<PAGE>
As Filed with the Securities and Exchange Commission
on May 31, 2000
Securities Act File No. 333-
Investment Company Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. [ ]
(Check appropriate box or boxes)
Warburg Pincus/CSFB Global New Technologies Fund, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . .
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
. . . . . . . . . . . . . . . . . . . .
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Hal Liebes, Esq.
Warburg Pincus/CSFB Global New Technologies Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
. . . . . . . . . . . . . . . . . .
(Name and Address of Agent for Services)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Title of Securities Being Registered: Common Stock, $.001 par value per share.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended (the "1933 Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any State where the offer or sale is not permitted.
<PAGE>
<TABLE>
<S> <C>
[WARBURG PINCUS LOGO] [LOGO]
</TABLE>
SUBJECT TO COMPLETION, DATED MAY 31, 2000
PROSPECTUS
COMMON CLASS
, 2000
WARBURG PINCUS/CSFB
GLOBAL NEW TECHNOLOGIES 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.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
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........ 11
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.............. 18
ABOUT YOUR ACCOUNT............. 19
Share Valuation.............. 19
Buying and Selling Shares.... 19
Account Statements........... 20
Distributions................ 20
Taxes........................ 20
OTHER INFORMATION.............. 22
About the Distributor........ 22
FOR MORE INFORMATION.............back cover
</TABLE>
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3
<PAGE>
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
GLOBAL NEW TECHNOLOGIES FUND Capital - Focuses on companies associated
Risk factors: appreciation with leading-edge technology
FOREIGN SECURITIES products and services
MARKET RISK - Looks for attractive growth
NON-DIVERSIFIED STATUS potential
REGULATORY RISK - Invests in U.S. and foreign
SECTOR CONCENTRATION equity securities
START-UP AND OTHER SMALL
COMPANIES
TECHNOLOGY COMPANIES
</TABLE>
INVESTOR PROFILE
THE FUND IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios into technology stocks
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that will fluctuate in value, perhaps
dramatically
- are looking for exposure to companies in a broad variety of industries
- are looking for income
You should base your investment decision on your own goals, risk preferences
and time horizon.
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4
<PAGE>
A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
The principal risk factors for the funds are discussed below. Before you
invest, please make sure you understand the risks that apply to the fund. As
with any mutual fund, you could lose money over any period of time.
Investments in the fund are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
FOREIGN SECURITIES
A fund that invests outside the U.S. carries additional risks that include:
- CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses. The fund may, but is not
required to, seek to reduce currency risk by hedging part or all of its
exposure to various foreign currencies.
- INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
- POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security prices
and impair the fund's ability to bring its capital or income back to the U.S.
Other political risks include economic policy changes, social and political
instability, military action and war.
MARKET RISK
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments--including stocks
and bonds, and the mutual funds that invest in them.
NON-DIVERSIFIED STATUS
The fund is considered a non-diversified investment company under the
Investment Company Act of 1940 and is permitted to invest a greater proportion
of its assets in the securities of a smaller number of issuers. As a result, the
fund may be subject to greater volatility with respect to its portfolio
securities than a fund that is more broadly diversified.
REGULATORY RISK
Governments, agencies or other regulatory bodies may adopt or change
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5
<PAGE>
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.
START-UP AND OTHER SMALL COMPANIES
Start-up and other small companies may have less-experienced management,
limited product lines, unproven track records or inadequate capital reserves.
Their securities may carry increased market, liquidity, information and other
risks. Key information about the company may be inaccurate or unavailable.
TECHNOLOGY COMPANIES
Technology companies can be significantly (and adversely) affected by
obsolescence of existing technology, short product cycles, falling prices and
profits and competition from new market entrants.
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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6
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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.
<TABLE>
<CAPTION>
GLOBAL NEW
TECHNOLOGIES
FUND
<S> <C>
SHAREHOLDER FEES
(paid directly from your investment)
Sales charge "load" on purchases NONE
Deferred sales charge "load" NONE
Sales charge "load" on reinvested distributions NONE
Redemption fees NONE
Exchange fees NONE
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
Management fee 1.00%
Distribution and service (12b-1) fee .25%
Other expenses(1) .96%
TOTAL ANNUAL FUND OPERATING EXPENSES(2) 2.21%
</TABLE>
(1) Other expenses are based on estimated amounts to be charged in the current
fiscal period.
(2) Fund service providers have voluntarily agreed to waive some of their fees
and reimburse some expenses. These waivers and reimbursements, which may be
discontinued at any time, are expected to lower the fund's expenses as
follows:
<TABLE>
<CAPTION>
EXPENSES AFTER WAIVERS AND
REIMBURSEMENTS
<S> <C>
Management fee .29%
Distribution and service (12b-1) fee .25%
Other expenses .96%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.50%
</TABLE>
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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:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
<S> <C>
$224 $691
</TABLE>
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9
<PAGE>
THE FUND IN DETAIL
THE MANAGEMENT FIRMS
CREDIT SUISSE FIRST BOSTON, INC.
11 Madison Avenue
New York, NY 10010
- Investment adviser for the fund
- Responsible for providing Credit Suisse Asset Management, LLC with access to
CSFB's global research network and for supervising the management of the
fund's assets according to its goal and strategies
- A member of Credit Suisse First Boston, the investment banking arm of Credit
Suisse Group (Credit Suisse), one of the world's leading banks
For easier reading, Credit Suisse First Boston, Inc. will be referred to as
"CSFB" throughout this PROSPECTUS.
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
- Sub-investment adviser for the fund
- Responsible for managing the fund's assets according to its goal and
strategies
- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse
- Credit Suisse Asset Management companies manage approximately $73 billion in
the U.S. and $208 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those
in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw
and Zurich) are not registered with the U.S. Securities and Exchange
Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to as
"CSAM" throughout this PROSPECTUS.
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10
<PAGE>
MULTI-CLASS STRUCTURE
This PROSPECTUS offers Common Class shares of the fund.
The fund also offers Advisor Shares, which are described in a separate
prospectus.
FUND INFORMATION KEY
A concise description of the fund begins on the next page. Each description
provides the following information:
GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment advisers to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2001 fiscal period. Actual expenses may be higher or
lower.
- MANAGEMENT FEE The fee paid to the investment advisers for providing
investment advice to the fund. Expressed as a percentage of average net
assets after waivers.
- DISTRIBUTION AND SERVICE (12B-1) FEES Fees paid by the fund to the
distributor for making shares of the fund available to you. Expressed as a
percentage of average net assets.
- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal registration fees and miscellaneous
expenses. Expressed as a percentage of average net assets after waivers,
credits and reimbursements.
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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 which may benefit
significantly from advances or improvements in technology. These companies may
also have a potential for earnings growth that has not yet been recognized by
the market.
The emphasis of the fund will be companies that are associated with
leading-edge technology products and services. These include:
- internet services and infrastructure
- e-commerce
- computers and computer software
- electronic components and systems
- access/broadband
- media/content
- networking and communications
- medical technologies
Under normal market conditions, the fund invests at least 65% of assets in
equity securities of technology companies. The fund invests in at least three
countries, including the U.S., and may invest in companies of all sizes.
PORTFOLIO INVESTMENTS
Equity holdings may consist of:
- common and preferred stocks
- securities convertible into or exchangeable for common stocks
- securities such as rights and warrants, whose values are based on common
stocks
The fund may invest in foreign securities without limit. To a limited extent,
the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- foreign securities
- market risk
- non-diversified status
- regulatory risk
- sector concentration
- start-up and other small companies
- technology companies
Technology stocks have been highly volatile, and the value of your investment
generally will fluctuate in response to stock-market movements. Because the fund
invests internationally, it carries additional risks, including currency,
information and political risks.
Different types of stocks (such as "growth" vs. "value" stocks) tend to shift
in and out of favor depending on market and economic conditions. Accordingly,
the fund's performance may sometimes be lower or higher than that of other types
of funds (such as those emphasizing value stocks).
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. You
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12
<PAGE>
should expect it to be more volatile than a broadly diversified global equity
fund.
Non-diversification might cause the fund to be more volatile than a
diversified mutual fund. To the extent that the fund invests in emerging markets
or start-up and other small companies, it takes on additional risks that could
hurt its performance. "More About Risk" details these and certain other
investment practices the fund may use. Please read that section carefully before
you invest.
PORTFOLIO MANAGEMENT
[_____________] manage[s] the fund's investment portfolio. You can find out
more about [them] in "Meet the Manager[s].
INVESTOR EXPENSES
Expected expenses for the 2001 fiscal period (after fee waivers and expense
reimbursements):
<TABLE>
<S> <C>
Management fee .29%
Distribution and
service (12b-1) fee .25%
All other expenses .96%
-----
Total expenses 1.50%
</TABLE>
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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 each fund's risk profile in "Key Points." The
fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.
The fund may use certain investment practices that have higher risks
associated with them. However, the fund has limitations and policies designed to
reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.
TYPES OF INVESTMENT RISK
The following risks are referred to throughout this prospectus.
ACCESS RISK Some countries may restrict a fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to the fund.
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency-
denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a fund could
gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can reduce
or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
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14
<PAGE>
INTEREST-RATE RISK Changes in interest rates may cause a decline in the market
value of an investment. With bonds and other fixed-income securities, a rise in
interest rates typically causes a fall in values, while a fall in interest rates
typically causes a rise in values.
LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell
at the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead or forego an investment opportunity. Any of
these could have a negative effect on fund management or performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments--including stocks and bonds, and the mutual funds that invest in
them.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject 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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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:
/ / Permitted without limitation;
does not indicate actual use
20% ITALIC TYPE (E.G., 20%)
represents an investment
limitation as a percentage of
NET fund assets; does not
indicate actual use
20% Roman type (e.g., 20%)
represents an investment
limitation as a percentage of
TOTAL fund assets; does not
indicate actual use
/ / Permitted, but not expected to be
used to a significant extent
-- Not permitted
<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
<S> <C>
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
SPECULATIVE EXPOSURE RISK. 33 1/3%
CURRENCY TRANSACTIONS Instruments, such as options, futures,
forwards or swaps, 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. Swaps involve the right or obligation to
receive or make payments based on two different rates.(1)
CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY,
POLITICAL, SPECULATIVE EXPOSURE, VALUATION RISKS. / /
EMERGING MARKETS Countries generally considered to be
relatively less developed or industrialized. Emerging
markets often face economic problems that could subject the
fund to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws
could expose the fund to risks beyond those generally
encountered in developed countries. ACCESS, CURRENCY,
INFORMATION, LIQUIDITY, MARKET, OPERATIONAL, POLITICAL,
VALUATION RISKS. / /
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. / /
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. CURRENCY, INFORMATION,
LIQUIDITY, MARKET, POLITICAL, VALUATION RISKS. / /
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable a fund to hedge against or speculate on future
changes in currency values, interest rates 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. 35%
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. / /
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
<S> <C>
OPTIONS Instruments that provide a right to buy (call) or
sell (put) a particular security, currency or index of
securities at a fixed price within a certain time period. A
fund may purchase or sell (write) both put and call options
for hedging or speculative purposes.(1) CORRELATION, CREDIT,
HEDGED EXPOSURE, LIQUIDITY, MARKET, SPECULATIVE EXPOSURE
RISKS. 25%
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests. CREDIT,
INTEREST-RATE, MARKET RISKS. / /
RESTRICTED AND OTHER LLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. LIQUIDITY, MARKET, VALUATION
RISKS. 15%
SECTOR CONCENTRATION Investing more than 25% of a fund's net
assets in a group of related industries (market sector).
