standing. A security rated D by S&P is in default or is expected to
default upon maturity or payment date. Investors should be aware that ratings
are relative and subjective and are not absolute standards of quality.
Below investment grade securities (commonly referred to as
"junk bonds"), (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's
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capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than investment grade securities. In addition, these securities
generally present a higher degree of credit risk. The risk of loss due to
default is significantly greater because these securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
While the market values of medium- and lower-rated securities
and unrated securities of comparable quality tend to react less to fluctuations
in interest rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
Issuers of medium- and lower-rated securities and unrated 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 medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
An economic 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. A Fund 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
higher-rated 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 the Fund's 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 a Fund to obtain accurate
market quotations for purposes of valuing the Fund and calculating its net asset
value.
The market value of securities in medium- and lower-rated
categories is also more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact a
Fund's net asset value. A Fund will rely on the judgment, analysis and
experience of the Adviser in evaluating the creditworthiness of an issuer.
In this evaluation, in addition to relying on ratings assigned by Moody's or
S&P, the Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
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operating history, the quality of the issuer's management and regulatory
matters. Interest rate trends and specific developments which may affect
individual issuers will also be analyzed. 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 sale of such securities, although the Adviser will
consider such event in its determination of whether a Fund should continue to
hold the securities. Normally, medium- and lower-rated and comparable unrated
securities are not intended for short-term investment. A Fund 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.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities include
those issued by GNMA, FNMA and FHLMC. Non-government issued mortgage-backed
securities may offer higher yields than those issued by government entities, but
may be subject to greater price fluctuations. Mortgage-backed securities
represent direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property. The mortgages backing these
securities include, among other mortgage instruments, conventional 30-year
fixed-rate mortgages, 15-year fixed-rate mortgages, graduated payment mortgages
and adjustable rate mortgages. Although there may be government or private
guarantees on the payment of interest and principal of these securities, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates, nor do the guarantees extend
to the yield or value of the Fund's shares. These securities generally are
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees. Some mortgage-backed securities, such as collateralized
mortgage obligations ("CMOs"), make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby
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shortening the actual average life of a pool of mortgage-related securities.
Conversely, in periods of rising rates the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the pool. However, these effects
may not be present, or may differ in degree, if the mortgage loans in the pools
have adjustable interest rates or other special payment terms, such as a
prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the Funds' yield. In addition,
mortgage-backed securities issued by certain non-government entities and
collateralized mortgage obligations may be less marketable than other
securities.
The rate of interest on mortgage-backed securities is lower
than the interest rates paid on the mortgages included in the underlying pool
due to the annual fees paid to the servicer of the mortgage pool for passing
through monthly payments to certificate holders and to any guarantor, such as
GNMA, and due to any yield retained by the issuer. Actual yield to the holder
may vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the issuer
receives mortgage payments from the servicer and the time the issuer makes the
payments on the mortgage-backed securities, and this delay reduces the effective
yield to the holder of such securities.
ASSET-BACKED SECURITIES. Asset-backed securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities include
those issued by the Student Loan Marketing Association. Asset-backed securities
represent participations in, or are secured by and payable from, assets such as
motor vehicle installment sales, installment loan contracts, leases of various
types of real and personal property and receivables from revolving credit
(credit card) agreements. Such assets are securitized through the use of trusts
and special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not
presented by other securities in which the Funds may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition,
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there is no assurance that the security interest in the collateral can be
realized. The remaining maturity of any asset-backed security a Fund invests in
will be 397 days or less. A Fund may purchase asset-backed securities that are
unrated.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Each Fund may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government (a "Borrower") and one or more financial
institutions ("Lenders"). The majority of each Fund's 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"). Each Fund
currently anticipates that it will not invest more than 5% of its net assets in
Loan Participations and Assignments.
Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the Borrower. The 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 connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the Borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the Borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund 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, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the Borrower. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the Borrower is determined by
the Adviser to be creditworthy.
STRUCTURED NOTES, BONDS OR DEBENTURES. Typically, the value of
the principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of a Fund's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition,
the change in interest rate or the value of the security at maturity may be a
multiple of the change in the value of the Reference so that the security may be
more or less volatile than the Reference, depending on the multiple.
Consequently, structured securities may entail a greater degree of market risk
and volatility than other types of debt obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Funds may also
purchase CMOs issued by a U.S. Government instrumentality
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which are backed by a portfolio of mortgages or mortgage-backed securities. The
issuer's obligations to make interest and principal payments is secured by the
underlying portfolio of mortgages or mortgage-backed securities. Generally, CMOs
are partitioned into several classes with a ranked priority by which the classes
of obligations are redeemed. These securities may be considered mortgage
derivatives. The Funds may only invest in CMOs issued by FHLMC, FNMA or other
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government.
CMOs provide an investor with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-related securities.
Issuers of CMOs frequently elect to be taxed as pass-through entities known as
real estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. Coupons can be fixed or variable. If variable, they can move
with or in the reverse direction of interest rates. The coupon changes could be
a multiple of the actual rate change and there may be limitations on what the
coupon can be. Cash flows of pools can also be divided into a principal only
class and an interest only class. In this case the principal only class will
only receive principal cash flows from the pool. All interest cash flows go to
the interest only class. The relative payment rights of the various CMO classes
may be structured in many ways, either sequentially or by other rules of
priority. Generally, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments will
be made on a CMO class until all other classes having an earlier stated maturity
date are paid in full. Sometimes, however, CMO classes are "parallel pay," I.E.
payments of principal are made to two or more classes concurrently. CMOs may
exhibit more or less price volatility and interest rate risk than other types of
mortgaged-related obligations.
The CMO structure returns principal to investors sequentially,
rather than according to the pro rata method of a pass-through. In the
traditional CMO structure, all classes (called tranches) receive interest at a
stated rate, but only one class at a time receives principal. All principal
payments received on the underlying mortgages or securities are first paid to
the "fastest pay" tranche. After this tranche is retired, the next tranche in
the sequence becomes the exclusive recipient of principal payments. This
sequential process continues until the last tranche is retired. In the event of
sufficient early repayments on the underlying mortgages, the "fastest-pay"
tranche generally will be retired prior to its maturity. Thus the early
retirement of a particular tranche of a CMO held by a Fund would have the same
effect as the prepayment of mortgages underlying a mortgage-backed pass-through
security as described above.
ZERO COUPON SECURITIES. Each Fund may invest in "zero coupon"
U.S. Treasury, foreign government and U.S. and foreign corporate debt
securities, which are bills, notes and bonds that have been stripped of their
unmatured interest coupons and receipts or certificates representing interests
in such stripped debt obligations and coupons. Each Fund currently anticipates
that zero coupon securities will not exceed 5% of its net assets.
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A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest. The Funds anticipate
that they will not normally hold zero coupon securities to maturity. Federal tax
law requires that a holder of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year, even though
the holder receives no interest payment on the security during the year.
FUTURES ACTIVITIES. Each Fund may enter into futures contracts
(and related options) on securities, securities indices, foreign currencies and
interest rates, 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
multiplier 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 and
increasing return. Aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC will not exceed 5% of the Fund's net asset 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 the Fund's policies. There is no overall limit on the percentage of Fund
assets that may be at risk with respect to futures activities.
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 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.
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No consideration is paid or received by a Fund upon entering
into a futures contract. Instead, the 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 the 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 the 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.
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 the 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 may 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 the Fund to substantial losses. In such event, and in the
event of adverse price movements, the 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
the 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
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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 each Fund.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of
the assets of the Funds 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 the Funds may incur costs in connection with conversion
between various currencies. Currency exchange transactions 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. The Funds
may engage in currency exchange transactions for both hedging purposes and to
increase total return, which may involve speculation.
FORWARD CURRENCY CONTRACTS. Each Fund may use forward currency
contracts to protect against uncertainty in the level of future exchange rates
and to enhance total return. The Funds will not invest more than 50% of their
respective total assets in such contracts for the purpose of enhancing total
return. There is no limit on the amount of assets that the Funds may invest in
such transactions for hedging purposes.
The Funds may also enter into forward currency contracts with
respect to specific transactions. For example, when a Fund anticipates the
receipt in a foreign currency of interest payments on a security that it holds,
a Fund may desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such payment, as the case may be, by entering into
a forward contract for the purchase or sale, for a fixed amount of U.S. dollars,
of the amount of foreign currency involved in the underlying transaction. A
Fund will thereby be able to protect itself against a possible loss resulting
from an adverse change in the relationship between the currency exchange rates
during the period between the date on which the security is purchased or sold,
or on which the payment is declared, and the date on which such payments are
made or received.
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.
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At or before the maturity of a forward contract, the Funds 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, the 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.
CURRENCY OPTIONS. The Funds 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 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, the 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, the 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.
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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 the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
non-dollar denominated bond against a decline in the non-dollar currency, but
will not protect the Fund against a price decline if the issuer's
creditworthiness deteriorates.
