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-------------------- PART OF CREDIT | ASSET
WARBURG PINCUS FUNDS SUISSE | MANAGEMENT
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PROSPECTUS
Common Class
December 29, 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.
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CONTENTS
KEY POINTS .............................................................. 4
Goal and Principal Strategies ....................................... 4
Investor Profile .................................................... 4
A Word About Risk ................................................... 5
INVESTOR EXPENSES ....................................................... 8
Fees and Fund Expenses .............................................. 8
Example ............................................................. 9
THE FUND IN DETAIL ...................................................... 10
The Management Firms ................................................ 10
Multi-Class Structure ............................................... 10
Fund Information Key ................................................ 11
Goal and Strategies ................................................. 12
Portfolio Investments ............................................... 12
Risk Factors ........................................................ 12
Portfolio Management ................................................ 13
Investor Expenses ................................................... 13
MORE ABOUT RISK ......................................................... 14
Introduction ........................................................ 14
Types of Investment Risk ............................................ 14
Certain Investment Practices ........................................ 16
MEET THE MANAGERS ....................................................... 19
ABOUT YOUR ACCOUNT ...................................................... 20
Share Valuation ..................................................... 20
Buying and Selling Shares ........................................... 20
Account Statements .................................................. 21
Distributions ....................................................... 21
Taxes ............................................................... 21
OTHER INFORMATION ....................................................... 23
About the Distributor ............................................... 23
FOR MORE INFORMATION ............................................. back cover
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KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
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FUND/RISK FACTORS GOAL STRATEGIES
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GLOBAL FINANCIAL Capital appreciation o Invests primarily in equity
SERVICES FUND securities of U.S. and
Risk factors: foreign financial-services
Financial-services companies
companies
Foreign securities o Invests in companies of any
Market risk size
Regulatory risk
Sector concentration o Uses fundamental analysis
to assess an issuer's
potential for capital
appreciation in light of
its financial condition and
industry position
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INVESTOR PROFILE
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This fund is designed for investors who:
o are investing for long-term goals
o are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
o are looking for capital appreciation
o want to diversify their portfolios into financial-services stocks
It may NOT be appropriate if you:
o are investing for a shorter time horizon
o are uncomfortable with an investment that will fluctuate in value
o are looking for exposure to companies in a broad variety of industries
o want to limit your exposure to foreign securities
o are looking for income
You should base your investment decision on your own goals, risk
preferences and time horizon.
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A WORD ABOUT RISK
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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:
o 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.
o Information risk Key information about an issuer, security or market may
be inaccurate or unavailable.
o 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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SECTOR CONCENTRATION
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.
Because the fund involves a high level of risk, you should consider it
only for the aggressive portion of your portfolio. The fund may not be
appropriate for everyone.
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INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are expected amounts for the fiscal period ending
August 31, 2001.
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GLOBAL
FINANCIAL
SERVICES
FUND
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Shareholder fees (paid directly from your investment)
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Sales charge "load" on purchases NONE
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Deferred sales charge "load" NONE
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Sales charge "load" on reinvested distributions NONE
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Redemption fees NONE
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Exchange fees NONE
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Annual fund operating expenses (deducted from fund assets)
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Management fee .90%
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Distribution and service (12b-1) fee .25%
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Other expenses(1) 1.12%
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Total annual fund operating expenses(2) 2.27%
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(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
Management fee .24%
Distribution and service (12b-1) fee .25%
Other expenses 1.01%
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Total annual fund operating expenses 1.50%
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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:
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ONE YEAR THREE YEARS
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$230 $709
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THE FUND IN DETAIL
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THE MANAGEMENT FIRMS
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CREDIT SUISSE ASSET
MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10017
o Investment adviser for the fund
o Responsible for managing the fund's assets according to its goal and
strategies
o 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
o Credit Suisse Asset Management companies manage approximately $104 billion
in the U.S. and $296 billion globally
o 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
o Sub-investment adviser for the fund
o Responsible for assisting CSAM in the management of the fund's
international assets according to its goal and strategies
o 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.
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MULTI-CLASS STRUCTURE
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This Prospectus offers Common Class shares of the funds.
The fund also offers Advisor Shares, which are described in a separate
prospectus.
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FUND INFORMATION KEY
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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.
o 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.
o 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.
o Other Expenses Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets
after waivers, credits and reimbursements.
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GOAL AND STRATEGIES
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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. In considering whether to purchase a security, the
portfolio managers engage in a multi-faceted examination of various criteria,
including the reliability and effectiveness of management, whether the issuer is
in an attractive business niche, whether the issuer is a leader in its business
niche and whether the companies are expected to increase revenues, earnings or
cash flow consistently. The foregoing criteria are not intended to be exhaustive
and certain criteria may take precedence over others for specific issuers. The
portfolio managers may sell securities for a variety of reasons, such as to
realize profits, limit losses or take advantage of better investment
opportunities based on their fundamental analysis.
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 (in excess of 50%) from conducting business in the
financial-services industry, such as providers of financial software, and will
consider these companies to be financial-services companies. The fund invests in
at least three countries, which may include the U.S.
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PORTFOLIO INVESTMENTS
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Equity holdings may consist of:
o common and preferred stocks
o securities convertible into or exchangeable for common stocks
o 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.
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RISK FACTORS
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This fund's principal risk factors are:
o financial-services companies
o foreign securities
o market risk
o regulatory risk
o sector concentration
Financial services companies stocks have been volatile, and the value of
your
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investment will fluctuate in response to movements in the prices of fund
holdings. 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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PORTFOLIO MANAGEMENT
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D. Susan Everly, Craig Elkind and Katherine O'Donovan serve as
Co-Portfolio Managers of the fund. You can find out more about them in "Meet the
Managers."
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INVESTOR EXPENSES
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Expected expenses for the 2001 fiscal period (after fee waivers and
expense reimbursements):
Management fee .24%
Distribution and service
(12b-1) fee .25%
All other expenses 1.01%
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Total expenses 1.50%
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MORE ABOUT RISK
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INTRODUCTION
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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.
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TYPES OF INVESTMENT RISK
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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.
o 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.
o Speculative To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
Information risk Key information about an issuer, security or market may
be inaccurate or unavailable.
Interest-rate risk Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in 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
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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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CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
|X| Permitted without limitation; does not indicate actual use
/20%I/ Italic type (e.g., 20%) represents an investment limitation as a
percentage of net fund assets; does not indicate actual use
20%R 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
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INVESTMENT PRACTICE LIMIT
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Borrowing The borrowing of money from banks to meet redemptions or for
other temporary or emergency purposes. Speculative exposure risk. 33 1/3%R
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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. |X|
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Equity and equity-related securities Common stocks and other
securities representing or related to ownership in a company. May also
include warrants, rights, options, preferred stocks and convertible
debt securities. These investments may go down in value due to stock
market movements or negative company or industry events. Liquidity,
market, valuation risks. |X|
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Financial-services companies Companies in the sectors comprising the
financial-services industry, including (but not limited to) companies
deriving a substantial portion of their revenue from conducting
business in the financial-services industry. Liquidity, market,
valuation risks. |X|
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Foreign securities Securities of foreign issuers. May include
depositary receipts. Currency, information, liquidity, market,
political, valuation risks. |X|
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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) |_|
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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%R
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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%R
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INVESTMENT PRACTICE LIMIT
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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%R
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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. |_|
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Restricted and other illiquid securities Certain securities with
restrictions on trading, or those not actively traded. May include
private placements. Liquidity, market, valuation risks. /15%I/
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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. |X|
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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%R
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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. |_|
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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. |_|
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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 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. |_|
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INVESTMENT PRACTICE LIMIT
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Structured instruments Swaps, structured securities and other
instruments that allow the fund to gain access to the performance of a
benchmark asset (such as an index or selected stocks) where the fund's
direct investment is restricted. Credit, currency, information,
interest-rate, liquidity, market, political, speculative exposure,
valuation risks. |_|
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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. |_|
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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%I/
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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%R
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(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.
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MEET THE MANAGERS
[PHOTO OMITTED]
Craig Elkind
Director
o Co-Portfolio Manager
o With CSAM since 2000
o Global insurance and financial services analyst at Lazard Asset
Management, 1998 to 2000
o Partner at Fisher Capital Corp, 1997 to 1998
o Director of insurance ratings at Standard & Poor's, 1995 to 1997
[PHOTO OMITTED]
Katherine O'Donovan
Director
o Co-Portfolio Manager
o With CSAM U.K. since 1999
o European bank analyst at Deutsche Bank, 1990 to 1999
[PHOTO OMITTED]
D. Susan Everly
Director
o Co-Portfolio Manager
o With CSAM since 1998
o Securities Analyst at Goldman Sachs, 1996 to 1998
Job titles indicate position with the investment adviser.
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ABOUT YOUR ACCOUNT
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SHARE VALUATION
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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.
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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
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special provisions or additional service features that may apply to your
investment. Certain features of the fund, such as the minimum initial or
subsequent investment amounts, may be modified.
Some of the firms through which the fund is available include:
o Charles Schwab & Co., Inc. Mutual Fund OneSource(R)service
o Fidelity Brokerage Services, Inc. FundsNetwork(TM)Program
o Waterhouse Securities, Inc.
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ACCOUNT STATEMENTS
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In general, you will receive account statements as follows:
o after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
o after any changes of name or address of the registered owner(s)
o otherwise, every calendar quarter
You will receive annual and semiannual financial reports.
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DISTRIBUTIONS
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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.
Estimated year-end distribution information, including record and payment
dates, will be available at www.warburg.com or by calling 800-WARBURG
(800-927-2874). Investors are encouraged to consider the potential tax
consequences of distributions prior to buying or selling shares of the fund.
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TAXES
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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.
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Distributions you receive from the fund, whether reinvested or taken in
cash, are generally considered taxable. Distributions from the fund's long-term
capital gains are taxed as long-term capital gains, regardless of how long you
have held fund shares. Distributions from other sources are generally taxed as
ordinary income.
If you buy shares shortly before or on the "record date"--the date that
establishes you as the person to receive the upcoming distribution--you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099 that is mailed to you every January details your
distributions and their federal tax category, including the portion taxable as
long-term capital gains.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
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OTHER INFORMATION
--------------------------------------------------------------------------------
ABOUT THE DISTRIBUTOR
--------------------------------------------------------------------------------
Credit Suisse Asset Management Securities, Inc. (CSAMSI), an affiliate of
CSAM, is responsible for:
o making the fund available to you
o account servicing and maintenance
o 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. CSAMSI, CSAM or their affiliates may make additional payments out of
their own resources to firms offering Common Class shares for providing
administration, subaccounting, transfer agency and/or other services. Under
certain circumstances, the fund may reimburse a portion of these payments.
23
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24
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25
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26
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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 managers
discussing market conditions and investment strategies that significantly
affected fund performance during its past fiscal year.