Performance will largely depend upon the sector's
performance, which may differ in direction and degree from
that of the overall stock market. Financial, economic,
business, political and other developments affecting the
sector will have a greater effect on the fund. / /
SECURITIES LENDING Lending portfolio securities to financial
institutions; a fund receives cash, U.S. government
securities or bank letters of credit as collateral. CREDIT,
LIQUIDITY, MARKET, OPERATIONAL RISKS. 33 1/3%
SHORT-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. / /
START-UP AND OTHER SMALL COMPANIES Companies with small
relative market capitalizations, including those with
continuous operations of less than three years. INFORMATION,
LIQUIDITY, MARKET, VALUATION RISKS. / /
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%
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. LIQUIDITY, MARKET,
SPECULATIVE EXPOSURE RISKS. 20%
</TABLE>
<TABLE>
<C> <S>
(1) The fund is not obligated to pursue any hedging strategy. In
addition, hedging practices may not be available, may be too
costly to be used effectively or may be unable to be used
for other reasons.
(2) The fund is limited to 5% of net assets for initial margin
and premium amounts on futures positions considered to be
speculative by the Commodity Futures Trading Commission.
</TABLE>
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<PAGE>
MEET THE MANAGERS
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18
<PAGE>
ABOUT YOUR ACCOUNT
SHARE VALUATION
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (currently 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Common Class's total assets, less its
liabilities, by the number of Common Class shares outstanding.
The fund values its securities based on market quotations when it calculates
its NAV. If market quotations are not readily available, securities and other
assets are valued by another method that the Board of Directors believes
accurately reflects fair value. Debt obligations that will mature in 60 days or
less are valued on the basis of amortized cost, unless the Board of Directors
determines that using this method would not reflect an investment's value.
Some fund securities may be listed on foreign exchanges that are open on days
(such as U.S. holidays) when the funds do not compute their prices. This could
cause the value of the fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.
BUYING AND
SELLING SHARES
The accompanying SHAREHOLDER GUIDE explains how to invest directly with the
fund. You will find information about purchases, redemptions, exchanges and
services.
The fund is open on those days when the NYSE is open, typically Monday through
Friday. If we receive your request in proper form by the close of the NYSE
(usually 4 p.m. ET), your transaction will be priced at that day's NAV. If we
receive it after that time, it will be priced at the next business day's NAV.
FINANCIAL-SERVICES FIRMS
You can also buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The fund has authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by a 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
-
19
<PAGE>
additional service features that may apply to your investment. Certain features
of a fund, such as the minimum initial or subsequent investment amounts, may be
modified.
Some of the firms through which the funds are available include:
- Charles Schwab & Co., Inc. Mutual Fund OneSource-Registered Trademark-
service
- Fidelity Brokerage Services, Inc. FundsNetwork-TM- Program
- Waterhouse Securities, Inc.
ACCOUNT STATEMENTS
In general, you will receive account statements as follows:
- after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
- after any changes of name or address of the registered owner(s)
- otherwise, every calendar quarter
You will receive annual and semiannual financial reports.
DISTRIBUTIONS
As a fund investor, you will receive distributions.
The fund earns dividends from stocks and interest from bond, money-market and
other investments. These are passed along as dividend distributions. The fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.
The fund distributes dividends annually. The fund typically distributes
capital gains annually in December.
Most investors have their distributions reinvested in additional shares of the
fund. Distributions will be reinvested unless you choose on your account
application to have a check for your distributions mailed to you or sent by
electronic transfer
TAXES
As with any investment, you should consider how your investment in the fund
will be taxed. If your account is not a tax-advantaged account, you should be
especially aware of the following potential tax implications. Please consult
your tax professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as the fund continues to meet the requirements for being a tax-
qualified regulated investment company, it pays no federal income tax on the
earnings it distributes to shareholders.
Distributions you receive from the fund, whether reinvested or taken in cash,
are generally considered taxable. Distributions from the fund's long-term
capital gains are taxed as long-term capital gains, regardless of how long
---
20
<PAGE>
you have held fund shares. Distributions from other sources are generally taxed
as ordinary income.
If you buy shares shortly before or on the "record date"--the date that
establishes you as the person to receive the upcoming distribution--you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099 that is mailed to you every January details your distributions
and their federal tax category, including the portion taxable as long-term
capital gains.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
-
21
<PAGE>
OTHER INFORMATION
ABOUT THE DISTRIBUTOR
Credit Suisse Asset Management Securities Inc. (CSAMSI), a wholly owned
subsidiary of CSAM, is responsible for:
- making the fund available to you
- account servicing and maintenance
- other administrative services related to sale of the Common Class
As part of its business strategy, the fund has adopted a Rule 12b-1
shareholder-servicing and distribution plan to compensate CSAMSI for the above
services. Under the plan, CSAMSI receives fees at an annual rate of 0.25% of
average daily net assets of the fund's Common Class. Because the fees are paid
out of the 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.
---
22
<PAGE>
FOR MORE INFORMATION
More information about the fund is available free upon request, including the
following:
SHAREHOLDER GUIDE
Explains how to buy and sell shares. The SHAREHOLDER GUIDE is incorporated by
reference into (is legally part of) this PROSPECTUS.
ANNUAL/SEMIANNUAL
REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed performance
information.
The ANNUAL REPORT also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.
OTHER INFORMATION
A current STATEMENT OF ADDITIONAL INFORMATION (SAI), which provides more
details about the fund, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
202-942-8090) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact Warburg Pincus Funds to obtain, without charge, the SAI and
ANNUAL and SEMIANNUAL REPORTS and to make shareholder inquiries:
BY TELEPHONE:
800-WARBURG
(800-927-2874)
BY MAIL:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER
SERVICE:
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBERS:
Warburg Pincus/CSFB Global New
Technologies Fund 811-
[WARBURG PINCUS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) / / www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR WPxxx-1-0X00
<PAGE>
--------------------------------------------------------------------------------
WARBURG PINCUS FUNDS CREDIT ASSET
SUISSE MANAGEMENT
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
COMMON CLASS
FEBRUARY 29, 2000
AS REVISED MARCH 27, 2000
This SHAREHOLDER GUIDE is incorporated into and legally part of
each Warburg Pincus (Common Class) prospectus.
Warburg Pincus Funds are advised by Credit Suisse Asset Management, LLC
--------------------------------------------------------------------------------
<PAGE>
BUYING SHARES
OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Shareholder Service Center to receive
one by mail or fax. Or you can download it from our Internet Web site:
www.warburg.com.
You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.
ADDING TO AN ACCOUNT
You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.
INVESTMENT CHECKS
Please use either a personal or bank check payable in U.S. dollars to
Warburg Pincus Funds. Unfortunately, we cannot accept "starter" checks that do
not have your name preprinted on them. We also cannot accept checks payable to
you or to another party and endorsed to the order of Warburg Pincus Funds. These
types of checks may be returned to you and your purchase order may not be
processed. Limited exceptions include properly endorsed government checks.
MINIMUM INITIAL
INVESTMENT
<TABLE>
<S> <C>
Cash Reserve Fund: $ 1,000
New York Tax Exempt Fund: $ 1,000
Balanced Fund: $ 1,000
Value Fund: $ 1,000
WorldPerks-Registered Trademark- Funds: $ 5,000
Long-Short Fund: $25,000
All other funds: $ 2,500
IRAs: $ 500*
Transfers/Gifts to Minors: $ 500*
</TABLE>
$25,000 minimum for Long-Short Fund.
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[WARBURG PINCUS FUND NAME]
DDA# 9904-649-2
F/F/C: [ACCOUNT NUMBER AND REGISTRATION]
HOW TO REACH US
SHAREHOLDER SERVICE CENTER
Toll free: 800-WARBURG
(800-927-2874)
Fax: 212-370-9833
MAIL
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Funds
66 Brooks Drive
Braintree, MA 02184
INTERNET WEB SITE
www.warburg.com
2
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK
-------------------------------------------------------------------------------------------------------------
- Complete the NEW ACCOUNT APPLICATION. - Make your check payable to Warburg Pincus
For IRAs use the UNIVERSAL IRA APPLICATION. Funds.
- Make your check payable to Warburg Pincus - Write the account number and the fund name
Funds. on your check.
- Mail to Warburg Pincus Funds. - Mail to Warburg Pincus Funds.
- Minimum amount is $100.
-------------------------------------------------------------------------------------------------------------
BY EXCHANGE
-------------------------------------------------------------------------------------------------------------
- Call our Shareholder Service Center to request - Call our Shareholder Service Center to request
an exchange. Be sure to read the current an exchange.
prospectus for the new fund. Also please
observe the minimum initial investment. - Minimum amount is $250.
If you do not have telephone privileges, mail or If you do not have telephone privileges, mail or
fax a signed letter of instruction. fax a signed letter of instruction.
-------------------------------------------------------------------------------------------------------------
BY WIRE
-------------------------------------------------------------------------------------------------------------
- Complete and sign the NEW ACCOUNT APPLICATION. - Call our Shareholder Service Center by 4 p.m.
ET to inform us of the incoming wire. Please be
- Call our Shareholder Service Center and fax the sure to specify your name, the account number
signed NEW ACCOUNT APPLICATION by 4 p.m. ET. and the fund name on your wire advice.
- Shareholder Services will telephone you with - Wire the money for receipt that day.
your account number. Please be sure to specify
your name, the account number and the fund - Minimum amount is $500.
name on your wire advice.
