<PAGE>
As filed with the U.S. Securities and Exchange Commission
on April 28, 2000
Securities Act File No. 333-90051
Investment Company Act File No. 811-09681
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. 1 [x]
Post-Effective Amendment No. ___ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
Warburg, Pincus Large Company Growth 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 Large Company Growth 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 the
effective date of this Registration Statement.
Title of Securities Being Registered: Common Stock, $.001 par value per share.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended (the "1933 Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<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.
<PAGE>
<TABLE>
<S> <C>
[WARBURG PINCUS LOGO] [CREDIT SUISSE ASSET MANAGEMENT LOGO]
</TABLE>
SUBJECT TO COMPLETION, DATED April 28, 2000
PROSPECTUS
COMMON CLASS
, 2000
WARBURG PINCUS
AGGRESSIVE GROWTH FUND
As with all mutual funds, the Securities and Exchange Commission has
not approved these funds, nor has it passed upon the adequacy or
accuracy of this PROSPECTUS. It is a criminal offense to state
otherwise.
Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
KEY POINTS............................................. 4
Goal and Principal Strategies........................ 4
Investor Profile..................................... 4
A Word About Risk.................................... 5
INVESTOR EXPENSES...................................... 7
Fees and Fund Expenses............................... 7
Example.............................................. 7
THE FUND IN DETAIL..................................... 8
The Management Firm.................................. 8
Multi-Class Structure................................ 8
Fund Information Key................................. 9
Goal and Strategies.................................. 10
Portfolio Investments................................ 10
Risk Factors......................................... 10
Portfolio Management................................. 11
Investor Expenses.................................... 11
MORE ABOUT RISK........................................ 12
Introduction......................................... 12
Types of Investment Risk............................. 12
Certain Investment Practices......................... 14
MEET THE MANAGERS...................................... 16
ABOUT YOUR ACCOUNT..................................... 17
Share Valuation...................................... 17
Buying and Selling Shares............................ 17
Account Statements................................... 18
Distributions........................................ 18
Taxes................................................ 18
OTHER INFORMATION...................................... 20
About the Distributor................................ 20
FOR MORE INFORMATION................................back cover
</TABLE>
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KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
AGGRESSIVE GROWTH FUND Capital appreciation - Invests primarily in U.S. equity
Risk factors: securities
MARKET RISK - Focuses on medium and large companies
FOREIGN SECURITIES - Uses a growth investment style and
looks for companies which may offer
the potential for accelerated earnings
or revenue growth
</TABLE>
INVESTOR PROFILE
THIS FUND IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios into common 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
- are looking for income
You should base your investment decision on your own goals, risk preferences
and time horizon.
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A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
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
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.
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.
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INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are expected amounts for the fiscal period ending
October 31, 2000.
<TABLE>
<CAPTION>
<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 .80%
Distribution and service (12b-1) fee .25%
Other expenses(1)
TOTAL ANNUAL FUND OPERATING EXPENSES(2)
</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
Distribution and service (12b-1) fee .25%
Other expenses
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.40%
</TABLE>
EXAMPLE
This example may help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, the fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements or credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
<S> <C>
$ $
</TABLE>
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<PAGE>
THE FUND IN DETAIL
THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
- Investment adviser for the 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 more than $72 billion in the
U.S. and $203 billion globally
- CSAM has offices in 14 countries, including SEC-registered offices in New
York and London; other offices (such as those in Budapest, Frankfurt, Milan,
Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and Zurich) are not registered
with the U.S. Securities and Exchange Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to as
"CSAM" or "we" throughout this PROSPECTUS.
MULTI-CLASS STRUCTURE
This PROSPECTUS offers Common Class shares of the fund.
The fund also offers Advisor Shares, which are described in a separate
prospectus.
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8
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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 adviser to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2000 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. 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 ave age net assets.
- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal registration fees and miscellaneous
expenses. Expressed as a percentage of average net assets after waivers,
credits and reimbursements.
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<PAGE>
AGGRESSIVE GROWTH FUND
GOAL AND STRATEGIES
The fund seeks capital appreciation. To pursue this goal, it invests primarily
in equity securities of medium and large U.S. companies.
In seeking to identify growth companies, the fund's portfolio manager looks
for companies which may offer the opportunity for accelerated earnings or
revenue growth. These companies tend to have higher earnings growth rates and
often have new products, technologies, or other opportunities for growth. These
companies may also have favorable industry or market positions. The portfolio
manager uses fundamental analysis of each issuer's financial condition and
industry position as well as market and economic conditions to select
investments. Growth potential, management and earnings are among the factors
considered.
Under normal market conditions, the fund invests at least 65% of assets in
equity securities of medium and large U.S. companies. Medium and large companies
are companies whose capitalizations are within the ranges of the S&P Mid-Cap 400
Index and the S&P 500 Index, respectively. Some companies may fall below these
levels after the fund has purchased their securities. These companies continue
to be considered medium or large, as the case may be, for purposes of the fund's
minimum 65% allocation to medium and large company equities.
PORTFOLIO INVESTMENTS
Equity holdings may consist of:
- common and preferred stocks
- securities convertible into or exchangeable for common stocks
- securities such as rights and warrants, whose values are based on common
stocks
The fund may invest up to 20% of assets in foreign securities. To a limited
extent, it may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- market risk
- foreign securities
The value of your investment generally will fluctuate in response to
stock-market movements. Fund performance will largely depend upon the
performance of growth stocks, which may be more volatile than the overall stock
market.
Different types of stocks (such as "growth" vs. "value" stocks) tend to shift
in and out of favor depending on market and economic conditions. Accordingly,
the fund's performance may sometimes be lower or higher than that of other types
of funds (such as those emphasizing value stocks).
"More About Risk" details certain other investment practices the fund may use.
Please read that section carefully before you invest.
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10
<PAGE>
PORTFOLIO MANAGEMENT
[_____________] manage[s] the fund's investment portfolio. You can find out
more about [them] in "Meet the Manager[s].
INVESTOR EXPENSES
Expected expenses for the 2000 fiscal period (after fee waivers and expense
reimbursements):
<TABLE>
<S> <C>
Management fee .xx%
Distribution and
service (12b-1) fee .25%
All other expenses .xx%
-----
Total expenses 1.40%
</TABLE>
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<PAGE>
MORE ABOUT RISK
INTRODUCTION
The 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.
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency-
denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can reduce
or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the market
value of an investment. With bonds and other fixed-income securities,
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12
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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.
Bonds and other fixed-income securities generally involve less market risk
than stocks. However, the risk of bonds can vary significantly depending upon
factors such as issuer and maturity. The bonds of some companies may be riskier
than the stocks of others.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.
VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.
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<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
/X/Permitted without limitation; does not indicate actual use
/20%/ITALIC TYPE (E.G., 20%) represents an investment limitation as a percentage
of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a percentage
of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
- -- Not permitted
<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
<S> <C>
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
SPECULATIVE EXPOSURE RISK. 33 1/3%
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. CURRENCY, INFORMATION,
LIQUIDITY, MARKET, POLITICAL, VALUATION RISKS. 20%
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable a fund to hedge against or speculate on future
changes in currency values, interest rates, securities or
stock indexes. Futures obligate the fund (or give it the
right, in the case of options) to receive or make payment at
a specific future time based on those future changes.(1)
CORRELATION, CURRENCY, HEDGED EXPOSURE, INTEREST-RATE,
MARKET, SPECULATIVE EXPOSURE RISKS.(2) / /
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
within the four highest grades (AAA/Aaa through BBB/Baa) by
Standard & Poor's or Moody's rating service, and unrated
securities of comparable quality. CREDIT, INTEREST-RATE,
MARKET RISKS. / /
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below the fourth-highest grade (BBB/Baa) by Standard &
Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds.
CREDIT, INFORMATION, INTEREST-RATE, LIQUIDITY, MARKET,
VALUATION RISKS. / /
OPTIONS Instruments that provide a right to buy (call) or
sell (put) a particular security, currency or index of
securities at a fixed price within a certain time period. 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. 25%
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests. CREDIT,
INTEREST-RATE, MARKET RISKS. / /
RESTRICTED AND OTHER LLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. LIQUIDITY, MARKET, VALUATION
RISKS. /15%/
</TABLE>
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<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
<S> <C>
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%
SHORT-TERM TRADING Selling a security shortly after
purchase. A fund engaging in short-term trading will have
higher turnover and transaction expenses. Increased
short-term capital gains distributions could raise
shareholders' income tax liability. /X/
SPECIAL-SITUATION COMPANIES Companies experiencing unusual
developments affecting their market values. Special
situations may include acquisition, consolidation,
reorganization, recapitalization, merger, liquidation,
special distribution, tender or exchange offer, or
potentially favorable litigation. Securities of a
special-situation company could decline in value and hurt a
fund's performance if the anticipated benefits of the
special situation do not materialize. INFORMATION, MARKET
RISKS. / /
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in investments such as money-market obligations and
investment-grade debt securities for defensive purposes.
Although intended to avoid losses in adverse market,
economic, political or other conditions, defensive tactics
might be inconsistent with a fund's principal investment
strategies and might prevent a fund from achieving its goal. / /
WARRANTS Options issued by a company granting the holder the
right to buy certain securities, generally common stock, at
a specified price and usually for a limited time. LIQUIDITY,
MARKET, SPECULATIVE EXPOSURE RISKS. /15%/
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. LIQUIDITY, MARKET,
SPECULATIVE EXPOSURE RISKS. / /
</TABLE>
<TABLE>
<C> <S>
(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.
</TABLE>
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MEET THE MANAGERS
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16
<PAGE>
ABOUT YOUR ACCOUNT
SHARE VALUATION
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (currently 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Common Class's total assets, less its
liabilities, by the number of Common Class shares outstanding.
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.
BUYING AND
SELLING SHARES
The accompanying SHAREHOLDER GUIDE explains how to invest directly with the
fund. You will find information about purchases, redemptions, exchanges and
services.
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
(usually 4 p.m. ET), your transaction will be priced at that day's NAV. If we
receive it after that time, it will be priced at the next business day's NAV.