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 the 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 the 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 movements in the price
of securities index futures, a correct forecast of general market trends by
the Adviser still may not result in a successful hedging transaction.
Each Fund will engage in hedging transactions only when deemed
advisable by the Adviser, and successful use by the Fund of hedging transactions
will be subject to the 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.
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<PAGE>
SHORT SALES "AGAINST THE BOX." 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.
While a short sale is made by selling a security the Fund does not own, a short
sale is "against the box" to the extent that the Fund contemporaneously owns or
has the right to obtain, at no added cost, securities identical to those sold
short. It may be entered into by the Fund, for example, to lock in a sales price
for a security the Fund does not wish to sell immediately. If the Fund engages
in a short sale, the collateral for the short position will be maintained by the
Fund's custodian or qualified sub-custodian. While the short sale is open, the
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 the
Fund's long position.
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 the 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 a Fund owns. There will be certain additional
transactions costs associated with short sales against the box, but a Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
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 a Fund may effect short
sales.
The Funds do not presently intend to invest more than 5% of
net assets in short sales against the box.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper
which is issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under the federal securities
laws and is generally sold to institutional investors such as the Funds which
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" above. See Appendix "A" for a list of commercial paper ratings.
29
<PAGE>
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS AND
FOCUS FUNDS
RIGHTS OFFERINGS AND PURCHASE WARRANTS. Rights offerings and
purchase warrants are privileges issued by a corporation which enable the owner
to subscribe to and purchase a specified number of shares of the corporation at
a specified price during a specified period of time. Subscription rights
normally have a short lifespan to expiration. The purchase of rights or warrants
involves the risk that a Fund could lose the purchase value of a right or
warrant if the right to subscribe to additional shares is not executed prior to
the rights and warrants expiration. Also, the purchase of rights and/or warrants
involves the risk that the effective price paid for the right and/or warrant
added to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in the
level of the underlying security.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS
FUND
Telecommunications companies in both developed and emerging
countries are undergoing significant change due to varying and evolving levels
of governmental regulation
30
<PAGE>
or deregulation and other factors. As a result, competitive pressures are
intense and the securities of such companies may be subject to rapid price
volatility. Telecommunications regulation typically limits rates charged,
returns earned, providers of services, types of services, ownership, areas
served and terms for dealing with competitors and customers. Telecommunications
regulation generally has tended to be less stringent for newer services than for
traditional telephone service, although there can be no assurances that such
newer services will not be heavily regulated in the future. Regulation may also
limit the use of new technologies and hamper efficient depreciation of existing
assets. If regulation limits the use of new technologies by established carriers
or forces cross-subsidies, large private networks may emerge. Service providers
may also be subject to regulations regarding ownership and control, providers of
services, subscription rates and technical standards.
Companies offering telephone services are experiencing
increasing competition from cellular telephones, and the cellular telephone
industry, because it has a limited operating history, faces uncertainty
concerning the future of the industry and demand for cellular telephones. All
telecommunications companies in both developed and emerging countries are
subject to the additional risk that technological innovations will make their
products and services obsolete. While telephone companies in developed countries
and certain emerging countries may pay an above average dividend, the Fund's
investment decisions are based upon capital appreciation potential rather than
income considerations.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- MUNICIPAL BOND FUND
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance, and opinions
relating to the validity of and the tax-exempt status of payments received by
the Fund from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Fund and the Adviser will rely on
such opinions and will not review independently the underlying proceedings
relating to the issuance of Municipal Obligations, the creation of any
tax-exempt derivative securities, or the basis for such opinions.
Certain Municipal Obligations are classified as private
activity bonds. Interest on private activity bonds is tax-exempt only if the
bonds fall within certain defined categories of qualified private activity bonds
and meet the requirements specified in those respective categories. In addition,
interest on certain private activity bonds ("Alternative Minimum Tax
Securities") is a specific preference item under the federal alternative minimum
tax. Investors should also be aware of the possibility of state and local
alternative minimum or minimum income tax liability on interest from Alternative
Minimum Tax Securities.
Although the Municipal Bond Fund may invest 25% or more of its
net assets in Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and may invest up to 40% of its total assets in
private activity bonds when added together with any taxable investments held by
the Municipal Bond Fund, it will not do so unless in the
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<PAGE>
opinion of the Adviser the investment is warranted. To the extent the Municipal
Bond Fund's assets are invested in Municipal Obligations payable from the
revenues of similar projects or are invested in private activity bonds, the
Municipal Bond Fund will be subject to the peculiar risks presented by the laws
and economic conditions relating to such projects and bonds to a greater extent
than it would be if its assets were not so invested.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- LONG-SHORT NEUTRAL FUND
SHORT SALES. The Long-Short Neutral Fund will seek to realize
additional gains through short sales. Short sales are transactions in which the
Fund sells a security it does not own, in anticipation of a decline in the value
of that security relative to the long positions held by the Fund. To complete
such a transaction, the Fund must borrow the security from a broker or other
institution to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at the market price at or prior to the
time of replacement. The price at such time may be more or less than the price
at which the security was sold by the Fund. Until the security is replaced, the
Fund is required to repay the lender any dividends or interest that accrue
during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security sold.
The net proceeds of the short sale will be retained by the broker (or by the
Fund's custodian in a special custody account), to the extent necessary to meet
margin requirements, until the short position is closed out. The Fund also will
incur transaction costs in effecting short sales.
The Fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. The Fund will realize a
gain if the security declines in price between those dates. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
the premium, dividends, interest or expenses the Fund may be required to pay in
connection with a short sale. An increase in the value of a security sold short
by the Fund over the price at which it was sold short will result in a loss to
the Fund, and there can be no assurance that the Fund will be able to close out
the position at any particular time or at an acceptable price. Although the
Fund's gain is limited to the amount at which it sold a security short, its
potential loss is limited only by the maximum attainable price of the security
less the price at which the security was sold. Until the Fund replaces a
borrowed security, it will maintain in a segregated account at all times cash,
U.S. Government Securities, or other liquid securities in an amount which, when
added to any amount deposited with a broker as collateral will at least equal
the current market value of the security sold short. Depending on arrangements
made with brokers, the Fund may not receive any payments (including interest) on
collateral deposited with them. The Fund will not make a short sale if, after
giving effect to such sale, the market value of all securities sold short
exceeds 100% of the value of the Fund's net assets.
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<PAGE>
INVESTMENT RESTRICTIONS
The following investment limitations of each Fund may not be
changed without the affirmative vote of the holders of a majority of a Fund's
outstanding shares ("Fundamental Restrictions"). 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 the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 of each of the Funds) 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 the Funds' assets will not constitute a violation of such restriction.
1. Borrow money, except from banks, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Fund; or mortgage, pledge or hypothecate any of its assets except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33 1/3% of the value of the Fund's total assets at the time
of such borrowing (for the Long-Short Neutral Fund only, provided that: (a)
short sales and related borrowings of securities are not subject to this
restriction; and, (b) for the purposes of this restriction, collateral
arrangements with respect to options, short sales, stock index, interest rate,
currency or other futures, options on futures contracts, collateral arrangements
with respect to initial and variation margin and collateral arrangements with
respect to swaps and other derivatives are not deemed to be a pledge or other
encumbrance of assets).
2. Issue any senior securities, except as permitted under
the 1940 Act;
3. Act as an underwriter of securities within the meaning
of the Securities Act, except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the limitation
on purchases of restricted securities;
4. Purchase or sell real estate (including real estate
limited partnership interests), provided that a Fund may invest in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein;
5. Purchase or sell commodities or commodity contracts,
except that a Fund may deal in forward foreign exchange transactions between
currencies of the different countries in which it may invest and purchase and
sell stock index and currency options, stock index futures, financial futures
and currency futures contracts and related options on such futures;
6. Make loans, except through loans of portfolio
instruments and repurchase agreements, provided that for purposes of this
restriction the acquisition of bonds,
33
<PAGE>
debentures or other debt instruments or interests therein and investment in
government obligations, Loan Participations and Assignments, short-term
commercial paper, certificates of deposit and bankers' acceptances shall not be
deemed to be the making of a loan; and
7. Except for the Global Telecommunications Fund, 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 one or more
issuers conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to (i) instruments issued
or guaranteed by the United States, any state, territory or possession of the
United States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and (ii) repurchase agreements
secured by the instruments described in clause (i); (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The Telecommunications Fund will concentrate in the
telecommunications industry.
For purposes of Investment Limitation No. 1, collateral
arrangements with respect to, if applicable, the writing of options, futures
contracts, options on futures contracts, forward currency contracts and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security for purposes of Investment Limitation No. 2.