- Wire your initial investment for receipt that day.
- Mail the original, signed application to Warburg
Pincus Funds.
This method is not available for IRAs.
-------------------------------------------------------------------------------------------------------------
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
-------------------------------------------------------------------------------------------------------------
- Cannot be used to open an account. - Call our Shareholder Service Center to request
an ACH transfer from your bank.
- Your purchase will be effective at the next NAV
calculated after we receive your order in
proper form.
- Minimum amount is $50.
Requires ACH on Demand privileges.
-------------------------------------------------------------------------------------------------------------
</TABLE>
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
3
<PAGE>
SELLING SHARES *
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
-------------------------------------------------------------------------------------------------------------
<S> <C>
BY MAIL
-------------------------------------------------------------------------------------------------------------
Write us a letter of instruction that includes: - Accounts of any type.
- your name(s) and signature(s) - Sales of any amount.
- the fund name and account number For IRAs please use the IRA DISTRIBUTION REQUEST
FORM.
- the dollar amount you want to sell
- how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling Shares
in Writing").
Mail the materials to Warburg Pincus Funds.
If only a letter of instruction is required, you can
fax it to the Shareholder Service Center.
-------------------------------------------------------------------------------------------------------------
BY EXCHANGE
-------------------------------------------------------------------------------------------------------------
- Call our Shareholder Service Center to request - Accounts with telephone privileges.
an exchange. Be sure to read the current
prospectus for the new fund. Also please If you do not have telephone privileges, mail or
observe the minimum initial investment. fax a letter of instruction to exchange shares.
-------------------------------------------------------------------------------------------------------------
BY PHONE
-------------------------------------------------------------------------------------------------------------
Call our Shareholder Service Center to request a - Non-IRA accounts with telephone privileges.
redemption. You can receive the proceeds as:
- a check mailed to the address of record
- an ACH transfer to your bank ($50 minimum)
- a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for details.
-------------------------------------------------------------------------------------------------------------
BY WIRE OR ACH TRANSFER
-------------------------------------------------------------------------------------------------------------
- Complete the "Wire Instructions" or "ACH on - Non-IRA accounts with wire-redemption or
Demand" section of your NEW ACCOUNT ACH on Demand privileges.
APPLICATION.
- Requests by phone or mail.
- For federal-funds wires, proceeds will be wired
on the next business day. For ACH transfers,
proceeds will be delivered within two business
days.
-------------------------------------------------------------------------------------------------------------
</TABLE>
* For the Japan Growth Fund and Japan Small Company Fund only: Each fund imposes
a 2.00% redemption fee (short-term trading fee) on fund shares redeemed or
exchanged less than six months from purchase. This fee is calculated based on
the shares' net asset value at redemption and deducted from the redemption
proceeds. The fee is paid to the fund to offset costs associated with short-term
shareholder trading. It does not apply to shares acquired through reinvestment
of distributions. For purposes of computing the redemption fee, any shares
bought through reinvestment of distributions will be redeemed first without
charging the fee, followed by the shares held longest. The redemption fee
applies to fund shares purchased on or after May 30, 2000. The Japan Small
Company Fund imposes a 1.00% redemption fee on fund shares purchased during the
period November 17, 1999 through May 29, 2000 and redeemed or exchanged less
than six months from purchase.
4
<PAGE>
SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
- accounts whose address of record has been changed within the past 30 days
- redemption in certain large amounts (other than by exchange)
- requests to send the proceeds to a different payee or address
- shares represented by certificates, which must be returned with your
sell order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED SHARES
For fund shares purchased other than by bank wire, bank check, U.S.
Treasury check, certified check or money order, the funds will delay payment of
your cash redemption proceeds for 10 calendar days from the day of purchase. At
any time during this period, you may exchange into another fund.
LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum required to keep it open
due to redemptions or exchanges, the fund may ask you to increase your balance.
If it is still below the minimum after 60 days, the fund may close your account
and mail you the proceeds.
MINIMUM TO KEEP AN
ACCOUNT OPEN
<TABLE>
<S> <C>
Cash Reserve Fund: $ 750
New York Tax Exempt Fund: $ 750
Balanced Fund: $ 500
Value Fund: $ 500
WorldPerks Funds: $ 750
All other funds: $2,000
IRAs: $ 250
Transfers/Gifts to Minors: $ 250
</TABLE>
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
5
<PAGE>
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.
SAVEMYMONEY PROGRAM
SaveMyMoney -SM- is a low minimum, automatic investing program that
makes easy to build a mutual fund portfolio. For an initial investment of
$250 along with a minimum $50 monthly investment, you can invest in certain
Warburg Pincus funds. The SaveMyMoney Program will automatically transfer the
monthly investment amount you designate from your bank account.
AUTOMATIC MONTHLY
INVESTMENT PLAN
For making automatic investments 50 minimum) from a designated bank
account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals
of $250 or more.
DISTRIBUTION SWEEP
For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
RETIREMENT PLANS
Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
- Traditional IRAs
- Roth IRAs
- Roth Conversion IRAs
- Spousal IRAs
- Rollover IRAs
- SEP IRAs
To transfer your IRA to Warburg Pincus, use the IRA TRANSFER/DIRECT
ROLLOVER FORM. If you are opening a new IRA, you will also need to complete the
UNIVERSAL IRA APPLICATION. Please consult your tax professional concerning your
IRA eligibility and tax situation.
TRANSFERS/GIFTS TO MINORS
Depending on state laws, you can set up a custodial account under the
Uniform Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act
(UGMA). Please consult your tax professional about these types of accounts.
ACCOUNT CHANGES
Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.
6
<PAGE>
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned dividend distributions as soon
as your purchase order is executed. For the Intermediate Maturity Government,
New York Intermediate Municipal and Fixed Income Funds and the Money Market
Funds, you begin to earn dividend distributions the business day after your
purchase order is executed. However, if we receive your purchase order and
payment to purchase shares of a Money Market Fund before 12 p.m. (noon), you
begin to earn dividend distributions on that day.
Your purchase order will be
canceled and you may be liable for losses or fees incurred by the fund if:
- your investment check or ACH transfer does not clear
- you place a telephone order by 4 p.m. ET and we do not receive your wire
that day
If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
A fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind"--payment in portfolio securities rather than
cash-- for certain large redemption amounts that could hurt fund operations
- suspend redemptions or postpone payment dates as permitted by the
Investment Company Act of 1940 (such as during periods other than weekends
or holidays when the NYSE is closed or trading on the NYSE is restricted,
or any other time that the SEC permits)
- modify or waive its minimum investment requirements for investments through
certain financial-services firms and for employees and clients of its
adviser, sub-adviser, distributor and their affiliates and, for the
Long-Short Fund, investments through certain financial-services firms
($10,000 minimum) and through retirement plan programs (no minimum)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
800-WARBURG (800-927-2874)
MONDAY-FRIDAY, 8 A.M.-8 P.M. ET SATURDAY, 8 A.M.-4 P.M. ET
7
<PAGE>
--------------------------------------------------------------------------------
WARBURG PINCUS FUNDS
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) //www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR WPCOM-31-0300
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, MAY 31, 2000
STATEMENT OF ADDITIONAL INFORMATION
_________, 2000
WARBURG PINCUS/CSFB GLOBAL NEW TECHNOLOGIES FUND
This STATEMENT OF ADDITIONAL INFORMATION provides information about Warburg
Pincus/CSFB Global New Technologies Fund (the "Fund") that supplements
information in the PROSPECTUS for the Common Shares of the Fund, dated
________, 2000, as amended or supplemented from time to time (the "PROSPECTUS").
This STATEMENT OF ADDITIONAL INFORMATION is not itself a prospectus and no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the PROSPECTUS, ANNUAL REPORTS and information
regarding the Fund's current performance 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
--------------------------------------------------------------------------------
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
--------------------------------------------------------------------------------
<PAGE>
Table of Contents
-----------------
Page
----
INVESTMENT OBJECTIVES AND POLICIES.............................................1
General Investment Strategies................................................1
Technology Companies.........................................................1
Options on Securities and Securities Indices and Currency Transactions.......1
Securities Options.........................................................1
Securities Index Options...................................................4
OTC Options................................................................4
Futures Activities.........................................................5
Futures Contracts.......................................................6
Options on Futures Contracts............................................7
Currency Exchange Transactions.............................................7
Forward Currency Contracts..............................................7
Currency Options...........................................................8
Currency Hedging...........................................................8
Swaps......................................................................9
Hedging Generally..........................................................9
Asset Coverage for Forward Contracts, Options, Futures, Options
on Futures and Swaps...................................................11
Additional Information on Other Investment Practices........................11
U.S. Government Securities..................................................11
Money Market Obligations....................................................12
Repurchase Agreements.......................................................12
Money Market Mutual Funds...................................................12
Convertible Securities......................................................13
Debt Securities.............................................................13
Below Investment Grade Securities.........................................13
Structured Securities.......................................................15
Mortgage-Backed Securities................................................15
Asset-Backed Securities...................................................16
Structured Notes, Bonds or Debentures.....................................17
Loan Participations and Assignments.......................................17
REITs.......................................................................17
Securities of Other Investment Companies....................................18
Lending of Portfolio Securities.............................................18
Foreign Investments.........................................................19
Foreign Currency Exchange.................................................19
Euro Conversion...........................................................19
Information...............................................................20
Political Instability.....................................................20
Foreign Markets...........................................................20
Increased Expenses........................................................20
Foreign Debt Securities...................................................20
i
<PAGE>
Table of Contents
-----------------
Page
----
Sovereign Debt............................................................21
Depositary Receipts.......................................................22
Privatizations............................................................22
Brady Bonds...............................................................22
Emerging Markets..........................................................23
Short Sales.................................................................23
Short Sales "Against the Box."..............................................24
Warrants....................................................................24
Non-Publicly Traded and Illiquid Securities.................................25
Rule 144A Securities......................................................26
Borrowing...................................................................26
Stand-By Commitments........................................................27
Reverse Repurchase Agreements...............................................27
When-Issued Securities and Delayed-Delivery Transactions....................28
Emerging Growth and Small Companies; Unseasoned Issuers.....................28
Special Situation Companies.................................................29
Dollar Rolls................................................................29
Temporary Defensive Strategies..............................................29
Debt Securities...........................................................29
Money Market Obligations..................................................29
Non-Diversified Status....................................................30
INVESTMENT RESTRICTIONS.......................................................30
The Fund....................................................................30
PORTFOLIO VALUATION...........................................................32
PORTFOLIO TRANSACTIONS........................................................33
PORTFOLIO TURNOVER............................................................35
MANAGEMENT OF THE FUND........................................................35
Officers and Board of Directors.............................................35
Directors'Total Compensation................................................39
Portfolio Managers of the Fund..............................................39
Investment Advisers and Co-Administrators...................................39
Code of Ethics..............................................................40
Custodians and Transfer Agent...............................................40
Organization of the Fund....................................................41
Distribution and Shareholder Servicing......................................42
Common Shares.............................................................42
Advisor Shares............................................................43
General...................................................................44
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................44
Automatic Cash Withdrawal Plan..............................................44
EXCHANGE PRIVILEGE............................................................45
ii
<PAGE>
Table of Contents
-----------------
Page
----
ADDITIONAL INFORMATION CONCERNING TAXES.......................................45
The Fund and Its Investments................................................46
Passive Foreign Investment Companies........................................48
Fund Taxes on Swaps.........................................................48
Dividends and Distributions.................................................49
Sales of Shares.............................................................49
Foreign Taxes...............................................................50
Backup Withholding..........................................................50
Notices.....................................................................50
Other Taxation..............................................................50
DETERMINATION OF PERFORMANCE..................................................51
INDEPENDENT ACCOUNTANTS AND COUNSEL...........................................53
MISCELLANEOUS.................................................................53
FINANCIAL STATEMENTS..........................................................53
iii
<PAGE>
INVESTMENT OBJECTIVES 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 long-term growth of capital.
