<PAGE>
As filed with the U.S. Securities and Exchange Commission
on November 30, 2000
Securities Act File No. 33-60683
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. 3 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [x]
Amendment No. 4 [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: As soon as practicable after this
filing is declared effective.
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)
[ x ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] 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>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any State where the offer or sale is not permitted.
============== CREDIT | ASSET
WARBURG PINCUS SUISSE | MANAGEMENT
==============
SUBJECT TO COMPLETION, DATED NOVEMBER 30, 2000
PROSPECTUS
ADVISOR CLASS
, 2000
WARBURG PINCUS
GLOBAL TELECOMMUNICATIONS FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved this fund, nor has it passed upon the adequacy or accuracy of this
PROSPECTUS. It is a criminal offense to state otherwise.
Warburg Pincus Advisor Funds are advised by Credit Suisse Asset Management, LLC.
<PAGE>
CONTENTS
KEY POINTS ............................................................. 4
Goal and Principal Strategies ...................................... 4
Investor Profile ................................................... 4
A Word About Risk .................................................. 5
PERFORMANCE SUMMARY .................................................... 7
INVESTOR EXPENSES ...................................................... 9
Fees and Fund Expenses ............................................. 9
Example ............................................................ 10
THE FUND IN DETAIL ..................................................... 11
The Management Firms ............................................... 11
Multi-Class Structure .............................................. 11
Fund Information Key ............................................... 12
Goal and Strategies ................................................ 13
Portfolio Investments .............................................. 13
Risk Factors ....................................................... 13
Portfolio Management ............................................... 14
Investor Expenses .................................................. 14
FINANCIAL HIGHLIGHTS ................................................... 15
MORE ABOUT RISK ........................................................ 16
Introduction ....................................................... 16
Types of Investment Risk ........................................... 16
Certain Investment Practices ....................................... 18
MEET THE MANAGERS ...................................................... 20
ABOUT YOUR ACCOUNT ..................................................... 21
Share Valuation .................................................... 21
Account Statements ................................................. 21
Distributions ...................................................... 21
Taxes .............................................................. 21
OTHER INFORMATION ...................................................... 23
About the Distributor .............................................. 23
BUYING SHARES .......................................................... 24
SELLING SHARES ......................................................... 26
SHAREHOLDER SERVICES ................................................... 28
OTHER POLICIES ......................................................... 29
FOR MORE INFORMATION ........................................... back cover
3
<PAGE>
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
FUND/RISK FACTORS GOAL STRATEGIES
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL TELECOMMUNICATIONS Long-term appreciation of - Invests in equity securities of U.S. and
FUND capital foreign telecommunications companies
- May invest in companies of all sizes
Risk factors:
FOREIGN SECURITIES
MARKET RISK
NON-DIVERSIFIED STATUS
REGULATORY RISK
SECTOR CONCENTRATION
TELECOMMUNICATIONS COMPANIES
</TABLE>
- INVESTOR PROFILE
THE FUND IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios into telecommunications stocks
IT MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that will fluctuate in value, perhaps
dramatically
- are looking for exposure to companies in a broad variety of industries
- want to limit your exposure to foreign securities
- are looking for income
You should base your investment decision 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.
The principal risk factors for the fund are discussed below. Before you
invest, please make sure you understand the risks that apply to the fund. As
with any mutual fund, you could lose money over any period of time.
Investments in the fund are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
FOREIGN SECURITIES
A fund that invests outside the U.S. carries additional risks that include:
- CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses. 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 the 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
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 investmentsincluding stocks and
bonds, and the mutual funds that invest in them.
NON-DIVERSIFIED STATUS
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.
REGULATORY RISK
Governments, agencies or other regulatory bodies may adopt or change laws or
regulations that could adversely affect the issuer, the market value of the
security, or a fund's performance.
5
<PAGE>
SECTOR CONCENTATION
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.
TELECOMMUNICATIONS COMPANIES
Telecommunications companies can be significantly (and adversely) affected
by governmental regulation or deregulation, obsolescence of existing technology,
falling prices and profits and competition from new market entrants.
6
<PAGE>
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication
of the risks of investing in this fund's Common Class shares. The fund's Advisor
Class shares commenced operations as of the date hereof. The bar chart shows you
how fund performance related to the Common Class shares 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*
--------------------------------------------------------------------------------
YEAR ENDED 12/31:
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
1997 32.32%
1998 67.42% [BAR GRAPH]
1999 156.16%
</TABLE>
GLOBAL TELECOMMUNICATIONS FUND
Best quarter: 68.83% (Q4 99)
Worst quarter: -12.27% (Q3 98)
Inception date: 12/4/96
Total return for the period 1/1/00 - 9/30/00: -14.37% (not annualized)
--------------------------------------------------------------------------------
* The fund's Advisor Class shares commenced operations as of the date hereof.
The total returns shown are for the fund's Common Class shares (including
its predecessor). The fund's Advisor Class shares would have substantially
similar annual returns because the shares are invested in the same portfolio
of securities. However, since the Advisor Class is subject to slightly
higher expenses, the return of the Advisor Class would have been lower.
7
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS(1)
--------------------------------------------------------------------------------------
ONE YEAR THREE YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/99: 1999 1997-1999 FUND DATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL TELECOMMUNICATIONS FUND 156.16% 78.37% 75.74% 12/4/96
MSCI TELECOMMUNICATIONS INDEX(2) 44.66% 40.49% 31.70%
--------------------------------------------------------------------------------------
</TABLE>
(1) The fund's Advisor Class shares commenced operations as of the date
hereof. The total returns shown are for the fund's Common Class shares
(including its predecessor). The fund's Advisor Class shares would have
substantially similar annual returns because the shares are invested in
the same portfolio of securities. However, since the Advisor Class is
subject to slightly higher expenses, the return of the Advisor Class would
have been lower.
(2) The Morgan Stanley Capital International Telecommunications Index is an
unmanaged index (with no defined investment objective) of telecommunications
equities that include reinvestment of dividends and is compiled by Morgan
Stanley & Co., Incorporated.
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.
8
<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 expected amounts for the fiscal period ending
August 31, 2001.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
GLOBAL
TELECOM-
MUNICATIONS
FUND
--------------------------------------------------------------------------
<S> <C>
SHAREHOLDER FEES
(paid directly from your investment)
--------------------------------------------------------------------------
Sales charge "load" on purchases NONE
Deferred sales charge "load" NONE
Sales charge "load" on reinvested distributions NONE
Redemption fees NONE
Exchange fees NONE
--------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
--------------------------------------------------------------------------
Management fee 1.00%
Distribution and service (12b-1) fee .50%
Other expenses(1) .52%
TOTAL ANNUAL FUND OPERATING EXPENSES(2) 2.02%
</TABLE>
(1) Other expenses are based on estimated amounts to be charged in the current
fiscal period.
(2) Fund service providers have voluntarily agreed to waive some of their fees
and reimburse some expenses. These waivers and reimbursements, which may be
discontinued at any time, are expected to lower the fund's expenses as
follows:
EXPENSES AFTER WAIVERS AND
REIMBURSEMENTS
<TABLE>
<S> <C>
Management fee .47%
Distribution and service (12b-1) fee .50%
Other expenses .92%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.89%
</TABLE>
9
<PAGE>
EXAMPLE
This example may help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, the fund returns 5% annually, expense ratios remain
as listed in the first table 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:
----------------------------------
ONE YEAR THREE YEARS
----------------------------------
$205 $634
----------------------------------
10
<PAGE>
THE FUND IN DETAIL
- THE MANAGEMENT FIRMS
CREDIT SUISSE ASSET
MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10017
- Investment adviser for the fund
- Responsible for managing the fund's assets according to its goal and
strategies
- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse Group (Credit Suisse), one
of the world's leading banks
- Credit Suisse Asset Management companies manage approximately $68 billion
in the U.S. and $198 billion globally
- Credit Suisse Asset Management 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
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this PROSPECTUS.
CREDIT SUISSE ASSET
MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ
- Sub-investment adviser for the fund
- Responsible for assisting CSAM in the management of the fund's international
assets according to its goal and strategies
- Also a member of Credit Suisse Asset Management
For easier reading, Credit Suisse Asset Management Limited will be referred
to as "CSAM U.K." throughout this PROSPECTUS.
- MULTI-CLASS STRUCTURE
This fund offers two classes of shares, Common and Advisor. This PROSPECTUS
offers the Advisor Class of shares, which are sold through financial-services
firms.
The Common Class is described in a separate prospectus.
