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[WARBURG PINCUS FUNDS LOGO] [CREDIT SUISSE ASSET MANAGEMENT LOGO]
PROSPECTUS
Common Class
February 29, 2000
WARBURG PINCUS
INTERMEDIATE MATURITY GOVERNMENT FUND
*
WARBURG PINCUS
NEW YORK INTERMEDIATE MUNICIPAL FUND
*
WARBURG PINCUS
FIXED INCOME FUND
*
WARBURG PINCUS
GLOBAL FIXED INCOME FUND
As with all mutual funds, the Securities and Exchange
Commission has not approved these funds, nor has it passed
upon the adequacy or accuracy of this Prospectus. It is a
criminal offense to state otherwise.
Warburg Pincus Funds are advised by Credit Suisse Asset
Management, LLC.
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CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goals and Principal Strategies.................. 4
Investor Profile................................ 5
A Word About Risk............................... 6
PERFORMANCE SUMMARY............... ................ 8
Year-by-Year Total Returns...................... 8
Average Annual Total Returns.................... 9
INVESTOR EXPENSES................ ................. 12
Fees and Fund Expenses.......................... 12
Example......................................... 13
THE FUNDS IN DETAIL............... ................ 14
The Management Firm............................. 14
Multi-Class Structure........................... 14
Fund Information Key............................ 15
INTERMEDIATE MATURITY GOVERNMENT FUND...... ....... 16
NEW YORK INTERMEDIATE MUNICIPAL FUND....... ....... 18
FIXED INCOME FUND................ ................. 20
GLOBAL FIXED INCOME FUND............. ............. 22
MORE ABOUT RISK................. .................. 24
Introduction.................................... 24
Types of Investment Risk........................ 24
Certain Investment Practices.................... 26
MEET THE MANAGERS................ ................. 29
ABOUT YOUR ACCOUNT................ ................ 30
Share Valuation................................. 30
Buying and Selling Shares....................... 30
Account Statements.............................. 31
Distributions................................... 31
Taxes........................................... 31
OTHER INFORMATION................ ................. 33
About the Distributor........................... 33
FOR MORE INFORMATION.................................back cover
</TABLE>
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KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
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FUND/RISK FACTORS GOAL STRATEGIES
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<S> <C> <C>
INTERMEDIATE MATURITY As high a level of - Invests in securities of the
GOVERNMENT FUND current income as is U.S. government and its agencies
Risk factors: consistent with the and instrumentalities
Market risk preservation of capital - Normally maintains a weighted-
Interest-rate risk average portfolio maturity of
between three and 10 years
- ------------------------------------------------------------------------------------
NEW YORK INTERMEDIATE To maximize current - Invests in New York municipal
MUNICIPAL FUND interest income exempt securities
Risk factors: from federal income tax - Normally maintains a weighted-
Market risk and New York state and average portfolio maturity of
Interest-rate risk New York City personal between three and 10 years
Credit risk income taxes, to the - Emphasizes investment-grade
Non-diversified extent consistent with securities
status prudent investment and
New York municipal the preservation of
securities capital
- ------------------------------------------------------------------------------------
FIXED INCOME FUND To generate high current - Invests in fixed-income
Risk factors: income consistent with securities denominated primarily
Market risk reasonable risk and, in U.S. dollars
Interest-rate risk secondarily, capital - Normally maintains a weighted-
Credit risk appreciation average portfolio maturity of 10
years or less
- Favors investment-grade
securities, but may diversify
credit quality in pursuit of its
goal
- ------------------------------------------------------------------------------------
GLOBAL FIXED INCOME To maximize total - Invests in U.S. and foreign
FUND investment return fixed- income securities
Risk factors: consistent with prudent denominated in various
Market risk investment management, currencies
Interest-rate risk consisting of a - Favors investment-grade
Credit risk combination of interest securities, but may diversify
Foreign securities income, currency gains credit quality in pursuit of its
Non-diversified and capital appreciation goal
status - Investment decisions are based
on fundamental market factors,
currency trends and credit
quality.
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</TABLE>
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INVESTOR PROFILE
THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
- are seeking investment income
- are looking for higher potential returns than money-market funds and are
willing to accept moderate risk and volatility
- want to diversify their portfolios with fixed-income funds
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for maximum return over a long time horizon
- require stability of your principal
You should base your selection of a fund on your own goals, risk preferences
and time horizon.
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A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund. As with any
mutual fund, you could lose money over any period of time.
Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
CREDIT RISK
New York Intermediate Municipal Fund, Fixed Income Fund, Global Fixed
Income Fund
The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation.
FOREIGN SECURITIES
Global Fixed Income Fund
A fund that invests in foreign securities 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 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.
INTEREST-RATE RISK
All funds
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.
MARKET RISK
All funds
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
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stocks and bonds, and the mutual funds that invest in them.
Bonds and other fixed-income securities generally involve less market risk
than stocks. The risk of bonds can vary significantly depending upon factors
such as issuer and maturity. The bonds of some companies may be riskier than the
stocks of others.
NEW YORK MUNICIPAL SECURITIES
New York Intermediate Municipal Fund
A fund that invests primarily in New York municipal securities is more
susceptible to economic, political and other developments that may adversely
affect issuers of such securities than a more geographically diversified fund.
The default or credit-rating downgrade of one of these issuers could affect the
market values and marketability of all New York municipal securities and hurt
the fund's performance.
NON-DIVERSIFIED STATUS
New York Intermediate Municipal Fund, Global Fixed Income Fund
The funds are considered non-diversified investment companies under the
Investment Company Act of 1940 and are permitted to invest a greater proportion
of their assets in the securities of a smaller number of issuers. As a result,
the funds may be subject to greater volatility with respect to their respective
portfolio securities than a fund that is more broadly diversified.
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PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in these funds. The bar chart shows you how each fund's
performance has varied from year to year for up to 10 years. The table compares
each fund's performance over time to that of a broadly based securities market
index and other indexes, if applicable. As with all mutual funds, past
performance is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 12/31: 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERMEDIATE MATURITY GOVERNMENT FUND 8.92% 15.02% 6.66% 7.87% -1.78% 16.26% 2.27% 7.55% 8.15% -0.44%
Best quarters: 5.61% (Q2 89 & Q4 91)
Worst quarter: -2.20% (Q1 92)
Inception date: 8/22/88
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NEW YORK INTERMEDIATE MUNICIPAL FUND 5.97% 9.50% 7.52% 9.89% -0.55% 9.64% 4.32% 5.88% 5.48% -0.41%
Best quarter: 3.70% (Q2 89)
Worst quarter: -2.87% (Q1 94)
Inception date: 4/1/87
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FIXED INCOME FUND 2.95% 16.85% 6.70% 11.32% -0.67% 15.13% 6.15% 8.80% 6.51% -0.04%
Best quarter: 5.81% (Q2 95)
Worst quarter: -1.32% (Q2 94)
Inception date: 8/17/87
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GLOBAL FIXED INCOME FUND 14.73% 2.10% 19.62% -5.48% 16.01% 9.97% 2.17% 8.42% 0.39%
Best quarter: 10.19% (Q3 91)
Worst quarter: -4.06% (Q1 92)
Inception date: 11/1/90
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</TABLE>
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AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/99: 1999 1995-1999 1990-1999 FUND DATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERMEDIATE MATURITY GOVERNMENT
FUND -0.44% 6.61% 6.90% 7.37% 8/22/88
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT BOND INDEX(1) 0.48% 6.93% 7.10% 7.58%(2)
NEW YORK INTERMEDIATE
MUNICIPAL FUND 0.41% 4.93% 5.66% 5.44% 4/1/87
LEHMAN BROTHERS FIVE-YEAR
MUNICIPAL BOND INDEX(3) 0.74% 5.72% 6.23% 5.89%
FIXED INCOME FUND -0.04% 7.20% 7.22% 7.39% 8/17/87
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(4) 0.38% 7.10% 7.26% 7.72%(5)
GLOBAL FIXED INCOME FUND 0.39% 7.25% N/A 7.23% 11/1/90
SALOMON BROTHERS WORLD
GOVERNMENT BOND INDEX
(CURRENCY-HEDGED)(6) 1.32% 9.80% N/A 8.70%(7)
LEHMAN BROTHERS AGGREGATE BOND
INDEX(8) -0.82% 7.73% N/A 7.85%(7)
COMPOSITE BENCHMARK(9) 0.97% 9.19% N/A 9.16%(7)
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</TABLE>
(1) The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
(with no defined investment objective) of intermediate-term government
bonds, and is calculated by Lehman Brothers Inc.
(2) Performance since August 31, 1988.
(3) The Lehman Brothers Five-Year Municipal Bond Index is an unmanaged index
(with no defined investment objective) of municipal bonds, and is compiled
by Lehman Brothers Inc.
(4) The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index (with no defined investment objective) of intermediate-term
government and corporate bonds, and is calculated by Lehman Brothers Inc.
(5) Performance since July 31, 1987.
(6) The Salomon Brothers World Government Bond Index (Currency-Hedged) is a
market-capitalization-weighted index designed to track major government debt
markets and is currency-hedged into U.S. dollars.
(7) Performance since October 31, 1990.
(8) The Lehman Brothers Aggregate Bond Index is composed of the Lehman Brothers
Government/Corporate Bond Index and the Lehman Brothers Mortgage-Backed
Securities Index. The Aggregate Bond Index includes U.S. Treasury and agency
issues, corporate bond issues and mortgage-backed securities rated
investment-grade or higher by Moody's Investors Service, Standard & Poor's
Corporation or Fitch Investors' Service.
(9) The Composite Benchmark measures the weighted performance of three component
indexes. The weights of the component indexes -- 50% Lehman Brothers
Aggregate Bond Index, 35% Salomon Brothers World Government Bond Index
Excluding the U.S. (Currency-Hedged), and 15% Merrill Lynch High Yield
Master II Index -- correspond to the investment strategy of the fund's
managers. The Merrill Lynch High Yield Master II Index provides a
broad-based measure of the performance of the non-investment-grade U.S.
domestic bond market.
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UNDERSTANDING PERFORMANCE
*TOTAL RETURN tells you how much an investment in a fund has changed in
value over a given time period. It assumes that all dividends and capital
gains (if any) were reinvested in additional shares. The change in value
can be stated either as a cumulative return or as an average annual rate
of return.
*A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.
*An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what constant annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, assuming you held it for the entire
period.
*Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.
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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 for the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
INTERMEDIATE NEW YORK GLOBAL
MATURITY INTERMEDIATE FIXED FIXED
GOVERNMENT MUNICIPAL INCOME INCOME
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(paid directly from your investment)
- ---------------------------------------------------------------------------------------
Sales charge "load" on purchases NONE NONE NONE NONE
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Deferred sales charge "load" NONE NONE NONE NONE
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Sales charge "load" on reinvested
distributions NONE NONE NONE NONE
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Redemption fees NONE NONE NONE NONE
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Exchange fees NONE NONE NONE NONE
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ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
- ---------------------------------------------------------------------------------------
Management fee .50% .40% .50% 1.00%
- ---------------------------------------------------------------------------------------
Distribution and service (12b-1) fee NONE NONE NONE NONE
- ---------------------------------------------------------------------------------------
Other expenses .39% .31% .31% .53%
- ---------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES* .89% .71% .81% 1.53%
- ---------------------------------------------------------------------------------------
</TABLE>
* Fees waivers and expense reimbursements or credits reduced expenses for the
funds during 1999 but may be discontinued at any time. Actual fees and
expenses for fiscal year ended October 31, 1999 are shown below:
<TABLE>
<CAPTION>
INTERMEDIATE NEW YORK GLOBAL
MATURITY INTERMEDIATE FIXED FIXED
EXPENSES AFTER WAIVERS AND GOVERNMENT MUNICIPAL INCOME INCOME
REIMBURSEMENTS FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Management fee .23% .30% .46% .43%
Distribution and service (12b-1)
fee NONE NONE NONE NONE
Other expenses .37% .30% .29% .52%
----- ----- ----- -----
TOTAL ANNUAL FUND OPERATING
EXPENSES .60% .60% .75% .95%
</TABLE>
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EXAMPLE
This example may help you compare the cost of investing in these funds 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, each 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 FIVE YEARS 10 YEARS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERMEDIATE MATURITY GOVERNMENT FUND $91 $284 $493 $1,096
- ---------------------------------------------------------------------------------------
NEW YORK INTERMEDIATE MUNICIPAL FUND $73 $227 $395 $883
- ---------------------------------------------------------------------------------------
FIXED INCOME FUND $83 $259 $450 $1,002
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GLOBAL FIXED INCOME FUND $156 $483 $834 $1,824
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</TABLE>
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THE FUNDS IN DETAIL
THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
- Investment adviser for the funds
- Responsible for managing each fund's assets according to its goal and
strategies
- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse Group (Credit Suisse), one of
the world's leading banks
- Credit Suisse Asset Management companies manage approximately $72 billion in
the U.S. and $203 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those in
Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and
Zurich) are not registered with the U.S. Securities and Exchange Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this Prospectus.
MULTI-CLASS STRUCTURE
This Prospectus offers Common Class shares of the funds. Common Class shares
are no-load.
Three of the funds -- the Intermediate Maturity Government, Fixed Income and
Global Fixed Income Funds -- offer Advisor Class shares described in a separate
prospectus. Advisor Class shares are available through financial-services firms.
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin 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 adviser to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Actual fund expenses for the 1999 fiscal year. Future expenses may be higher
or lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the fund.
Expressed as a percentage of average net assets after waivers.
- 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.
FINANCIAL HIGHLIGHTS
A table showing the fund's audited financial performance for up to five
years.
- TOTAL RETURN How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.
- PORTFOLIO TURNOVER An indication of trading frequency. The funds may sell
securities without regard to the length of time they have been held. A high
turnover rate may increase a fund's transaction costs and negatively affect
its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.
The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.
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INTERMEDIATE MATURITY
GOVERNMENT FUND
GOAL AND STRATEGIES
The Intermediate Maturity Government Fund seeks as high a level of current
income as is consistent with the preservation of capital. To pursue this goal,
it invests in securities of the U.S. government and its agencies and
instrumentalities.
The fund's weighted-average maturity will typically be between three and
10 years.
PORTFOLIO INVESTMENTS
Under normal market conditions, the fund will invest at least 65% of assets
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These may include:
- U.S. Treasury obligations
- mortgage-backed securities such as Ginnie Maes and Fannie Maes
- government-agency obligations such as those of the Small Business
Administration
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- market risk
- interest-rate risk
As with most income funds, share price, yield and total return will generally
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including U.S.
government and mortgage-backed securities). To the extent that the fund invests
in mortgage-backed securities, it may also be subject to extension and
prepayment risks. These risks are defined in "More About Risk."
Other factors may affect the market price and yield of the fund's securities,
including investor demand and domestic and world-wide economic conditions.
The credit risk of the fund's securities will depend primarily on whether or
not the securities are guaranteed by the U.S. government. To the extent the fund
invests in securities guaranteed by the U.S. government, credit risk for this
fund is expected to be low. However, the U.S. government does not guarantee the
market value or the current yield of government securities, nor does any
government guarantee extend to the fund itself.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
M. Anthony E. van Daalen manages the fund's investment portfolio. You can
find out more about him in "Meet the Managers."
INVESTOR EXPENSES
Management fee .23%
All other expenses .37%
-----------
Total expenses .60%
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FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97 10/96 10/95
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.37 $10.05 $10.07 $10.22 $9.66
- -------------------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.53 0.56 0.58 0.58 0.59
Net gains (losses) on investments (both
realized and unrealized) (0.54) 0.32 0.10 (0.06) 0.56
- -------------------------------------------------------------------------------------------------------------
Total from investment activities (0.01) 0.88 0.68 0.52 1.15
- -------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income (0.53) (0.56) (0.58) (0.58) (0.59)
Distributions from realized capital gains (0.04) 0.00 (0.08) (0.09) 0.00
Distributions in excess of realized capital
gains (0.02) 0.00 (0.04) 0.00 0.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.59) (0.56) (0.70) (0.67) (0.59)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.77 $10.37 $10.05 $10.07 $10.22
- -------------------------------------------------------------------------------------------------------------
Total return (0.05)% 9.35% 6.99% 5.16% 12.32%
- -------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $56,625 $78,200 $48,421 $47,690 $55,898
Ratio of expenses to average net assets 0.61%(*) 0.60%(*) 0.61%(*) 0.61%(*) 0.60%
Ratio of net income to average net assets 5.27% 5.54% 5.81% 5.68% 6.00%
Decrease reflected in above operating ratios
due to waivers/reimbursements 0.28% 0.34% 0.33% 0.46% 0.49%
Portfolio turnover rate 91.13% 133.98% 104.34% 163.59% 105.79%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' net expense ratio by .01%, .00%, .00% and .01% for the years
ended October 31, 1999, 1998, 1997 and 1996, respectively. The Common Shares'
operating expense ratio after reflecting these arrangements was .60% for each
of the years ended October 31, 1999, 1998, 1997 and 1996, respectively.
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NEW YORK INTERMEDIATE
MUNICIPAL FUND
GOAL AND STRATEGIES
The New York Intermediate Municipal Fund seeks to maximize current interest
income exempt from federal income tax and New York state and New York City
personal income taxes, to the extent consistent with prudent investment and the
preservation of capital. To pursue this goal, the fund invests in New York
municipal securities.
New York municipal securities are debt obligations (other than short-term
securities) whose interest is exempt from federal and New York state and City
income taxes.
Under normal market conditions, the fund will:
- invest at least 65% of assets in investment-grade New York municipal
securities
- maintain a weighted-average maturity of between three and 10 years
PORTFOLIO INVESTMENTS
This fund invests at least 80% of assets in municipal securities. The fund
may invest up to 20% of assets in other types of debt securities. To a limited
extent, it may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- market risk
- interest-rate risk
- credit risk
- New York municipal securities
- non-diversified status
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities. There is also the risk
that an issuer of a debt security will fail to make timely payments of principal
or interest to the fund.
The fund's ability to achieve its goal depends upon the ability of the
issuers of New York municipal securities to repay their debt. A recurrence of
the financial difficulties previously experienced by New York state and New York
City could seriously affect New York municipal issuers. The default or
credit-rating downgrade of one of these issuers could affect the market values
and marketability of all New York municipal securities and hurt the fund's
performance. As a result, this fund may be more volatile than a more
geographically diversified municipal fund.
Compared to a diversified mutual fund, a non-diversified fund may invest a
greater portion of its assets in the securities of fewer issuers. Because the
fund is non-diversified, its share price and yield might fluctuate more than
they would for a diversified fund.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
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PORTFOLIO MANAGEMENT
Sharon B. Parente and Patrick A. Bittner manage the fund's investment
portfolio. You can find out more about them in "Meet the Managers."
INVESTOR EXPENSES
Management fee .30%
All other expenses .30%
-----------
Total expenses .60%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97 10/96 10/95
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.54 $10.35 $10.34 $10.42 $10.07
- -------------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.42 0.44 0.45 0.45 0.47
Net gains (losses) on investments
(both realized and unrealized) (0.44) 0.19 0.13 0.04 0.36
- -------------------------------------------------------------------------------------------------------
Total from investment activities (0.02) 0.63 0.58 0.49 0.83
- -------------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income (0.42) (0.44) (0.45) (0.45) (0.47)
Distributions from realized capital gains (0.06) 0.00 (0.12) (0.12) (0.01)
- -------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.48) (0.44) (0.57) (0.57) (0.48)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.04 $10.54 $10.35 $10.34 $10.42
- -------------------------------------------------------------------------------------------------------
Total return (0.26)% 6.24% 5.83% 4.87% 8.31%
- -------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $83,934 $106,922 $88,944 $77,559 $73,361
Ratio of expenses to average net assets 0.61%* 0.60%* 0.60%* 0.61%* 0.60%
Ratio of net income to average net assets 4.03% 4.24% 4.40% 4.41% 4.50%
Decreased reflected in above operating ratios
due to waivers/reimbursements 0.10% 0.07% 0.08% 0.17% 0.26%
Portfolio turnover rate 54.97% 37.25% 69.84% 69.23% 105.17%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' net expense ratio by .01%, .00%, .00% and .01% for the years
ended October 31, 1999, 1998, 1997 and 1996, respectively. The Common Shares'
operating expense ratio after reflecting these arrangements was .60% for each
of the years ended October 31, 1999, 1998, 1997 and 1996, respectively.
19
<PAGE> 19
FIXED INCOME FUND
GOAL AND STRATEGIES
The Fixed Income Fund seeks to generate high current income consistent with
reasonable risk and, secondarily, capital appreciation. To pursue these goals,
it invests in fixed-income securities.
Under normal market conditions:
- at least 65% of the fund's fixed-income securities will be investment grade
- the fund will maintain a weighted-average maturity of 10 years or less
PORTFOLIO INVESTMENTS
Under normal market conditions, this fund invests at least 65% of assets in
fixed-income securities such as:
- corporate bonds, debentures and notes
- convertible debt securities
- preferred stocks
- government securities
- municipal securities
- mortgage-backed securities
- repurchase agreements involving portfolio securities
The fund may invest:
- without limit in U.S. dollar-denominated, investment-grade foreign securities
- up to 35% of assets in non-dollar-denominated foreign securities
- up to 35% of assets in fixed-income securities rated below investment grade
(junk bonds)
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- market risk
- interest-rate risk
- credit risk
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
principal or interest to the fund.
To the extent that it invests in certain securities, the fund may be affected
by additional risks:
- mortgage-backed securities: extension and prepayment risks
- junk bonds: above-average credit, information, liquidity, market and other
valuation risks
- foreign securities: currency, information and political risks
- start-up and other small companies: information and liquidity risks
Junk bonds are considered speculative with respect to the issuer's continuing
ability to meet principal and interest payments. In the event of a payment
problem by an issuer of junk bonds, more senior debt (such as bank loans and
investment-grade bonds) will likely be
20
<PAGE> 20
paid a greater portion of any payment made by the issuer.
These risks are defined in "More About Risk." That section also details
certain other investment practices the fund may use. Please read "More About
Risk" carefully before you invest.
PORTFOLIO MANAGEMENT
M. Anthony E. van Daalen manages the fund's investment portfolio. You can
find out more about him in "Meet the Managers."