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.
TECHNOLOGY COMPANIES
Technology companies can be significantly (and adversely) affected
by, among other things, obsolescence of existing technology, short product
cycles, falling prices and profits, and competition from new market entrants.
Also, companies in technology-related industries tend to share common
characteristics and are more likely to react similarly (and possibly negatively)
to industry-specific market, economic or other developments. In
technology-related industries, competitive pressures may have a significant
effect on the performance of companies in which the Fund may invest. In
addition, technology companies often progress at an accelerated rate, and these
companies may be subject to a number of factors which may increase their
volatility.
OPTIONS ON SECURITIES AND SECURITIES INDICES AND CURRENCY
TRANSACTIONS
The Fund may purchase and write (sell) options on securities,
securities indices and currencies for hedging purposes or to increase total
return, which may involve speculation. Up to 25% of the Fund's total assets may
be at risk in connection with these strategies. The amount of assets considered
to be "at risk" is, in the case of purchasing options, the amount of 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 the Fund may purchase such options that are
traded on foreign and U.S. 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.
<PAGE>
The potential loss associated with purchasing an option is limited to
the premium paid, and the premium would partially offset any gains achieved from
its use. However, for an option writer the exposure to adverse price movements
in the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities its would
otherwise sell.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, the Fund as the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). The Fund that
writes call options retains the risk of an increase in the price of the
underlying security. The size of the premiums that the Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent the premium received offsets the effects of
the decline.
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Credit Suisse First Boston, Inc., the Fund's investment adviser
("CSFB"), or Credit Suisse Asset
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Management, LLC, the Fund's sub-investment adviser ("CSAM") (each, an "Adviser")
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (ii) at-the-money call options when the
Adviser expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When the Fund has purchased an option and engages
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where the Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. The Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of the Fund under an option it has written
would be terminated by a closing purchase transaction (the Fund would not be
deemed to own an option as a result of the transaction). So long as the
obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying 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
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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, intend to purchase OTC options only from dealers whose debt securities,
as determined by the Adviser, are considered to be investment grade. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security and would continue to be at market risk on the security.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or written,
or exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the Fund and other
clients of the Adviser and certain of its affiliates may be considered to be
such a group. A securities exchange may order the liquidation of positions found
to be in violation of these limits and it may impose certain other sanctions.
These limits may restrict the number of options the Fund will be able to
purchase on a particular security.
SECURITIES INDEX OPTIONS. The Fund may purchase and write
exchange-listed and OTC put and call options on securities indices. 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 stock 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 OTC or dealer options or sell
covered OTC 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
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executed, the responsibility for performing all transactions with respect to OTC
options rests solely with the writer and the holder of those options. A listed
call option writer, for example, is obligated to deliver the underlying
securities to the clearing organization if the option is exercised, and the
clearing organization is then obligated to pay the writer the exercise price of
the option. If the Fund were to purchase a dealer option, however, it would rely
on the dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails to honor the exercise of the option by the Fund,
the Fund would lose the premium it paid for the option and the expected benefit
of the transaction.
Exchange-traded options generally have a continuous liquid market
while OTC or dealer options do not. Consequently, the Fund will generally be
able to realize the value of a dealer option it has purchased only by exercising
it or reselling it to the dealer who issued it. Similarly, when the Fund writes
a dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the option. Although the Fund will seek to
enter into dealer options only with dealers who will agree to and that are
expected to be capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to the Fund.
Until the Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Fund's ability to sell portfolio
securities at a time when such sale might be advantageous.
FUTURES ACTIVITIES. The Fund may enter into futures contracts on
securities, securities indices, foreign currencies and interest rates, and
purchase and write (sell) related options traded on exchanges designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges for hedging purposes or to increase total
return. 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.
The Fund may enter into futures contracts and options on futures
contracts on securities, securities indices and currencies for both hedging
purposes and to increase total return, which may involve speculation.
Aggregate initial margin and premiums required to establish positions
other than those considered by the CFTC to be "bona fide hedging" will not
exceed 5% of the Fund's net asset value, after taking into account unrealized
profits and unrealized losses on any such contracts.
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.
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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. An index futures contract is an agreement to be settled by delivery of
an amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract and
the price at which the agreement is made.
No consideration is paid or received by the Fund upon entering into a
futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or liquid securities acceptable to
the broker, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the 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.
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OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write put and
call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the Fund.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of the
assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and the Fund may incur costs in connection with conversion
between various currencies. Currency exchange transactions may be from any
non-U.S. currency into U.S. dollars or into other appropriate currencies. The
Fund will conduct its currency exchange transactions (i) on a spot (I.E., cash)
basis at the rate prevailing in the currency exchange market, (ii) through
entering into futures contracts or options on such contracts (as described
above), (iii) through entering into forward contracts to purchase or sell
currency or (iv) by purchasing exchange-traded currency options. Risks
associated with currency forward contracts and purchasing currency options are
similar to those described herein for futures contracts and securities and stock
index options. In addition, the use of currency transactions could result in
losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
The Fund may engage in currency exchange transactions for both
hedging purposes and to increase total 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.
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At or before the maturity of a forward contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver the
currency by negotiating with its trading partner to enter into an offsetting
transaction. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Forward currency contracts are highly volatile, and a relatively
small price movement in a forward currency contract may result in substantial
losses to the Fund. To the extent the Fund engages in forward currency contracts
to generate current income, the Fund will be subject to these risks which the
Fund might otherwise avoid (E.G., through the use of hedging transactions).
CURRENCY OPTIONS. The Fund may purchase exchange-traded put and call
options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
CURRENCY HEDGING. The Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. The Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which the
Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of non-dollar denominated securities it holds, the Fund may
purchase foreign currency put options. If the value of the foreign currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on the
U.S. dollar value of its securities that otherwise would have resulted.
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,
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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 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 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
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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 and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the Fund,
an increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether the Fund will
realize a gain or loss depends upon movements in the level of securities prices
in the stock market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular security.
The risk of imperfect correlation increases as the composition of the Fund's
portfolio varies from the composition of the index. In an effort to compensate
for imperfect correlation of relative movements in the hedged position and the
hedge, the Fund's hedge positions may be in a greater or lesser dollar amount
than the dollar amount of the hedged position. Such "over hedging" or "under
hedging" may adversely affect the Fund's net investment results if market
movements are not as anticipated when the hedge is established. Securities index
futures transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in a 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 currencies,
interest rates 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.
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ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES, 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 options written by the Fund on securities and
indexes; currency, interest rate and security index futures contracts and
options on these futures contracts; and forward currency contracts. These
guidelines may, in certain instances, require segregation by the Fund of cash or
liquid securities with its custodian or a designated sub-custodian to the extent
the Fund's obligations with respect to these strategies are not otherwise
"covered" through ownership of the underlying security or financial instrument
or by other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures contract, the Fund could purchase a put
option on the same futures 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. Included among direct obligations of the U.S. 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 U.S. are: instruments that are supported by the full
faith and credit of the U.S. (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,
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Export-Import Bank of the U.S., 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) money market obligations and
medium-term (five years or less remaining to maturity) money market obligations.
Money market 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.
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 while the
Fund seeks to assert this right. The Adviser monitors the creditworthiness of
those bank and non-bank dealers with which the Fund enters into repurchase
agreements to evaluate this risk. A repurchase agreement is considered to be a
loan under the 1940 Act.
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 net assets in securities of money
market mutual funds that are unaffiliated with the Fund or the Adviser. A money
market mutual fund is an investment company that invests in short-term high
quality money market instruments. A money market mutual fund generally does not
purchase securities with a remaining maturity of more than one year. As a
shareholder in any mutual fund, the Fund will bear its ratable share of the
mutual
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fund's expenses, including management fees, and will remain subject to payment
of the Fund's administration fees, including management fees and other expenses
with respect to assets so invested.
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. Neither event will
require sale of such securities, although the Adviser will consider such event
in its determination of whether the Fund should continue to hold the securities.
DEBT SECURITIES. The Fund may invest with respect to up to 35% of its
total assets in investment grade debt securities (other than money market
obligations). The Fund may also invest to a limited extent in zero coupon
securities. See "Additional Information Concerning Taxes" for a discussion of
the tax consequences to shareholders of the Fund that invests in zero coupon
securities. A security will be deemed to be investment grade if it is rated
within the four highest grades by Moody's, S&P or, if unrated, is determined to
be of comparable quality by the Adviser. Bonds rated in the fourth highest grade
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. Debt obligations
of corporations in which the Fund may invest include corporate bonds,
debentures, debentures convertible into common stocks 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 5% of
its total assets in debt securities (including convertible debt securities)
rated below investment grade and as low as C by Moody's or D by S&P, or in
unrated securities considered to be of equivalent quality. A security will be
deemed to be investment grade if it is rated below the four highest
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grades by Moody's or S&P or, if unrated, is determined to be a comparable
quality by the Adviser. The Fund's holdings of debt securities rated below
investment grade (commonly referred to as "junk bonds") may be rated as low as
C by Moody's or D by S&P at the time of purchase, or may be unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody's
comprise the lowest rated class and can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Debt rated D by S&P is
in default or is expected to default upon maturity or payment date. Bonds rated
below investment grade may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. Investors should be aware that ratings are relative and subjective
and are not absolute standards of quality.