11
<PAGE>
- FUND INFORMATION KEY
A concise description of the fund begins on the next page. The 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 advisers to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2001 fiscal period. Actual expenses may be higher
or lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the fund and compensating the sub-investment adviser.
Expressed as a percentage of average net assets after waivers.
- DISTRIBUTION AND SERVICE (12B-1) FEES Fees paid by the fund to the
distributor 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 and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets
after waivers, credits and reimbursements.
12
<PAGE>
- GOAL AND STRATEGIES
The 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 marketing 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 consist of:
- common and preferred stocks
- convertible securities
- warrants
To a limited extent, it 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
- telecommunications companies
The value of your investment generally 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.
13
<PAGE>
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.
- PORTFOLIO MANAGEMENT
Scott T. Lewis and Vincent J. McBride manage the fund's investment
portfolio. You can find out more about them in "Meet the Managers".
- INVESTOR EXPENSES
Expected expenses for the 2001 fiscal period (after fee waivers and expense
reimbursements):
<TABLE>
<S> <C>
Management fee .47%
Distribution and service
(12b-1) fees .50%
All other expenses .92%
----
Total expenses 1.89%
</TABLE>
14
<PAGE>
FINANCIAL HIGHLIGHTS
The fund's Advisor Class shares commenced operations as of the date hereof.The
figures below are related to the fund's Common Class shares and 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: 8/00 8/99 8/98 8/97(1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $ 41.22 $ 20.54 $ 17.30 $ 15.00
INVESTMENT ACTIVITIES:
Net investment income (0.44) (0.04) (0.01) 0.02
Net gains or losses on investments and foreign currency
transactions (both realized and unrealized) 29.56 23.56 4.29 2.28
Total from investment activities 29.12 23.52 4.28 2.30
DISTRIBUTIONS:
From net investment income -- -- -- --
From realized capital gains (1.23) (2.84) (1.04) --
Total distributions (1.23) (2.84) (1.04) --
Net asset value, end of period $ 69.11 $ 41.22 $ 20.54 $ 17.30
Total return 70.99% 120.73% 25.38% 15.33%(2)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $471,455 $ 65,165 $ 718 $ 569
Ratio of expenses to average net assets 1.66%(3),(4) 1.65%(3) 1.65%(3) 1.65%(3),(5)
Ratio of net income to average net assets (0.89)% (0.35)% (0.03)% 0.16%(5)
Portfolio turnover rate 143% 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 for the Common Class would have
been 1.77%, 2.52% and 6.86% for the years ended August 31, 2000, 1999 and
1998, respectively, and 8.28% annualized for the period ended August 31,
1997.
(4) Interest earned on uninvested cash balance is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the
net expense ratio by .02% for the year ended August 31, 2000. The operating
expense ratio after reflecting these arrangements was 1.64% for the year
ended August 31, 2000.
(5) Annualized.
15
<PAGE>
MORE ABOUT RISK
- INTRODUCTION
A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of the fund's risk profile in "Key Points."
The discussion of the fund contains more detailed information. This section
discusses other risks that may affect the fund.
The fund may use certain investment practices that have higher risks
associated with them. However, the 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 the fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to the fund.
CORRELATION RISK The risk that
changes in the value of a hedging instrument will not match those of the
investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar
and foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by
foreign-currency-denominated investments and may widen any losses.
EXPOSURE RISK The risk associated
with investments (such as derivatives) or practices (such as short selling) that
increase the amount of money a fund could gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can
reduce or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, 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.
16
<PAGE>
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
LIQUIDITY RISK Certain fund securities may be difficult or impossible to
sell at the time and the price that the fund would like. A fund may have to
lower the price, sell other securities instead or forego an investment
opportunity. Any of these could have a negative effect on fund management or
performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most investments
including stocks and bonds, and the mutual funds that invest in them.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject the
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.
17
<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
--------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
--------------------------------------------------------------------------------
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
SPECULATIVE EXPOSURE RISK. 33 1/3%
--------------------------------------------------------------------------------
COUNTRY/REGION FOCUS Investing a significant portion of fund
assets in a single country or region. Market swings in the
targeted country or region will be likely to have a greater
effect on fund performance than they would in a more
geographically diversified equity fund. CURRENCY, MARKET,
POLITICAL RISKS. /X/
--------------------------------------------------------------------------------
CURRENCY HEDGING Instruments, such as options, futures or
forwards, intended to manage fund exposure to currency risk
or to enhance total return. 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.(1) CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE,
LIQUIDITY, POLITICAL, SPECULATIVE EXPOSURE, VALUATION
RISKS.(2) / /
--------------------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be
relatively less developed or industrialized. Emerging
markets often face economic problems that could subject the
fund to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws
could expose the fund to risks beyond those generally
encountered in developed countries. ACCESS, CURRENCY,
INFORMATION, LIQUIDITY, MARKET, OPERATIONAL, POLITICAL,
VALUATION RISKS. /X/
--------------------------------------------------------------------------------
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable the fund to hedge against or speculate on future
changes in currency values, interest rates or stock indexes.
Futures obligate the fund (or give it the right, in the case
of options) to receive or make payment at a specific future
time based on those future changes.(1) CORRELATION, CURRENCY,
HEDGED EXPOSURE, INTEREST-RATE, MARKET, SPECULATIVE EXPOSURE
RISKS.(2) / /
--------------------------------------------------------------------------------
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. / /
--------------------------------------------------------------------------------
18
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
--------------------------------------------------------------------------------
PRIVATIZATION PROGRAMS Foreign governments may sell all or
part of their interests in enterprises they own or control.
ACCESS, CURRENCY, INFORMATION, LIQUIDITY, OPERATIONAL,
POLITICAL, VALUATION RISKS. /X/
--------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. LIQUIDITY, MARKET, VALUATION
RISKS. /15%/
--------------------------------------------------------------------------------
SECURITIES LENDING Lending portfolio securities to financial
institutions; a fund receives cash, U.S. government
securities or bank letters of credit as collateral. CREDIT,
LIQUIDITY, MARKET, OPERATIONAL RISKS. 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%
--------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS Swaps, structured securities and
other instruments that allow the fund to gain access to the
performance of a benchmark asset (such as an index or
selected stocks) where the fund's direct investment is
restricted. CREDIT, CURRENCY, INFORMATION, INTEREST-RATE,
LIQUIDITY, MARKET, POLITICAL, SPECULATIVE EXPOSURE,
VALUATION RISKS. / /
--------------------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in investments such as money-market obligations and
investment-grade debt securities for defensive purposes.
Although intended to avoid losses in adverse market,
economic, political or other conditions, defensive tactics
might be inconsistent with a fund's principal investment
strategies and might prevent a fund from achieving its goal. / /
--------------------------------------------------------------------------------
WARRANTS Options issued by a company granting the holder the
right to buy certain securities, generally common stock, at
a specified price and usually for a limited time. LIQUIDITY,
MARKET, SPECULATIVE EXPOSURE RISKS. / /
--------------------------------------------------------------------------------
(1) The fund is not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used
effectively or may be unable to be used for other reasons.
(2) The fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.
19
<PAGE>
MEET THE MANAGERS
The day-to-day portfolio management of the fund is the responsibility of the
Credit Suisse Asset Management Global Telecommunications Management Team. The
team consists of the following individuals:
[PICTURE OF SCOTT T. LEWIS]
SCOTT T. LEWIS
MANAGING DIRECTOR
- Team member since 1999
- With CSAM in 1999 as a result of
Credit Suisse's acquisition of Warburg
Pincus Asset Management, Inc.
(Warburg Pincus)
- With Warburg Pincus since 1986
[PICTURE OF VINCENT J. MCBRIDE]
VINCENT J. MCBRIDE
DIRECTOR
- Team member since 2000
- With CSAM since 1999 as a result of
Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1994
Job titles indicate position with the investment adviser.
20
<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 Advisor Class's total assets, less
its liabilities, by the number of Advisor Class shares outstanding.
The 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 fund does not compute its prices. This
could cause the value of the fund's portfolio investments to be affected by
trading on days when you cannot buy or sell shares.
- 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.
The fund may earn dividends from stocks and interest from bond, money-market
and other investments. These are passed along as dividend distributions. The
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 fund distributes dividends annually. The fund typically distributes
capital gains annually in December.
Most investors have their distributions reinvested in additional shares of
the 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 the 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
21
<PAGE>
professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as the fund continues to meet the requirements for being a
tax-qualified regulated investment company, it pays no federal income tax on the
earnings it distributes to shareholders.