INVESTOR EXPENSES
Management fee .46%
All other expenses .29%
-----------
Total expenses .75%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97 10/96 10/95
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.41 $10.43 $10.10 $10.07 $9.61
- --------------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.57 0.59 0.62 0.63 0.70
Net gains (losses) on investments and foreign
currency-related items (both realized and
unrealized) (0.48) 0.07 0.33 0.03 0.46
- --------------------------------------------------------------------------------------------------------
Total from investment activities 0.09 0.66 0.95 0.66 1.16
- --------------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income (0.57) (0.59) (0.62) (0.63) (0.70)
Distributions from realized capital gains (0.04) (0.09) 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.61) (0.68) (0.62) (0.63) (0.70)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.89 $10.41 $10.43 $10.10 $10.07
- --------------------------------------------------------------------------------------------------------
Total return 0.92% 6.48% 9.78% 6.80% 12.59%
- --------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $393,433 $423,536 $265,453 $151,184 $116,983
Ratio of expenses to average net assets 0.76%* 0.75%* 0.75%* 0.76%* 0.75%
Ratio of net income to average net assets 5.63% 5.64% 6.05% 6.30% 7.25%
Decrease reflected in above operating ratios due
to waivers/reimbursements 0.04% 0.04% 0.08% 0.15% 0.18%
Portfolio turnover rate 144.02% 124.04% 129.06% 194.23% 182.93%
</TABLE>
* Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' net expense ratio by .01%, .00%, .00% and .01% for the years
ended October 31, 1999, 1998, 1997 and 1996, respectively. The Common Shares'
operating expense ratio after reflecting these arrangements was .75% for each
of the years ended October 31, 1999, 1998, 1997 and 1996, respectively.
21
<PAGE> 21
GLOBAL FIXED INCOME FUND
GOAL AND STRATEGIES
The Global Fixed Income Fund seeks to maximize total investment return
consistent with prudent investment management, consisting of a combination of
interest income, currency gains and capital appreciation. To pursue this goal,
the fund invests in fixed-income securities of U.S. and foreign issuers
including:
- foreign governments and companies, including those in emerging markets
- multinational organizations, such as the World Bank
- the U.S. government, its agencies and instrumentalities
Under normal market conditions, the fund invests at least 65% of assets in
fixed-income securities of issuers located in at least three countries,
including the U.S.
The portfolio managers base their investment decisions on fundamental market
factors, currency trends and credit quality. The fund generally invests in
countries where the combination of fixed-income returns and currency exchange
rates appears attractive, or, if the currency trend is unfavorable, where the
managers believe the currency risk can be reduced through hedging.
PORTFOLIO INVESTMENTS
This fund may invest in all types of fixed-income securities, including:
- corporate bonds, debentures and notes
- convertible debt securities
- preferred stocks
- government securities
- municipal securities
- mortgage-backed securities
- repurchase agreements involving portfolio securities
The fund may purchase securities denominated in foreign currencies or in U.S.
dollars.
The fund may invest up to:
- 40% of assets in securities of issuers located in any single foreign country
- 35% of net assets in fixed-income securities rated below investment grade
(junk bonds)
- 25% of assets in the securities of any one foreign government, its agencies,
instrumentalities and political subdivisions
- 20% of assets in equity securities, including common stocks, warrants and
rights
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
- market risk
- interest-rate risk
- credit risk
- foreign securities
- non-diversified status
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
either principal or interest to the fund.
International investing, particularly in emerging markets, carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Compared to a diversified mutual fund, a non-diversified fund may invest a
greater portion of its assets in the securities of fewer issuers. Because the
22
<PAGE> 22
fund is non-diversified, its share price and yield might fluctuate more than
they would for a diversified fund.
To the extent that the fund invests in junk bonds and securities of start-up
and other small companies, it takes on further 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
Charles C. Van Vleet manages the fund's investment portfolio. You can find
out more about him in "Meet the Managers."
INVESTOR EXPENSES
Management fee .43%
All other expenses .52%
-----------
Total expenses .95%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97 10/96 10/95
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.62 $10.91 $11.17 $11.04 $10.45
- ---------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.52 0.58 0.54 0.62 0.99
Net gains (losses) on investments and foreign
currency-related items (both realized and
unrealized) (0.29) (0.16) 0.08 0.57 0.09
- ---------------------------------------------------------------------------------------------------
Total from investment activities 0.23 0.42 0.62 1.19 1.08
- ---------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income (0.59) (0.71) (0.34) (1.06) (0.49)
Dividends in excess of net investment income (0.01) 0.00 0.00 0.00 0.00
Distributions from realized capital gains 0.00 0.00 (0.54) 0.00 0.00
Return of capital 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------
Total dividends and distributions (0.60) (0.71) (0.88) (1.06) (0.49)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of year $10.25 $10.62 $10.91 $11.17 $11.04
- ---------------------------------------------------------------------------------------------------
Total return 2.18% 4.10% 5.76% 11.35% 10.65%
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $135,327 $154,131 $194,731 $131,072 $63,641
Ratio of expenses to average net assets 0.96%* 0.95%* 0.96%* 0.95%* 0.95%
Ratio of net income to average net assets 5.00% 5.21% 5.40% 6.78% 8.18%
Decrease reflected in above operating ratios
due to waivers/reimbursements 0.57% 0.46% 0.39% 0.56% 0.63%
Portfolio turnover rate 365.02% 233.73% 202.92% 123.90% 128.70%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' net expense ratio by .01%, .00%, .01% and .00% for the years
ended October 31, 1999, 1998, 1997 and 1996, respectively. The Common Shares'
operating expense ratio after reflecting these arrangements was .95% for each
of the years ended October 31, 1999, 1998, 1997 and 1996, respectively.
23
<PAGE> 23
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 funds may use certain investment practices that have higher risks
associated with them. However, each 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 a 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.
EXTENSION RISK An unexpected rise in interest rates may extend the life of a
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
24
<PAGE> 24
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.
Bonds and other fixed-income securities generally involve less market risk
than stocks. However, the risk of bonds can vary significantly depending upon
factors such as issuer and maturity. The bonds of some companies may be riskier
than the stocks of others.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.
PREPAYMENT RISK Securities with high stated interest rates may be prepaid
prior to maturity. During periods of falling interest rates, a fund would
generally have to reinvest the proceeds at lower rates.
REGULATORY RISK Governments, agencies or other regulatory bodies may adopt or
change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.
VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.
YEAR 2000 PROCESSING RISK The inability of a computer system to distinguish
the year 2000 from the year 1900 (the "Year 2000 Issue") could cause
difficulties for system users after December 31, 1999. Although this date has
passed, the impact of the failure by companies or foreign markets in which the
funds invest to address the Year 2000 Issue effectively could continue to be
felt into 2000 and may negatively impact a fund's performance.
25
<PAGE> 25
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:
<TABLE>
<S> <C>
[X] Permitted without limitation; does not
indicate actual use
/20%/ Italic type (e.g., 20%) represents an
investment limitation as a percentage of
NET fund assets; does not indicate actual
use
20% Roman type (e.g., 20%) represents an
investment limitation as a percentage of
TOTAL fund assets; does not indicate
actual use
[ ] Permitted, but not expected to be used to
a significant extent
- -- Not permitted
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE NEW FIXED GLOBAL
MATURITY YORK INCOME FIXED
GOV'T INTERMEDIATE FUND INCOME
FUND MUNICIPAL FUND
FUND
- --------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 30% 30% 30% 30%
- --------------------------------------------------------------------------------------------------------
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 currency
rates.(1) Correlation, credit, currency, hedged exposure,
liquidity, political, speculative exposure, valuation
risks.(2) -- -- [X] [X]
- --------------------------------------------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be
relatively less developed or industrialized. Emerging
markets often face economic problems that could subject a
fund to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws
could expose a fund to risks beyond those generally
encountered in developed countries. Access, currency,
information, liquidity, market, operational, political,
valuation risks. -- -- [ ] [X]
- --------------------------------------------------------------------------------------------------------
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable a fund to hedge against or speculate on future
changes in currency values, interest rates, securities or
stock indexes. Futures obligate the fund (or give it the
right, in the case of options) to receive or make payment at
a specific future time based on those future changes.(1)
Correlation, currency, hedged exposure, interest-rate,
market, speculative exposure risks.(2) [ ] [ ] [ ] [ ]
- --------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. Currency, information,
liquidity, market, political, valuation risks. -- -- [X] [X]
- --------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 26
<TABLE>
<CAPTION>
INTERMEDIATE NEW FIXED GLOBAL
MATURITY YORK INCOME FIXED
GOV'T INTERMEDIATE FUND INCOME
FUND MUNICIPAL FUND
FUND
- --------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), or other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks. [X] [X] [X] [X]
- --------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES Debt obligations issued by or on behalf
of states, territories and possessions of the U.S. and the
District of Columbia and their political subdivisions,
agencies and instrumentalities. Municipal securities may be
affected by uncertainties regarding their tax status,
legislative changes or rights of municipal-securities
holders. Credit, interest-rate, market, regulatory risks. -- [X] [X] [X]
- --------------------------------------------------------------------------------------------------------
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. -- -- /35%/ /35%/
- --------------------------------------------------------------------------------------------------------
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% 25%
- --------------------------------------------------------------------------------------------------------
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests. Credit,
interest-rate, market risks. -- -- [ ] [ ]
- --------------------------------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. Liquidity, market, valuation
risks. /15%/ /15%/ /15%/ /15%/
- --------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 27
<TABLE>
<CAPTION>
INTERMEDIATE NEW FIXED GLOBAL
MATURITY YORK INCOME FIXED
GOV'T INTERMEDIATE FUND INCOME
FUND MUNICIPAL FUND
FUND
- --------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES LENDING Lending portfolio securities to financial
institutions; a fund receives cash, U.S. government
securities or bank letters of credit as collateral. Credit,
liquidity, market, operational risks. 33 1/3% 33 1/3% 33 1/3% 33 1/3%
- --------------------------------------------------------------------------------------------------------
START-UP AND OTHER SMALL COMPANIES Companies with small
relative market capitalizations, including those with
continuous operations of less than three years. Information,
liquidity, market, valuation risks. [x] [x] [x] [x]
- --------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS Swaps, structured securities and
other instruments that allow a fund to gain access to the
performance of a benchmark asset (such as an index or
selected stocks) that may be more attractive or accessible
than the fund's direct investment. 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. -- -- /10%/ /10%/
- --------------------------------------------------------------------------------------------------------
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. [X] [X] 20% 20%
- --------------------------------------------------------------------------------------------------------
ZERO-COUPON BONDS Debt securities that pay no cash income to
holders until maturity and are issued at a discount from
maturity value. At maturity, the entire return comes from
the difference between purchase price and maturity value.
Interest-rate, market risks. [X] [X] [X] [X]
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) The funds are 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) Each 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.
28
<PAGE> 28
MEET THE MANAGERS
[Parente Photo]
SHARON B. PARENTE
Managing Director
- Co-Portfolio Manager, New York Intermediate Municipal Fund since 1992
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus Asset Management, Inc. (Warburg Pincus)
- With Warburg Pincus since 1992
[VAN DAALEN PHOTO]
M. ANTHONY E. van DAALEN, CFA
Director
- Portfolio Manager, Intermediate Maturity Government Fund since 1992
- Portfolio Manager, Fixed Income Fund since 1992
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1992
[VAN VLEET PHOTO]
CHARLES C. VAN VLEET
Director
- Portfolio Manager, Global Fixed Income Fund since May 1998
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1998
- Senior vice president and senior global strategist with Putnam Investment
Management, 1994 to 1998
[BITTNER PHOTO]
PATRICK A. BITTNER, CFA
Vice President
- Co-Portfolio Manager, New York Intermediate Municipal Fund since 1998
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1994
Job titles indicate position with the investment adviser.
29
<PAGE> 29
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) (usually 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.
Each 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/Trustees
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/ Trustees 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 a 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
funds. You will find information about purchases, redemptions, exchanges and
services.
Each 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 funds have authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the fund and will be priced at the next-computed NAV.
Financial-services firms may charge transaction fees or other fees that you
could avoid by investing directly with the fund. Please read their program
materials for any special provisions or additional service features that may
apply to your investment. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
Some of the firms through which the funds are available include:
- Charles Schwab & Co., Inc. Mutual Fund OneSource(R) service
- Fidelity Brokerage Services, Inc. FundsNetwork(TM) Program
- Waterhouse Securities, Inc.
30
<PAGE> 30
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.
Each fund may earn dividends from stocks and interest from bond, money-
market and other investments. These are passed along as dividend distributions.
A 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 Intermediate Maturity Government, New York Intermediate Municipal, and
Fixed Income funds declare dividend distributions daily and pay them monthly.
The Global Fixed Income Fund declares dividend distributions quarterly. The
funds typically distribute capital gains annually, usually in December.
Most investors have their distributions reinvested in additional shares of
the same 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 a 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 a 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 a fund, whether reinvested or taken in cash,
are generally considered taxable. However, any interest that the New York
Intermediate Municipal Fund receives that is federally tax-free remains tax-free
when it is distributed to you. Gain on the sale of tax-free securities results
in taxable distributions.
Distributions from a fund's long-term capital gains are taxed as long-term
capital gains, regardless of how long you have held fund shares. Distributions
from other sources (including a fund's short-term capital gains) are generally
taxed as ordinary income.
31
<PAGE> 31
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.
Intermediate Maturity Government Fund--Special Tax Matters
Depending on provisions in your state's tax law, the portion of a fund's
income derived from U.S. government and agency obligations may be exempt from
state and local taxes.
New York Intermediate Municipal Fund--Special Tax Matters
The New York Intermediate Municipal Fund intends to pay federally tax-exempt
distributions derived from qualifying municipal securities. To the extent that
the fund's dividend distributions are derived from state tax-free investments,
they will be free from New York state and City personal income taxes. Corporate
taxpayers should note that the fund's distributions are not exempt from New York
state and City franchise or corporate income taxes.
Some income from the fund that is exempt from federal tax may be subject to
state and local income taxes. In addition, the fund may invest a portion of its
assets in securities that generate income that is not exempt from federal or
state income tax.
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.
32
<PAGE> 32
OTHER INFORMATION
ABOUT THE DISTRIBUTOR
Provident Distributors, Inc. (PDI), located at Four Falls Corporate Center,
West Conshohocken, PA 19428-2961, is the funds' distributor and is responsible
for making the funds available to you. PDI is not affiliated with CSAM.
33
<PAGE> 33
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34
<PAGE> 34
FOR MORE INFORMATION
More information about these funds 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 funds, 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 Intermediate
Maturity Government Fund 811-05600
Warburg Pincus New York
Intermediate Municipal Fund 811-04964
Warburg Pincus Fixed
Income Fund 811-05039
Warburg Pincus Global Fixed
Income Fund 811-06143
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR WPBDF-1-0200
<PAGE> 35
[Warburg Pincus Logo] [CREDIT SUISSE ASSET MANAGEMENT LOGO]
PROSPECTUS
Advisor Class
February 29, 2000
WARBURG PINCUS
INTERMEDIATE MATURITY GOVERNMENT FUND
-
WARBURG PINCUS
FIXED INCOME FUND
-
WARBURG PINCUS
GLOBAL FIXED INCOME FUND
As with all mutual funds, the Securities and Exchange
Commission has not approved these funds, nor has it passed
upon the adequacy or accuracy of this Prospectus. It is a
criminal offense to state otherwise.
Warburg Pincus Advisor Funds are advised by Credit Suisse
Asset Management, LLC.
<PAGE> 36
CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goals and Principal Strategies.................. 4
Investor Profile................................ 4
A Word About Risk............................... 5
PERFORMANCE SUMMARY............... ................ 8
Year-by-Year Total Returns...................... 8
Average Annual Total Returns.................... 9
INVESTOR EXPENSES................ ................. 12
Fees and Fund Expenses.......................... 12
Example......................................... 13
THE FUNDS IN DETAIL............... ................ 14
The Management Firm............................. 14
Multi-Class Structure........................... 14
Fund Information Key............................ 15
INTERMEDIATE MATURITY GOVERNMENT FUND...... ....... 16
FIXED INCOME FUND................ ................. 18
GLOBAL FIXED INCOME FUND............. ............. 20
MORE ABOUT RISK................. .................. 22
Introduction.................................... 22
Types of Investment Risk........................ 22
Certain Investment Practices.................... 24
MEET THE MANAGERS................ ................. 27
ABOUT YOUR ACCOUNT................ ................ 28
Share Valuation................................. 28
Account Statements.............................. 28
Distributions................................... 28
Taxes........................................... 29
OTHER INFORMATION................ ................. 31
About the Distributor........................... 31
BUYING SHARES.................. ................... 32
SELLING SHARES.................. .................. 34
SHAREHOLDER SERVICES............... ............... 36
OTHER POLICIES.................. .................. 37
FOR MORE INFORMATION............... ............... back cover
</TABLE>
3
<PAGE> 37
KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
FUND/RISK FACTORS GOAL STRATEGIES
- -----------------------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE MATURITY As high a level of -- Invests in securities of the
GOVERNMENT FUND current income as is U.S. government and its agencies
Risk factors: consistent with the and instrumentalities
Market risk preservation of capital -- Normally maintains a weighted-
Interest-rate risk average portfolio maturity of
between three and 10 years
- -----------------------------------------------------------------------------------
FIXED INCOME FUND To generate high current -- Invests in fixed-income
Risk factors: income consistent with securities denominated primarily
Market risk reasonable risk and, in U.S. dollars
Interest-rate risk secondarily, capital -- Normally maintains a weighted-
Credit risk appreciation average portfolio maturity of
10 years or less
-- Favors investment-grade
securities, but may diversify
credit quality in pursuit of
its goal
- -----------------------------------------------------------------------------------
GLOBAL FIXED INCOME To maximize total -- Invests in U.S. and foreign
FUND investment return fixed- income securities
Risk factors: consistent with prudent denominated in various
Market risk investment management, currencies
Interest-rate risk consisting of a -- Favors investment-grade
Credit risk combination of interest securities, but may diversify
Foreign securities income, currency gains credit quality in pursuit of
Non-diversified and capital appreciation its goal
status -- Investment decisions are based
on fundamental market factors,
currency trends and credit
quality.
- -----------------------------------------------------------------------------------
</TABLE>
INVESTOR PROFILE
THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
-- are seeking investment income
-- are looking for higher potential returns than money-market funds and are
willing to accept moderate risk and volatility
-- want to diversify their portfolios with fixed-income funds
THEY MAY NOT BE APPROPRIATE IF YOU:
-- are investing for maximum return over a long time horizon
-- require stability of your principal
You should base your selection of a fund on your own goals, risk preferences
and time horizon.
4
<PAGE> 38
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.
Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund. As with any
mutual fund, you could lose money over any period of time.
Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
CREDIT RISK
Fixed Income Fund, Global Fixed
Income Fund
The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation.
FOREIGN SECURITIES
Global Fixed Income Fund
A fund that invests in foreign securities 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 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.
INTEREST-RATE RISK
All funds
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.
MARKET RISK
All funds
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments--including stocks
and bonds, and the mutual funds that invest in them.
5
<PAGE> 39
Bonds and other fixed-income securities generally involve less market risk
than stocks. The risk of bonds can vary significantly depending upon factors
such as issuer and maturity. The bonds of some companies may be riskier than the
stocks of others.
NON-DIVERSIFIED STATUS
Global Fixed Income Fund
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.
6
<PAGE> 40
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7
<PAGE> 41
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in these funds. The bar chart shows you how each fund's
performance has varied from year to year for up to 10 years. The table compares
each fund's performance over time to that of a broadly based securities market
index and other indexes, if applicable. As with all mutual funds, past
performance is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
INTERMEDIATE MATURITY
YEAR ENDED 12/31: GOVERNMENT FUND
- ----------------- ---------------------
<S> <C>
1997
1998 7.87%
1999 -0.78%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: 4.62% (Q3 98)
Worst quarter: -0.73% (Q2 99)
Inception date: 8/15/97
<TABLE>
<CAPTION>
YEAR ENDED 12/31: FIXED INCOME FUND
- ----------------- -----------------
<S> <C>
1997 8.53%
1998 6.14%
1999 -0.3%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: 3.05% (Q2 97)
Worst quarter: -0.57% (Q2 99)
Inception date: 7/3/96
<TABLE>
<CAPTION>
YEAR ENDED 12/31: GLOBAL FIXED INCOME FUND
- ----------------- ------------------------
<S> <C>
1997 1.77%
1998 7.83%
1999 -0.38%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: 3.31% (Q3 98)
Worst quarter: -2.70% (Q4 97)
Inception date 8/12/96
8
<PAGE> 42
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/99: 1999 1995-1999 1990-1999 FUND DATE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERMEDIATE MATURITY GOVERNMENT
FUND -0.78% N/A N/A 4.30% 8/15/97
- -------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT BOND INDEX(1) 0.48% N/A N/A 7.58%(2)
- -------------------------------------------------------------------------------------------
FIXED INCOME FUND -0.30% N/A N/A 5.69% 7/3/96
- -------------------------------------------------------------------------------------------
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX(3) 0.38% N/A N/A 7.72%(4)
- -------------------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND -0.38% N/A N/A 4.22% 8/12/96
- -------------------------------------------------------------------------------------------
SALOMON BROTHERS WORLD
GOVERNMENT BOND INDEX
(CURRENCY-HEDGED)(5) 1.32% N/A N/A 8.70%(6)
- -------------------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE BOND
INDEX(7) -0.82% N/A N/A 7.85%(6)
- -------------------------------------------------------------------------------------------
COMPOSITE BENCHMARK(8) 0.97% N/A N/A 9.16%(6)
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
(with no defined investment objective) of intermediate-term government
bonds, and is calculated by Lehman Brothers Inc.
(2) Performance since July 31, 1997.
(3) The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index (with no defined investment objective) of intermediate-term
government and corporate bonds, and is calculated by Lehman Brothers Inc.
(4) Performance since June 30, 1996.
(5) The Salomon Brothers World Government Bond Index (Currency-Hedged) is a
market capitalization-weighted index designed to track major government debt
markets and is currency-hedged into U.S. dollars.
(6) Performance since July 31, 1996.
(7) The Lehman Brothers Aggregate Bond Index is composed of the Lehman
Government/Corporate Bond Index and the Lehman Mortgage-Backed Securities
Index. The Aggregate Index includes U.S. Treasury and agency issues,
corporate bond issues and mortgage-backed securities rated investment-grade
or higher by Moody's Investors Service, Standard & Poor's Corporation or
Fitch Investors' Service.
(8) The Composite Benchmark measures the weighted performance of three component
indexes. The weights of the component indexes -- 50% Lehman Aggregate Bond
Index, 35% Salomon Brothers World Government Bond Index excluding the U.S.
(Currency-Hedged), and 15% Merrill Lynch High Yield Master II
Index -- correspond to the investment strategy of the fund's managers. The
Merrill Lynch High Yield Master II Index provides a broad-based measure of
the performance of the non-investment-grade U.S. domestic bond market.
9
<PAGE> 43
UNDERSTANDING PERFORMANCE
-- TOTAL RETURN tells you how much an investment in a fund has changed in
value over a given time period. It assumes that all dividends and
capital gains (if any) were reinvested in additional shares. The change
in value can be stated either as a cumulative return or as an average
annual rate of return.
-- A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.
-- An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what constant annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, assuming you held it for the entire
period.
-- Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.