Securities rated below investment grade and comparable unrated
securities: (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.
While the market values of medium- and lower-rated securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities, the market values
of certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
Investors should be aware that ratings are relative and subjective and are not
absolute standards of quality. 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 anticipate that these
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market for these securities does
exist, it generally is not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market, as well as adverse publicity
and investor perception with respect to these securities, may have an adverse
impact on market price and 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.
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The market value of securities in medium- and lower-rated categories
is also more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the Fund's
net asset value. The Fund will rely on the judgment, analysis and experience of
the Adviser in evaluating the creditworthiness of an issuer. In this evaluation,
in addition to relying on ratings assigned by Moody's or S&P, the Adviser will
take into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. Interest rate trends
and specific developments which may affect individual issuers will also be
analyzed. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced. Neither event will require sale
of such securities, although the Adviser will consider such event in its
determination of whether the Fund should continue to hold the securities.
Normally, medium- and lower-rated and comparable unrated securities are not
intended for short-term investment. The Fund may incur additional expenses to
the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. At times,
adverse publicity regarding lower-rated securities has depressed the prices for
such securities to some extent.
STRUCTURED SECURITIES. The Fund may purchase any type of publicly
traded or privately negotiated fixed income security, including mortgage- and
asset-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 sponsored by U.S. and foreign issuers as well as non-governmental
issuers. Non-government issued mortgage-backed securities may offer higher
yields than those issued by government entities, but may be subject to greater
price fluctuations. Mortgage-backed securities represent direct or indirect
participations in, or are secured by and payable from, mortgage loans secured by
real property. The mortgages backing these securities include, among other
mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate mortgages.
Although there may be government or private guarantees on the payment of
interest and principal of these securities, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees. Some
mortgage-backed securities, such as collateralized mortgage obligations
("CMOs"), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
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maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-backed securities. Conversely, in periods of rising rates the
rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the Fund's
yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
ASSET-BACKED SECURITIES. The Fund may invest in U.S. and foreign
governmental and private asset-backed securities. Asset-backed securities, which
represent participations in, or are secured by and payable from, pools of
consumer loans on 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 ultimately depend on payments in
respect of the underlying loans by individuals and 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. The remaining maturity of any asset-backed
security the Fund invests in will be 397 days or less. The Fund may purchase
asset-backed securities that are unrated.
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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.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign government and one or more financial institutions ("Lenders"). The
majority of the Fund's investments in Loans are expected to be in the form of
participations in Loans ("Participants") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in the
Fund having a contractual relationship only with the Lender, not with the
borrower. A participating 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, a participating Fund will assume the credit risk of
both the borrower and the Lender that is selling the Participation. In the event
of the insolvency of the Lender selling a Participation, the Fund may be treated
as a general creditor of the Lender and may not benefit from any set-off between
the Lender and the borrower. The Fund will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is determined by the
Adviser to be creditworthy. The Fund's rights and obligations as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender. The lack of a liquid secondary market for both Participations
and Assignments will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of Participations or Assignments. The lack of a
liquid market for assignments and participations also may make it more difficult
for the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.
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, amended (the "Code"). By investing in a REIT,
the Fund will indirectly bear its proportionate share of any expenses paid by
the REIT in addition to the expenses of the Fund.
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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 exemption from tax for distributed income under the Code and
failing to maintain their exemptions from the 1940 Act. REITs are also subject
to interest rate risks.
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 their affiliates unless it has applied
for and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash or liquid securities, which are
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the 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 at least 100% 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
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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 its assets in the securities
of foreign issuers. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are in
addition to those associated with investing in U.S. issuers. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments positions. The
Fund may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
FOREIGN CURRENCY EXCHANGE. Since the Fund will invest in securities
denominated in currencies other than the U.S. dollar, and since the Fund may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Fund's investments in foreign companies
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's 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 U.S. and a
particular foreign country, including economic and political developments in
other countries. The Fund bears a risk of loss in the event that the other party
to the loan agreement defaults on its obligations or becomes bankrupt and the
Fund is delayed or prevented from exercising its right to retrieve and dispose
of the loaned securities, including the risk of a possible decline in the value
of the loaned securities during the period in which the Fund seeks to assert its
rights. 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 valuation 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
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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. The majority of the foreign securities held by the Fund
will not be registered with, nor the issuers thereof be subject to reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally subject to financial reporting standards,
practices and requirements that are either not uniform or less rigorous than
those applicable to U.S. companies.
POLITICAL INSTABILITY. With respect to some foreign countries, there
is the possibility of expropriation, nationalization, or confiscatory taxation
and limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Political or social instability, or
domestic developments 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 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 Fund may invest up to 35% of its assets
in foreign debt securities. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and the
effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign
fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the
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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.
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
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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 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.
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"). Certain of the risks relating to investments in foreign
securities may be involved with respect to investments in ADRs, EDRs and 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 Depository Receipts
("GDRs"), are receipts issued outside the U.S. EDRs (CDRs) and IDRs (GDRs) are
typically issued by non-U.S. banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets, and EDRs (CDRs) and IDRs (GDRs) in
bearer form are designed for use in European securities markets and non-U.S.
securities markets, respectively.
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
are securities created through the exchange of existing commercial bank loans to
public and private entities for new bonds in connection with debt restructurings
under a debt restructuring plan announced by former U.S. Secretary of the
Treasury Nicholas F. Brady. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (primarily the U.S. dollar)
and
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are currently actively traded in the OTC secondary market for debt
instruments. Brady Bonds have been issued only recently and therefore do not
have a long payment history. In light of the history of commercial bank loan
defaults by Latin American public and private entities, investments in Brady
Bonds may be viewed as speculative.
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
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.
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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." The Fund may invest up to 10% of its
net assets (taken at current value) as collateral for short sales against the
box. In a short sale, the Fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. The Fund may engage in a short sale if
at the time of the short sale the Fund owns or has the right to obtain without
additional cost an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." It may be
entered into by the Fund to, for example, lock in a sale price for a security
the Fund does not wish to sell immediately. If the Fund engages in a short sale,
the collateral for the short position will be segregated in an account with the
Fund's custodian or qualified sub-custodian.
The Fund do not intend to engage in short sales against the box for
investment purposes. The Fund may, however, 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. 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 Fund may invest in warrants to purchase equity securities consisting
of
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common and preferred stock. 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. Non-publicly traded securities (including Rule 144A
Securities) may involve a high degree of business and financial risk and may
result in substantial losses. These securities may be less liquid than publicly
traded securities, and the Fund may take longer to liquidate these positions
than would be the case for publicly traded securities. 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. The Fund's investment in illiquid securities is subject to the risk
that should the Fund desire to sell any of these securities when a ready buyer
is not available at a price that is deemed to be representative of their value,
the value of the Fund's net assets could be adversely affected. A mutual fund
might also have to
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register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
RULE 144A SECURITIES. Rule 144A under the Securities Act adopted by
the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. The
Adviser anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board and its delegates may
consider, INTER ALIA, the following factors: (i) the unregistered nature of the
security; (ii) the frequency of trades and quotes for the security; (iii) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security and (v) the nature of the security and the nature of the marketplace
trades (E.G., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Investing in Rule 144A Securities could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers are unavailable or uninterested in purchasing such securities from the
Fund. The Board has adopted guidelines and delegated to the Adviser the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any 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 and the Fund may pledge
its assets to the extent necessary to secure permitted borrowings. Additional
investments (including roll-overs) will not be made when borrowings (including
reverse repurchase agreements) 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
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benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
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, although none of the Fund intend to enter into reverse
repurchase agreements in the coming year. 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
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time the Fund enters into a reverse repurchase agreement, it will segregate with
an approved custodian cash or liquid securities having a value not less than the
repurchase price (including accrued interest). The segregated assets will be
marked-to-market daily and additional assets will be segregated on any day in
which the assets fall below the repurchase price (plus accrued interest). The
Fund's liquidity and ability to manage its assets might be affected when it sets
aside cash or portfolio securities to cover such commitments. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale may decline below the price of the securities the Fund has sold but
is obligated to repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such decision.
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 certain liquid securities that
are acceptable as collateral to the appropriate regulatory authority equal to
the amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case, the Fund may be required subsequently to place additional assets in
the segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in when-issued or delayed-delivery transactions, it relies on
the other party to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
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
considerations that are not applicable to investing in securities of
established,
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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. The Fund may invest in "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, may provide an attractive investment
opportunity. 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.
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.
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NON-DIVERSIFIED STATUS. The Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that it may invest in the
obligations of a single issuer. As a non-diversified investment company, the
Fund may invest a greater proportion of its assets in the obligations of a small
number of issuers and, as a result, may be subject to greater risk with respect
to portfolio securities. To the extent that the Fund assumes large positions in
the securities of a small number of issuers, its return may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
The Fund's investments will be limited, however, in order to qualify
as a "regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). To qualify, the Fund will comply with certain
requirements, including limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market value of its
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer.
INVESTMENT RESTRICTIONS
THE FUND. 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.
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. 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 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
30
<PAGE>
3. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer, except that this 5% limitation does not apply to U.S. Government
Securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
5. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
8. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
purchase and sell currencies on a forward commitment or delayed-delivery basis
and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
11. Invest more than 15% of the Fund's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily 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.
If a percentage restriction (other than the percentage limitation set
forth in No. 1 and No. 11 above) is adhered to at the time of an investment, a
later increase or decrease in the
31
<PAGE>
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.
PORTFOLIO VALUATION
The following is a description of the procedures used by the Fund in
valuing their assets.