FINANCIAL-SERVICES FIRMS
You can also buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The 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
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17
<PAGE>
additional service features that may apply to your investment. Certain features
of the fund, such as the minimum initial or subsequent investment amounts, may
be modified.
Some of the firms through which the funds are available include:
- Charles Schwab & Co., Inc. Mutual Fund OneSource-Registered Trademark-
service
- Fidelity Brokerage Services, Inc. FundsNetwork-TM- Program
- Waterhouse Securities, Inc.
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 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
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18
<PAGE>
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.
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<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 Common Class
As part of its business strategy, the fund has adopted a Rule 12b-1
shareholder-servicing and distribution plan to compensate CSAMSI for the above
services. Under the plan, CSAMSI receives fees at an annual rate of 0.25% of
average daily net assets of the fund's Common Class. Because the fees are paid
out of a fund's assets on an ongoing basis, over time they will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
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<PAGE>
FOR MORE INFORMATION
More information about the fund is available free upon request, including the
following:
SHAREHOLDER GUIDE
Explains how to buy and sell shares. The SHAREHOLDER GUIDE is incorporated by
reference into (is legally part of) this PROSPECTUS.
ANNUAL/SEMIANNUAL
REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed performance
information.
The ANNUAL REPORT also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.
OTHER INFORMATION
A current STATEMENT OF ADDITIONAL INFORMATION (SAI), which provides more
details about the 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 Funds to obtain, without charge, the SAI and
ANNUAL and SEMIANNUAL REPORTS and to make shareholder inquiries:
BY TELEPHONE:
800-WARBURG
(800-927-2874)
BY MAIL:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER
SERVICE:
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBERS:
Warburg Pincus Aggressive
Growth Fund 811-09681
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) / / www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR WPxxx-1-0X00
<PAGE>
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
COMMON CLASS
SEPTEMBER 16, 1999
AS REVISED DECEMBER 15, 1999
This SHAREHOLDER GUIDE is incorporated into and legally part of each
Warburg Pincus (Common Class) prospectus.
[WARBURG PINCUS LOGO]
Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC
<PAGE>
BUYING SHARES
OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Shareholder Service Center to receive one
by mail or fax. Or you can download it from our Internet Web site:
www.warburg.com.
You can make your initial investment by check or wire. The "By Wire" method in
the table enables you to buy shares on a particular day at that day's closing
NAV.
ADDING TO AN ACCOUNT
You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.
INVESTMENT CHECKS
Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Funds. Unfortunately, we cannot accept "starter" checks that do not have
your name preprinted on them. We also cannot accept checks payable to you or to
another party and endorsed to the order of Warburg Pincus Funds. These types of
checks may be returned to you and your purchase order may not be processed.
Limited exceptions include properly endorsed government checks.
MINIMUM INITIAL
INVESTMENT
<TABLE>
<S> <C>
Cash Reserve Fund: $ 1,000
New York Tax Exempt Fund: $ 1,000
Balanced Fund: $ 1,000
Growth & Income Fund:* $ 1,000
WorldPerks-Registered Trademark- Funds: $ 5,000
Long-Short Fund: $25,000
All other funds: $ 2,500
IRAs: $ 500**
Transfers/Gifts to Minors: $ 500**
</TABLE>
* THE FUND WILL BE RENAMED "VALUE FUND" EFFECTIVE JANUARY 1, 2000.
** $25,000 MINIMUM FOR LONG-SHORT FUND.
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[WARBURG PINCUS FUND NAME]
DDA# 9904-649-2
F/F/C: [ACCOUNT NUMBER AND REGISTRATION]
HOW TO REACH US
SHAREHOLDER SERVICE CENTER
Toll free: 800-WARBURG
(800-927-2874)
Fax: 212-370-9833
MAIL
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
INTERNET WEB SITE
www.warburg.com
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2
<PAGE>
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
- - Complete the NEW ACCOUNT APPLICATION. - Make your check payable to Warburg Pincus Funds.
For IRAs use the UNIVERSAL IRA APPLICATION. - Write the account number and the fund name on
- - Make your check payable to Warburg Pincus Funds. your check.
- - Mail to Warburg Pincus Funds. - Mail to Warburg Pincus Funds.
- Minimum amount is $100.
BY EXCHANGE
- - Call our Shareholder Service Center to request - Call our Shareholder Service Center to request
an exchange. Be sure to read the current an exchange.
prospectus for the new fund. Also please - Minimum amount is $250.
observe the minimum initial investment. If you do not have telephone privileges, mail or
If you do not have telephone privileges, mail or fax a signed letter of instruction.
fax a signed letter of instruction.
BY WIRE
- - Complete and sign the NEW ACCOUNT APPLICATION. - Call our Shareholder Service Center by 4 p.m. ET
- - Call our Shareholder Service Center and fax the to inform us of the incoming wire. Please be
signed NEW ACCOUNT APPLICATION by 4 p.m. ET. sure to specify your name, the account number
- - Shareholder Services will telephone you with and the fund name on your wire advice.
your account number. Please be sure to specify - Wire the money for receipt that day.
your name, the account number and the fund name - Minimum amount is $500.
on your wire advice.
- - Wire your initial investment for receipt that
day.
- - Mail the original, signed application to Warburg
Pincus Funds.
This method is not available for IRAs.
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
- - Cannot be used to open an account. - Call our Shareholder Service Center to request
an ACH transfer from your bank.
- Your purchase will be effective at the next NAV
calculated after we receive your order in proper
form.
- Minimum amount is $50.
Requires ACH on Demand privileges.
</TABLE>
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
--
3
<PAGE>
SELLING SHARES*
<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
<S> <C>
BY MAIL
Write us a letter of instruction that includes: - Accounts of any type.
- - your name(s) and signature(s) - Sales of any amount.
- - the fund name and account number For IRAs please use the IRA DISTRIBUTION REQUEST
- - the dollar amount you want to sell FORM.
- - how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling Shares in
Writing").
Mail the materials to Warburg Pincus Funds.
If only a letter of instruction is required, you
can fax it to the Shareholder Service Center.
BY EXCHANGE
- - Call our Shareholder Service Center to request - Accounts with telephone privileges.
an exchange. Be sure to read the current If you do not have telephone privileges, mail or
prospectus for the new fund. Also please observe fax a letter of instruction to exchange shares.
the minimum initial investment.
BY PHONE
Call our Shareholder Service Center to request a - Non-IRA accounts with telephone privileges.
redemption. You can receive the proceeds as:
- - a check mailed to the address of record
- - an ACH transfer to your bank ($50 minimum)
- - a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for details.
BY WIRE OR ACH TRANSFER
- - Complete the "Wire Instructions" or "ACH on - Non-IRA accounts with wire-redemption or ACH on
Demand" section of your NEW ACCOUNT APPLICATION. Demand privileges.
- - For federal-funds wires, proceeds will be wired - Requests by phone or mail.
on the next business day. For ACH transfers,
proceeds will be delivered within two business
days.
</TABLE>
* For the Japan Small Company Fund only: The fund imposes a 1.00% redemption fee
(short-term trading fee) on fund shares redeemed or exchanged less than six
months from purchase. This fee is calculated based on the shares' net asset
value at redemption and deducted from the redemption proceeds. The fee is paid
to the fund to offset costs associated with short-term shareholder trading. It
does not apply to shares acquired through reinvestment of distributions. For
purposes of computing the redemption fee, any shares bought through reinvestment
of distributions will be redeemed first without charging the fee, followed by
the shares held longest. The redemption fee applies to fund shares purchased on
or after November 17, 1999.
--
4
<PAGE>
SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
- - accounts whose address of record has been changed within the past 30 days
- - redemption in certain large amounts (other than by exchange)
- - requests to send the proceeds to a different payee or address
- - shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED
SHARES
If the fund has not yet collected payment for the shares you are selling, it
will delay sending you the proceeds until your purchase payment clears. This may
take up to 10 calendar days after the purchase. To avoid the collection period,
consider buying shares by bank wire, bank check, certified check or money order.
LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum required to keep it open due
to redemptions or exchanges, the fund may ask you to increase your balance. If
it is still below the minimum after 60 days, the fund may close your account and
mail you the proceeds.
MINIMUM TO KEEP AN
ACCOUNT OPEN
<TABLE>
<S> <C>
Cash Reserve Fund: $ 750
New York Tax Exempt Fund: $ 750
Balanced Fund: $ 500
Growth & Income Fund:* $ 500
WorldPerks Funds: $ 750
All other funds: $2,000
IRAs: $ 250
Transfers/Gifts to Minors: $ 250
</TABLE>
* THE FUND WILL BE RENAMED "VALUE FUND" ON JANUARY 1, 2000.
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
--
5
<PAGE>
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.
SAVEMYMONEY PROGRAM
SaveMyMoney is a low minimum, automatic investing program that makes it easy
to build a mutual fund portfolio. For an initial investment of $250 along with a
minimum $50 monthly investment, you can invest in certain Warburg Pincus funds.
The SaveMyMoney Program will automatically transfer the monthly investment
amount you designate from your bank account.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments ($50 minimum) from a designated bank account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals of
$250 or more.
DISTRIBUTION SWEEP
For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
RETIREMENT PLANS
Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
- - Traditional IRAs
- - Roth IRAs
- - Roth Conversion IRAs
- - Spousal IRAs
- - Rollover IRAs
- - SEP IRAs
To transfer your IRA to Warburg Pincus, use the IRA TRANSFER/DIRECT ROLLOVER
FORM. If you are opening a new IRA, you will also need to complete the UNIVERSAL
IRA APPLICATION. Please consult your tax professional concerning your IRA
eligibility and tax situation.
TRANSFERS/GIFTS TO MINORS
Depending on state laws, you can set up a custodial account under the Uniform
Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please
consult your tax professional about these types of accounts.
ACCOUNT CHANGES
Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.