Distributions you receive from the
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.
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.
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.
22
<PAGE>
OTHER INFORMATION
- ABOUT THE DISTRIBUTOR
Credit Suisse Asset Management Securities Inc. (CSAMSI), a wholly owned
subsidiary of CSAM, is responsible for:
- making the fund available to you
- account servicing and maintenance
- other administrative services related to sale of the Advisor Class
Certain institutions and financial-services firms may offer Advisor Class
shares to their clients and customers (or participants in the case of retirement
plans). These firms provide distribution, administrative and shareholder
services for fund shareholders. The fund has adopted a Rule 12b-1
shareholder-servicing and distribution plan to compensate these firms for their
services. The current 12b-1 fee is .50% per annum of the fund's average daily
net assets, although under the 12b-1 plan the fund is authorized to pay up to
.75%. CSAMSI, CSAM or their affiliates may make additional payments out of their
own resources to firms offering Advisor Class shares for providing
administration, subaccounting, transfer agency and/or other services.
23
<PAGE>
BUYING SHARES
- OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Institutional Shareholder Service
Center to receive one by mail or fax.
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.
- BUYING AND SELLING SHARES
The fund is 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 (currently 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 buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The fund has 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.
- 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 Advisor Funds. Unfortunately, we cannot accept "starter" checks
that do not have your name pre-printed on them. We also cannot accept checks
payable to you or to another party and endorsed to the order of Warburg Pincus
Advisor 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.
24
<PAGE>
--------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
BY CHECK
--------------------------------------------------------------------------------
- Complete the WARBURG PINCUS - Make your check payable to
ADVISOR FUNDS NEW ACCOUNT Warburg Pincus Advisor Funds.
APPLICATION.
- Make your check payable to - Write the account number and
Warburg Pincus Advisor Funds. the fund name on your check.
- Write the fund name on the - Mail to Warburg Pincus Advisor
check. Funds.
- Mail to Warburg Pincus Advisor
Funds.
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
- Call our Institutional - Call our Institutional
Shareholder Service Center to Shareholder Service Center to
request an exchange from request an exchange from
another Warburg Pincus fund or another Warburg Pincus fund or
portfolio. Be sure to read the portfolio.
current PROSPECTUS for the new
fund or portfolio. If you do not have telephone
privileges, mail or fax a letter of
If you do not have telephone instruction.
privileges, mail or fax a letter of
instruction.
--------------------------------------------------------------------------------
BY WIRE
--------------------------------------------------------------------------------
- Complete and sign the NEW - Call our Institutional
ACCOUNT APPLICATION. Shareholder Service Center by 4
p.m. ET to inform us of the
- Call our Institutional incoming wire. Please be sure
Shareholder Service Center and to specify the account
fax the signed NEW ACCOUNT registration, account number
APPLICATION by 4 p.m. ET. and the fund name on your wire
advice.
- The Institutional Shareholder
Service Center will telephone - Wire the money for receipt that
you with your account number. day.
Please be sure to specify the
account registration, 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
Advisor Funds.
--------------------------------------------------------------------------------
BY ACH TRANSFER
--------------------------------------------------------------------------------
- Cannot be used to open an - Call our Institutional
account. 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.
Requires ACH on Demand privileges.
--------------------------------------------------------------------------------
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
25
<PAGE>
SELLING SHARES
--------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
--------------------------------------------------------------------------------
BY MAIL
--------------------------------------------------------------------------------
Write us a letter of instruction that - Sales of any amount.
includes:
- your name(s) and signature(s) or,
if redeeming on an investor's
behalf, the name(s) of the
registered owner(s) and the
signature(s) of their legal
representative(s)
- the fund name and account number
- 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
Advisor Funds.
If only a letter of instruction is
required, you can fax it to the
Institutional Shareholder Service
Center (unless a signature guarantee
is required).
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
- Call our Institutional Shareholder - Accounts with telephone
Service Center to request an privileges.
exchange into another Warburg
Pincus fund or portfolio. Be sure If you do not have telephone
to read the current PROSPECTUS for privileges, mail or fax a letter of
the new fund or portfolio. instruction to exchange shares.
--------------------------------------------------------------------------------
BY PHONE
--------------------------------------------------------------------------------
Call our Institutional Shareholder - Accounts with telephone
Service Center to request a privileges.
redemption. You can receive the
proceeds as:
- a check mailed to the address of
record
- an ACH transfer to your bank
- a wire to your bank
See "By Wire or ACH Transfer" for
details.
--------------------------------------------------------------------------------
BY WIRE OR ACH TRANSFER
--------------------------------------------------------------------------------
- Complete the "Wire Instructions" - Requests by phone or mail.
or "ACH on Demand" section of your
NEW ACCOUNT APPLICATION.
- For federal-funds wires, proceeds
will be wired on the next business
day. For ACH transfers, proceeds
will be delivered within two
business days.
26
<PAGE>
HOW TO REACH US
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
Toll free: 800-222-8977
Fax: 212-370-9833
MAIL
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Advisor Funds
66 Brooks Drive
Braintree, MA 02184
INTERNET WEB SITE
www.warburg.com
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[WARBURG PINCUS ADVISOR FUND NAME]
DDA# 9904-649-2
F/F/C: [ACCOUNT NUMBER AND ACCOUNT REGISTRATION]
- 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
- redemptions in certain large accounts (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
For fund shares purchased other than by bank wire, bank check, U.S. Treasury
check, certified check or money order, the fund will delay payment of your cash
redemption proceeds for 10 calendar days from the day of purchase. At any time
during this period, you may exchange into another fund.
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
27
<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 Institutional Shareholder Service Center.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments from a designated bank account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals.
- 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 Institutional Shareholder Service Center to update your account
records whenever you change your address. The Institutional Shareholder Service
Center can also help you change your account information or privileges.
28
<PAGE>
OTHER POLICIES
- TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon
as your purchase order is executed.
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 our Institutional Shareholder
Service Center 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
The 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
- impose 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)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
29
<PAGE>
This page intentionally left blank
30
<PAGE>
FOR MORE INFORMATION
More information about this fund is available free upon request, including
the following:
- ANNUAL/SEMIANNUAL
REPORT 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 fund, 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
202-942-8090) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact Warburg Pincus Advisor Funds to obtain, without charge, the
SAI, ANNUAL and SEMIANNUAL REPORTS, portfolio holdings and other information and
to make shareholder inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER
SERVICE:
Boston Financial
Attn: Warburg Pincus Advisor Funds
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBER:
Warburg Pincus Global Telecommunications Fund 811-08935
==============
WARBURG PINCUS
==============
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 - www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR ADXXX-1-XX00
<PAGE>
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, NOVEMBER 30, 2000
STATEMENT OF ADDITIONAL INFORMATION
_________, 2000
ADVISOR SHARES OF THE
WARBURG PINCUS GLOBAL TELECOMMUNICATIONS FUND
This STATEMENT OF ADDITIONAL INFORMATION provides information about Warburg
Pincus Global Telecommunications Fund (the "Fund") that supplements information
in the PROSPECTUS for the Advisor Shares of the Fund, dated ________, 2000, as
amended or supplemented from time to time (the "PROSPECTUS") and is incorporated
by reference in its entirety in the PROSPECTUS.