Securities listed on an exchange or traded in an over-the-counter
market will be valued at the closing price on the exchange or market on which
the security is primarily traded (the "Primary Market") at the time of valuation
(the "Valuation Time"). If the security did not trade on the Primary Market, the
security will be valued at the closing price on another exchange or market where
it trades at the Valuation Time. If there are no such sales prices, the security
will be valued at the most recent bid quotation as of the Valuation Time or at
the lowest asked quotation in the case of a short sale of securities. If there
are no such quotations, the value of the security will be taken to be the most
recent bid quotation on the exchange or market. In determining the market value
of portfolio investments, the Fund may employ outside organizations (each, a
"Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Fund under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time. If
a Pricing Service is not able to supply closing prices and bid/asked quotations,
and there are two or more dealers, brokers or market makers in the security, the
security will be valued at the mean between the highest bid and the lowest asked
quotations from at least two dealers, brokers or market makers or, if such
dealers, brokers or market makers only provide bid quotations, at the mean
between the highest and the lowest bid quotations provided. If a Pricing Service
is not able to supply closing prices and bid/asked quotations, and there is only
one dealer, broker or market maker in the security, the security will be valued
at the mean between the bid and the asked quotations provided, unless the
dealer, broker or market maker can only provide a bid quotation in which case
the security will be valued at such bid quotation. Options contracts will be
valued similarly. Futures contracts will be valued at the most recent settlement
price at the time of valuation. Short-term obligations with maturities of 60
days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. Amortized cost involves valuing a portfolio instrument
at its initial cost and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. The amortized cost method of
valuation may also be used with respect to other debt obligations with 60 days
or less remaining to maturity.
Securities, options, futures contracts and other assets which cannot
be valued pursuant to the foregoing will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. In addition, the Board or its delegates may value a security at
fair value if it determines that such security's value determined by the
methodology set forth above does not reflect its fair value.
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
32
<PAGE>
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
CSFB is responsible for establishing, reviewing and, where necessary,
modifying the Fund's investment program to achieve its investment objective and
has retained CSAM 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 OTC, 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. Purchases
of Private Funds through a broker or placement agent may also involve a
commission or other fee. There is generally no stated commission in the case of
securities traded in domestic or foreign OTC markets, but the price of
securities traded in OTC markets includes an undisclosed commission or mark-up.
U.S. Government securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
In selecting broker-dealers, the Adviser does business exclusively
with those broker-dealers that, in the Adviser's judgment, can be expected to
provide the best service. The service has two main aspects: the execution of buy
and sell orders and the provision of research. In negotiating commissions with
broker-dealers, the Adviser will pay no more for execution and research services
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
33
<PAGE>
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, the Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
investment clients in order to obtain best execution.
Transactions for the Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in order
to take advantage of the lower purchase price available to members of such a
group. The Fund will engage in this practice, however, only when CSAM, in its
sole discretion, believes such practice to be otherwise in the Fund's interest.
In no instance will portfolio securities be purchased from or sold to
CSFB, 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.
34
<PAGE>
PORTFOLIO TURNOVER
The Fund do not intend to seek profits through short-term trading,
but the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, the Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
It is not possible to predict the Fund's portfolio turnover rates.
However, it is anticipated that the Fund's [100%]. High portfolio turnover rates
(100% or more) may result in higher brokerage commissions, dealer markups or
underwriting commissions as well as other transaction costs. In addition, gains
realized from portfolio turnover may be taxable to shareholders.
MANAGEMENT OF THE FUND
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of the Fund are managed by the Board of
Directors in accordance with the laws of the State of Maryland. The Board elects
officers who are responsible for the day-to-day operations of the Fund and who
execute policies authorized by the Board. Under the Fund's Charter, the Board
may classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
35
<PAGE>
<TABLE>
<S> <C>
Richard H. Francis (67) DIRECTOR
40 Grosvenor Road Currently retired; Executive Vice President and Chief
Short Hills, New Jersey 07078 Financial Officer of Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group Incorporated;
Director/Trustee of other Warburg Pincus Funds and other
CSAM-advised investment companies.
Jack W. Fritz (72) DIRECTOR
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 and operators of radio stations); Director of Advo, Inc.
(direct mail advertising); Director/Trustee of other
Warburg Pincus Funds.
Jeffrey E. Garten (53) DIRECTOR
Box 208200 Dean of Yale School of Management and William S. Beinecke
New Haven, Connecticut 06520-8200 Professor in the Practice of International Trade and
Finance; Undersecretary of Commerce for International Trade
from November 1993 to October 1995; Professor at Columbia
University from September 1992 to November 1993; Director
of Aetna, Inc.; Director of Calphine Energy Corporation;
Director/Trustee of other Warburg Pincus Funds.
James S. Pasman, Jr. (69) DIRECTOR
29 The Trillium Currently retired; President and Chief Operating Officer
Pittsburgh, Pennsylvania 15238 of National InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from April 1989 to
March 1991; Director of Education Management Corp., Tyco
International Ltd.; Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg Pincus Funds and other
CSAM-advised investment companies.
William W. Priest* (58) CHAIRMAN OF THE BOARD
466 Lexington Avenue Chairman-Management Committee, Chairman and Chief
New York, New York 10017-3147 Executive Officer (1990-2000) and Managing Director of
CSAM since 1990; Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment companies.
------------------------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
36
<PAGE>
<CAPTION>
<S> <C>
Steven N. Rappaport (51) DIRECTOR
40 East 52nd Street President of Loanet, Inc. (on-line accounting service)
New York, New York 10022 since 1997; Executive Vice President of Loanet, Inc. from
1994 to 1997; Director, President, North American
Operations, and former Executive Vice President from 1992
to 1993 of Worldwide Operations of Metallurg Inc.;
Executive Vice President, Telerate, Inc. from 1987 to
1992; Partner in the law firm of Hartman & Craven until
1987; Director/Trustee of other Warburg Pincus Funds and
other CSAM-advised investment companies.
Alexander B. Trowbridge (70) DIRECTOR
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) since January 1990; Director or Trustee of New
England Mutual Life Insurance Co., ICOS Corporation
(biopharmaceuticals), IRI International (energy services),
The Rouse Company (real estate development), Harris Corp.
(electronics and communications equipment), The Gillette
Co. (personal care products) and Sunoco, Inc. (petroleum
refining and marketing); Director/Trustee of other Warburg
Pincus Funds.
Eugene L. Podsiadlo (42) PRESIDENT
466 Lexington Avenue Managing Director of CSAM; Associated with CSAM since
New York, New York 10017-3147 Credit Suisse acquired the Fund's predecessor adviser in
July 1999; with the predecessor adviser since 1991; Vice
President of Citibank, N.A. from 1987 to 1991; Officer of
CSAMSI and of other Warburg Pincus Funds.
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
466 Lexington Avenue Managing Director and General Counsel of CSAM; Associated
New York, New York 10017-3147 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.
37
<PAGE>
<CAPTION>
<S> <C>
Michael A. Pignataro (40) TREASURER AND CHIEF FINANCIAL OFFICER
466 Lexington Avenue Vice President and Director of Fund Administration of
New York, New York 10017-3147 CSAM; Associated with CSAM since 1984; Officer of other
Warburg Pincus Funds and other CSAM-advised investment
companies.
Stuart J. Cohen, Esq. (31) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM; Associated with
New York, New York 10017-3147 CSAM since Credit Suisse acquired the Fund's predecessor
adviser in July 1999; with the predecessor adviser since
1997; Associated with the law firm of Gordon Altman Butowsky
Weitzen Shalov & Wein from 1995 to 1997; Officer of other
Warburg Pincus Funds.
Rocco A. DelGuercio (36) ASSISTANT TREASURER
466 Lexington Avenue Assistant Vice President and Administrative Officer of
New York, New York 10017-3147 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.
</TABLE>
No employee of CSFB, CSAM, 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 CSFB, CSAM, PFPC or CSAMSI or
any of their affiliates receives the following annual and per-meeting fees:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fee for Each Audit
Fee for Each Committee
Fund Annual Fee Meeting Attended Meeting Attended
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Technologies Fund $750 $250 $250*
-------------------------------------------------------------------------------------
</TABLE>
* Alexander B. Trowbridge will receive $325 per fund serving as chairman of the
Audit Committee.
Each Director is reimbursed for expenses incurred in connection with
attendance at Board meetings.
38
<PAGE>
DIRECTORS' TOTAL COMPENSATION.
(estimated for the fiscal period ending August 31, 2001):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
ALL INVESTMENT COMPANIES IN
NAME OF DIRECTOR/TRUSTEE NEW TECHNOLOGIES FUND FUND COMPLEX(1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
William W. Priest(2) None None
-----------------------------------------------------------------------------------------------------------
Richard H. Francis $2500 $102,000
-----------------------------------------------------------------------------------------------------------
Jack W. Fritz $2,500 $102,000
-----------------------------------------------------------------------------------------------------------
Jeffrey E. Garten $2,500 [$102,000]
-----------------------------------------------------------------------------------------------------------
James S. Pasman, Jr. $2,500 $102,000
-----------------------------------------------------------------------------------------------------------
Steven N. Rappaport $2,500 $102,000
-----------------------------------------------------------------------------------------------------------
Alexander B. Trowbridge $2,725 $108,375
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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.
(2) Mr. Priest receives compensation as an employee of CSAM, and,
accordingly, receives no compensation from any Fund or any other
investment company advised by CSAM.
PORTFOLIO MANAGERS OF THE FUND.
NEW TECHNOLOGIES FUND.
[To Come]
INVESTMENT ADVISERS AND CO-ADMINISTRATORS.
CSFB, located at 11 Madison Avenue, New York, New York 10010, serves
as investment adviser to the Fund pursuant to a written agreement (collectively,
the "Advisory Agreement"). CSAM, located at 466 Lexington Avenue, New York, New
York 10017-3147, serves as sub-investment adviser to the Fund. CSAM is an
indirect wholly-owned U.S. subsidiary of Credit Suisse ("Credit Suisse"). Credit
Suisse is a global financial services company, providing a comprehensive range
of banking and insurance products. Active on every continent and in all major
financial centers, Credit Suisse comprises five business units -- Credit Suisse
Asset Management (asset management); Credit Suisse First Boston (investment
banking); Credit Suisse Private Banking (private banking); Credit Suisse (retail
banking); and Winterthur (insurance). Credit Suisse has approximately $680
billion of global assets under management and employs approximately 62,000
people worldwide. The principal business address of Credit Suisse is Paradeplatz
8, CH 8070, Zurich, Switzerland. For its services, CSFB will be paid (before any
voluntary waivers or reimbursements) a monthly fee computed at an annual rate of
1.00% of the Fund's average daily net assets. CSFB pays CSAM a sub-investment
fee out of the fees CSFB receives from the Fund.
