<PAGE>
As filed with the U.S. Securities and Exchange Commission
on May 30, 2000
Securities Act File No. 33-47880
Investment Company Act File No. 811-6670
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 19 [x]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 20 [x]
(Check appropriate box or boxes)
Credit Suisse Institutional Fund, Inc.
(formerly known as Warburg, Pincus Institutional Fund, Inc.)
.......................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Hal Liebes, Esq.
Credit Suisse Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
......................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE>
Approximate Date of Proposed Public Offering: August 8, 2000
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[x] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
----------------------------------
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
CREDIT | ASSET
SUISSE | MANAGEMENT
SUBJECT TO COMPLETION, DATED MAY 30, 2000
PROSPECTUS
, 2000
CREDIT SUISSE INSTITUTIONAL FUND, INC.
- CASH RESERVE PORTFOLIO
- HIGH YIELD PORTFOLIO
As with all mutual funds, the Securities and Exchange Commission has not
approved these portfolios, nor has it passed upon the adequacy or accuracy of
this PROSPECTUS. It is a criminal offense to state otherwise.
Credit Suisse Institutional Funds are advised by Credit Suisse Asset Management,
LLC.
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--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
KEY POINTS ...............................................................4
Goal and Principal Strategies ........................................4
Investor Profile .....................................................4
A Word About Risk ....................................................6
INVESTOR EXPENSES ........................................................8
Fees and Portfolio Expenses ..........................................8
Example ..............................................................9
THE PORTFOLIOS IN DETAIL ................................................10
The Management Firm .................................................10
Portfolio Information Key ...........................................10
CASH RESERVE PORTFOLIO ..................................................12
HIGH YIELD PORTFOLIO ....................................................14
MORE ABOUT RISK .........................................................16
Introduction ........................................................16
Types of Investment Risk ............................................16
Certain Investment Practices ........................................18
MEET THE MANAGERS .......................................................22
ABOUT YOUR ACCOUNT ......................................................24
Share Valuation .....................................................24
Account Statements ..................................................24
Distributions .......................................................24
Taxes ...............................................................25
BUYING SHARES ...........................................................26
SELLING SHARES ..........................................................28
OTHER POLICIES ..........................................................30
FOR MORE INFORMATION ............................................back cover
</TABLE>
3
<PAGE>
KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
PORTFOLIO/RISK FACTORS GOAL STRATEGIES
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH RESERVE PORTFOLIO High current income - Invests in high-quality money-
Risk factors: consistent with liquidity market instruments:
CREDIT RISK and stability of principal - obligations issued or guaranteed
INCOME RISK by the U.S. government, its agencies
INTEREST-RATE RISK or instrumentalities
MARKET RISK - bank and corporate debt obligations
REGULATORY RISK - Portfolio managers select investments
based on factors such as yield, maturity
and liquidity, within the context of their
interest-rate outlook
- Seeks to maintain a stable share
price of $1
----------------------------------------------------------------------------------------------------------
</TABLE>
- INVESTOR PROFILE
THIS PORTFOLIO IS DESIGNED FOR INVESTORS WHO:
- want to preserve the value of their investment
- are seeking an investment for the money-market portion of an
asset-allocation portfolio
- want easy access to their money though checkwriting and wire-redemption
privileges
- are investing emergency reserves or other money for which safety and
accessibility are more important than total return
IT MAY NOT BE APPROPRIATE IF YOU:
- want federal deposit insurance
- desire the higher income available from longer-term fixed-income funds
- are investing for capital appreciation
You should base your selection of a portfolio on your own goals, risk
preferences and time horizon.
4
<PAGE>
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
PORTFOLIO/RISK FACTORS GOAL STRATEGIES
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD PORTFOLIO High total return - Invests primarily in high-yield, higher-
Risk factors: risk fixed-income securities (junk bonds)
CREDIT RISK - Typically maintains a weighted-average
INTEREST-RATE RISK portfolio maturity of between five and
MARKET RISK 15 years
NON-DIVERSIFIED STATUS - Emphasizes top-down analysis of
market sectors and themes
- Seeks to allocate risk by investing
among a variety of industry sectors
--------------------------------------------------------------------------------------------------
</TABLE>
- INVESTOR PROFILE
THIS PORTFOLIO IS DESIGNED FOR INVESTORS WHO:
- are seeking investment income
- want to diversify their portfolios with fixed-income funds
- are willing to accept risk and volatility
IT 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 portfolio on your own goals, risk
preferences and time horizon.
BECAUSE THE HIGH YIELD PORTFOLIO INVOLVES A HIGHER LEVEL OF RISK, YOU
SHOULD CONSIDER IT ONLY FOR THE AGGRESSIVE PORTION OF YOUR PORTFOLIO. THE HIGH
YIELD PORTFOLIO MAY NOT BE APPROPRIATE FOR EVERYONE.
5
<PAGE>
- A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the portfolios are discussed below. Before you
invest, please make sure you understand the risks that apply to your portfolio.
As with any mutual fund, you could lose money over any period of time.
Investments in the portfolios are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
CREDIT RISK
BOTH PORTFOLIOS
The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation.
INCOME RISK
CASH RESERVE PORTFOLIO
The portfolio's income level may decline because of falling interest rates
and other market conditions. The portfolio's yield will vary from day to day,
generally reflecting changes in overall short-term interest rates. This should
be an advantage when interest rates are rising, but not when rates are falling.
INTEREST-RATE RISK
BOTH PORTFOLIOS
Changes in interest rates may cause a decline in the market value of an
investment. With 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.
A sharp and unexpected rise in interest rates could cause the Cash Reserve
Portfolio's share price to drop below $1. However, the relatively short maturity
of securities held in money-market portfolios--a means of achieving an overall
portfolio objective of principal safety--reduces their potential for price
fluctuation.
MARKET RISK
BOTH PORTFOLIOS
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. 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.
6
<PAGE>
NON-DIVERSIFIED STATUS
HIGH YIELD PORTFOLIO
Compared to a diversified mutual fund, a non-diversified portfolio may
invest a greater proportion of its assets in the securities of fewer companies.
As a result, the portfolio may be subject to greater volatility with respect to
their respective portfolio securities than a mutual fund that is more broadly
diversified.
REGULATORY RISK
CASH RESERVE PORTFOLIO
Governments, agencies or other regulatory bodies may adopt or change laws
or regulations that could adversely affect the issuer or market value of a
portfolio security, or the portfolio's performance.
7
<PAGE>
INVESTOR EXPENSES
FEES AND PORTFOLIO EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
portfolio operating expense figures are for the fiscal year ended , 2000.
<TABLE>
<CAPTION>
CASH RESERVE HIGH YIELD
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------
<S> <C> <C>
SHAREHOLDER FEES
(paid directly from your investment)
--------------------------------------------------------------------------------
Sales charge "load" on purchases NONE NONE
Deferred sales charge "load" NONE NONE
Sales charge "load" on reinvested distributions NONE NONE
Redemption fees NONE NONE
Exchange fees NONE NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(deducted from portfolio assets)
--------------------------------------------------------------------------------
Management fee .10% .70%
Distribution and service (12b-1) fee NONE NONE
Other expenses(1) .22% .39%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(2) .32% 1.09%
</TABLE>
(1) Other expenses are based on estimated amounts to be charged in the current
fiscal period.
(2) Portfolio service providers have voluntarily agreed to waive some of their
fees and reimburse some expenses. These waivers and reimbursements are
expected to reduce portfolio expenses as follows:
<TABLE>
<CAPTION>
EXPENSES AFTER WAIVERS CASH RESERVE HIGH YIELD
AND REIMBURSEMENTS PORTFOLIO PORTFOLIO
<S> <C> <C>
Management fee .00% .31%
Distribution and service (12b-1) fee NONE NONE
Other expenses .20% .39%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES .20% .70%
</TABLE>
8
<PAGE>
EXAMPLE
This example may help you compare the cost of investing in these portfolios 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 portfolio returns 5% annually, expense ratios
remain as listed in the first table on the opposite page (before fee waivers
and expense reimbursements or credits), and you close your account at the end
of each of the time periods shown. Based on these assumptions, your cost
would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
-------------------------------------------------------------------------------
<S> <C> <C>
CASH RESERVE PORTFOLIO $ 33 $103
HIGH YIELD PORTFOLIO $111 $347
</TABLE>
9
<PAGE>
THE PORTFOLIOS IN DETAIL
- THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10017
- Investment adviser for the portfolios
- Responsible for managing each portfolio's assets according to its goal and
strategies
- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse Group (Credit Suisse), one
of the world's leading banks
- Credit Suisse Asset Management companies manage more than $73 billion in
the U.S. and $208 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those
in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw
and Zurich) are not registered with the U.S. Securities and Exchange
Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this PROSPECTUS.
- PORTFOLIO INFORMATION KEY
Concise descriptions of each portfolio begin on the next page. Each
description provides the following information:
GOAL AND STRATEGIES
The portfolio's particular investment goal and the strategies it intends to
use in pursuing that goal. Percentages of portfolio assets are based on total
assets unless indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the portfolio invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the portfolio. Additional risk
factors are included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser to handle the
portfolio's day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2000 fiscal year. Actual expenses may be higher
or lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the portfolio. Expressed as a percentage of average
net assets after waivers.
- OTHER EXPENSES FEES paid by the portfolio for items such as but not limited
to administration, transfer agency, custody, auditing, legal registration
fees and miscellaneous expenses. Expressed as a percentage of average net
assets after waivers, credits and reimbursements.