10
<PAGE> 44
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11
<PAGE> 45
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 for the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
INTERMEDIATE GLOBAL
MATURITY FIXED FIXED
GOVERNMENT INCOME INCOME
FUND FUND FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(paid directly from your investment)
- -------------------------------------------------------------------------------------------
Sales charge "load" on purchases NONE NONE NONE
- -------------------------------------------------------------------------------------------
Deferred sales charge "load" NONE NONE NONE
- -------------------------------------------------------------------------------------------
Sales charge "load" on reinvested distributions NONE NONE NONE
- -------------------------------------------------------------------------------------------
Redemption fees NONE NONE NONE
- -------------------------------------------------------------------------------------------
Exchange fees NONE NONE NONE
- -------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
- -------------------------------------------------------------------------------------------
Management fee .50% .50% 1.00%
- -------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee .25% .25% .50%
- -------------------------------------------------------------------------------------------
Other expenses .41% .31% .44%
- -------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.16% 1.06% 1.94%
- -------------------------------------------------------------------------------------------
</TABLE>
* Fee waivers and expense reimbursements or credits reduced expenses for the
funds during 1999 but may be discontinued at any time. Actual fees and
expenses for the fiscal year ended October 31, 1999 are shown below:
<TABLE>
<CAPTION>
INTERMEDIATE GLOBAL
MATURITY FIXED FIXED
EXPENSES AFTER WAIVERS GOVERNMENT INCOME INCOME
AND REIMBURSEMENTS FUND FUND FUND
<S> <C> <C> <C>
Management fee .23% .46% .43%
Distribution and service (12b-1) fee .25% .25% .50%
Other expenses .37% .29% .52%
---- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES .85% 1.00% 1.45%
</TABLE>
12
<PAGE> 46
EXAMPLE
This example may help you compare the cost of investing in these funds 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, each 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 FIVE YEARS 10 YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERMEDIATE MATURITY GOVERNMENT FUND $118 $368 $638 $1,409
- ----------------------------------------------------------------------------------------
FIXED INCOME FUND $108 $337 $585 $1,294
- ----------------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND $197 $609 $1,047 $2,264
- ----------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 47
THE FUNDS IN DETAIL
THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
-- Investment adviser for the funds
-- Responsible for managing each fund's assets according to its goal and
strategies
-- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse Group (Credit Suisse), one of
the world's leading banks
-- Credit Suisse Asset Management companies manage approximately $72 billion in
the U.S. and $203 billion globally
-- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those
in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw
and Zurich) are not registered with the U.S. Securities and Exchange
Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this Prospectus.
MULTI-CLASS STRUCTURE
Each fund offers two classes of shares, Common and Advisor. This Prospectus
offers the Advisor Class of shares, which are sold through financial-services
firms.
The Common Class of each fund is described in a separate prospectus.
14
<PAGE> 48
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin 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 adviser to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Actual fund expenses for the 1999 fiscal year. Future expenses may be higher
or lower.
-- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the fund. Expressed as a percentage of average net
assets after waivers.
-- DISTRIBUTION AND SERVICE (12b-1) FEES Fees paid by the fund to the
distributor for making shares of the fund available to you. Expressed as a
percentage of average net assets.
-- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.
FINANCIAL HIGHLIGHTS
A table showing the fund's audited financial performance for up to five
years.
-- TOTAL RETURN How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.
-- PORTFOLIO TURNOVER An indication of trading frequency. The funds may sell
securities without regard to the length of time they have been held. A high
turnover rate may increase a fund's transaction costs and negatively affect
its performance. Portfolio turnover may also result in capital-gain
distributions that could raise your income-tax liability.
The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.
15
<PAGE> 49
INTERMEDIATE MATURITY
GOVERNMENT FUND
GOAL AND STRATEGIES
The Intermediate Maturity Government Fund seeks as high a level of current
income as is consistent with the preservation of capital. To pursue this goal,
it invests in securities of the U.S. government and its agencies and
instrumentalities.
The fund's weighted-average maturity will typically be between three and
10 years.
PORTFOLIO INVESTMENTS
Under normal market conditions, the fund will invest at least 65% of assets
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These may include:
-- U.S. Treasury obligations
-- mortgage-backed securities such as Ginnie Maes and Fannie Maes
-- government-agency obligations such as those of the Small Business
Administration
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
-- market risk
-- interest-rate risk
As with most income funds, share price, yield and total return generally will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including U.S.
government and mortgage-backed securities). To the extent that the fund invests
in mortgage-backed securities, it may also be subject to extension and
prepayment risks. These risks are defined in "More About Risk."
Other factors may affect the market price and yield of the fund's securities,
including investor demand and domestic and world-wide economic conditions.
The credit risk of the fund's securities will depend primarily on whether or
not the securities are guaranteed by the U.S. government. To the extent the fund
invests in securities guaranteed by the U.S. government, credit risk for this
fund is expected to be low. However, the U.S. government does not guarantee the
market value or the current yield of government securities, nor does any
government guarantee extend to the fund itself.
"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
M. Anthony E. van Daalen manages the fund's investment portfolio. You can
find out more about him in "Meet the Managers."
INVESTOR EXPENSES
Management fee .23%
Distribution and service
(12b-1) fee .25%
All other expenses .37%
--------
Total expenses .85%
16
<PAGE> 50
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER-SHARE DATA
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.38 $10.06 $9.95
- ------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.51 0.53 0.11
Net gains (losses) on investments and foreign
currency related items (both realized and
unrealized) (0.55) 0.32 0.11
- ------------------------------------------------------------------------------------------------
Total from investment activities (0.04) 0.85 0.22
- ------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income (0.51) (0.53) (0.11)
Distributions from realized capital gains (0.05) 0.00 0.00
Distributions in excess of realized capital gains (0.01) 0.00 0.00
- ------------------------------------------------------------------------------------------------
Total dividends and distributions (0.57) (0.53) (0.11)
- ------------------------------------------------------------------------------------------------
Net asset value, end of year $9.77 $10.38 $10.06
- ------------------------------------------------------------------------------------------------
Total return (0.39)% 8.99% 2.22%(2)
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) $20 $12 $2
Ratio of expenses to average net assets 0.86%(3) 0.85%(3) 0.85%(3,4)
Ratio of net income to average net assets 5.08% 5.28% 5.62%(4)
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 0.30% 3.30% 0.00%(4)
Portfolio turnover rate 91.13% 133.98% 104.34%(2)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Period August 15, 1997 (Commencement of Operations) through October
31, 1997.
(2) Not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the Advisor Class shares' expense ratio by .01%, .00% and .00% for the years
or period ended October 31, 1999, 1998 and 1997, respectively. The Advisor
Class shares' operating expense ratio after reflecting these arrangements
was .85% for the years or period ended October 31, 1999, 1998 and 1997,
respectively.
(4) Annualized.
17
<PAGE> 51
FIXED INCOME FUND
GOAL AND STRATEGIES
The Fixed Income Fund seeks to generate high current income consistent with
reasonable risk and, secondarily, capital appreciation. To pursue these goals,
it invests in fixed-income securities.
Under normal market conditions:
-- at least 65% of the fund's fixed-income securities will be investment grade
-- the fund will maintain a weighted-average maturity of 10 years or less
PORTFOLIO INVESTMENTS
Under normal market conditions, this fund invests at least 65% of assets in
fixed-income securities such as:
-- corporate bonds, debentures and notes
-- convertible debt securities
-- preferred stocks
-- government securities
-- municipal securities
-- mortgage-backed securities
-- repurchase agreements involving portfolio securities
The fund may invest:
-- without limit in U.S. dollar-denominated, investment-grade foreign
securities
-- up to 35% of assets in non-dollar-denominated foreign securities
-- up to 35% of assets in fixed-income securities rated below investment grade
(junk bonds)
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
-- market risk
-- interest-rate risk
-- credit risk
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
principal or interest to the fund.
To the extent that it invests in certain securities, the fund may be affected
by additional risks:
-- mortgage-backed securities: extension and prepayment risks
-- junk bonds: above-average credit, information, liquidity, market and
valuation risks
-- foreign securities: currency, information and political risks
-- start-up and other small companies: information and liquidity risks
Junk bonds are considered speculative with respect to the issuer's continuing
ability to meet principal and interest payments. In the event of a payment
problem by an issuer of junk bonds, more senior debt (such as bank loans and
investment-grade bonds) will likely be paid a greater portion of any payment
made by the issuer.
These risks are defined in "More About Risk." That section also details
certain other investment practices the
18
<PAGE> 52
fund may use. Please read "More About Risk" carefully before you invest.
PORTFOLIO MANAGEMENT
M. Anthony E. van Daalen manages the fund's investment portfolio. You can
find out more about him in "Meet the Managers."
INVESTOR EXPENSES
Management fee .46%
Distribution and service (12b-1) fee .25%
All other expenses .29%
------------
Total expenses 1.00%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97 10/96(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.41 $10.43 $10.10 $9.90
- ---------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.54 0.56 0.60 0.19
Net gains (losses) on investments and
foreign currency related items (both
realized and unrealized) (0.48) 0.07 0.33 0.20
- ---------------------------------------------------------------------------------------------
Total from investment activities 0.06 0.63 0.93 0.39
- ---------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income (0.54) (0.56) (0.60) (0.19)
Distributions from realized capital gains (0.04) (0.09) 0.00 0.00
- ---------------------------------------------------------------------------------------------
Total dividends and distributions (0.58) (0.65) (0.60) (0.19)
- ---------------------------------------------------------------------------------------------
Net asset value, end of year $9.89 $10.41 $10.43 $10.10
- ---------------------------------------------------------------------------------------------
Total return 0.67% 6.21% 9.51% 3.93%(2)
- ---------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $6,817 $3,058 $3,963 $911
Ratio of expenses to average net assets 1.01%(3) 1.00%(3) 1.00%(3) 1.00%(3,4)
Ratio of net income to average net assets 5.38% 5.40% 5.62% 5.85%(4)
Decrease reflected in above operating ratios
due to waivers/reimbursements 0.05% 0.04% 0.08% 0.11%(4)
Portfolio turnover rate 144.02% 124.04% 129.06% 194.23%(2)
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) For the Period July 3, 1996 (Commencement of Operations) through October 31,
1996.
(2) Not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the Advisor Class shares' net expense ratio by .01%, .00%, .00% and .00% for
the years or period ended October 31, 1999, 1998, 1997 and 1996,
respectively. The Advisor Class shares' operating expense ratio after
reflecting these arrangements was 1.00% for the years or period ended
October 31, 1999, 1998, 1997 and 1996, respectively.
(4) Annualized.
19
<PAGE> 53
GLOBAL FIXED INCOME FUND
GOAL AND STRATEGIES
The Global Fixed Income Fund seeks to maximize total investment return
consistent with prudent investment management, consisting of a combination of
interest income, currency gains and capital appreciation. To pursue this goal,
the fund invests in fixed-income securities of U.S. and foreign issuers
including:
-- foreign governments and companies, including those in emerging markets
-- multinational organizations, such as the World Bank
-- the U.S. government, its agencies and instrumentalities
Under normal market conditions, the fund invests at least 65% of assets in
fixed-income securities of issuers located in at least three countries,
including the U.S.
The portfolio managers base their investment decisions on fundamental market
factors, currency trends and credit quality. The fund generally invests in
countries where the combination of fixed-income returns and currency exchange
rates appears attractive, or, if the currency trend is unfavorable, where the
managers believe the currency risk can be reduced through hedging.
PORTFOLIO INVESTMENTS
This fund may invest in all types of fixed-income securities, including:
-- corporate bonds, debentures and notes
-- convertible debt securities
-- preferred stocks
-- government securities
-- municipal securities
-- mortgage-backed securities
-- repurchase agreements involving portfolio securities
The fund may purchase securities denominated in foreign currencies or in U.S.
dollars.
The fund may invest up to:
-- 40% of assets in securities of issuers located in any single foreign country
-- 35% of net assets in fixed-income securities rated below investment grade
(junk bonds)
-- 25% of assets in the securities of any one foreign government, its agencies,
instrumentalities and political subdivisions
-- 20% of assets in equity securities, including common stocks, warrants and
rights
To a limited extent, the fund may also engage in other investment practices.
RISK FACTORS
This fund's principal risk factors are:
-- market risk
-- interest-rate risk
-- credit risk
-- foreign securities
-- non-diversified status
You should expect fluctuations in share price, yield and total return,
particularly with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed-income securities. There is also
the risk that an issuer of a debt security will fail to make timely payments of
either principal or interest to the fund.
International investing, particularly in emerging markets, carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Compared to a diversified mutual fund, a non-diversified fund may invest a
greater portion of its assets in the securities of fewer issuers. Because the
20
<PAGE> 54
fund is non-diversified, its share price and yield might fluctuate more than
they would for a diversified fund.
To the extent that the fund invests in junk bonds and securities of start-up
and other small companies, it takes on further 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
Charles C. Van Vleet manages the fund's investment portfolio. You can find
out more about him in "Meet the Managers."
INVESTOR EXPENSES
Management fee .43%
Distribution and service
(12b-1) fee .50%
All other expenses .52%
------------
Total expenses 1.45%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98 10/97 10/96(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.57 $10.90 $11.17 $10.90
- ---------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.44(2) 0.37 0.41 0.10
Net gains (losses) on investments and foreign
currency related items (both realized and unrealized) (0.29) (0.02) 0.15 0.27
- ---------------------------------------------------------------------------------------------------
Total from investment activities 0.15 0.35 0.56 0.37
- ---------------------------------------------------------------------------------------------------
Less Dividends and Distributions:
Dividends from net investment income 0.00 (0.68) (0.29) (0.10)
Dividends in excess of net investment income (0.24) 0.00 0.00 0.00
Distributions from realized capital gains 0.00 0.00 (0.54) 0.00
- ---------------------------------------------------------------------------------------------------
Total dividends and distributions (0.24) (0.68) (0.83) (0.10)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of year $10.48 $10.57 $10.90 $11.17
- ---------------------------------------------------------------------------------------------------
Total return 1.41% 3.51% 5.18% 3.41%(3)
- ---------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $69 $6,518 $8,935 $39
Ratio of expenses to average net assets 1.45%(4) 1.45%(4) 1.45%(4) 1.45%(4,5)
Ratio of net income to average net assets 4.14% 4.75% 4.76% 5.69%(5)
Decrease reflected in above operations expense ratios
due to waivers/reimbursements 0.49% 0.37% 0.33% 0.21%(5)
Portfolio turnover rate 365.02% 233.73% 202.92% 123.90%(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Period August 12, 1996 (Commencement of Operations) through October
31, 1996.
(2) Per share information is calculated using the average outstanding shares
method.
(3) Not annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Advisor
Class shares' net expense ratio.
(5) Annualized.
21
<PAGE> 55
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 funds may use certain investment practices that have higher risks
associated with them. However, each 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 a 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.
EXTENSION RISK An unexpected rise in interest rates may extend the life of a
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
22
<PAGE> 56
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.
Bonds and other fixed-income securities generally involve less market risk
than stocks. However, the risk of bonds can vary significantly depending upon
factors such as issuer and maturity. The bonds of some companies may be riskier
than the stocks of others.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.
PREPAYMENT RISK Securities with high stated interest rates may be prepaid
prior to maturity. During periods of falling interest rates, a fund would
generally have to reinvest the proceeds at lower rates.
REGULATORY RISK Governments, agencies or other regulatory bodies may adopt or
change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.
VALUATION RISK The lack of an active trading market may make it difficult to
obtain an accurate price for a fund security.
YEAR 2000 PROCESSING RISK The inability of a computer system to distinguish
the year 2000 from the year 1900 (the "Year 2000 Issue") could cause
difficulties for system users after December 31, 1999. Although this date has
passed, the impact of the failure by companies or foreign markets in which the
funds invest to address the Year 2000 Issue effectively could continue to be
felt into 2000 and may negatively impact a fund's performance.
23
<PAGE> 57
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:
<TABLE>
<S> <C>
* 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>
<TABLE>
<CAPTION>
INTERMEDIATE FIXED GLOBAL
MATURITY INCOME FIXED
GOV'T FUND INCOME
FUND FUND
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 30% 30% 30%
- ------------------------------------------------------------------------------------------
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 currency
rates.(1) Correlation, credit, currency, hedged exposure,
liquidity, political, speculative exposure, valuation
risks.(2) -- * *
- ------------------------------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be
relatively less developed or industrialized. Emerging
markets often face economic problems that could subject a
fund to increased volatility or substantial declines in
value. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws
could expose a fund to risks beyond those generally
encountered in developed countries. Access, currency,
information, liquidity, market, operational, political,
valuation risks. -- ** *
- ------------------------------------------------------------------------------------------
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts
that enable a fund to hedge against or speculate on future
changes in currency values, interest rates, securities or
stock indexes. Futures obligate the fund (or give it the
right, in the case of options) to receive or make payment at
a specific future time based on those future changes.(1)
Correlation, currency, hedged exposure, interest-rate,
market, speculative exposure risks.(2) ** ** **
- ------------------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. Currency, information,
liquidity, market, political, valuation risks. -- * *
- ------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 58
<TABLE>
<CAPTION>
INTERMEDIATE FIXED GLOBAL
MATURITY INCOME FIXED
GOV'T FUND INCOME
FUND FUND
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), and other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks. * * *
- ------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES Debt obligations issued by or on behalf
of states, territories and possessions of the U.S. and the
District of Columbia and their political subdivisions,
agencies and instrumentalities. Municipal securities may be
affected by uncertainties regarding their tax status,
legislative changes or rights of municipal-securities
holders. Credit, interest-rate, market, regulatory risks. -- * *
- ------------------------------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below the fourth-highest grade (BBB/Baa) by Standard &
Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds.
Credit, information, interest-rate, liquidity, market,
valuation risks. -- /35%/ /35%/
- ------------------------------------------------------------------------------------------
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% 25%
- ------------------------------------------------------------------------------------------
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests. Credit,
interest-rate, market risks. -- ** **
- ------------------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. Liquidity, market, valuation
risks. /15%/ /15%/ /15%/
- ------------------------------------------------------------------------------------------
SECURITIES LENDING Lending portfolio securities to financial
institutions; a fund receives cash, U.S. government
securities or bank letters of credit as collateral. Credit,
liquidity, market, operational risks. 33 1/3% 33 1/3% 33 1/3%
- ------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 59
<TABLE>
<CAPTION>
INTERMEDIATE FIXED GLOBAL
MATURITY INCOME FIXED
GOV'T FUND INCOME
FUND FUND
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------
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 a fund to gain access to the
performance of a benchmark asset (such as an index or
selected stocks) that may be more attractive or accessible
than the fund's direct investment. 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. -- /10%/ /10%/
- ------------------------------------------------------------------------------------------
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% 20%
- ------------------------------------------------------------------------------------------
ZERO-COUPON BONDS Debt securities that pay no cash income to
holders until maturity and are issued at a discount from
maturity value. At maturity, the entire return comes from
the difference between purchase price and maturity value.
Interest-rate, market risks. * * *
- ------------------------------------------------------------------------------------------
</TABLE>
(1) The funds are 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) Each 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.
26
<PAGE> 60
MEET THE MANAGERS
[VAN DAALEN PHOTO]
M. ANTHONY E. VAN DAALEN, CFA
Director
- -- Portfolio Manager, Intermediate Maturity Government Fund since 1992
- -- Portfolio Manager, Fixed Income Fund since 1992
- -- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus Asset Management, Inc. (Warburg Pincus)
- -- With Warburg Pincus since 1992
[VAN VLEET PHOTO]
CHARLES C. VAN VLEET
Director
- -- Portfolio Manager, Global Fixed Income Fund since May 1998
- -- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- -- With Warburg Pincus since 1998
- -- Senior vice president and senior global strategist with Putnam Investment
Management, 1994 to 1998
Job titles indicate position with the investment adviser.
27
<PAGE> 61
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) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Advisor Class's total assets, less
its liabilities, by the number of Advisor Class shares outstanding.
Each 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/Trustees
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/ Trustees 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 a fund's portfolio investments to be affected by trading on
days when you cannot buy or sell shares.
ACCOUNT STATEMENTS
In general, you will receive account statements as follows:
-- after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)
-- after any changes of name or address of the registered owner(s)
-- otherwise, every calendar quarter
You will receive annual and semiannual financial reports.
DISTRIBUTIONS
As a fund investor, you will receive distributions.
Each fund may earn dividends from stocks and interest from bond, money market
and other investments. These are passed along as dividend distributions. A 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 Intermediate Maturity Government and Fixed Income funds declare dividend
distributions daily and pay them monthly. The Global Fixed Income Fund declares
dividend distributions quarterly. The funds typically distribute capital gains
annually, usually in December.
Most investors have their distributions reinvested in additional shares of
the same 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.
28
<PAGE> 62
TAXES
As with any investment, you should consider how your investment in a 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 a 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 a fund, whether reinvested or taken in cash,
are generally considered taxable.
Distributions from a fund's long-term capital gains are taxed as long-term
capital gains, regardless of how long you have held fund shares. Distributions
from other sources (including the fund's short-term capital gains) 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.
Intermediate Maturity Government Fund--Special Tax Matters
Depending on provisions in your state's tax law, the portion of a fund's
income derived from U.S. government and agency obligations may be exempt from
state and local taxes.
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.
29
<PAGE> 63
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30
<PAGE> 64
OTHER INFORMATION
ABOUT THE DISTRIBUTOR
Provident Distributors, Inc. (PDI), located at Four Falls Corporate Center,
West Conshohocken, PA 19428-2961, is the funds' distributor and is responsible
for making the funds available to you. PDI is not affiliated with CSAM.
Certain institutions and financial-services firms may offer Advisor Class
shares to their clients and customers (or participants in the case of retirement
plans). These firms provide distribution, administrative and shareholder
services for fund shareholders. Each fund has adopted Rule 12b-1
shareholder-servicing and distribution plans to compensate these firms for their
services. The current 12b-1 fee is .50% per annum of average daily net assets
for the Global Fixed Income Fund and .25% per annum of average daily net assets
for each of the Intermediate Maturity Government Fund and the Fixed Income Fund,
although under the 12b-1 plan each of the funds is authorized to pay up to .75%.
31
<PAGE> 65
BUYING SHARES
OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Institutional Shareholder Service Center
to receive one by mail or fax.
You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.
BUYING AND SELLING SHARES
The fund is open on those days when the NYSE is open, typically Monday
through Friday. If we receive your request in proper form by the close of the
NYSE (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 buy and sell fund shares through a variety of financial-services
firms such as banks, brokers and financial advisors. The funds have authorized
these firms (and other intermediaries that the firms may designate) to accept
orders. When an authorized firm or its designee has received your order, it is
considered received by the fund and will be priced at the next-computed NAV.
Financial-services firms may charge transaction fees or other fees that you
could avoid by investing directly with the funds. Please read their program
materials for any special provisions or additional service features that may
apply to your investment. Certain features of the funds, such as the minimum
initial or subsequent investment amounts, may be modified.
ADDING TO AN ACCOUNT
You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.
