<PAGE>
As Filed with the Securities and Exchange Commission
on May 31, 2000
Securities Act File No. 333-
Investment Company Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. [ ]
(Check appropriate box or boxes)
Warburg, Pincus Global Financial Services Fund, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . .
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
. . . . . . . . . . . . . . . . . . . .
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Hal Liebes, Esq.
Warburg, Pincus Global Financial Services Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
. . . . . . . . . . . . . . . . . .
(Name and Address of Agent for Services)
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] [LOGO]
</TABLE>
SUBJECT TO COMPLETION, DATED MAY 31, 2000
PROSPECTUS
COMMON CLASS
, 2000
WARBURG PINCUS
GLOBAL FINANCIAL SERVICES FUND
As with all mutual funds, the Securities and Exchange Commission has
not approved this fund, nor has it passed upon the adequacy or
accuracy of this PROSPECTUS. It is a criminal offense to state
otherwise.
Warburg Pincus 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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3
<PAGE>
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
GLOBAL FINANCIAL Capital appreciation - Invests primarily in equity
SERVICES FUND securities of U.S. and foreign
Risk factors: financial-services companies
FINANCIAL-SERVICES - Invests in companies of any size
COMPANIES - Uses fundamental analysis to
FOREIGN SECURITIES assess an issuer's potential for
MARKET RISK capital appreciation in light of
REGULATORY RISK its financial condition and
SECTOR CONCENTRATION industry position
</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 financial-services 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 exposure to companies in a broad variety of industries
- are looking for income
You should base your investment decision on your own goals, risk preferences
and time horizon.
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4
<PAGE>
A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
The principal risk factors for the fund are discussed below. Before you
invest, please make sure you understand the risks that apply to the fund. As
with any mutual fund, you could lose money over any period of time.
Investments in the fund are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
FINANCIAL-SERVICES COMPANIES
Financial-services companies are subject to relatively rapid change due to an
increasing convergence of service sectors and can be significantly (and
adversely) affected by availability and cost of capital, changes in interest
rates and inflation, and price competition.
FOREIGN SECURITIES
A fund that invests outside the U.S. carries additional risks that include:
- CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses. The fund may, but is not
required to, seek to reduce currency risk by hedging part or all of its
exposure to various foreign currencies.
- INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
- POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security prices
and impair the fund's ability to bring its capital or income back to the U.S.
Other political risks include economic policy changes, social and political
instability, military action and war.
MARKET RISK
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments--including stocks
and bonds, and the mutual funds that invest in them.
REGULATORY RISK
Governments, agencies or other regulatory bodies may adopt or change laws or
regulations that could adversely affect the issuer, the market value of the
security, or a fund's performance.
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5
<PAGE>
SECTOR CONCENTATION
A fund that invests more than 25% of its net assets in a group of related
industries (market sector) is subject to increased risk.
- Fund performance will largely depend upon the sector's performance, which may
differ in direction and degree from that of the overall stock market.
- Financial, economic, business, political and other developments affecting the
sector will have a greater effect on the fund.
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6
<PAGE>
INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are expected amounts for the fiscal period ending
August 31, 2001.
<TABLE>
<CAPTION>
<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 .90%
Distribution and service (12b-1) fee .25%
Other expenses(1) .96%
TOTAL ANNUAL FUND OPERATING EXPENSES(2) 2.11%
</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 .29%
Distribution and service (12b-1) fee .25%
Other expenses .96%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.50%
</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>
$214 $661
</TABLE>
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7
<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 $73 billion in the
U.S. and $208 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those
in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw
and Zurich) are not registered with the U.S. Securities and Exchange
Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to as
"CSAM" or "we" throughout this PROSPECTUS.
CREDIT SUISSE ASSET
MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ
- Sub-investment adviser for the fund
- Responsible for assisting CSAM in the management of the fund's international
assets according to its goal and strategies
- Also a member of Credit Suisse Asset Management
For easier reading, Credit Suisse Asset Management Limited will be referred to
as "CSAM U.K." throughout this PROSPECTUS.
MULTI-CLASS STRUCTURE
This 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
<PAGE>
FUND INFORMATION KEY
A concise description of the fund begins on the next page. The description
provides the following information:
GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment advisers to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2001 fiscal period. Actual expenses may be higher or
lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the fund and compensating the sub-investment adviser.
Expressed as a percentage of average net assets after waivers.
- DISTRIBUTION AND SERVICE (12B-1) FEES Fees paid by the fund to the
distributor for making shares of the fund available to you. Expressed as a
percentage of average net assets.
- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal registration fees and miscellaneous
expenses. Expressed as a percentage of average net assets after waivers,
credits and reimbursements.
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9
<PAGE>
GOAL AND STRATEGIES
The fund seeks capital appreciation. To pursue this goal, it invests primarily
in equity securities of U.S. and foreign companies in the financial-services
industry.
In seeking to identify attractive financial-services companies, the fund's
portfolio managers use fundamental analysis to assess an issuer's potential for
capital appreciation in light of its financial condition, industry position and
other market factors. Among the specific factors considered are capable
management, attractive business niches and potential to increase revenues,
earnings and cash flow consistently.