10
<PAGE>
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11
<PAGE>
CASH RESERVE PORTFOLIO
- GOAL AND STRATEGIES
The Cash Reserve Portfolio seeks high current income consistent with
liquidity and stability of principal. To pursue this goal, it invests in
high-quality, U.S. dollar-denominated money-market instruments. The portfolio
seeks to maintain a stable $1 share price.
In selecting securities, the portfolio managers may examine the
relationships among yields on various types and maturities of money-market
securities in the context of their outlook for interest rates. For example,
commercial paper often offers a yield advantage over Treasury bills. And if
rates are expected to fall, longer maturities may be purchased to try to
preserve the portfolio's income level. Conversely, shorter maturities may be
favored if rates are expected to rise.
- PORTFOLIO INVESTMENTS
This portfolio invests in the following types of money-market instruments:
- Government securities, including U.S. Treasury bills and other obligations
of the U.S. government, its agencies or instrumentalities
- U.S. and foreign bank obligations such as certificates of deposit, bankers'
acceptances, time deposits, commercial paper and debt obligations
- commercial paper and notes of other corporate issuers, including
variable-rate master demand notes and other variable-rate obligations
- repurchase agreements
No more than 5% of assets may be invested in securities rated in the
second-highest short-term rating category (or unrated equivalents). The rest of
the portfolio's investments must be in the highest short-term rating category.
The portfolio maintains an average maturity of 90 days or less, and only
purchases securities that have (as determined under SEC rules) remaining
maturities of 397 days or less. To a limited extent, the portfolio may also
engage in other investment practices.
- RISK FACTORS
This portfolio's principal risk factors are:
- credit risk
- income risk
- interest-rate risk
- market risk
- regulatory risk
The portfolio's yield will vary with changes in interest rates. If interest
rates fall, your dividend income will likely decline.
Since it is managed to maintain a constant $1 share price, the portfolio
should have little risk of principal loss. However, there is no assurance the
portfolio will avoid principal losses in the rare event that portfolio holdings
default or interest rates rise sharply in an unusually short period.
These risks are discussed in "More About Risk." That section also details
other investment practices the portfolio may use. Please read "More About Risk"
carefully before you invest.
12
<PAGE>
- PORTFOLIO MANAGEMENT
Jose A. Rodriguez and _____ manage the portfolio. You can find out more
about them in "Meet the Managers".
- INVESTOR EXPENSES
Expected expenses for the 2000 fiscal period:
<TABLE>
<S> <C>
Management fee .00%
All other expenses .20%
Total expenses .20%
</TABLE>
13
<PAGE>
HIGH YIELD PORTFOLIO
- GOAL AND STRATEGIES
The High Yield Portfolio seeks high total return. To pursue this goal, it
invests primarily in fixed-income securities rated below investment grade by
primary ratings services such as Standard & Poor's Ratings Services and Moody's
Investors Service. These high-yield, higher-risk securities are commonly known
as "junk bonds."
In choosing investments for the portfolio, the portfolio managers:
- emphasize top-down analysis of industry sectors and themes to determine
which sectors may benefit from current and future changes in the economy
- seek to allocate risk by investing among a variety of industry sectors
- look at the financial condition of the issuers (including debt/equity
ratios), as well as features of the securities themselves
- PORTFOLIO INVESTMENTS
Under normal market conditions, this portfolio invests at least 65% of
assets in high-yield, higher-risk fixed-income securities issued by U.S. and
foreign corporations, governments and agencies.
The portfolio may invest:
- without limit in junk bonds, including their unrated equivalents
- up to 35% of assets in equity and equity-related securities, including
preferred stocks, securities convertible into equity securities, warrants,
rights and options
To a limited extent, the portfolio may also engage in other investment
practices.
- RISK FACTORS
This portfolio's principal risk factors are:
- credit risk
- interest-rate risk
- market risk
- non-diversified risk
The value of your investment will vary with changes in interest rates and
other factors. Typically, a rise in interest rates causes a decline in the
market value of fixed-income securities. You should expect greater fluctuations
in share price, yield and total return compared with less aggressive bond funds.
These fluctuations, whether positive or negative, may be sharp and
unanticipated. Like equity markets, junk-bond markets may react strongly to
adverse news about an issuer or the economy, or to the expectation of adverse
news.
Junk bonds generally provide higher yields than higher-rated debt
securities of similar maturity, but are subject to greater credit, liquidity and
valuation risks. These risks are defined in "More About Risk."
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 bond, more senior debt (such as bank loans
and investment-grade bonds) will likely be paid a greater portion of payment
owed to it.
14
<PAGE>
Because investing in junk bonds involves greater investment risk, achieving
the portfolio's investment objective will depend more on the portfolio managers'
analysis than would be the case if the portfolio were investing in
higher-quality bonds.
Although the portfolio managers intend to diversify the portfolio's
investments, the portfolio's non-diversified status allows it to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the portfolio to be more volatile than a
diversified fund.
To the extent that the portfolio invests in foreign securities 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 portfolio may use. Please read that section carefully
before you invest.
- PORTFOLIO MANAGEMENT
Richard Lindquist, Philip Schantz, Misia Dudley, John Tobin and Mary Ann
Thomas manage the portfolio's investment portfolio. You can find out more about
them in "Meet the Managers."
- INVESTOR EXPENSES
Expected expenses for the 2000 fiscal period:
<TABLE>
<S> <C>
Management fee .31%
All other expenses .39%
----
Total expenses .70%
</TABLE>
15
<PAGE>
MORE ABOUT RISK
- INTRODUCTION
A portfolio's goal and principal strategies largely determine its risk
profile. You will find a concise description of each portfolio's risk profile in
"Key Points." The preceding discussions on each portfolio contain more detailed
information. This section discusses other risks that may affect the portfolios.
The "Certain Investment Practices" table in this section takes a more
detailed look at certain investment practices the portfolio may use. Some of
these investment practices have higher risks associated with them. However, each
portfolio has limitations and policies designed to reduce many of the risks.
- TYPES OF INVESTMENT RISK
The following risks are referred to throughout this PROSPECTUS.
ACCESS RISK Some countries may restrict a portfolio'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 portfolio.
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. An issuer's
failure to make scheduled interest or principal payments to a portfolio could
reduce the portfolio's income level and share price.
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 portfolio
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 portfolio 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.
INCOME RISK A portfolio's income level may decline because of falling
interest rates.
16
<PAGE>
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
LIQUIDITY RISK Certain portfolio securities may be difficult or impossible
to sell at the time and the price that the portfolio would like. A portfolio 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
portfolio 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 portfolio'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 portfolio would
generally have to reinvest the proceeds at lower rates.
VALUATION RISK The lack of an active trading market may make it difficult
to obtain an accurate price for a portfolio security.
17
<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
/ X / Permitted without limitation; does not indicate actual use
/20%/ ITALIC TYPE (E.G., 20%) represents an investment limitation as a
percentage of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a
percentage of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
-- Not permitted
<TABLE>
<CAPTION>
CASH RESERVE PORTFOLIO HIGH YIELD PORTFOLIO
INVESTMENT PRACTICE LIMIT
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BORROWING The borrowing of money from banks to meet redemptions or for
other temporary or emergency purposes. SPECULATIVE EXPOSURE RISK. -- 33 1/3%
----------------------------------------------------------------------------------------------------------------------------------
CURRENCY TRANSACTIONS Instruments, such as options, future or forwards, intended
to manage portfolio exposure to currency risk or to enhance total return.
Options, futures or forwards involve the right or obligation to buy or sell a
given amount of foreign currency at a specified price and future date. (1)
CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY, POLITICAL,
SPECULATIVE EXPOSURE, VALUATION RISKS. -- / /
----------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be relatively less developed
or industrialized. Emerging markets often face economic problems that could
subject a portfolio to increased volatility or substantial declines in value.
Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose a portfolio to risks beyond those
generally encountered in developed countries. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, MARKET, OPERATIONAL, POLITICAL, VALUATION RISKS. -- / /
----------------------------------------------------------------------------------------------------------------------------------
EQUITY AND EQUITY-RELATED SECURITIES Common stocks and other securities
representing or related to ownership in a company. May also include warrants,
rights, options, preferred stocks and convertible debt securities. These
investments may go down in value due to stock market movements or
negative company or industry events. LIQUIDITY, MARKET, VALUATION RISKS. -- / /
----------------------------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS U.S. dollar-denominated certificates of
deposit issued or backed by foreign banks and foreign branches of U.S.
banks. CREDIT, INCOME, INTEREST RATE, MARKET, POLITICAL RISKS. / X / / /
----------------------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May include depositary
receipts. CURRENCY, INFORMATION, LIQUIDITY, MARKET, POLITICAL, VALUATION RISKS. / X / / /
----------------------------------------------------------------------------------------------------------------------------------
18
<PAGE>
<CAPTION>
CASH RESERVE PORTFOLIO HIGH YIELD PORTFOLIO
INVESTMENT PRACTICE LIMIT
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts that enable a portfolio
to hedge against or speculate on future changes in currency values, interest
rates or stock indexes. Futures obligate the portfolio (or give it the right, in
the case of options) to receive or make payment at a specific future time based
on those future changes. (1) CORRELATION, CURRENCY, HEDGED EXPOSURE,
INTEREST-RATE, MARKET, SPECULATIVE EXPOSURE RISKS. (2) -- / /
----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated within the four highest
grades (AAA/Aaa through BBB/Baa) by Standard & Poor's or Moody's rating service,
and unrated securities of comparable quality. CREDIT, INTEREST-RATE, MARKET
RISKS. / X / / /
----------------------------------------------------------------------------------------------------------------------------------
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 / / /
----------------------------------------------------------------------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities and convertible 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. -- / X /
----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS The purchase of a security with a commitment to
resell the security back to the counterparty at the same price plus interest.