--------------------------------------------------------------------------------
OTHER INFORMATION
--------------------------------------------------------------------------------
A current Statement of Additional Information (SAI), which provides more
details about the 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,
Annual and Semiannual Reports and portfolio holdings and other information 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 number:
Warburg Pincus Global Financial
Services Fund 811-09963
--------------------
WARBURG PINCUS FUNDS
--------------------
PART OF CREDIT | ASSET
SUISSE | MANAGEMENT
P.O. BOX 9030, BOSTON, MA 02205-9030
800-Warburg (800-927-2874) o www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR WPGFS-1-1200
<PAGE>
-------------------- PART OF CREDIT | ASSET
WARBURG PINCUS FUNDS SUISSE | MANAGEMENT
--------------------
PROSPECTUS
Advisor Class
December 29, 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 Advisor Funds are advised by Credit Suisse Asset Management, LLC.
<PAGE>
CONTENTS
KEY POINTS ................................................................ 4
Goal and Principal Strategies ......................................... 4
Investor Profile ...................................................... 4
A Word About Risk ..................................................... 5
INVESTOR EXPENSES ......................................................... 8
Fees and Fund Expenses ................................................ 8
Example ............................................................... 9
THE FUND IN DETAIL ........................................................ 10
The Management Firms .................................................. 10
Multi-Class Structure ................................................. 10
Fund Information Key .................................................. 11
Goal and Strategies ................................................... 12
Portfolio Investments ................................................. 12
Risk Factors .......................................................... 12
Portfolio Management .................................................. 13
Investor Expenses ..................................................... 13
MORE ABOUT RISK ........................................................... 14
Introduction .......................................................... 14
Types of Investment Risk .............................................. 14
Certain Investment Practices .......................................... 16
MEET THE MANAGERS ......................................................... 19
ABOUT YOUR ACCOUNT ........................................................ 20
Share Valuation ....................................................... 20
Account Statements .................................................... 20
Distributions ......................................................... 20
Taxes ................................................................. 21
OTHER INFORMATION ......................................................... 22
About the Distributor ................................................. 22
BUYING SHARES ............................................................. 24
SELLING SHARES ............................................................ 26
SHAREHOLDER SERVICES ...................................................... 28
OTHER POLICIES ............................................................ 29
FOR MORE INFORMATION .............................................. back cover
3
<PAGE>
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
--------------------------------------------------------------------------------
FUND/RISK FACTORS GOAL STRATEGIES
--------------------------------------------------------------------------------
GLOBAL FINANCIAL Capital appreciation o Invests primarily in
SERVICES FUND equity securities of
Risk factors: U.S. and foreign
Financial-services financial-services
companies companies
Foreign securities o Invests in companies of
Market risk any size
Regulatory risk o Uses fundamental
Sector concentration analysis to assess an
issuer's potential for
capital appreciation in
light of its financial
condition and industry
position
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INVESTOR PROFILE
--------------------------------------------------------------------------------
The fund is designed for investors who:
o are investing for long-term goals
o are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
o are looking for capital appreciation
o want to diversify their portfolios into financial-services stocks
It may NOT be appropriate if you:
o are investing for a shorter time horizon
o are uncomfortable with an investment that will fluctuate in value
o are looking for exposure to companies in a broad variety of industries
o want to limit your exposure to foreign securities
o are looking for income
You should base your investment decision on your own goals, risk
preferences and time horizon.
4
<PAGE>
--------------------------------------------------------------------------------
A WORD ABOUT RISK
--------------------------------------------------------------------------------
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
The principal risk factors for the fund are discussed below. Before you
invest, please make sure you understand the risks that apply to the fund. As
with any mutual fund, you could lose money over any period of time.
Investments in the fund are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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:
o 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.
o Information risk Key information about an issuer, security or market may
be inaccurate or unavailable.
o 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.
5
<PAGE>
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.
SECTOR CONCENTRATION
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.
Because the fund involves a high level of risk, you should consider it
only for the aggressive portion of your portfolio. The fund may not be
appropriate for everyone.
6
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7
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INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are expected amounts for the fiscal period ending
August 31, 2001.
--------------------------------------------------------------------------------
GLOBAL
FINANCIAL
SERVICES
FUND
--------------------------------------------------------------------------------
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 .50%
--------------------------------------------------------------------------------
Other expenses(1) 1.12%
--------------------------------------------------------------------------------
Total annual fund operating expenses(2) 2.52%
--------------------------------------------------------------------------------
(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
Management fee .24%
Distribution and service (12b-1) fee .50%
Other expenses 1.01%
----
Total annual fund operating expenses 1.75%
8
<PAGE>
EXAMPLE
This example may help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, the fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements or credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:
--------------------------------------------------------------------------------
ONE YEAR THREE YEARS
--------------------------------------------------------------------------------
$255 $785
--------------------------------------------------------------------------------
9
<PAGE>
THE FUND IN DETAIL
--------------------------------------------------------------------------------
THE MANAGEMENT FIRMS
--------------------------------------------------------------------------------
CREDIT SUISSE ASSET
MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10017
o Investment adviser for the fund
o Responsible for managing the fund's assets according to its goal and
strategies
o 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
o Credit Suisse Asset Management companies manage approximately $104 billion
in the U.S. and $296 billion globally
o 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
o Sub-investment adviser for the fund
o Responsible for assisting CSAM in the management of the fund's
international assets according to its goal and strategies
o Also a member of Credit Suisse Asset Management
For easier reading, Credit Suisse Asset Management Limited will be
referred to as "CSAM U.K." throughout this Prospectus.
--------------------------------------------------------------------------------
MULTI-CLASS STRUCTURE
--------------------------------------------------------------------------------
This fund offers two classes of shares, Common and Advisor. This
Prospectus offers the Advisor Class of shares, which are sold through
financial-services firms.
The Common Class is described in a separate prospectus.
10
<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.
o 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.
o 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.
o Other expenses Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets
after waivers, credits and reimbursements.
11
<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. In considering whether to purchase a security, the
portfolio managers engage in a multi-faceted examination of various criteria,
including the reliability and effectiveness of management, whether the issuer is
in an attractive business niche, whether the issuer is a leader in its business
niche and whether the companies are expected to increase revenues, earnings or
cash flow consistently. The foregoing criteria are not intended to be exhaustive
and certain criteria may take precedence over others for specific issuers. The
portfolio managers may sell securities for a variety of reasons, such as to
realize profits, limit losses or take advantage of better investment
opportunities based on their fundamental analysis.
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 (in excess of 50%) from conducting business in the
financial-services industry, such as providers of financial software, and will
consider these companies to be financial-services companies. The fund invests in
at least three countries, which may include the U.S.
--------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS
--------------------------------------------------------------------------------
Equity holdings may consist of:
o common and preferred stocks
o securities convertible into or exchangeable for common stocks
o securities such as rights and warrants, whose values are based on common
stock
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:
o financial-services companies
o foreign securities
o market risk
o regulatory risk
o sector concentration
Financial services company stocks have been volatile, and the value of
your investment will fluctuate in response to
12
<PAGE>
movements in the prices of fund holdings. 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.
--------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
--------------------------------------------------------------------------------
D. Susan Everly, Craig Elkind and Katherine O'Donovan serve as
Co-Portfolio Managers of the fund. You can find out more about them in "Meet the
Managers".
--------------------------------------------------------------------------------
INVESTOR EXPENSES
--------------------------------------------------------------------------------
Expected expenses for the 2001 fiscal period (after fee waivers and
expense reimbursements):
Management fee .24%
Distribution and service
(12b-1) fees .50%
All other expenses 1.01%
----
Total expenses 1.75%
13
<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.
o 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.
o Speculative To the extent that a derivative or practice is not used
as a hedge, the fund is directly exposed to its risks. Gains or
losses from speculative positions in a derivative may be much
greater than the derivative's original cost. For example, potential
losses from writing uncovered call options and from speculative
short sales are unlimited.
Information risk Key information about an issuer, security or market may
be inaccurate or unavailable.
Interest-rate risk Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
14
<PAGE>
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.
15
<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable
investment limitation. Risks are indicated for each practice.
KEY TO TABLE:
|X| Permitted without limitation; does not indicate actual use
/20%I/ Italic type (e.g., 20%) represents an investment limitation as a
percentage of net fund assets; does not indicate actual use
20%R Roman type (e.g., 20%) represents an investment limitation as a
percentage of total fund assets; does not indicate actual use
|_| Permitted, but not expected to be used to a significant extent
-- Not permitted
--------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
--------------------------------------------------------------------------------
Borrowing The borrowing of money from banks to meet redemptions or for
other temporary or emergency purposes. Speculative exposure risk. 33 1/3%
--------------------------------------------------------------------------------
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. |X|
--------------------------------------------------------------------------------
Equity and equity-related securities Common stocks and other
securities representing or related to ownership in a company. May also
include warrants, rights, options, preferred stocks and convertible
debt securities. These investments may go down in value due to stock
market movements or negative company or industry events. Liquidity,
market, valuation risks. |X|
--------------------------------------------------------------------------------
Financial-services companies Companies in the sectors comprising the
financial-services industry, including (but not limited to) companies
deriving a substantial portion of their revenue from conducting
business in the financial-services industry. Liquidity, market,
valuation risks. |X|
--------------------------------------------------------------------------------
Foreign securities Securities of foreign issuers. May include
depositary receipts. Currency, information, liquidity, market,
political, valuation risks. |X|
--------------------------------------------------------------------------------
Futures and options on futures Exchange-traded contracts that enable 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%
--------------------------------------------------------------------------------
16
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
--------------------------------------------------------------------------------
Options Instruments that provide a right to buy (call) or sell (put) a
particular security, currency or index of securities at a fixed price
within a certain time period. A fund may purchase or sell (write) both
put and call options for hedging or speculative purposes.(1)
Correlation, credit, hedged exposure, liquidity, market, speculative
exposure risks. 25%
--------------------------------------------------------------------------------
Real-estate investment trusts (REITs) Pooled investment vehicles that
invest primarily in income-producing real estate or
real-estate-related loans or interests. Credit, interest-rate, market
risks. |_|
--------------------------------------------------------------------------------
Restricted and other illiquid securities Certain securities with
restrictions on trading, or those not actively traded. May include
private placements. Liquidity, market, valuation risks. 15%I
--------------------------------------------------------------------------------
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. |X|
--------------------------------------------------------------------------------
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. |_|
--------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
--------------------------------------------------------------------------------
Structured instruments Swaps, structured securities and other
instruments that allow the fund to gain access to the performance of a
benchmark asset (such as an index or selected stocks) where the fund's
direct investment is restricted. Credit, currency, information,
interest-rate, liquidity, market, political, speculative exposure,
valuation risks. |_|
--------------------------------------------------------------------------------
Temporary defensive tactics Placing some or all of
a fund's assets in investments such as money-market obligations and
investment-grade debt securities for defensive purposes. Although
intended to avoid losses in adverse market, economic, political or
other conditions, defensive tactics might be inconsistent with a
fund's principal investment strategies and might prevent a fund from
achieving its goal. |_|
--------------------------------------------------------------------------------
Warrants Options issued by a company granting the holder the right to
buy certain securities, generally common stock, at a specified price
and usually for a limited time. Liquidity, market, speculative
exposure risks. 15%I
--------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------
(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.