--
6
<PAGE>
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned dividend distributions as soon as
your purchase order is executed. For the Intermediate Maturity Government, New
York Intermediate Municipal and Fixed Income Funds and the Money Market Funds,
you begin to earn dividend distributions the business day after your purchase
order is executed. However, if we receive your purchase order and payment to
purchase shares of a Money Market Fund before 12 p.m. (noon), you begin to earn
dividend distributions on that day.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:
- your investment check or ACH transfer does not clear
- you place a telephone order by 4 p.m. ET and we do not receive your wire that
day
If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
A fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 30 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind" --payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations
- suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)
- modify or waive its minimum investment requirements for investments through
certain financial-services firms and for employees and clients of its
adviser, sub-adviser, distributor and their affiliates and, for the
Long-Short Funds, investments through certain financial-services firms
($10,000 minimum) and through retirement plan programs (no minimum)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
--
7
<PAGE>
[WARBURG PINCUS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) / / www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. WPCOM-31-0999
(EFFECTIVE JANUARY 3, 2000, PROVIDENT DISTRIBUTORS, INC. WILL BE THE FUND
DISTRIBUTOR)
<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, DATED APRIL 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
______________, 2000
WARBURG PINCUS AGGRESSIVE GROWTH FUND
This STATEMENT OF ADDITIONAL INFORMATION provides information about the
Warburg Pincus Aggressive Growth Fund (the "Fund") that supplements information
contained in the PROSPECTUS 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.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the PROSPECTUS and information regarding the Fund's
current performance and the status of shareholder accounts can be obtained by
writing or telephoning:
COMMON SHARES ADVISOR SHARES
Warburg Pincus Funds Warburg Pincus Advisor Funds
P.O. Box 9030 P.O. Box 9030
Boston, MA 02205-9030 Boston, MA 02205-9030
800-WARBURG Attn.: Institutional Services
800-222-8977
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES.................................................................................1
General Investment Strategies............................................................................1
Strategic and Other Transactions.........................................................................1
Options, Futures and Currency Transactions......................................................1
Securities Options..............................................................................1
Securities Index Options........................................................................4
OTC Options.....................................................................................4
Futures Activities..............................................................................5
Futures Contracts...............................................................................5
Options on Futures Contracts....................................................................6
Currency Exchange Transactions..................................................................7
Forward Currency Contracts......................................................................7
Currency Options................................................................................8
Currency Hedging................................................................................8
Hedging Generally...............................................................................8
Asset Coverage for Forward Contracts, Options, Futures and Options on Futures..................10
Additional Information on Other Investment Practices....................................................10
U.S. Government Securities.....................................................................10
Other U.S. Government Securities...............................................................11
Money Market Obligations.......................................................................11
Money Market Mutual Funds......................................................................11
Repurchase Agreements..........................................................................11
Convertible Securities.........................................................................12
Structured Securities..........................................................................12
Mortgage-Backed Securities.....................................................................12
Asset-Backed Securities........................................................................13
Structured Notes, Bonds or Debentures..........................................................13
Assignments and Participations.................................................................14
Debt Securities................................................................................14
Below Investment Grade Securities..............................................................15
Zero Coupon Securities.........................................................................16
Securities of Other Investment Companies.......................................................16
Lending of Portfolio Securities................................................................17
Foreign Investments............................................................................17
Depositary Receipts............................................................................18
Foreign Currency Exchange......................................................................18
Euro Conversion................................................................................18
Information....................................................................................19
Political Instability..........................................................................19
Foreign Markets................................................................................19
Increased Expenses.............................................................................19
Foreign Debt Securities........................................................................19
(1)
<PAGE>
Privatizations.................................................................................19
Brady Bonds....................................................................................20
Short Sales "Against the Box"..................................................................20
Short Sales....................................................................................20
Warrants.......................................................................................21
Non-Publicly Traded and Illiquid Securities....................................................22
Borrowing......................................................................................23
Reverse Repurchase Agreements..................................................................23
When-Issued Securities and Delayed-Delivery Transactions.......................................23
REITs..........................................................................................24
Small Capitalization and Emerging Growth Companies; Unseasoned Issuers.........................24
"Special Situation" Companies..................................................................24
Dollar Rolls...................................................................................25
Temporary Defensive Strategies..........................................................................25
Debt Securities................................................................................25
Money Market Obligations.......................................................................25
INVESTMENT RESTRICTIONS..........................................................................................25
PORTFOLIO VALUATION..............................................................................................27
PORTFOLIO TRANSACTIONS...........................................................................................28
PORTFOLIO TURNOVER...............................................................................................30
MANAGEMENT OF THE FUND...........................................................................................30
Officers and Board of Directors.........................................................................30
Directors' Total Compensation...........................................................................34
Portfolio Managers of the Fund..........................................................................34
Control Persons and Principal Holders of Securities.....................................................34
Investment Adviser and Co-Administrators................................................................34
Code of Ethics..........................................................................................35
Custodians and Transfer Agent...........................................................................35
Organization of the Fund................................................................................36
Distribution and Shareholder Servicing..................................................................36
Common Shares..................................................................................36
Advisor Shares.................................................................................38
General........................................................................................39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................39
Automatic Cash Withdrawal Plan.................................................................39
EXCHANGE PRIVILEGE...............................................................................................40
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................................40
The Fund and Its Investments............................................................................40
Passive Foreign Investment Companies....................................................................43
Dividends and Distributions.............................................................................43
Sales of Shares.........................................................................................44
(2)
<PAGE>
Foreign Taxes...........................................................................................44
Backup Withholding......................................................................................45
Notices.................................................................................................45
Special Tax Matters Relating to Zero Coupon Securities..................................................45
Other Taxation..........................................................................................45
DETERMINATION OF PERFORMANCE.....................................................................................46
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................................47
MISCELLANEOUS....................................................................................................48
FINANCIAL STATEMENTS.............................................................................................48
Commercial Paper Ratings...............................................................................F-1
Short-Term Note Ratings................................................................................F-1
Corporate Bond and Municipal Obligations Ratings.......................................................F-1
APPENDIX - DESCRIPTION OF RATINGS...............................................................................A-1
</TABLE>
(3)
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion 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 Fund is capital appreciation.
GENERAL INVESTMENT STRATEGIES
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. 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 is not obligated to pursue any of the following strategies
and does not represent that these techniques are available now or will be
available at any time in the future.
STRATEGIC AND OTHER TRANSACTIONS
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. The Fund may purchase and
write (sell) options on securities, securities indices and currencies for both
hedging purposes and to increase total return. The Fund may enter into futures
contracts and options on futures contracts on securities, securities indices and
currencies and may engage in currency exchange transactions for these same
purposes, which may involve speculation.
Up to 25% of the Fund's assets may be at risk in connection with these
strategies. The amount of assets considered to be "at risk" in these
transactions is, in the case of purchasing options, the amount of the premium
paid, and, in the case of writing options, the value of the underlying
obligation. Options may be traded on an exchange or over-the-counter ("OTC").
SECURITIES OPTIONS. The Fund may write covered put and call options on
stock and debt securities and may purchase such options that are traded on U.S.
and foreign exchanges, as well as 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 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
<PAGE>
times or at less advantageous prices, limit the amount of appreciation the Fund
could realize on its investments or require the Fund to hold securities it would
otherwise sell.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, 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). A fund that
writes call options retains the risk of an increase in the price of the
underlying security. The size of the premiums that the 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.
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 may write (i) in-the-money call
options when Credit Suisse Asset Management, LLC, the Fund's investment adviser
("CSAM"), 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
CSAM 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 CSAM 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
2
<PAGE>
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.
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
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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
CSAM, 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 the 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 CSAM 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. The Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for securities options.
OTC OPTIONS. The Fund may purchase and write OTC or dealer options.
Unlike exchange-listed options where an intermediary or clearing corporation,
such as the Clearing Corporation, assures that all transactions in such options
are properly executed, the responsibility for performing all transactions with
respect to OTC options rests solely with the writer and the holder of those
options. A listed call option writer, for example, is obligated to deliver the
underlying securities to the clearing organization if the option is exercised,
and the clearing organization is then obligated to pay the writer the exercise
price of the option. If the Fund were
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to purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market
while OTC or dealer options do not. Consequently, the Fund will generally be
able to realize the value of a dealer option it has purchased only by exercising
it or reselling it to the dealer who issued it. Similarly, when the Fund writes
a dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the option. Although the Fund will seek to
enter into dealer options only with dealers who will agree to and that are
expected to be capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to the Fund.
Until the Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Fund's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when such
sale might be advantageous.
FUTURES ACTIVITIES. The Fund may enter into futures contracts and
options on futures contracts on securities, securities indices and currencies
for bona fide hedging and speculative purposes. These futures contracts are
standardized contracts for the future delivery of a non-U.S. currency, an
interest rate sensitive security or, in the case of index futures contracts or
certain other futures contracts, a cash settlement with reference to a specified
multiplier times the change in the index. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return. Aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC will not exceed 5% of the Fund's net asset value after
taking into account unrealized profits and unrealized losses on any such
contracts it has entered into. Although the Fund is limited in the amount of
assets that may be invested in futures transactions, there is no overall limit
on the percentage of Fund assets that may be at risk with respect to futures
activities.
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
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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 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 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
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effected; the ability to establish and close out positions on such options will
be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of 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. Risks
associated with currency forward contracts and purchasing currency options are
similar to those described herein for futures contracts and securities and stock
index options. In addition, the use of currency transactions could result in
losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events. The Fund may
engage in currency exchange transactions for hedging purposes or for other
purposes, including generating current income to offset expenses or to increase
return.
FORWARD CURRENCY CONTRACTS. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, 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
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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.
Forward currency contracts are highly volatile, and a relatively small
price movement in a forward currency contract may result in substantial losses
to the Fund. To the extent the Fund engages in forward currency contracts to
generate current income, the Fund will be subject to these risks which the Fund
might otherwise avoid (E.G., through the use of hedging transactions).
CURRENCY OPTIONS. 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. The Fund
may not 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
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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 Yen-denominated bond against a decline in the Yen, but
will not protect the Fund against a price decline if the issuer's
creditworthiness deteriorates.
HEDGING GENERALLY. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, 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 CSAM
still may not result in a successful hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by CSAM, and successful use by the Fund of hedging transactions will
be subject to CSAM'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
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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.