Under normal market conditions, the fund invests at least 65% of assets in
equity securities of financial-services companies. Financial-services companies
are broadly defined to include, without limitation, commercial banks, thrift and
savings banks, brokerage companies, investment management firms, insurance
companies, consumer and industrial finance companies, financial conglomerates
and leasing companies.
The fund may also invest in companies that derive a substantial portion of
their revenues from conducting business in the financial-services industry, such
as providers of financial software. The Fund invests in at least three
countries, including the U.S.
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 without limit in foreign securities. To a limited extent,
it may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- financial-services companies
- foreign securities
- market risk
- regulatory risk
- sector concentration
The value of your investment generally will fluctuate in response to
stock-market movements. Because the fund invests internationally, it carries
additional risks, including currency, information and political risks.
Although the fund does not concentrate its investments in a specific industry,
the fund may invest in a number of related industries which may be affected
similarly by certain market or other economic conditions. To the extent that it
focuses on a single sector, the fund may take on increased volatility or may not
perform as well as a more diversified equity fund. Additionally, financial
services companies are often affected by changes in interest rates or inflation
and subject to regulatory risks, each of which could hurt the fund's
performance.
"More About Risk" details these and certain other investment practices the
fund may use. Please read that section carefully before you invest.
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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 2001 fiscal period (after fee waivers and expense
reimbursements):
<TABLE>
<S> <C>
Management fee .29%
Distribution and
service (12b-1) fee .25%
All other expenses .96%
-----
Total expenses 1.50%
</TABLE>
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11
<PAGE>
MORE ABOUT RISK
INTRODUCTION
A fund's goal and principal strategies largely determine its risk profile. You
will find a concise description of the fund's risk profile in "Key Points." The
discussion of the fund contains more detailed information. This section
discusses other risks that may affect the fund.
The fund may use certain investment practices that have higher risks
associated with them. However, the fund has limitations and policies designed to
reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.
TYPES OF INVESTMENT RISK
The following risks are referred to throughout this PROSPECTUS.
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
<PAGE>
a rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell
at the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead or forego an investment opportunity. Any of
these could have a negative effect on fund management or performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments--including stocks and bonds, and the mutual funds that invest in
them.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.
VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.
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13
<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
/ / Permitted without limitation; does not indicate actual use
20% ITALIC TYPE (E.G., 20%) represents an investment limitation as a percentage
of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a percentage
of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
-- Not permitted
<TABLE>
<CAPTION>
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%
CURRENCY TRANSACTIONS Instruments, such as options, futures
or forwards, intended to manage fund exposure to currency
risk or to enhance total return. Options, futures or
forwards involve the right or obligation to buy or sell a
given amount of foreign currency at a specified price and
future date.(1) CORRELATION, CREDIT, CURRENCY, HEDGED
EXPOSURE, LIQUIDITY, POLITICAL, SPECULATIVE EXPOSURE,
VALUATION RISKS. / /
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. CURRENCY, INFORMATION,
LIQUIDITY, MARKET, POLITICAL, VALUATION RISKS. / /
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. 20%
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. 20%
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. / /
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
<S> <C>
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%
SECTOR CONCENTRATION Investing more than 25% of a fund's net
assets in a group of related industries (market sector).
Performance will largely depend upon the sector's
performance, which may differ in direction and degree from
that of the overall stock market. Financial, economic,
business, political and other developments affecting the
sector will have a greater effect on the fund. / /
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 SALES "AGAINST THE BOX" A short sale where the fund
owns enough shares of the security involved to cover the
borrowed securities, if necessary. LIQUIDITY, MARKET,
SPECULATIVE EXPOSURE RISKS. / /
SHORT-TERM TRADING Selling a security shortly after
purchase. A fund engaging in short-term trading will have
higher turnover and transaction expenses. Increased
short-term capital gains distributions could raise
shareholders' income tax liability. / /
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. 20%
</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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15
<PAGE>
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
---
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.
-
19
<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.
---
20
<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 Global Financial
Services Fund 811-
[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 WPxxx-1-0X00
<PAGE>
--------------------------------------------------------------------------------
WARBURG PINCUS FUNDS CREDIT ASSET
SUISSE MANAGEMENT
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
COMMON CLASS
FEBRUARY 29, 2000
AS REVISED MARCH 27, 2000
This SHAREHOLDER GUIDE is incorporated into and legally part of
each Warburg Pincus (Common Class) prospectus.
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
Value 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>
$25,000 minimum for Long-Short Fund.
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[WARBURG PINCUS FUND NAME]
DDA# 9904-649-2
F/F/C: [ACCOUNT NUMBER AND REGISTRATION]
HOW TO REACH US
SHAREHOLDER SERVICE CENTER
Toll free: 800-WARBURG
(800-927-2874)
Fax: 212-370-9833
MAIL
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
INTERNET WEB SITE
www.warburg.com
2
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK
-------------------------------------------------------------------------------------------------------------
- Complete the NEW ACCOUNT APPLICATION. - Make your check payable to Warburg Pincus
For IRAs use the UNIVERSAL IRA APPLICATION. Funds.