CREDIT RISK. / X / / /
----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities with restrictions
on trading, or those not actively traded. May include private placements.
LIQUIDITY, MARKET, VALUATION RISKS. 10% /15%/
----------------------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING Lending portfolio securities to financial institutions; a
portfolio receives cash, U.S. government securities or bank letters of credit as
collateral. CREDIT, LIQUIDITY, MARKET, OPERATIONAL RISKS. -- 33 1/3%
----------------------------------------------------------------------------------------------------------------------------------
19
<PAGE>
<CAPTION>
CASH RESERVE PORTFOLIO HIGH YIELD PORTFOLIO
INVESTMENT PRACTICE LIMIT
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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. -- / 5%/
----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS Swaps, structured securities and other instruments that
allow a portfolio 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 portfolio's direct investment. CREDIT, CURRENCY, INFORMATION, INTEREST-RATE,
LIQUIDITY, MARKET, POLITICAL, SPECULATIVE EXPOSURE, VALUATION RISKS. -- / /
----------------------------------------------------------------------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of a portfolio'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 portfolio's principal investment strategies and might
prevent a portfolio from achieving its goal. / / / /
----------------------------------------------------------------------------------------------------------------------------------
VARIABLE-RATE MASTER DEMAND NOTES Unsecured instruments that provide for
periodic adjustments in their interest rate and permit the indebtedness of the
issuer to vary. CREDIT, INTEREST-RATE, LIQUIDITY, MARKET RISKS. / / / /
----------------------------------------------------------------------------------------------------------------------------------
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. 25% /25%/
----------------------------------------------------------------------------------------------------------------------------------
ZERO-COUPON BONDS Debt securities that pay no cash income to holders for either
an initial period or until maturity and are issued at a discount from maturity
value. At maturity, return comes from the difference between purchase price and
maturity value. INTEREST-RATE, MARKET RISKS. -- / /
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The portfolios are not obligated to pursue any hedging strategy and do not
represent that these techniques are available now or will be available at
any time in the future.
2 Each portfolio 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.
20
<PAGE>
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21
<PAGE>
MEET THE MANAGERS
The day-to-day portfolio management of the High Yield Portfolio is the
responsibility of the Credit Suisse Asset Management High Yield Management Team.
The team consists of the following individuals:
[PHOTO] [PHOTO]
RICHARD LINDQUIST PHILIP SCHANTZ
MANAGING DIRECTOR DIRECTOR
- Team member since 1989 - Team member since March 2000
- Joined CSAM in 1995 as a result of - Senior vice president and high
CSAM's acquisition of CS First Boston yield bond analyst at Prudential
Investment Corp. Securities, 1995 to 2000
- With First Boston since 1989
[PHOTO] [PHOTO]
MISIA DUDLEY MARY ANN THOMAS
DIRECTOR DIRECTOR
- Team member since 1989 - Team member since 1997
- Joined CSAM in 1995 as a result of - With CSAM since 1997
CSAM's acquisition of CS First
Boston Investment Corp. - Vice President and high yield
bond analyst at Prudential
- With First Boston since 1989 Insurance Company of America,
1994 to 1997
22
<PAGE>
The day-to-day portfolio management of the Cash Reserve Portfolio is the
responsibility of the Credit Suisse Asset Management Money Market Management
Team. The team consists of the following individuals:
[PHOTO]
JOSE A. RODRIGUEZ
DIRECTOR
- Team member since
- With Credit Suisse Asset Management
since 1999
- Managing director and senior portfolio
manager at Prudential Investments,
1988 to 1999
23
<PAGE>
ABOUT YOUR ACCOUNT
- SHARE VALUATION
The price of your shares is also referred to as their net asset value
(NAV).
For the Cash Reserve Portfolio, NAV is determined at 12:00 noon and at the
close of regular trading on the New York Stock Exchange (NYSE) (currently 4 p.m.
Eastern Time) each day the NYSE is open for business. The NAV for the High Yield
Portfolio is determined at the close of regular trading on the NYSE each day the
NYSE is open for business. NAV is calculated by dividing each portfolio's total
assets, less its liabilities, by the number of shares outstanding in each
portfolio.
The Cash Reserve Portfolio values its securities using amortized cost. This
method values a portfolio holding initially at its cost and then assumes a
constant amortization to maturity of any discount or premium. The amortized cost
method ignores any impact of fluctuating interest rates.
The High Yield Portfolio values its securities based on market quotations
when it calculates its NAV. If market quotations are not readily available,
securities and other assets are valued by another method that the Board of
Directors believes accurately reflects fair value. Debt obligations that will
mature in 60 days or less are valued on the basis of amortized cost, unless the
Board determines that using this method would not reflect an investment's value.
- 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 an investor in a portfolio, you will receive distributions.
Each portfolio may earn dividends from stocks and interest from bond,
money-market and other investments. These are passed along as dividend
distributions. A portfolio 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 Cash Reserve Portfolio usually does not make capital-gain
distributions.
The Cash Reserve Portfolio declares dividend distributions daily and pays
them monthly. The High Yield Portfolio declares and pays dividends distributions
quarterly. The portfolios typically distribute capital gains annually in
December.
Most investors have their distributions reinvested in additional shares of
the same portfolio. Distributions will be reinvested
24
<PAGE>
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
portfolio 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 portfolio continues to meet the requirements for being a
tax-qualified regulated investment company, the portfolio pays no federal income
tax on the earnings it distributes to shareholders.
Distributions you receive from a portfolio, whether reinvested or taken in
cash, are generally considered taxable. Distributions from a portfolio's
long-term capital gains are taxed as long-term capital gains, regardless of how
long you have held portfolio shares. The Cash Reserve Portfolio does not expect
to realize long-term capital gains or to make capital-gain distributions. The
Portfolios will mostly make dividend distributions from other sources (including
short-term capital gains), which are generally taxed as ordinary income.
If you buy shares shortly before or on the "record date"--the date that
establishes you as the person to receive the upcoming distribution--you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099 that is mailed to you every January details your
distributions and their federal tax category, including the portion taxable as
long-term capital gains.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
25
<PAGE>
BUYING SHARES
- OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Institutional Shareholder Service
Center to receive one by mail or fax.
You can make your initial investment by 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 Institutional Fund is open on those days when the NYSE is open,
typically Monday through Friday. For the Cash Reserve Portfolio, if we receive
your request in proper form by 12 p.m. noon or by the close of the NYSE (usually
4 p.m. ET), your transaction will be priced at the NAV determined at 12 p.m.
noon or at that day's closing NAV, respectively. If we receive a request related
to the Cash Reserve Portfolio after that time, it will be priced on the next
business day at the NAV determined at 12 p.m. noon. For the High Yield
Portfolio, if we receive your request in proper form by the close of the NYSE,
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.
MINIMUM INITIAL INVESTMENT
Cash Reserve Portfolio $
High Yield Portfolio $
MINIMUM SUBSEQUENT INVESTMENT
Cash Reserve Portfolio $
High Yield Portfolio $
The minimum initial investment for any group of related persons is an
aggregate $4,000,000. Certain retirement plans for which recordkeeping is
performed on an omnibus basis for multiple participants are not subject to
investment minimums.
FINANCIAL-SERVICES FIRMS
You may be able to buy and sell fund shares through financial-services
firms such as banks, brokers and financial advisors. The portfolios may
authorize 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 portfolio 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 portfolios. Please read the firm's
program materials for any special provisions or additional service features that
may apply to your investment. Certain features of the portfolios, 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.
26
<PAGE>
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- Call our Institutional Shareholder Service Center - Call our Institutional Shareholder Service Center to
to request an exchange from another Credit Suisse request an exchange from another Credit Suisse
Institutional fund or portfolio. Be sure to read Institutional fund or portfolio.
the current PROSPECTUS for the new fund or portfolio.
If you do not have telephone privileges, mail or fax a
If you do not have telephone privileges, mail or fax a letter of instruction.
letter of instruction.
------------------------------------------------------------------------------------------------------------------------------
BY WIRE
------------------------------------------------------------------------------------------------------------------------------
- Complete and sign the NEW ACCOUNT APPLICATION. - Call our Institutional Shareholder Service Center by
4 p.m. ET to inform us of the incoming wire. Please be
- Call our Institutional Shareholder Service Center sure to specify the account registration, account
and fax the signed NEW ACCOUNT APPLICATION by number and the fund and portfolio name on your wire
4 p.m. ET. advice.
- Institutional Shareholder Services will telephone - Wire the money for receipt that day.
you with your account number. Please be sure to
specify the account, registration account number
and the fund and portfolio name on your wire
advice.
- Wire your initial investment for receipt that day.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
27
<PAGE>
SELLING SHARES
<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
------------------------------------------------------------------------------------------------------------------------------
BY MAIL
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Write us a letter of instruction that includes: - Sales of any amount.
- your name(s) and signature(s)
- the fund and portfolio 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 Credit Suisse Institutional
Fund, Inc.
If only a letter of instruction is required, you can fax it
to the Institutional Shareholder Service Center (unless
signature guarantee is required).
------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
------------------------------------------------------------------------------------------------------------------------------
Call our Institutional Shareholder Service Center to - Accounts with telephone privileges.
request an exchange into another Credit Suisse
Institutional fund or portfolio. Be sure to read the If you do not have telephone privileges, mail or fax a
current PROSPECTUS for the new fund or portfolio. letter of instruction to exchange shares.