18
<PAGE>
MEET THE MANAGERS
[PHOTO OMITTED]
Craig Elkind
Director
o Co-Portfolio Manager
o With CSAM since 2000
o Global insurance and financial services analyst at Lazard Asset
Management, 1998 to 2000
o Partner at Fisher Capital Corp., 1997 to 1998
o Director of insurance ratings at Standard & Poor's, 1995 to 1997
[PHOTO OMITTED]
D. Susan Everly
Director
o Co-Portfolio Manager
o With CSAM since 1998
o Securities analyst at Goldman Sachs, 1996 to 1998
[PHOTO OMITTED]
Katherine O'Donovan
Director
o Co-Portfolio Manager
o With CSAM U.K. since 1999
o European bank analyst at Deutsche Bank, 1990 to 1999
Job titles indicate position with the investment adviser.
19
<PAGE>
ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
SHARE VALUATION
--------------------------------------------------------------------------------
The price of your shares is also referred to as their net asset value
(NAV).
The NAV is determined at the close of regular trading on the New York
Stock Exchange (NYSE) (currently 4 p.m. Eastern Time) each day the NYSE is open
for business. It is calculated by dividing the Advisor Class's total assets,
less its liabilities, by the number of Advisor Class shares outstanding.
The fund values its securities based on market quotations when it
calculates its NAV. If market quotations are not readily available, securities
and other assets are valued by another method that the Board of Directors
believes accurately reflects fair value. Debt obligations that will mature in 60
days or less are valued on the basis of amortized cost, unless the Board of
Directors determines that using this method would not reflect an investment's
value.
Some fund securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when the fund does not compute its prices. This
could cause the value of the fund's portfolio investments to be affected by
trading on days when you cannot buy or sell shares.
--------------------------------------------------------------------------------
ACCOUNT STATEMENTS
--------------------------------------------------------------------------------
In general, you will receive account statements as follows:
o after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
o after any changes of name or address of the registered owner(s)
o 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.
Estimated year-end distribution information, including record and payment
dates, will be available at www.warburg.com or by calling 800-WARBURG
(800-927-2874). Investors are encouraged to consider the potential tax
consequences of distributions prior to buying or selling shares of the fund.
20
<PAGE>
--------------------------------------------------------------------------------
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 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.
21
<PAGE>
OTHER INFORMATION
--------------------------------------------------------------------------------
ABOUT THE DISTRIBUTOR
--------------------------------------------------------------------------------
Credit Suisse Asset Management Securities, Inc. (CSAMSI), an affiliate of
CSAM, is responsible for:
o making the fund available to you
o account servicing and maintenance
o other administrative services related to sale of the Advisor Class
Certain institutions and financial-services firms may offer Advisor Class
shares to their clients and customers (or participants in the case of retirement
plans). These firms provide distribution, administrative and shareholder
services for fund shareholders. The fund has adopted a Rule 12b-1
shareholder-servicing and distribution plan to compensate these firms for their
services. The current 12b-1 fee is .50% per annum of the fund's average daily
net assets, although under the 12b-1 plan the fund is authorized to pay up to
.75%. CSAMSI, CSAM or their affiliates may make additional payments out of their
own resources to firms offering Advisor Class shares for providing
administration, subaccounting, transfer agency and/or other services. Under
certain circumstances, the fund may reimburse a portion of these payments.
22
<PAGE>
This page intentionally left blank
23
<PAGE>
BUYING SHARES
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
--------------------------------------------------------------------------------
Your account application provides us with key information we need to set
up your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Institutional Shareholder Service
Center to receive one by mail or fax.
You can make your initial investment by check or wire. The "By Wire"
method in the table enables you to buy shares on a particular day at that day's
closing NAV.
--------------------------------------------------------------------------------
BUYING AND SELLING SHARES
--------------------------------------------------------------------------------
The fund is open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (currently 4 p.m. ET), your transaction will be priced at that day's NAV.
If we receive it after that time, it will be priced at the next business day's
NAV.
FINANCIAL-SERVICES FIRMS
You can buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The fund has authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the fund and will be priced at the next-computed NAV.
Financial-services firms may charge transaction fees or other fees that
you could avoid by investing directly with the fund. Please read their program
materials for any special provisions or additional service features that may
apply to your investment. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
--------------------------------------------------------------------------------
ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
You can add to your account in a variety of ways, as shown in the table.
If you want to use ACH transfer, be sure to complete the "ACH on Demand" section
of the account application.
--------------------------------------------------------------------------------
INVESTMENT CHECKS
--------------------------------------------------------------------------------
Please use either a personal or bank check payable in U.S. dollars to
Warburg Pincus Advisor Funds. Unfortunately, we cannot accept "starter" checks
that do not have your name pre-printed on them. We also cannot accept checks
payable to you or to another party and endorsed to the order of Warburg Pincus
Advisor Funds. These types of checks may be returned to you and your purchase
order may not be processed. Limited exceptions include properly endorsed
government checks.
24
<PAGE>
--------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
BY CHECK
--------------------------------------------------------------------------------
o Complete the Warburg Pincus o Make your check payable to
Advisor Funds New Account Warburg Pincus Advisor Funds.
Application. o Write the account number and
o Make your check payable to the fund name on your check.
Warburg Pincus Advisor Funds. o Mail to Warburg Pincus
o Write the fund name on the Advisor Funds.
check.
o Mail to Warburg Pincus
Advisor Funds.
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
o Call our Institutional o Call our Institutional
Shareholder Service Center to Shareholder Service Center to
request an exchange from request an exchange from
another Warburg Pincus fund another Warburg Pincus fund
or portfolio. Be sure to read or portfolio.
the current Prospectus for If you do not have telephone
the new fund or portfolio. privileges, mail or fax a letter of
If you do not have telephone instruction.
privileges, mail or fax a letter of
instruction.
--------------------------------------------------------------------------------
BY WIRE
--------------------------------------------------------------------------------
o Complete and sign the New o Call our Institutional
Account Application. Shareholder Service Center by
o Call our Institutional 4 p.m. ET to inform us of the
Shareholder Service Center incoming wire. Please be sure
and fax the signed New to specify the account
Account Application by 4 p.m. registration, account number
ET. and the fund name on your
o The Institutional Shareholder wire advice.
Service Center will telephone o Wire the money for receipt
you with your account number. that day.
Please be sure to specify the
account registration, account
number and the fund name on
your wire advice.
o Wire your initial investment
for receipt that day.
o Mail the original, signed
application to Warburg Pincus
Advisor Funds.
--------------------------------------------------------------------------------
BY ACH TRANSFER
--------------------------------------------------------------------------------
o Cannot be used to open an o Call our Institutional
account. Shareholder Service Center to
request an ACH transfer from
your bank.
o Your purchase will be
effective at the next NAV
calculated after we receive
your order in proper form.
Requires ACH on Demand privileges.
--------------------------------------------------------------------------------
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
25
<PAGE>
SELLING SHARES
--------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
--------------------------------------------------------------------------------
BY MAIL
--------------------------------------------------------------------------------
Write us a letter of instruction o Sales of any amount.
that includes:
o your name(s) and signature(s)
or, if redeeming on an
investor's behalf, the
name(s) of the registered
owner(s) and the signature(s)
of their legal
representative(s)
o the fund name and account
number
o the dollar amount you want to
sell
o how to send the proceeds
Obtain a signature guarantee or
other documentation, if required
(see "Selling Shares in Writing").
Mail the materials to Warburg
Pincus Advisor Funds.
If only a letter of instruction is
required, you can fax it to the
Institutional Shareholder Service
Center (unless a signature
guarantee is required).
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
o Call our Institutional o Accounts with telephone
Shareholder Service Center to privileges.
request an exchange into
another Warburg Pincus fund If you do not have telephone
or portfolio. Be sure to read privileges, mail or fax a letter of
the current Prospectus for instruction to exchange shares.
the new fund or portfolio.
--------------------------------------------------------------------------------
BY PHONE
--------------------------------------------------------------------------------
Call our Institutional Shareholder o Accounts with telephone
Service Center to request a privileges.
redemption. You can receive the
proceeds as:
o a check mailed to the address
of record
o an ACH transfer to your bank
o a wire to your bank
See "By Wire or ACH Transfer" for details.
--------------------------------------------------------------------------------
BY WIRE OR ACH TRANSFER
--------------------------------------------------------------------------------
o Complete the "Wire o Requests by phone or mail.
Instructions" or "ACH on
Demand" section of your New
Account Application.
o For federal-funds wires,
proceeds will be wired on the
next business day. For ACH
transfers, proceeds will be
delivered within two business
days.
--------------------------------------------------------------------------------
26
<PAGE>
HOW TO REACH US
Institutional Shareholder Service Center
Toll free: 800-222-8977
Fax: 212-370-9833
Mail
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
Overnight/Courier Service
Boston Financial
Attn: Warburg Pincus Advisor Funds
66 Brooks Drive
Braintree, MA 02184
Internet Web Site
www.warburg.com
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Warburg Pincus Advisor Fund Name]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
--------------------------------------------------------------------------------
SELLING SHARES IN WRITING
--------------------------------------------------------------------------------
Some circumstances require a written sell order, along with a signature
guarantee. These include:
o accounts whose address of record has been changed within the past 30 days
o redemptions in certain large accounts (other than by exchange)
o requests to send the proceeds to a different payee or address
o shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
--------------------------------------------------------------------------------
RECENTLY PURCHASED SHARES
--------------------------------------------------------------------------------
For fund shares purchased other than by bank wire, bank check, U.S.
Treasury check, certified check or money order, the fund will delay payment of
your cash redemption proceeds until the check or other purchase payment clears,
which generally takes up to 10 calendar days from the day of purchase. At any
time during this period, you may exchange into another fund.
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
27
<PAGE>
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
AUTOMATIC SERVICES
--------------------------------------------------------------------------------
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Institutional Shareholder Service Center.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments from a designated bank account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals.
--------------------------------------------------------------------------------
STATEMENTS AND REPORTS
--------------------------------------------------------------------------------
The Fund produces financial reports, which include among other things a
list of the Fund's portfolio holdings, semiannually and updates its prospectus
annually. The Fund generally does not hold shareholder meetings. To reduce
expenses by eliminating duplicate mailings to the same address, the Fund may
choose to mail only one report, prospectus, proxy statement or information
statement, as applicable, to your household, even if more than one person in the
household has an account with the Fund. Please call 800-222-8977 if you would
like to receive additional reports, prospectuses or proxy statements.
--------------------------------------------------------------------------------
TRANSFERS/GIFTS TO MINORS
--------------------------------------------------------------------------------
Depending on state laws, you can set up a custodial account under the
Uniform Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act
(UGMA). Please consult your tax professional about these types of accounts.
--------------------------------------------------------------------------------
ACCOUNT CHANGES
--------------------------------------------------------------------------------
Call our Institutional Shareholder Service Center to update your account
records whenever you change your address. The Institutional Shareholder Service
Center can also help you change your account information or privileges.