In addition to the fundamental investment limitations
specified above, a Fund may not:
1. Make investments for the purpose of exercising control
or management, but investments by a Fund in wholly-owned investment
entities created under the laws of certain countries will not be deemed
the making of investments for the purpose of exercising control or
management;
2. Purchase securities on margin, except for short-term
credits necessary for clearance of portfolio transactions, and except that
a Fund may make margin deposits in connection with its use of options,
futures contracts, options on futures contracts and forward contracts;
3. Purchase or sell interests in mineral leases, oil, gas
or other mineral exploration or development programs, except that a Fund
may invest in securities issued by companies that engage in oil, gas or
other mineral exploration or development activities;
4. (LONG-SHORT NEUTRAL FUND ONLY) Purchase or retain the
securities of any issuer, if those individual officers and directors of
the Fund, the Adviser or
34
<PAGE>
any subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the
securities of such issuer; and
5. (LONG-SHORT NEUTRAL FUND ONLY) Acquire any securities
registered open-end investment companies or registered unit investment
trusts in reliance on Section 12(d)(1)(F) or (G) of the 1940 Act.
The policies set forth above are not fundamental and thus may
be changed by the Funds' Board of Directors without a vote of the shareholders.
Securities held by a Fund generally may not be purchased from,
sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
PORTFOLIO VALUATION
The following is a description of the procedures used by the
Funds in valuing their 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 highest bid and lowest asked quotations. If there are no such
quotations, the value of the 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
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 (each 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 each Fund under the general supervision and
responsibility of the Boards, which may replace a Pricing Service at any time.
Securities, options, futures contracts and other assets for which market
quotations are not available will be valued at their fair value as determined in
good faith pursuant to consistently applied procedures established by the
Boards. In
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<PAGE>
addition, the Boards or their 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 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 York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which the Funds' net asset value is not calculated. As a result,
calculation of the Funds' net asset value does not take place contemporaneously
with the determination of the prices of the majority of the Funds' 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 as of noon (Eastern time). If such quotations are not
available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Boards. Although the
Long-Short Neutral Fund does not invest directly in foreign securities, it
invests in American Depositary Receipts, the value of which depends on the
underlying foreign security.
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.
36
<PAGE>
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" 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
Credit Suisse Asset Management Securities, Inc. ("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 the
Funds. In some instances, this investment procedure may adversely affect the
price paid or received by the Funds or the size of the position obtained or sold
for the Funds. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for each Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.
Transactions for each of the Funds 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,
37
<PAGE>
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.
Each Fund may participate, if and when practicable, in bidding
for the purchase of securities for the 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 the
Adviser, in its sole discretion, believe such practice to be otherwise in the
Fund's interest.
For the fiscal years ended August 31, the Funds have paid
brokerage commissions as follows:
AUGUST 31, 1999
<TABLE>
<CAPTION>
FUND BROKERAGE COMMISSION
<S> <C>
Global Telecommunications $178,506
High Yield $112,134
Municipal Bond N/A
Focus $192,853
Long-Short Neutral $214,482
AUGUST 31, 1998
BEA FUND BROKERAGE COMMISSION
Global Telecommunications $ 2,639
High Yield $ 250
Municipal Bond N/A
Focus $ 17,675
Long-Short Neutral $ 3,790
38
<PAGE>
AUGUST 31, 1997
<CAPTION>
BEA FUND BROKERAGE COMMISSION
<S> <C>
Global Telecommunications $ 1,261
High Yield $ 0
Municipal Bond N/A
Focus N/A
Long-Short Neutral N/A
</TABLE>
In no instance will portfolio securities be purchased from or
sold to CSAM, CSAMSI or 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 the Funds enter into distribution or shareholder
servicing agreements concerning the provision of distribution services or
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 a Fund
deems it desirable to sell or purchase securities. The Funds' 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, a Fund 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.
It is not possible to predict the Funds' portfolio turnover
rates. High portfolio turnover rates (100% or more) may result in higher
brokerage commissions, dealer markups or underwriting commissions as well as
other transaction costs. In addition, gains realized from portfolio turnover may
be taxable to shareholders.
39
<PAGE>
MANAGEMENT OF THE FUNDS
OFFICERS AND BOARD OF DIRECTORS. The business and affairs of
each Fund are managed by the 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.
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 Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 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.
40
<PAGE>
James S. Pasman, Jr. (68) 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.
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
153 East 53rd Street, President of Loanet, Inc. since 1997;
Suite 5500 Executive Vice President of Loanet, Inc.
New York, New York 10022 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.
- --------------------------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
41
<PAGE>
Alexander B. Trowbridge (69) DIRECTOR
1317 F Street, N.W., Currently retired; President of Trowbridge
5th Floor Partners, Inc. (business consulting) from
Washington, DC 20004 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 with
New York, New York 10017-3147 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.
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
153 East 53rd Street Director and General Counsel of CSAM;
New York, New York 10022 Associated with CSAM since 1995;
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.
42
<PAGE>
Stuart J. Cohen, Esq. (30) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM;
New York, New York 10017-3147 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, PFPC Inc. ("PFPC") and CSAMSI, the Funds'
co-administrators, 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, PFPC, CSAMSI or any of
their affiliates receives an annual fee of $500 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 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.
43
<PAGE>
DIRECTORS' TOTAL COMPENSATION FOR FISCAL YEAR ENDED AUGUST 31, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Global Long-Short All Investment
Tele- Neutral Companies in
Name of communications High Yield Municipal Focus Fund the [CSAM] Fund
Director Fund Fund Bond Fund Fund Complex*
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William W. Priest** None None None None None None
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Arnold M. Reichman*** None None None None None None
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Richard N. Cooper**** 1,125 1,125 1,125 1,125 1,125 $73,250
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Richard H. Francis***** 750 750 750 750 750 $16,500
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Jack W. Fritz 2,000 2,000 2,000 2,000 2,000 $73,250
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Jeffrey E. Garten 2,000 2,000 2,000 2,000 2,000 $73,250
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
James S. Pasman, Jr.***** 750 750 750 750 750 $16,500
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Steven N. Rappaport***** 750 750 750 750 750 $16,500
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Alexander B. Trowbridge 2,075 2,075 2,075 2,075 2,075 $76,025
----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
* Each Director serves as a Director or Trustee of 51 investment
companies and portfolios in the [Credit Suisse Asset Management 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.
44
<PAGE>
As of September 30, 1999, Directors and officers as a group,
owned of record less than 1% of each Fund's outstanding Common Shares. No
Director or officer owned any of the Funds' outstanding Advisor Shares.
INVESTMENT ADVISER AND CO-ADMINISTRATORS. CSAM, located at 153
East 53rd Street, New York, New York 10022, serves as investment adviser to each
Fund pursuant to a written agreement (the "Advisory Agreement"). CSAM 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's predecessor, BEA Associates, had rendered advisory
services to the predecessor to the Funds, each a series of The RBB Fund, Inc.
(the "BEA Funds"), pursuant to Investment Advisory Agreements (the "BEA Advisory
Agreements"). CSAM, together with its predecessor firms, has been engaged in the
investment advisory business for over 60 years.
CSAM has 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 its services to the Global
Telecommunications, High Yield, Municipal Bond and Focus Funds, CSAM will be
paid (before any voluntary waivers or reimbursements) a monthly fee computed at
an annual rate of 1.00%, .70%, .70% and, .75% of average daily net assets,
respectively.
The Long-Short Neutral Fund pays CSAM a basic management fee,
computed daily and payable monthly, at the annual rate of 1.50% of the average
net assets of the Fund. After the first year of operations, this basic
management fee may be increased or decreased by applying an adjustment formula
(the "Performance Adjustment"). The Performance Adjustment is calculated monthly
by comparing the Fund's investment performance to a Target (as defined below)
during the most recent twelve-month period. The "Target" is the investment
record of the Salomon Smith Barney 1-Month U.S. Treasury Bill Index-TM- plus 5
percentage points. The Performance Adjustment is added to or subtracted from the
basic fee.