To the extent that the Fund engages in the strategies described above,
the Fund may experience losses greater than if these strategies had not been
utilized. In addition to the risks described above, these instruments may be
illiquid and/or subject to trading limits, and the Fund may be unable to close
out a position without incurring substantial losses, if at all. The Fund is also
subject to the risk of a default by a counterparty to an off-exchange
transaction.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND OPTIONS ON
FUTURES. The Fund will comply with guidelines established by the Securities and
Exchange Commission (the "SEC") and other applicable regulatory bodies with
respect to coverage of forward currency contracts, options written by the Fund
on securities and indexes; and currency, interest rate and security index
futures contracts and options on these futures contracts. These guidelines may,
in certain instances, require segregation by the Fund of cash or liquid
securities with its custodian or a designated sub-custodian to the extent the
Fund's obligations with respect to these strategies are not otherwise "covered"
through ownership of the underlying security or financial instrument or by other
portfolio positions or by other means consistent with applicable regulatory
policies. Segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. As a result, there is a possibility that segregation of a large percentage
of the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
ADDITIONAL INFORMATION ON OTHER INVESTMENT PRACTICES
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 ("U.S. Government Securities"). 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
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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 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 CSAM determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Fund.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under
normal market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five year
or less remaining to maturity) money market obligations and for temporary
defensive purposes may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments; commercial paper rated no lower than A-2 by
Standard & Poor's Ratings Services ("S&P") or Prime-2 by Moody's Investors
Service, Inc. ("Moody's") or the equivalent from another major rating service
or, if unrated, of an issuer having an outstanding, unsecured debt issue then
rated within the three highest rating categories; and repurchase agreements with
respect to the foregoing.
MONEY MARKET MUTUAL FUNDS. Where CSAM believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund or CSAM. As a
shareholder in any mutual fund, the Fund will bear its ratable share of the
mutual fund's expenses, including management fees, and will remain subject to
payment of the Fund's management fees and other expenses with respect to assets
so invested.
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
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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. CSAM 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 Investment Company Act
of 1940, as amended (the "1940 Act").
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 CSAM will consider such event in its determination of
whether the Fund should continue to hold the securities.
STRUCTURED SECURITIES. The Fund may purchase any type of publicly
traded or privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed
securities, such as those issued by GNMA, FNMA, FHLMC or certain foreign
issuers. 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. The
government or the issuing agency typically guarantees the payment of interest
and principal of these securities. However, 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.
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
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factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages in a stable interest
rate environment, a common industry practice in the U.S. has been to assume that
prepayments will result in a 12-year average life, although it may vary
depending on numerous factors. At present, pools, particularly those with loans
with other maturities or different characteristics, are priced on an assumption
of average life determined for the 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.
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. The Fund may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented
by other securities in which the 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 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
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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.
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.
ASSIGNMENTS AND PARTICIPATIONS.
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The Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign government and one or
more financial institutions ("Lenders"). The majority of the Fund's investments
in Loans are expected to be in the form of participations in Loans
("Participants") and assignments of portions of Loans from third parties
("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 ("Loan Agreement"), 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 CSAM to be creditworthy.
The Fund's rights and obligations as the purchaser of an Assignment
may differ from, and be more limited than, those held by the assigning Lender.
The lack of a liquid secondary market for both Participations and
Assignments will have an adverse impact on the value of such securities and on
the Fund's ability to dispose of Participations or Assignments. The lack of a
liquid market for assignments and participations also may make it more difficult
for the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.
DEBT SECURITIES. The Fund may invest in debt securities with respect
to up to 20% of the Fund's total assets. Debt obligations of corporations in
which the Fund may invest include corporate bonds, debentures and notes. Debt
securities convertible into common stock and certain preferred stocks may have
risks similar to those described below. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by CSAM.
The market value of debt obligations may be expected to vary depending upon,
among other factors, interest rates, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions. Because the market value of debt obligations can be expected to vary
inversely to changes in prevailing interest rates, investing in
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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 CSAM's ability to accurately forecast changes in interest rates.
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 CSAM will
consider such event in its determination of whether the Fund should continue to
hold the securities. 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.
BELOW INVESTMENT GRADE SECURITIES. The Fund may invest up to 20% of
its total assets in securities rated below investment grade, including
convertible debt securities. 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 a comparable quality by CSAM. Bonds 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. The
Fund's holdings of debt securities rated below investment grade (commonly
referred to as "junk bonds") may be rated as low as C by Moody's or D by S&P at
the time of purchase, or may be unrated securities considered to be of
equivalent quality. Securities that are rated C by Moody's comprise the lowest
rated class and can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt rated D by S&P is in default or is
expected to default upon maturity or payment date. Bonds rated below investment
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.
Investors should be aware that ratings are relative and subjective and are not
absolute standards of quality.
Securities rated below investment grade and comparable unrated
securities: (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
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.
While the market values of medium- and lower-rated securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities, the market values
of certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be
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impaired. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
An economic recession could disrupt severely the market for such
securities and may adversely affect the value of such securities and the ability
of the issuers of such securities to repay principal and pay interest thereon.
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 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
CSAM in evaluating the creditworthiness of an issuer. In this evaluation, in
addition to relying on ratings assigned by Moody's or S&P, CSAM 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 CSAM 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.
ZERO COUPON SECURITIES. The Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have been
stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representing interests in such stripped debt
obligations and coupons. 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
anticipates that it will not normally hold zero coupon securities to maturity.
Redemption of shares of the Fund that require it to sell zero coupon securities
prior to maturity may result in capital gains or losses that may be substantial.
Federal tax law requires that a
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holder of a zero coupon security accrue a portion of the discount at which the
security was purchased as income the year, even though the holder receives no
interest payment on the security during the year. Such accrued discount will be
includible in determining the amount of dividends the Fund must pay the year
and, in order to generate cash necessary to pay such dividends, the Fund may
liquidate portfolio securities at a time when it would not otherwise have done
so.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities of other investment companies to the extent permitted under the 1940
Act. Presently, under the 1940 Act, the Fund may hold securities of another
investment company in amounts which (i) do not exceed 3% of the total
outstanding voting stock of such company, (ii) do not exceed 5% of the value of
the Fund's total assets and (iii) when added to all other investment company
securities held by the Fund, do not exceed 10% of the value of the Fund's total
assets.
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
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33 1/3% of the Fund's total assets taken at value (including the loan
collateral). The Fund will not lend portfolio securities to its investment
adviser, any sub-investment adviser or its affiliates unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S. Government
Securities, which are maintained at all times in an amount equal to at least
102% of the current market value of the loaned U.S. securities and at least 105%
of the current market value of loaned non-U.S. securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Fund. From time to time, the Fund may
return a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party that is unaffiliated
with the 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 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. Default by or bankruptcy of a
borrower would expose the Fund to possible loss because of adverse market
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action, expenses and/or delays in connection with the disposition of the
underlying securities. Any loans of the Fund's securities will be fully
collateralized and marked to market daily.
FOREIGN INVESTMENTS. The Fund may invest up to 20% of total assets in
the securities of foreign issuers. 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. 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.
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.
FOREIGN CURRENCY EXCHANGE. Since the Fund may be investing in
securities denominated in currencies of non-U.S. countries, and since the Fund
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, 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
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fluctuation of the value of foreign currencies against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures.
EURO CONVERSION. The introduction of a single European currency, the
euro, on January 1, 1999 for participating European nations in the Economic and
Monetary Union presented unique risks and uncertainties for investors in those
countries, including (i) the functioning of the payment and operational systems
of banks and other financial institutions; (ii) the creation of suitable
clearing and settlement payment schemes for the euro; (iii) the fluctuation of
the euro relative to non-euro currencies during the transition period from
January 1, 1999 to December 31, 2000 and beyond; and (iv) whether the interest
rate, tax and labor regimes of the European countries participating in the euro
will converge over time. Further, the conversion of the currencies of other
Economic Monetary Union countries, such as the United Kingdom, and the admission
of other countries, including Central and Eastern European countries, to the
Economic Monetary Union could adversely affect the euro. These or other factors
may cause market disruptions and could adversely affect the value of foreign
securities and currencies held by the Fund.
INFORMATION. Many of the foreign 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.
INCREASED EXPENSES. The operating expenses of the Fund, to the extent
it invests in foreign securities, may be higher than that of an investment
company investing exclusively in U.S. securities, since the expenses of the
Fund, such as the 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, may be 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.
FOREIGN DEBT SECURITIES. 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
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characteristics of the 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.
PRIVATIZATIONS. The Fund may invest in privatizations (I.E., foreign
government programs of selling interests in government-owned or controlled
enterprises). The ability of U.S. entities, such as the Fund, to participate in
privatizations may be limited by local law, or the terms for participation may
be less advantageous than for local investors. There can be no assurance that
privatization programs will be available or successful.
BRADY BONDS. The Fund may invest in so-called "Brady Bonds," which
have been issued by Costa Rica, Mexico, Uruguay and Venezuela and which may be
issued by other Latin American countries. Brady Bonds are issued as part of a
debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers. 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.
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 securities until delivery occurs.
The Fund may engage in a short sale if at the time of the short sale the Fund
owns or has the right to obtain without additional cost an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box." It may be entered into by the Fund to, for example, lock in a
sale 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
segregated in an account with the Fund's custodian or qualified sub-custodian.
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
transaction 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.
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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.
SHORT SALES. The Fund may from time to time sell securities short. A
short sale is a transaction in which the Fund sells securities it does not own
in anticipation of a decline in the market price of the securities. The current
market value of the securities sold short (excluding short sales "against the
box") will not exceed 10% of the Fund's assets.
To deliver the securities to the buyer, the Fund must arrange through
a broker to borrow the securities and, in so doing, the Fund becomes obligated
to replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. The Fund will make a profit or incur a
loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Fund purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Fund is required to pay in connection
with a short sale.
The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
liquid securities deposited as collateral with the broker in connection with the
short sale (not including the proceeds of the short sale). Until it replaces the
borrowed securities, the Fund will maintain the segregated account daily at a
level so that (a) the amount deposited in the account plus the amount deposited
with the broker (not including the proceeds from the short sale) will equal the
current market value of the securities sold short and (b) the amount deposited
in the account plus the amount deposited with the broker (not including the
proceeds from the short sale) will not be less than the market value of the
securities at the time they were sold short.