INVESTMENT CHECKS
Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Advisor Funds. Unfortunately, we cannot accept "starter" checks that do
not have your name pre-printed on them. We also cannot accept checks payable to
you or to another party and endorsed to the order of Warburg Pincus Advisor
Funds. These types of checks may be returned to you and your purchase order may
not be processed. Limited exceptions include properly endorsed government
checks.
32
<PAGE> 66
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------------------------
<S> <C>
BY CHECK
- ---------------------------------------------------------------------------------------
- -- Complete the Warburg Pincus Advisor -- Make your check payable to Warburg
Funds New Account Application. Pincus Advisor Funds.
- -- Make your check payable to Warburg -- Write the account number and the fund
Pincus Advisor Funds. name on your check.
- -- Write the fund name on the check. -- Mail to Warburg Pincus Advisor Funds.
- -- Mail to Warburg Pincus Advisor Funds.
- ---------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------
- -- Call our Institutional Shareholder -- Call our Institutional Shareholder
Service Center to request an exchange Service Center to request an exchange
from another Warburg Pincus fund or from another Warburg Pincus fund or
portfolio. Be sure to read the current portfolio.
Prospectus for the new fund or If you do not have telephone privileges,
portfolio. mail or fax a letter of instruction.
If you do not have telephone privileges,
mail or fax a letter of instruction.
- ---------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------
- -- Complete and sign the New Account -- Call our Institutional Shareholder
Application. Service Center by 4 p.m. ET to inform us
- -- Call our Institutional Shareholder of the incoming wire. Please be sure
Service Center and fax the signed New to specify the account registration,
Account Application by 4 p.m. ET. account number and the fund name on
- -- Institutional Services will telephone your wire advice.
you with your account number. Please -- Wire the money for receipt that day.
be sure to specify the account
registration, account number and the
fund name on your wire advice.
- -- Wire your initial investment for
receipt that day.
- -- Mail the original, signed application
to Warburg Pincus Advisor Funds.
- ---------------------------------------------------------------------------------------
BY ACH TRANSFER
- ---------------------------------------------------------------------------------------
- -- Cannot be used to open an account. -- Call our Institutional Shareholder
Service Center to request an ACH transfer
from your bank.
-- Your purchase will be effective at the
next NAV calculated after we receive your
order in proper form.
Requires ACH on Demand privileges.
- ----------------------------------------------------------------------------------------
</TABLE>
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY - FRIDAY, 8 A.M.-5 P.M. ET
33
<PAGE> 67
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 -- Sales of any amount.
includes:
- -- your name(s) and signature(s) or, if
redeeming on an investor's behalf, the
name(s) of the registered owner(s) and
the signature(s) of their legal
representative(s)
- -- the fund name and account number
- -- the dollar amount you want to sell
- -- how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling
Shares in Writing").
Mail the materials to Warburg Pincus
Advisor Funds.
If only a letter of instruction is
required, you can fax it to the
Institutional Shareholder Service Center
(unless a signature guarantee is
required).
- --------------------------------------------------------------------------------
BY EXCHANGE
- --------------------------------------------------------------------------------
- -- Call our Institutional Shareholder -- Accounts with telephone privileges.
Service Center to request an exchange If you do not have telephone privileges,
into another Warburg Pincus fund or mail or fax a letter of instruction to
portfolio. Be sure to read the current exchange shares.
Prospectus for the new fund or portfolio.
- --------------------------------------------------------------------------------
BY PHONE
- --------------------------------------------------------------------------------
Call our Institutional Shareholder -- Accounts with telephone privileges.
Service Center to request a redemption.
You can receive the proceeds as:
- -- a check mailed to the address of
record
- -- an ACH transfer to your bank
- -- a wire to your bank
See "By Wire or ACH Transfer" for
details.
- --------------------------------------------------------------------------------
BY WIRE OR ACH TRANSFER
- --------------------------------------------------------------------------------
- -- Complete the "Wire Instructions" or -- Requests by phone or mail.
"ACH on Demand" section of your New
Account Application.
- -- For federal-funds wires, proceeds will
be wired on the next business day. For
ACH transfers, proceeds will be
delivered within two business days.
- --------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 68
HOW TO REACH US
Institutional Shareholder Service Center
Toll free: 800-222-8977
Fax: 212-370-9833
Mail
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
Overnight/Courier Service
Boston Financial
Attn: Warburg Pincus Advisor Funds
66 Brooks Drive
Braintree, MA 02184
Internet Web Site
www.warburg.com
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Warburg Pincus Advisor Fund Name]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
-- accounts whose address of record has been changed within the past 30 days
-- redemptions in certain large accounts (other than by exchange)
-- requests to send the proceeds to a different payee or address
-- shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED SHARES
For fund shares purchased other than by bank wire, bank check, U.S. Treasury
check, certified check or money order, a fund will delay payment of your cash
redemption proceeds for 10 calendar days from the day of purchase. At any time
during this period, you may exchange into another fund.
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY - FRIDAY, 8 A.M.-5 P.M. ET
35
<PAGE> 69
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Institutional Shareholder Service Center.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments from a designated bank account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals.
TRANSFERS/GIFTS TO MINORS
Depending on state laws, you can set up a custodial account under the Uniform
Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please
consult your tax professional about these types of accounts.
ACCOUNT CHANGES
Call our Institutional Shareholder Service Center to update your account
records whenever you change your address. Institutional Shareholder Services
Center can also help you change your account information or privileges.
36
<PAGE> 70
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon as
your purchase order is executed.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:
-- your investment check or ACH transfer does not clear
-- you place a telephone order by 4 p.m. ET and we do not receive your wire
that day
If you wire money without first calling our Institutional Shareholder Service
Center to place an order, and your wire arrives after the close of regular
trading on the NYSE, then your order will not be executed until the end of the
next business day. In the meantime, your payment will be held uninvested. Your
bank or other financial-services firm may charge a fee to send or receive wire
transfers.
While we monitor telephone-servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
Each fund reserves the right to:
-- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
-- change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
-- impose minimum investment amounts after 15 days' notice to current investors
of any increases
-- charge a wire-redemption fee
-- make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations
-- suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)
-- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY - FRIDAY, 8 A.M.-5 P.M. ET
37
<PAGE> 71
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38
<PAGE> 72
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39
<PAGE> 73
FOR MORE INFORMATION
More information about these funds is available free upon request, including
the following:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed performance
information.
The Annual Report also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.
OTHER INFORMATION
A current Statement of Additional Information (SAI), which provides more
details about the funds, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
202-942-8090) or by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009 or electronically at
[email protected].
Please contact Warburg Pincus Advisor Funds to obtain information, without
charge, the SAI and Annual and Semiannual Reports and to make shareholder
inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Warburg Pincus Advisor Funds
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Warburg Pincus Advisor Funds
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBERS:
Warburg Pincus Intermediate
Maturity Government Fund 811-05600
Warburg Pincus Fixed
Income Fund 811-05039
Warburg Pincus Global Fixed
Income Fund 811-06143
[WARBURG PINCUS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 -- www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR ADBDF-1-0200
<PAGE> 74
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 29, 2000
WARBURG PINCUS FIXED INCOME FUND
WARBURG PINCUS GLOBAL FIXED INCOME FUND
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND
This combined Statement of Additional Information provides information about
Warburg Pincus Fixed Income Fund (the "Fixed Income Fund"), Warburg Pincus
Intermediate Maturity Government Fund (the "Intermediate Government Fund"),
Warburg Pincus New York Intermediate Municipal Fund (the "New York Municipal
Fund") and Warburg Pincus Global Fixed Income Fund (the "Global Fixed Income
Fund") (each a "Fund" and collectively, the "Funds") that supplements
information contained in the combined Prospectus for the Common Shares and the
combined Prospectus for the Advisor Shares of the Funds, each dated February 29,
2000.
Each Fund's audited annual report dated October 31, 1999, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectuses. Copies of the Prospectuses and the annual
report can be obtained by writing or telephoning:
Common Shares: Advisor Shares:
Warburg Pincus Funds Warburg Pincus Advisor Funds
P.O. Box 9030 P.O. Box 9030
Boston, MA 02205-9030 Boston, MA 02205-9030
800-WARBURG Attn: Institutional Services
800-222-8977
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES .................................................................... 1
General Investment Strategies ................................................................ 1
Options on Securities and Securities Indices and Currency Exchange Transactions .............. 1
Securities Options .................................................................. 1
Securities Index Options ............................................................ 4
OTC Options ......................................................................... 5
Currency Transactions ............................................................... 5
Hedging Generally ................................................................... 7
Asset Coverage for Forward Contracts, Options, Futures and Options on Futures ....... 8
Futures Activities ........................................................................... 9
Futures Contracts ................................................................... 9
Options on Futures Contracts ........................................................ 10
Money Market Obligations ..................................................................... 11
Temporary Defensive Strategies ...................................................... 12
Money Market Mutual Funds ........................................................... 12
Convertible Securities ....................................................................... 12
Structured Securities ........................................................................ 12
Mortgage-Backed Securities .......................................................... 12
Asset-Backed Securities ............................................................. 13
Structured Notes, Bonds or Debentures ............................................... 14
Assignments and Participations ...................................................... 14
Interest Rate, Index, Mortgage and Currency Swaps; Interest Rate Caps, Floors and Collars .... 16
Foreign Investments .......................................................................... 17
Foreign Currency Exchange ........................................................... 17
Euro Conversion ..................................................................... 18
Information ......................................................................... 18
Political Instability ............................................................... 18
Foreign Markets ..................................................................... 18
Increased Expenses .................................................................. 18
Dollar-Denominated Debt Securities of Foreign Issuers ............................... 18
Foreign Debt Securities ............................................................. 19
Privatizations ...................................................................... 19
Brady Bonds ......................................................................... 19
Depositary Receipts ................................................................. 20
U.S. Government Securities ................................................................... 20
Government Trust Certificates ................................................................ 20
Municipal Obligations ........................................................................ 21
Taxable Investments .......................................................................... 22
Alternative Minimum Tax Bonds ................................................................ 22
Securities of Other Investment Companies ..................................................... 23
Below Investment Grade Securities ............................................................ 23
</TABLE>
<PAGE> 76
<TABLE>
<S> <C>
Lending Portfolio Securities ................................................................. 24
Repurchase Agreements ........................................................................ 25
Reverse Repurchase Agreements and Dollar Rolls ............................................... 26
Zero Coupon Securities ....................................................................... 26
Government Zero Coupon Securities ............................................................ 27
Short Sales .................................................................................. 27
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers ..................... 28
"Special Situation" Companies ................................................................ 28
Variable Rate and Master Demand Notes ........................................................ 29
When-Issued Securities and Delayed-Delivery Transactions ..................................... 29
Stand-By Commitment Agreements ............................................................... 30
REITs ........................................................................................ 31
Warrants ..................................................................................... 31
Non-Publicly Traded and Illiquid Securities .................................................. 32
Rule 144A Securities ................................................................ 33
Borrowing .................................................................................... 33
Non-Diversified Status ....................................................................... 33
INVESTMENT RESTRICTIONS ............................................................................... 35
Fixed Income Fund ............................................................................ 35
Global Fixed Income Fund ..................................................................... 37
Intermediate Government Fund ................................................................. 38
New York Municipal Fund ...................................................................... 40
PORTFOLIO VALUATION ................................................................................... 42
PORTFOLIO TRANSACTIONS ................................................................................ 43
PORTFOLIO TURNOVER .................................................................................... 45
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS ..................................... 46
State Economy ................................................................................ 47
State Budget ................................................................................. 47
Debt Limits and Outstanding Debt ............................................................. 50
Litigation ................................................................................... 52
Authorities .................................................................................. 53
New York City and Other Localities ........................................................... 54
Year 2000 Compliance ......................................................................... 57
MANAGEMENT OF THE FUNDS ............................................................................... 58
Officers and Boards of Directors/Trustees .................................................... 58
Directors'/Trustees' Compensation ............................................................ 63
Portfolio Managers of the Funds .............................................................. 63
Investment Adviser and Co-Administrators ..................................................... 64
Custodian and Transfer Agent ................................................................. 66
Organization of the Funds .................................................................... 67
Distribution and Shareholder Servicing ....................................................... 68
</TABLE>
ii
<PAGE> 77
<TABLE>
<S> <C>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ........................................................ 70
EXCHANGE PRIVILEGE .................................................................................... 71
ADDITIONAL INFORMATION CONCERNING TAXES ............................................................... 71
The Funds and Their Investments .............................................................. 72
Special Tax Matters Regarding the Fixed Income Fund, Global Fixed Income Fund and Intermediate
Government Fund .............................................................................. 74
Special Tax Matters Regarding the Intermediate Government Fund ............................... 74
Special Tax Considerations Regarding the New York Municipal Fund ............................. 75
Passive Foreign Investment Companies ......................................................... 77
Dividends and Distributions .................................................................. 77
Sales of Shares .............................................................................. 78
Foreign Taxes ................................................................................ 79
Backup Withholding ........................................................................... 79
Notices ...................................................................................... 79
Other Taxation ............................................................................... 80
DETERMINATION OF PERFORMANCE .......................................................................... 80
INDEPENDENT ACCOUNTANTS AND COUNSEL ................................................................... 84
MISCELLANEOUS.......................................................................................... 84
FINANCIAL STATEMENTS................................................................................... 87
APPENDIX - DESCRIPTION OF RATINGS...................................................................... A-1
</TABLE>
iii
<PAGE> 78
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objective and policies in the Prospectuses. There are no
assurances that the Funds will achieve their investment objectives.
The investment objectives of the Fixed Income Fund are to
generate high current income consistent with reasonable risk and, secondarily,
capital appreciation.
The investment objective of the Global Fixed Income Fund is to
maximize total investment return consistent with prudent investment management,
consisting of a combination of interest income, currency gains and capital
appreciation.
The investment objective of the Intermediate Government Fund
is to achieve as high a level of current income as is consistent with the
preservation of capital.
The investment objective of the New York Municipal Fund is to
maximize current interest income exempt from federal income tax and New York
State and New York City personal income taxes to the extent consistent with
prudent investment management and the preservation of capital.
General Investment Strategies
Unless otherwise indicated, all of the Funds are permitted to
engage in the following investment strategies, subject to any percentage
limitations set forth below. Any percentage limitation on a 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 Funds are not obligated to pursue any of the following
strategies and do not represent that these techniques are available now or will
be available at any time in the future.
Options on Securities and Securities Indices and Currency Exchange Transactions
The Funds may purchase and write (sell) options on securities,
securities indices and currencies for hedging purposes or to increase total
return. Up to 25% of the Fund's total assets may be at risk in connection with
investing in options on securities, securities indices and, if applicable,
currencies. The amount of assets considered to be "at risk" in these
transactions is, in the case of purchasing options, the amount of the premium
paid, and, in the case of writing options, the value of the underlying
obligation.
Securities Options. Each Fund may write covered put and call
options on stock and debt securities and each Fund may purchase such options
that are traded on foreign and U.S. exchanges, as well as over-the-counter
("OTC") options. A 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
<PAGE> 79
writer of the option to sell to the option holder an underlying security at a
specified price for a specified time period or at a specified time.
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved from its use. However, for an option writer the exposure to adverse
price movements in the underlying security or index is potentially unlimited
during the exercise period. Writing securities options may result in substantial
losses to a Fund, force the sale or purchase of portfolio securities at
inopportune times or at less advantageous prices, limit the amount of
appreciation the Fund could realize on its investments or require the Fund to
hold securities it would otherwise sell.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). A Fund that
writes call options retains the risk of a decline in the price of the underlying
security. The size of the premiums that a Fund may receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by a 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, a 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 a 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.
2
<PAGE> 80
Options written by a 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. A Fund may write (i) in-the-money call options
when Credit Suisse Asset Management, LLC, each Fund's investment adviser
("CSAM"), expects that the price of the underlying security will remain flat or
decline moderately during the option period, (ii) at-the-money call options when
CSAM expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when CSAM expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be 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 a 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 a 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 a 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 a Fund under an option it has written
would be terminated by a closing purchase transaction (a 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
3
<PAGE> 81
purchase transaction. The Fund cannot effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Fund's ability to terminate options positions established in the OTC market
may be more limited than for exchange-traded options and may also involve the
risk that securities dealers participating in OTC transactions would fail to
meet their obligations to the Fund. The Fund, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by CSAM, are
considered to be investment grade. If, as a covered call option writer, a 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
Funds and other clients of CSAM and certain of its affiliates may be considered
to be such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions. These limits may restrict the number of options a Fund will be able
to purchase on a particular security.
Securities Index Options. A Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
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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. A 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 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 a 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, a 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 a Fund. Until
the Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Fund's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when such
sale might be advantageous.
Currency Transactions. (Fixed Income and Global Fixed Income
Funds only) The value in U.S. dollars of the assets of a 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 and may be entered into for hedging purposes
or to seek to enhance total return (speculation). A Fund will conduct its
currency exchange
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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.
Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.
At or before the maturity of a forward contract, a 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 a 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 a Fund. To the extent a 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 use of hedging
transactions.)
Currency Options. A 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. A Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. No Fund
may position hedge to an extent greater than the aggregate market value (at the
time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in
which a 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, a 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
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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, a Fund may purchase call options on the
particular currency. The purchase of these options could offset, at least
partially, the effects of the adverse movements in exchange rates. The benefit
to the Fund derived from purchases of currency options, like the benefit derived
from other types of options, will be reduced by premiums and other transaction
costs. Because transactions in currency exchange are generally conducted on a
principal basis, no fees or commissions are generally involved. Currency hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Although currency hedges limit the risk of loss due to a
decline in the value of a hedged currency, at the same time, they also limit any
potential gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, the Fund may not be able to contract to
sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of a Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging Generally. In addition to entering into options and
futures transactions for other purposes, including generating current income to
offset expenses or increase return, a Fund may enter into these transactions as
hedges to reduce investment risk, generally by making an investment expected to
move in the opposite direction of a portfolio position. A hedge is designed to
offset a loss in a portfolio position with a gain in the hedged position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options and futures 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 a 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 a 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 a Fund's net investment results if market
movements are not as anticipated when the hedge is established.
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Securities index futures transactions may be subject to additional correlation
risks. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the securities
index and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in the securities index and movements in
the price of securities index futures, a correct forecast of general market
trends by CSAM still may not result in a successful hedging transaction.
A Fund will engage in hedging transactions only when deemed
advisable by CSAM, and successful use by the Fund of hedging transactions will
be subject to CSAM's ability to predict trends in currency, interest rate or
securities markets, as the case may be, and to predict correctly movements in
the directions of the hedge and the hedged position and the correlation between
them, which predictions could prove to be inaccurate. This requires different
skills and techniques than predicting changes in the price of individual
securities, and there can be no 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 a 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 Funds
are also subject to the risk of a default by a counterparty to an off-exchange
transaction.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. Each Fund will comply with guidelines established by the
U.S. Securities and Exchange Commission (the "SEC") with respect to coverage of
forward currency contracts; options written by the Fund on currencies,
securities and indexes; and currency, interest rate and index futures contracts
and options on these futures contracts. These guidelines may, in certain
instances, require segregation by the Fund of cash or liquid securities with its
custodian or a designated sub-custodian to the extent the Fund's obligations
with respect to these strategies are not otherwise "covered" through ownership
of the underlying security, financial instrument or currency 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 a Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
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For example, a call option written by a Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
Futures Activities
A Fund may enter into foreign currency, interest rate and
securities index futures contracts and purchase and write (sell) related options
traded on exchanges designated by the Commodity Futures Trading Commission (the
"CFTC") or consistent with CFTC regulations on foreign exchanges. These futures
contracts are standardized contracts for the future delivery of foreign currency
or an interest rate sensitive security or, in the case of stock index and
certain other futures contracts, a cash settlement with reference to a specified
multiplier times the change in the specified index, exchange rate or interest
rate. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract. These
transactions may be entered into for "bona fide hedging" purposes as defined in
CFTC regulations and other permissible purposes including hedging against
changes in the value of portfolio securities due to anticipated changes in
currency values, interest rates and/or market conditions and increasing return.
Aggregate initial margin and premiums (discussed below) required to establish
positions other than those considered to be "bona fide hedging" by the CFTC will
not exceed 5% of a Portfolio's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds reserve 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 a Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities.
Futures Contracts. (The Intermediate Government and New York
Municipal Funds may not engage in foreign currency futures transactions.) 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
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weighted indexes which reflect the market value of the securities represented in
the indexes. A securities index futures contract is an agreement to be settled
by delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the close of the last trading day
on the contract and the price at which the agreement is made.
No consideration is paid or received by a Fund upon entering
into a futures contract. Instead, the Fund is required to segregate with its
custodian an amount of cash or 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 a Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the currency, financial instrument or securities index underlying the
futures contract fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking-to-market." The Fund
will also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, a
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 a 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 a Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. (The Intermediate Government and
New York Municipal Funds may not purchase or write options on foreign currency)
A 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
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effected; the ability to establish and close out positions on such options will
be subject to the existence of a liquid market.
An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund.
Money Market Obligations
Each Fund is authorized to invest, under normal conditions, up
to 35% of its total assets in short-term money market obligations having
remaining maturities of less than one year at the time of purchase. These
short-term instruments consist of obligations issued or guaranteed by the United
States government, its agencies or instrumentalities ("Government Securities");
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 or, if unrated, deemed by CSAM
to be 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; in the case of the Fixed
Income Fund and the Global Fixed Income Fund, obligations of foreign
governments, their agencies or instrumentalities; and repurchase agreements with
respect to portfolio securities. The short-term money market obligations in
which the New York Municipal Fund is authorized to invest generally will be
tax-exempt obligations; however, the Fund may invest in taxable obligations when
suitable tax-exempt obligations are unavailable or to maintain liquidity for
meeting anticipated redemptions and paying operating expenses. Tax-exempt money
market obligations in which the New York Municipal Fund may invest consist of
investment grade tax-exempt notes and tax-exempt commercial paper rated no lower
than A-2 by S&P or Prime-2 by Moody's or the equivalent from another major
rating service or, if not rated, of municipal issuers having an issue of
outstanding municipal obligations rated within the three highest grades by
Moody's or S&P.
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Temporary Defensive Strategies. For temporary defensive
purposes or, in the case of the Global Fixed Income Fund, during times of
international political or economic uncertainty, each Fund other than the
Intermediate Government Fund may invest without limit in short-term money market
obligations, and the Intermediate Government Fund may invest without limit in
short-term Government Securities.
Money Market Mutual Funds. Each Fund may invest up to 5% of
its assets in securities of money market mutual funds that are unaffiliated with
the Fund or CSAM where CSAM believes that it would be beneficial to the Fund and
appropriate considering the factors of return and liquidity. 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. The Intermediate
Government Fund and the New York Municipal Fund would invest in money market
mutual funds that invest in Government Securities and tax-exempt securities,
respectively. As a shareholder in any mutual fund, a Fund will bear its ratable
share of the mutual fund's expenses, including management fees, and will remain
subject to payment of the Fund's management fees and other expenses with respect
to assets so invested.