The Fund's Advisor Shares commenced operations on ________, 2000. The Fund's
audited ANNUAL REPORT for the Common Class Shares, dated August 31, 2000, 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 Fund should be made solely upon the information
contained herein. Copies of the PROSPECTUS, ANNUAL REPORT and information
regarding the Fund's current performance can be obtained by writing or
telephoning:
ADVISOR SHARES
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
Attn.: Institutional Services
800-222-8977
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES................................................................1
Non-Diversified Status.........................................................................1
Temporary Investments..........................................................................1
Repurchase Agreements..........................................................................2
Reverse Repurchase Agreements and Dollar Rolls.................................................2
Illiquid Securities............................................................................3
RULE 144A SECURITIES........................................................................3
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers.......................4
Lending of Portfolio Securities................................................................4
Borrowing......................................................................................5
Securities of Other Investment Companies.......................................................5
Options Generally..............................................................................6
SECURITIES OPTIONS..........................................................................6
SECURITIES INDEX OPTIONS....................................................................8
When-Issued Securities, Delayed Delivery Transactions And Forward Commitments..................9
Stand-By Commitment Agreements................................................................10
U.S. Government Securities....................................................................10
Foreign Investments...........................................................................11
FOREIGN DEBT SECURITIES....................................................................11
FOREIGN CURRENCY EXCHANGE..................................................................12
INFORMATION................................................................................12
POLITICAL INSTABILITY......................................................................13
FOREIGN MARKETS............................................................................13
INCREASED EXPENSES.........................................................................13
DOLLAR-DENOMINATED DEBT SECURITIES OF FOREIGN ISSUERS......................................13
DEPOSITARY RECEIPTS........................................................................13
BRADY BONDS................................................................................13
EMERGING MARKETS...........................................................................14
SOVEREIGN DEBT.............................................................................14
Convertible Securities........................................................................15
Debt Securities...............................................................................16
BELOW INVESTMENT GRADE SECURITIES..........................................................16
MORTGAGE-BACKED SECURITIES.................................................................17
ASSET-BACKED SECURITIES....................................................................18
LOAN PARTICIPATIONS AND ASSIGNMENTS........................................................19
STRUCTURED NOTES, BONDS OR DEBENTURES......................................................20
COLLATERALIZED MORTGAGE OBLIGATIONS........................................................20
ZERO COUPON SECURITIES.....................................................................21
i
<PAGE>
Futures Activities............................................................................21
FUTURES CONTRACTS..........................................................................22
OPTIONS ON FUTURES CONTRACTS...............................................................23
Currency Exchange Transactions................................................................23
FORWARD CURRENCY CONTRACTS.................................................................23
CURRENCY OPTIONS...........................................................................24
CURRENCY HEDGING...........................................................................24
Hedging Generally.............................................................................25
Short Sales "Against the Box".................................................................26
Section 4(2) Paper............................................................................27
Rights Offerings and Purchase Warrants........................................................27
Telecommunications Companies..................................................................27
INVESTMENT RESTRICTIONS..........................................................................28
PORTFOLIO VALUATION..............................................................................30
PORTFOLIO TRANSACTIONS...........................................................................31
PORTFOLIO TURNOVER...............................................................................32
MANAGEMENT OF THE FUND...........................................................................33
Officers and Board of Directors...............................................................33
Portfolio Managers............................................................................37
Investment Adviser and Co-Administrators......................................................37
Code of Ethics................................................................................40
Custodian and Transfer Agent..................................................................41
Organization of the Fund......................................................................41
Distribution and Shareholder Servicing........................................................42
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................43
Automatic Cash Withdrawal Plan................................................................44
EXCHANGE PRIVILEGE...............................................................................44
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................45
The Fund and Its Investments..................................................................45
Special Tax Considerations....................................................................47
STRADDLES..................................................................................47
OPTIONS AND SECTION 1256 CONTRACTS.........................................................48
FOREIGN CURRENCY TRANSACTIONS..............................................................48
PASSIVE FOREIGN INVESTMENT COMPANIES.......................................................49
ASSET DIVERSIFICATION REQUIREMENT..........................................................49
FOREIGN TAXES..............................................................................50
FUND TAXES ON SWAPS........................................................................50
DIVIDENDS AND DISTRIBUTIONS................................................................50
SALES OF SHARES............................................................................51
BACKUP WITHHOLDING.........................................................................51
NOTICES....................................................................................52
OTHER TAXATION.............................................................................52
DETERMINATION OF PERFORMANCE.....................................................................52
Total Return..................................................................................52
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................54
ii
<PAGE>
MISCELLANEOUS....................................................................................54
FINANCIAL STATEMENTS.............................................................................55
APPENDIX A ---- DESCRIPTION OF RATINGS..........................................................A-1
</TABLE>
iii
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the descriptions of the
Fund's investment objective and policies in the PROSPECTUS. There are no
assurances that the Fund will achieve its investment objective.
The investment objective of the Global Telecommunications Fund
is to seek long-term appreciation of capital.
Unless otherwise indicated, the Fund is permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below. The Fund does not represent that these
techniques are available now or will be available at any time in the future.
NON-DIVERSIFIED STATUS. The Fund is classified as
non-diversified within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act"), which means that the 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, the 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 the Fund 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, the 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 objective and policies, the Fund 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, or
Credit Suisse Asset Management Limited, the Fund's sub-investment adviser ("CSAM
Ltd.") (each, an "Adviser"), the Fund may 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 the
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.
1
<PAGE>
REPURCHASE AGREEMENTS. The Fund 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, the 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 monitors the creditworthiness of
those bank and non-bank dealers with which the 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. The 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 Fund does 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 the Fund pursuant to the Fund's agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or 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 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 the 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 the
Fund's obligation to repurchase the securities, and the Fund's use of the
proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
The 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, the Fund would
forgo principal and interest paid on such securities. The 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
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sale. At the time the 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. The Fund is authorized to, but does not
presently intend to, invest up to 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
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.
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An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Fund's limit on the purchase of illiquid
securities unless the Fund's Board of Directors (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 Fund to the extent that qualified
institutional buyers are unavailable or uninterested in purchasing such
securities from the Fund. The Board 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.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES;
UNSEASONED ISSUERS. The 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
the 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 the
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. The 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
Board. These loans, if and when made, may not exceed 33-1/3% of the Fund's total
assets (including the loan collateral). The Fund 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 or liquid securities, which are maintained at all
times in an amount equal to at least 102% (105% in the case of foreign
securities) 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 Fund. From time to time, the
Fund may return a part of the interest earned
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from the investment of collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Fund and that is acting as a
"finder."
By lending its securities, the 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. The Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive at least 102% (105% in the case of foreign securities)
cash collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) 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 the Fund's ability to recover the loaned securities or dispose
of the collateral for the loan.
BORROWING. The Fund may borrow up to 33-1/3% 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 the Fund's total assets. Although the principal of such borrowings
will be fixed, the Fund's assets may change in value during the time the
borrowing is outstanding. The 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. The 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, the 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 the Fund bears directly in
connection with its own operations.
OPTIONS GENERALLY. The Fund 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. The Fund may write covered put and call
options on stock and debt securities and the Fund may purchase such options that
are traded on foreign and U.S. exchanges, as well as over-the-counter ("OTC")
options. The 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
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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 the 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, the 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). The 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 Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices 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 the 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, the 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 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 the 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.
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Options written by the 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. The 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, the Fund will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "Clearing Corporation") and of the
securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by the Fund prior
to the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the 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 the 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 the Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. The 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 the 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 the 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. The Fund cannot effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice.
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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 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,
the 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 Fund, however, intends 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, the
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
Fund 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
other sanctions. These limits may restrict the number of options the Fund 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 New York Stock Exchange 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
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make delivery of this amount. Securities index options may be offset by entering
into closing transactions as described above for securities options.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS. The 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). The Fund currently anticipates that
when-issued securities will not exceed 25% of its net assets. The Fund does not
intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective.
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 Fund will not enter into a when-issued or
delayed-delivery transaction for the 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. The 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 the 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 the 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 the 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 the 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 Fund's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENT AGREEMENTS. The Fund may from time to time
enter into stand-by commitment agreements. The Fund does not presently intend to
invest more than 5% of net assets in stand-by commitment agreements during the
coming year.
Such agreements commit the 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, the Fund is paid a commitment fee, regardless of
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whether or not the security is ultimately issued. The 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 the Fund. The
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.
The 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 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. The 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, the 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.
U.S. GOVERNMENT SECURITIES. The obligations issued or
guaranteed by the U.S. government in which the 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 Fund 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
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Credit Banks, Federal Land Banks, Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and Student Loan Marketing
Association. Because the U.S. government is not obligated by law to provide
support to an instrumentality it sponsors, the 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 Fund 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 the Fund's
domestic investments as well. The Fund 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 Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated,
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers.
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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 Fund may invest in
securities denominated in currencies of non-U.S. countries, the Fund 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 the 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 Fund may use hedging techniques with the objective of protecting against
loss through the fluctuation of the value of the non-U.S. currency 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 Fund
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 Fund, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
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.
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INCREASED EXPENSES. The operating expenses of the Fund can be
expected to be higher than that of an investment company investing exclusively
in U.S. securities, since the expenses of the Fund, 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 the 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. The 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 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. The 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
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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 the 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 the
Fund's investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While the Adviser intends to manage the Fund in a manner
that will minimize the exposure to such risks, there can be no assurance that
adverse political changes will not cause the 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 the 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
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comparable to securities rated "D" by S&P or "C" by Moody's. The 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 Fund anticipates 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 the 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 the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio and
calculating its net asset value. When and if available, fixed income securities
may be purchased by the Fund at a discount from face value. However, the Fund
does 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, the 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 the
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 the 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 the Fund should continue to hold the securities.