- Make your check payable to Warburg Pincus - Write the account number and the fund name
Funds. on 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
observe the minimum initial investment. - Minimum amount is $250.
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 to inform us of the incoming wire. Please be
- Call our Shareholder Service Center and fax the sure to specify your name, the account number
signed NEW ACCOUNT APPLICATION by 4 p.m. ET. and the fund name on your wire advice.
- Shareholder Services will telephone you with - Wire the money for receipt that day.
your account number. Please be sure to specify
your name, the account number and the fund - Minimum amount is $500.
name on your wire advice.
- Wire your initial investment for receipt that day.
- Mail the original, signed application to Warburg
Pincus Funds.
This method is not available for IRAs.
-------------------------------------------------------------------------------------------------------------
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
-------------------------------------------------------------------------------------------------------------
- Cannot be used to open an account. - Call our Shareholder Service Center to request
an ACH transfer from your bank.
- Your purchase will be effective at the next NAV
calculated after we receive your order in
proper form.
- Minimum amount is $50.
Requires ACH on Demand privileges.
-------------------------------------------------------------------------------------------------------------
</TABLE>
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
3
<PAGE>
SELLING SHARES *
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
-------------------------------------------------------------------------------------------------------------
<S> <C>
BY MAIL
-------------------------------------------------------------------------------------------------------------
Write us a letter of instruction that 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
FORM.
- the dollar amount you want to sell
- how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling Shares
in Writing").
Mail the materials to Warburg Pincus Funds.
If only a letter of instruction is required, you can
fax it to the Shareholder Service Center.
-------------------------------------------------------------------------------------------------------------
BY EXCHANGE
-------------------------------------------------------------------------------------------------------------
- Call our Shareholder Service Center to request - Accounts with telephone privileges.
an exchange. Be sure to read the current
prospectus for the new fund. Also please If you do not have telephone privileges, mail or
observe the minimum initial investment. fax a letter of instruction to exchange shares.
-------------------------------------------------------------------------------------------------------------
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
Demand" section of your NEW ACCOUNT ACH on Demand privileges.
APPLICATION.
- Requests by phone or mail.
- For federal-funds wires, proceeds will be wired
on the next business day. For ACH transfers,
proceeds will be delivered within two business
days.
-------------------------------------------------------------------------------------------------------------
</TABLE>
* For the Japan Growth Fund and Japan Small Company Fund only: Each fund imposes
a 2.00% 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 May 30, 2000. The Japan Small
Company Fund imposes a 1.00% redemption fee on fund shares purchased during the
period November 17, 1999 through May 29, 2000 and redeemed or exchanged less
than six months from purchase.
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
For fund shares purchased other than by bank wire, bank check, U.S.
Treasury check, certified check or money order, the funds will delay payment of
your cash redemption proceeds for 10 calendar days from the day of purchase. At
any time during this period, you may exchange into another fund.
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
Value Fund: $ 500
WorldPerks Funds: $ 750
All other funds: $2,000
IRAs: $ 250
Transfers/Gifts to Minors: $ 250
</TABLE>
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
5
<PAGE>
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.
SAVEMYMONEY PROGRAM
SaveMyMoney -SM- is a low minimum, automatic investing program that
makes easy to build a mutual fund portfolio. For an initial investment of
$250 along with a minimum $50 monthly investment, you can invest in certain
Warburg Pincus funds. The SaveMyMoney Program will automatically transfer the
monthly investment amount you designate from your bank account.
AUTOMATIC MONTHLY
INVESTMENT PLAN
For making automatic investments 50 minimum) from a designated bank
account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals
of $250 or more.
DISTRIBUTION SWEEP
For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
RETIREMENT PLANS
Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
- Traditional IRAs
- Roth IRAs
- Roth Conversion IRAs
- Spousal IRAs
- Rollover IRAs
- SEP IRAs
To transfer your IRA to Warburg Pincus, use the IRA TRANSFER/DIRECT
ROLLOVER FORM. If you are opening a new IRA, you will also need to complete the
UNIVERSAL IRA APPLICATION. Please consult your tax professional concerning your
IRA eligibility and tax situation.
TRANSFERS/GIFTS TO MINORS
Depending on state laws, you can set up a custodial account under the
Uniform Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act
(UGMA). Please consult your tax professional about these types of accounts.
ACCOUNT CHANGES
Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.
6
<PAGE>
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned dividend distributions as soon
as your purchase order is executed. For the Intermediate Maturity Government,
New York Intermediate Municipal and Fixed Income Funds and the Money Market
Funds, you begin to earn dividend distributions the business day after your
purchase order is executed. However, if we receive your purchase order and
payment to purchase shares of a Money Market Fund before 12 p.m. (noon), you
begin to earn dividend distributions on that day.