CSAMSI and PFPC serve as co-administrators to the Fund pursuant to
separate written agreements. CSAMSI provides shareholder liaison services to the
Fund including
39
<PAGE>
responding to shareholder inquiries and providing information on shareholder
investments. CSAMSI also performs a variety of other services, including
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 .12%
of the Fund's first $250 million in average daily net assets, .10% of the next
$250 million in average daily net assets, .08% of the next $250 million in
average daily net assets, and .05% of average daily net assets over $750
million, 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 CSFB, CSAM, CSAMSI and PFPC in the proportion that its assets
bear to the aggregate assets of the Fund at the time of calculation. These fees
are calculated at an annual rate based on a percentage of the Fund's average
daily net assets. 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, CSFB, CSAM and CSAMSI have each adopted a written Code of
Ethics (the "Code of Ethics"), which permits personnel covered by the Code of
Ethics ("Covered Persons") to invest in securities, including securities that
may be purchased or held by the Fund. The Code of Ethics also contains
provisions designed to address the conflicts of interest that could arise from
personal trading by advisory personnel, including: (1) all Covered Persons must
report their personal securities transactions at the end of each quarter; (2)
with certain limited exceptions, all Covered Persons must obtain preclearance
before executing any personal securities transactions; (3) Covered Persons may
not execute personal trades in a security if there are any pending orders in
that security by the Fund; and (4) Covered Persons may not invest in initial
public offerings.
The Board reviews the administration of the Code of Ethics at least
annually and may impose sanctions for violations of the Code of Ethics.
CUSTODIANS AND TRANSFER AGENT.
Brown Brothers Harriman & Co. ("BBH") acts as global custodian for
the Fund pursuant to a written Custodian Agreement (the "Custodian Agreement").
BBH will (i) maintain a separate account or accounts in the name of the Fund,
(ii) hold and transfer portfolio securities on account of the Fund, (iii) accept
receipts and disbursements of money on behalf of the Fund, (iv) collect and
receive all income and other payments and distributions for the account of the
Fund's portfolio securities and (v) make periodic reports to the Board
concerning the Fund's
40
<PAGE>
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 was incorporated on May 25, 2000 under the laws of the State
of Maryland under the name "Warburg Pincus/CSFB New Technologies Fund, Inc."
The Fund currently offers two classes of shares, Common Shares and
Advisor Shares. Unless otherwise indicated, references to a "Fund" apply to each
class of shares of that Fund. The Fund is a non-diversified, open-end investment
management company.
The Fund's charter authorizes the board to issue three billion full
and fractional shares of common stock, $.001 par value per share, of which one
billion shares are designated "Common Shares," one billion shares are designated
"Advisor Shares" and one billion shares are designated "Institutional Shares."
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
Investors in the Fund are entitled to one vote for each full share
held and fractional votes for fractional shares held. Shareholders of the Fund
will vote in the aggregate except where otherwise required by law and except
that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the 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 relevant
Fund's outstanding shares, at a meeting
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called for that purpose. A meeting will be called for the purpose of voting on
the removal of the Board member at the written request of holders of 10% of the
outstanding shares of the Fund.
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 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 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 Fund's 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 (e)
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. The Common Shares 12b-1 Plan was adopted on May 1, 2000.
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 Fund has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other financial intermediaries
(collectively, "Service Organizations") or, if applicable, their designees to
enter confirmed purchase and redemption orders on behalf of their clients and
customers, with payment to follow no later than the Fund's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Fund may be
deemed to have received a purchase or redemption order when a Service
Organization, or, if applicable, its
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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 up to .40%
of the average annual value of accounts with the Fund maintained by such Service
Organizations (the "Service Fee"). 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. Agreements are governed by a
distribution plan (the "Advisor Shares 12b-1 Plan") pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which the Fund pays in consideration for services, a
fee calculated at an annual rate of .50% of the average daily net assets of the
Advisor Shares of the Fund. Such payments may be paid to Institutions directly
by the Fund or by CSAMSI on behalf of the Fund. The Advisor Shares 12b-1 Plan
requires the Board, at least quarterly, to receive and review written reports of
amounts expended under the Advisor Shares 12b-1 Plan and the purposes for which
such expenditures were made. The Advisor Shares 12b-1 Plan was adopted on May 1,
2000
Certain Institutions may receive additional fees from the CSAMSI,
CSAM or their affiliates for providing supplemental services in connection with
investments in the Fund. Institutions may also be reimbursed for marketing
costs. Additional fees may be up to 0.10% per year of the value of Fund accounts
maintained by the firm. Fees payable to any particular Institution are
determined based upon a number of factors, including the nature and quality of
the services provided, the operations processing requirements of the
relationship and the standardized fee schedules of the Institutions. To the
extent that CSAMSI, CSAM, or their affiliates provide additional compensation or
reimbursements for marketing expenses, such payments would not represent an
additional expense to the Fund or their shareholders.
An Institution with which the Fund has entered into an Agreement with
respect to its Advisor Shares may charge a Customer one or more of the following
types of fees, as agreed upon by the Institution and the Customer, with respect
to the cash management or other services provided by the Institution: (i)
account fees (a fixed amount per month or per year); (ii) transaction fees (a
fixed amount per transaction processed); (iii) compensation balance requirements
(a minimum dollar amount a Customer must maintain in order to obtain the
services offered); or (iv) account maintenance fees (a periodic charge based
upon the percentage of assets in the account or of the dividend paid on those
assets). Services provided by an
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Institution to Customers are in addition to, and not duplicative of, the
services to be provided under the Fund's co-administration and distribution and
shareholder servicing arrangements. A Customer of an Institution should read the
relevant Prospectus and this Statement of Additional Information in conjunction
with the Agreement and other literature describing the services and related fees
that would be provided by the Institution to its Customers prior to any purchase
of Fund shares. Prospectuses are available from the Fund's distributor upon
request. No preference will be shown in the selection of Fund portfolio
investments for the instruments of Institutions.
GENERAL. The Common Shares 12b-1 Plan and the Advisor Shares 12b-1
Plan will continue in effect for so long as their continuance is specifically
approved at least annually by the Board, including a majority of the Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Distribution Plans or the 12b-1 Plan
("Independent Directors"). Any material amendment of the Common Shares 12b-1
Plan and the Advisor Shares 12b-1 Plan would require the approval of the Board
in the same manner. Neither the Common Shares 12b-1 Plan nor the Advisor 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
Common Shares 12b-1 Plan and the Advisor Shares 12b-1 Plan may be terminated at
any time, without penalty, by vote of a majority of the Independent Directors or
by a vote of a majority of the outstanding voting securities of the relevant
class of shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)
If conditions exist which make payment of redemption proceeds wholly
in cash unwise or undesirable, the Fund may make payment wholly or partly in
securities or other investment instruments which may not constitute securities
as such term is defined in the applicable securities laws. If a redemption is
paid wholly or partly in securities or other property, a shareholder would incur
transaction costs in disposing of the redemption proceeds. The Fund has elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a result of which
the Fund is obligated to redeem shares, with respect to any one shareholder
during any 90 day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of that Fund at the beginning of the period.
AUTOMATIC CASH WITHDRAWAL PLAN. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed
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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 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. When, and if, offered, an Institutional Shareholder
may exchange Institutional Shares of the Fund for Institutional 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. Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Fund. The summary is based on the laws in
effect on the date of this Statement of Additional Information and existing
judicial and administrative interpretations thereof, both of which are subject
to change.
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THE FUND AND ITS INVESTMENTS.
The Fund intends to qualify 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
each 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 each quarter of the Fund's taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, securities of other
regulated investment companies, United States government securities and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and not greater than 10% of
the outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its assets is invested in the securities (other than 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
each shareholder on December 31 of such calendar year and to have been paid by
the Fund not later than such December 31, provided that such dividend is
actually paid by the Fund during January of the following calendar year.
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 States 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,
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and (c) will be entitled to increase their tax basis, for United States federal
income tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Organizations
or persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by the Fund upon
filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on the Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its ordinary income for that year and at least 98% of its net capital gains
(both long-term and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any ordinary income
or net capital gains retained by the Fund that is subject to corporate income
tax will be considered to have been distributed by year-end. The balance of such
income must be distributed during the next calendar year. The Fund anticipates
that it will pay such dividends and will make such distributions as are
necessary in order to avoid the application of this excise tax.
With regard to the Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as the Fund and
may limit the Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution requirement,
it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to qualify,
the Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains.
Moreover, if the Fund fails to qualify as a regulated investment company in any
year, it must pay out its earnings and profits accumulated in that year in order
to qualify again as a regulated investment company. In addition, if the Fund
failed to qualify as a regulated investment company for a period greater than
one taxable year, the Fund may be required to recognize any net built-in gains
(the excess of the aggregate gains, including items of income, over aggregate
losses that would have been realized if the Fund had been liquidated) in order
to qualify as a regulated investment company in a subsequent year.
The Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (I.E., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (I.E.,
treat them as if they were closed out) and (b) may cause the Fund to recognize
income without receiving cash with which to pay dividends or
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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 a short sale 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.
The Fund's investments in zero coupon securities, if any, may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the Fund each year even though
the Fund receives no cash distribution until maturity. Under the U.S. federal
tax laws, the Fund will not be subject to tax on this income if it pays
dividends to its shareholders substantially equal to all the income received
from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of the Fund.
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 each 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 each 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 stock. The Fund may have to distribute this "phantom"
income and gain to satisfy the 90% distribution requirement and to avoid
imposition of the 4% excise tax. The Fund will make the appropriate tax
elections if possible, and take any additional steps that are necessary to
mitigate the effect of these rules.
FUND TAXES ON SWAPS.
As a result of entering into index swaps, the Fund may make or
receive periodic net payments. They may also make or receive a payment when a
swap is terminated prior to
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maturity through an assignment of the swap or other closing transaction.
Periodic net payments will constitute ordinary income or deductions, while
termination of a swap will result in capital gain or loss (which will be a
long-term capital gain or loss if the Fund has been a party to the swap for more
than one year).
DIVIDENDS AND DISTRIBUTIONS.
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net 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 each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his shares of the Fund, and
as a capital gain thereafter (if the shareholder holds his shares of the Fund as
capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in 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,
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within a 61-day period beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of the Fund share held by the shareholder for six months or less
will be treated for United States federal income tax purposes as a long-term
capital loss to the extent of any distributions or deemed distributions of
long-term capital gains received by the shareholder with respect to such share
during such six-month period.
FOREIGN TAXES.
The Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders if more than 50% of the
Fund's total assets at the close of its fiscal year consists of stock or
securities of foreign corporations. The Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years. If the Fund
were to make an election, shareholders of the Fund would be required to take
into account an amount equal to their pro rata portions of such foreign taxes in
computing their taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction or as a foreign tax credit against
their U.S. federal income taxes. Shortly after any year for which it makes such
an election, the Fund will report to its shareholders the amount per share of
such foreign income tax that must be included in each shareholder's gross income
and the amount which will be available for the deduction or credit. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
BACKUP WITHHOLDING.