DEBT SECURITIES. The Fund may invest in investment grade debt
securities (other than money market obligations) for the purpose of seeking
capital appreciation. Any percentage limitation on the Fund's ability to invest
in debt securities will not be applicable during periods when the Fund pursues a
temporary defensive strategy as discussed below. The 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 the 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.
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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 the 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. 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 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. 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.
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. The 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 Fund anticipates 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 the Fund's ability to dispose of
particular issues when necessary to
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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 the
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
the Fund's net asset value. The 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
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 the
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 the Fund should continue to
hold the securities. Normally, medium- and lower-rated and comparable unrated
securities are not intended for short-term investment. The 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
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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 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 Fund's 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. In certain
circumstances, asset-backed securities may be considered illiquid securities
subject to the percentage limitations described herein. Asset-backed securities
are considered an industry for industry concentration purposes, and the Fund
will therefore not purchase any asset-backed securities which would cause 25% or
more of the Fund's net assets at the time of purchase to be invested in
asset-backed securities.
Asset-backed securities present certain risks that are not
presented by other securities in which the Fund 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
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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, there is no assurance that the security interest in
the collateral can be realized. The remaining maturity of any asset-backed
security the Fund invests in will be 397 days or less. The Fund may purchase
asset-backed securities that are unrated.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The 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 the 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"). The 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 the 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.
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COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may also
purchase CMOs issued by a U.S. Government instrumentality 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 Fund 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 the Fund would have the same
effect as the prepayment of mortgages underlying a mortgage-backed pass-through
security as described above.
ZERO COUPON SECURITIES. The 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. The Fund currently anticipates
that zero coupon securities will not exceed 5% of its net assets.
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 Fund
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anticipates that it 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. The 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 as well as
for the purpose of increasing total return, which may involve speculation.
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 The 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.
No consideration is paid or received by the 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
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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." The Fund will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, the
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 the
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 the 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 the Fund's
performance.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract;
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however, the value of the option does change daily and that change would be
reflected in the net asset value of the Fund.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of
the assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and the Fund 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. The
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 Fund may
engage in currency exchange transactions for both hedging purposes and to
increase total return, which may involve speculation.
FORWARD CURRENCY CONTRACTS. The Fund may use forward currency
contracts to protect against uncertainty in the level of future exchange rates
and to enhance total return. The Fund 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 Fund may invest in
such transactions for hedging purposes.
The Fund may also enter into forward currency contracts with
respect to specific transactions. For example, when the Fund anticipates the
receipt in a foreign currency of interest payments on a security that it holds,
the 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. The
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.
At or before the maturity of a forward contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to enter into an offsetting
transaction. If the 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.
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CURRENCY OPTIONS. The Fund may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
CURRENCY HEDGING. The 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 the 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 the 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, the 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 the 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, the Fund may not be able to contract to
sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the 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
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or increase return, the 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 the 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 the 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 the
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, the 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.
The 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 the
Fund's performance.
Short Sales "Against the Box." In a short sale, the 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
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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.
The 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 the 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 the Fund owns. There will be certain
additional transactions costs associated with short sales against the box, but
the Fund will endeavor to offset these costs with the income from the investment
of the cash proceeds of short sales.
If the 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 the Fund closes out the short sale with securities other than
the appreciated securities held at the time of the short sale and if certain
other conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which the Fund may effect short
sales.
The Fund does 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 Fund which
agrees that it is 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.
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 the 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
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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.
TELECOMMUNICATIONS COMPANIES. Telecommunications companies in
both developed and emerging countries are undergoing significant change due to
varying and evolving levels of governmental regulation 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.
INVESTMENT RESTRICTIONS
The following investment limitations of the Fund may not be
changed without the affirmative vote of the holders of a majority of the 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 the Fund) 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
Fund's assets will not constitute a violation of such restriction.
The Fund may not:
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
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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;
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 the 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 the 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, 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. 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 other than the telecommunications
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.
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, the Fund may not:
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1. Make investments for the purpose of exercising
control or management, but investments by the 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 the Fund may make margin deposits in connection with its use of
options, futures contracts, options on futures contracts and forward
contracts; and
3. Purchase or sell interests in mineral leases, oil,
gas or other mineral exploration or development programs, except that
the Fund may invest in securities issued by companies that engage in
oil, gas or other mineral exploration or development activities.
The policies set forth above are not fundamental and thus may
be changed by the Fund's Board of Directors without a vote of the shareholders.
Securities held by the 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
Fund 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 Fund 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 the Fund under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time.
Securities, options,
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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 Board. In addition, the Board
or its delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in 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 Fund's net asset value is not calculated. As a result,
calculation of the Fund's net asset value does not take place contemporaneously
with the determination of the prices of the majority of the Fund's securities.
All assets and liabilities initially expressed in foreign currency values will
be converted into U.S. dollar values at the prevailing exchange rate as quoted
by a Pricing Service 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 Board.
PORTFOLIO TRANSACTIONS
CSAM is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective and has retained CSAM Ltd. to act as sub-investment adviser to the
Fund. 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 the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign OTC markets, but the price of
securities traded in OTC markets includes an undisclosed commission or mark-up.
U.S. government securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. government securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
In selecting broker-dealers, the Adviser does business
exclusively with those broker-dealers that, in the Adviser's judgment, can be
expected to provide the best service. The service has two main aspects: the
execution of buy and sell orders and the provision of research. In negotiating
commissions with broker-dealers, the Adviser will pay no more for execution and
research services that it considers either, or both together, to be worth. The
worth of execution
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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 the 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"). The Fund may utilize CSAMSI
or affiliates of Credit Suisse in connection with a purchase or sale of
securities when the Adviser believes that the charge for the transaction does
not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
Investment decisions for the Fund 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 Fund. 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
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
for the Fund. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.
Transactions for the Fund may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Fund will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
The 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. The 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 past three fiscal years ended August 31, 2000, August
31, 1999 and August 31, 1998, the Fund has paid brokerage commissions
$1,599,215, $178,506 and $2,639,
31
<PAGE>
respectively. The increase in brokerage commissions was due to the significant
growth in the size of the Fund.
In no instance will portfolio securities be purchased from or
sold to CSAM, CSAM Ltd., 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 Fund will not give
preference to any institutions with whom the Fund enter into distribution or
shareholder servicing agreements concerning the provision of distribution
services or support services.
PORTFOLIO TURNOVER
The Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. The Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold. To the extent that its
portfolio is traded for the short-term, the 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 Fund's 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.
MANAGEMENT OF THE FUND
OFFICERS AND BOARD OF DIRECTORS. The business and affairs of
the 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 the Fund and who execute policies authorized by the
Board. Under the Fund's charter, the Board may 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. The 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.
32
<PAGE>
The names (and ages) of the 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 President
Short Hills, New Jersey 07078 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 of
P.O. Box 483 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.
James S. Pasman, Jr. (69) DIRECTOR
29 The Trillium Currently retired; President and Chief
Pittsburgh, Pennsylvania 15238 Operating Officer of National InterGroup,
Inc. from April 1989 to March 1991; Chairman
of Permian Oil Co. from April 1989 to March
1991; Director of Education Management
Corp., Tyco International Ltd.; Trustee, BT
Insurance Funds Trust; Director/Trustee of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
33
<PAGE>
William W. Priest* (58) CHAIRMAN OF THE BOARD
153 East 53rd Street Chairman- Management Committee, Chief
New York, New York 10022 Executive Officer and Managing Director of
CSAM (U.S.) since 1990; Director of TIG
Holdings, Inc.; Director/Trustee of other
Warburg Pincus Funds and other CSAM-advised
investment companies.
Steven N. Rappaport (51) DIRECTOR
40 East 52nd Street President of Loanet, Inc. since 1997;
New York, New York 10022 Executive Vice President of Loanet, Inc.
from 1994 to 1997; Director, President,
North American Operations, and former
Executive Vice President from 1992 to 1993
of Worldwide Operations of Metallurg Inc.;
Executive Vice President, Telerate, Inc.
from 1987 to 1992; Partner in the law firm
of Hartman & Craven until 1987;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Alexander B. Trowbridge (70) DIRECTOR
1317 F Street, N.W., Currently retired; President of 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 Fund's
predecessor adviser in July 1999; with the
predecessor adviser since 1991; Vice
President of Citibank, N.A. from 1987 to
1991; Officer of CSAMSI and of other Warburg
Pincus Funds.