WARRANTS. The Fund may invest up to 15% of its net assets in warrants.
The Fund may purchase warrants issued by domestic and foreign companies to
purchase newly created equity securities consisting of common and preferred
stock. Warrants are securities that give the holder the right, but not the
obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period. The equity security underlying a warrant is authorized at the time the
warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. At the time of issue, the cost of a warrant is
substantially less than the cost of the underlying security itself, and price
movements in the underlying security are generally magnified in the price
movements of the warrant. This leveraging effect enables the investor to gain
exposure to the
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underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
The value of a warrant may decline because of a decline in the value of the
underlying security, the passage of time, changes in interest rates or in the
dividend or other policies of the company whose equity underlies the warrant or
a change in the perception as to the future price of the underlying security, or
any combination thereof. Warrants generally pay no dividends and confer no
voting or other rights other than to purchase the underlying security.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. The Fund may invest up to
15% of its net assets in non-publicly traded and illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market, time deposits maturing in more than seven days, certain Rule 144A
Securities (as defined below) and repurchase agreements which have a maturity of
longer 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 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
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requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. CSAM anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this regulation and use of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board and 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 CSAM the daily function of
determining and monitoring the liquidity of Rule 144A Securities, although the
Board will retain ultimate responsibility for liquidity determinations.
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, so long as there is asset
coverage of at least 300% for all borrowings of the Fund. 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.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements with member banks of the Federal Reserve System and
certain non-bank dealers. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to its 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 segregate with an approved
custodian cash or liquid high-grade debt 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
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<PAGE>
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.
Reverse repurchase agreements that are accounted for as financings are
considered to be borrowings under the 1940 Act.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may
utilize up to 20% of its total assets to purchase securities on a "when-issued"
basis or purchase or sell securities for delayed delivery (I.E., payment or
delivery occur beyond the normal settlement date at a stated price and yield).
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 enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if CSAM deems it advantageous to do so.
The payment obligation and the interest rate that will be received on
when-issued and delayed-delivery securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. When-issued securities may include securities purchased on a "when, as
and if issued" basis, under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case, 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 incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
REITS. The Fund may invest in real estate investment trusts ("REITs"),
which are pooled investment vehicles that invest primarily in income-producing
real estate or real estate related loans or interests. Like regulated investment
companies such as the Fund, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). By investing in a REIT, the Fund
will indirectly bear its proportionate share of any expenses paid by the REIT in
addition to the expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by
changes in the value of the underlying property owned by such REIT or by the
quality of any credit extended by the REIT. REITs are dependent on management
skills, are not diversified (except to the extent the Code requires), and are
subject to the risks of financing projects. REITs are subject to
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<PAGE>
heavy cash flow dependency, default by borrowers, self-liquidation, the
possibilities of failing to qualify for the exemptions from the 1940 Act. REITs
are also subject to interest rate risks.
SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES; UNSEASONED
ISSUERS. Investments in small- and medium- sized and emerging growth companies,
as well as companies with continuous operations of less than three years
("unseasoned issuers") 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 small- and medium-sized and emerging growth companies and
unseasoned issuers may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile.
"SPECIAL SITUATION" COMPANIES. "Special situation companies" are
involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, would improve the
value of the company's stock. If the actual or prospective situation does not
materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly. CSAM believes, however, that if it
analyzes "special situation companies" carefully and invests in the securities
of these companies at the appropriate time, the Fund may achieve maximum capital
appreciation. There can be no assurance, however, that a special situation that
exists at the time of an investment will be consummated under the terms and
within the time period contemplated.
DOLLAR ROLLS. The Fund also may enter into "dollar rolls," in which
the Fund sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forego principal and interest paid on such securities.
The Fund would be compensated by the difference between the current sale price
and the forward price for the future purchase, as well as by the interest earned
on the cash proceeds of the initial sale. At the time 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.
TEMPORARY DEFENSIVE STRATEGIES.
DEBT SECURITIES. When CSAM believes that a defensive posture is
warranted, the Fund may invest temporarily without limit in investment grade
debt obligations and in domestic and foreign money market obligations, including
repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund, for temporary defensive purposes,
may invest in domestic and foreign short-term (one year or less remaining to
maturity) and medium-term (five years or less remaining to maturity) money
market obligations without limit.
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<PAGE>
INVESTMENT RESTRICTIONS
Certain 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 investment limitations numbered 1 through 9 are Fundamental
Restrictions. Investment limitations 10 through 13 may be changed by a vote of
the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for temporary
or emergency purposes and (b) enter into reverse repurchase agreements;
provided that reverse repurchase agreements, dollar roll transactions that
are accounted for as financings and any other transactions constituting
borrowing by the Fund may not exceed 33 1/3% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options,
futures contracts, options on futures contracts, forward commitment
transactions and dollar roll transactions that are not accounted for as
financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of
U.S. Government Securities.
3. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of
such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Fund's
total assets may be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold fixed-income
securities, including loan participations, assignments and structured
securities, lend portfolio securities and enter into repurchase agreements.
5. Underwrite any securities issued by others except to the extent that the
investment in restricted securities and the sale of securities in
accordance with the Fund's investment objective, policies and limitations
may be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or mineral exploration
or development programs, except that the Fund may invest in (a) securities
secured by real estate, mortgages
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<PAGE>
or interests therein and (b) securities of companies that invest in or
sponsor oil, gas or mineral exploration or development programs.
7. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies and indexes,
and options on futures contracts, securities, currencies or indexes,
purchase and sell currencies on a forward commitment or delayed-delivery
basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's investment
limitations.
10. Purchase securities of other investment companies except in connection with
a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent necessary
to secure permitted borrowings and to the extent related to the deposit of
assets in escrow in connection with the purchase of securities on a forward
commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions,
options, futures contracts, and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in securities which may be
illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the Fund's borrowings
exceed 5% of its net assets.
PORTFOLIO VALUATION
The following is a description of the procedures used by the Fund in
valuing their assets.
Securities listed on an exchange or traded in an
over-the-counter market will be valued at the closing price on the exchange
or market on which the security is primarily traded (the "Primary Market") at
the time of valuation (the "Valuation Time"). If the security did not trade
on the Primary Market, the security will be valued at the closing price on
another exchange or market where it trades at the Valuation Time. If there
are no such sales prices, the security will be valued at the most recent bid
quotation as of the Valuation Time or at the lowest asked quotation in the
case of a short sale of securities. If there are no
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<PAGE>
such quotations, the value of the security will be taken to be the most
recent bid quotation on the exchange or market. 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. If a Pricing Service is not able to supply
closing prices and bid/asked quotations, and there are two or more dealers,
brokers or market makers in the security, the security will be valued at the
mean between the highest bid and the lowest asked quotations from at least
two dealers, brokers or market makers or, if such dealers, brokers or market
makers only provide bid quotations, at the mean between the highest and the
lowest bid quotations provided. If a Pricing Service is not able to supply
closing prices and bid/asked quotations, and there is only one dealer, broker
or market maker in the security, the security will be valued at the mean
between the bid and the asked quotations provided, unless the dealer, broker
or market maker can only provide a bid quotation in which case the security
will be valued at such bid quotation. Options contracts will be valued
similarly. Futures contracts will be valued at the most recent settlement
price at the time of valuation. 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.
Securities, options, futures contracts and other assets which cannot
be valued pursuant to the foregoing will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. In addition, the Board or its delegates may value a security at
fair value if it determines that such security's value determined by the
methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(I.E., a day on which The New York Stock Exchange, Inc. ("NYSE") is open for
trading). The NYSE is currently scheduled to be closed on New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. 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 may
not take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the
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NYSE will not be reflected in the Fund's calculation of net asset value unless
the Board or its delegates deems that the particular event would materially
affect net asset value, in which case an adjustment may be made. All assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values at the prevailing rate as quoted by a Pricing Service as
of 12:00 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.
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 over-the-counter markets, but the price
of securities traded in over-the-counter 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, CSAM does business exclusively with those
broker-dealers that, in CSAM'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,
CSAM will pay no more for execution and research services than it considers
either, or both together, to be worth. The worth of execution service depends on
the ability of the broker-dealer to minimize costs of securities purchased and
to maximize prices obtained for securities sold. The worth of research depends
on its usefulness in optimizing portfolio composition and its changes over time.
Commissions for the combination of execution and research services that meet
CSAM's standards may be higher than for execution services
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<PAGE>
alone or for services that fall below CSAM's standards. CSAM 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, CSAM 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. Research services may include research on specific industries or
companies, macroeconomic analyses, analyses of national and international events
and trends, evaluations of thinly traded securities, computerized trading
screening techniques and securities ranking services, and general research
services.
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by CSAM.
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 CSAM 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, securities may be aggregated with those 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.
In no instance will portfolio securities be purchased from or sold to
CSAM, Credit Suisse Asset Management Securities, Inc. ("CSAMSI") or Credit
Suisse First Boston ("CS First Boston") or any affiliated person of the
foregoing entities except as permitted by SEC exemptive order or by applicable
law. In addition, the Fund will not give preference to any institutions with
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whom the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services.
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 CSAM, in its
sole discretion, believes such practice to be otherwise in the Fund's interest.
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. Consequently, the
annual portfolio turnover rate of the Fund may be higher than mutual funds
having similar objectives that do not utilize these strategies.
It is not possible to predict the Fund's portfolio turnover rate.
However, it is anticipated that the Fund's portfolio turnover rate will not
exceed ___%. High portfolio turnover rates (100% or more) may result in higher
brokerage commissions, dealer mark-ups or underwriting commissions as well as
other transaction costs. In addition, gains realized from portfolio turnover may
be taxable to shareholders.
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MANAGEMENT OF THE FUND
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of the Fund is managed by the Board of
Directors in accordance with the laws of the State of Maryland. The 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.
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.
<TABLE>
<S> <C>
Richard H. Francis (67) DIRECTOR
40 Grosvenor Road Currently retired; Executive Vice President and Chief
Short Hills, New Jersey 07078 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 Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 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 William S. Beinecke
New Haven, Connecticut 06520-8200 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 of Aetna,
Inc.; Director of Calphine Energy Corporation; Director/Trustee of
other Warburg Pincus Funds.