The Performance Adjustment may increase or decrease the basic
fee in five steps. The first step would occur if the Fund's performance during
the most recent 12-month period differed from that of the Target by more than
one but not more than two percentage points. In this event, the Performance
Adjustment would be 0.10%, and the annual rate of the total management fee would
be either 1.40% or 1.60%. The
45
<PAGE>
second step would occur if the Fund's performance during the most recent
12-month period differed from that of the Target by more than two but not more
than three percentage points. In this event, the Performance Adjustment would be
0.20%, and the annual rate of the total management fee would be either 1.30% or
1.70%. The third step would occur if the Fund's performance during the most
recent 12-month period differed from that of the Target by more than three but
not more than four percentage points. In this event, the Performance Adjustment
would be 0.30%, and the annual rate of the total management fee would be either
1.20% or 1.80%. The fourth step would occur if the Fund's performance during the
most recent 12-month period differed from that of the Target by more than four
but not more than five percentage points. In this event, the Performance
Adjustment would be 0.40%, and the annual rate of the total management fee would
be either 1.10% or 1.90%. The fifth step would occur if the Fund's performance
during the most recent 12-month period differed from that of the Target by five
percentage points or more. In this event, the Performance Adjustment would be
0.50%, and the annual rate of the total management fee would be either 1.00% or
2.00%. Thus:
<TABLE>
<CAPTION>
PERFORMANCE
TOTAL MANAGEMENT BASIC RATE ADJUSTMENT FEE RATE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
No adjustment 1.50% N/A 1.50%
- --------------------------------------------------------------------------------------------------
First Step:
Performance exceeds Target by
more than 1 but not more than 2
percentage points 1.50 .10% 1.60
Performance lags Target by more than
1 but not more than 2 percent
points 1.50 (.10) 1.40
- --------------------------------------------------------------------------------------------------
Second Step:
Performance exceeds Target by
more than 2 but not more than 3
percentage points 1.50 .20 1.70
Performance lags Target by more than
1 but not more than 3 percent
points 1.50 (.20) 1.30
46
<PAGE>
<CAPTION>
PERFORMANCE
TOTAL MANAGEMENT BASIC RATE ADJUSTMENT FEE RATE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
No adjustment 1.50% N/A 1.50%
- --------------------------------------------------------------------------------------------------
Third Step:
Performance exceeds Target by
more than 3 but not more than 4
percentage points 1.50 .30 1.80
Performance lags Target by more than
3 but not more than 4 percent
points 1.50 (.30) 1.20
- --------------------------------------------------------------------------------------------------
Fourth Step:
Performance exceeds Target by
more than 4 but not more than 5
percentage points 1.50 .40 1.90
Performance lags Target by more than
4 but not more than 5 percent
points 1.50 (.40) 1.10
- --------------------------------------------------------------------------------------------------
Fifth Step:
Performance exceeds Target by
more than 5 percentage points 1.50 .50 2.00
Performance lags Target by more than
5 percent points 1.50 (.50) 1.00
- --------------------------------------------------------------------------------------------------
</TABLE>
CSAMSI and PFPC, an indirect, wholly owned subsidiary of PNC
Bank Corp., both serve as co-administrators to the Funds pursuant to separate
written agreements (the "CSAMSI Co-Administration Agreements" and the "PFPC
Co-Administration Agreements," respectively). CSAMSI became co-administrator to
each Fund on October 26, 1999. Prior to that, Counsellors Funds Service, Inc.
("Counsellors Service") served as co-administrator to the Funds. Provident
Distributors, Inc. ("Provident Distributors") and PFPC had served as
co-administrators to the Advisor Class of the BEA Funds. For the services
provided by CSAMSI under the CSAMSI Co-
47
<PAGE>
Administration Agreements, each Fund pays CSAMSI a fee calculated at an annual
rate of .05% of each Fund's first $125 million in average daily net assets of
the Common Shares and .10% of average daily net assets of the Common Shares over
$125 million. For the services provided by PFPC under the PFPC Co-Administration
Agreements, each Fund pays PFPC a fee calculated at an annual rate of .125% of
each Fund's average daily net assets, subject in each case to a minimum annual
fee and exclusive of out-of-pocket expenses. Each class of shares of the Funds
bears its proportionate share of fees payable to CSAMSI and PFPC in the
proportion that its assets bear to the aggregate assets of the Funds at the time
of calculation.
For the fiscal years ended August 31, the Funds have paid CSAM
or BEA Associates advisory fees and csaM or BEA Associates has waived fees
and/or reimbursed expenses of the Funds under the Advisory Agreements or BEA
Advisory Agreements as follows:
AUGUST 31, 1999
<TABLE>
<CAPTION>
FEES PAID
FUND (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
---- --------------- ------- --------------
<S> <C> <C> <C>
Global Telecommunications $93,200 $101,660 $33,124
High Yield $497,661 $405,408 $0
Municipal Bond $64,918 $95,749 $0
Focus $111,197 $139,116 $0
Long-Short Neutral $193,807 $97,341 $0
</TABLE>
AUGUST 31, 1998
<TABLE>
<CAPTION>
FEES PAID
BEA FUND (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
-------- --------------- ------- --------------
<S> <C> <C> <C>
Global Telecommunications $0 $9,174 $37,067
High Yield $422,069 $271,277 $0
Municipal Bond $93,618 $51,669 $0
Focus $14,224 $643 $0
Long-Short Neutral $4,661 $2,758 $0
</TABLE>
AUGUST 31, 1997
<TABLE>
<CAPTION>
FEES PAID
BEA FUND (AFTER WAIVERS) WAIVERS REIMBURSEMENTS
-------- --------------- ------- --------------
<S> <C> <C> <C>
Global Telecommunications $0 $3,745 $0
High Yield $393,841 $233,336 $0
Municipal Bond $91,093 $44,791 $0
Focus N/A N/A N/A
Long-Short Neutral N/A N/A N/A
</TABLE>
48
<PAGE>
From August 31, 1997 to August 31, 1999, the Funds paid
Provident Distributors or Counsellors Service and PFPC administration fees and
BEA Associates or Counsellors Service and PFPC have waived fees and/or
reimbursed expenses as follows:
AUGUST 31, 1999
<TABLE>
<CAPTION>
PFPC COUNSELLORS SERVICE
FEES PAID FEES PAID
(AFTER REIMBURSE- (AFTER REIMBURSE-
FUND WAIVERS) WAIVERS MENTS FUND WAIVERS) WAIVERS MENTS
---- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield $129,010 $32,252 $0 High Yield $2,733 $9,930 $0
Municipal Bond $37,500 $0 $0 Municipal Bond $9 $40 $0
Focus $41,719 $0 $0 Focus $2 $7 $0
Global Telecommunications $0 $24,357 $0 Global Telecommunications $246 $9,463 $0
Long-Short Neutral $12,643 $11,902 $0 Long-Short Neutral $1,036 $4,144 $0
</TABLE>
AUGUST 31, 1998
<TABLE>
<CAPTION>
PFPC PROVIDENT DISTRIBUTORS
FEES PAID FEES PAID
(AFTER REIMBURSE- (AFTER REIMBURSE-
BEA FUND WAIVERS) WAIVERS MENTS BEA FUND WAIVERS) WAIVERS MENTS
- -------- -------- ------- ---------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield $99,050 $24,762 $0 High Yield $9,905 $138,669 $0
Municipal Bond $30,402 $0 $0 Municipal Bond $2,076 $29,057 $0
Focus $0 $2,478 $0 Focus $198 $2,775 $0
Global Telecommunications $0 $1,147 $0 Global Telecommunications $0 $459 $0
Long-Short Neutral $0 $618 $0 Long-Short Neutral $148 $594 $0
</TABLE>
AUGUST 31, 1997
<TABLE>
<CAPTION>
PFPC COUNSELLORS SERVICE
FEES PAID FEES PAID
(AFTER REIMBURSE- (AFTER REIMBURSE-
BEA FUND WAIVERS) WAIVERS MENTS BEA FUND WAIVERS) WAIVERS MENTS
- -------- -------- ------- ---------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield $89,597 $22,399 $0 High Yield $8,959 $125,436 $0
Municipal Bond $24,265 $0 $0 Municipal Bond $1,941 $27,177 $0
Focus N/A N/A N/A Focus N/A N/A N/A
Global Telecommunications N/A N/A N/A Global Telecommunications N/A N/A N/A
Long-Short Neutral N/A N/A N/A Long-Short Neutral N/A N/A N/A
</TABLE>
Each class of a Fund bears all of its own expenses not
specifically assumed by the Adviser or another service provider to the Fund.
General expenses of the Funds not readily identifiable as belonging to a
particular Fund are allocated among all investment funds by or under the
direction of the Funds' Board of Directors in such manner as the Board
determines fair and accurate. Each class of the Funds pays its own
49
<PAGE>
administration fees, and may pay a different share than the other classes of the
Funds of other expenses (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by such class or if a class
receives different services.
CUSTODIAN AND TRANSFER AGENT. Except for the Long-Short
Neutral Fund, Brown Brothers Harriman & Co. ("BBH") acts as the custodian for
the Funds and also acts as the custodian for the Funds' foreign securities
pursuant to a Custodian Agreement (the "BBH Custodian Agreement"). Custodial
Trust Company ("CTC") acts as the custodian for the Long-Short Neutral Fund and
also acts as the custodian for the Long-Short Neutral Fund's foreign securities
pursuant to a Custodian Agreement (the "CTC Custodian Agreement", together with
the BBH Custodian Agreement, the "Custodian Agreements"). Under the Custodian
Agreements, BBH and CTC (a) maintain a separate account or accounts in the name
of each Fund, (b) hold and transfer portfolio securities on account of each
Fund, (c) accept receipts and make disbursements of money on behalf of each
Fund, (d) collect and receive all income and other payments and distributions on
account of each Fund's portfolio securities, and (e) make periodic reports to
the Funds' Board of Directors concerning each Fund's operations. BBH and CTC are
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Funds, provided that BBH and CTC remain
responsible for the performance of all their duties under the Custodian
Agreements and hold the Funds harmless from the negligent acts and omissions of
any sub-custodian. For their services to the Funds under the Custodian
Agreements, BBH and CTC receive 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.