Your purchase order will be
canceled and you may be liable for losses or fees incurred by the fund if:
- your investment check or ACH transfer does not clear
- you place a telephone order by 4 p.m. ET and we do not receive your wire
that day
If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
A fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind"--payment in portfolio securities rather than
cash-- for certain large redemption amounts that could hurt fund operations
- suspend redemptions or postpone payment dates as permitted by the
Investment Company Act of 1940 (such as during periods other than weekends
or holidays when the NYSE is closed or trading on the NYSE is restricted,
or any other time that the SEC permits)
- modify or waive its minimum investment requirements for investments through
certain financial-services firms and for employees and clients of its
adviser, sub-adviser, distributor and their affiliates and, for the
Long-Short Fund, investments through certain financial-services firms
($10,000 minimum) and through retirement plan programs (no minimum)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
7
<PAGE>
--------------------------------------------------------------------------------
WARBURG PINCUS FUNDS
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) //www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR WPCOM-31-0300
--------------------------------------------------------------------------------
<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 MAY 31, 2000
STATEMENT OF ADDITIONAL INFORMATION
______________, 2000
WARBURG PINCUS GLOBAL FINANCIAL SERVICES FUND
This STATEMENT OF ADDITIONAL INFORMATION provides information
about the Warburg Pincus Global Financial Services 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
PAGE
INVESTMENT OBJECTIVE AND POLICIES..............................................1
General Investment Strategies.........................................1
Financial Services Industries.........................................1
Strategic and Other Transactions......................................1
Options, Futures and Currency Transactions...................1
Securities Options...........................................2
Securities Index Options.....................................4
OTC Options..................................................5
Futures Activities...........................................5
Futures Contracts............................................6
Options on Futures Contracts.................................7
Currency Exchange Transactions...............................7
Forward Currency Contracts...................................8
Currency Options.............................................8
Currency Hedging.............................................8
Hedging Generally............................................9
Asset Coverage for Forward Contracts, Options,
Futures and Options on Futures...........................10
Additional Information on Other Investment Practices.................11
U.S. Government Securities..................................11
Other U.S. Government Securities............................11
Money Market Obligations....................................11
Money Market Mutual Funds...................................12
Repurchase Agreements.......................................12
Convertible Securities......................................12
Structured Securities.......................................12
Mortgage-Backed Securities..................................13
Asset-Backed Securities.....................................13
Structured Notes, Bonds or Debentures.......................14
Assignments and Participations..............................14
Debt Securities.............................................15
Below Investment Grade Securities...........................15
Zero Coupon Securities......................................17
Securities of Other Investment Companies....................17
Lending of Portfolio Securities.............................17
Foreign Investments.........................................18
Depositary Receipts.........................................18
Foreign Currency Exchange...................................19
Euro Conversion.............................................19
Information.................................................19
Political Instability.......................................19
Foreign Markets.............................................20
Increased Expenses..........................................20
(i)
<PAGE>
PAGE
Foreign Debt Securities.....................................20
Privatizations..............................................20
Brady Bonds.................................................20
Short Sales "Against the Box"...............................21
Short Sales.................................................21
Warrants....................................................22
Non-Publicly Traded and Illiquid Securities.................22
Borrowing...................................................24
Reverse Repurchase Agreements...............................24
When-Issued Securities and Delayed-Delivery
Transactions.............................................24
REITs.......................................................25
Small Capitalization and Emerging Growth
Companies; Unseasoned Issuers............................25
"Special Situation" Companies...............................25
Dollar Rolls................................................26
Temporary Defensive Strategies.......................................26
Debt Securities.............................................26
Money Market Obligations....................................26
INVESTMENT RESTRICTIONS.......................................................26
PORTFOLIO VALUATION...........................................................28
PORTFOLIO TRANSACTIONS........................................................29
PORTFOLIO TURNOVER............................................................31
MANAGEMENT OF THE FUND........................................................31
Officers and Board of Directors......................................31
Directors' Total Compensation........................................34
Portfolio Managers of the Fund.......................................35
Control Persons and Principal Holders of Securities..................35
Investment Adviser and Co-Administrators.............................35
Code of Ethics.......................................................36
Custodians and Transfer Agent........................................36
Organization of the Fund.............................................37
Distribution and Shareholder Servicing...............................37
Common Shares...............................................37
Advisor Shares..............................................38
General.....................................................39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................40
Automatic Cash Withdrawal Plan..............................40
EXCHANGE PRIVILEGE............................................................40
ADDITIONAL INFORMATION CONCERNING TAXES.......................................41
The Fund and Its Investments.........................................41
Passive Foreign Investment Companies.................................44
Dividends and Distributions..........................................44
Sales of Shares......................................................45
Foreign Taxes........................................................45
Backup Withholding...................................................46
Notices..............................................................46
(ii)
<PAGE>
PAGE
Special Tax Matters Relating to Zero Coupon Securities...............46
Other Taxation.......................................................46
DETERMINATION OF PERFORMANCE..................................................46
INDEPENDENT ACCOUNTANTS AND COUNSEL...........................................48
MISCELLANEOUS.................................................................48
FINANCIAL STATEMENTS..........................................................49
APPENDIX DESCRIPTION OF RATINGS...............................................1
(iii)
<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.