James S. Pasman, Jr. (69) DIRECTOR
29 The Trillium Currently retired; President and Chief Operating
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Pittsburgh, Pennsylvania 15238 Officer of National InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from April 1989 to March
1991; Director of Education Management Corp., Tyco
International Ltd., Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg Pincus Funds and other
CSAM-advised investment companies.
William W. Priest* (58) CHAIRMAN OF THE BOARD
153 East 53rd Street Chairman-Management Committee, Chief Executive Officer and
New York, New York 10022 Managing Director of CSAM since 1990; 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. (on-line accounting service) since
New York, New York 10022 1997; 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 (69) DIRECTOR
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) since January 1990; 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 CSAM since
Credit Suisse acquired the
- -------------------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
34
<PAGE>
New York, New York 10017-3147 Funds' predecessor adviser in July 1999; with the
predecessor adviser since 1991; Vice President of Citibank,
N.A. from 1987 to 1991; Officer of CSAMSI and of other
Warburg Pincus Funds.
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
153 East 53rd Street Managing Director and General Counsel of CSAM; Associated
New York, New York 10022 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 Administration of
New York, New York 10022 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; Associated with
New York, New York 10017-3147 CSAM since Credit Suisse acquired the Funds' predecessor
adviser in July 1999; with the predecessor adviser since
1997; Associated with the law firm of Gordon Altman Butowsky
Weitzen Shalov & Wein from 1995 to 1997; Officer of other
Warburg Pincus Funds.
Rocco A. DelGuercio (36) ASSISTANT TREASURER
153 East 53rd Street Assistant Vice President and Administrative Officer of CSAM;
New York, New York 10022 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.
</TABLE>
The Fund pays Directors who are not "affiliated persons" (as defined
in the 1940 Act) of CSAM, CSAMSI, PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates an annual fee of $750 and $250 for each
meeting of the Board attended by him for his
35
<PAGE>
services as a 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
(estimated for fiscal period ending October 31, 2000):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
ALL INVESTMENT COMPANIES IN
NAME OF DIRECTOR THE FUND WARBURG PINCUS FUND COMPLEX*
------------------------------------------------------------------------------------------
<S> <C> <C>
William W. Priest** None None
------------------------------------------------------------------------------------------
Richard H. Francis $2,000 $102,000
------------------------------------------------------------------------------------------
Jack W. Fritz $2,000 $102,000
------------------------------------------------------------------------------------------
Jeffrey E. Garten $2,000 $102,000
------------------------------------------------------------------------------------------
James S. Pasman, Jr. $2,000 $102,000
------------------------------------------------------------------------------------------
Steven N. Rappaport $2,000 $102,000
------------------------------------------------------------------------------------------
Alexander B. Trowbridge $2,125 $108,375
------------------------------------------------------------------------------------------
</TABLE>
* Each Director serves as a Director or Trustee of 51 investment
companies or portfolios in the Warburg Pincus family of funds,
with the exception of Mr. Garten who serves as a Director or
Trustee of 33 investment companies or portfolios in the Warburg
Pincus family of funds.
** 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.
PORTFOLIO MANAGERS OF THE FUND
[TO COME]
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Credit Suisse Asset Management International, an affiliate of CSAM,
will hold all of the shares of the Fund on the date the Fund's Registration
Statement becomes effective.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
CSAM, located at 153 East 53rd Street, New York, New York 10022,
serves as investment adviser to the Fund pursuant to a written agreement (the
"Advisory Agreement"). CSAM, formerly known as BEA Associates, together with its
predecessor firms, has been engaged in the investment advisory business for over
60 years. CSAM is an indirect wholly-owned U.S. subsidiary of Credit Suisse
("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
36
<PAGE>
- -- 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.
CSAMSI and PFPC both serve as co-administrators to the Fund pursuant
to separate written agreements (the "CSAMSI Co-Administration Agreement" and the
"PFPC Co-Administration Agreement," respectively). For the services provided by
CSAM under the Advisory Agreement, the Fund pays CSAM a fee calculated at an
annual rate of 0.80% of the Fund's average daily net assets. For the services
provided by CSAMSI under the CSAMSI Co-Administration Agreement, the Fund pays
CSAMSI a fee calculated at an annual rate of .10% of the Fund's average daily
net assets. For the services provided by PFPC under the PFPC Co-Administration
Agreement, the Fund pays PFPC a fee calculated at an annual rate of .10% of the
Fund's first $500 million in average daily net assets, .075% of the next $1
billion in average daily net assets and .05% of average daily net assets
exceeding $1.5 billion, exclusive of out-of-pocket expenses. Each class of
shares of the Fund will bear its proportionate share of fees payable to CSAM,
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. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CODE OF ETHICS
The Fund, CSAM and CSAMSI have each adopted a written Code of Ethics
(the "Code"), which permits personnel covered by the Code ("Covered Persons") to
invest in securities, including securities that may be purchased or held by the
Fund. The Code also contains provisions designed to address the conflicts 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 at least annually and
may impose sanctions for violations of the Code.
CUSTODIANS AND TRANSFER AGENT
Brown Brothers Harriman & Co. ("BBH") acts as global custodian for the
Fund pursuant to a written Custodian Agreement (the "Custodian Agreement"). BBH
will (i) maintain a separate account or accounts in the name of the Fund, (ii)
hold and transfer portfolio securities on account of the Fund, (iii) accept
receipts and disbursements of money on behalf of the Fund, (iv) collect and
receive all income and other payments and distributions for the account of the
Fund's portfolio securities and (v) make periodic reports to the Board
concerning the Fund's custodial arrangements. BBH is authorized to select one or
more foreign banking institutions and foreign securities depositories to serve
as sub-custodian on behalf of the Fund, provided that BBH remains responsible
for the performance of all its duties under the Custodian Agreement
37
<PAGE>
and holds the Fund harmless from the negligent acts and omissions of any
sub-custodian. For its services to the Fund under the Custodian Agreement, 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. BBH's principal business address is 40 Water Street,
Boston, Massachusetts 02109.
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 its
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 diversified, open-end management investment company
within the meaning of the 1940 Act. The Fund was organized as a corporation
under the laws of the State of Maryland on October 21, 1999. On _______, 2000,
the Fund changed its name from "Warburg, Pincus Large Company Growth Fund, Inc."
to "Warburg, Pincus Aggressive Growth Fund, Inc."
The Fund's Charter authorizes the Board to issue three billion full
and fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares, one billion shares are designated
Institutional Shares and one billion are designated Advisor Shares. The Fund
currently offers Common Shares and Advisor Shares.
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 governing 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 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.
Shareholders of the Fund 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.
Distribution and Shareholder Servicing
38
<PAGE>
COMMON SHARES. The Fund has adopted a Shareholder Servicing and
Distribution Plan (the "Common Shares 12b-1 Plan"), pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which the Fund pays CSAMSI under the CSAMSI
Co-Administration Agreement a fee calculated at an annual rate of .25% of the
average daily net assets of the Common Shares of the Fund. The fee is intended
to compensate CSAMSI, or to enable CSAMSI to compensate other persons ("Service
Providers"), for providing Services (as defined below) to the Fund. Services
performed by CSAMSI under the CSAMSI Co-Administration Agreement or Service
Providers include (i) services that are primarily intended to result in, or that
are primarily attributable to, the sale of the Common Shares, as set forth in
the Common Shares 12b-1 Plan ("Selling Services") and (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund, as set
forth in the Common Shares 12b-1 Plan ("Shareholder Services", together with
Selling Services, "Services"). Shareholder Services may include, without
limitation, responding to Fund shareholder inquiries and providing services to
shareholders not otherwise provided by the Funds' distributor or transfer agent.
Selling Services may include, without limitation, (a) the printing and
distribution to prospective investors in Common Shares of prospectuses and
statements of additional information describing the Fund; (b) the preparation,
including printing, and distribution of sales literature, advertisements and
other informational materials relating to the Common Shares; (c) providing
telephone services relating to the Fund, including responding to inquiries of
prospective Fund investors; (d) formulating and implementing marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising and
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Fund may, from time to time, deem advisable.
In providing compensation for Services in accordance with this Plan, CSAMSI is
expressly authorized (i) to make, or cause to be made, payments to Service
Providers reflecting an allocation of overhead and other office expenses related
to providing Services and (ii) to make, or cause to be made, payments to
compensate selected dealers or other authorized persons for providing any
Services.
Payments under the Common Shares 12b-1 Plan are not tied exclusively
to the distribution expenses actually incurred by CSAMSI and the payments may
exceed distribution expenses actually incurred.
Pursuant to the Common Shares 12b-1 Plan, CSAMSI provides the Board
with periodic reports of amounts expended under the Common Shares 12b-1 Plan and
the purpose for which the expenditures were made. The Common Shares 12b-1 Plan
was adopted on October 26, 1999.
The Fund has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other financial intermediaries
(collectively, "Service Organizations") or, if applicable, their designees to
enter confirmed purchase and redemption orders on behalf of their clients and
customers, with payment to follow no later than the Fund's
39
<PAGE>
pricing on the following business day. If payment is not received by such time,
the Service Organization could be held liable for resulting fees or losses. The
Fund may be deemed to have received a purchase or redemption order when a
Service Organization, or, if applicable, its authorized designee, accepts the
order. Such orders received by the Fund in proper form will be priced at the
Fund's net asset value next computed after they are accepted by the Service
Organization or its authorized designee. Service Organizations may impose
transaction or administrative charges or other direct fees, which charges or
fees would not be imposed if Fund shares are purchased directly from the Fund.
For administration, subaccounting, transfer agency and/or other
services, CSAM or its affiliates may pay Service Organizations a fee of up to
.40% of the average annual value of accounts with the Fund maintained by such
Service Organizations. Service Organizations may also be reimbursed for
marketing costs. The Service Fee payable to any one Service Organization is
determined based upon a number of factors, including the nature and quality of
services provided, the operations processing requirements of the relationship
and the standardized fee schedule of the Service Organization or recordkeeper.