28
<PAGE>
OTHER POLICIES
--------------------------------------------------------------------------------
TRANSACTION DETAILS
--------------------------------------------------------------------------------
You are entitled to capital-gain and earned-dividend distributions as soon
as your purchase order is executed.
Your purchase order will be canceled and you may be liable for losses or
fees incurred by the fund if:
o your investment check or ACH transfer does not clear
o you place a telephone order by 4 p.m. ET and we do not receive your wire
that day
If you wire money without first calling our Institutional Shareholder
Service Center to place an order, and your wire arrives after the close of
regular trading on the NYSE, then your order will not be executed until the end
of the next business day. In the meantime, your payment will be held uninvested.
Your bank or other financial-services firm may charge a fee to send or receive
wire transfers.
While we monitor telephone-servicing resources carefully, during periods
of significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
--------------------------------------------------------------------------------
SPECIAL SITUATIONS
--------------------------------------------------------------------------------
The fund reserves the right to:
o 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
o change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
o impose minimum investment amounts after 15 days' notice to current
investors of any increases
o charge a wire-redemption fee
o make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations
o 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)
o stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
29
<PAGE>
This page intentionally left blank
30
<PAGE>
FOR MORE INFORMATION
More information about this fund is available free upon request, including
the following:
--------------------------------------------------------------------------------
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
--------------------------------------------------------------------------------
Includes financial statements, portfolio investments and detailed
performance information.
The Annual Report also contains a letter from the fund's managers
discussing market conditions and investment strategies that significantly
affected fund performance during its past fiscal year.
--------------------------------------------------------------------------------
OTHER INFORMATION
--------------------------------------------------------------------------------
A current Statement of Additional Information (SAI), which provides more
details about the fund, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
202-942-8090) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact Warburg Pincus Advisor Funds to obtain, without charge, the
SAI, Annual and Semiannual Reports and portfolio holdings and other information
and to make shareholder inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER
SERVICE:
Boston Financial
Attn: Warburg Pincus Advisor Funds
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC file number:
Warburg Pincus Global Financial
Services Fund 811-09963
--------------------
WARBURG PINCUS FUNDS
--------------------
PART OF CREDIT | ASSET
SUISSE | MANAGEMENT
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 o www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR ADGFS-1-1200
<PAGE>
[LOGO] WARBURG PINCUS FUNDS, PART OF CREDIT SUISSE | ASSET MANAGEMENT
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
Common Class
January 1, 2001
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
o 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.
o 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.
o 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
Cash Reserve Fund: $ 1,000
New York Tax Exempt Fund: $ 1,000
Balanced Fund: $ 1,000
Value Fund: $ 1,000
WorldPerks(R) Funds: $ 5,000
Long-Short Fund: $25,000
All other funds: $ 2,500
IRAs: $ 500*
Transfers/Gifts to Minors: $ 500*
--------------------------------------------------------------------------------
* $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>
--------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
BY CHECK
--------------------------------------------------------------------------------
o Complete the New Account o Make your check payable to Warburg
Application. For IRAs use the Pincus Funds.
Universal IRA Application.
o Write the account number and the
o Make your check payable to Warburg fund name on your check.
Pincus Funds.
o Mail to Warburg Pincus Funds.
o Mail to Warburg Pincus Funds.
o Minimum amount is $100.
--------------------------------------------------------------------------------
BY EXCHANGE
--------------------------------------------------------------------------------
o Call our Shareholder Service Center o Call our Shareholder Service Center
to request an exchange. Be sure to to request an exchange.
read the current prospectus for the
new fund. Also please observe the o Minimum amount is $250.
minimum initial investment.
If you do not have telephone
If you do not have telephone privileges, mail or fax a signed
privileges, mail or fax a signed letter of instruction.
letter of instruction.
--------------------------------------------------------------------------------
BY WIRE
--------------------------------------------------------------------------------
o Complete and sign the New Account o Call our Shareholder Service Center
Application. by 4 p.m. ET to inform us of the
incoming wire. Please be sure to
o Call our Shareholder Service Center specify your name, the account
and fax the signed New Account number and the fund name on your
Application by 4 p.m. ET. wire advice.
o Shareholder Services will telephone o Wire the money for receipt that day.
you with your account number. Please
be sure to specify your name, the o Minimum amount is $500.
account number and the fund name on
your wire advice.
o Wire your initial investment for
receipt that day.
o Mail the original, signed
application to Warburg Pincus Funds.
This method is not available for
IRAs.
--------------------------------------------------------------------------------
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
--------------------------------------------------------------------------------
o Cannot be used to open an account. o Call our Shareholder Service Center
to request an ACH transfer from your
bank.
o Your purchase will be effective at
the next NAV calculated after we
receive your order in proper form.
o Minimum amount is $50.
Requires ACH on Demand privileges.
--------------------------------------------------------------------------------
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(*)
--------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
--------------------------------------------------------------------------------
BY MAIL
--------------------------------------------------------------------------------
Write us a letter of instruction that o Accounts of any type.
includes:
o Sales of any amount.
o your name(s) and signature(s)
For IRAs please use the IRA
o the fund name and account number Distribution Request Form.
o the dollar amount you want to sell
o 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
--------------------------------------------------------------------------------
o Call our Shareholder Service Center o Accounts with telephone privileges.
to request an exchange. Be sure to
read the current prospectus for the If you do not have telephone
new fund. Also please observe the privileges, mail or fax a letter of
minimum initial investment. instruction to exchange shares.
--------------------------------------------------------------------------------
BY PHONE
--------------------------------------------------------------------------------
Call our Shareholder Service Center to o Non-IRA accounts with telephone
request a redemption. You can receive privileges.
the proceeds as:
o a check mailed to the address of
record
o an ACH transfer to your bank ($50
minimum)
o a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for
details.
--------------------------------------------------------------------------------
BY WIRE OR ACH TRANSFER
--------------------------------------------------------------------------------
o Complete the "Wire Instructions" or o Non-IRA accounts with
"ACH on Demand" section of your New wire-redemption or ACH on Demand
Account Application. privileges.
o For federal-funds wires, proceeds o Requests by phone or mail.
will be wired on the next business
day. For ACH transfers, proceeds
will be delivered within two
business days.
--------------------------------------------------------------------------------
* 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.
4
<PAGE>
o SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
o accounts whose address of record has been changed within the past 30
days
o redemption in certain large amounts (other than by exchange)
o requests to send the proceeds to a different payee or address
o 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.
o 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 until the check or other purchase payment clears,
which generally takes up to 10 calendar days from the day of purchase. At any
time during this period, you may exchange into another fund.
o 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
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
--------------------------------------------------------------------------------
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
o 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
it easy to build a mutual fund portfolio. For an initial investment of $250
along with a minimum $50 monthly investment, you can invest in certain Warburg
Pincus funds. The SaveMyMoney Program will automatically transfer the monthly
investment amount you designate from your bank account.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments ($50 minimum) from a designated bank
account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals
of $250 or more.
DISTRIBUTION SWEEP
For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
o STATEMENTS AND REPORTS
Each Fund produces financial reports, which include among other things a
list of the Fund's portfolio holdings, semiannually and updates its prospectus
annually. Each Fund generally does not hold shareholder meetings. To reduce
expenses by eliminating duplicate mailings to the same address, a Fund may
choose to mail only one report, prospectus, proxy statement or information
statement, as applicable, to your household, even if more than one person in the
household has an account with the same Fund. Please call 800-WARBURG if you
would like to receive additional reports, prospectuses or proxy statements.
o RETIREMENT PLANS
Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
o Traditional IRAs
o Roth IRAs
o Roth Conversion IRAs
o Spousal IRAs
o Rollover IRAs
o 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.
o 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.
o 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
o 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:
o your investment check or ACH transfer does not clear
o 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.
o SPECIAL SITUATIONS
A fund reserves the right to:
o 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
o change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
o change its minimum investment amounts after 15 days' notice to current
investors of any increases
o charge a wire-redemption fee
o make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations
o 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)
o 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)
o 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
--------------------
PART OF CREDIT | ASSET
SUISSE | MANAGEMENT
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) o www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR WPCOM-31-0101
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 29, 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 for the Common Shares and the Prospectus
for the Advisor Shares of the Fund, each dated December 29, 2000, as amended or
supplemented from time to time (each a "Prospectus") and is incorporated by
reference in its entirety in each 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 Prospectuses 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>
Page
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INVESTMENT OBJECTIVE AND POLICIES............................................1
Financial Services Industries..........................................1
General Investment Strategies..........................................1
Strategic and Other Transactions.......................................2
Options, Futures and Currency Transactions.......................2
Securities Options...............................................2
Securities Index Options.........................................5
OTC Options......................................................5
Futures Activities...............................................6
Futures Contracts................................................6
Options on Futures Contracts.....................................7
Currency Exchange Transactions...................................8
Forward Currency Contracts.......................................8
Currency Options.................................................8
Currency Hedging.................................................9
Swaps............................................................9
Hedging Generally...............................................10
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures and Swaps.........................................11
Additional Information on Other Investment Practices..................12
U.S. Government Securities......................................12
Other U.S. Government Securities................................12
Money Market Obligations........................................12
Money Market Mutual Funds.......................................13
Repurchase Agreements...........................................13
Convertible Securities..........................................13
Structured Securities...........................................14
Mortgage-Backed Securities......................................14
Asset-Backed Securities.........................................15
Structured Notes, Bonds or Debentures...........................15
Assignments and Participations..................................15
Debt Securities.................................................16
Below Investment Grade Securities...............................16
Zero Coupon Securities..........................................18
Securities of Other Investment Companies........................18
Lending of Portfolio Securities.................................18
Foreign Investments.............................................19
Depositary Receipts.............................................19
Foreign Currency Exchange.......................................20
Euro Conversion.................................................20
Information.....................................................20
Political Instability...........................................21
(i)
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Page
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Foreign Markets.................................................21
Increased Expenses..............................................21
Foreign Debt Securities.........................................21
Sovereign Debt..................................................22
Privatizations..................................................23
Brady Bonds.....................................................23
Emerging Markets................................................23
Short Sales.....................................................24
Short Sales "Against the Box"...................................24
Warrants........................................................25
Non-Publicly Traded and Illiquid Securities.....................25
Borrowing.......................................................26
Stand-By Commitments............................................27
Reverse Repurchase Agreements...................................27
When-Issued Securities and Delayed-Delivery Transactions........28
REITs...........................................................28
Emerging Growth and Small Companies; Unseasoned Issuers.........29
Special Situation Companies.....................................29
Dollar Rolls....................................................29
Temporary Defensive Strategies........................................30
Debt Securities.................................................31
Money Market Obligations........................................31
INVESTMENT RESTRICTIONS.....................................................31
PORTFOLIO VALUATION.........................................................33
PORTFOLIO TRANSACTIONS......................................................34
PORTFOLIO TURNOVER..........................................................36
MANAGEMENT OF THE FUND......................................................36
Officers and Board of Directors.......................................36
Directors' Total Compensation.........................................40
Portfolio Managers of the Fund........................................41
Control Persons and Principal Holders of Securities...................41
Investment Adviser and Co-Administrators..............................41
Code of Ethics........................................................43
Custodians and Transfer Agent.........................................43
Organization of the Fund..............................................44
Distribution and Shareholder Servicing................................45
Common Shares...................................................45
Advisor Shares..................................................46
General.........................................................47
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................47
Automatic Cash Withdrawal Plan..................................48
EXCHANGE PRIVILEGE..........................................................48
ADDITIONAL INFORMATION CONCERNING TAXES.....................................48
The Fund and Its Investments..........................................49
(ii)
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Page
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Passive Foreign Investment Companies..................................51
Dividends and Distributions...........................................52
Sales of Shares.......................................................52
Foreign Taxes.........................................................53
Backup Withholding....................................................53
Notices...............................................................53
Special Tax Matters Relating to Zero Coupon Securities................53
Other Taxation........................................................54
DETERMINATION OF PERFORMANCE................................................54
INDEPENDENT ACCOUNTANTS AND COUNSEL.........................................56
MISCELLANEOUS...............................................................56
FINANCIAL STATEMENTS........................................................56
APPENDIX - DESCRIPTION OF RATINGS..........................................A-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.