-----------------------------
* Indicates a Director who is an "interested person" of the Fund as
defined in the 1940 Act.
34
<PAGE>
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
153 East 53rd Street Managing Director and General Counsel of
New York, New York 10022 CSAM; Associated with Lehman Brothers, Inc.
from 1996 to 1997; Associated with CSAM from
1995 to 1996; Associated with CS First
Boston Investment Management from 1994 to
1995; Associated with Division of
Enforcement, U.S. Securities and Exchange
Commission from 1991 to 1994; Officer of
CSAMSI, other Warburg Pincus Funds and other
CSAM-advised investment companies.
Michael A. Pignataro (40) TREASURER AND CHIEF FINANCIAL OFFICER
153 East 53rd Street Vice President and Director of Fund
New York, New York 10022 Administration of CSAM; Associated with CSAM
since 1984; Officer of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Stuart J. Cohen, Esq. (31) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM;
New York, New York 10017-3147 Associated with CSAM since CSAM acquired the
Fund's 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 CSAM-advised
investment companies.
Gregory N. Bressler, Esq. (34) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM
New York, New York 10017 since January 2000; Associated with the
law firm of Swidler Berlin Shereff Friedman
LLP from 1996 to 2000; Officer of other
CSAM-advised investment companies.
Rocco A. DelGuercio (36) ASSISTANT TREASURER
153 East 53rd Street Assistant Vice President and Administrative
New York, New York 10022 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.
35
<PAGE>
Joseph Parascondola (37) Assistant Treasurer
466 Lexington Avenue Assistant Vice President - Fund
New York, New York 10017 Administration of CSAM since April 2000;
Assistant Vice President, Deutsche Asset
Management from January 1999 to April 2000;
Assistant Vice President, Weiss, Peck &
Greer LLC from November 1995 to December
1998; Officer of other CSAM-advised
investment companies.
No employee of CSAM, CSAM Ltd., PFPC Inc. ("PFPC") and CSAMSI,
the Fund's co-administrators, or any of their affiliates, receives any
compensation from the Fund for acting as an officer or director of the Fund.
Each Director who is not a director, trustee, officer or employee of CSAM, CSAM
Ltd., PFPC, CSAMSI or any of their affiliates receives an annual fee of $750 and
$250 for each meeting of the Board 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.
DIRECTORS' TOTAL COMPENSATION FOR FISCAL YEAR ENDED AUGUST 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
All Investment Companies in
Name of Director The Fund CSAM Fund Comples*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William W. Priest** None None
------------------------------------------------------------------------------------------------------------------
Richard H. Francis $2,500 $102,000
------------------------------------------------------------------------------------------------------------------
Jack W. Fritz $2,500 $102,000
------------------------------------------------------------------------------------------------------------------
Jeffrey E. Garten $2,500 $43,500
------------------------------------------------------------------------------------------------------------------
James S. Pasman, Jr. $2,500 $102,000
------------------------------------------------------------------------------------------------------------------
Steven N. Rappaport $2,500 $102,000
------------------------------------------------------------------------------------------------------------------
Alexander B. Trowbridge $2,725 $108,375
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Each Director serves as a Director or Trustee of 45 investment
companies and portfolios for which CSAM serves as investment adviser
("Fund Complex"), except for Mr. Garten, who serves as a Director or
Trustee of 24 investment companies and portfolios in the 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.
As of November 21, 2000, Directors and officers as a group,
owned of record less than 1% of the Fund's outstanding Advisor Shares.
PORTFOLIO MANAGERS. The Co-Portfolio Managers of the Fund are
Scott T. Lewis and Vincent J. McBride.
Mr. Lewis has been associated with CSAM since Credit Suisse
acquired Warburg Pincus Asset Management, Inc. ("Warburg") in July 1999 and
joined Warburg in 1986. Prior to that Mr. Lewis was an assistant portfolio
manager at Bench Corporation from 1984 to 1985 and a trader at Atlanta/Sosnoff
Management Corp. from 1984 to 1985 and a trader at E.F. Hutton &
36
<PAGE>
Co. from 1982 to 1984. Mr. Lewis received a M.B.A. and a B.S. degree from New
York University.
Mr. McBride has been associated with CSAM since Credit Suisse
acquired Warburg in July 1999 and joined Warburg in 1994. Previously, Mr.
McBride was an international equity analyst at Smith Barney Inc. from 1993 to
1994 and at General Electric Investment Corporation from 1992 to 1993. He was
also a portfolio manager/analyst at United Jersey Bank from 1989 to 1992 and a
portfolio manager at First Fidelity Bank from 1987 to 1989. Mr. McBride earned a
B.S. degree from the University of Delaware and an M.B.A. degree from Rutgers
University.
INVESTMENT ADVISERS AND CO-ADMINISTRATORS. CSAM, located at
466 Lexington Avenue, New York, New York 10017, serves as investment adviser to
the Fund pursuant to a written agreement (the "Advisory Agreement"). CSAM Ltd.,
located at Beaufort House, 15 St. Botolph Street, London, EC 3A 7JJ, serves as
sub-investment adviser to the Fund pursuant to a written agreement. CSAM and
CSAM Ltd. are indirect wholly-owned subsidiaries 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 Fund, a series of The RBB Fund, Inc. (the
"BEA Fund"), pursuant to an Investment Advisory Agreement (the "BEA Advisory
Agreement"). CSAM, together with its predecessor firms, has been engaged in the
investment advisory business for over 60 years.
CSAM has investment discretion for the Fund and will make all
decisions affecting assets in the Fund under the supervision of the Fund's Board
of Directors and in accordance with the Fund's stated policies. The Adviser will
select investments for the Fund and will place purchase and sale orders on
behalf of the Fund. For its services to the Fund, CSAM will be paid (before any
voluntary waivers or reimbursements) a monthly fee computed at an annual rate of
1.00% of average daily net assets. CSAM pays CSAM Ltd. a sub-investment advisory
fee out of the fees CSAM receives from the Fund.
CSAMSI and PFPC, an indirect, wholly owned subsidiary of PNC
Bank Corp., both serve as co-administrators to the Fund pursuant to separate
written agreements (the "CSAMSI Co-Administration Agreements" and the "PFPC
Co-Administration Agreements," respectively). CSAMSI became co-administrator to
the Fund on November 1, 1999. Prior to that, Counsellors Funds Service, Inc.
("Counsellors Service") served as co-administrator to the Fund. BEA Associates,
the predecessor of CSAM, and PFPC had served as co-administrators to the Advisor
Class of the BEA Fund. For the services provided by CSAMSI under the CSAMSI
Co-Administration Agreements, the Fund pays CSAMSI a fee calculated at an annual
rate of
37
<PAGE>
.05% of the Fund's first $125 million in average daily net assets of the Advisor
Shares and .10% of average daily net assets of the Advisor Shares over $125
million.
For the services provided by PFPC under the PFPC
Co-Administration Agreements, PFPC received a fee for the period from September
1, 1999 to July 31, 2000 calculated at an annual rate of .125% of the Fund's
average daily net assets, subject to a minimum annual fee and exclusive of
out-of-pocket expenses. As of August 1, 2000, PFPC receives a fee for
administration services calculated an annual rate of .11% of the Fund's first
$500 million in average daily net assets, .09% of the next $1 billion in average
daily net assets, and .07% of average daily net assets over $1.5 billion,
subject to a minimum annual fee and exclusive of out of pocket expenses.
Each class of shares of the Fund bears its proportionate share
of fees payable to CSAM, CSAM Ltd., CSAMSI and PFPC in the proportion that its
assets bear to the aggregate assets of the Fund at the time of calculation.
These fees are calculated at an annual rate based on a percentage of the Fund's
average daily net assets. The Fund's co-administrators may voluntarily waive a
portion of their fees from time to time and temporarily limit the expenses to be
borne by the Fund.
For the past three fiscal years ended August 31, the Fund have
paid CSAM or its predecessor advisory fees and csaM or its predecessor has
waived fees and/or reimbursed expenses of the Fund under the Advisory Agreement
or BEA Advisory Agreement as follows:
38
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
Fiscal Year (after waivers) Waivers Reimbursements
----------- -------------- ------- --------------
<S> <C> <C> <C>
2000 $173,255 $179,809 $0
1999 $93,200 $101,660 $33,124
1998 $0 $9,174 $37,067
</TABLE>
From August 31, 1998 to August 31, 2000, the Fund paid BEA
Associates or Counsellors Service and PFPC administration fees and BEA
Associates or Counsellors Service and PFPC have waived fees and/or reimbursed
expenses as follows:
<TABLE>
<CAPTION>
Counsellors
PFPC Service
--------- -----------
Fees Paid Fees Paid
Fiscal (after (after
Year waivers) Waivers Reimbursements Waivers) Waivers Reimbursements
------ -------- ------- -------------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
2000 $443,622 $0 $0 $6,554 $0 $0
1999 $0 $24,357 $0 $246 $9,463 $0
1998 $0 $1,147 $0 $0 $459 $0
</TABLE>
For the fiscal year ended August 31, 2000, the Fund has paid
CSAMSI $899,136 in administration fees.