FINANCIAL SERVICES INDUSTRIES
Issuers in the financial services industries are subject to
extensive government regulation which can limit both the amounts and types of
loans and other financial commitments they can make, and the interest rates and
fees they can charge. The profitability of these issuers is largely dependent on
the availability and cost of capital funds, and can fluctuate significantly when
interest and/or inflation rates change. Credit losses resulting from financial
difficulties of borrowers can negatively affect the financial services
industries. Additionally, these issuers can be subject to severe price
competition.
The financial services industries are currently undergoing
relatively rapid change as existing distinctions between financial service
segments become less clear. For instance, recent business combinations have
included insurance, finance, and securities brokerage under single ownership and
some primarily retail corporations have expanded into securities and insurance
industries. Moreover, certain of the federal laws generally separating
commercial and investment banking are currently being amended or repealed by
Congress.
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").
<PAGE>
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 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
2
<PAGE>
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"), or Credit Suisse Asset Management Limited, the Fund's Sub-investment
adviser ("CSAM Ltd.") (each, an "Adviser"), expects that the price of the
underlying security will remain flat or decline moderately during the option
period, (ii) at-the-money call options when the Adviser expects that the price
of the underlying security will remain flat or advance moderately during the
option period and (iii) out-of-the-money call options when the Adviser expects
that the premiums received from writing the call option plus the appreciation in
market price of the underlying security up to the exercise price will be greater
than the appreciation in the price of the underlying security alone. In any of
the preceding situations, if the market price of the underlying security
declines and the security is sold at this lower price, the amount of any
realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be used in the
same market environments that such call options are used in equivalent
transactions. To secure its obligation to deliver the underlying security when
it writes a call option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by the Fund prior
to the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When the Fund has purchased an option and engages
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where the Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. The Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of the Fund under an option it has written
would be terminated by a closing purchase transaction (the Fund would not be
deemed to own an option as a result of the transaction). So long as the
obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying
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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 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 the Adviser and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Fund will
be able to purchase on a particular security.
SECURITIES INDEX OPTIONS. 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
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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 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
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(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 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
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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 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
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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
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.
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Conversely, if a rise in the U.S. dollar value of a currency in which securities
to be acquired are denominated is projected, thereby potentially increasing the
cost of the securities, the Fund may purchase call options on the particular
currency. The purchase of these options could offset, at least partially, the
effects of the adverse movements in exchange rates. The benefit to the Fund
derived from purchases of currency options, like the benefit derived from other
types of options, will be reduced by premiums and other transaction costs.
Because transactions in currency exchange are generally conducted on a principal
basis, no fees or commissions are generally involved. Currency hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, the Fund may not be able to contract to
sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
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.
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Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which would distort the normal
relationship between the securities index and futures markets. Secondly, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may cause
temporary price distortions. Because of the possibility of price distortions in
the futures market and the imperfect correlation between movements in the
securities index and movements in the price of securities index futures, a
correct forecast of general market trends by the Adviser still may not result in
a successful hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by the Adviser, and successful use by the Fund of hedging transactions
will be subject to the Adviser's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to predict correctly
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Fund's performance.
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.
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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 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
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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 the Adviser 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 the Adviser.
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 yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. The Adviser monitors the creditworthiness of
those bank and non-bank dealers with which the Fund enters into repurchase
agreements to evaluate this risk. A repurchase agreement is considered to be a
loan under the Investment Company Act of 1940, as amended (the "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 the Adviser 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.
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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 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
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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 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. 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
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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 the Adviser 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 the Adviser. 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
debt obligations may provide an opportunity for capital appreciation when
interest rates are expected to decline. The success of such a strategy is
dependent upon the Adviser's ability to 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 the
Adviser 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 the Adviser. 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
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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
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 the Adviser in evaluating the creditworthiness of an issuer. In
this evaluation, in addition to relying on ratings assigned by Moody's or S&P,
the Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. Interest rate trends and specific developments which may affect
individual
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<PAGE>
issuers will also be analyzed. Subsequent to its purchase by the Fund, an issue
of securities may cease to be rated or its rating may be reduced. Neither event
will require sale of such securities, although the Adviser will consider such
event in its determination of whether the Fund should continue to hold the
securities. Normally, medium- and lower-rated and comparable unrated securities
are not intended for short-term investment. The Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings of such securities.
At times, adverse publicity regarding lower-rated securities has depressed the
prices for such securities to some extent.
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 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
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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
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 without limit 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.
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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 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
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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
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
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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.
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 total 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
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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 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
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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 requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. The Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this regulation and use of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the 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 the
Adviser the daily function of determining and monitoring the liquidity of Rule
144A Securities, although the Board will retain ultimate responsibility for
liquidity determinations.
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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 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 the Adviser deems it
advantageous to do so. The payment obligation and the interest rate that will be
received on when-issued and delayed-delivery 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.
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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 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. The Adviser 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
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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 the Adviser 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.
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 and No. 11 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 12 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,
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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 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. 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.
11. 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
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available market quotations. For purposes of this limitation,
repurchase agreements with maturities greater than seven days shall be
considered illiquid securities.