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.
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.
<PAGE>
Strategic and Other Transactions
Options, Futures and Currency Transactions. The Fund may purchase
and write (sell) options on securities, securities indices and currencies for
both hedging purposes and to increase total return. The Fund may enter into
futures contracts and options on futures contracts on securities, securities
indices and currencies and may engage in currency exchange transactions for
these same purposes, which may involve speculation.
Up to 25% of the Fund's assets may be at risk in connection with
these strategies. The amount of assets considered to be "at risk" in these
transactions is, in the case of purchasing options, the amount of the premium
paid, and, in the case of writing options, the value of the underlying
obligation. Options may be traded on an exchange or over-the-counter ("OTC").
Securities Options. The Fund may write covered put and call options
on stock and debt securities and may purchase such options that are traded on
U.S. and foreign exchanges, as well as OTC options. The Fund realizes fees
(referred to as "premiums") for granting the rights evidenced by the options it
has written. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying security
at a specified price for a specified time period or at a specified time. In
contrast, a call option embodies the right of its purchaser to compel the writer
of the option to sell to the option holder an underlying security at a specified
price for a specified time period or at a specified time.
The potential loss associated with purchasing an option is limited
to the premium paid, and the premium would partially offset any gains achieved
from its use. However, for an option writer the exposure to adverse price
movements in the underlying security or index is potentially unlimited during
the exercise period. Writing securities options may result in substantial losses
to the Fund, force the sale or purchase of portfolio securities at inopportune
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.
2
<PAGE>
In the case of options written by the Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Credit Suisse Asset Management, LLC, the Fund's investment adviser
("CSAM"), 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,
3
<PAGE>
whether the Fund realizes a profit or loss will depend upon whether the amount
received in the closing sale transaction is more or less than the premium the
Fund initially paid for the original option plus the related transaction costs.
Similarly, in cases where the Fund has written an option, it will realize a
profit if the cost of the closing purchase transaction is less than the premium
received upon writing the original option and will incur a loss if the cost of
the closing purchase transaction exceeds the premium received upon writing the
original option. The Fund may engage in a closing purchase transaction to
realize a profit, to prevent an underlying security with respect to which it has
written an option from being called or put or, in the case of a call option, to
unfreeze an underlying security (thereby permitting its sale or the writing of a
new option on the security prior to the outstanding option's expiration). The
obligation of the Fund under an option it has written would be terminated by a
closing purchase transaction (the Fund would not be deemed to own an option as a
result of the transaction). So long as the obligation of the Fund as the writer
of an option continues, the Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Fund to deliver
the underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. The Fund cannot effect a closing purchase transaction with respect
to an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Fund's ability
to terminate options positions established in the 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.
4
<PAGE>
Securities Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for securities options.
OTC Options. The Fund may purchase and write OTC or dealer options.
Unlike exchange-listed options where an intermediary or clearing corporation,
such as the Clearing Corporation, assures that all transactions in such options
are properly executed, the responsibility for performing all transactions with
respect to OTC options rests solely with the writer and the holder of those
options. A listed call option writer, for example, is obligated to deliver the
underlying securities to the clearing organization if the option is exercised,
and the clearing organization is then obligated to pay the writer the exercise
price of the option. If the Fund were 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
5
<PAGE>
is exercised. This requirement may impair the Fund's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when such
sale might be advantageous.
Futures Activities. The Fund may enter into futures contracts and
options on futures contracts on securities, securities indices and currencies
for bona fide hedging and speculative purposes. These futures contracts are
standardized contracts for the future delivery of a non-U.S. currency, an
interest rate sensitive security or, in the case of index futures contracts or
certain other futures contracts, a cash settlement with reference to a specified
multiplier times the change in the index. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return. Aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC will not exceed 5% of the Fund's net asset value after
taking into account unrealized profits and unrealized losses on any such
contracts it has entered into. Although the Fund is limited in the amount of
assets that may be invested in futures transactions, there is no overall limit
on the percentage of Fund assets that may be at risk with respect to futures
activities.
The Fund reserves the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities.
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
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
6
<PAGE>
broker, will be made daily as the currency, financial instrument or securities
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." The Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund may enter into futures contracts only if there is an active market for such
contracts, there is no assurance that an active market will exist at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if the Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. The Fund may purchase and write put
and call options on futures contracts and may enter into closing transactions
with respect to such options to terminate existing positions. There is no
guarantee that such closing transactions can be 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.
7
<PAGE>
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and the Fund may incur costs in connection with conversion
between various currencies. Currency exchange transactions may be from any
non-U.S. currency into U.S. dollars or into other appropriate currencies. The
Fund will conduct its currency exchange transactions (i) on a spot (i.e., cash)
basis at the rate prevailing in the currency exchange market, (ii) through
entering into futures contracts or options on such contracts (as described
above), (iii) through entering into forward contracts to purchase or sell
currency or (iv) by purchasing exchange-traded currency options. Risks
associated with currency forward contracts and purchasing currency options are
similar to those described herein for futures contracts and securities and stock
index options. In addition, the use of currency transactions could result in
losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
The Fund may engage in currency exchange transactions for hedging
purposes or for other purposes, including generating current income to offset
expenses or to increase return, which may involve speculation.
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.
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Currency Hedging. The Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. The Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which
the Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of non-dollar denominated securities it holds, the Fund may
purchase foreign currency put options. If the value of the foreign currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on the
U.S. dollar value of its securities that otherwise would have resulted.
Conversely, if a rise in the U.S. dollar value of a currency in which securities
to be acquired are denominated is projected, thereby potentially increasing the
cost of the securities, the Fund may purchase call options on the particular
currency. The purchase of these options could offset, at least partially, the
effects of the adverse movements in exchange rates. The benefit to the Fund
derived from purchases of currency options, like the benefit derived from other
types of options, will be reduced by premiums and other transaction costs.
Because transactions in currency exchange are generally conducted on a principal
basis, no fees or commissions are generally involved. Currency hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, the Fund may not be able to contract to
sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not 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.
Swaps. The Fund may enter into swaps relating to indexes,
currencies, interest rates, equity and debt interests of foreign issuers without
limit. A swap transaction is an agreement between the Fund and a counterparty to
act in accordance with the terms of the swap contract. Index swaps involve the
exchange by the Fund with another party of the respective amounts payable with
respect to a notional principal amount related to one or more indexes. Currency
swaps involve the exchange of cash flows on a notional amount of two or more
currencies based on their relative future values. An equity swap is an agreement
to exchange streams of payments computed by reference to a notional amount
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based on the performance of a basket of stocks or a single stock. The Fund may
enter into these transactions to preserve a return or spread on a particular
investment or portion of its assets, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The Fund
may also use these transactions for speculative purposes, such as to obtain the
price performance of a security without actually purchasing the security in
circumstances, for example, the subject security is illiquid, is unavailable for
direct investment or available only on less attractive terms. Swaps have risks
associated with them including possible default by the counterparty to the
transaction, illiquidity and, where swaps are used as hedges, the risk that the
use of a swap could result in losses greater than if the swap had not been
employed.
The Fund will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). Swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps is limited to the net amount of payments that the
Fund is contractually obligated to make. If the counterparty to a swap defaults,
the Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. Where swaps are entered into for good faith
hedging purposes, the Adviser believes such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Where swaps are entered into for
other than hedging purposes, the Fund will segregate an amount of cash or liquid
securities having a value equal to the accrued excess of its obligations over
entitlements with respect to each swap on a daily basis.
Hedging Generally. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, 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
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position. Such "over hedging" or "under hedging" may adversely affect the Fund's
net investment results if market movements are not as anticipated when the hedge
is established. Securities index futures transactions may be subject to
additional correlation risks. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the securities index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the securities
index and movements in the price of securities index futures, a correct forecast
of general market trends by the Adviser still may not result in a successful
hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by the Adviser, and successful use by the Fund of hedging transactions
will be subject to the Adviser's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to predict correctly
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Fund's performance.
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 and Swaps. 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; currency, interest rate and security
index futures contracts and options on these futures contracts; forward currency
contracts; and swaps. 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.
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For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
Additional Information on Other Investment Practices
U.S. Government Securities. The obligations issued or guaranteed by
the U.S. government in which the Fund may invest include direct obligations of
the U.S. Treasury and obligations issued by U.S. government agencies and
instrumentalities ("U.S. Government Securities"). Included among direct
obligations of the United States are Treasury Bills, Treasury Notes and Treasury
Bonds, which differ in terms of their interest rates, maturities and dates of
issuance. Treasury Bills have maturities of less than one year, Treasury Notes
have maturities of 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
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limit. These instruments consist of obligations issued or guaranteed by the U.S.
government or a foreign government, their agencies or instrumentalities; bank
obligations (including certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic savings and loans and similar
institutions) that are high quality investments; commercial paper rated no lower
than A-2 by Standard & Poor's Ratings Services ("S&P") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt issue
then rated within the three highest rating categories; and repurchase agreements
with respect to the foregoing.
Money Market Mutual Funds. Where 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.
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Structured Securities. The Fund may purchase any type of publicly
traded or privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities, such as those issued by GNMA, FNMA, FHLMC or certain foreign
issuers. Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real property.
The mortgages backing these securities include, among other mortgage
instruments, conventional 30-year fixed-rate mortgages, 15-year fixed-rate
mortgages, graduated payment mortgages and adjustable rate mortgages. The
government or the issuing agency typically guarantees the payment of interest
and principal of these securities. However, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
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
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and the time the issuer makes the payments on the mortgage-backed securities,
and this delay reduces the effective yield to the holder of such securities.