------------------------------------------------------------------------------------------------------------------------------
BY PHONE
------------------------------------------------------------------------------------------------------------------------------
Call our Institutional Shareholder Service Center to - Accounts with telephone privileges.
request a redemption. You can receive the proceeds
as:
- a check mailed to the address of record
- a wire to your bank
See "By Wire" for details.
------------------------------------------------------------------------------------------------------------------------------
BY WIRE
------------------------------------------------------------------------------------------------------------------------------
- Complete the "Wire Instructions" section of your - Requests by phone or mail.
NEW ACCOUNT APPLICATION.
- For federal-funds wires, proceeds will be wired on
the next business day.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
HOW TO REACH US
Institutional Shareholder Service Center
Toll Free: 800-222-8977
Fax: 212-370-9833
MAIL:
Credit Suisse Institutional Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE:
Boston Financial
Attn: Credit Suisse Institutional
Fund, Inc.
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.
Credit Suisse Institutional Fund, Inc.
[INSTITUTIONAL FUND PORTFOLIO NAME]
DDA# 9904-649-2
F/F/C: [ACCOUNT NUMBER AND 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
- redemption 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 portfolio shares purchased other than by bank wire, bank check, U.S.
Treasury check, certified check or money order, the portfolios 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
portfolio.
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 A.M.-5 P.M. ET
29
<PAGE>
OTHER POLICIES
- TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon
as your purchase order is executed. For the High Yield Portfolio, you begin to
earn dividend distributions the business day after your purchase order is
executed. However, if we receive your purchase order and payment to purchase
shares of the Cash Reserve Portfolio before 12 p.m.
(noon), you begin to earn dividend distributions on that day.
Your purchase order will be canceled and you may be liable for losses of
fees incurred by a portfolio if:
- your investment check 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 12:00
noon (for the Cash Reserve Portfolio) or the end of the next business day (for
the High Yield Portfolio). 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.
- ACCOUNT CHANGES
Call our Institutional Shareholder Service Center to update your account
records whenever you change your address. Institutional Shareholder Services can
also help you change your account information or privileges.
- SPECIAL SITUATIONS
The Institutional Fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change 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 portfolio
operations
- suspend redemptions or postpone payment dates as permitted by the
Investment Company Act of 1940 (such as during periods other than weekends
or holidays when the NYSE is closed or trading on the NYSE is restricted,
or any other time that the SEC permits)
- modify or waive its minimum investment requirements for employees and
clients of its adviser and the adviser's affiliates
- stop offering a portfolio's 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
30
<PAGE>
--------------------------------------------------------------------------------
FOR MORE INFORMATION
More information about these portfolios is available free upon request,
including the following:
- ANNUAL/SEMIANNUAL
REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed
performance information.
The ANNUAL REPORT also contains a letter from the portfolio manager
discussing market conditions and investment strategies that significantly
affected portfolio performance during its past fiscal year.
- OTHER INFORMATION
A current STATEMENT OF ADDITIONAL INFORMATION (SAI), which provides more
details about the portfolios, 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 Credit Suisse Institutional Fund, Inc. to obtain, without
charge, the SAI and ANNUAL and SEMIANNUAL REPORTS and to make shareholder
inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Credit Suisse Institutional Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Credit Suisse Institutional
Fund, Inc.
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBER:
Credit Suisse Institutional Fund, Inc. 811-6670
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 - www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR CSINI-1-0600
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
The information in this PROSPECTUS is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This PROSPECTUS is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any State where the offer or sale is not permitted.
CREDIT ASSET
SUISSE MANAGEMENT
SUBJECT TO COMPLETION, DATED MAY 30, 2000
PROSPECTUS
, 2000
CREDIT SUISSE INSTITUTIONAL FUND, INC.
- GLOBAL TELECOMMUNICATIONS
PORTFOLIO
- LONG-SHORT MARKET NEUTRAL
PORTFOLIO
- MAJOR FOREIGN MARKETS PORTFOLIO
As with all mutual funds, the Securities and Exchange Commission has not
approved these portfolios, nor has it passed upon the adequacy or accuracy of
this PROSPECTUS. It is a criminal offense to state otherwise.
Credit Suisse Institutional Funds are advised by Credit Suisse Asset Management,
LLC.
--------------------------------------------------------------------------------
<PAGE>
CONTENTS
<TABLE>
<S> <C>
KEY POINTS ................................................................ 4
Goal and Principal Strategies ........................................... 4
Investor Profile ........................................................ 4
A Word About Risk ....................................................... 6
INVESTOR EXPENSES ......................................................... 8
Fees and Portfolio Expenses ............................................. 8
Example ................................................................. 9
THE PORTFOLIOS IN DETAIL .................................................. 10
The Management Firms .................................................... 10
Portfolio Information Key ............................................... 11
GLOBAL TELECOMMUNICATIONS PORTFOLIO ....................................... 12
LONG-SHORT MARKET NEUTRAL PORTFOLIO ....................................... 14
MAJOR FOREIGN MARKETS PORTFOLIO ........................................... 16
MORE ABOUT RISK ........................................................... 18
Introduction ............................................................ 18
Types of Investment Risk ................................................ 18
Certain Investment Practices ............................................ 20
MEET THE MANAGERS ......................................................... 24
ABOUT YOUR ACCOUNT ........................................................ 28
Share Valuation ......................................................... 28
Account Statements ...................................................... 28
Distributions ........................................................... 28
Taxes ................................................................... 29
BUYING SHARES ............................................................. 30
SELLING SHARES ............................................................ 32
OTHER POLICIES ............................................................ 34
FOR MORE INFORMATION .................................................back cover
</TABLE>
3
<PAGE>
KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO/RISK FACTORS GOAL STRATEGIES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL TELECOMMUNICATIONS Long-term capital appreciation - Invests in equity securities of U.S. and
PORTFOLIO foreign telecommunications companies
Risk factors: - May invest in companies of all sizes
FOREIGN SECURITIES
MARKET RISK
NON-DIVERSIFIED STATUS
REGULATORY RISK
SECTOR CONCENTRATION
------------------------------------------------------------------------------------------------------------------------------------
MAJOR FOREIGN Long-term capital appreciation - Invests in foreign equity securities
MARKETS PORTFOLIO
Risk factors: - Focuses on the world's major non-U.S.
FOREIGN SECURITIES securities markets
MARKET RISK
- Limited emerging-markets investments
- Favors stocks with discounted valuations,
using a value-based, bottom-up investment
approach
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- INVESTOR PROFILE
THESE PORTFOLIOS ARE DESIGNED FOR INVESTORS WHO:
- have longer time horizons
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are looking for capital appreciation
- want to diversify their portfolios internationally
THEY MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that has a higher degree of volatility
- want to limit your exposure to foreign securities
- are looking for income
You should base your selection of a portfolio on your own goals, risk
preferences and time horizon.
4
<PAGE>
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO/RISK FACTORS GOAL STRATEGIES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-SHORT MARKET NEUTRAL PORTFOLIO Long-term capital appreciation - Seeks a total return greater than the
Risk factors: while minimizing exposure to return of the Salomon Smith Barney
MARKET RISK general equity market risk 1-Month Treasury Bill Index-TM-
NON-DIVERSIFIED STATUS
SHORT POSITIONS - Takes long positions in stocks that the
manager has identified as attractive
- Takes short positions in stocks that the
manager has identified as unattractive
- Seeks minimal net exposure to the general
U.S. equity market and low to neutral
exposure to any particular industry or
specific capitalization range
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- INVESTOR PROFILE
THIS PORTFOLIO IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are investing for capital appreciation
IT MAY NOT BE APPROPRIATE IF YOU:
- are investing for a shorter time horizon
- are uncomfortable with an investment that will fluctuate in value
- are looking for income
You should base your selection of a portfolio on your own goals, risk
preferences and time horizon.
5
<PAGE>
- A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the portfolios are discussed below. Before you
invest, please make sure you understand the risks that apply to your portfolio.
As with any mutual fund, you could lose money over any period of time.
Investments in the portfolios are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
FOREIGN SECURITIES
GLOBAL TELECOMMUNICATIONS PORTFOLIO,
MAJOR FOREIGN MARKETS PORTFOLIO
A portfolio 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. Each of
the portfolios 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 portfolio's ability to bring its capital or income back
to the U.S. Other political risks include economic policy changes, social
and political instability, military action and war.
MARKET RISK
ALL PORTFOLIOS
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments--including stocks
and bonds, and the mutual funds that invest in them.
NON-DIVERSIFIED STATUS
GLOBAL TELECOMMUNICATIONS PORTFOLIO,
LONG-SHORT MARKET NEUTRAL PORTFOLIO
Compared to a diversified mutual fund, a non-diversified portfolio may
invest a greater proportion of its assets in the securities of fewer companies.
As a result, the portfolio may be subject to greater volatility with respect to
their respective portfolio securities than a mutual fund that is more broadly
diversified.
6
<PAGE>
REGULATORY RISK
GLOBAL TELECOMMUNICATIONS PORTFOLIO
Governments, agencies or other regulatory bodies may adopt or change laws
or regulations that could adversely affect the issuer or market value of a
portfolio security, or the portfolio's performance.
SECTOR CONCENTRATION
GLOBAL TELECOMMUNICATIONS PORTFOLIO
A portfolio that invests more than 25% of its net assets in a group of
related industries (market sector) is subject to increased risk.
- A portfolio's performance will largely depend upon the sector's
performance, which may differ in direction and degree from that of the
overall stock market.
- Financial, economic, business, political and other developments affecting
the sector will have a greater effect on the portfolio.