Convertible Securities
Convertible securities in which the Fixed Income and Global
Fixed Income Funds 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.
Structured Securities
The Funds may purchase any type of publicly traded or
privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. A Fund may invest in
mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") or certain foreign issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with
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fluctuations in interest rates, nor do the guarantees extend to the yield or
value of the Fund's shares. These securities generally are "pass-through"
instruments, through which the holders receive a share of all interest and
principal payments from the mortgages underlying the securities, net of certain
fees.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the Fund's
yield.
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. A Fund may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
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Asset-backed securities present certain risks that are not
presented by other securities in which the Fund may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, there is no assurance that the
security interest in the collateral can be realized.
Structured Notes, Bonds or Debentures. Typically, the value of
the principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon changes
in the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
may result in the loss of a Fund's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition,
the change in interest rate or the value of the security at maturity may be a
multiple of the change in the value of the Reference so that the security may be
more or less volatile than the Reference, depending on the multiple.
Consequently, structured securities may entail a greater degree of market risk
and volatility than other types of debt obligations.
Assignments and Participations. A Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign government (a "Borrower") and one or more financial institutions
("Lenders"). The majority of the Fund's investments in Loans are expected to be
in the form of participations in Loans ("Participations") and assignments of
portions of Loans from third parties ("Assignments"). Participations typically
will result in the Fund having a contractual relationship only with the Lender,
not with the Borrower. A Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the Borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the Borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the Borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund will assume the credit risk of both the Borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the Borrower. The Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the Borrower is determined by CSAM to be creditworthy.
When a Fund purchases Assignments from Lenders, the Fund will
acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Fund as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. A Fund may have difficulty disposing of them because there is no
liquid market for such securities. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on the Fund's ability
to dispose of particular Participations or Assignments 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 Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for a
Fund to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its net asset value.
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With respect to the New York Municipal Fund, income derived
from participations or assignments may not be tax-exempt, depending on the
structure of the particular securities. To the extent such income is not
tax-exempt it will be subject to the New York Municipal Fund's 20% limit on
investing in non-municipal securities.
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Interest Rate, Index, Mortgage and Currency Swaps; Interest Rate Caps, Floors
and Collars
Each Fund may enter into interest rate, index and mortgage
swaps and interest rate caps, floors and collars for hedging purposes or to seek
to increase total return; the Fixed Income and Global Fixed Income Funds may
enter into currency swaps for hedging purposes and, in the case of the Global
Fixed Income Fund, to seek to enhance total return (speculation) as well.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. 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. Mortgage swaps are
similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a reference
pool or pools of mortgages. Currency swaps involve the exchange of cash flows on
a notional amount of two or more currencies based on their relative future
values. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payment of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
A Fund will enter into interest rate, index and mortgage swaps
only on a net basis, which means that the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments. Interest rate, index and mortgage swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate, index and mortgage swaps is limited
to the net amount of interest payments that the Fund is contractually obligated
to make. If the other party to an interest rate, index or mortgage swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps usually involve the delivery of a gross payment stream in one
designated currency in exchange for the gross payment stream in another
designated currency. Therefore, the entire payment stream under a currency swap
is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. To the extent that the net amount payable by
the Fund under an interest rate, index or mortgage swap and the entire
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amount of the payment stream payable by the Fund under a currency swap or an
interest rate cap, floor or collar are held in a segregated account consisting
of cash or liquid securities, the Funds and CSAM believe that swaps do not
constitute senior securities under the Investment Company Act of 1940, as
amended (the "1940 Act") and, accordingly, will not treat them as being subject
to each Fund's borrowing restriction.
The Fund will not enter into interest rate, index, mortgage or
currency swaps, or interest rate cap, floor or collar transactions unless the
unsecured commercial paper, senior debt or claims paying ability of the other
party is rated either AA or A-1 or better by S&P or Aa or P-1 or better by
Moody's or, if unrated by such rating organizations, determined to be of
comparable quality by CSAM.
Foreign Investments (FIXED INCOME AND GLOBAL FIXED INCOME FUNDS ONLY)
Investors should recognize that investing in foreign companies
involves certain risks, including those discussed below, which are not typically
associated with investing in United States 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. A 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 a Fund may 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 may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Fund assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholder by the Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. A Fund may use hedging techniques
with the objective of protecting against loss through the fluctuation of the
value of foreign currencies against the U.S. dollar, particularly the forward
market in foreign exchange, currency options and currency futures. See "Currency
Transactions" and "Futures Activities" above.
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Euro Conversion. A single European currency, the euro, was
introduced on January 1, 1999 for participating European nations in the Economic
and Monetary Union and still potentially presents unique risks and
uncertainties for investors in those countries, including (i) the functioning of
the payment and operational systems of banks and other financial institutions;
(ii) the creation of suitable clearing and settlement payment schemes for the
euro; (iii) the fluctuation of the euro relative to non-euro currencies during
the transition period from January 1, 1999 to December 31, 2000 and beyond; and
(iv) whether the interest rate, tax and labor regimes of the European countries
participating in the euro will converge over time. Further, the conversion of
the currencies of other Economic Monetary Union countries, such as the United
Kingdom, and the admission of other countries, including Central and Eastern
European countries, to the Economic Monetary Union could adversely affect the
euro. These or other factors may cause market disruptions and could adversely
affect the value of foreign securities and currencies held by the Funds.
Information. Many of the foreign securities held by a 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 such 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 not uniform or less rigorous than those
applicable to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Fund, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
Foreign Markets. Securities of some foreign companies are less
liquid and their prices 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 a Fund can be
expected to be higher than that of an investment company investing exclusively
in U.S. securities, since the expenses of the Fund, such as cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges, custodial costs, valuation costs and communication costs,
as well as the rate of the investment advisory fees, though similar to such
expenses of some other international funds, are higher than those costs incurred
by other investment companies.
Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. The relative performance of various
countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
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fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.
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 a Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated,
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
Privatizations. Each 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 Funds, to
participate in privatizations may be limited by local law, or the terms for
participation may be less advantageous than for local investors. There can be no
assurance that privatization programs will be available or successful.
Brady Bonds. The Fund may invest in so-called "Brady Bonds,"
which have been issued by Costa Rica, Mexico, Uruguay and Venezuela and which
may be issued by other Latin American countries. Brady Bonds are issued as part
of a debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
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(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers. In light of the
history of commercial bank loan defaults by Latin American public and private
entities, investments in Brady Bonds may be viewed as speculative.
Depositary Receipts. Assets of a Fund may be invested in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe and IDRs, which are sometimes referred to as Global
Depositary Receipts, are issued outside the United States. EDRs and IDRs are
typically issued by non-U.S. banks and trust companies and evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and IDRs in bearer form are
designed for use in European securities markets and non-U.S. securities markets,
respectively.
U.S. Government Securities
A Fund may invest in Government Securities. Direct obligations
of the U.S. Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. government securities
also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks, Federal Land
Banks, FNMA, Federal Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association. A Fund
may also invest in instruments that are supported by the right of the issuer to
borrow from the U.S. Treasury and instruments that are supported by the credit
of the instrumentality. Because the United States 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.
Government Trust Certificates (INTERMEDIATE GOVERNMENT FUND ONLY)
A Fund may invest in Government Trust Certificates. Each
Certificate evidences an undivided fractional interest in a Government Trust
(each, a "Trust"). The assets of each Trust consist of a promissory note,
payable in U.S. Dollars (the "Loan Note"), representing a loan made by the Trust
to the government of Israel (the "Borrower"), backed by a full faith and credit
guaranty issued by the United States of America, acting through the Defense
Security Assistance Agency of the Department of Defense (the "Guaranty"), of the
due and punctual payment of 90% of payments of principal and interest due on the
Loan Note
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and a security interest in collateral, consisting of non-callable securities
issued or guaranteed by the United States government, or derivatives thereof,
such as trust receipts or other securities evidencing an interest in such United
States government securities, sufficient to pay the remaining 10% of all
payments of principal and interest due on the Loan Notes. Each Certificate
issued by a Trust represents the right to receive a portion of the payments due
on the Loan Note held by that Trust. The Certificates are not subject to
prepayment or acceleration. Each Guaranty is entitled to the full faith and
credit of the United States of America. A certificate-holder's right to receive
any payments with respect to the Guaranty will be subject to termination if such
holder breaches the terms of its Certificate.
Certificates are not considered by the Fund to be Government
Securities. The Certificates represent undivided fractional interests in the
Loan Notes, but the Certificates are not direct obligations of, and are not
guaranteed by, the Borrower. Thus, in the event of a failure to pay principal
and/or interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation of the Borrower.
Municipal Obligations
Under normal circumstances, each Fund may and the Municipal
Fund will invest in "Municipal Obligations." Municipal Obligations are debt
obligations issued by or on behalf of states (including the State of New York),
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities. Except for
temporary defensive purposes, the New York Municipal Fund will invest its assets
in intermediate and long term obligations with interest which is excluded from
gross income for federal income tax purposes and which is exempt from New York
State and New York City personal income taxes ("New York Municipal Obligations")
and intends to invest substantially all of its assets in those obligations. New
York Municipal Obligations include obligations issued by or on the behalf of the
State of New York, its political subdivisions, agencies and instrumentalities.
Municipal Obligations are issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Obligations if the interest paid thereon
is exempt from federal income tax.
The two principal types of Municipal Obligations, in terms of
the source of payment of debt service on the bonds, consist of "general
obligation" and "revenue" issues. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being
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financed. Consequently, the credit quality of revenue bonds is usually directly
related to the credit standing of the user of the facility involved.
There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Municipal Obligations. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an issue
of Municipal Obligations may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Fund. The Fund's
investment adviser will consider such an event in determining whether the Fund
should continue to hold the obligation. See the Appendix attached hereto for
further information concerning the ratings of Moody's and S&P and their
significance.
Among other instruments, a Fund may purchase short term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short term loans. Such notes are issued with a short term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
The yields on Municipal Obligations are dependent upon a
variety of factors, including general economic and monetary conditions, money
market factors, conditions of the municipal bond market, size of a particular
offering, maturity of the obligation offered and rating of the issue.
Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as a result of litigation or other conditions, the
power or ability of any one or more issuers to pay, when due, principal of and
interest on its, or their, Municipal Obligations may be materially affected.
Taxable Investments (New York Municipal Fund only)
Because the Fund's purpose is to provide income exempt from federal
income tax and New York State and New York City personal income tax, the Fund
generally will invest in taxable obligations only if and when the Fund's
investment adviser believes it would be in the best interests of the Fund's
investors to do so. Situations in which the Fund may invest up to 20% of its
total assets in taxable securities include: (i) pending investment of proceeds
of sales of Fund shares or portfolio securities or (ii) when the Fund requires
highly liquid securities in order to meet anticipated redemptions. The Fund may
temporarily invest more than 20% of its total assets in taxable securities to
maintain a "defensive" posture when the Fund's investment adviser determines
that it is advisable to do so because of adverse market conditions affecting the
market for Municipal Obligations generally.
Alternative Minimum Tax Bonds (FIXED INCOME AND NEW YORK MUNICIPAL FUNDS ONLY)
A Fund may invest without limit in "Alternative Minimum Tax
Bonds," which are certain bonds issued after August 7, 1986 to finance certain
non-governmental activities. While the income from Alternative Minimum Tax Bonds
is exempt from regular federal income tax, it is a tax preference item for
purposes of the federal individual and corporate "alternative minimum tax." The
alternative minimum tax is a special tax that applies to a limited number of
taxpayers who have certain adjustments or tax preference items. Available
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returns on Alternative Minimum Tax Bonds acquired by a Fund may be lower than
those from other Municipal Obligations acquired by a Fund due to the possibility
of federal, state and local alternative minimum or minimum income tax liability
on Alternative Minimum Tax Bonds. At present, the Fixed Income Fund does not
intend to purchase Alternative Minimum Tax Bonds.
Securities of Other Investment Companies
A 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.
Below Investment Grade Securities (FIXED INCOME AND GLOBAL FIXED INCOME FUNDS
ONLY)
A Fund may invest up to 35% of its net assets in fixed income
securities rated below investment grade and as low as C by Moody's or D by S&P,
and in comparable unrated securities. While the market values of these
securities tend to react less to fluctuations in interest rate levels than do
those of investment grade 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 investment grade securities. In
addition, these securities generally present a higher degree of credit risk.
Issuers of such securities are often highly leveraged and may not have more
traditional methods of financing available to them so that their ability to
service their debt 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.
An economic recession could disrupt severely the market for
below investment grade 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.
A Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Fund
anticipates that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for investment grade 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
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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.
Subsequent to its purchase by a 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 by
the Fund, although CSAM will consider such event in its determination of whether
the Fund should continue to hold the securities. The Fixed Income Fund and the
Global Fixed Income Fund may invest in securities rated as low as C by Moody's
or D by S&P and in unrated securities considered to be of equivalent quality.
Securities that are rated C by Moody's are the lowest rated class and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. Debt rated D by S&P is in default or is expected to default
upon maturity or payment date.
Below investment grade and comparable unrated securities
(commonly referred to as "junk bonds") (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is significantly
greater because these securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
The market value of securities rated below investment grade is
more volatile than that of investment grade securities. Factors adversely
impacting the market value of these securities will adversely impact a Fund's
net asset value. A Fund will rely on the judgment, analysis and experience of
CSAM in evaluating the creditworthiness of an issuer. In this evaluation, CSAM
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
Normally, these 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.
Lending Portfolio Securities
A Fund may lend portfolio securities to brokers, dealers and
other financial organizations that meet capital and other credit requirements or
other criteria established by a Fund's Board of Directors/Trustees (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 CSAM or its affiliates unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash or liquid securities, which are
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the
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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, a 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, a 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 of
a Fund 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 Funds to possible loss because
of adverse market action, expenses and/or delays in connection with the
disposition of underlying securities. Any loans of a Fund's securities will be
fully collateralized and marked to market daily.
Repurchase Agreements
Each Fund may invest up to 20% of its total assets 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, a 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. CSAM
monitors the creditworthiness of those
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bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the 1940 Act.
Reverse Repurchase Agreements and Dollar Rolls
A Fund may enter into reverse repurchase agreements with
member banks of the Federal Reserve System and certain non-bank dealers. Reverse
repurchase agreements involve the sale of securities held by a Fund pursuant to
its agreement to repurchase them at a mutually agreed upon date, price and rate
of interest. At the time a Fund enters into a reverse repurchase agreement, it
will segregate with an approved custodian cash or liquid high-grade debt
securities having a value not less than the repurchase price (including accrued
interest). The segregated assets will be marked-to-market daily and additional
assets will be segregated on any day in which the assets fall below the
repurchase price (plus accrued interest). A Fund's liquidity and ability to
manage its assets might be affected when it sets aside cash or portfolio
securities to cover such commitments.
A 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, a Fund would forego principal and interest paid on such securities. A
Fund would be compensated by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. At the time a Fund enters into a dollar
roll transaction, it will segregate with an approved custodian cash or liquid
securities having a value not less than the repurchase price (including accrued
interest) and will subsequently monitor the segregated assets to ensure that its
value is maintained. Reverse repurchase agreements and dollar rolls that are
accounted for as financings are considered to be borrowings under the 1940 Act.
Reverse repurchase agreements and dollar rolls involve the
risk that the market value of the securities retained in lieu of sale may
decline below the price of the securities a 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 a
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.
Zero Coupon Securities
A Fund may invest without limit in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have been
stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representation interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of
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interest. The Fund anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year, even though the holder receives no interest payment on the
security during the year. Such accrued discount will be includible in
determining the amount of dividends the Fund must pay each year and, in order to
generate cash necessary to pay such dividends, the Fund may liquidate portfolio
securities at a time when it would not otherwise have done so. At present, the
U.S. Treasury and certain U.S. agencies issue stripped Government Securities. In
addition, in the recent past, a number of banks and brokerage firms have
separated the principal portions from the coupon portions of U.S. Treasury bonds
and notes and sold them separately in the form of receipts or certificates
representing undivided interests in these instruments.
Government Zero Coupon Securities
The Fund may invest in (i) Government Securities that have
been stripped of their unmatured interest coupons, (ii) the coupons themselves
and (iii) receipts or certificates representing interests in stripped Government
Securities and coupons (collectively referred to as "Government zero coupon
securities"). The market value of Government zero coupon securities that are
considered Government Securities is used for purposes of determining whether at
least 65% of the Fund's total assets is invested in Government Securities.
However, receipts or certificates which are underwritten by securities dealers
or banks that evidence ownership of future interest payments, principal payments
or both on certain notes or bonds issued by the U.S. government, its agencies,
authorities or instrumentalities will not be considered Government Securities
for purposes of the 65% test.
Short Sales (FIXED INCOME, GLOBAL FIXED INCOME AND INTERMEDIATE GOVERNMENT FUNDS
ONLY)
In a short sale, a 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. If the Fund engages in
a short sale, the collateral for the short position will be maintained by the
Fund's custodian or qualified sub-custodian. While the short sale is open, the
Fund will maintain in a segregated account an amount of securities equal in
value to the securities sold short.
While a short sale is made by selling a security a Fund does
not own, a short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. Not more than 10% of a Fund's net assets (taken
at current value) may be held as collateral for short sales against the box at
any one time. A Fund does 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.
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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 a 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 a Fund may effect short sales.
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers
Investing in securities of companies with continuous operations of less
than three years ("unseasoned issuers") may involve greater risks since these
securities may have limited marketability and, thus, may be more volatile than
securities of larger, more established companies or the market in general.
Because such companies normally have fewer shares outstanding than larger
companies, it may be more difficult for a 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 unseasoned issuers offers potential
for above-average returns if the companies are successful, the risk exists that
the companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in a 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 (Fixed Income and Global Fixed Income Funds only)
"Special situation companies" are companies involved in an actual or
prospective acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; or
litigation which, if resolved favorably, would improve the value of the
company's stock. If the actual or prospective situation does not materialize as
anticipated, the market price of the securities of a "special situation company"
may decline significantly. CSAM believes, however, that if it analyzes "special
situation companies" carefully and invests in the securities of these companies
at the appropriate time, the Fund may achieve capital growth. There can be no
assurance, however, that a special situation that exists
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at the time of an its investment will be consummated under the terms and within
the time period contemplated.
Variable Rate and Master Demand Notes (Fixed Income and New York Municipal Funds
only)
Variable rate demand notes ("VRDNs") are obligations issued by
corporate or governmental entities which contain a floating or variable interest
rate adjustment formula and an unconditional right of demand to receive payment
of the unpaid principal balance plus accrued interest upon a short notice period
not to exceed seven days. The interest rates are adjustable at intervals ranging
from daily to up to every six months to some prevailing market rate for similar
investments, such adjustment formula being calculated to maintain the market
value of the VRDN at approximately the par value of the VRDN upon the adjustment
date. The adjustments are typically based upon the prime rate of a bank or some
other appropriate interest rate adjustment index.
Master demand notes are notes which provide for a periodic adjustment
in the interest rate paid (usually tied to the Treasury Bill auction rate) and
permit daily changes in the principal amount borrowed. While there may be no
active secondary market with respect to a particular VRDN purchased by a Fund,
the Fund may, upon the notice specified in the note, demand payment of the
principal of and accrued interest on the note at any time and may resell the
note at any time to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of the VRDN
involved in the event the issuer of the note defaulted on its payment
obligations, and the Fund could, for this or other reasons, suffer a loss to the
extent of the default.
When-Issued Securities and Delayed-Delivery Transactions
A Fund may utilize its 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).
The Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if CSAM deems it advantageous to do so.
The payment obligation and the interest rate that will be received on
when-issued 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 a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will
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fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. When a Fund engages in
when-issued or delayed-delivery transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so may result in the Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
Stand-By Commitment Agreements (Fixed Income and New York Municipal Funds only)
A Fund may acquire "stand-by commitments" with respect to securities
held in its portfolio. 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, a Fund will seek to enter into
stand-by commitments only with brokers, dealers and banks that, in the opinion
of CSAM, present minimal credit risks. In evaluating the creditworthiness of the
issuer of a stand-by commitment, CSAM 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 a 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.
A 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.
A Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. 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
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the period during which the commitment was held by the Fund. Stand-by
commitments would not affect the average weighted maturity of a Fund's
portfolio.
The Internal Revenue Service ("IRS") has issued a revenue ruling to the
effect that a registered investment company will be treated for federal income
tax purposes as the owner of the Municipal Obligations acquired subject to a
stand-by commitment and the interest on the Municipal Obligations will be tax
exempt to a Fund.
REITs (Fixed Income and Global Fixed Income Funds only)
A 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 Funds, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund investing in a REIT will indirectly bear
its proportionate share of any expenses paid by the REIT in addition to the
expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by
changes in the value of the underlying property owned by such REIT or by the
quality of any credit extended by the REIT. REITs are dependent on management
skills, are not diversified (except to the extent the Code requires), and are
subject to the risks of financing projects. REITs are subject to heavy cash flow
dependency, default by borrowers, self-liquidation, the possibilities of failing
to qualify for the 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.
Warrants (Fixed Income and Global Fixed Income Funds only)
A Fund may utilize up to 10% of its net assets to purchase warrants
issued by domestic and foreign companies to purchase newly created equity
securities consisting of common and preferred stock. Neither Fund currently
intends to invest in warrants. The equity security underlying a warrant is
outstanding 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. 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.
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Non-Publicly Traded and Illiquid Securities
A 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, repurchase agreements which have a
maturity of longer than seven days, VRDNs and master demand notes providing for
settlement upon more than seven days notice by the Fund, and time deposits
maturing in more than seven calendar days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
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 a Fund may take longer to liquidate these positions than would
be the case for publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized from these
sales could be less than those originally paid by the Fund. Further, companies
whose securities are not publicly traded may not be subject to the disclosure
and other investor protection requirements that would be applicable if their
securities were publicly traded. A 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.
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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. CSAM
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to a Fund's limit on the purchase of illiquid securities
unless the Fund's Board of Directors/Trustees or its delegates determines that
the Rule 144A Securities are liquid. In reaching liquidity decisions, CSAM 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 Funds to the extent that qualified institutional
buyers are unavailable or uninterested in purchasing such securities from the
Funds. The Boards have adopted guidelines and delegated to CSAM the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although each Board will retain ultimate responsibility for liquidity
determinations.
Borrowing
A Fund may borrow up to 30% 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. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Fund's net assets.
Although the principal of such borrowings will be fixed, a Fund's assets may
change in value during the time the borrowing is outstanding. The Fund expects
that some of its borrowings may be made on a secured basis. In such situations,
either the custodian will segregate the pledged assets for the benefit of the
lender or arrangements will be made with a suitable subcustodian, which may
include the lender.