State Street Bank and Trust Company ("State Street") serves as
the shareholder servicing, transfer and dividend disbursing agent of the Funds
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 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 Boards concerning
the transfer agent's operations with respect to the Funds. State Street has
delegated to Boston Financial Data Services, Inc., an affiliate of State Street
("BFDS"), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, North Quincy, Massachusetts
02171
ORGANIZATION OF THE FUNDS . Each of the Funds is a
non-diversified, open-end management investment company. Each Fund was organized
as a Maryland corporation on July 31, 1998.
Each Fund's charter authorizes its 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 shares are designated Advisor
Shares. Under each Fund's charter
50
<PAGE>
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund 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 Fund.
With the exception of the Global Telecommunications Fund, each
Fund currently offers two separate classes of shares: Common Shares and
Institutional Shares. The Global Telecommunications Fund currently offers only
Common Shares.
Shares of each class represent equal pro rata interests in the
respective Fund and accrue dividends and calculate net asset value and
performance quotations in the same manner. Because of the higher fees paid by
Common Shares and Advisor Shares, the total return on Common Shares can be
expected to be lower than the total return on Institutional Shares and the total
return of Advisor Shares can be expected to be lower than the total return on
Common Shares and Institutional Shares. Investors may obtain information
concerning the Institutional Shares and, if and when offered, the Advisor Shares
from their investment professional or by calling CSAMSI at 800-369-2728. Unless
the context clearly suggests otherwise, references to a Fund in this prospectus
are to the Fund as a whole and not to any particular class of the Fund's shares.
Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
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.
Each investor will receive a quarterly statement of his
account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Monthly
Investment Plan). Each Fund will also send to its investors a semiannual report
and an audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund, as well as
certain statistical characteristics of the Fund, may be obtained by calling
Warburg Pincus Funds at 800-WARBURG or on the Warburg Pincus Funds web site at
www.warburg.com.
51
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING. In addition to serving
as each Fund's co-administrator, CSAMSI serves as distributor of each Fund's
shares. CSAMSI offers each Fund's shares on a continuous basis. No compensation
is payable by any of the Funds to CSAMSI for distribution services under the
Distribution Agreement, but CSAMSI receives compensation from each Fund under
the CSAMSI Co-Administration Agreement as described herein. CSAMSI's principal
business address is 466 Lexington Avenue, New York, New York 10017. The Funds
have each adopted a Shareholder Servicing and Distribution Plan (the "12b-1
Plan"), pursuant to Rule 12b-1 under the 1940 Act, pursuant to which the Fund
pays CSAMSI under the CSAMSI Co-Administration Agreement a fee calculated at an
annual rate of .25% of the average daily net assets of the Common Shares of the
Fund. The fee is intended to compensate CSAMSI, or to enable CSAMSI to
compensate other persons ("Service Providers"), for providing Services (as
defined below) to the Funds. Services performed by CSAMSI under the CSAMSI
Co-Administration Agreement or Service Providers include (i) services that are
primarily intended to result in, or that are primarily attributable to, the sale
of the Common Shares, as set forth in the 12b-1 Plan ("Selling Services") and
(ii) ongoing servicing and/or maintenance of the accounts of Common Shareholders
of the Fund, as set forth in the 12b-1 Plan ("Shareholder Services", together
with Selling Services, "Services"). Shareholder Services may include, without
limitation, responding to Fund shareholder inquiries and providing services to
shareholders not otherwise provided by the Funds' distributor or transfer agent.
Selling Services may include, without limitation, (a) the printing and
distribution to prospective investors in Common Shares of prospectuses and
statements of additional information describing the Funds; (b) the preparation,
including printing, and distribution of sales literature, advertisements and
other informational materials relating to the Common Shares; (c) providing
telephone services relating to the Funds, including responding to inquiries of
prospective Fund investors; (d) formulating and implementing marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising and
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Funds may, from time to time, deem
advisable. In providing compensation for Services in accordance with this Plan,
CSAMSI is expressly authorized (i) to make, or cause to be made, payments to
Service Providers reflecting an allocation of overhead and other office expenses
related to providing Services and (ii) to make, or cause to be made, payments to
compensate selected dealers or other authorized persons for providing any
Services.
Payments under the 12b-1 Plan are not tied exclusively to the
distribution expenses actually incurred by CSAMSI under the CSAMSI
Co-Administration Agreement or any other service provider and the payments may
exceed distribution expenses actually incurred.
52
<PAGE>
Pursuant to the 12b-1 Plan, CSAMSI provides the Board with
periodic reports of amounts expended under the 12b-1 Plan and the purpose for
which the expenditures were made.
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 Plans ("Independent Directors/Trustees"). Any material amendment of
the 12b-1 Plans would require the approval of the Board in the same manner. The
12b-1 Plans 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 a majority of the outstanding
voting securities of the relevant class of shares.
The 12b-1 Plans were adopted on October 26, 1999. Prior to
that date, a substantially similar plan was in place with respect to the Common
Shares of each Fund (the "Prior 12b-1 Plan"). For the fiscal year ended August
31, 1999, the Common Class shares of the Global Telecommunications Fund, the
High Yield Fund, the Municipal Bond Fund, the Focus Fund and the Long-Short
Neutral Fund have paid CSAMSI under the prior 12b-1 Plans $48,715, $63,586,
$247, $46 and $25,940, respectively.
Each Fund has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other financial intermediaries
(collectively, "Service Organizations") or, if applicable, their designees to
enter confirmed purchase and redemption orders on behalf of their clients and
customers, with payment to follow no later than the Fund's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Fund may be
deemed to have received a purchase or redemption order when a Service
Organization, or, if applicable, its authorized designee, accepts the order.
Such orders received by the Fund in proper form will be priced at the Fund's net
asset value next computed after they are accepted by the Service Organization or
its authorized designee. Service Organizations may impose transaction or
administrative charges or other direct fees, which charges or fees would not be
imposed if Fund shares are purchased directly from the Funds.
For administration, subaccounting, transfer agency and/or
other services, CSAM or its affiliates may pay Service Organizations a fee of up
to .40% of the average
53
<PAGE>
annual value of accounts with the Funds maintained by such Service
Organizations. Service Organizations may also be reimbursed for marketing costs.
The Service Fee payable to any one Service Organization is determined based upon
a number of factors, including the nature and quality of services provided, the
operations processing requirements of the relationship and the standardized fee
schedule of the Service Organization or recordkeeper. The Funds may reimburse
part of the Service Fee at rates they would normally pay to the transfer agent
for providing the services.
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 the Fund.
Under the 1940 Act, a Fund may suspend the right to redemption
or postpone the date of payment upon redemption for any period during which The
New York Stock Exchange, Inc. (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of Fund 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 the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
AUTOMATIC CASH WITHDRAWAL PLAN. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of the relevant 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 a Fund.
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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 Fund or for Common Shares of
another Warburg Pincus Fund at their respective net asset values. An Advisor
Shareholder may exchange Advisor Shares of a Fund for Advisor Shares of another
Warburg Pincus Fund at their respective net asset values.
If an exchange request is received by Warburg Pincus Funds or
their agent prior to the close of regular trading on the NYSE, the exchange will
be made at each Fund's net asset value determined at the end of that business
day. Exchanges will be effected without a sales charge but must satisfy the
minimum dollar amount necessary for new purchases. The Fund may refuse exchange
purchases at any time without prior notice.
The exchange privilege is available to shareholders residing
in any state in which the shares being acquired may legally be sold. When an
investor effects an exchange of shares, the exchange is treated for federal
income tax purposes as a redemption. Therefore, the investor may realize a
taxable gain or loss in connection with the exchange. Investors wishing to
exchange shares of a Fund for shares in another Warburg Pincus Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at 1-800-222-8977.
The Funds reserve the right to refuse exchange purchases by
any person or group if, in CSAM's judgment, a Fund would be unable to invest the
money effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Funds reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
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.
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THE FUNDS AND THEIR INVESTMENTS. Each Fund intends to continue
to qualify to be treated as a regulated investment company each taxable year
under 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 the Fund's taxable year, (i) at least 50% of the market value of
the 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 the 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 the 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, a 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) 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 the Fund not later than such December 31, provided that
such dividend is actually paid by the 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. The Board of
Directors of the Fund 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 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, the Fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who (a)
will be required to
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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 the 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 the Fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on each Fund to
the extent the 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. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. 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.
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 the Fund in
computing its taxable income. In addition, in the event of a failure to qualify,
the Fund's distributions, to the extent derived from the 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, the Fund may be required to recognize any net built-in gains (the
excess of the aggregate gains, 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.
A 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
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Fund (I.E., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund and defer Fund losses. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the 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 the 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 engages in short sales or 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 the Fund as a regulated
investment company.
A Fund's investments in zero coupon securities, if any, may
create special tax consequences. Zero coupon securities do not make interest
payments, although a portion of the difference between a zero coupon security's
face value and its purchase price is imputed as income to the Fund each year
even though the Fund receives no cash distribution until maturity. Under the
U.S. federal tax laws, the Fund will not be subject to tax on this income if it
pays dividends to its shareholders substantially equal to all the income
received from, or imputed with respect to, its investments during the year,
including its zero coupon securities. These dividends ordinarily will constitute
taxable income to the shareholders of the Fund.