Asset-Backed Securities. The Fund may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented
by other securities in which the Fund may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal 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
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having a contractual relationship only with the Lender, not with the
borrower. The Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling
the Participation and only upon receipt by the Lender of the payments from
the borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of
the insolvency of the Lender selling a Participation, the Fund may be treated
as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. The Fund will acquire Participations
only if the Lender interpositioned between the Fund and the borrower is
determined by 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, which may also be subject to the risk of
default. 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 35% 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
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rated as low as C by Moody's or D by S&P at the time of purchase, or may be
unrated securities considered to be of equivalent quality. Securities that are
rated C by Moody's comprise the lowest rated class and can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Debt
rated D by S&P is in default or is expected to default upon maturity or payment
date. Bonds rated below investment grade may have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade bonds. Investors should be aware that ratings are
relative and subjective and are not absolute standards of quality.
Securities rated below investment grade and comparable unrated
securities: (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.
While the market values of medium- and lower-rated securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities, the market values
of certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be 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
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judgment, analysis and experience of the Adviser in evaluating the
creditworthiness of an issuer. In this evaluation, in addition to relying on
ratings assigned by Moody's or S&P, the Adviser will take into consideration,
among other things, the issuer's financial resources, its sensitivity to
economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. Interest rate trends and specific
developments which may affect individual issuers will also be analyzed.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced. Neither event will require sale of such
securities, although the Adviser will consider such event in its determination
of whether the Fund should continue to hold the securities. Normally, medium-
and lower-rated and comparable unrated securities are not intended for
short-term investment. The Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings of such securities. At times, adverse
publicity regarding lower-rated securities has depressed the prices for such
securities to some extent.
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
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102% of the current market value of the loaned U.S. securities and at least 105%
of the current market value of loaned non-U.S. securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Fund. From time to time, the Fund may
return a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party that is unaffiliated
with the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. The Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive cash collateral or equivalent securities of the type
discussed in the preceding paragraph from the borrower; (ii) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (iii) the Fund must be able to terminate the loan
at any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Fund's ability to recover the loaned securities
or dispose of the collateral for the loan. Default by or bankruptcy of a
borrower would expose the Fund to possible loss because of adverse market
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
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(CDRs) and IDRs (GDRs) in bearer form are designed for use in European and
non-U.S. securities markets, respectively.
Foreign Currency Exchange. Since the Fund may be investing in
securities denominated in currencies of non-U.S. countries, and since the Fund
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Fund may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of the Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. Unless otherwise contracted, the rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. Changes in the exchange rate
may result over time from the interaction of many factors directly or indirectly
affecting economic and political conditions in the United States and a
particular foreign country, including economic and political developments in
other countries. Governmental intervention may also play a significant role.
National governments rarely voluntarily allow their currencies to float freely
in response to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their currencies.
The Fund may use hedging techniques with the objective of protecting against
loss through the 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.
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Political Instability. With respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries.
Foreign Markets. Securities of some foreign companies are less
liquid and their prices are more volatile than securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold which may result
in increased exposure to market and foreign exchange fluctuations and increased
illiquidity.
Increased Expenses. The operating expenses of the Fund, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Fund, such as the cost of converting foreign currency into U.S. dollars,
the payment of fixed brokerage commissions on foreign exchanges, custodial
costs, valuation costs and communication costs, may be higher than those costs
incurred by other investment companies not investing in foreign securities. In
addition, foreign securities may be subject to foreign government taxes that
would reduce the net yield on such securities.
Foreign Debt Securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those
countries. The relative performance of various countries' fixed income markets
historically has reflected wide variations relating to the unique
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.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union to reflect changes in relative values of the
underlying currencies.
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Sovereign Debt. Investments in sovereign debt involve special risks.
The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due in accordance with the terms of such debt, and the Fund may have
limited legal recourse in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or
more of the countries issuing sovereign debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While the Adviser intends to manage the Fund in a manner
that will minimize the exposure to such risks, there can be no assurance that
adverse political changes will not cause the Fund to suffer a loss of interest
or principal on any of its holdings.
Investors should also be aware that certain sovereign debt
instruments in which the Fund may invest involve great risk. Sovereign debt
issued by issuers in many emerging markets generally is deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's and S&P. Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such sovereign debt, which may not be paying
interest currently or may be in payment default, may be comparable to securities
rated "D" by S&P or "C" by Moody's. The Fund may have difficulty disposing of
certain sovereign debt obligations because there may be a limited trading market
for such securities. Because there is no liquid secondary market for many of
these securities, the Fund anticipate that such securities could be sold only to
a limited number of dealers or institutional investors. The lack of a liquid
secondary market may have an adverse impact on the market price of such
securities and 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
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for certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio and
calculating its net asset value. When and if available, fixed income securities
may be purchased by the Fund at a discount from face value. However, the Fund do
not intend to hold such securities to maturity for the purpose of achieving
potential capital gains, unless current yields on these securities remain
attractive. From time to time, the Fund may purchase securities not paying
interest at the time acquired if, in the opinion of the Adviser, such securities
have the potential for future income or capital appreciation.
Privatizations. The Fund may invest in privatizations (i.e., foreign
government programs of selling interests in government-owned or controlled
enterprises). The ability of U.S. entities, such as the Fund, to participate in
privatizations may be limited by local law, or the terms for participation may
be less advantageous than for local investors. There can be no assurance that
privatization programs will be available or successful.
Brady Bonds. The Fund may invest in so-called "Brady Bonds," which
have been issued by Costa Rica, Mexico, Uruguay and Venezuela and which may be
issued by other Latin American countries. Brady Bonds are issued as part of a
debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers. In light of the
history of commercial bank loan defaults by Latin American public and private
entities, investments in Brady Bonds may be viewed as speculative and subject
to, among other things, the risk of default.
Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payment on these Brady Bonds generally are collateralized by
cash or securities in the amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").
Emerging Markets. The Fund may invest in securities of issuers
located in "emerging markets" (less developed countries located outside of the
U.S.). Investing in emerging markets involves not only the risks described above
with respect to investing in foreign securities, but also other risks, including
exposure to economic structures that are generally less diverse and mature than,
and to political systems that can be expected to have less stability than, those
of developed countries. For example, many investments in emerging markets
experienced significant declines in value due to political and currency
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volatility in emerging markets countries during the latter part of 1997 and the
first half of 1998. Other characteristics of emerging markets that may affect
investment include certain national policies that may restrict investment by
foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed structures governing private and foreign
investments and private property. The typically small size of the markets of
securities of issuers located in emerging markets and the possibility of a low
or nonexistent volume of trading in those securities may also result in a lack
of liquidity and in price volatility of those securities.
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 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.
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.
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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.
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
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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 not invest
more than 15% of its net assets in non-publicly traded and illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market, time deposits maturing in more than seven days, certain Rule
144A Securities (as defined below) and repurchase agreements which have a
maturity of longer than seven days. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days without borrowing. A mutual fund might
also have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
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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.
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.
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Stand-By Commitments. The Fund may invest in stand-by commitments
with respect to securities held in their portfolios. Under a stand-by
commitment, a dealer agrees to purchase at the Fund's option specified
securities at a specified price. The Fund's right to exercise stand-by
commitments is unconditional and unqualified. Stand-by commitments acquired by
the Fund may also be referred to as "put" options. A stand-by commitment is not
transferable by the Fund, although the Fund can sell the underlying securities
to a third party at any time.
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. When investing in stand-by commitments, the Fund will seek to enter
into stand-by commitments only with brokers, dealers and banks that, in the
opinion of the Adviser, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Adviser will
periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims. The Fund acquires stand-by
commitments only in order to facilitate portfolio liquidity and does not expect
to exercise its rights under stand-by commitments for trading purposes.
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.
The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value.
Where the Fund paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund. Stand-by commitments
would not affect the average weighted maturity of the Fund's portfolio.
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
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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.
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
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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.
Emerging Growth and Small Companies; Unseasoned Issuers. The Fund
may invest its assets in the securities of emerging growth, small companies and
unseasoned issuers. Investments in emerging growth and small-sized companies, as
well as companies with continuous operations of less than three years
("unseasoned issuers"), which may include foreign securities, involve risks and
other 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 and accounting standards, illiquidity of securities and markets,
higher brokerage commissions and fees and greater market risk in general. In
addition, securities of emerging growth and small-sized companies and unseasoned
issuers may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. Because such companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for the Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. These companies may have limited
product lines, markets or financial resources and may lack management depth. In
addition, these companies are typically subject to a greater degree of changes
in earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning these
companies than for larger, more established ones.
Although investing in securities of these companies offers potential
for above-average returns if the companies are successful, the risk exists that
the companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Fund may involve
a greater degree of risk than an investment in other mutual funds that seek
capital appreciation by investing in more established, larger companies.
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 fundamental
investment limitations or as otherwise permitted by law.
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.
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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 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
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delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. ("NYSE") is open for
trading). The NYSE is currently scheduled to be closed on New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. In addition, securities trading in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and days on which the Fund's net asset value
is not calculated. As a result, calculation of the Fund's net asset value may
not take place contemporaneously with the determination of the prices of certain
foreign portfolio securities used in such calculation. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the 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.
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In selecting broker-dealers, the Adviser does business exclusively
with those broker-dealers that, in the Adviser's judgment, can be expected to
provide the best service. The service has two main aspects: the execution of buy
and sell orders and the provision of research. In negotiating commissions with
broker-dealers, the Adviser will pay no more for execution and research services
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., the
Fund's distributor (and an affiliate of CSAM) ("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.
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The Fund may participate, if and when practicable, in bidding for
the purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of such
a group. The Fund will engage in this practice, however, only when the Adviser,
in its sole discretion, 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.
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The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard H. Francis (68) 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/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Jack W. Fritz (73) Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 1287 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations) since 1987;
Director/Trustee of other Warburg Pincus
Funds.
Jeffrey E. Garten (53) Director
Yale School of Management Dean of Yale School of Management and
56 Hillhouse Avenue William S. Beinecke Professor in the
New Haven, Connecticut 06520-8200 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. (70) Director
29 The Trillium Currently retired; President and Chief
Pittsburgh, Pennsylvania 15238 Operating Officer of National
InterGroup, Inc. (holding company of
National Steel Corporation) 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. (diversified
manufacturing and service company),
Trustee, Deutsche Bank VIT Funds;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
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William W. Priest* (58) Chairman of the Board
466 Lexington Avenue Chairman and Managing Director of CSAM;
New York, New York 10017-3147 Chief Executive Officer and Managing
Director of CSAM from 1990 to 2000;
Director/Trustee of other
Warburg Pincus Funds and other
CSAM-advised investment companies.
Steven N. Rappaport (52) 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. (international producer and seller
of metal), Executive Vice President,
Telerate, Inc. (a leading provider of
real-time financial information) from
1987 to 1992; Partner in the law firm of
Hartman & Craven until 1987;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
Alexander B. Trowbridge (70) Director
1317 F Street, N.W., 5th Floor Retired; President of Trowbridge
Washington, DC 20004 Partners, Inc. (business consulting)
January 1990 to November 1996; Director
or Trustee of 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 (43) President
466 Lexington Avenue Managing Director of CSAM; Associated
New York, New York 10017-3147 with CSAM since 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
----------
*Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
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other Warburg Pincus Funds.