Each class of the Fund bears all of its own expenses not
specifically assumed by the Adviser or another service provider to the Fund.
General expenses of the Fund not readily identifiable as belonging to a
particular Fund are allocated among all investment funds by or under the
direction of the Fund's Board of Directors in such manner as the Board
determines fair and accurate. Each class of the Fund pays its own administration
fees, and may pay a different share than the other classes of the Fund 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.
CODE OF ETHICS. The Fund, CSAM, CSAM Ltd. and CSAMSI have each
adopted a written Code of Ethics (the "Code of Ethics"), which permits personnel
covered by the Code of Ethics ("Covered Persons") to invest in securities,
including securities that may be purchased or held by the Fund. The Code of
Ethics also contains provisions designed to address the conflicts
39
<PAGE>
of interest that could arise from personal trading by advisory personnel,
including: (1) all Covered Persons must report their personal securities
transactions at the end of each quarter; (2) with certain limited exceptions,
all Covered Persons must obtain preclearance before executing any personal
securities transactions; (3) Covered Persons may not execute personal trades in
a security if there are any pending orders in that security by the Fund; and (4)
Covered Persons may not invest in initial public offerings.
The Board reviews the administration of the Code of Ethics at
least annually and may impose sanctions for violations of the Code of Ethics.
CUSTODIAN AND TRANSFER AGENT. Brown Brothers Harriman & Co.
("BBH") acts as the custodian for the Fund and also acts as the custodian for
the Fund's foreign securities pursuant to a Custodian Agreement (the "BBH
Custodian Agreement"). Under the Custodian Agreement, BBH (a) maintains a
separate account or accounts in the name of the Fund, (b) holds and transfers
portfolio securities on account of the Fund, (c) accepts receipts and make
disbursements of money on behalf of the Fund, (d) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities, and (e) makes periodic reports to the Fund's Board of Directors
concerning the Fund's operations. BBH is authorized to select one or more banks
or trust companies to serve as sub-custodian on behalf of the Fund, provided
that BBH remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the negligent acts and
omissions of any sub-custodian. For its services to the Fund under the Custodian
Agreements, BBH receives a fee which is calculated based upon the Fund's average
daily gross assets, exclusive of transaction charges and out-of-pocket expenses,
which are also charged to the Fund.
State Street Bank and Trust Company ("State Street") serves as
the shareholder servicing, transfer and dividend disbursing agent of the Fund
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund 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 Board concerning the
transfer agent's operations with respect to the Fund. 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 FUND . The Fund is a non-diversified,
open-end management investment company. The Fund was organized as a Maryland
corporation on July 31, 1998.
The 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 the Fund's charter 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
40
<PAGE>
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.
The Fund currently offers two separate classes of shares:
Common Shares and Advisor Shares. The Fund's Advisor Shares commenced operations
on _________, 2000. All shareholders of the Fund in each class, upon
liquidation, will participate ratably in the Fund's net assets. Shares do not
have cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
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 the 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 the 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). The 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 Advisor Funds at 800-222-8977 or on the Warburg Pincus Funds web
site at www.warburg.com.
DISTRIBUTION AND SHAREHOLDER SERVICING. The Fund has entered
into agreements ("Agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries ("Institutions") to provide certain
distribution, shareholder servicing, administrative and/or accounting services
for their clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. Agreements are
governed by a distribution plan (the "Advisor Shares 12b-1 Plan") pursuant to
Rule 12b-1 under the 1940 Act, pursuant to which the Fund pays in consideration
for services, a fee calculated at an annual rate of .50% of the average daily
net assets of the Advisor Shares of the Fund. Such payments may be paid to
Institutions directly by the Fund or by CSAMSI on behalf of the Fund. The
Advisor Shares 12b-1 Plan requires the Board, at least quarterly, to receive and
review written reports of amounts expended under the Advisor Shares 12b-1 Plan
and the purposes for which such expenditures were made. The Advisor Shares 12b-1
Plan was adopted on May 1, 2000.
Certain Institutions may receive additional fees from the
CSAMSI, CSAM or their affiliates for providing supplemental services in
connection with investments in the Fund.
41
<PAGE>
Institutions may also be reimbursed for marketing costs. Additional fees may be
up to 0.25% per year of the value of Fund accounts maintained by the firm
and/or, in certain cases, may include a one-time fee of up to 0.50% of the value
of assets invested in the accounts. Fees payable to any particular Institution
are determined based upon a number of factors, including the nature and quality
of the services provided, the operations processing requirements of the
relationship and the standardized fee schedules of the Institutions. To the
extent that CSAMSI, CSAM, or their affiliates provide additional compensation or
reimbursements for marketing expenses, such payments would not represent an
additional expense to the Fund or their shareholders.
An Institution with which the Fund has entered into an
Agreement with respect to its Advisor Shares may charge a Customer one or more
of the following types of fees, as agreed upon by the Institution and the
Customer, with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution and shareholder servicing
arrangements. A Customer of an Institution should read the relevant Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature describing the services and related fees that would be
provided by the Institution to its Customers prior to any purchase of Fund
shares. Prospectuses are available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.
The Advisor Shares 12b-1 Plan will continue in effect for so
long as their continuance is specifically approved at least annually by the
Board, including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Distribution Plans or the 12b-1 Plan ("Independent Directors"). Any
material amendment of the Advisor Shares 12b-1 Plan would require the approval
of the Board in the same manner. The Advisor Shares 12b-1 Plan may not be
amended to increase materially the amount to be spent thereunder without
shareholder approval. The Advisor Shares 12b-1 Plan may be terminated at any
time, without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of the relevant class
of shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the 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, the 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. (The
42
<PAGE>
Fund may also suspend or postpone the recordation of the transfer of its shares
upon the occurrence of any of the foregoing conditions.)
If conditions exist which make payment of redemption proceeds
wholly in cash unwise or undesirable, the Fund may make payment wholly or partly
in securities or other investment instruments which may not constitute
securities as such term is defined in the applicable securities laws. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of that Fund at the
beginning of the period.
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 the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by CSAM
is available to investors in the Fund. An Advisor Shareholder may exchange
Advisor Shares of the 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 the 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 the 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
Advisor Funds at 800-222-8977.
The Fund reserve the right to refuse exchange purchases by any
person or group if, in the Adviser's judgment, the 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
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<PAGE>
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 Fund
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 Fund. 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 Fund. The summary is based on
the laws in effect on the date of this Statement of Additional Information,
which are subject to change.
THE FUND AND ITS INVESTMENTS. The Fund intends to continue to
qualify to be treated as a regulated investment company each taxable year under
the Code. To so qualify, the 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, 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 (the "Asset Diversification Requirement") 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, the 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., 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)), and
its net tax-exempt interest income for the taxable year is distributed (the
"Distribution Requirement"), 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 the 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.
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The 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). The Fund currently expects to
distribute any excess annually to its shareholders. However, if the 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 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 the 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. The 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, the 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 or
tax-exempt interest. If the 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 the 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.
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The 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 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. The 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.
The 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, an option, 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 holds 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.
SPECIAL TAX CONSIDERATIONS. The following discussion relates
to the particular federal income tax consequences of the investment policies of
the Fund.
STRADDLES. The options transactions that the Fund 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 Fund. In
addition, losses realized by the Fund 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
Fund 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 Fund must make in
order to avoid federal excise tax. Furthermore, in
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<PAGE>
determining their investment company taxable income and ordinary income, the
Fund 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 Fund of holding
straddle positions may be further affected by various elections provided under
the Code and Treasury regulations, but at the present time the Fund is uncertain
which (if any) of these elections it 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 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 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 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 the Fund must make to avoid federal excise tax
liability.