12. 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 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.
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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 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 and has retained CSAM Ltd. to act as sub-investment adviser to the
Fund. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign 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, the Adviser does business
exclusively with those broker-dealers that, in the Adviser's judgment, can be
expected to provide the best service. The service has two main aspects: the
execution of buy and sell orders and the provision of research. In negotiating
commissions with broker-dealers, the Adviser will pay no more for execution and
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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 the Adviser's standards may be
higher than for execution services alone or for services that fall below the
Adviser's standards. The Adviser believes that these arrangements may benefit
all clients and not necessarily only the accounts in which the particular
investment transactions occur that are so executed. Further, the Adviser will
only receive brokerage or research service in connection with securities
transactions that are consistent with the "safe harbor" provisions of Section
28(e) of the Securities Exchange Act of 1934 when paying such higher
commissions. 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 the Adviser. Such other investment clients may invest in the same securities
as the Fund. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
for the Fund. To the extent permitted by law, 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, CSAM Ltd., 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 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,
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however, only when the Adviser, 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 100%. 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.
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.
31
<PAGE>
Richard H. Francis (67) DIRECTOR
40 Grosvenor Road Currently retired; Executive Vice
Short Hills, New Jersey 07078 President and Chief Financial Officer of
Pan Am Corporation and Pan American World
Airways, Inc. from 1988 to 1991; Director
of The Infinity Mutual Funds, BISYS Group
Incorporated; Director/Trustee of other
Warburg Pincus Funds and other
CSAM-advised investment companies.
Jack W. Fritz (72) DIRECTOR
2425 North Fish Creek Road Private investor; Consultant and Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising);
Director/Trustee of other Warburg Pincus
Funds.
Jeffrey E. Garten (53) DIRECTOR
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to
November 1993; Director 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
Pittsburgh, Pennsylvania 15238 Operating Officer of National InterGroup,
Inc. from April 1989 to March 1991;
Chairman of Permian Oil Co. from April
1989 to March 1991; Director of Education
Management Corp., Tyco International Ltd.,
Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
William W. Priest* (58) CHAIRMAN OF THE BOARD
466 Lexington Avenue Chairman-Management Committee, Chairman
New York, New York 10017-3147 and Chief Executive Officer (1990-2000)
and Managing Director of CSAM since 1990;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
--------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
32
<PAGE>
Steven N. Rappaport (51) DIRECTOR
40 East 52nd Street President of Loanet, Inc. (on-line
New York, New York 10022 accounting service) since 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.
Washington, DC 20004 (business 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
New York, New York 10017-3147 CSAM since New Credit Suisse acquired the
Funds' predecessor adviser in July 1999;
with the predecessor adviser since 1991;
Vice President of Citibank, N.A. from 1987
to 1991; Officer of CSAMSI and of other
Warburg Pincus Funds.
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
466 Lexington Avenue Managing Director and General Counsel of
New York, New York 10017-3147 CSAM; Associated with Lehman Brothers,
Inc. from 1996 to 1997; Associated with
CSAM from 1995 to 1996; Associated with
CS First Boston Investment Management from
1994 to 1995; Associated with Division of
Enforcement, U.S. Securities and Exchange
Commission from 1991 to 1994; Officer of
CSAMSI, other Warburg Pincus Funds and
other CSAM-advised investment companies.
33
<PAGE>
Michael A. Pignataro (40) TREASURER AND CHIEF FINANCIAL OFFICER
466 Lexington Avenue Vice President and Director of Fund
New York, New York 10017-3147 Administration of CSAM; Associated with
CSAM since 1984; Officer of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
Stuart J. Cohen, Esq. (31) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM;
New York, New York 10017-3147 Associated with CSAM since 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 (37) ASSISTANT TREASURER
466 Lexington Avenue Assistant Vice President and
New York, New York 10017-3147 Administrative Officer of CSAM;
Associated with CSAM since June 1996;
Assistant Treasurer, Bankers Trust Corp.
-- Fund Administration from March 1994 to
June 1996; Officer of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
The Fund pays Directors who are not "affiliated persons" (as
defined in the 1940 Act) of CSAM, CSAM Ltd., 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 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 August 31, 2001):
<TABLE>
<CAPTION>
------------------------------------- ------------------- --------------------------------
ALL INVESTMENT COMPANIES IN THE
FUND COMPLEX*
NAME OF DIRECTOR THE FUND
------------------------------------- ------------------- --------------------------------
<S> <C> <C>
William W. Priest** None None
------------------------------------- ------------------- --------------------------------
Richard H. Francis $2,500 $102,000
------------------------------------- ------------------- --------------------------------
Jack W. Fritz $2,500 $102,000
------------------------------------- ------------------- --------------------------------
Jeffrey E. Garten $2,500 [$102,000]
------------------------------------- ------------------- --------------------------------
34
<PAGE>
------------------------------------- ------------------- --------------------------------
James S. Pasman, Jr. $2,500 $102,000
------------------------------------- ------------------- --------------------------------
Steven N. Rappaport $2,500 $102,000
------------------------------------- ------------------- --------------------------------
Alexander B. Trowbridge $2,725 $108,375
------------------------------------- ------------------- --------------------------------
</TABLE>
* Each Director serves as a Director or Trustee of 45 investment
companies and portfolios for which CSAM serves as investment
adviser ("Fund Complex"), except for Mr. Garten, who also serves
as a Director or Trustee of 24 investment companies and
portfolios in the Fund Complex.