The Fund may reimburse part of the Service Fee at rates they would normally pay
to the transfer agent for providing the services.
ADVISOR SHARES. The Fund (which currently does not offer Advisor
Shares) may enter into agreements ("Agreements") with institutional shareholders
of record, broker-dealers, financial institutions, depository institutions,
retirement plans and financial intermediaries ("Institutions") to provide
certain distribution, shareholder servicing, administrative and/or accounting
services for their clients or customers (or participants in the case of
retirement plans) ("Customers") who are beneficial owners of Advisor Shares.
Agreements will be governed by a distribution plan (the "Advisor Share 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 Share 12b-1 Plan requires the Board, at least quarterly, to
receive and review written reports of amounts expended under the Advisor Share
12b-1 Plan and the purposes for which such expenditures were made. The Advisor
Shares 12b-1 Plan was adopted on October 26, 1999.
Certain Institutions may receive additional fees from CSAMSI, CSAM or
their affiliates for providing supplemental services in connection with
investments in the Fund. Institutions may also be reimbursed for marketing and
other costs. Additional fees may be up to 0.10% per year of the value of Fund
accounts maintained by the firm. 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 schedule of the Institution. 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 its 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
40
<PAGE>
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 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. A Prospectus is 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.
GENERAL. The Advisor Share 12b-1 Plan and the Common Shares 12b-1 Plan
will continue in effect for so long as their continuance is specifically
approved at least annually by the Fund's 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 Advisor Shares 12b-1 Plan or
the Common Shares 12b-1 Plan, as the case may be ("Independent Directors"). Any
material amendment of the Advisor Shares 12b-1 Plan or the Common Shares 12b-1
Plan would require the approval of the Board in the same manner. Neither the
Advisor Shares 12b-1 Plan nor the Common Shares 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Advisor Share 12b-1 Plan and the
Common 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.
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 of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Fund may also suspend or postpone the recordation of an
exchange 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
41
<PAGE>
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 the 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 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. A Common Shareholder may exchange Common
Shares of the Fund for Common Shares of another Fund or for Common Shares of
another Warburg Pincus Fund at their respective net asset values. An Advisor
Shareholder may exchange Advisor Shares of 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 Funds at (800) 927-2874.
The Fund reserves the right to refuse exchange purchases by any person
or group if, in CSAM'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 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 reserves 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. The
42
<PAGE>
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. This summary is based on the laws in effect on the date of this
Statement of Additional Information and existing judicial and administrative
interpretations thereof, both of 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 during each taxable year under Part I of Subchapter M of the
Code. To so qualify, the Fund must, among other things: (a) derive at least 90%
of its gross income in the taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock, securities, foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of the 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 U.S. Government Securities or securities of other
regulated investment companies) of any one issuer or any two or more issuers
that the Fund controls and which 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-term and short-term capital gains) and on its
net realized long-term and short-term capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (I.E., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed to its shareholders, 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 the
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.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
43
<PAGE>
The Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board 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 such
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"). Even if the Fund makes such an
election, it is possible that it may incur an excise tax as a result of not
having distributed net capital gains.
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 ordinary income for that year and at least 98% of its net capital gains
(both long-term and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any ordinary income
or net capital gains retained by the Fund that is subject to corporate income
tax will be considered to have been distributed by year-end. The balance of such
income must be distributed during the next calendar 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 excise tax.
With regard to the Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as the Fund and
may limit the Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.
If, in any taxable year, 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.
44
<PAGE>
Moreover, 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 the Fund had been liquidated) in order
to qualify as a regulated investment company in a subsequent year.
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 against the box 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.
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess distribution" or
gain from the disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. If the Fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the Code, in
lieu of the foregoing requirements, the Fund might be required to include in
income the year a portion of the ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to the Fund, and such amounts
would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or impossible to obtain.
Alternatively, the Fund may make a mark-to-market election that will
result in the Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of the year. In such case, the Fund would report any such
gains as ordinary income and would deduct any such losses as ordinary losses to
the extent of previously recognized gains. The election, once made, would be
effective for all subsequent taxable years of the Fund, unless revoked with the
45
<PAGE>
consent of the IRS. By making the election, the Fund could potentially
ameliorate the adverse tax consequences with respect to its ownership of shares
in a PFIC, but in any particular year may be required to recognize income in
excess of the distributions it receives from PFICs and its proceeds from
dispositions of PFIC company stock. The Fund may have to distribute this
"phantom" income and gain to satisfy the 90% distribution requirement and to
avoid imposition of the 4% excise tax. The Fund will make the appropriate tax
elections if possible, and take any additional steps that are necessary to
mitigate the effect of these rules.
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net realized
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 the 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 an 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
46
<PAGE>
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 during such six-month period.
FOREIGN TAXES
The Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders if more than 50% of the
Fund's total assets at the close of its fiscal year consists of stock or
securities of foreign corporations. 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.
BACKUP WITHHOLDING
The Fund may be required to withhold, for United States federal income
tax purposes, 31% of the dividends and distributions 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 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 Its Investments") made by the
47
<PAGE>
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 paid (or that are treated as
having been paid) by the Fund to its shareholders during the preceding taxable
year.
SPECIAL TAX MATTERS RELATING TO ZERO COUPON SECURITIES
Investment by the Fund in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments; however,
a portion of the difference between a zero coupon security's maturity value and
its purchase price is imputed as income to the Fund the year even though the
Fund receives no cash distribution until maturity. Under the U.S. federal tax
laws applicable to mutual funds, 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 will ordinarily
constitute taxable income to shareholders of the Fund.
OTHER TAXATION
Distributions also may be subject to additional state, local and
foreign taxes depending on the shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares or Advisor Shares in advertisements or in reports and other
communications to shareholders. These figures are calculated by finding the
average annual compounded rates of return for the one-, five- and ten- (or such
shorter period as the relevant class of shares has been offered) year periods
that would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)n = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year
periods (or fractional portion thereof). Total return or "T" is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period and assumes that all dividends and distributions are reinvested
during the period. The net asset value of Common Shares is listed in The Wall
Street Journal each business day under the heading "Warburg Pincus Funds."
Current total return figures may be obtained by calling Warburg-Pincus Funds at
(800) 927-2874.
When considering average total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of nay Fund's return over a longer
market cycle.
48
<PAGE>
The Fund may also advertise aggregate total return figures for various periods,
representing the cumulative change in value of an investment in the relevant
Fund for the specific period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate and average
total returns may be shown by means of schedules, charts or graphs and may
indicate various components of total return (I.E., change in value of initial
investment, income dividends and capital gains distributions).
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraphs,
except that the relevant measuring period would be the number of months that
have elapsed in the current calendar year or most recent three months, as the
case may be. Investors should note that this performance may not be
representative of the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
operating expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, the Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in the Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
In addition, reference may be made in advertising a class of Fund
shares to opinions of Wall Street economists and analysts regarding economic
cycles and their effects historically on the performance of small companies,
both as a class and relative to other investments. The Fund may also discuss its
beta, or volatility relative to the market, and make reference to its relative
performance in various market cycles in the United States.
The Fund may compare its performance with (i) that of other mutual
funds as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar investment services that monitor the performance of mutual funds or as
set forth in the publications listed below; (ii) the S&P 500 Index or other
appropriate indexes; or (iii) other appropriate indexes of investment securities
or with data developed by CSAM derived from such indexes. The Fund may include
evaluations of the Fund published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar, Mutual Fund Magazine, SmartMoney,
The Wall Street Journal and Worth. Morningstar, Inc. rates funds in broad
categories based on risk/reward analyses over various time periods. In addition,
the Fund may from time to time compare the expense ratio of its Common Shares to
that of any investment company with similar objectives and policies, based on
data generated by Lipper Analytical Services, Inc. or similar investment
services that monitor mutual funds.
49
<PAGE>
In its reports, investor communications or advertisements, the Fund
may also include: (i) its total return performance; (ii) its performance
compared with various indexes or other mutual funds; (iii) published evaluations
by nationally recognized ranking services and financial publications; (iv)
descriptions and updates concerning its strategies and portfolio investments;
(v) its goals, risk factors and expenses compared with other mutual funds; (vi)
analysis of its investments by industry, country, credit quality and other
characteristics; (vii) a discussion of the risk/return continuum relating to
different investments; (viii) the general biography or work experience of the
portfolio managers of the Fund; (ix) portfolio manager commentary or market
updates; (x) research methodology underlying stock selection or the Fund's
investment objective; and (xi) other information of interest to investors.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Fund. The financial statements that are incorporated by
reference into this Statement of Additional Information have been audited by PwC
and have been incorporated by reference herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for 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
distributor of the Fund. Warburg, Pincus & Co. has no obligation or liability in
connection with the administration, marketing or trading of the Fund.
FINANCIAL STATEMENTS
The Fund's financial statement follows the Report of Independent
Accountants.
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APPENDIX DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
SHORT-TERM NOTE RATINGS
The following summarizes the two highest ratings used by S&P for
short-term notes:
SP-1 - Loans bearing this designation evidence a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus sign designation.
SP-2 - Loans bearing this designation evidence a satisfactory capacity
to pay principal and interest.
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.
CORPORATE BOND AND MUNICIPAL OBLIGATIONS RATINGS
The following summarizes the ratings used by S&P for corporate bonds
and Municipal Obligations:
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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 and Municipal Obligations:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, (I.E., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
A-3
<PAGE>
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-4
<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 Form of Stock Certificates.
d Form of Investment Advisory Agreement. (2)
e Form of Distribution Agreement. (2)
f Not applicable.
g Custodian Agreement with Brown Brothers Harriman & Co. (2)
h(1) Transfer Agency and Service Agreement. (2)
(2) Form of Co-Administration Agreement with Credit Suisse Asset Management
Securities, Inc. (2)
(3) Form of Co-Administration Agreement with PFPC Inc. (2)
i(1) Opinion and Consent of Willkie Farr & Gallagher, counsel to the Fund.
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland counsel to
the Fund.
j(1) Consent of PricewaterhouseCoopers LLP, Independent Accountants. (3)
- ---------------------------------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on November 1, 1999 (Securities Act File No. 333-90051).