Hal Liebes, Esq. (36) 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.
Michael A. Pignataro (40) Treasurer and Chief Financial Officer
466 Lexington Avenue Director of CSAM; Associated with
New York, New York 10017-3147 CSAM since 1984; Officer of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
Gregory N. Bressler, Esq. (34) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM
New York, New York 10017-3147 since January 2000; Swidler Berlin
Shereff Friedman LLP from 1996 to 2000.
Stuart J. Cohen, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of
New York, New York 10017-3147 CSAM; Associated with CSAM since 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. Del Guercio (37) Assistant Treasurer
466 Lexington Avenue 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.
Joseph Parascondola (37) Assistant Treasurer
466 Lexington Avenue Assistant Vice President - Fund
Administration of CSAM since April 2000;
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New York, New York 10017-3147 Assistant Vice President, Deutsche Asset
Management from January 1999 to April
2000; Assistant Vice President, Weiss,
Peck & Greer LLC from November 1995 to
December 1998.
No employee of CSAM, CSAM Ltd., PFPC Inc. ("PFPC") or CSAMSI, the
Fund's co-administrators, or any of their affiliates receives any compensation
from the Fund for acting as an officer or director/trustee of the Fund. Each
Director who is not a director, trustee, officer or employee of CSAM, CSAM Ltd.,
PFPC or CSAMSI or any of their affiliates receives the following annual and
per-meeting fees:
--------------------------------------------------------------------------------
Fee for Each Annual Fee as
Annual Fee as Board Meeting Audit Committee
Fund Director Attended Member
--------------------------------------------------------------------------------
Global Financial Services $750 $250 $250*
Fund
--------------------------------------------------------------------------------
* Alexander B. Trowbridge, Chairman of the Audit Committee, receives $325
for serving on the Audit Committee.
Each Director is reimbursed for expenses incurred in connection with
attendance at Board meetings.
Directors' Total Compensation
(estimated for fiscal period ending August 31, 2001):
--------------------------------------------------------------
All Investment
Companies in the
Name of Director The Fund Fund Complex*
--------------------------------------------------------------
William W. Priest** None None
--------------------------------------------------------------
Richard H. Francis $2,500 $112,500
--------------------------------------------------------------
Jack W. Fritz $2,500 $112,500
--------------------------------------------------------------
Jeffrey E. Garten $2,500 $ 60,000
--------------------------------------------------------------
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--------------------------------------------------------------
James S. Pasman, Jr. $2,500 $112,500
--------------------------------------------------------------
Steven N. Rappaport $2,500 $112,500
--------------------------------------------------------------
Alexander B. Trowbridge $2,725 $122,625
--------------------------------------------------------------
* 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
D. Susan Everly, Director, is responsible for the management of
U.S. Select Equity portfolios as well as U.S. convertible securities
portfolios. She joined in 1998 from Goldman Sachs, where she initiated and
built the U.S. convertible securities research function. Previously, she
worked at CS First Boston, first as an analyst in the depository
institutions group and then as a member of the convertible securities
new-issue group. Ms. Everly holds a B.A. in Economics from the University of
Chicago and an M.B.A. in Finance from the Harvard Graduate School of Business.
Craig K. Elkind, Vice President, is an analyst focusing on U.S.
insurance and non-bank financial companies in large-capitalization U.S. equity
portfolios. He joined in 2000 from Lazard Asset Management, where he was a
global insurance and financial services analyst. Previously, he was a partner in
Fisher Capital Corp., director of insurance ratings at Standard & Poor's and a
financial manager at SCOR U.S. Corporation. Mr. Elkind holds a B.A. in
Mathematical Economics from Colgate University and an M.B.A. in Finance from
Columbia Business School. He serves on the Board of Directors of the Association
of Insurance and Financial Analysts and is a Chartered Financial Analyst.
Katharine O'Donovan, Director, is a London-based equity analyst
specializing in European banks. She joined in 1999 from Deutsche Bank (formerly
NatWest Securities), where she established and headed a team of European bank
analysts. By the end of her tenure with Deutsche Bank, Ms. O'Donovan's team was
consistently ranked among the best of its kind in the annual Extel survey of
sell-side analysts. Previously, she worked as a bank analyst on the U.K.
financials team at Hoare Govett. Ms. O'Donovan holds an honors degree in
Microbiology from Trinity College, Dublin.
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, New York, New York
10017-3147, serves as investment adviser to the Fund pursuant to a written
agreement (the "Advisory Agreement"). CSAM is an indirect wholly-owned U.S.
subsidiary of
41
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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
0.90% of the Fund's average daily net assets.
CSAM Ltd., located at Beaufort House, 15 St. Botolph Street, London
EC3A 7JJ, England, serves as sub-investment adviser to the Fund. CSAM Ltd. is a
corporation organized under the laws of England in 1982 and is registered as an
investment adviser under the Advisers Act. CSAM Ltd. is a diversified asset
manager, handling global equity, balanced, fixed income and derivative
securities accounts for other investment companies, corporate pension and
profit-sharing plans, state pension funds, union funds, endowments and other
charitable institutions. CSAM Ltd. has been in the money management business for
over 15 years and currently manages approximately $37 billion in assets.
CSAM Ltd. is a wholly owned subsidiary of Credit Suisse Asset
Management (UK) Holding Limited ("CSAM Holding"). CSAM Holding is a wholly owned
subsidiary of Credit Suisse, the parent company of the Funds' investment
adviser, CSAM. Like Credit Suisse, CSAM Holding is located at Paradeplatz 8,
8001 Zurich, Switzerland.
Subject to the supervision of CSAM, CSAM Ltd., in the exercise of
its best judgment, will provide investment advisory assistance and portfolio
management advice to the Fund in accordance with the Articles of Incorporation
as it relates to the Portfolio, as may be amended from time to time, the
Prospectuses and Statement of Additional Information, as from time to time in
effect, and in such manner and to such extent as may from time to time be
approved by the Board.
Under the Sub-Advisory Agreement between CSAM and CSAM Ltd. (the
"Sub-Advisory Agreement" and with the Advisory Agreement, each an "Advisory
Agreement"), CSAM pays CSAM Ltd. a portion of the net quarterly amount (after
fee waivers and reimbursements) received by CSAM for CSAM's services as the
Fund's investment adviser. Upon the termination of the Sub-Advisory Agreement
before the end of a quarter, the fee for such part of that quarter shall be
prorated according to the proportion that such period bears to the full
quarterly period.
CSAMSI and PFPC serve as co-administrators to the Fund pursuant to
separate written agreements. CSAMSI provides shareholder liaison services to the
Fund including responding to shareholder inquiries and providing information on
shareholder investments. CSAMSI also performs a variety of other services,
including
42
<PAGE>
furnishing certain executive and administrative services, acting as liaison
between the Fund and their various service providers, furnishing certain
corporate secretarial services, which include preparing materials for meetings
of the Board, assisting with proxy statements and annual and semiannual reports,
assisting in the preparation of tax returns and monitoring and developing
certain compliance procedures for the Fund. As compensation, the Common Shares
and Advisor Shares of the Fund pay CSAMSI a fee calculated at an annual rate of
.10% of their respective average daily net assets.
PFPC calculates the Fund's net asset value, provides all accounting
services for the Fund and assists in related aspects of the Fund's operations.
As compensation, the Fund pays PFPC a fee calculated at an annual rate of .11%
of the Fund's first $500 million in average daily net assets, .09% of the next
$1 billion in average daily net assets, and .07% of average daily net assets
over $1.5 billion, subject in each case to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
Each class of shares of the Fund bears its proportionate share of
fees payable to CSAM, CSAM Ltd., CSAMSI and PFPC in the proportion that its
assets bear to the aggregate assets of the Fund at the time of calculation.
These fees are calculated at an annual rate based on a percentage of the Fund's
average daily net assets. The Fund's co-administrators may voluntarily waive a
portion of their fees from time to time and temporarily limit the expenses to be
borne by the Fund.
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,
43
<PAGE>
(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
("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
44
<PAGE>
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 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
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<PAGE>
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
.50% 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, 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 0.25% per year of the value of Fund
accounts maintained by the firm and/or, in certain cases, may include a one-time
fee of up to 0.50% of the value of assets invested in the accounts. Fees payable
to any particular Institution are determined based upon a number of factors,
including the nature and quality of the services provided, the operations
processing requirements of the relationship and the standardized fee 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
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<PAGE>
provided by the Institution: (i) account fees (a fixed amount per month or per
year); (ii) transaction fees (a fixed amount per transaction processed); (iii)
compensation balance requirements (a minimum dollar amount a Customer must
maintain in order to obtain the services offered); or (iv) account maintenance
fees (a periodic charge based upon the percentage of assets in the account or of
the dividend paid on those assets). Services provided by an Institution to
Customers are in addition to, and not duplicative of, the services to be
provided under the Fund's co-administration and distribution and shareholder
servicing arrangements. A Customer of an Institution should read the Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature describing the services and related fees that would be
provided by the Institution to its Customers prior to any purchase of Fund
shares. A Prospectus is available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.
General. The Advisor Share 12b-1 Plan and the Common Shares 12b-1
Plan will continue in effect for so long as their continuance is specifically
approved at least annually by the Fund's Board, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Advisor Shares 12b-1 Plan or
the Common Shares 12b-1 Plan, as the case may be ("Independent Directors"). Any
material amendment of the Advisor Shares 12b-1 Plan or the Common Shares 12b-1
Plan would require the approval of the Board in the same manner. Neither the
Advisor Shares 12b-1 Plan nor the Common Shares 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Advisor Share 12b-1 Plan and the
Common Shares 12b-1 Plan may be terminated at any time, without penalty, by vote
of a majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class of shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share
net asset value of the relevant class of shares of the Fund.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)
If conditions exist which make payment of redemption proceeds wholly
in cash unwise or undesirable, the Fund may make payment wholly or partly in
securities or other investment instruments which may not constitute securities
as such term is defined in the applicable securities laws. If a redemption is
paid wholly or partly in securities or other property, a shareholder would incur
transaction costs in disposing of the redemption proceeds. The Fund has elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a result of which
the Fund is obligated to redeem shares, with respect to any one shareholder
during any 90
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day period, solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund at the beginning of the period.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued withdrawal
payments may reduce the shareholder's investment and ultimately exhaust it.
Withdrawal payments should not be considered as income from investment in the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by CSAM is
available to investors in the Fund. A Common Shareholder may exchange Common
Shares of the Fund for Common Shares of another Fund or for Common Shares of
another Warburg Pincus Fund at their respective net asset values. An Advisor
Shareholder may exchange Advisor Shares of the Fund for Advisor Shares of
another Warburg Pincus Fund at their respective net asset values.
If an exchange request is received by Warburg Pincus Funds or their
agent prior to the close of regular trading on the NYSE, the exchange will be
made at the Fund's net asset value determined at the end of that business day.