Non-Diversified Status (Global Fixed Income and New York Municipal Funds only)
The Funds are classified as non-diversified within the meaning of the
1940 Act, which means that they are not limited by such Act in the proportion of
its assets that it may invest in securities of a single issuer. As
non-diversified investment companies, the Funds may invest a greater proportion
of their 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
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extent that the Funds assume large positions in the securities of a small number
of issuers, their 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.
A Fund's investments will be limited, however, in order to qualify as a
"regulated investment company" for purposes of the Code. See "Additional
Information Concerning Taxes." To qualify, a 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.
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INVESTMENT RESTRICTIONS
Fixed Income Fund
The investment limitations numbered 1 through 12 may not be changed
without the affirmative vote of the holders of a majority of the Fixed Income
Fund's outstanding shares. 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. Investment limitations 13 through 15
may be changed by a vote of the Board at any time.
The Fixed Income Fund may not:
1. Borrow money except that the Fund may (i) borrow from banks
for temporary or emergency purposes, and (ii) 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. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. 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.
4. 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.
5. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs or oil, gas and mineral leases,
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.
6. Make short sales of securities or maintain a short
position, except the Fund may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box."
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7. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in U.S.
government securities.
8. 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.
9. 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, and purchase and sell currencies or securities on a forward commitment
or delayed-delivery basis.
10. Issue any senior security except as permitted in these
Investment Restrictions.
11. 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.
12. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange or as otherwise permitted under the 1940 Act.
13. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and 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.
14. Invest more than 15% of the value 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, (a) repurchase agreements with
maturities greater than seven days, (b) VRDNs and master demand notes providing
for settlement upon more than seven days notice by the Fund and (c) time
deposits maturing in more than seven calendar days shall be considered illiquid
securities.
15. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
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Global Fixed Income Fund
The investment limitations numbered 1 through 10 may not be changed
without the affirmative vote of the holders of a majority (as defined above) of
the Global Fixed Income Fund's outstanding shares. Investment limitations 11
through 13 may be changed by a vote of the Board at any time.
The Global Fixed Income 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. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations and assignments and
structured securities; lend portfolio securities; and enter into repurchase
agreements.
4. 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.
5. Purchase or sell real estate or invest in real estate
limited partnerships, oil, gas or mineral exploration or development programs or
oil, gas and mineral leases, 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.
6. Make short sales of securities or maintain a short
position, except the Fund may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box."
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
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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, and purchase and sell currencies or securities on a forward commitment
or delayed-delivery basis.
9. Issue any senior security except as permitted in these
Investment Restrictions.
10. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of the value of the Fund's net assets
in securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
Intermediate Government Fund
The investment limitations numbered 1 through 12 may not be changed
without the affirmative vote of the holders of a majority (as defined above) of
the Intermediate Government Fund's outstanding shares. Investment limitations 13
through 15 may be changed by a vote of the Board at any time.
The Intermediate Government 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. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward
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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
Government Securities.
3. 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.
4. 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.
5. Purchase or sell real estate, real estate investment trust
securities or invest in oil, gas or mineral exploration or development programs,
except that the Fund may invest in securities secured by real estate, mortgages
or interests therein.
6. Make short sales of securities or maintain a short
position, except the Fund may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box".
7. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in
Government Securities.
8. 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.
9. 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, and purchase and sell currencies or securities on a forward commitment
or delayed-delivery basis.
10. Issue any senior security except as permitted in these
Investment Restrictions.
11. 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
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.
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<PAGE> 117
12. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange or as permitted under the 1940 Act.
13. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and 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.
14. Invest more than 15% of the value 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.
15. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
New York Municipal Fund
The investment limitations numbered 1 through 10 may not be
changed without the affirmative vote of the holders of a majority (as defined
above) of the Municipal Fund's outstanding shares. Investment limitations 11 and
14 may be changed by a vote of the Board at any time.
The New York Municipal 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. 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 more than 25% 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 (a) U.S.
government securities, (b) certificates of deposit issued by United States
branches of United States banks or (c) Municipal Obligations. For purposes of
this restriction, private purpose bonds ultimately payable by companies within
the same industry are treated as if they were issued by issuers in the same
industry.
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3. Make loans except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, and enter into repurchase agreements in accordance with
its investment objective, policies and limitations.
4. 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.
5. Purchase or sell real estate, real estate investment trust
securities or invest in oil, gas or mineral exploration or development programs,
except that the Fund may invest in securities secured by real estate, mortgages
or interests therein.
6. Make short sales of securities or maintain a short
position, except the Fund may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts.
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 or indexes, and
purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
9. Issue any senior security except as permitted in these
Investment Restrictions.
10. Purchase securities of other investment companies except
(a) in connection with a merger, consolidation, acquisition or reorganization or
(b) as permitted under the 1940 Act.
11. Invest less than 80% of its assets in securities the
interest on which is exempt from federal income tax, except during temporary
defensive periods or under unusual market conditions, as determined by the
Fund's investment adviser.
12. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchased securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
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13. Invest more than 15% of the value 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, (a) repurchase agreements with
maturities greater than seven days, (b) variable rate and master demand notes
providing for settlement upon more than seven days' notice by the Fund and (c)
time deposits maturing in more than seven calendar days shall be considered
illiquid securities.
14. 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 each of No. 1 above) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of a 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 its 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, each 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 each 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
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<PAGE> 120
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. (the "NYSE")
is open for trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which a 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. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service as of 12:00
noon (Eastern time). If such quotations are not available, the rate of exchange
will be determined in good faith pursuant to consistently applied procedures
established by the Board.
PORTFOLIO TRANSACTIONS
CSAM is responsible for establishing, reviewing and, where necessary,
modifying a Fund's investment program to achieve its investment objectives.
Purchases and sales of newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer or
with an underwriter acting as principal. Other purchases and sales may be
effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. Government Securities are generally purchased from
underwriters or dealers, although certain newly issued Government Securities may
be
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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 Government Securities.
In selecting broker-dealers, CSAM does business exclusively with those
broker-dealers that, in CSAM's judgment, can be expected to provide the best
service. The service has two main aspects: the execution of buy and sell orders
and the provision of research. In negotiating commissions with broker-dealers,
CSAM will pay no more for execution and research services that it considers
either, or both together, to be worth. The worth of execution service depends on
the ability of the broker-dealer to minimize costs of securities purchased and
to maximize prices obtained for securities sold. The worth of research depends
on its usefulness in optimizing portfolio composition and its changes over time.
Commissions for the combination of execution and research services that meet
CSAM's standards may be higher than for execution services alone or for services
that fall below CSAM's standards. CSAM believes that these arrangements may
benefit all clients and not necessarily only the accounts in which the
particular investment transactions occur that are so executed. Further, CSAM
will only receive brokerage or research service in connection with securities
transactions that are consistent with the "safe harbor" provisions of Section
28(e) of the Securities Exchange Act of 1934 when paying such higher
commissions. Research services may include research on specific industries or
companies, macroeconomic analyses, analyses of national and international events
and trends, evaluations of thinly traded securities, computerized trading
screening techniques and securities ranking services, and general research
services. For the fiscal year ended October 31, 1999, none of the Funds paid any
brokerage commissions to brokers and dealers who provided such research and
other services. Research received from brokers or dealers is supplemental to
CSAM's own research program.
The following table details amounts paid by each Fund in commissions to
broker-dealers for execution of portfolio transactions during the indicated
fiscal year or period.
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1997 October 31, 1998 October 31, 1999
<S> <C> <C> <C>
Fixed Income Fund $29,433 $ 4,572 $8,391
Global Fixed Income Fund $ 900 $ 900 -0-
Intermediate Government Fund -0- -0- -0-
New York Municipal Fund -0- -0- -0-
</TABLE>
For the fiscal year ended October 31, 1999, the increase in the amounts
paid by the Fixed Income Fund in commissions to broker-dealers was due to an
increase in (i) purchases and sales of portfolio securities in response to
volatility in market prices and (ii) large capital inflows and outflows due to
purchases and redemptions, including active trading of the Fund's shares.
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<PAGE> 122
All orders for transactions in securities or options on behalf of a
Fund are placed by CSAM with broker-dealers that it selects, including Credit
Suisse Asset Management Securities, Inc. ("CSAMSI") and affiliates of Credit
Suisse Group ("Credit Suisse"). A Fund may utilize CSAMSI or affiliates of
Credit Suisse in connection with a purchase or sale of securities when CSAM
believes that the charge for the transaction does not exceed usual and customary
levels and when doing so is consistent with guidelines adopted by the Board.
Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by CSAM.
Such other investment clients may invest in the same securities as the Fund.
When purchases or sales of the same security are made at substantially the same
time on behalf of such other clients, transactions are averaged as to price and
available investments allocated as to amount, in a manner which CSAM believes to
be equitable to each client, including the Fund. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold for the Fund. To the extent
permitted by law, CSAM 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.
In no instance will portfolio securities be purchased from or
sold to CSAM, CSAMSI or Credit Suisse First Boston ("CS First Boston") or any
affiliated person of such companies. In addition, a Fund will not give
preference to any institutions with whom the Fund enters into distribution or
shareholder servicing agreements concerning the provision of distribution
services or support services.
Transactions for the Fixed Income and Global Fixed Income
Funds may be effected on foreign securities exchanges. In transactions for
securities not actively traded on a foreign securities exchange, a 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.
A Fund may participate, if and when practicable, in bidding
for the purchase of securities for the Fund's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when CSAM, in
its sole discretion, believes such practice to be otherwise in the Fund's
interest.
PORTFOLIO TURNOVER
The Funds 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
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<PAGE> 123
securities. A 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, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what CSAM believes to be a
temporary disparity in the normal yield relationship between the two securities.
These yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for, or supply of, various types of
securities. In addition, options on securities may be sold in anticipation of a
decline in the price of the underlying security (market decline) or purchased in
anticipation of a rise in the price of the underlying security (market rise) and
later sold. To the extent that its portfolio is traded for the short-term, the
Fund will be engaged essentially in trading activities based on short-term
considerations affecting the value of an issuer's stock instead of long-term
investments based on fundamental valuation of securities. Because of this
policy, portfolio securities may be sold without regard to the length of time
for which they have been held. Consequently, the annual portfolio turnover rate
of the Fund may be higher than mutual funds having a similar objective that do
not utilize these strategies.
It is not possible to predict the Funds' portfolio turnover rates. High
portfolio turnover rates (100% or more) may result in higher brokerage
commission, higher dealer markups or underwriting commissions as well as other
transaction costs. In addition, gains realized from portfolio turnover may be
taxable to shareholders.
For the fiscal year ended October 31, 1999, the increase in the Global
Fixed Income Fund's portfolio turnover rate was due to an increase in (i)
purchases and sales of portfolio securities in response to volatility in market
prices and (ii) large capital inflows and outflows due to purchases and
redemptions, including active trading, of the Fund's shares.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL
OBLIGATIONS
The New York Municipal Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York Municipal
Obligations to meet their continuing obligations for the payment of principal
and interest. New York State and New York City face long-term economic problems
that could seriously affect their ability and that of other issuers of New York
Municipal Obligations to meet their financial obligations. Certain substantial
issuers of New York Municipal Obligations (including issuers whose obligations
may be acquired by the Fund) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the
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<PAGE> 124
borrowing abilities of all New York issuers and have generally contributed to
higher interest costs for their borrowings and fewer markets for their
outstanding debt obligations. Although several different issues of municipal
securities of New York State and its agencies and instrumentalities and of New
York City have been downgraded by S&P and Moody's in recent years, the most
recent actions of S&P and Moody's have been to place the debt obligations of New
York State and New York City on CreditWatch with positive implications and to
upgrade the debt obligations of New York City, respectively. Strong demand for
New York Municipal Obligations has also at times had the effect of permitting
New York Municipal Obligations to be issued with yields relatively lower, and
after issuance, to trade in the market at prices relatively higher than
comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain
issuers of New York Municipal Obligations could result in defaults or declines
in the market values of those issuers' existing obligations and, possibly, in
the obligations of other issuers of New York Municipal Obligations. Although as
of the date of this Prospectus, no issuers of New York Municipal Obligations are
in default with respect to the payment of their municipal obligations, the
occurrence of any such default could affect adversely the market values and
marketability of all New York Municipal Obligations and, consequently, the net
asset value of the New York Municipal Fund's portfolio.
Some of the significant financial considerations relating to the New
York Intermediate Municipal Fund's investments in New York Municipal Securities
are summarized below. This summary information is not intended to be a complete
description and is principally derived from the Annual Information Statement of
the State of New York as supplemented and contained in official statements
relating to issues of New York Municipal Securities that were available prior to
the date of this Statement of Additional Information. The accuracy and
completeness of the information contained in those official statements have not
been independently verified.
State Economy
New York is one of the most populous states in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.
State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied substantially.
Because New York City (the "City") is a regional employment center for a
multi-state region, State personal income measured on a residence basis
understates the relative importance of the State to the national economy and the
size of the base to which State taxation applies.
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<PAGE> 125
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget
The State Constitution requires the governor (the "Governor") to submit
to the State legislature (the "Legislature") a balanced executive budget which
contains a complete plan of expenditures for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year.
In recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's current fiscal year began on April 1, 1999 and
ends on March 31, 2000. On March 31, 1999, the State adopted the debt service
portion of the State budget for the 1999-2000 fiscal year; four months later, on
August 4, 1999, it enacted the remainder of the budget. The Governor approved
the budget as passed by the Legislature. Prior to passing the budget in its
entirety for the current fiscal year, the State enacted appropriations that
permitted the State to continue its operations.
In 1999-2000, General Fund disbursements, including transfers to
support capital projects, debt service and other funds, are estimated at $37.36
billion, an increase of $868 million or 2.38 percent over 1998-99. Projected
spending under the 1999-2000 enacted budget is $215 million above the Governor's
Executive Budget recommendations, including 30-day amendments. This change is
the net result of spending actions that occurred during negotiations on the
Budget. The increase in General Fund spending is comprised of $1.1 billion in
legislative additions to the Executive Budget (primarily in education), offset
by various actions, including re-estimates of required spending based on
year-to-date results and the identification of certain other resources that
offset spending, such as $250 million from commencing the process of privatizing
the Medical Malpractice Insurance Association ("MMIA"), $250 million from the
retention of the Debt Reduction Reserve Fund within the General Fund and about
$100 million in excess fund balances. The MMIA was established in 1983 to
provide excess liability insurance to doctors and medical providers. Legislation
enacted with the 1999-2000 budget initiates the process of MMIA privatization
and transfers excess fund balances to the State.
The 1999-2000 enacted budget provides for $831 million in new funding
for public schools, the largest year-to-year increase in State history. The
budget also enacts several new tax cuts valued at $375 million when fully phased
in by 2003-04. None of the
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$1.82 billion cash surplus from 1998-99 is assumed to support spending in
1999-2000, but instead is reserved to help offset the costs of previously
enacted tax cuts that take effect after 1999-2000.
The 1999-2000 Financial Plan projects a closing balance of $2.85
billion in the General Fund. The balance is comprised of the $1.82 billion
surplus from 1998-99 that has been set aside to finance already-enacted tax
cuts, $473 million in the Tax Stabilization Reserve Fund ("TSRF"), $250 million
in the Debt Reduction Reserve Fund ("DRRF"), $107 million in the Contingency
Reserve Fund ("CRF"), and $200 million in the Community Projects Fund ("CPF"),
which finances legislative initiatives. The State expects to close 1999-2000
with cash balances in these funds at their highest level ever.
Preliminary analysis by the Division of Budget ("DOB") indicates that
the State will have a 2000-01 budget gap of approximately $1.9 billion, or about
$300 million above the 1999-2000 Executive Budget estimate (after adjusting for
the projected costs of collective bargaining). This estimate includes an
assumption for the projected costs of new collective bargaining agreements, $500
million in assumed operating efficiencies, as well as the planned application of
approximately $615 million of the $1.82 billion tax reduction reserve. The DOB
will formally update its projections of receipts and disbursements for future
years as part of the Governor's 2000-01 Executive Budget submission. The revised
expectations for these years will reflect the cumulative impact of tax
reductions and spending commitments enacted over the last several years as well
as new 2000-01 Executive Budget recommendations.
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions except those required to be
accounted for in another fund. It is the State's largest fund and received
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1999-2000 fiscal year, the General Fund (exclusive of transfers)
is expected to account for approximately 47.1 percent of all Governmental Funds
disbursements and 69.3 percent of total State Funds disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
Total General Fund receipts and transfers in 1999-2000 are now
projected to be $39.31 billion, an increase of $2.57 billion from the $36.74
billion recorded in 1998-99. This total includes $35.93 billion in tax receipts,
$1.36 billion in miscellaneous receipts, and $2.02 billion in transfers from
other funds. The transfer of the $1.82 billion surplus recorded in 1998-99 to
the 1999-2000 fiscal period has the effect of exaggerating the growth in State
receipts from year to year by depressing reported 1998-99 figures and inflating
1999-2000 projections.
Receipts from user taxes and fees are projected to total $7.35 billion,
an increase of $105 million from reported collections in the prior year. The
sales tax component of this category accounts for virtually all of the 1999-2000
growth. Growth in base sales tax yield, after adjusting for tax law and other
changes, is projected at 5.6
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percent. Modest increases in motor fuel and auto rental tax receipts over
1998-99 levels are also expected. However, receipts from other user taxes and
fees are estimated to decline by $177 million.
The yield of other excise taxes in this category, particularly the
cigarette and alcoholic beverage taxes, show long-term declining trends. General
Fund declines in 1999-2000 motor vehicle fee receipts, in contrast, reflect
statutory fee reductions and an increased amount of collections earmarked to the
Dedicated Highway and Bridge Trust Fund.
Significant statutory changes in this category during the 1999-2000
legislative session include: delaying until March 1, 2000 the implementation of
the exemption from State sales tax of clothing and footwear priced under $110;
providing week-long sales tax exemptions in September 1999 and January 2000 for
clothing and footwear priced under $500; enactment of a variety of small sales
tax exemptions including certain equipment used in providing telecommunications
service for sale, property and services used in theatrical productions, computer
hardware used to design Internet web sites, and building materials used in
farming; a reduction in the beer tax rate; and an expanded exemption from the
alcoholic beverage tax for small brewers.
Following the pattern of the last two fiscal years, education programs
receive the largest share of new funding contained in the 1999-2000 Financial
Plan. School aid is expected to grow by $831 million or 8.58 percent over
1998-99 levels (on a State fiscal year basis). Outside of education, the largest
growth in spending is for State Operations ($207 million, including $100 million
reserved for possible collective bargaining costs); Debt Service ($183 million),
and mental hygiene programs, including funding for a cost of living increase for
care providers ($114 million). These increases were offset, in part, by spending
reductions or actions in health and social welfare ($280 million), and in
general State charges ($222 million).
Under the 1999-2000 enacted budget, General Fund spending on school aid
is projected at $10.52 billion on a State fiscal year basis, an increase of $831
million from the prior year. The budget provides additional funding for
operating aid, building aid, and several other targeted aid programs. It also
funds the balance of aid payable for the 1998-99 school year that is due
primarily in the first quarter of the 1999-2000 fiscal year. For all other
educational programs, disbursements are projected to grow by $78 million to
$2.99 billion.
Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its
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projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable. The
projections assume no changes in federal tax law, which could substantially
alter the current receipts forecast. In addition, these projections do not
include funding for new collective bargaining agreements after the current
contracts expire. Actual results, however, could differ materially and adversely
from their projections, and those projections may be changed materially and
adversely from time to time.
Debt Limits and Outstanding Debt
There are a number of methods by which the State of New York may incur
debt. Under the State Constitution, the State may not, with limited exceptions
for emergencies, undertake long-term general obligation borrowing (i.e.,
borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved by
the voters. There is no limitation on the amount of long-term general obligation
debt that may be so authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
Sustained growth in the State's economy could contribute to
closing projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. The State assumes that the 2000-01
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Financial Plan will achieve $500 million in savings from initiatives by State
agencies to deliver services more efficiently, workforce management efforts,
maximization of federal and non-General Fund spending offsets, and other actions
necessary to help bring projected disbursements and receipts into balance. The
projections do not assume any gap-closing benefit from the potential settlement
of State claims against the tobacco industry.
Spending from Debt Service Funds are estimated at $3.64 billion in
1999-2000, up $370 million or 11.31 percent from 1998-99. Transportation
purposes, including debt service on bonds issued for State and local highway and
bridge programs financed through the New York State Thruway Authority and
supported by the Dedicated Highway and Bridge Trust Fund, account for $124
million of the year-to-year growth. Debt service for educational purposes,
including State and City University programs financed through the Dormitory
Authority, will increase by $80 million. The remaining growth is for a variety
of programs in mental health and corrections, and for general obligation
financings.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation
Certain litigation pending against New York State or its officers or
employees could have a substantial or long-term adverse effect on New York State
finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) challenges to the constitutionality of
Public Health Law 2807-d, which imposes a gross receipts tax from certain
patient care services; (4) action seeking enforcement of certain sales and
excise taxes and tobacco products and motor fuel sold
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to non-Indian consumers on Indian reservations; (5) a challenge to the
Governor's application of his constitutional line item veto authority; and (6) a
challenge to the enactment of the Clean Water/Clean Air Bond Act of 1996.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions were paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the current fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities
The fiscal stability of New York State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
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notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since 1995. As a
result of the structural imbalances in JDA's capital structure, and defaults in
its loan portfolio and loan guarantee program incurred between 1991 and 1996,
JDA would have experienced a debt service cash flow shortfall had it not
completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
New York City and Other Localities
The fiscal health of the State may also be impacted by the fiscal
health of its localities, particularly the City, which has required and
continues to require significant financial assistance from the State. The City
depends on State aid both to enable the City to balance its budget and to meet
its cash requirements. There can be no assurance that there will not be
reductions in State aid to the City from amounts currently projected or that
State budgets will be adopted by the April 1 statutory deadline or that any such
reductions or delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal budget negotiation process could result
in a reduction in or a delay in the receipt of Federal grants which could have
additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public
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credit markets. The City was not able to sell short-term notes to the public
again until 1979. In 1975, S&P suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998,
S&P assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baa1
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
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agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and City University of New
York ("CUNY") and reflected the City's expense and capital budgets for the 1998
fiscal year, which were adopted on June 6, 1997. The 1998-2001 Financial Plan
projected revenues and expenditures for the 1998 fiscal year balanced in
accordance with GAAP. The 1998-99 Financial Plan projected General Fund receipts
(including transfers from other funds) of $36.22 billion, an increase of $1.02
billion over the estimated 1997-1998 level. Recurring growth in the State
General Fund tax base was projected to be approximately six percent during
1998-99, after adjusting for tax law and administrative changes. This growth
rate is lower than the rates for 1996-97 or 1997-98, but roughly equivalent to
the rate for 1995-96.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the current fiscal year,
there can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance
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Authority (the "Finance Authority") to finance City capital projects. The
Finance Authority, was created as part of the City's effort to assist in keeping
the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. Despite this
additional financing mechanism, the City currently projects that, if no further
action is taken, it will reach its debt limit in City fiscal year 1999-2000.