The Fund may be required to withhold, for United States federal
income tax purposes, 31% of the dividends, distributions and redemption proceeds
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
NOTICES.
Shareholders will be notified annually by the Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains (discussed above in
"The Fund and Their Investments") made by the Fund to its shareholders.
OTHER TAXATION.
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUND AND 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.
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DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. The net asset value of Common Shares is listed
in THE WALL STREET JOURNAL each business day under the heading "Warburg Pincus
Funds." Current total return figures may be obtained by calling Warburg Pincus
Funds at 800-927-2874.
These total return figures show the average percentage change in
value of an investment in the Common Shares from the beginning of the measuring
period to the end of the measuring period. The figures reflect changes in the
price of Common Shares assuming that any income dividends and/or capital gain
distributions made by the Fund during the period were reinvested in Common
Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year, quarterly or current
year-to-date basis).
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) TO THE POWER OF 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. Investors should note that this performance may not be
representative of the Fund's total return over longer market cycles.
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 any Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares of 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 gain
distributions).
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, 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.
51
<PAGE>
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 with similar investment objectives and policies, which may be based on 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 _________, 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, SMART MONEY, 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 investment companies with similar objectives and
policies, based on data generated by Lipper Analytical Services, Inc. or similar
investment services that monitor mutual funds.
In reports, investor communications or advertisements, the Fund may
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 potential impact of adding foreign stocks to a domestic
portfolio; (ix) the general biography or work experience of the portfolio
managers of the Fund; (x) portfolio manager commentary or market updates; (xi)
discussion of macroeconomic factors affecting the Fund and its investments;
(xii) research methodology underlying stock selection or the Fund's investment
objective; and (xiii) other information of interest to investors.
52
<PAGE>
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Fund. The financial statement for the Fund that is
incorporated by reference in this STATEMENT OF ADDITIONAL INFORMATION has been
audited by PwC and has been included herein by reference 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.
53
<PAGE>
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>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
a Articles of Incorporation.
b By-Laws.
c Registrant's Forms of Stock Certificates.(1)
d(1) Form of Investment Advisory Agreement. (1)
(2) Form of Sub-Investment Advisory and Administration Agreement. (1)
e Form of Distribution Agreement. (1)
f Not applicable.
g Custodian Agreement. (1)
h(1) Transfer Agency and Service Agreement. (1)
(2) Form of Co-Administration Agreement with Credit Suisse Asset Management
Securities, Inc. (1)
(3) Form of Co-Administration Agreement with PFPC Inc. (1)
i(1) Opinion and Consent of Willkie Farr & Gallagher. (1)
(2) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland
counsel to the Fund. (1)
j(1) Consent of PricewaterhouseCoopers LLP. (1)
(2) Powers of Attorney.
k Not applicable.
l Form of Purchase Agreement. (1)
m(1) Form of Shareholder Servicing and Distribution Plan. (1)
(2) Form of Distribution Plan. (1)
n Form of 18f-3 Plan. (1)
o Not applicable.
p(1) Form of Code of Ethics. (1)
--------------------
(1) To be filed by amendment.
<PAGE>
(2) Form of Code of Ethics for Credit Suisse Asset Management, LLC. (1)
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
From time to time, Credit Suisse Asset Management, LLC ("CSAM, LLC"), may be
deemed to control the Fund and other registered investment companies it advises
through its beneficial ownership of more than 25% of the relevant fund's shares
on behalf of discretionary advisory clients. CSAM, LLC has three wholly-owned
subsidiaries: Warburg, Pincus Asset Management International, Inc., a Delaware
corporation; Warburg Pincus Asset Management (Japan), Inc., a Japanese
corporation; and Warburg Pincus Asset Management (Dublin) Limited, an Irish
corporation.
Item 25. INDEMNIFICATION
Registrant, officers and directors of CSAM, LLC, of Credit Suisse
Asset Management Securities Inc. ("CSAM Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, director or
trustee in connection with the operation of Registrant. Insurance coverage does
not extend to (a) conflicts of interest or gain in fact any profit or advantage
to which one is not legally entitled, (b) intentional non-compliance with any
statute or regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it related to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.
Under Article VIII of the Articles of Incorporation (the "Articles"),
the Directors and officers of Registrant shall not have any liability to
Registrant or its stockholders for money damages, to the fullest extent
permitted by Maryland law. This limitation on liability applies to events
occurring at the time a person serves as a Director or officer of Registrant
whether or not such person is a Director or officer at the time of any
proceeding in which liability is asserted. No provision of Article VIII shall
protect or purport to protect any Director or officer of Registrant against any
liability to Registrant or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Registrant shall indemnify and advance expenses to its currently acting and its
former Director to the fullest extent that indemnification of Directors and
advancement of expenses to Directors is permitted by the Maryland General
Corporation Law.
<PAGE>
Registrant shall indemnify and advance expenses to its officers to the
same extent as its Directors and to such further extent as is consistent with
such law. The Board of Directors may, through a by-law, resolution or agreement,
make further provisions for indemnification of directors, officers, employees
and agents to the fullest extent permitted by the Maryland General Corporation
Law.
Article V of the By-Laws further limits the liability of the Directors
by providing that any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of Registrant, or is
or was serving while a director or officer of Registrant at the request of
Registrant as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, shall be indemnified by Registrant against judgments,
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees) actually incurred by such person in connection with such
action, suit or proceeding to the full extent permissible under the Maryland
General Corporation Law, the 1993 Act and the 1940 Act, as such statutes are now
or hereafter in force, except that such indemnity shall not protect any such
person against any liability to Registrant or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of this office.
Item 26. (a) BUSINESS AND OTHER CONNECTIONS OF
INVESTMENT ADVISER
Credit Suisse First Boston, Inc. ("CSFB") acts as investment adviser
to Registrant. CSFB renders investment advice to a wide variety of individual
and institutional clients. The list required by this Item 26 of officers and
directors of CSFB together with information as to their other business,
profession, vocation or employment of a substantial nature during the past two
years, is incorporated by reference to Schedules A and D of Form ADV filed by
CSFB (SEC File No. 801-56264).
(b) BUSINESS AND OTHER CONNECTIONS OF
SUB-INVESTMENT ADVISER AND ADMINISTRATOR
Credit Suisse Asset Management, LLC ("CSAM, LLC") acts as
sub-investment adviser for the Registrant. Credit Suisse renders to a wide
variety of individual and institutional clients. The list required by this Item
28 of officers and partners of CSAM, LLC, together with information as to their
other business, profession, vocation or employment of a substantial nature
during the past two years, is incorporated by
<PAGE>
reference to schedules A and D of Form ADV filed by CSAM, LLC (SEC File No.
801-37170).
Item 27. Principal Underwriter
CSAM Securities acts as distributor for Registrant, as well as for Credit
Suisse Institutional Fund; Credit Suisse Institutional International Growth
Fund; Credit Suisse Institutional Strategic Global Fixed Income Fund; Credit
Suisse Institutional U.S. Core Equity Fund; Credit Suisse Institutional U.S.
Core Fixed Income Fund; Warburg Pincus Balanced Fund; Warburg Pincus Capital
Appreciation Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Central &
Eastern Europe Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus European Equity Fund; Warburg Pincus Fixed
Income Fund; Warburg Pincus Focus Fund; Warburg Pincus Global Fixed Income Fund;
Warburg Pincus Global Health Sciences Fund; Warburg Pincus Global Post-Venture
Capital Fund; Warburg Pincus Global Telecommunications Fund; Warburg Pincus High
Yield Fund; Warburg Pincus Intermediate Maturity Government Fund; Warburg Pincus
International Equity Fund; Warburg Pincus International Small Company Fund;
Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small Company Fund;
Warburg Pincus Long-Short Market Neutral Fund; Warburg Pincus Major Foreign
Markets Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New York
Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg
Pincus Small Company Growth Fund; Warburg Pincus Small Company Value Fund;
Warburg Pincus Trust; Warburg Pincus Trust II; Warburg Pincus Value Fund;
Warburg Pincus WorldPerks Money Market Fund and Warburg Pincus WorldPerks Tax
Free Money Market Fund.
(b) For information relating to each director, officer or partner of CSAM
Securities, reference is made to Form BD (SEC File No. 8-32482) filed by CSAM
Securities under the Securities Exchange Act of 1934.
(c) None.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
(1) Warburg, Pincus/CSFB Global New Technologies Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's articles of incorporation, by-laws and minute books)
(2) Credit Suisse Asset Management Securities, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator and
distributor)
<PAGE>
(3) Credit Suisse First Boston, Inc.
11 Madison Avenue
New York, NY 10010
(records relating to its functions as investment adviser)
(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator, transfer
and dividend disbursing agent)
(5) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)
(6) Credit Suisse Asset Management, LLC
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(records relating to its functions as sub-investment adviser)
(7) State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and dividend
disbursing agent)
(8) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02177
(records relating to its functions as transfer agent and dividend
disbursing agent)
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York, on
the 31st day of May, 2000.
WARBURG PINCUS/CSFB GLOBAL NEW
TECHNOLOGIES FUND, INC.
By: /s/Eugene L. Podsiadlo
-----------------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William W. Priest* Chairman of the May 31, 2000
------------------------------- Board of Directors
William W. Priest
/s/ Eugene L. Podsiadlo President May 31, 2000
-------------------------------
Eugene L. Podsiadlo
/s/ Michael A. Pignataro Treasurer May 31, 2000
------------------------------- and Chief Financial
Michael A. Pignataro Officer
/s/ Richard H. Francis* Director May 31, 2000
-------------------------------
Richard H. Francis
/s/ Jack W. Fritz* Director May 31, 2000
-------------------------------
Jack W. Fritz
/s/ Jeffrey E. Garten* Director May 31, 2000
-------------------------------
Jeffrey E. Garten
/s/ James S. Pasman, Jr.* Director May 31, 2000
-------------------------------
James S. Pasman, Jr.
/s/ Steven N. Rappaport* Director May 31, 2000
-------------------------------
Steven N. Rappaport
/s/ Alexander B. Trowbridge* Director May 31, 2000
-------------------------------
Alexander B. Trowbridge
*By: /s/ Michael A. Pignataro
-------------------------------
Michael A. Pignataro as
Attorney-in-Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
(a) Articles of Incorporation.
(b) By-Laws.
j(2) Powers of Attorney.