Exchanges will be effected without a sales charge but must satisfy the minimum
dollar amount necessary for new purchases. The Fund may refuse exchange
purchases at any time without prior notice.
The exchange privilege is available to shareholders residing in any
state in which the shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange shares of
the Fund for shares in another Warburg Pincus Fund should review the prospectus
of the other fund prior to making an exchange. For further information regarding
the exchange privilege or to obtain a current prospectus for another Warburg
Pincus Fund, an investor should contact Warburg Pincus Funds at (800) 927-2874.
The Fund reserves the right to refuse exchange purchases by any
person or group if, in 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
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<PAGE>
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
the Fund. This summary is based on the laws in effect on the date of this
Statement of Additional Information and existing judicial and administrative
interpretations thereof, both of which are subject to change.
The Fund and Its Investments
The Fund intends to continue to qualify to be treated as a regulated
investment company during each taxable year under Part I of Subchapter M of the
Code. To so qualify, the Fund must, among other things: (a) derive at least 90%
of its gross income in the taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock, securities, foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of the quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, securities of other regulated investment companies, United
States Government Securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
Fund's assets and not greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its assets is invested in
the securities (other than U.S. Government Securities or securities of other
regulated investment companies) of any one issuer or any two or more issuers
that the Fund controls and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.
As a regulated investment company, the Fund will not be subject to
United States federal income tax on its net investment income (i.e., income
other than its net realized long-term and short-term capital gains) and on its
net realized long-term and short-term capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed to its shareholders, but
will be subject to tax at regular corporate rates on any taxable income or gains
that it does not distribute. Any dividend declared by the Fund in October,
November or December of any calendar year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by the
shareholder on December 31 of such calendar year and to have been paid by the
Fund not later than such December 31, provided that such dividend is actually
paid by the Fund during January of the following calendar year.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
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The Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board of the
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of net realized short-term capital losses (including any
capital loss carryovers). The Fund currently expects to distribute any such
excess annually to its shareholders. However, if the Fund retains for investment
an amount equal to all or a portion of its net long-term capital gains in excess
of its net short-term capital losses and capital loss carryovers, it will be
subject to a corporate tax (currently at a rate of 35%) on the amount retained.
In that event, the Fund will designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will be required to
include in income for United Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35% tax paid by the Fund
on the undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their pro rata share of
such taxes paid by the Fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS"). Even if the Fund makes such an
election, it is possible that it may incur an excise tax as a result of not
having distributed net capital gains.
The Code imposes a 4% nondeductible excise tax on the Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its ordinary income for that year and at least 98% of its net capital gains
(both long-term and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any ordinary income
or net capital gains retained by the Fund that is subject to corporate income
tax will be considered to have been distributed by year-end. The balance of such
income must be distributed during the next calendar year. The Fund anticipates
that it will pay such dividends and will make such distributions as are
necessary in order to avoid the application of this excise tax.
With regard to the Fund's investments in foreign securities,
exchange control regulations may restrict repatriations of investment income and
capital or the proceeds of securities sales by foreign investors such as the
Fund and may limit the Fund's ability to pay sufficient dividends and to make
sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution requirement,
it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to qualify,
the Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains.
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
50
<PAGE>
a regulated investment company. In addition, if the Fund failed to qualify as a
regulated investment company for a period greater than one taxable year, the
Fund may be required to recognize any net built-in gains (the excess of the
aggregate gains, including items of income, over aggregate losses that would
have been realized if the Fund had been liquidated) in order to qualify as a
regulated investment company in a subsequent year.
The Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it engages in short sales against the box or acquires any foreign
currency, forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of the
Fund as a regulated investment company.
Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess distribution" or
gain from the disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. If the Fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the Code, in
lieu of the foregoing requirements, the Fund might be required to include in
income the year a portion of the ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to the Fund, and such amounts
would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or impossible to obtain.
Alternatively, the Fund may make a mark-to-market election that will
result in the Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of the year. In such case, the Fund would report any such
gains as ordinary income and would deduct any such losses as ordinary losses to
the extent of previously recognized gains. The election, once made, would be
effective for all subsequent taxable years of the Fund, unless revoked with the
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
51
<PAGE>
of the 4% excise tax. The Fund will make the appropriate tax elections if
possible, and take any additional steps that are necessary to mitigate the
effect of these rules.
Dividends and Distributions
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net realized
long-term capital gains, if any, that the Fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has held shares of the Fund.
Dividends and distributions paid by the Fund (except for the portion thereof, if
any, attributable to dividends on stock of U.S. corporations received by the
Fund) will not qualify for the deduction for dividends received by corporations.
Distributions in excess of the Fund's current and accumulated earnings and
profits will, as to the shareholder, be treated as a tax-free return of capital,
to the extent of a shareholder's basis in his shares of the Fund, and as a
capital gain thereafter (if the shareholder holds his shares of the Fund as
capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the record date
for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Sales of Shares
Upon the sale or exchange of his shares, a shareholder will realize
a taxable gain or loss equal to the difference between the amount realized and
his basis in his shares. Such gain or loss will be treated as capital gain or
loss, if the shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than one year and
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
52
<PAGE>
shares. In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a shareholder on the sale of
the Fund share held by the shareholder for six months or less will be treated
for United States federal income tax purposes as a long-term capital loss to the
extent of any distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share during such six-month
period.
Foreign Taxes
The Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders if more than 50% of the
Fund's total assets at the close of its fiscal year consists of stock or
securities of foreign corporations. The Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years. If the Fund
were to make an election, shareholders of the Fund would be required to take
into account an amount equal to their pro rata portions of such foreign taxes in
computing their taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction or as a foreign tax credit against
their U.S. federal income taxes. Shortly after any year for which it makes such
an election, the Fund will report to its shareholders the amount per share of
such foreign income tax that must be included in each shareholder's gross income
and the amount which will be available for the deduction or credit. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
Backup Withholding
The Fund may be required to withhold, for United States federal
income tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
Notices
Shareholders will be notified annually by the Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains (discussed above in
"The Fund and Its Investments") made by the 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
53
<PAGE>
income to the Fund the year even though the Fund receives no cash distribution
until maturity. Under the U.S. federal tax laws applicable to mutual funds, the
Fund will not be subject to tax on this income if it pays dividends to its
shareholders substantially equal to all the income received from, or imputed
with respect to, its investments during the year, including its zero coupon
securities. These dividends will ordinarily constitute taxable income to
shareholders of the Fund.
Other Taxation
Distributions also may be subject to additional state, local and
foreign taxes depending on the shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares or Advisor Shares in advertisements or in reports and other
communications to shareholders. These figures are calculated by finding the
average annual compounded rates of return for the one-, five- and ten- (or such
shorter period as the relevant class of shares has been offered) year periods
that would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)n = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year
periods (or fractional portion thereof). Total return or "T" is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period and assumes that all dividends and distributions are reinvested
during the period. The net asset value of Common Shares is listed in The Wall
Street Journal each business day under the heading "Warburg Pincus Funds."
Current total return figures may be obtained by calling Warburg-Pincus Funds at
(800) 927-2874.
When considering average total return figures for periods longer
than one year, it is important to note that the annual total return for one year
in the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of nay Fund's return over a longer
market cycle. 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
54
<PAGE>
calendar quarter returns, which are calculated according to the formula set
forth in the preceding paragraphs, except that the relevant measuring period
would be the number of months that have elapsed in the current calendar year or
most recent three months, as the case may be. Investors should note that this
performance may not be representative of the Fund's total return in longer
market cycles.
The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of the Fund's portfolio
and operating expenses allocable to it. As described above, total return is
based on historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, the Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in the Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
In addition, reference may be made in advertising a class of Fund
shares to opinions of Wall Street economists and analysts regarding economic
cycles and their effects historically on the performance of small companies,
both as a class and relative to other investments. The Fund may also discuss its
beta, or volatility relative to the market, and make reference to its relative
performance in various market cycles in the United States.
The Fund may compare its performance with (i) that of other mutual
funds as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar investment services that monitor the performance of mutual funds or as
set forth in the publications listed below; (ii) the MSCI All Country World
Index Free Industry Sectors (both Financials and Diversified Financials) and
the S&P 500 Index, all of which are unmanaged indexes of common stocks; 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
55
<PAGE>
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 Two
Commerce Square, 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 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 & 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 Services, 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.
A-1
<PAGE>
Corporate Bond and Municipal Obligations Ratings
The following summarizes the ratings used by S&P for corporate bonds
and Municipal Obligations:
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, CCC, CC and C - 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, they face 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 have 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.
A-2
<PAGE>
CC - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt rated
D.
To provide more detailed indications of credit quality, the ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for corporate
bonds 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.
A-3
<PAGE>
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B." The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are 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>
Warburg, Pincus Global Financial Services Fund, Inc.
Statements of Assets and Liabilities - December 12, 2000
------------------------------------------------------------------------
Assets
Cash $100,000
Prepaid Offering Costs 76,745
--------
Total Assets 176,745
Liabilities
Payable to the Adviser - Offering Costs 76,745
--------
Net Assets (applicable to 10,000 Common Class Shares) $100,000
========
Net Assets Value, per Common Class Shares $ 10.00
========
Net Assets Consist of:
Capital Stock, $0.001 par value $ 100
Paid-in Capital 99,900
--------
Net Assets applicable to shares outstanding $100,000
========
See accompanying notes to the financials.
<PAGE>
1. Organization:
Warburg, Pincus Global Financial Services Fund, Inc. (the "Fund") was
incorporated on May 25, 2000, under the laws of the State of Maryland. The Fund
is registered under the Investment Company Act of 1940, as amended, as an
open-end diversified investment management company.
The Fund's charter authorizes its Board of Directors 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 are designated
"Advisor Shares" and one billion are designated as "Institutional Shares". The
Fund currently offers Common Shares and Advisor Shares.
Common shares bear fees at .25% of average daily net asset value pursuant to a
12b-1 distribution plan. The Fund has not commenced operations except those
related to organizational matters and the sale of 10,000 Common Shares (the
"Initial Shares") to Credit Suisse Asset Management, Inc., the Fund's investment
adviser (the "Adviser") on December 7, 2000.
2. Organization Costs, Offering Costs and Transactions with Affiliates:
The Fund will reimburse the Adviser for offering costs, in the amount of
$76,745, that have been paid for by the Adviser. Offering costs, including
initial registration costs, have been deferred and will be charged to expense
during the Fund's first year of operation. The Fund will not reimburse the
Adviser for certain organizational costs in the amount of $48,000.
Certain officers and a director of the Fund are also officers and a director of
the Adviser. These officers and director are paid no fees by the Fund for
serving as an officer or director of the Fund.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of the Warburg, Pincus Global
Financial Services Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Warburg, Pincus
Global Financial Services Fund, Inc. (the "Fund") at December 12, 2000, in
conformity with accounting principles generally accepted in the United States of
America. This financial statement is the responsibility of the Fund's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Two Commerce Square
Philadelphia, Pennsylvania
December 14, 2000