Indebtedness subject to the constitutional debt limit includes liability on
capital contracts that are expected to be funded with general obligation bonds,
as well as general obligation bonds. On June 2, 1997, an action was commenced
seeking a declaratory judgment declaring the legislation establishing the
Transitional Finance Authority to be unconstitutional. If such legislation which
is currently on appeal to the Court of Appeals were voided, projected contracts
for the City capital projects would exceed the City's debt limit. Future
developments concerning the City or entities issuing debt for the benefit of the
City, and public discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability or cost to sell
securities issued by the City or such entities and may also affect the market
for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in
the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's 1998 fiscal year financial plan
projected $2.4 billion of seasonal financing, the City expected to undertake
only approximately $1.4 billion of seasonal financing. The City issued $2.4
billion of short-term obligations in fiscal year 1997. The delay in the adoption
of the State's budget in certain past fiscal years has required the City to
issue short-term notes in amounts exceeding those expected early in such fiscal
years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the fiscal year.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
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The 1998-99 budget included $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities received $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. State law requires the
Comptroller to review and make recommendations concerning the budgets of those
local government units other than New York City that are authorized by State law
to issue debt to finance deficits during the period that such deficit financing
is outstanding.
From time to time, federal expenditure reductions could
reduce, or in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If the State, the City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing the State assistance in
the future.
Year 2000 Compliance
In April 1999 the State Comptroller released an audit on the
State's Year 2000 compliance. The audit, which reviewed the State's Y2K
compliance activities through October 1998, found that the State had made
progress in achieving Y2K compliance, but needed to improve its activities in
several areas, including data interchanges and contingency planning. The Office
for Technology (OFT) will continue to monitor compliance progress for the States
mission-critical and high-priority systems and is reporting compliance progress
to the Governor's office on a quarterly basis. The 1999-2000 enacted budget
allocates $19 million for priority embedded systems and $20 million for
unanticipated expenses related to bringing technology into Y2K compliance.
MANAGEMENT OF THE FUNDS
Officers and Boards of Directors/Trustees
The business and affairs of the Global Fixed Income and
Intermediate Government Funds are managed by the Board of Directors in
accordance with the laws of the State of Maryland. The business and affairs of
the Fixed Income and New York Municipal Funds are managed by a Board of Trustees
in accordance with the laws of The Commonwealth of Massachusetts. Each Board
elects officers who are responsible for the day-to-day operations of a Fund and
who execute policies authorized by the Board. Under each Fund's Charter, a Board
may classify or reclassify any unissued shares of the Funds into one or more
additional classes by setting or changing in any one or more respects their
relative rights,
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voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption. A 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 Funds.
The names (and ages) of the Funds' Directors/Trustees and
officers, their addresses, present positions and principal occupations during
the past five years and other affiliations are set forth below
<TABLE>
<S> <C>
Richard H. Francis (67) Director/Trustee
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/Trustee
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications
Wilson, Wyoming 83014 (developers and operators of radio stations);
Director of Advo, Inc. (direct mail advertising);
Director/Trustee of other Warburg Pincus Funds.
Jeffrey E. Garten (53) Trustee of the New York Municipal Fund only
Box 208200 Dean of Yale School of Management and William S.
New Haven, Connecticut 06520-8200 Beinecke Professor in the Practice of International
Trade and Finance; Undersecretary of Commerce for
International Trade from November 1993 to October 1995;
Professor at Columbia University from September 1992 to
November 1993; Director of Aetna, Inc.; Director of
Calphine Energy Corporation; Director/Trustee of other
Warburg Pincus Funds.
</TABLE>
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<TABLE>
<S> <C>
James S. Pasman, Jr. (69) Director/Trustee
29 The Trillium Currently retired; President and Chief Operating
Pittsburgh, Pennsylvania 15238 Officer of National InterGroup, Inc. from April 1989
to March 1991; Chairman of Permian Oil Co. from April
1989 to March 1991; Director of Education Management
Corp., Tyco International Ltd.; Trustee, BT Insurance
Funds Trust; Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment companies.
William W. Priest* (58) Chairman of the Board
153 East 53rd Street Chairman- Management Committee, Chief Executive
New York, New York 10022 Officer and Managing Director of CSAM since 1990;
Director of TIG Holdings, Inc.; Director/Trustee of
other Warburg Pincus Funds and other CSAM-advised
investment companies.
Steven N. Rappaport (51) Director/Trustee
40 East 52nd Street President of Loanet, Inc. (on-line accounting
New York, New York 10022 service) since 1997; Executive Vice President of
Loanet, Inc. from 1994 to 1997; Director, President,
North American Operations, and former Executive Vice
President from 1992 to 1993 of Worldwide Operations of
Metallurg Inc.; Executive Vice President, Telerate,
Inc. from 1987 to 1992; Partner in the law firm of
Hartman & Craven until 1987; Director/Trustee of other
Warburg Pincus Funds and other CSAM-advised investment
companies.
</TABLE>
- --------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
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<PAGE> 138
<TABLE>
<S> <C>
Alexander B. Trowbridge (70) Director/Trustee
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 Funds' predecessor adviser
in July 1999; with the predecessor adviser since 1991;
Vice President of Citibank, N.A. from 1987 to 1991;
Officer of CSAMSI and of other investment companies in
the Warburg Pincus family of funds.
Hal Liebes, Esq. (35) Vice President and Secretary
153 East 53rd Street Managing Director and General Counsel of CSAM;
New York, New York 10022 Associated with Lehman Brothers, Inc. from 1996 to
1997; Associated with CSAM from 1995 to 1996;
Associated with CS First Boston Investment Management
from 1994 to 1995; Associated with Division of
Enforcement, U.S. Securities and Exchange Commission
from 1991 to 1994; Officer of CSAMSI, other Warburg
Pincus Funds and other CSAM-advised investment
companies.
</TABLE>
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<PAGE> 139
<TABLE>
<S> <C>
Michael A. Pignataro (40) Treasurer and Chief Financial Officer
153 East 53rd Street Vice President and Director of Fund Administration of
New York, New York 10022 CSAM; Associated with CSAM since 1984; Officer of
other Warburg Pincus Funds and other CSAM-advised
investment companies.
Stuart J. Cohen, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM; Associated
New York, New York 10017-3147 with CSAM since Credit Suisse acquired the Funds'
predecessor adviser in July 1999; with the predecessor
adviser since 1997; Associated with the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein from 1995
to 1997; Officer of other Warburg Pincus Funds.
Rocco A. DelGuercio (36) Assistant Treasurer
153 East 53rd Street Assistant Vice President and Administrative Officer
New York, New York 10022 of CSAM; Associated with CSAM since June 1996;
Assistant Treasurer, Bankers Trust Corp. -- Fund
Administration from March 1994 to June 1996; Mutual
Fund Accounting Supervisor, Dreyfus Corporation from
April 1987 to March 1994; Officer of other Warburg
Pincus Funds and other CSAM-advised investment
companies.
</TABLE>
No employee of CSAM, PFPC Inc., the Funds' co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Funds
for acting as an officer or director/trustee of a Fund. Each Director who is not
a director, trustee, officer or employee of CSAM, PFPC or any of their
affiliates receives the following annual and per-meeting fees:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FEE FOR EACH AUDIT
FEE FOR EACH MEETING COMMITTEE MEETING
FUND ANNUAL FEE ATTENDED ATTENDED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Fund $ 750 $250 $250*
- -----------------------------------------------------------------------------------------------------------------
Global Fixed Income Fund $ 750 $250 $250*
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 140
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FEE FOR EACH AUDIT
FEE FOR EACH MEETING COMMITTEE MEETING
FUND ANNUAL FEE ATTENDED ATTENDED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Maturity Government Fund $ 750 $250 $250*
- -----------------------------------------------------------------------------------------------------------------
New York Intermediate Municipal Fund $ 750 $250 $250*
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Alexander B. Trowbridge receives $325 per fund for serving as chairman of the
Audit Committee.
Each Director is reimbursed for expenses incurred in
connection with his attendance at Board meetings.
Directors'/Trustees' Compensation
(for fiscal year ended October 31, 1999)
<TABLE>
<CAPTION>
Total Total
Total Compensation Total Compensation Total Compensation from
Compensation from Global Compensation from all Investment
from Fixed Fixed Income from New York Intermediate Companies in Warburg
Name of Director/Trustee Income Fund Fund Municipal Fund Maturity Fund Pincus Fund Complex*
- ------------------------ ----------- ---- -------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
William W. Priest** None None None None None
Richard N. Cooper*** $1,375 $1,375 $1,375 $1,375 $47,500
Thomas A. Melfe*** $1,625 $ 0 $1,625 $ 0 $40,750
Richard H. Francis**** $1,000 $1,000 $1,000 $1,000 $38,250
Jack W. Fritz $2,750 $2,750 $2,750 $2,750 $94,250
Jeffrey E. Garten $2,750 $2,750 $2,750 $2,750 $94,250
James S. Pasman, Jr. $1,000 $1,000 $1,000 $1,000 $38,250
Steven N. Rappaport**** $1,000 $1,000 $1,000 $1,000 $38,250
Alexander B. Trowbridge $2,825 $2,825 $2,825 $2,825 $97,100
</TABLE>
* Each Director/Trustee except Mr. Garten serves as a Director or Trustee of
51 investment companies and portfolios in the Warburg Pincus family of
funds. Mr. Garten serves as a Director or Trustee of 33 investment
companies and portfolios in the Warburg Pincus family of funds. Mr. Garten
resigned as a Director of the Fixed Income, Global Fixed Income and
Intermediate Maturity Government Funds effective February 3, 2000.
** Mr. Priest receives compensation as an affiliate of CSAM, and, accordingly,
receives no compensation from any Fund or any other investment company
advised by CSAM.
*** Messrs. Cooper and Melfe resigned as a Director/Trustee of each Fund
effective July 6, 1999.
**** Messrs. Francis, Pasman and Rappaport became Directors/Trustees of the
Funds effective July 6, 1999.
As of January 31, 2000, the Directors and officers of each
Fund as a group owned less than 1% of each class of the outstanding shares of
each Fund.
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<PAGE> 141
Portfolio Managers of the Funds
Mr. M. Anthony E. van Daalen, Portfolio Manager of the
Intermediate Government Fund and Fixed Income Fund, holds a B.A. in Psychology
and Music from Wesleyan University and a M.B.A. in Finance and International
Business from New York University's Stern School of Business. Mr. van Daalen has
been associated with CSAM since Credit Suisse acquired the Funds' predecessor
adviser in July 1999 and joined the predecessor adviser in 1992, specializing in
government and high yield bonds. Prior to that Mr. van Daalen was an assistant
vice president and fixed income portfolio manager at Citibank's Private Bank
from 1985 to 1991. Prior to that Mr. van Daalen was a retail banking manager at
The Connecticut Bank and Trust Co. from 1983 to 1985 and an analyst at
Goldstein/Krall Market Research from 1982 to 1983. He is a Chartered Financial
Analyst, and is fluent in Dutch and French.
Ms. Sharon B. Parente, Co-Portfolio Manager of the Municipal
Fund, earned a B.S. degree from the University of Virginia. Ms. Parente has been
associated with CSAM since Credit Suisse acquired the Funds' predecessor adviser
in July 1999 and joined the predecessor adviser in 1992, specializing in
municipal bonds and corporate cash. Prior to that Ms. Parente was a vice
president at Citibank, N.A. in the Private Banking Group from 1985 to 1992.
Prior to that, Ms. Parente was a fixed income portfolio manager at Calvert Group
from 1981 to 1985 and a municipal trader's assistant at Prescott, Ball & Turben
from 1979 to 1981.
Mr. Charles C. Van Vleet, Portfolio Manager of the Global
Fixed Income Fund, earned a B.S. in Economics from the University of California,
Berkeley. Mr. Van Vleet has been associated with CSAM since Credit Suisse
acquired the Funds' predecessor adviser in July 1999 and joined the predecessor
adviser in May 1998. Prior to that Mr. Van Vleet managed multi-sector, global
and emerging markets fixed income portfolios at Putnam Investment Management
from 1994 to 1998. Prior to that Mr. Van Vleet managed global fixed income
portfolios at Alliance in London and Brown Brothers Harriman in New York.
Mr. Patrick A. Bittner, CFA, Co-Portfolio Manager of the
Municipal Fund, earned a B.S. in Economics from the University of Wisconsin
(Madison) and an M.S. in Taxation from Temple University. Mr. Bittner has been
associated with CSAM since Credit Suisse acquired the Funds' predecessor adviser
in July 1999 and joined the predecessor adviser in 1994. Prior to that Mr.
Bittner served as an assistant portfolio manager of institutional fixed income
portfolios at First Fidelity Bank from 1991 to 1994. He is a Chartered Financial
Analyst.
Investment Adviser and Co-Administrators
CSAM, located at 153 East 53rd Street, New York, New York
10022, serves as investment adviser to each Fund pursuant to a written agreement
(the "Advisory Agreement"). CSAM is an indirect wholly-owned U.S. subsidiary of
Credit Suisse. Credit Suisse is a global financial services company, providing a
comprehensive range of banking and insurance products. Active on every continent
and in all major financial centers, Credit Suisse comprises five business units
- -- Credit Suisse Asset Management (asset management); Credit Suisse First Boston
(investment banking); Credit Suisse Private Banking (private banking); Credit
Suisse (retail banking); and Winterthur (insurance). Credit Suisse has
approximately $680 billion of
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<PAGE> 142
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.
Prior to July 6, 1999, Warburg Pincus Asset Management, Inc.
("Warburg") served as investment adviser to each Fund. On that date, Credit
Suisse acquired Warburg and combined Warburg with Credit Suisse's existing
U.S.-based asset management business ("Credit Suisse Asset Management").
Consequently, the combined entity, CSAM, became the Funds' investment adviser.
Credit Suisse Asset Management, formerly known as BEA Associates, together with
its predecessor firms, has been engaged in the investment advisory business for
over 60 years.
CSAMSI and PFPC both serve as co-administrators to the Funds
pursuant to separate written agreements with each Fund (the "CSAMSI
Co-Administration Agreement" and the "PFPC Co-Administration Agreement"
respectively). CSAMSI became co-administrator to each Fund on November 1, 1999.
Prior to that, Counsellors Funds Service, Inc. ("Counsellors Service") served as
co-administrator to the Funds. For the services provided by CSAM under the
Advisory Agreements, Fixed Income Fund, Global Fixed Income Fund, Intermediate
Government Fund and New York Intermediate Municipal Fund each pay CSAM a fee
calculated at an annual rate of .50%, 1.00%, .50% and .40%, respectively, of the
Fund's average daily net assets. For the services provided by CSAMSI under the
CSAMSI Co-Administration Agreement, each Fund pays CSAMSI a fee calculated at an
annual rate of .10% of the Fund's average daily net assets. For the services
provided by PFPC under the PFPC Co-Administration Agreement, each Fund pays PFPC
a fee calculated at an annual rate of .05% of the Fund's average daily net
assets, exclusive of out-of-pocket expense. Each class of shares of the Fund
bears its proportionate share of fees payable to CSAM, CSAMSI and PFPC in the
proportion that its assets bear to the aggregate assets of the Fund at the time
of calculation. These fees are calculated at an annual rate based on a
percentage of a Portfolio's average daily net assets.
Advisory Fees paid to CSAM or to CSAM's predecessor, Warburg
(portions of fees waived, if any, are noted in parenthesis next to the amount
earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal Year ended Fiscal year ended
October 31, 1997 October 31, 1998 October 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $ 973,381 ($151,599) $1,799,237 ($138,880) $ 2,066,252 ($177,049)
Global Fixed Income Fund $1,783,032 ($707,931) $1,811,063 ($821,020) $ 1,483,284 ($841,078)
Intermediate Government Fund $ 234,862 ($133,433) $ 274,007 ($165,038) $ 340,960 ($185,777)
New York Municipal Fund $ 332,574 ($65,877) $ 386,531 ($67,141) $ 397,528 ($ 97,206)
</TABLE>
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<PAGE> 143
Co-Administration Fees paid to PFPC
(portions of fees waived, if any, are noted in parenthesis next to the amount
earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1997 October 31, 1998 October 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $97,338 $189,784 $217,257
Global Fixed Income Fund $89,151 $ 97,076 $ 78,375
Intermediate Government Fund $23,486 ($22,971) $ 30,565 ($21,456) $ 38,550 ($2,440)
New York Municipal Fund $41,572 $ 58,524 $ 61,454
</TABLE>
Co-Administration Fees paid to Counsellors Service (the Funds' predecessor
co-administrator)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1997 October 31, 1998 October 31, 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Fixed Income Fund $194,676 $359,847 $413,250
Global Fixed Income Fund $178,303 $181,107 $148,328
Intermediate Government Fund $ 46,972 $ 54,802 $ 68,192
New York Municipal Fund $ 83,144 $ 96,633 $ 99,382
</TABLE>
Custodian and Transfer Agent
PFPC Trust Company ("PFPC Trust") and State Street Bank and
Trust Company serve as custodians of each Funds' U.S. and non-U.S. assets,
respectively, pursuant to separate custodian agreements (the "Custodian
Agreements"). Under the Custodian Agreements, PFPC Trust and State Street each
(i) maintains a separate account or accounts in the name of the Fund, (ii) holds
and transfers portfolio securities on account of the Fund, (iii) makes receipts
and disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions for the account of the Fund's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Fund's custodial arrangements. PFPC Trust may delegate its duties
under its Custodian Agreement with the Fund to a wholly owned direct or indirect
subsidiary of PFPC Trust or PNC Bank Corp. upon notice to the Fund and upon the
satisfaction of certain other conditions. With the approval of the Board, State
Street is authorized to select one or more foreign banking institutions and
foreign securities depositories to serve as sub-custodian on behalf of the Fund
and PFPC Trust is authorized to select one or more domestic banks or trust
companies to serve as sub-custodian on behalf of the Funds. PFPC Trust has
entered into a sub-custodian agreement with PNC Bank, National Association
("PNC"), pursuant to which PNC provides asset safekeeping and securities
clearing services. PFPC Trust and PNC are indirect, wholly owned subsidiaries of
PNC Bank Corp. and their principal business address is
66
<PAGE> 144
8800 Tinicum Boulevard, Philadelphia, Pennsylvania 19153. The principal business
address of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street serves as the shareholder servicing, transfer and
dividend disbursing agent of each Fund pursuant to separate Transfer Agency and
Service Agreements, under which State Street (i) issues and redeems shares of a
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 Fund's 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, Boston, Massachusetts 02171.
Organization of the Funds
The Funds are open-end management investment companies. The
Fixed Income and New York Municipal Funds were organized in 1987 and 1986,
respectively, under the laws of The Commonwealth of Massachusetts and each is a
business entity commonly known as a "Massachusetts business trust." The Global
Fixed Income and Intermediate Government Funds were incorporated in 1990 and
1988, respectively, under the laws of the State of Maryland and each is an
entity commonly known as a "Maryland corporation." Each of the Funds is
"diversified" within the meaning of the 1940 Act, other than the Global Fixed
Income and New York Municipal Funds, which are "non-diversified." Each Fund
other than the New York Municipal Fund 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 Fixed Income Fund's and New York Municipal Fund's
Agreement and Declaration of Trust (the "Trust Agreements") and the Global Fixed
Income Fund's and Intermediate Government Fund's charter authorizes the Board of
each Fund to issue full and fractional shares of common stock, $.001 par value
per share ("Common Stock"), of which one billion shares are designated Common
Shares and two billion shares are designated Advisor Shares.
Massachusetts law provides that shareholders could, under
certain circumstances, be held personally liable for the obligations of the
Fixed Income and New York Municipal Funds. However, the Trust Agreements
disclaim shareholder liability for acts or obligations of a Fund and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Fund or a Trustee. The Trust
Agreements provide for indemnification from the Fund's property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Fund. Thus, the risk of a shareholder's incurring financial loss on account
of shareholder liability is limited to circumstances in which the Fund would be
unable to meet its obligations, a possibility that CSAM believes is remote and
immaterial. Upon payment of any liability incurred by the Fund, the shareholder
paying the liability will be entitled to reimbursement from the general
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<PAGE> 145
assets of the Fund. The Trustees intend to conduct the operations of the Fund in
such a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund.
All shareholders of a 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/Trustees can elect all Directors/Trustees of a
Fund. Shares are transferable but have no preemptive, conversion or subscription
rights.
Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
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 a Fund may be removed from
office upon the vote of shareholders holding at least a majority of the relevant
Fund's outstanding shares, at a meeting called for that purpose. A meeting will
be called for the purpose of voting on the removal of a Board member at the
written request of holders of 10% of the outstanding shares of a Fund.
The Fixed Income Fund and the New York Municipal Fund were
organized under the laws of The Commonwealth of Massachusetts as Massachusetts
business trusts in 1987 and 1986, respectively. In 1992, these Funds changed
their names from "Counsellors Fixed Income Fund" and "Counsellors New York
Municipal Bond Fund" to "Warburg, Pincus Fixed Income Fund" and "Warburg, Pincus
New York Municipal Bond Fund," respectively. On February 28, 1995, the New York
Municipal Fund changed its name to "Warburg, Pincus New York Intermediate
Municipal Fund." The Global Fixed Income Fund and the Intermediate Government
Fund were incorporated under the laws of the State of Maryland in 1990 and 1988,
respectively, under the names "Counsellors Global Fixed Income Fund, Inc." and
"Counsellors Intermediate Maturity Government Fund, Inc.," respectively. On
October 27, 1995 and February 16, 1996, the Funds amended their respective
charters to change their names to "Warburg, Pincus Global Fixed Income Fund,
Inc." and "Warburg, Pincus Intermediate Maturity Government Fund, Inc."
Distribution and Shareholder Servicing
Provident Distributors, Inc. ("PDI") serves as distributor of
the Funds' shares. PDI offers each Fund's shares on a continuous basis. No
compensation is payable by the Funds to PDI for distribution services, however,
pursuant to a separate agreement with CSAM, PDI is compensated for the services
provided to the Funds. PDI's principal business address is Four Falls Corporate
Center, West Conshohocken, Pennsylvania 19428-2961.
The Funds have 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
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<PAGE> 146
servicing, administrative and/or accounting services for their clients or
customers (or participants in the case of retirement plans) ("Customers") who
are beneficial owners of Advisor Shares. Agreements will be governed by a
distribution plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act. The Distribution Plan requires the Board, at least quarterly, to
receive and review written reports of amounts expended under the Distribution
Plan and the purposes for which such expenditures were made. Payments may be
made to Institutions directly by a Fund or by CSAMSI on behalf of the Fund. The
Distribution Plan was adopted on November 1, 1999. Prior to that date, a
substantially similar plan was in place with respect to the Advisor Shares (the
"Prior Advisor Shares Distribution Plan"). For the fiscal year ended October 31,
1999, the Fixed Income, Global Fixed Income and Intermediate Government Funds
paid $9,445, $12,388 and $36 respectively, in 12b-1 fees pursuant to the Prior
Advisor Shares Distribution Plan, all of which were paid to Institutions.