"Constructive sale" provisions apply to activities by the Fund
which lock in gain on an "appreciated financial position." Generally, a
"position" is defined to include stock, a debt instrument, or partnership
interest, or an interest in any of the foregoing, including through a short
sale, a swap contract, or a future or forward contract. The entry into a short
sale, a swap contract or a future or forward contract relating to an appreciated
direct position in any stock or debt instrument, or the acquisition of a stock
or debt instrument at a time when the Fund occupies an offsetting (short)
appreciated position in the stock or debt instrument, is treated as a
"constructive sale" that gives rise to the immediate recognition of gain (but
not loss). The application of these rules may cause the Fund to recognize
taxable income from these offsetting transactions in excess of the cash
generated by such activities.
The Municipal Bond Fund is designed to provide investors with
current tax-exempt interest income. Exempt interest dividends distributed to
shareholders by this Fund are not included in the shareholder's gross income for
regular federal income tax purpose. In order for the Municipal Bond Fund to pay
exempt interest dividends during any taxable year, at the close of each fiscal
quarter at least 50% of the value of the Fund must consist of exempt interest
obligations.
In addition, the Municipal Bond Fund may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury
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Regulations to include a nonexempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues are more than
5% of the total revenue derived by all users of such facilities, (b) who
occupies more than 5% of the entire usable area of such facilities, or (c) for
whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
corporation and its shareholder.
The alternative minimum tax is a special tax that applies to a
limited number of taxpayers who have certain adjustments or tax preference
items. Available returns on Alternative Minimum Tax Bonds acquired by a Fund may
be lower than those from other municipal obligations acquired by the Municipal
Bond Fund due to the possibility of federal, state and local alternative minimum
or minimum income tax liability on Alternative Minimum Tax Bonds.
Under the Code, interest on specified private activity bonds
issued after August 7, 1986, although otherwise exempt from federal income tax,
is treated as an item of tax preference for purposes of the alternative minimum
tax on individuals and corporations. If the Municipal Bond Fund invests in such
specified "private activity bonds," it will report a portion of the
"exempt-interest dividends" paid to its shareholders as interest on specified
private activity bonds, and hence as a tax preference item. Exempt interest
dividends are included in adjusted current earnings. The amount of the
alternative minimum tax imposed by the Code is the excess, if any, of the
taxpayer's "tentative minimum tax" over the taxpayer's regular tax liability for
the taxable year. The "tentative minimum tax" is equal to (i) 26% of the first
$175,000, and 28% of any amount over $175,000 (for corporations, 20% of the
whole), of the taxpayer's alternative minimum taxable income (defined as regular
taxable income modified by certain adjustments and increased by the taxpayer's
"items of tax preference," including the adjustment for corporate current
earnings and the tax preference for tax-exempt interest on private activity
bonds described above) for the taxable year in excess of the exemption amount,
less (ii) the alternative minimum tax foreign tax credit for the taxable year.
The exemption amount is $40,000 for corporations, $45,000 for those filing joint
returns, lesser amounts for others, and is phased out over certain income
levels. Prospective investors should consult their own tax advisers with respect
to the possible application of the alternative minimum tax to their tax
situations.
In addition, the receipt of Municipal Bond Fund dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they are (i) substantial users with respect to a
facility or related to such users within the meaning of the Code or (ii) subject
to a federal alternative minimum tax, any applicable state alternative minimum
tax, the federal branch profits tax, or the federal excess net passive income
tax.
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A Fund may acquire standby commitments with respect to
Municipal Obligations held in its portfolio and will treat any interest received
on Municipal Obligations subject to such stand-by commitments as tax-exempt
income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the Internal Revenue Service held
that a mutual fund acquired ownership of municipal obligations for federal
income tax purposes, even though the fund simultaneously purchased "put"
agreements with respect to the same municipal obligations from the seller of the
obligations. The Funds will not engage in transactions involving the use of
stand-by commitments that differ materially from the transaction described in
Rev. Rul. 82-144 without first obtaining a private letter ruling from the
Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares if the Municipal Bond Fund is not deductible for income tax
purposes of (as expected) the Municipal Bond Fund distributes exempt interest
dividends during the shareholder's taxable year. Receipt of exempt interest
dividends may result in collateral federal income tax consequences to certain
other taxpayers, including persons subject to alternative minimum tax (see
Prospectus and discussion below), financial institutions, property and casualty
insurance companies, individual recipients of Social Security or Railroad
Retirement benefits, and foreign corporations engaged in a trade or business in
the United States. Prospective investors should consult their own tax advisers
as to such consequences.
SPECIAL TAX CONSIDERATIONS. The following discussion relates
to the particular federal income tax consequences of the investment policies of
the Funds.
STRADDLES. The options transactions that the Funds enter into
may result in "straddles" for federal income tax purposes. The straddle rules of
the Code may affect the character of gains and losses realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the investment company taxable income and net capital gain of the
Funds for the taxable year in which such losses are realized. Losses realized
prior to October 31 of any year may be similarly deferred under the straddle
rules in determining the "required distribution" that the Funds must make in
order to avoid federal excise tax. Furthermore, in determining their investment
company taxable income and ordinary income, the Funds may be required to
capitalize, rather than deduct currently, any interest expense on indebtedness
incurred or continued to purchase or carry any positions that are part of a
straddle. The tax consequences to the Funds of holding straddle positions may be
further affected by various elections provided under the Code and Treasury
regulations, but at the present time the Funds are uncertain which (if any) of
these elections they will make.
OPTIONS AND SECTION 1256 CONTRACTS. The writer of a covered
put or call option generally does not recognize income upon receipt of the
option premium. If the option expires unexercised or is closed on an exchange,
the writer generally recognizes short-term capital gain. If the option is
exercised, the premium is included in the consideration received by the writer
in determining the capital gain or loss recognized in the resultant sale.
However, certain options transactions as well as futures transactions and
transactions in forward foreign
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currency contracts that are traded in the interbank market, will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last business day
of the taxable year (I.E., marked-to-market), regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end marking-to-market of
Section 1256 contracts is combined (after application of the straddle rules that
are described above) with any other gain or loss that was previously recognized
upon the termination of Section 1256 contracts during that taxable year. The net
amount of such gain or loss for the entire taxable year is generally treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss,
except in the case of marked-to-market forward foreign currency contracts for
which such gain or loss is treated as ordinary income or loss. Such short-term
capital gain (and, in the case of marked-to-market forward foreign currency
contracts, such ordinary income) would be included in determining the investment
company taxable income of the relevant Fund for purposes of the Distribution
Requirement, even if it were wholly attributable to the year-end
marking-to-market of Section 1256 contracts that the relevant Fund continued to
hold. Investors should also note that Section 1256 contracts will be treated as
having been sold on October 31 in calculating the "required distribution" that a
Fund must make to avoid federal excise tax liability.
Each of the Funds may elect not to have the year-end
mark-to-market rule apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of such Fund that are not Section 1256
contracts (the "Mixed Straddle Election").
FOREIGN CURRENCY TRANSACTIONS. In general, gains from "foreign
currencies" and from foreign currency options, foreign currency futures and
forward foreign exchange contracts relating to investments in stock, securities
or foreign currencies will be qualifying income for purposes of determining
whether the Fund qualifies as a RIC. It is currently unclear, however, who will
be treated as the issuer of a foreign currency instrument or how foreign
currency options, futures or forward foreign currency contracts will be valued
for purposes of the Asset Diversification Requirement.
Under Code Section 988 special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(I.E., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss. In certain
circumstances where the transaction is not undertaken as part of a straddle, a
Fund may elect capital gain or loss treatment for such transactions.
Alternatively, a Fund may elect ordinary income or loss treatment for
transactions in futures contracts and options on foreign currency that would
otherwise produce capital gain or loss. In general gains or losses from a
foreign currency transaction subject to Code Section 988 will increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if losses
from a foreign currency transaction subject to Code Section 988
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exceed other investment company taxable income during a taxable year, a Fund
will not be able to make any ordinary dividend distributions, and any
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing each shareholder's basis in his Shares.
PASSIVE FOREIGN INVESTMENT COMPANIES. If a Fund acquires
shares in certain foreign investment entities, called "passive foreign
investment companies" ("PFIC"), such Fund may be subject to federal income tax
and a deferral interest charge on a portion of any "excess distribution"
received with respect to such shares or on a portion of any gain recognized upon
a disposition of such shares, notwithstanding the distribution of such income to
the shareholders of such Fund. Additional charges in the nature of interest may
also be imposed on a Fund in respect of such deferred taxes. However, in lieu of
sustaining the foregoing tax consequences, a Fund may elect to have its
investment in any PFIC taxed as an investment in a "qualified electing fund"
("QEF"). A Fund making a QEF election would be required to include in its income
each year a ratable portion, whether or not distributed, of the ordinary
earnings and net capital gain of the QEF. Any such QEF inclusions would have to
be taken into account by a Fund for purposes of satisfying the Distribution
Requirement and the excise tax distribution requirement.