** Mr. Priest receives compensation as an affiliate of CSAM, and,
accordingly, receives no compensation from any Fund or any other
investment company advised by CSAM.
PORTFOLIO MANAGERS OF THE FUND
[TO COME]
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
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 466 Lexington Avenue Street, New York, New
York 10017-3147, serves as investment adviser to the Fund pursuant to a written
agreement (the "Advisory Agreement"). CSAM Ltd., located at Beaufort House, 15
St. Botolph Street, London EC 3A 7JJ, serves as sub-investment adviser to the
Fund. 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
-- 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. For its services, CSAM
will be paid (before any voluntary waivers or reimbursements) a monthly fee
computed at an annual rate of .90% of the Fund's average daily net assets. CSAM
pays CSAM Ltd. a sub-investment advisory fee out of the fees CSAM receives from
the Fund.
CSAMSI and PFPC 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 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
35
<PAGE>
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, CSAM Ltd., and CSAMSI have each adopted a
written Code of Ethics (the "Code of Ethics"), which permits personnel covered
by the Code of Ethics ("Covered Persons") to invest in securities, including
securities that may be purchased or held by the Fund. The Code of Ethics also
contains provisions designed to address the conflicts of interest that could
arise from personal trading by advisory personnel, including: (1) all Covered
Persons must report their personal securities transactions at the end of each
quarter; (2) with certain limited exceptions, all Covered Persons must obtain
preclearance before executing any personal securities transactions; (3) Covered
Persons may not execute personal trades in a security if there are any pending
orders in that security by the Fund; and (4) Covered Persons may not invest in
initial public offerings.
The Board reviews the administration of the Code of Ethics at
least annually and may impose sanctions for violations of the Code of Ethics.
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
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
36
<PAGE>
("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 May 25, 2000.
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
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
37
<PAGE>
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 May 1, 2000.
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 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 has entered into agreements
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions,
38
<PAGE>
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. The
Agreements are 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 May 1, 2000.
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 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
39
<PAGE>
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 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
40
<PAGE>
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 the Adviser's judgment, the Fund would be unable to
invest the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected. Examples of when
an exchange purchase could be refused are when the 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 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
41
<PAGE>
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.
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.
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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.
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.
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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 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.
44
<PAGE>
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (I.E., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
SALES OF SHARES
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in the Fund, within
a 61-day period beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of the Fund share held by the shareholder for six months or less
will be treated for United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share
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.
45
<PAGE>
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 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
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<PAGE>
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. 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
47
<PAGE>
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 the Adviser 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.
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 statement that is incorporated by
reference into this Statement of Additional Information has been audited by PwC
and has been incorporated by reference herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for 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
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<PAGE>
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.
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.
A-2
<PAGE>
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.
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.
A-3
<PAGE>
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
a Articles of Incorporation.
b By-Laws.
c Registrant's Forms of Stock Certificates. (1)
d(1) Form of Investment Advisory Agreement. (1)
(2) Form of Sub-Investment Advisory and Administration Agreement. (1)
e Form of Distribution Agreement. (1)
f Not applicable.
g Custodian Agreement. (1)
h(1) Transfer Agency and Service Agreement. (1)
(2) Form of Co-Administration Agreement with Credit Suisse Asset
Management Securities, Inc. (1)
(3) Form of Co-Administration Agreement with PFPC Inc. (1)
i(1) Opinion and Consent of Willkie Farr & Gallagher. (1)
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland
counsel to the Fund. (1)
j(1) Consent of PricewaterhouseCoopers LLP. (1)
(2) Powers of Attorney.
k Not applicable.
l Form of Purchase Agreement. (1)
m(1) Form of Shareholder Servicing and Distribution Plan. (1)
(2) Form of Distribution Plan. (1)
n Form of 18f-3 Plan. (1)
o Not applicable.
p(1) Form of Code of Ethics. (1)
----------------------
(1) To be filed by amendment.
<PAGE>
(2) Form of Code of Ethics of Credit Suisse Asset Management Limited (1)
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. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, director or
trustee in connection with the operation of Registrant. Insurance coverage does
not extend to (a) conflicts of interest or gain in fact any profit or advantage
to which one is not legally entitled, (b) intentional non-compliance with any
statute or regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it related to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.
Under Article VIII of the Articles of Incorporation (the
"Articles"), the Directors and officers of Registrant shall not have any
liability to Registrant or its stockholders for money damages, to the fullest
extent permitted by Maryland law. This limitation on liability applies to events
occurring at the time a person serves as a Director or officer of Registrant
whether or not such person is a Director or officer at the time of any
proceeding in which liability is asserted. No provision of Article VIII shall
protect or purport to protect any Director or officer of Registrant against any
liability to Registrant or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Registrant shall indemnify and advance expenses to its currently acting and its
former Director to the fullest extent that indemnification of Directors and
advancement of expenses to Directors is permitted by the Maryland General
Corporation Law.