SHORT POSITIONS
LONG-SHORT MARKET NEUTRAL PORTFOLIO
The portfolio takes short positions by selling borrowed securities that it
does not currently own, with the intention of repurchasing them later for a
profit on the expectation that the market price will drop.
Because they expose the portfolio to risks associated with securities it
does not own, short positions involve speculative exposure risk. As a result, if
the portfolio takes short positions in stocks that increase in value, then it
will be likely to underperform similar stock mutual funds that do not take short
positions. In addition, short positions typically involve increased liquidity
risk and transaction costs.
7
<PAGE>
INVESTOR EXPENSES
FEES AND PORTFOLIO EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
portfolio operating expense figures are for the fiscal year ended , 2000.
<TABLE>
<CAPTION>
GLOBAL
TELE- LONG-SHORT MAJOR
COMMUNI- MARKET FOREIGN
CATIONS NEUTRAL MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
<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 PORTFOLIO OPERATING EXPENSES
(deducted from portfolio assets)
--------------------------------------------------------------------------------------------
Management fee 1.00% 1.50%(2) .60%
Distribution and service (12b-1) fee NONE NONE NONE
Other expenses(1) .71% 3.30% .55%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES(3) 1.71% 4.80% 1.15%
</TABLE>
(1) Other expenses are based on estimated amounts to be charged in the current
fiscal period.
(2) The basic management fee is 1.50%. The management fee of the portfolio may
be increased or decreased pursuant to the application of an adjustment
formula based upon the portfolio's investment performance as compared to
the Salomon Smith Barney 1-Month U.S. Treasury Bill Index-TM-. The
management fee, as adjusted, may range from 1.00% to 2.00%.
(3) Portfolio service providers have voluntarily agreed to waive some of their
fees and reimburse some expenses. These waivers and reimbursements are
expected to reduce portfolio expenses as follows:
<TABLE>
<CAPTION>
GLOBAL
TELE- LONG-SHORT MAJOR
EXPENSES AFTER COMMUNI- MARKET FOREIGN
WAIVERS AND CATIONS NEUTRAL MARKETS
REIMBURSEMENTS PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fee .64% .00% .25%
Distribution and service (12b-1) fee NONE NONE NONE
Other expenses .71% 2.00% .55%
TOTAL ANNUAL PORTFOLIO OPERATING
EXPENSES 1.35% 2.00% .80%
</TABLE>
8
<PAGE>
EXAMPLE
This example may help you compare the cost of investing in these portfolios 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 portfolio returns 5% annually, expense ratios
remain as listed in the first table on the opposite page (before fee waivers
and expense reimbursements or credits), and you close your account at the end
of each of the time periods shown. Based on these assumptions, your cost
would be:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
--------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL TELECOMMUNICATIONS PORTFOLIO $174 $539
LONG-SHORT MARKET NEUTRAL PORTFOLIO $480 $1,444
MAJOR FOREIGN MARKETS PORTFOLIO $117 $365
</TABLE>
9
<PAGE>
THE PORTFOLIOS IN DETAIL
- THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
466 Lexington Avenue
New York, NY 10019
- Investment adviser for the portfolios
- Responsible for managing each portfolio's assets according to its goal and
strategies and supervising the activities of the sub-adviser for the Global
Telecommunications Portfolio
- A member of Credit Suisse Asset Management, the institutional asset
management and mutual fund arm of Credit Suisse Group (Credit Suisse), one
of the world's leading banks
- Credit Suisse Asset Management companies manage more than $73 billion in
the U.S. and $208 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those
in Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw
and Zurich) are not registered with the U.S. Securities and Exchange
Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this PROSPECTUS.
CREDIT SUISSE ASSET
MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ
- Sub-adviser for the Global Telecommunications Portfolio
- A member of Credit Suisse Asset Management and a subsidiary of Credit
Suisse Group, one of the world's leading banks
- Manages more than $37 billion in assets
- A diversified asset manager handling global equity, balanced, fixed income
and derivative securities accounts for investment companies, pension funds
and charitable institutions
10
<PAGE>
- PORTFOLIO INFORMATION KEY
Concise descriptions of each portfolio begin on the next page. Each
description provides the following information:
GOAL AND STRATEGIES
The portfolio's particular investment goal and the strategies it intends to
use in pursuing that goal. Percentages of portfolio assets are based on total
assets unless indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the portfolio invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the portfolio. Additional risk
factors are included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment advisers to handle the
portfolio's day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 2000 fiscal year. Actual expenses may be higher
or lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the portfolio and compensating the sub-investment
adviser. Expressed as a percentage of average net assets after waivers.
- OTHER EXPENSES Fees paid by the portfolio for items such as but not limited
to administration, transfer agency, custody, auditing, legal registration
fees and miscellaneous expenses. Expressed as a percentage of average net
assets after waivers, credits and reimbursements.
11
<PAGE>
GLOBAL TELECOMMUNICATIONS PORTFOLIO
- GOAL AND STRATEGIES
The Global Telecommunications Portfolio seeks long-term capital
appreciation. To pursue this goal, it invests in equity securities of U.S. and
foreign telecommunications companies.
Telecommunications includes:
- communications equipment and service
- electronic components and equipment
- broadcast media
- computer equipment, mobile telecommunications, and cellular radio and
paging
- electronic mail
- local and wide area networking, and linkage of work and data processing
systems
- publishing and information systems
- video and telex
- internet and other emerging technologies combining telephone, television
and/or computer systems
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of telecommunications companies from at least three
countries, including the U.S. The portfolio may invest in companies of all
sizes.
- PORTFOLIO INVESTMENTS
Equity holdings may include:
- common and preferred stocks
- convertible securities
- warrants
To a limited extent, the portfolio may also engage in other investment
practices.
- RISK FACTORS
This portfolio's principal risk factors are:
- foreign securities
- market risk
- non-diversified status
- regulatory risk
- sector concentration
The value of your investment will fluctuate in response to stock-market
movements. Because the portfolio invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Because this portfolio focuses on a single sector (telecommunications), you
should expect it to be more volatile than a broadly diversified global equity
fund. Additionally, telecommunications companies are often subject to regulatory
risks that could hurt the portfolio's performance.
Non-diversification might cause the portfolio to be more volatile than a
diversified mutual fund. To the extent that the portfolio invests in emerging
markets and start-up and other small companies, it takes on additional risks
that could hurt its performance. "More About Risk" details these and certain
other investment practices the portfolio may use. Please read that section
carefully before you invest.
12
<PAGE>
- PORTFOLIO MANAGEMENT
Vincent J. McBride and Scott T. Lewis manage the portfolio's investments.
You can find out more about them in "Meet the Managers."
- INVESTOR EXPENSES
Expected expenses for the 2000 fiscal period:
Management fee .64%
All other expenses .71%
-------
Total expenses 1.35%
13
<PAGE>
LONG-SHORT MARKET
NEUTRAL PORTFOLIO
- GOAL AND STRATEGIES
The Long-Short Market Neutral Portfolio seeks long-term capital
appreciation while minimizing exposure to general equity market risk. This
portfolio seeks a total return greater than the return of the Salomon Smith
Barney 1-Month Treasury Bill Index-TM-.
To pursue its goal, the portfolio takes long positions in stocks that the
portfolio managers have identified as attractive and short positions in stocks
that the managers has identified as unattractive. In doing so, the portfolio
attempts to minimize directional market risks associated with investing in the
equity market by neutralizing the effects of general stock-market movements on
its performance.
In choosing long and short positions for the portfolio, the portfolio
managers use quantitative techniques to analyze the tradeoff between the
attractiveness of each position and its impact on the risk of the overall
portfolio. The managers seek to construct a portfolio that has:
- minimal net exposure to the general U.S. equity market
- low to neutral exposure to any particular industry or specific
capitalization range (e.g., large cap, mid cap and small cap)
- PORTFOLIO INVESTMENTS
Under normal market conditions, this portfolio takes long and short
positions in equity securities that are principally traded in U.S. markets.
These securities may include:
- common stocks of U.S. issuers
- American depositary receipts of foreign issuers
To a limited extent, the portfolio may also engage in other investment
practices.
- RISK FACTORS
This portfolio's principal risk factors are:
- market risk
- non-diversified risk
- short positions
The value of your investment will fluctuate in response to stock market
movements.
Although all mutual funds are subject to the risk that their portfolio
managers will not make good investments, the portfolio's strategy of taking both
long and short positions increases this risk because long positions could
decline in value at the same time short positions increase. As with other mutual
funds, taking long positions in stocks that decline in value would hurt the
portfolio's performance. Additionally, however, if the portfolio were to take
short positions in stocks that increase in value, then it would be likely to
underperform similar stock mutual funds that do not take short positions. Short
sales also involve expenses that will decrease the portfolio's return.
14
<PAGE>
An investment in the portfolio involves greater volatility and
significantly more risks than investing in one-month U.S. Treasury bills. Unlike
Treasury bills:
- an investment in the portfolio is not guaranteed by the U.S. government
- the portfolio does not provide a fixed rate of return
- you can lose money by investing in the portfolio
Although the portfolio managers intend to diversify the portfolio's
investments, the portfolio's non-diversified status allows it to invest a
greater share of its assets in the securities of fewer companies.
Non-diversification might cause the portfolio to be more volatile than a
diversified fund.
"More About Risk" details certain other investment practices the portfolio
may use. Please read that section carefully before you invest.
- PORTFOLIO MANAGEMENT
William W. Priest, Jr., Eric N. Remole, Marc Bothwell and Michael
Welhoelter manage the portfolio's investment portfolio. You can find out more
about them in "Meet the Managers."