A Fund may elect (in lieu of paying deferred tax or making a
QEF election) to mark-to-market annually any PFIC shares that it owns and to
include any gains (but not losses) that it was deemed to realize as ordinary
income. A Fund generally will not be subject to deferred federal income tax on
any gains that it is deemed to realize as a consequence of making a
mark-to-market election, but such gains will be taken into account by the Fund
for purposes of satisfying the Distribution Requirement and the excise tax
distribution requirement.
ASSET DIVERSIFICATION REQUIREMENT. For purposes of the Asset
Diversification Requirement, the issuer of a call option on a security
(including an option written on an exchange) will be deemed to be the issuer of
the underlying security. The Internal Revenue Service has informally ruled,
however, that a call option that is written by a fund need not be counted for
purposes of the Asset Diversification Requirement where the fund holds the
underlying security. However, the Internal Revenue Service has also informally
ruled that a put option written by a fund must be treated as a separate asset
and its value measured by "the value of the underlying security" for purposes of
the Asset Diversification Requirement, regardless (apparently) of whether it is
"covered" under the rules of the exchange. The Internal Revenue Service has not
explained whether in valuing a written put option in this manner a fund should
use the current value of the underlying security (its prospective future
investment); the cash consideration that must be paid by the fund if the put
option is exercised (its liability); or some other measure that would take into
account the fund's unrealized profit or loss in writing the option. Under the
Code, a fund may not rely on informal rulings of the Internal Revenue Service
issued to other taxpayers. Consequently, a Fund may find it necessary to seek a
ruling from the Internal Revenue Service on this issue or to curtail its writing
of options in order to stay within the limits of the Asset Diversification
Requirement.
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FOREIGN TAXES. Dividends and interest received by the Funds on
investments in foreign securities may be subject to withholding and other taxes
imposed by foreign countries. However, tax conventions between certain countries
and the United States may reduce or eliminate such taxes. If a Fund qualifies as
a regulated investment company, if certain asset and distribution requirements
are satisfied and 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, the
Fund may elect for U.S. income tax purposes to treat foreign income taxes paid
by it as paid by its shareholders. 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, each 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).
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 the 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 the Fund. Dividends and distributions paid by the 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 the 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 the 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.
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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 the 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 the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the 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 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.
BACKUP WITHHOLDING. A 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 the
relevant 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. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the
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Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
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 FUNDS AND THEIR 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
TOTAL RETURN. From time to time, a Fund may quote the total
return of its Common 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 800-927-2874.
Each Fund that advertises its "average annual total return"
computes such return separately for each class of shares by determining the
average annual compounded rate of return during specified periods that equates
the initial amount invested to the ending redeemable value of such investment
according to the following formula:
n
P(1+T) = ERV
Where: T = average annual total return;
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the l, 5 or 10 year (or
other) periods at the end of the
applicable period (or a fractional portion
thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return"
computes such returns separately for each class of shares by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
65
<PAGE>
Aggregate Total Return = [(ERV) - l]
---
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Although total return is calculated in a separate manner for
each class of shares, under certain circumstances, performance information for a
class may include performance information of another class with an earlier
inception date.
The average annual total returns for the Common Shares of the
following Funds for the year ended August 31, 1999 were as follows:
<TABLE>
<CAPTION>
Since
5 Year 10 Year Inception
Fund 1 Year (Annualized) (Annualized) (Annualized)
- ---- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
High Yield 0.39% 8.04% N/A 8.48%
Global Telecommunications 120.73% N/A N/A 52.69%
Focus 52.83% N/A N/A 31.04%
Municipal Bond 0.05% 5.55% N/A 5.40%
Long-Short Neutral (5.83)% N/A N/A (3.81)%
</TABLE>
The aggregate total returns for the Common Shares of the
following Funds for the period ended August 31, 1999 since inception were as
follows:
<TABLE>
<CAPTION>
FUND AGGREGATE RETURN
- ---- ----------------
<S> <C>
High Yield 69.98%
Global Telecommunications 219.20%
Focus 34.18%
Municipal Bond 31.55%
Long-Short Neutral (4.13)%
</TABLE>
Performance information provided above reflects the
performance of the Advisor Shares of the corresponding BEA Funds to the extent
applicable (which are the predecessors of the Funds) for the periods noted.
Performance information provided above for each Fund (except
for the Long-Short Neutral Fund) also reflects the performance of the
Institutional Shares of the corresponding predecessor BEA Fund since inception
(as noted below) until the Fund's Common Shares (or BEA Funds' Advisor Shares,
as applicable) were first offered (as
66
<PAGE>
noted below). Because the BEA Funds' Institutional Shares had no distribution
fee and lower co-administration fees, the expenses of the Institutional Shares
are lower than those of the Fund's Common Shares (or BEA Funds' Advisor Shares,
as applicable). Additionally, the BEA Funds' Institutional Shares performance
was favorably affected by expense waivers and/or reimbursements. The performance
information provided above has not been restated to reflect the higher expenses
of the Fund's Common Shares (or BEA Funds' Advisor Shares, as applicable) or to
adjust for the BEA Funds' Institutional Shares expense waivers and/or
reimbursements. Had these expense adjustments been made, the performance
information shown above for periods prior to the commencement of the Fund's
Common Shares (or BEA Funds' Advisor Shares, as applicable) would have been
lower.
<TABLE>
<CAPTION>
Commencement of Advisor Shares of
Institutional Shares of Predecessor
Fund Predecessor BEA Fund BEA Fund Common Shares
<S> <C> <C> <C>
Global Telecommunications N/A 12/04/96 11/02/98
High Yield 02/26/93 11/01/96 11/02/98
Municipal Bond 06/17/94 N/A 11/02/98
Focus 07/31/98 N/A 11/02/98
Long-Short Neutral Fund 07/31/98 N/A 09/08/98
</TABLE>
The Funds may also from time to time include in such
advertising an aggregate total return figure or a total return figure that is
not calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of the Standard & Poor's 500
Stock Index or the Dow Jones Industrial Average, as appropriate, a Fund may
calculate its aggregate and/or average annual total return for the specified
periods of time by assuming the investment of $10,000 in Fund shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date. The Funds do not, for these purposes, deduct
from the initial value invested any amount representing sales charges. The Funds
will, however, disclose the maximum sales charge and will also disclose that the
performance data do not reflect sales charges and that inclusion of sales
charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC rules, and all advertisements containing
performance data will include a legend disclosing that such performance data
represent past performance and that the investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
YIELD. Certain Funds may advertise a 30-day (or one month)
standard yield as described in the Prospectus. Such yields are calculated
separately for each class of shares in each Fund in accordance with the method
prescribed by the SEC for mutual funds:
67
<PAGE>
6
YIELD = 2[(a - b +1) - 1)
-----
cd
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during
the period, entitled to receive dividends; and
d = maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any,
68
<PAGE>
if the weighted average date is not available or (b) not to amortize discount or
premium on the remaining security.
Based on the foregoing calculation, the Standard Yield for the
Common Shares of the High Yield Fund and Municipal Bond Fund for the 30-day
period ended August 31, 1999 was 10.43% and 4.40%.
69
<PAGE>
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The financial statements that are incorporated by
reference in this Statement of Additional Information have been audited by PwC,
and have been included 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.
70
<PAGE>
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>
Focus Fund-- Common State Street Bank & Trust Co. 41.97%
Cust for the IRA of
Pascal Scemuma De Gialluly FTC
91 Druid Hill Rd.
Summit, NJ 07901-3226
Charles Schwab & Co. Inc. 30.99%
Special Custody Account for the Exclusive
Benefit of Customers
Attn Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
High Yield Fund-- Common Credit Suisse Asset Mgmt Intl 60.17%
Holding Attn: Thomas Federer
Uetlibergstrasse 231
Postfach 800 Ch-8070
Zurich
John Vogelstein TR 13.00%
Charitable Trust
U/A 012799
466 Lexington Ave
New York, NY 10017-3140
71
<PAGE>
<CAPTION>
PERCENT
OWNED AS OF
FUND NAME AND ADDRESS OCTOBER 29, 1999
- ---- ---------------- ----------------
<S> <C> <C>
John L. Vogelstein 9.63%
Charitable Remainder Trust #4
466 Lexington Avenue
New York, NY 10017-3140
Municipal Bond Fund-- Common Jack W. Sullivan 82.25%
4880 Island View Dr
Oshkosh WI 54901-1318
Deborah Susan Diamond 8.55%
7 Diamond Ln
New Milford, CT 06776-5251
Philip E. Srokowski 6.25%
Edith A. Srokowski JT TEN
13670 Cantaberry CT
South Lyon, MI 48178-9597
Global Telecommunications Fund-- Common Charles Schwab & Co. 42.63%
Special Custody Account for the Exclusive
Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Nat'l Financial Svcs Corp 16.91%
FBO Customers
Church St Station
PO Box 3908
New York, NY 10008-3908
Long-Short Neutral Fund-- Common Charles Schwab & Co Inc. 81.87%
Special Custody Account for the Exclusive
Benefit of Customers
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
Nat'l Financial Svcs Corp 6.46%
FBO Customers
Church St Station
PO Box 3908
New York, NY 10008-3908
National Investors Services Corp for the 6.31%
Exclusive Benefit of Our Customers
55 Water St FL 32
New York, NY 10041-3299
</TABLE>
72
<PAGE>
FINANCIAL STATEMENTS
Each Fund's audited financial 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 relevant Fund included therein. Each Fund will
furnish without charge a copy of the annual reports upon request by calling
Warburg Pincus Funds at 800-927-2874.