<PAGE>
Registrant shall indemnify and advance expenses to its officers to
the same extent as its Directors and to such further extent as is consistent
with such law. The Board of Directors may, through a by-law, resolution or
agreement, make further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the Maryland General
Corporation Law.
Article V of the By-Laws further limits the liability of the
Directors by providing that any person who was or is a party or is threatened to
be made a party in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is a current or former director or officer of
Registrant, or is or was serving while a director or officer of Registrant at
the request of Registrant as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by Registrant against
judgments, penalties, fines, excise taxes, settlements and reasonable expenses
(including attorneys' fees) actually incurred by such person in connection with
such action, suit or proceeding to the full extent permissible under the
Maryland General Corporation Law, the 1993 Act and the 1940 Act, as such
statutes are now or hereafter in force, except that such indemnity shall not
protect any such person against any liability to Registrant or any stockholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of this office.
Item 26. (a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISER
CSAM, LLC acts as investment adviser to 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).
(b) BUSINESS AND OTHER CONNECTIONS OF SUB-INVESTMENT
ADVISER AND ADMINISTRATOR
Credit Suisse Asset Management Limited (London) ("Credit Suisse") act as
sub-investment adviser for the Registrant. Credit Suisse renders investment
advice and provides full-service private equity programs to clients. The list
required by this Item 28 of officers and partners of Credit Suisse, together
with information as to their other business, profession, vocation or employment
of a substantial nature during the past two years, is incorporated
<PAGE>
by reference to schedules A and D of Form ADV filed by Credit Suisse (SEC File
No. 801-40177).
Item 27. Principal Underwriter
CSAM Securities acts as distributor for Registrant, as well as for Credit
Suisse Institutional Fund; Credit Suisse Institutional International Growth
Fund; Credit Suisse Institutional Strategic Global Fixed Income Fund; Credit
Suisse Institutional U.S. Core Equity Fund; Credit Suisse Institutional U.S.
Core Fixed Income Fund; Warburg Pincus Balanced Fund; Warburg Pincus Capital
Appreciation Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Central &
Eastern Europe Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus European Equity Fund; Warburg Pincus Fixed
Income Fund; Warburg Pincus Focus Fund; Warburg Pincus Global Fixed Income Fund;
Warburg Pincus Global Health Sciences Fund; Warburg Pincus Global Post-Venture
Capital Fund; Warburg Pincus Global Telecommunications Fund; Warburg Pincus High
Yield Fund; Warburg Pincus Intermediate Maturity Government Fund; Warburg Pincus
International Equity Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small Company Fund;
Warburg Pincus Long-Short Market Neutral Fund; Warburg Pincus Major Foreign
Markets Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New York
Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg
Pincus Small Company Growth Fund; Warburg Pincus Small Company Value Fund;
Warburg Pincus Trust; Warburg Pincus Trust II; Warburg Pincus Value Fund;
Warburg Pincus WorldPerks Money Market Fund and Warburg Pincus WorldPerks Tax
Free Money Market Fund.
(b) For information relating to each director, officer or partner of CSAM
Securities, reference is made to Form BD (SEC File No. 8-32482) filed by CSAM
Securities under the Securities Exchange Act of 1934.
(c) None.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
(1) Warburg, Pincus Global Financial Services 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 Limited
Beaufort House
15 St Botolph
London, EC3A7JJ
(records relating to its functions as
sub-investment adviser and administrator)
<PAGE>
(3) 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)
(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-
administrator, transfer and dividend disbursing
agent)
(5) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)
(6) 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)
(7) State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer
agent and dividend disbursing agent)
(8) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02177
(records relating to its functions as transfer
agent and dividend disbursing agent)
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 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 31st day of May, 2000.
WARBURG, PINCUS GLOBAL FINANCIAL
SERVICES 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:
Signature Title Date
--------- ----- ----
/s/William W. Priest* Chairman of the May 31, 2000
--------------------------- Board of Directors
William W. Priest
/s/Eugene L. Podsiadlo President May 31, 2000
---------------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer May 31, 2000
--------------------------- and Chief Financial
Michael A. Pignataro Officer
/s/Richard H. Francis* Director May 31, 2000
---------------------------
Richard H. Francis
/s/Jack W. Fritz* Director May 31, 2000
---------------------------
Jack W. Fritz
/s/Jeffrey E. Garten* Director May 31, 2000
---------------------------
Jeffrey E. Garten
/s/James S. Pasman, Jr.* Director May 31, 2000
---------------------------
James S. Pasman, Jr.
/s/Steven N. Rappaport* Director May 31, 2000
---------------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge* Director May 31, 2000
---------------------------
Alexander B. Trowbridge
*By: /s/Michael A. Pignataro
----------------------------
Michael A. Pignataro as
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
(a) Articles of Incorporation.
(b) By-Laws.
j(2) Powers of Attorney.