- INVESTOR EXPENSES
Expected expenses for the 2000 fiscal period:
Management fee .00%
All other expenses 2.00%
-------
Total expenses 2.00%
* The basic management fee is 1.50%. The management fee of the portfolio may
be increased or decreased pursuant to the application of an adjustment
formula based upon the portfolio's investment performance as compared to
the Salomon Smith Barney 1-Month U.S. Treasury Bill Index.-TM- The
management fee, as adjusted, may range from 1.00% to 2.00%.
15
<PAGE>
MAJOR FOREIGN MARKETS PORTFOLIO
- GOALS AND STRATEGIES
The Major Foreign Markets Portfolio seeks long-term capital appreciation.
To pursue this goal, it invests in equity securities of companies located in or
conducting a majority of their business in major foreign markets or companies
whose securities trade primarily in major foreign markets.
Major foreign markets currently consist of Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. These countries are currently represented in
the Morgan Stanley Capital International Europe, Australasia and Far East
(EAFE-Registered Trademark-) Index.
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of issuers from at least three major foreign
markets. The portfolio is not an index fund and will not seek to match the
performance or weightings of the EAFE Index.
The portfolio intends to diversify its investments across a number of
different countries. At times, however, the portfolio may invest a significant
part of its assets in any single country. The portfolio may also invest up to
10% of assets in emerging markets.
In choosing equity securities, the portfolio managers use a bottom-up
investment approach that begins with an analysis of individual companies. The
managers look for companies of any size whose stocks appear to be discounted
relative to earnings, assets or projected growth. The portfolio managers
determine value based upon research and analysis, taking all relevant factors
into account.
- PORTFOLIO INVESTMENTS
Equity holdings may consist of:
- common stocks
- warrants
- securities convertible into or exchangeable for common stocks
To a limited extent, the portfolio may also engage in other investment
practices.
- RISK FACTORS
This portfolio's principal risk factors are:
- market risk
- foreign securities
The value of your investment generally will fluctuate in response to
stock-market movements. Because the portfolio invests internationally, it
carries additional risks, including currency, information and political risks.
These risks are defined in "More About Risk."
To the extent that it focuses on a single country or region, the portfolio
may take on increased volatility or may not perform as well as a more
geographically diversified equity fund. "More About Risk" details certain other
investment practices the portfolio may use. Please read that section carefully
before you invest.
16
<PAGE>
- PORTFOLIO MANAGEMENT
Harold W. Ehrlich and Harold E. Sharon are Co-Portfolio Managers of the
portfolio. Associate Portfolio Managers Vincent J. McBride, Todd Jacobson and
Nancy Nierman assist them. You can find out more about the portfolio's managers
in "Meet the Managers."
- INVESTOR EXPENSES
Expected expenses for the 2000 fiscal period:
Management fee .25%
All other expenses .55%
-------
Total expenses 0.80%
17
<PAGE>
MORE ABOUT RISK
- INTRODUCTION
A portfolio's goal and principal strategies largely determine its risk
profile. You will find a concise description of each portfolio's risk profile in
"Key Points." The preceding discussions on each portfolio contain more detailed
information. This section discusses other risks that may affect the portfolios.
The "Certain Investment Practices" table in this section takes a more
detailed look at certain investment practices the portfolios may use. Some of
these practices have higher risks associated with them. However, each portfolio
has limitations and policies designed to reduce many of the risks.
- TYPES OF INVESTMENT RISK
The following risks are referred to throughout this PROSPECTUS.
ACCESS RISK Some countries may restrict a portfolio'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 portfolio.
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. An issuer's
failure to make scheduled interest or principal payments to a portfolio could
reduce the portfolio's income level and share price.
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 portfolio
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 portfolio is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
18
<PAGE>
LIQUIDITY RISK Certain portfolio securities may be difficult or impossible
to sell at the time and the price that the portfolio would like. A portfolio may
have to lower the price, sell other securities instead or forego an investment
opportunity. Any of these could have a negative effect on fund management or
performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments--including stocks and bonds, and the mutual funds that invest in
them.
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject a
portfolio 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 portfolio's ability to bring its capital or income back to the U.S.
Other political risks include economic policy changes, social and political
instability, military action and war.
VALUATION RISK The lack of an active trading market may make it difficult
to obtain an accurate price for a portfolio security.
19
<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
/X/ Permitted without limitation; does not indicate actual use
/20%/ITALIC TYPE (E.G., 20%) represents an investment limitation as a percentage
of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a percentage
of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
-- Not permitted
<TABLE>
<CAPTION>
GLOBAL
TELECOM- LONG-SHORT
MUNICATIONS MARKET NEUTRAL MAJOR FOREIGN
PORTFOLIO PORTFOLIO MARKETS PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BORROWING The borrowing of money from banks to meet redemptions or for other
temporary or emergency purposes. SPECULATIVE EXPOSURE RISK. 33 1/3% 33 1/3% 33 1/3%
------------------------------------------------------------------------------------------------------------------------------------
COUNTRY/REGION FOCUS Investing a significant portion of portfolio assets in a
single country or region. Market swings in the targeted country or region will
be likely to have a greater effect on portfolio performance than they would in a
more geographically diversified equity fund. CURRENCY, MARKET, POLITICAL RISKS. /X/ / / /X/
------------------------------------------------------------------------------------------------------------------------------------
CURRENCY TRANSACTIONS Instruments, such as options, future or forwards, intended
to manage portfolio exposure to currency risk or to enhance total return.
Options, futures or forwards involve the right or obligation to buy or sell a
given amount of foreign currency at a specified price and future date. (1)
CORRELATION, CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY, POLITICAL,
SPECULATIVE EXPOSURE, VALUATION RISKS. / / / / /X/
------------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be relatively less developed
or industrialized. Emerging markets often face economic problems that could
subject a portfolio to increased volatility or substantial declines in value.
Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose a portfolio to risks beyond those
generally encountered in developed countries. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, MARKET, OPERATIONAL, POLITICAL, VALUATION RISKS. /X/ / / /10%/
------------------------------------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May include depositary
receipts. CURRENCY, INFORMATION, LIQUIDITY, MARKET, POLITICAL, VALUATION RISKS. /X/ / / /X/
------------------------------------------------------------------------------------------------------------------------------------
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts that enable a portfolio
to hedge against or speculate on future changes in currency values, interest
rates or stock indexes. Futures obligate the portfolio (or give it the right, in
the case of options) to receive or make payment at a specific future time based
on those future changes. (1) CORRELATION, CURRENCY, HEDGED EXPOSURE, INTEREST-RATE,
MARKET, SPECULATIVE EXPOSURE RISKS.(2) / / / / / /
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated within the four highest
grades (AAA/Aaa through BBB/Baa) by Standard & Poor's or Moody's rating service,
and unrated securities of comparable quality. CREDIT, INTEREST-RATE, MARKET
RISKS. / / / / 35%
------------------------------------------------------------------------------------------------------------------------------------
20
<PAGE>
<CAPTION>
GLOBAL
TELECOM- LONG-SHORT
MUNICATIONS MARKET NEUTRAL MAJOR FOREIGN
PORTFOLIO PORTFOLIO MARKETS PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
------------------------------------------------------------------------------------------------------------------------------------
<S> <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. / / -- / /
------------------------------------------------------------------------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities and convertible 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. / / -- 5%
------------------------------------------------------------------------------------------------------------------------------------
OPTIONS Instruments that provide a right to buy (call) or sell (put) a
particular security or an index of securities at a fixed price within a certain
time period. A portfolio may purchase and write both put and call options for
hedging or speculative purposes. CORRELATION, CREDIT, HEDGED EXPOSURE,
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / / / / 25%
------------------------------------------------------------------------------------------------------------------------------------
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of their
interests in enterprises they own or control. ACCESS, CURRENCY, INFORMATION,
LIQUIDITY, OPERATIONAL, POLITICAL, VALUATION RISKS. /X/ / / /X/
------------------------------------------------------------------------------------------------------------------------------------
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
portfolio 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%
------------------------------------------------------------------------------------------------------------------------------------
SHORT SALES Selling borrowed securities with the intention of repurchasing them
for a profit on the expectation that the market price will drop. If a portfolio
were to take short positions in stocks that increase in value, then it would be
likely to underperform similar mutual funds that do not take short positions.
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. -- /X/ --
------------------------------------------------------------------------------------------------------------------------------------
SHORT SALES "AGAINST THE BOX" A short sale where the portfolio owns enough
shares of the security involved to cover the borrowed securities, if necessary.
LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / / / / / /
------------------------------------------------------------------------------------------------------------------------------------
START-UP AND OTHER SMALL COMPANIES Companies with small relative market
capitalizations, including those with continuous operations of less than three
years. INFORMATION, LIQUIDITY, MARKET, VALUATION RISKS. /5%/ /5%/ /X/
------------------------------------------------------------------------------------------------------------------------------------
21
<PAGE>
<CAPTION>
GLOBAL
TELECOM- LONG-SHORT
MUNICATIONS MARKET NEUTRAL MAJOR FOREIGN
PORTFOLIO PORTFOLIO MARKETS PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STRUCTURED INSTRUMENTS Swaps, structured securities and other instruments that
allow a portfolio 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 portfolio's direct investment. CREDIT, CURRENCY, INFORMATION, INTEREST-RATE,
LIQUIDITY, MARKET, POLITICAL, SPECULATIVE EXPOSURE, VALUATION RISKS. / / / / / /
------------------------------------------------------------------------------------------------------------------------------------
SWAPS A contract between a fund and another party in which the parties agree to
exchange streams of payments based on certain benchmarks. For example, a
portfolio may use swaps to gain access to the performance of a benchmark asset
(such as an index or one or more stocks) where the portfolio's direct investment
is restricted. CREDIT, CURRENCY, INTEREST-RATE, LIQUIDITY, MARKET, POLITICAL,
SPECULATIVE EXPOSURE, VALUATION RISKS. / / / / / /
------------------------------------------------------------------------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of a portfolio'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 portfolio's principal investment strategies and might
prevent a portfolio 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%
------------------------------------------------------------------------------------------------------------------------------------
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. /25%/ / / 20%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolios are not obligated to pursue any hedging strategy and do not
represent that these techniques are available now or will be available at
any time in the future.