An Institution with which a Fund has entered into an Agreement
may charge a Customer one or more of the following types of fees, as agreed upon
by the Institution and the Customer, with respect to the cash management or
other services provided by the Institution: (i) account fees (a fixed amount per
month or per year); (ii) transaction fees (a fixed amount per transaction
processed); (iii) compensation balance requirements (a minimum dollar amount a
Customer must maintain in order to obtain the services offered); or (iv) account
maintenance fees (a periodic charge based upon the percentage of assets in the
account or of the dividend paid on those assets). Services provided by an
Institution to Customers are in addition to, and not duplicative of, the
services to be provided under each 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.
Each Fund has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other financial intermediaries
(collectively, "Service Organizations") or, if applicable, their designees to
enter confirmed purchase and redemption orders on behalf of their clients and
customers, with payment to follow no later than the Fund's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Fund may be
deemed to have received a purchase or redemption order when a Service
Organization, or, if applicable, its authorized designee, accepts the order.
Such orders received by the Fund in proper form will be priced at the Fund's net
asset value next computed after they are accepted by the Service Organization or
its authorized designee. Service Organizations may impose transaction or
administrative charges or other direct fees, which charges or fees would not be
imposed if Fund shares are purchased directly from the Funds.
For administration, subaccounting, transfer agency and/or
other services, CSAM or its affiliates may pay Service Organizations a fee of up
to .40% of the average
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<PAGE> 147
annual value of accounts with the Funds maintained by such Service
Organizations. Service Organizations may also be reimbursed for marketing costs.
The Service Fee payable to any one Service Organization is determined based upon
a number of factors, including the nature and quality of services provided, the
operations processing requirements of the relationship and the standardized fee
schedule of the Service Organization or recordkeeper. The Funds may reimburse
part of the Service Fee at rates they would normally pay to the transfer agent
for providing the services.
Advisor shares. Certain Institutions may receive additional
fees from CSAMSI, CSAM or their affiliates for providing supplemental services
in connection with investments in a fund. Institutions may also be reimbursed
for marketing and other costs. Additional fees may be up to 0.10% per year of
the value of fund accounts maintained by the firm. Fees payable to any
particular Institution are determined based upon a number of factors, including
the nature and quality of the services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Institution. To the extent that CSAMSI, CSAM or their affiliates provide
additional compensation or reimbursements for marketing expenses, such payments
would not represent an additional expense to the fund or its shareholders.
General. The Distribution Plans 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/Trustees who are not interested
persons of a Fund and who have no direct or indirect financial interest in the
operation of the Distribution Plan ("Independent Directors/Trustees"). Any
material amendment of the Distribution Plan would require the approval of the
Board in the same manner. The Distribution Plans may not be amended to increase
materially the amount to be spent under it without shareholder approval of the
Advisor Shares. The Distribution Plans may be terminated at any time, without
penalty, by vote of a majority of the Independent Directors/Trustees or by a
vote of a majority of the outstanding voting securities of the Advisor Shares of
a Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of a 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, a 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 Funds may also suspend or postpone the recordation of
an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, a Fund may
make payment wholly
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<PAGE> 148
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. Each Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which a 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 a Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a 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 each Fund. A Common Shareholder may exchange Common
Shares of a Fund for Common Shares of another Fund or for Common Shares of
another Warburg Pincus Fund at their respective net asset values. An Advisor
Shareholder may exchange Advisor Shares of a Fund for Advisor Shares of another
Warburg Pincus fund at their respective net asset values. If an exchange request
is received by Warburg Pincus Funds or their agent prior to the close of regular
trading on the NYSE, the exchange will be made at each 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 a 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 Funds reserve the right to refuse exchange purchases by
any person or group if, in CSAM's judgment, a 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
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<PAGE> 149
timing" strategy) is discerned. The Funds reserve the right to terminate or
modify the exchange privilege at any time upon 30 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in each 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 a 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.
The Funds and Their Investments
Each Fund intends to continue to qualify as a regulated
investment company under the Code during each of its taxable years. To so
qualify, a 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 or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; and (b)
diversify its holdings 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, 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 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, each 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 a
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
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<PAGE> 150
not later than such December 31, provided that such dividend is actually paid by
the Fund during January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income, including the income
(if any) imputed with respect to investments in zero coupon securities. The
Board of each 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). Each Fund currently expects to
distribute any such excess annually to its shareholders. However, if a 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, a Fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who (a)
will be required to include in income for United Stares federal income tax
purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate shares
of the 35% tax paid by the Fund on the undistributed amount against their United
States federal income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their tax liabilities, if any, and (c) will be
entitled to increase their tax basis, for United States federal income tax
purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in their 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 IRS.
The Code imposes a 4% nondeductible excise tax on a 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. In
addition, the minimum amounts that must be distributed in any year to avoid the
excise tax will be increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous year. Each 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 each 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, a 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, a Fund's distributions,
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<PAGE> 151
to the extent derived from the Fund's current or accumulated earnings and
profits (including amounts derived from interest on tax-exempt obligations),
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. If a 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. Moreover, 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.
Special Tax Matters Regarding the Fixed Income Fund, Global Fixed Income Fund
and Intermediate Government Fund
Each 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 each Fund to mark to market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out) and (b) may cause
the Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it engages in short sales
against the box or acquires any foreign currency, forward contract, option,
futures contract or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.
Special Tax Matters Regarding the Intermediate Government Fund
Interest income on most types of Government Securities is
generally exempt from state and local personal income taxes if the owner of such
Government Securities is an individual. Furthermore, some states, if certain
requirements are satisfied, permit individual investors to treat the portion of
their regulated investment company dividends that is attributable to interest
income on these Government Securities as tax-exempt income for state or local
income tax purposes. Other states treat all of these dividends as subject to
state and local personal income taxation. Investors in the Fund should consult
their own tax advisers to assess the consequences of investing in the Fund under
state and local laws generally and to determine whether dividends paid by the
Fund that represent interest derived from Government Securities are exempt from
any applicable state or local taxes.
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<PAGE> 152
Special Tax Considerations Regarding the New York Municipal Fund
Because the New York Municipal Fund will distribute
exempt-interest dividends, interest on indebtedness incurred by a shareholder to
purchase or carry Fund shares is not deductible for federal income tax purposes
or for New York State and New York City personal income tax purposes. If a
shareholder receives an exempt-interest dividend with respect to any share of
the Fund and if such share is held by the shareholder for six months or less,
then any loss on the sale or exchange of such share, to the extent of such
exempt-interest dividend, shall be disallowed. In addition, the Code may require
a shareholder, if he or she receives exempt-interest dividends, to treat as
taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of any exempt
interest dividend paid by the Fund which represents income from certain "private
activity bonds" may not retain its tax-exempt status for federal income tax
purposes in the hands of a shareholder who is a "substantial user" (or person
related thereto) of a facility financed by such bonds (although similar rules
generally do not apply for purposes of New York State and New York City personal
income taxes).
Under the Code, interest on "specified private activity bonds"
issued after August 7, 1986, although otherwise exempt from federal income tax,
is treated as an item of tax preference for purposes of the alternative minimum
tax on individuals and corporations. If the New York Municipal Fund invests in
such specified private activity bonds, it will report a portion of the
exempt-interest dividends paid to its shareholders as interest on specified
private activity bonds, and hence as a tax preference item. Exempt interest
dividends are included in the adjusted current earnings of a corporation for
purposes of the corporate alternative minimum tax. The amount of the alternative
minimum tax imposed by the Code is the excess, if any, of the taxpayer's
"tentative minimum tax" over the taxpayer's regular tax liability for the
taxable year. The "tentative minimum tax" is equal to (i) 26% of the first
$175,000, and 28% of any amount over $175,000 (for corporations, 20% of the
whole) of the taxpayer's alternative minimum taxable income (defined as regular
taxable income modified by certain adjustments and increased by the taxpayer's
"items of tax preference," including in the case of a corporation the adjustment
for adjusted current earnings and the tax preference for tax-exempt interest on
specified private activity bonds described above) for the taxable year in excess
of the exemption amount, less (ii) the alternative minimum tax foreign tax
credit for the taxable year. The exemption amount is $40,000 for corporations,
$45,000 for those filing joint returns, lesser amounts for others, and is phased
out over certain income levels. Prospective investors should consult their own
tax advisers with respect to the possible application of the alternative minimum
tax to their tax situations.
In addition, the receipt of New York Municipal Fund dividends
and distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they are (i) substantial users with respect to a
facility or related to such users within the meaning of the Code or (ii) subject
to a federal alternative minimum tax, any applicable state alternative minimum
tax, the federal branch profits tax, or the federal excess net passive income
tax.
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While the New York Municipal Fund does not expect to realize a
significant amount of net capital gains, any such gains realized will be
distributed annually as described in the Fund's Prospectus. Such distributions
("capital gain dividends"), if any, will be taxable to the shareholders as
long-term capital gains, regardless of how long a shareholder has held the
Fund's shares, and will be designated as capital gain dividends in a written
notice mailed by the Fund to the shareholders after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend with respect to
any share and if such share is held by the shareholder for six months or less,
then any loss (to the extent not disallowed pursuant to the other six month rule
described above) on the sale or exchange of such share, to the extent of the
capital gain dividend, shall be treated as a long-term capital loss.
Capital gain distributions by the New York Municipal Fund
result in a reduction in the net asset value of the Fund's shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, such
distribution would nevertheless be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time reflects the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive a
partial return of capital upon the distribution, which will nevertheless be
taxable to them.
If, for any full fiscal year, the New York Municipal Fund's
total distributions exceed net investment income and net realized capital gains,
the excess distributions may be treated as a taxable dividend or as a tax-free
return of capital (up to the amount of the shareholder's tax basis in his or her
shares). The amount treated as a tax-free return of capital will reduce a
shareholder's adjusted basis in his or her shares. Pursuant to the requirements
of the 1940 Act and other applicable laws, a notice will accompany any
distribution paid from sources other than net investment income.
Dividends paid by the New York Municipal Fund from tax-exempt
interest are designated as tax-exempt in the same percentage of the day's
dividend as the actual tax-exempt income earned by the Fund on that day. Thus,
the percentage of the dividend designated as tax-exempt may vary from day to
day. Similarly, dividends paid by the Fund from interest on New York State
Municipal Obligations will be designated as exempt from New York State and New
York City personal income taxation in the same percentage of the day's dividend
as the actual interest on New York's Municipal Obligations earned by the Fund on
that day.
It should be noted that the portion of any New York Municipal
Fund dividends constituting New York exempt-interest dividends is excludable
from income for New York State and New York City personal income tax purposes
only. Any dividends paid to the Fund's shareholders subject to state or city
franchise or corporate income tax therefore may be taxed as ordinary dividends
to such shareholders, notwithstanding that all or a portion of such dividends is
exempt from state or city personal income tax.
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Potential shareholders in the New York Municipal Fund,
including, in particular, corporate shareholders which may be subject to either
New York franchise tax or New York corporate income tax, should consult their
tax advisers with respect to (i) the application of corporate and franchise
taxes to the receipt of Fund dividends and as to their own state tax situation
in general, and (ii) the application of other state and local taxes to the
receipt of the Fund's dividends and distributions.
Although the New York Municipal Fund expects to be relieved of
all or substantially all federal, New York State and New York City income or
franchise taxes, depending upon the extent of its activities in other states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such other state or locality could be subject to state and local
tax. Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to shareholders.
Passive Foreign Investment Companies (Fixed Income and Global Fixed Income Funds
only)
If a Fund purchases shares in certain foreign investment
entities, called "passive foreign investment companies" ("PFICs"), 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 a 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, a Fund would be
required to obtain certain annual information from the PFICs in which it
invests, which may be difficult or impossible to obtain.
Alternatively, a 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, a 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, a 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. A 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. Each Fund will make the appropriate tax elections if
possible, and take any additional steps that are necessary to mitigate the
effect of these rules.
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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 a 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 a 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 a 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).
Any dividend declared by a 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.
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.
If a 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 a Fund, within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired will be
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increased to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a 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
Dividends and interest received by a Fund with respect to its
foreign investments may be subject to withholding and other taxes imposed by
foreign countries. However, tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If either of the Fixed Income
Fund or the Global Fixed Income Fund qualifies as a regulated investment
company, if certain asset and distribution requirements are satisfied and if
more than 50% of the respective Fund's total assets at the close of its taxable
year consists of stock or securities of foreign corporations, that Fund may
elect for U.S. income tax purposes to treat foreign income taxes paid by it as
paid by its shareholders. The Fixed Income Fund or the Global Fixed Income Fund
may qualify for and make this election in some, but not necessarily all, of its
taxable years. As a result, shareholders of the Fund would be required to
include their pro rata portions of such foreign taxes in computing their taxable
incomes 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, each
Fund will report to its shareholders the amount per share of such foreign 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
A Fund may be required to withhold, for United States federal
income tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
Notices
Shareholders will be notified annually by a 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 Funds and Their Investments") made by the Fund to its
shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
United States federal income tax status of certain dividends, distributions and
deemed distributions that were
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paid (or that are treated as having been paid) by a Fund to its shareholders
during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUND.
DETERMINATION OF PERFORMANCE
From time to time, a 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.
With respect to a Funds' Common and Advisor Shares, the Fund's
average annual total returns for the period ended October 31, 1999 were as
follows (performance figures calculated without the waiver of fees, if any, are
noted in parenthesis):
Performance (Common Shares)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement
One-Year Five-Year Ten-Year of operations
-------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Income Fund 0.92% (0.89%) 7.24% (7.14%) 7.35% (7.21%) 7.50% (7.35%)
(commenced operations on
August 17, 1987)
Global Fixed Income Fund
(commenced operations on 2.18% (1.54%) 6.75% (6.17%) N/A N/A 7.26% (6.16%)
November 1, 1990)
Intermediate Government Fund
(commenced operations on -0.05% (-0.32%) 6.62% (6.21%) 7.06% (6.68%) 7.51% (6.91%)
August 22, 1988)
New York Municipal Fund
(commenced operations on -0.26% (-0.36%) 4.96% (4.82%) 5.83% (5.53%) 5.49% (5.00%)
April 1, 1987)
</TABLE>
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Performance (Advisor Shares)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement of
One-Year operations
-------- ----------
<S> <C> <C> <C> <C>
Fixed Income Fund 0.67% (0.64%) 6.07% (5.99%)
(Advisor Class commenced operations on
July 3, 1996)
Global Fixed Income Fund 1.41% (-8.15%) 4.02% (0.79%)
(Advisor Class commenced operations on
August 12, 1996)
Intermediate Government Fund -0.39% (-0.67%) 4.74% (3.82%)
(Advisor Class commenced operations on
August 15, 1997)
</TABLE>
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)(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. Investor should note that the 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 each Fund seeks long-term
appreciation and that such return may not be representative of any Fund's return
over a longer market cycle. Each 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
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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).
A 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.
Yield is calculated by annualizing the net investment income
generated by a Fund over a specified thirty-day period according to the
following formula:
YIELD = 2[( a-b +1)(6)-1]
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
<TABLE>
<CAPTION>
Common Shares Advisor Shares
------------- --------------
Fund With Waiver Without Waiver With Waiver Without Waiver
- ---- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Fixed Income Fund 6.20% 6.07% 6.02% 5.89%
Global Fixed Income Fund 5.79% 5.22% 5.28% 4.72%
Intermediate Government Fund 5.79% 5.58% 5.53% 5.34%
New York Municipal Fund 4.10% 3.82% N/A N/A
</TABLE>
Tax equivalent yield is calculated over a specified thirty-day
period by dividing that portion of the Fund's yield which is tax-exempt by one
minus a stated income tax rate (the aggregate of the maximum federal, state and
local income tax rates) and adding the product to that portion, if any, of the
yield of the Municipal Fund that is not tax-exempt. The New York Municipal
Fund's tax-equivalent yield for the thirty-day period ending October 31, 1999
was 7.65%.
The performance of a class of a 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 and yield are based on historical earnings and are 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
82
<PAGE> 160
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 performance figures
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. A 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.
Each 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; (ii) in the
case of the Fixed Income Fund, with the Lehman Intermediate Government/Corporate
Bond Index (an unmanaged index of government and corporate bonds calculated by
Lehman Brothers); in the case of the Global Fixed Income Fund, with the Salomon
Brothers World Government Bond Index (a hedged, market-capitalization weighted
index designed to track major government debt markets), Lehman Brothers
Aggregate Index and the Lipper World Income Average (an average of funds that
invest primarily in non-U.S. dollar and U.S. dollar debt instruments); in the
case of the Intermediate Government Fund, with the Lehman Intermediate
Government Bond Index (an unmanaged index of government bonds calculated by
Lehman Brothers); and in the case of the New York Municipal Fund, with the
Lehman 5-Year Municipal Bond Index and the Lipper New York Intermediate
Municipal Debt Funds Average (an unmanaged index of 61 Intermediate Municipal
Debt Funds calculated by Lipper Analytical Services); or (iii) other appropriate
indexes of investment securities or with data developed by CSAM derived from
such indexes. A Fund may also include evaluations of the Fund published by
nationally recognized ranking services and by financial publications such as
Barron's, Business Week, Financial Times, Forbes, Fortune, Inc., Institutional
Investor, Investor's Business Daily, Money, Morningstar, Mutual Fund Magazine,
SmartMoney, The Wall Street Journal and Worth. Morningstar, Inc. rates funds in
broad categories based on risk/reward analyses over various time periods. In
addition, each 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 or other communications to investors or in
advertising, each Fund may also describe the general biography or work
experience of the portfolio managers of the Fund and may include quotations
attributable to the portfolio managers describing approaches taken in managing
the Fund's investments, research methodology underlying stock selection or the
Fund's investment objective. In addition, a Fund and its portfolio managers may
render periodic updates of Fund activity, which may include a discussion of
significant portfolio holdings; analysis of holdings by industry, country,
credit quality and other characteristics;
83
<PAGE> 161
and comparison and analysis of the Fund with respect to relevant market industry
benchmarks. Each Fund may also discuss measures of risk, the continuum of risk
and return relating to different investments and the potential impact of foreign
stocks on a portfolio otherwise composed of domestic securities.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Funds. The financial statements for the fiscal year ended
October 31, 1999 that are incorporated by reference in this Statement of
Additional Information have been audited by PwC, whose report thereon appears
elsewhere herein and have been incorporated by reference herein in reliance upon
the report of such firm of independent accountants given upon their authority as
experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Funds and
provides legal services from time to time for CSAM and CSAMSI.
MISCELLANEOUS
The Funds are 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 Funds or any member of the public
regarding the advisability of investing in securities generally or in the Funds
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 Funds' net asset value, nor is Warburg, Pincus & Co. a
distributor of the Funds. Warburg, Pincus & Co. has no obligation or liability
in connection with the administration, marketing or trading of the Funds.
As of January 31, 2000, the name, address and percentage of
ownership of each person that owns of record 5% or more of each Fund's
outstanding shares were as follows:
<TABLE>
<CAPTION>
FIXED INCOME FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc.* 34.55%
Special Custody Account for the Exclusive Benefit
of Customers
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
HSBC Bank USA* 9.68%
FBO Alliance Automation
Systems Daily A/C # 14-504970
P.O. Box 1329
Buffalo, NY 14240-1329
</TABLE>
84
<PAGE> 162
<TABLE>
<CAPTION>
<S> <C> <C>
HSBC Bank USA* 38.50%
FBO Attransco Retirement
P.O. Box 1329
Buffalo, NY 14240-1329
IN Trust* 50.76%
c/o Team Horizon
3435 Stelzer Road, Ste. 1000
Columbus, OH 43219-6004
Salomon Smith Barney Inc.* 8.78%
Book Entry Account
Attn.: Matt Maestri
333 West 34 Street
7th Floor Mutual Funds Dept.
New York, NY 10001-2483
Nat'l Financial Svcs. Corp.* 6.48%
FBO Customers
Church St. Station
P.O. Box 3908
New York, NY 10008-3908
</TABLE>
<TABLE>
<CAPTION>
GLOBAL FIXED INCOME FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc.* 30.58%
Special Custody Account for the Exclusive Benefit
of Customers
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
IBJ Funds Distributor Inc.* 99.22%
Attn: Georgette Horton
90 Park Avenue, Fl. 10
New York, NY 10016-1301
Nat'l Financial Svcs. Corp.* 12.41%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Prudential Securities Inc.* 6.98%
For Exclusive Benefit of Customer PC
1 New York Plaza
New York, NY 10004-1902
</TABLE>
85
<PAGE> 163
<TABLE>
<CAPTION>
<S> <C> <C>
Salomon Smith Barney Inc.* 21.61%
Book Entry Account
Attn.: Matt Maestri
333 West 34 Street
7th Floor Mutual Funds Dept.
New York, NY 10001-2483
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc.* 29.73%
Special Custody Account for the Exclusive Benefit
of Customers
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
Albert J. Lagerman 99.71%
Gene W. Reisinger TTEES
Family Practice Center PC
401k Trust
307 E. Chestnut Street
Mifflinburg, PA 17844-9678
Nat'l Financial Svcs. Corp.* 9.77%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL FUND Common Shares
-------------
<S> <C> <C>
Christopher W. Brody 6.07%
30 East 71st Street
New York, NY 10021-4956
Charles Schwab & Co., Inc.* 19.82%
Special Custody Account for the Exclusive Benefit
of Customers
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
* The Funds believe that these entities are not the beneficial owner of shares
held of record by them.
86
<PAGE> 164
FINANCIAL STATEMENTS
Each Fund's audited annual report, dated October 31, 1999,
which either accompanies this Statement of Additional Information or has
previously been provided to the investor to whom this Statement of Additional
Information is being sent, is incorporated herein by reference with respect to
all information regarding the relevant Fund included therein. Each Fund will
furnish without charge a copy of the annual reports upon request by calling
Warburg Pincus Funds at 800-927-2874.
87
<PAGE> 165
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 Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although they are 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 has
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, C - Debt rated BB, B, CCC, CC and C is
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 C the highest degree of
speculation. While such bonds will likely have
<PAGE> 166
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.
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 from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest
A-2
<PAGE> 167
payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
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-3
<PAGE> 168
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.
Municipal Obligations Ratings
The following summarizes the ratings used by S&P for 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 they are 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 has
an adequate capacity to pay interest and repay principal. Although adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is
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 C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-4
<PAGE> 169
BB - Bonds rated BB have 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 - Bonds rated B have 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.
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 from "AA" to "CCC" 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 highest four municipal ratings
used by Moody's:
Aaa - Bonds which 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 edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-5
<PAGE> 170
Aa - Bonds which are rated as are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
NOTE: Those bonds in the Aa, A, Baa, BA and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
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-6