(2) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A
of Warburg, Pincus Long-Short Market Neutral Fund, Inc., filed on November
2, 1999 (Securities File No. 333-60687).
(3) To be filed by amendment.
<PAGE>
(2) Powers of Attorney. (1)
k Not Applicable.
l Form of Purchase Agreement.
m(1) Form of Shareholder Servicing and
Distribution Plan. (2)
(2) Form of Distribution Plan. (2)
n Not applicable.
o Form of 18f-3 Plan. (2)
</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 25 OF PART C OF THE FUND'S INITIAL
REGISTRATION STATEMENT ON FORM N-1A FILED ON NOVEMBER 1, 1999.
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).
Item 27. PRINCIPAL UNDERWRITER
(a) CSAM Securities will act as distributor for Registrant, as well as
for Warburg Pincus Balanced Fund; Warburg
<PAGE>
Pincus Capital Appreciation Fund; Warburg Pincus Cash Reserve Fund; Warburg
Pincus Central & Eastern Europe Fund; Warburg Pincus Emerging Growth Fund;
Warburg Pincus Emerging Markets Fund; Warburg Pincus Emerging Markets II Fund;
Warburg Pincus European Equity Fund; Warburg Pincus Fixed Income Fund; WARBURG
PINCUS FOCUS FUND; Warburg Pincus Global Fixed Income Fund; Warburg Pincus
Global Post-Venture Capital Fund; Warburg Pincus Health Sciences Fund; Warburg
Pincus High Yield Fund; Warburg Pincus Institutional Fund; Warburg Pincus
Intermediate Maturity Government Fund; Warburg Pincus International Equity Fund;
Warburg Pincus International Growth Fund; Warburg Pincus International Small
Company Fund; Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small
Company Fund; Warburg Pincus Long-Short Equity Fund; Warburg Pincus Long-Short
Market Neutral Fund; Warburg Pincus Major Foreign Markets Fund; Warburg Pincus
Municipal Bond Fund; Warburg Pincus New York Intermediate Municipal Fund;
Warburg Pincus New York Tax Exempt Fund; Warburg Pincus Post-Venture Capital
Fund; Warburg Pincus Small Company Growth Fund; Warburg Pincus Small Company
Value Fund; Warburg Pincus Strategic Global Fixed Income Fund; Warburg Pincus
Trust; Warburg Pincus Trust II; Warburg Pincus U.S. Core Equity Fund; Warburg
Pincus U.S. Core Fixed Income Fund; WARBURG PINCUS 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 Large Company Growth 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 One Citicorp
Center 153 East 53rd Street New York, New York 10022
(records relating to its functions as investment
adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)
<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)
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 ITS 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 28th day of April 2000.
WARBURG, PINCUS LARGE COMPANY GROWTH
FUND, INC.
By:/s/Eugene L. Podsiadlo
----------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement 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 Board of April 28, 2000
- --------------------------------- Directors
William W. Priest
/s/Eugene L. Podsiadlo President April 28, 2000
- ---------------------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer and Chief April 28, 2000
- --------------------------------- Financial Officer
Michael A. Pignataro
/s/Richard H. Francis* Director April 28, 2000
- ---------------------------------
Richard H. Francis
/s/Jack W. Fritz* Director April 28, 2000
- ---------------------------------
Jack W. Fritz
/s/Jeffrey E. Garten* Director April 28, 2000
- ---------------------------------
Jeffrey E. Garten
/s/James S. Pasman, Jr.* Director April 28, 2000
- ---------------------------------
James S. Pasman, Jr.
/s/Steven N. Rappaport* Director April 28, 2000
- ---------------------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge* Director April 28, 2000
- ---------------------------------
Alexander B. Trowbridge
*By /s/Michael A. Pignataro
- ---------------------------------
Michael A. Pignataro
Attorney-in-Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
c Registrant's Form of Stock Certificates.
i(1) Opinion and Consent of Willkie Farr & Gallagher, counsel
to the Fund.
i(2) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund.
l Form of Purchase Agreement.
</TABLE>
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
WARBURG, PINCUS LARGE COMPANY GROWTH FUND, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE THREE BILLION SHARES, PAR VALUE $.001.
SPECIMEN
<PAGE>
The Corporation is authorized to issue three or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a full
statement of the designation and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the stock of each class which the
Corporation is authorized to issue and, if the Corporation is authorized to
issue any preferred or special class in series, of the differences in the
relative rights and preferences between the shares of each series to the extent
they have been set and the authority of the Board of Directors to set the
relative rights and preferences of subsequent series.
<PAGE>
[Wilkie Farr & Gallagher Letterhead]
April 28, 2000
Warburg, Pincus Large Company Growth Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Large Company Growth Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, in
connection with the preparation of a registration statement on Form N-1A
covering the offer and sale of an indefinite number of shares of Common Stock of
the Fund (the "Common Stock"), one billion of which are designated "Common
Shares," one billion of which are designated "Institutional Shares," and one
billion of which are designated "Advisor Shares," par value $.001 per share
(collectively, the "Shares").
We have examined copies of the Charter and By-Laws of the Fund, as amended, the
Fund's prospectuses and statements of additional information (the "Statements of
Additional Information") included in its Registration Statement on Form N-1A
(Securities Act File No. 333-90051 and Investment Company Act File No.
811-09681) (the "Registration Statement"), all resolutions adopted by the Fund's
Board of Directors (the "Board") at its organizational meeting held on October
26, 1999, consents of the Board and other records, documents and papers that we
have deemed necessary for the purpose of this opinion. We have also examined
such other statutes and authorities as we have deemed necessary to form a basis
for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
<PAGE>
Warburg, Pincus Large Company
Growth Fund, Inc.
April 28, 2000
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Fund is duly organized and validly existing as a corporation in
good standing under the laws of the State of Maryland.
2. The three presently issued and outstanding shares of Common Stock
representing one Common Share, one Institutional Share and one Advisor
Share in the Fund have been validly and legally issued and are fully
paid and nonassessable.
3. The Shares of the Fund to be offered for sale pursuant to the
Registration Statement are, to the extent of the number of Shares
authorized to be issued by the Fund in its Charter, duly authorized
and, when sold, issued and paid for as contemplated by the
Registration Statement, will have been validly and legally issued and
will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statements of Additional
Information and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Fund or any distributor or dealer in connection with
the registration or qualification of the Fund or the Shares under the securities
laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions. As to matters involving
the application of the laws of the State of Maryland, we have relied solely on
the opinion of Messrs. Venable, Baetjer and Howard, LLP.
Very truly yours,
/s/Willkie Farr & Gallagher
<PAGE>
VENABLE, BAETJER AND HOWARD, LLP
1800 MERCANTILE BANK AND TRUST BUILDING
TWO HOPKINS PLAZA
BALTIMORE, MARYLAND 21201
April 28, 2000
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Re: WARBURG, PINCUS LARGE COMPANY GROWTH FUND, INC.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Warburg, Pincus Large
Company Growth Fund, Inc., a Maryland corporation (the "Fund"), in connection
with the organization of the Fund and the issuance of shares of its common
stock, par value $.001 per share (the "Common Class Shares").
As Maryland counsel for the Fund, we are familiar with its Charter and
Bylaws, as amended. We have examined its Registration Statement on Form N-1A,
Securities Act File No. 333-90051 and Investment Company Act File No. 811-09681,
including the prospectus and statement of additional information contained
therein, substantially in the form in which it is to become effective (the
"Registration Statement"). We have further examined and relied upon a
certificate of the Maryland State Department of Assessments and Taxation to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland.
We have also examined and relied upon such corporate records of the
Fund and other documents and certificates with respect to factual matters as we
have deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
<PAGE>
Based on such examination, we are of the opinion and so advise you
that:
1. The Fund is a corporation duly organized and validly existing in
good standing under the laws of the State of Maryland.
2. The 10,000 presently issued and outstanding Common Class Shares
of the Fund have been duly authorized and are validly issued,
fully paid and nonassessable.
3. The Common Shares of the Fund to be offered for sale pursuant to
the Registration Statement are, to the extent of the number of
shares authorized to be issued by the Fund in its Charter, duly
authorized and, when sold, issued and paid for as contemplated by
the Registration Statement, will have been validly and legally
issued and will be fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock. It does not extend to the securities or "blue sky" laws
of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to
the Fund that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/VENABLE, BAETJER AND HOWARD, LLP
2
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Aggressive Growth Fund, Inc. (formerly, Warburg,
Pincus Large Company Growth Fund, Inc.) (the "Fund"), a corporation organized
under the laws of the State of Maryland, and Credit Suisse Asset Management
International ("CSAM International") hereby agree as follows:
1. The Fund offers CSAM International and CSAM International hereby
purchases 10,000 shares of common stock of the Fund, which shall be designated
Common Class Shares, having a par value $.001 per share (the "Shares"), at a
price of $10.00 per Share (the "Initial Shares"). CSAM International hereby
acknowledges receipt of a certificate representing the Initial Shares and the
Fund hereby acknowledges receipt from CSAM International of $100,000.00 in full
payment for the Initial Shares.
2. CSAM International represents and warrants to the Fund that the
Initial Shares are being acquired for investment purposes and not for the
purpose of distributing them.
3. CSAM International agrees that if any holder of the Initial Shares
redeems such Shares in the Fund before one year after the date upon which the
Fund commences its investment activities, the redemption proceeds will be
reduced by
<PAGE>
the amount of unamortized organizational and offering expenses, in
the same proportion as the Initial Shares being redeemed bears to the Initial
Shares outstanding at the time of redemption. The parties hereby acknowledge
that any Shares acquired by CSAM International other than the Initial Shares
have not been acquired to fulfill the requirements of Section 14 of the
Investment Company Act of 1940, as amended, and, if redeemed, their redemption
proceeds will not be subject to reduction based on the unamortized
organizational and offering expenses of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of ________________, 2000.
WARBURG, PINCUS
AGGRESSIVE GROWTH FUND, INC.
By:
--------------------------------
Name:
Title:
ATTEST:
- ---------------------------
CREDIT SUISSE ASSET MANAGEMENT,
INTERNATIONAL
By:
--------------------------------
Name:
Title:
ATTEST:
- ---------------------------