(2) Each portfolio 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.
22
<PAGE>
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23
<PAGE>
MEET THE MANAGERS
The day-to-day portfolio management of the Global Telecommunications Portfolio
is the responsibility of the Credit Suisse Asset Management Global
Telecommunications Management Team. The team consists of the following
individuals:
[PHOTO]
SCOTT T. LEWIS
MANAGING DIRECTOR
- Team member since 1999
- Joined CSAM in 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus Asset Management (Warburg Pincus)
- With Warburg Pincus since 1986
[PHOTO]
VINCENT J. MCBRIDE
DIRECTOR
- Team member since
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1994
24
<PAGE>
The day-to-day portfolio management of the Long-Short Market Neutral Portfolio
is the responsibility of the Credit Suisse Asset Management Structured Equity
Team. The team consits of the following individuals:
[PHOTO] [PHOTO]
WILLIAM W. PRIEST, JR. MARC E. BOTHWELL
CHAIRMAN, MANAGING DIRECTOR VICE PRESIDENT
- Team member since 1997
- Team member since 1972
- With CSAM since 1997
- With CSAM for more than 25 years
- Vice president and portfolio
manager at Chancellor LGT Asset
Management, Inc., 1994 to 1997
[PHOTO] [PHOTO]
ERIC N. REMOLE MICHAEL A. WELHOELTER
MANAGING DIRECTOR VICE PRESIDENT
- Team member since 1997 - Team member since 1997
- With CSAM since 1997 - With CSAM since 1997
- Managing director and portfolio - Vice president and portfolio
manager of Chancellor LGT Asset manager at Chancellor LGT Asset
Management, Inc., 1983 to 1997 Management, Inc., 1986 to 1997
25
<PAGE>
The day-to-day portfolio management of the Major Foreign Markets Portfolio is
the responsibility of the following individuals:
[PHOTO] [PHOTO]
HAROLD W. EHRLICH, CFA, CIC TODD JACOBSON, CFA
MANAGING DIRECTOR DIRECTOR
- Co-Portfolio Manager, Major Foreign - Associate Portfolio Manager,
Markets Portfolio Major Foreign Markets Portfolio
- With CSAM since 1999 as a result - With CSAM since 1999 as a
of Credit Suisse's acquisition of result of Credit Suisse's
Warburg Pincus acquisition of Warburg Pincus
- With Warburg Pincus since 1995 - With Warburg Pincus since 1997
- Previously senior vice president, - Analyst at Brown Harriman,
portfolio manager and analyst at 1993 to 1997
Templeton Investment Counsel
Inc., 1987 to 1995
[PHOTO] [PHOTO]
HAROLD E. SHARON VINCENT J. MCBRIDE
MANAGING DIRECTOR DIRECTOR
- Co-Portfolo Manager, Major - Associate Portfolio Manager,
Foreign Markets Portfolio Major Foreign Markets Portfolio
- With CSAM since 1999 as a result - With CSAM since 1999 as a
of Credit Suisse's acquisition of result of Credit Suisse's
Warburg Pincus acquisition of Warburg Pincus
- With Warburg Pincus since 1998 - With Warburg Pincus since 1994
- Executive director and portfolio
manager with CIBC Oppenheimer,
1994 to 1998
26
<PAGE>
[PHOTO]
NANCY NIERMAN
DIRECTOR
- Associate Portfolio Manager,
Major Foreign Markets Portfolio
- With CSAM since 1999 as a result
of Credit Suisse's acquisition of
Warburg Pincus
- With Warburg Pincus since 1996
- Previously analyst with Fiduciary
Trust Company International,
1992 to 1996
27
<PAGE>
ABOUT YOUR ACCOUNT
- SHARE VALUATION
The price of your shares is also referred to as their net asset value
(NAV).
The NAV for each portfolio is determined at the close of regular trading on
the New York Stock Exchange (NYSE) (currently 4 p.m. Eastern Time) each day the
NYSE is open for business. NAV is calculated by dividing each portfolio's total
assets, less its liabilities, by the number of shares outstanding in each
portfolio.
Each portfolio values its securities based on market quotations when it
calculates its NAV. If market quotations are not readily available, securities
and other assets are valued by another method that the Board of Directors
believes accurately reflects fair value. Debt obligations that will mature in 60
days or less are valued on the basis of amortized cost, unless the Board
determines that using this method would not reflect an investment's value.
Some portfolio securities may be listed on foreign exchanges that are open
on days (such as U.S. holidays) when the portfolios do not compute their prices.
This could cause the value of a portfolio's 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 an investor in a portfolio, you will receive distributions.
Each portfolio may earn dividends from stocks and interest from bond,
money-market and other investments. These are passed along as dividend
distributions. A portfolio realizes capital gains whenever it sells securities
for a higher price than it paid for them. These are passed along as capital-gain
distributions.
Each portfolio distributes dividends annually. The portfolios typically
distribute capital gains annually in December.
Most investors have their distributions reinvested in additional shares of
the same portfolio. 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>
- TAXES
As with any investment, you should consider how your investment in a
portfolio 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 portfolio continues to meet the requirements for being a
tax-qualified regulated investment company, the portfolio pays no federal income
tax on the earnings it distributes to shareholders.
Distributions you receive from a portfolio, whether reinvested or taken in
cash, are generally considered taxable. Distributions from a portfolio's
long-term capital gains are taxed as long-term capital gains, regardless of how
long you have held portfolio shares. Distributions from other sources (including
the portfolio's short-term capital gains) are generally taxed as ordinary
income. The portfolios will mostly make capital-gain distributions, which could
be short-term or long-term.
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.
Any gain or loss from a portfolio's short positions will be short-term gain
or loss, regardless of the length of time the short positions remain open. Thus,
net gain from short positions will potentially increase the amount of the
portfolio's ordinary income dividends, while net losses would potentially reduce
the amount of the portfolio's long-term gain distributions.
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>
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 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 Institutional 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.
MINIMUM INITIAL INVESTMENT
Global Telecommunications
Portfolio $
Long-Short Market
Neutral Portfolio $
Major Foreign
Markets Portfolio $
MINIMUM SUBSEQUENT INVESTMENT
Global Telecommunications
Portfolio $
Long-Short Market
Neutral Portfolio $
Major Foreign
Markets Portfolio $
The minimum initial investment for any group of related persons is an
aggregate $4,000,000. Certain retirement plans for which recordkeeping is
performed on an omnibus basis for multiple participants are not subject to
investment minimums.
FINANCIAL-SERVICES FIRMS
You may be able to buy and sell fund shares through financial-services
firms such as banks, brokers and financial advisors. The portfolios may
authorize 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 portfolio 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 portfolios. Please read the firm's
program materials for any special provisions or additional service features that
may apply to your investment. Certain features of the portfolios, 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.
30
<PAGE>
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
------------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- Call our Institutional Shareholder Service Center to - Call our Institutional Shareholder Service Center to
request an exchange from another Credit Suisse request an exchange from another Credit Suisse
Institutional fund or portfolio. Be sure to read the Institutional fund or portfolio.
current PROSPECTUS for the new fund or portfolio.
If you do not have telephone privileges, mail or fax a
If you do not have telephone privileges, mail or fax a letter of instruction.
letter of instruction.
------------------------------------------------------------------------------------------------------------------------------------
BY WIRE
------------------------------------------------------------------------------------------------------------------------------------
- Complete and sign the NEW ACCOUNT APPLICATION. - Call our Institutional Shareholder Service Center by 4
p.m. ET to inform us of the incoming wire. Please be
- Call our Institutional Shareholder Service Center and sure to specify the account registration, account
fax the signed NEW ACCOUNT APPLICATION by 4 p.m. ET. number and the fund and portfolio name on your wire
advice.
- Institutional Shareholder Services will telephone you
with your account number. Please be sure to specify the - Wire the money for receipt that day.
account, registration account number and the fund and
portfolio name on your wire advice.
- Wire your initial investment for receipt that day.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 a.m.-5 p.m. ET
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<PAGE>
SELLING SHARES
<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
------------------------------------------------------------------------------------------------------------------------------------
BY MAIL
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Write us a letter of instruction that includes: - Sales of any amount.
- your name(s) and signature(s)
- the fund and portfolio 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 Credit Suisse Institutional Fund, Inc.
If only a letter of instruction is required, you can fax it
to the Institutional Shareholder Service Center (unless
signature guarantee is required).
------------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
------------------------------------------------------------------------------------------------------------------------------------
- Call our Institutional Shareholder Service Center to - Accounts with telephone privileges.
request an exchange into another Credit Suisse
Institutional fund or portfolio. Be sure to read the If you do not have telephone privileges, mail or fax a
current PROSPECTUS for the new fund or portfolio. letter of instruction to exchange shares.
------------------------------------------------------------------------------------------------------------------------------------
BY PHONE
------------------------------------------------------------------------------------------------------------------------------------
Call our Institutional Shareholder Service Center to request - Accounts with telephone privileges.
a redemption. You can receive the proceeds as:
- a check mailed to the address of record
- a wire to your bank
See "By Wire" for details.