The Fund 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 the 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
47
<PAGE>
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, the Fund may elect capital gain or loss treatment for such
transactions. Alternatively, the 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 exceed other
investment company taxable income during a taxable year, the 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 the Fund acquires
shares in certain foreign investment entities, called "passive foreign
investment companies" ("PFIC"), the 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 the Fund. Additional charges in the nature of interest may
also be imposed on the Fund in respect of such deferred taxes. However, in lieu
of sustaining the foregoing tax consequences, the Fund may elect to have its
investment in any PFIC taxed as an investment in a "qualified electing fund"
("QEF"). The 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 the Fund for purposes of satisfying the Distribution
Requirement and the excise tax distribution requirement.
The 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. The 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 the 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 the 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 the Fund should
use the current value of the underlying security (its prospective future
investment);
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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, the
Fund may not rely on informal rulings of the Internal Revenue Service issued to
other taxpayers. Consequently, the 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.
FOREIGN TAXES. Dividends and interest received by the Fund 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 the 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. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the 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, the 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 Fund may make or receive periodic net payments. It 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 the 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
49
<PAGE>
amount equal to the amount of money that the shareholders receiving cash
dividends or distributions will receive, and should have a cost basis in the
shares received equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If the 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 the 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 the 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. The 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 Fund 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 Fund's taxable year
regarding the United States federal income tax status of certain dividends,
distributions and deemed distributions that were
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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 FUND 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 FUND.
DETERMINATION OF PERFORMANCE
TOTAL RETURN. From time to time, the Fund may quote the total
return of its Common Shares and Advisor Shares in advertisements or in reports
and other communications to shareholders. The net asset values of Common Shares
and Advisor Shares are 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.
The 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:
P(1+T)(n) = 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.
The 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:
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)
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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
Fund for the year ended August 31, 2000 were as follows:
<TABLE>
<CAPTION>
Since
5 year 10 year Inception
1 year (annualized) (annualized) (annualized)
------ ------------ ------------ ------------
<S> <C> <C> <C>
70.99% N/A N/A 57.32%
</TABLE>
The aggregate total return for the Common Shares of the Fund
for the period ended August 31, 2000 since inception was 445.81%.
Performance information provided above reflects the
performance of the Advisor Shares of the BEA Fund (which is the predecessor of
the Fund). The Fund's Advisor Shares commenced operations on __________, 2000.
Since the Advisor Class is subject to slightly higher expenses, the returns of
the Advisor Class would have been lower.
The Fund 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 the Fund's performance with other measures of investment return. For
example, in comparing the Fund's total return with data published by Lipper
Analytical Services, Inc., CDA/Weisenberger 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,
the 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 Fund does not, for these purposes,
deduct from the initial value invested any amount representing sales charges.
The Fund 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.
52
<PAGE>
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the 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 the Fund and
provides legal services from time to time for CSAM and CSAMSI.
MISCELLANEOUS
The Fund is 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 Fund or any member of the
public regarding the advisability of investing in securities generally or in
the Fund 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 Fund's net asset value, nor is Warburg,
Pincus & Co. a distributorof the Fund. Warburg, Pincus & Co. has no obligation
or liability in connection with the administration,marketing or trading of the
Fund.
As of November 21, 2000, the names, address and percentage of
ownership of each person that owns of record 5% or more of a class of the Fund's
outstanding shares were as follows:
<TABLE>
<CAPTION>
PERCENT
OWNED AS OF
NAME AND ADDRESS NOVEMBER 21, 2000
---------------- -----------------
<S> <C> <C>
Common Shares Charles Schwab & Co. 38.68%
Special Custody Account for the Exclusive
Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Nat'l Financial Svcs Corp 17.71%
FBO Customers
Church St Station
PO Box 3908
New York, NY 10008-3908
</TABLE>
FINANCIAL STATEMENTS
The Fund's Advisor Shares commenced operations on _________,
2000. The Fund's audited financial report for the Common Shares, dated August
31, 2000, which either accompanies this Statement of Additional Information or
has previously been provided to the
53
<PAGE>
investor to whom this Statement of Additional Information is being sent, is
incorporated herein by reference with respect to all information regarding the
Fund included therein. The Fund will furnish without charge a copy of the annual
report upon request by calling Warburg Pincus Advisor Funds at 800-222-8977.
54
<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 some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-2
<PAGE>
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.
C - Bonds which are rated C comprise the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-3
<PAGE>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
a Articles of Incorporation. (1)
b By-Laws. (1)
c Registrant's Forms of Stock Certificates. (2)
d(1) Form of Investment Advisory Agreement. (3)
(2) Form of Sub-Investment Advisory Agreement. (4)
e Form of Distribution Agreement. (5)
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. (5)
(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 to the Registrant's Definitive Proxy Statement
filed June 1, 2000.
(5) 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>
(4) Fee Agreement with PFPC Inc. (6)
i(1) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Fund. (7)
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund. (2)
(3) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Fund.
j(1) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
(2) Powers of Attorney. (5)
k Not applicable.
l Form of Purchase Agreement. (3)
m(1) Form of Shareholder Servicing and
Distribution Plan. (5)
(2) Form of Distribution Plan. (5)
n Form of 18f-3 Plan. (5)
o Not Applicable.
p(1) Form of Code of Ethics. (3)
(2) Amended Form of Code of Ethics. (4)
------------------
(6) Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A of Credit Suisse Institutional Fund,
Inc. filed August 30, 2000 (Securities Act File No. 33-47880).
(7) Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on November 2, 1999 (Securities Act File No. 333-60683).
(8) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Warburg, Pincus Trust filed on
April 26, 2000 (Securities Act File No. 33-58125).
(9) Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A of Credit Suisse Institutional Fund,
Inc. filed August 30, 2000 (Securities Act File No. 33-47880).
<PAGE>
(3) Form of Code of Ethics for Credit Suisse Asset Management
Limited. (9)
</TABLE>
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 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).
Credit Suisse Asset Management Limited ("CSAM U.K.") act as
sub-investment adviser for the Registrant. CSAM U.K. renders investment advice
and provides full-service private equity programs to clients. The list required
by this Item 26 of officers and partners of CSAM U.K., 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 U.K. (SEC File No. 801-40177).
Item 29. PRINCIPAL UNDERWRITER
(a) CSAM Securities acts as distributor for Registrant, as well as
for Credit Suisse Institutional International Growth Fund; Credit Suisse
Institutional Strategic Global Fixed Income Fund; Credit Suisse Institutional
U.S. Core Equity Fund; Credit Suisse Institutional U.S. Core Fixed Income Fund;
Warburg Pincus Global Financial Services Fund, Warburg Pincus/CSFB Global New
Technologies Fund, Warburg Pincus/CSFB Technology Index Fund, Warburg Pincus
Aggressive Growth Fund, Credit Suisse Institutional Fund, Warburg Pincus
<PAGE>
Value Fund, 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 European Equity Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Focus Fund; Warburg Pincus Global Fixed Income Fund; Warburg Pincus
Global Health Sciences Fund; Warburg Pincus Global Post-Venture Capital Fund;
Warburg Pincus Global Telecommunications Fund; Warburg Pincus High Yield Fund;
Warburg Pincus Intermediate Maturity Government Fund; Warburg Pincus
International Equity Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small Company 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 Small Company Growth Fund; Warburg Pincus Small Company Value Fund;
Warburg Pincus Trust; Warburg Pincus Trust II; Warburg Pincus Value 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)
(2) Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, New York 10017-3147
(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)
<PAGE>
(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)
(8) Credit Suisse Asset Management Limited
Beaufort House
15 St Botolph
London, EC3A7JJ
(records relating to its functions as sub-investment adviser)
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 30th day of November, 2000.
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/William W. Priest* Chairman of the November 30, 2000
-------------------- Board of Directors
William W. Priest
/s/Eugene L. Podsiadlo President November 30, 2000
----------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer and Chief November 30, 2000
----------------------- Financial
Michael A. Pignataro Officer
/s/Richard H. Francis* Director November 30, 2000
---------------------
Richard H. Francis
/s/Jack W. Fritz* Director November 30, 2000
-----------------
Jack W. Fritz
/s/Jeffrey E. Garten* Director November 30, 2000
---------------------
Jeffrey E. Garten
/s/James S. Pasman, Jr.* Director November 30, 2000
------------------------
James S. Pasman, Jr.
/s/Steven N. Rappaport* Director November 30, 2000
-----------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge* Director November 30, 2000
---------------------------
Alexander B. Trowbridge
*By: /s/Michael A. Pignataro
------------------------
Michael A. Pignataro as Attorney-in-Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
i(3) Opinion and Consent of Willkie Farr & Gallagher, counsel to the
Fund.
j(1) Consent of PricewaterhouseCoopers LLP, Independent Accountants.