73
<PAGE>
APPENDIX A
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
A-1
<PAGE>
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
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:
A-2
<PAGE>
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. 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.
A-3
<PAGE>
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.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
A-4
<PAGE>
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-5
<PAGE>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
a Articles of Incorporation. (1)
b By-Laws. (1)
c Registrant's Forms of Stock Certificates. (2)
d Form of Investment Advisory Agreement. (3)
e Form of Distribution Agreement.(4)
f Not applicable.
g Custodian Agreement with Brown Brothers Harriman & Co. (3)
h(1) Transfer Agency and Service Agreement. (3)
(2) Form of Co-Administration Agreement with Credit
Suisse Asset Management Securities, Inc. (4)
(3) Form of Co-Administration Agreement with PFPC Inc. (3)
- --------------
(1) Incorporated by reference to Registrant's Registration Statement on
Form N-1A filed on August 5, 1998 (Securities Act File No. 333-60683).
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed on August 14,
1998 (Securities Act File No. 333-60683).
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A of Warburg, Pincus Emerging Markets II Fund, Inc., filed on
August 14, 1998 (Securities Act File No. 333-60677).
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A of Warburg, Pincus Long-Short Market Neutral Fund, Inc., filed on
November 2, 1999 (Securities Act File No. 333-60687).
<PAGE>
i(1) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund. (2)
j(1) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
(2) Powers Of Attorney. (4)
k Not applicable.
l Form of Purchase Agreement. (3)
m(1) Form of Shareholder Servicing and
Distribution Plan. (4)
(2) Form of Distribution Plan. (4)
n Not Applicable.
o Form of 18f-3 Plan. (4)
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
From time to time, Credit Suisse Asset Management, LLC ("CSAM,
LLC") may be deemed to control the Fund and other registered investment
companies it advises through its beneficial ownership of more than 25% of the
relevant fund's shares on behalf of discretionary advisory clients. CSAM, LLC
has three wholly-owned subsidiaries: Warburg, Pincus Asset Management
International, Inc., a Delaware corporation; Warburg, Pincus Asset Management
(Japan), Inc., a Japanese corporation; and Warburg Pincus Asset Management
(Dublin) Limited, an Irish corporation.
Item 25. INDEMNIFICATION
Registrant, officers and directors of CSAM, LLC, of Credit Suisse
Asset Management Securities, Inc. ("CSAM Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of the Fund's initial
Registration Statement on Form N-1A filed on August 5, 1998.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
CSAM, LLC acts as investment adviser to the Registrant. CSAM, LLC
renders investment advice to a wide variety of individual and institutional
clients. The list
<PAGE>
required by this Item 26 of officers and directors of CSAM,
LLC, together with information as to their other business, profession, vocation
or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by CSAM,
LLC (SEC File No. 801-37170).
Item 29. PRINCIPAL UNDERWRITER
(a) CSAM Securities will act as distributor for Registrant, as
well as for Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Central & Eastern Europe
Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus Emerging Markets
Fund; Warburg Pincus Emerging Markets II Fund; Warburg Pincus European Equity
Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global Fixed Income
Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg Pincus Growth &
Income Fund; Warburg Pincus Health Sciences Fund; Warburg Pincus High Yield
Fund; Warburg Pincus Institutional Fund; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus
International Growth Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small Company Fund;
Warburg Pincus Long-Short Equity Fund; Warburg Pincus Long-Short Market Neutral
Fund; Warburg Pincus Major Foreign Markets Fund; Warburg Pincus Municipal Bond
Fund; Warburg Pincus New York Intermediate Municipal Fund; Warburg Pincus New
York Tax Exempt Fund; Warburg Pincus Post-Venture Capital Fund; Warburg Pincus
Select Economic Value Equity Fund; Warburg Pincus Small Company Growth Fund;
Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Global Fixed
Income Fund; Warburg Pincus Trust; Warburg Pincus Trust II; Warburg Pincus U.S.
Core Equity Fund; Warburg Pincus U.S. Core Fixed Income Fund; Warburg Pincus
WorldPerks Money Market Fund and Warburg Pincus WorldPerks Tax Free Money
Market Fund.
(b) For information relating to each director, officer or
partner of CSAM Securities, reference is made to Form BD (SEC File No. 8-32482)
filed by CSAM Securities under the Securities Exchange Act of 1934.
(c) None.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
(1) Warburg, Pincus Global Telecommunications
Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and
minute books)
<PAGE>
(2) Credit Suisse Asset Management, LLC
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(records relating to its functions as
investment adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-
administrator)
(4) Credit Suisse Asset Management Securities, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator
and distributor)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and dividend
disbursing agent)
(6) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent and dividend
disbursing agent)
(7) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and the State of New York, on the 2nd day of November, 1999.
WARBURG, PINCUS GLOBAL TELECOMMUNICATIONS
FUND, INC.
By:/s/Eugene L. Podsiadlo
----------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
SIGNATURE TITLE DATE
/s/William W. Priest* Chairman of the Board of November 2, 1999
- --------------------- Directors
William W. Priest
/s/Eugene L. Podsiadlo President November 2, 1999
- ----------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer and Chief November 2, 1999
- ----------------------- Financial Officer
Michael A. Pignataro
/s/Richard H. Francis* Director November 2, 1999
- ---------------------
Richard H. Francis
/s/Jack W. Fritz* Director November 2, 1999
- -----------------
Jack W. Fritz
/s/Jeffrey E. Garten* Director November 2, 1999
- ---------------------
Jeffrey E. Garten
/s/James S. Pasman, Jr.* Director November 2, 1999
- ------------------------
James S. Pasman, Jr.
/s/Steven N. Rappaport* Director November 2, 1999
- -----------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge Director November 2, 1999
- --------------------------
Alexander B. Trowbridge
By: /s/Michael A. Pignataro
- ---------------------------
Michael A. Pignataro as
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
i(1) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.
j(1) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
<PAGE>
November 2, 1999
Warburg, Pincus Global Telecommunications Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Re: Post-Effective Amendment No. 2 to Registration Statement
(Securities Act File No. 333-60683; Investment Company Act
File No. 811-08935) (the "Registration Statement")
---------------------------------------------------------------------
Ladies and Gentlemen:
You have requested us, as counsel to Warburg, Pincus Global Telecommunications
Fund, Inc. (the "Fund"), a corporation organized under the laws of the State of
Maryland, to furnish you with this opinion in connection with the Fund's filing
of Post-Effective Amendment No. 2 to its Registration Statement on Form N-1A
(the "Amendment").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, as amended (the "By-Laws"),
and the Amendment. We have also examined such other records, documents, papers,
statutes and authorities as we have deemed necessary to form a basis for the
opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of common stock
of the Fund, par value $.001 per share (the "Shares"), when duly sold, issued
and paid for in accordance with the laws of applicable jurisdictions and the
terms of the Articles, the By-Laws and the Prospectus and Statement of
Additional Information ("SAI") included as part of the Amendment, and assuming
that at the time of sale such Shares will be sold at a sales price in each case
in excess of the par value, will be valid, legally issued, fully paid and
non-assessable.
<PAGE>
Warburg, Pincus Global Telecommunications Fund, Inc.
November 2, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the Amendment,
to the reference to our name under the heading "Independent Accountants and
Counsel" in the SAI included as part of the Amendment, and to the filing of this
opinion as an exhibit to any application made by or on behalf of the Fund or any
distributor or dealer in connection with the registration or qualification of
the Fund or the Shares under the securities laws of any state or other
jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 2 to the Registration Statement under the Securities Act of
1933 and Post-Effective Amendment No. 3 to the Registration Statement under
the Investment Company Act of 1940 on Form N-1A (File Nos. 333-60683 and
811-08935, respectively) of our report dated October 7, 1999 on our audit of
the financial statements and financial highlights of Warburg, Pincus Global
Telecommunications Fund, Inc., which report is included in the Annual Report
to Shareholders for the year ended August 31, 1999 and for the respective
periods then ended. We also consent to the reference of our firm under the
headings "Financial Highlights" in the Prospectus and under the headings
"Independent Accountants and Counsel" and "Financial Statements" in the
Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 29, 1999