------------------------------------------------------------------------------------------------------------------------------------
BY WIRE
------------------------------------------------------------------------------------------------------------------------------------
- Complete the "Wire Instructions" section of your NEW - Requests by phone or mail.
ACCOUNT APPLICATION.
- For federal-funds wires, proceeds will be wired on the
next business day.
</TABLE>
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<PAGE>
HOW TO REACH US
Institutional Shareholder Service Center
Toll Free: 800-222-8977
Fax: 212-370-9833
Mail:
Credit Suisse Institutional Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
Overnight/Courier Service:
Boston Financial
Attn: Credit Suisse Institutional
Fund, Inc.
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.
Credit Suisse Institutional Fund, Inc.
[INSTITUTIONAL FUND PORTFOLIO NAME]
DDA# 9904-649-2
F/F/C: [ACCOUNT NUMBER AND 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
- redemption 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 portfolio shares purchased other than by bank wire, bank check, U.S.
Treasury heck, certified check or money order,the portfolios 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 portfolio.
INSTITUTIONAL SHAREHOLDER SERVICE CENTER
800-222-8977
MONDAY-FRIDAY, 8 a.m.-5 p.m. ET
33
<PAGE>
OTHER POLICIES
- TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon
as your purchase order is executed.
Your purchase order will be canceled and you may be liable for losses of
fees incurred by a portfolio if:
- your investment check 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.
- ACCOUNT CHANGES
Call our Institutional Shareholder Service Center to update your account
records whenever you change your address. Institutional Shareholder Services can
also help you change your account information or privileges.
- SPECIAL SITUATIONS
The Institutional Fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 30 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change 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 portfolio
operations
- suspend redemptions or postpone payment dates as permitted by the
Investment Company Act of 1940 (such as during periods other than weekends
or holidays when the NYSE is closed or trading on the NYSE is restricted,
or any other time that the SEC permits)
- modify or waive its minimum investment requirements for employees and
clients of its adviser and the adviser's affiliates
- stop offering a portfolio's 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
34
<PAGE>
--------------------------------------------------------------------------------
FOR MORE INFORMATION
More information about these portfolios is available free upon request,
including the following:
- ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed
performance information.
The ANNUAL REPORT also contains a letter from the portfolio manager
discussing market conditions and investment strategies that significantly
affected portfolio performance during its past fiscal year.
- OTHER INFORMATION
A current STATEMENT OF ADDITIONAL INFORMATION (SAI), which provides more
details about the portfolios, 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 Credit Suisse Institutional Fund, Inc. to obtain, without
charge, the SAI and ANNUAL and SEMIANNUAL REPORTS and to make shareholder
inquiries:
BY TELEPHONE:
800-222-8977
BY MAIL:
Credit Suisse Institutional Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Credit Suisse Institutional
Fund, Inc.
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBER:
Credit Suisse Institutional Fund, Inc. 811-6670
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 - www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR CSINI-1-0600
--------------------------------------------------------------------------------
<PAGE>
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION
Dated May 30, 2000
STATEMENT OF ADDITIONAL INFORMATION
[INSERT DATE], 2000
CREDIT SUISSE INSTITUTIONAL FUND, INC.
GLOBAL TELECOMMUNICATIONS PORTFOLIO
LONG-SHORT MARKET NEUTRAL PORTFOLIO
MAJOR FOREIGN MARKETS PORTFOLIO
This STATEMENT OF ADDITIONAL INFORMATION provides information about Credit
Suisse Institutional Fund, Inc. (the "Fund"), relating to the Global
Telecommunications, Long-Short Market Neutral and Major Foreign Markets
Portfolios (each a "Portfolio" and collectively the "Portfolios") that
supplements information contained in the Prospectus for the Portfolios dated
[INSERT DATE], 2000, as amended from time to time (the "PROSPECTUS"), and is
incorporated by reference in its entirety into that PROSPECTUS.
This STATEMENT OF ADDITIONAL INFORMATION is not itself a prospectus and no
investment in shares of the Portfolios should be made solely upon the
information contained herein. Copies of the Portfolios' PROSPECTUS and
information regarding each Portfolio's current performance and the status of
shareholder accounts may be obtained by writing or telephoning:
Credit Suisse Institutional Funds
P.O. Box 9030
Boston, MA 02205-9030
1-800-222-8977
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES................................................................................i
General Investment Strategies..................................................................................1
Common Investment Objectives and Policies -- All Portfolios....................................................1
Foreign Investments.........................................................................................1
Foreign Debt Securities..................................................................................1
Foreign Currency Exchange................................................................................2
Information..............................................................................................3
Political Instability....................................................................................3
Foreign Markets..........................................................................................3
Increased Expenses.......................................................................................3
Dollar-Denominated Debt Securities of Foreign Issuers....................................................3
Depositary Receipts......................................................................................4
Brady Bonds..............................................................................................4
Emerging Markets.........................................................................................4
Sovereign Debt...........................................................................................5
Currency Exchange Transactions..............................................................................6
Forward Currency Contracts...............................................................................6
Currency Options.........................................................................................7
Currency Hedging.........................................................................................7
Hedging Generally...........................................................................................8
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers....................................9
U.S. Government Securities.................................................................................10
Convertible Securities.....................................................................................10
Debt Securities............................................................................................10
Below Investment Grade Securities.......................................................................11
Mortgage-Backed Securities..............................................................................13
Asset-Backed Securities.................................................................................14
Loan Participations and Assignments.....................................................................15
Structured Notes, Bonds or Debentures...................................................................15
Collateralized Mortgage Obligations.....................................................................15
Zero Coupon Securities..................................................................................16
Options Generally..........................................................................................17
Securities Options......................................................................................17
Securities Index Options................................................................................20
OTC Options.............................................................................................20
Asset Coverage for Forward Contracts, Options, Futures, Options on Futures and Swaps.......................21
Reverse Repurchase Agreements and Dollar Rolls.............................................................21
Illiquid Securities........................................................................................22
Rule 144A Securities....................................................................................23
Lending of Portfolio Securities............................................................................23
Borrowing..................................................................................................24
-i-
<PAGE>
<CAPTION>
TABLE OF CONTENTS
(continued)
PAGE
<S> <C>
Securities of Other Investment Companies...................................................................24
Futures Activities.........................................................................................25
Options on Futures Contracts............................................................................26
Short Sales "Against the Box"..............................................................................27
Temporary Investments......................................................................................28
Repurchase Agreements......................................................................................28
Common Investment Objectives and Policies -- Global Telecommunications and Long-Short
Market Neutral Portfolios..................................................................................29
Section 4(2) Paper.........................................................................................29
Non-Diversified Status.....................................................................................29
Common Investment Objectives and Policies -- Global Telecommunications and Major Foreign
Markets Portfolios.........................................................................................29
When-Issued Securities, Delayed Delivery Transactions And Forward Commitments..............................29
Stand-By Commitment Agreements.............................................................................30
Rights Offerings and Purchase Warrants.....................................................................31
Supplemental Investment Objectives and Policies -- Global Telecommunications Portfolio........................31
Telecommunications.........................................................................................31
Supplemental Investment Objectives and Policies -Long-Short Market Neutral Portfolio..........................32
Short Sales................................................................................................32
Supplemental Investment Objectives and Policies -Major Foreign Markets Portfolio..............................33
REITs......................................................................................................33
INVESTMENT RESTRICTIONS..........................................................................................33
PORTFOLIO VALUATION..............................................................................................35
PORTFOLIO TRANSACTIONS...........................................................................................36
PORTFOLIO TURNOVER...............................................................................................38
Officers and Board of Directors...............................................................................39
Directors' Estimated Total Compensation for Fiscal Period Ending October 31, 2000.............................42
Portfolio Managers............................................................................................43
Control Persons and Principal Holders of Securities...........................................................45
Investment Adviser and Co-Administrators......................................................................45
Custodian and Transfer Agent..................................................................................49
Code of Ethics................................................................................................49
Organization of the Fund......................................................................................50
-ii-
<PAGE>
<CAPTION>
TABLE OF CONTENTS
(continued)
PAGE
<S> <C>
Distribution and Shareholder Servicing........................................................................50
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................51
EXCHANGE PRIVILEGE...............................................................................................51
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................................52
The Portfolios and Their Investments..........................................................................52
Special Tax Considerations....................................................................................55
Straddles..................................................................................................55
Options And Section 1256 Contracts.........................................................................55
Foreign Currency Transactions..............................................................................56
Passive Foreign Investment Companies.......................................................................56
Asset Diversification Requirement..........................................................................57
Foreign Taxes..............................................................................................57
Portfolio Taxes on Swaps...................................................................................58
Dividends and Distributions................................................................................58
Sales of Shares............................................................................................59
Backup Withholding.........................................................................................59
Notices....................................................................................................59
Other Taxation.............................................................................................59
DETERMINATION OF PERFORMANCE.....................................................................................60
Total Return..................................................................................................60
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................................62
FINANCIAL STATEMENTS.............................................................................................62
APPENDIX A......................................................................................................A-1
DESCRIPTION OF RATINGS..........................................................................................A-1
Commercial Paper Ratings.....................................................................................A-1
Corporate Bond Ratings.......................................................................................A-1
</TABLE>
-iii-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the descriptions of each
Portfolio's investment objectives and policies in the PROSPECTUS. There are no
assurances that the Portfolios will achieve their investment objectives.
The investment objective of each of the Global
Telecommunications Portfolio and Major Foreign Markets Portfolio is to provide
long-term appreciation of capital.
The investment objective of the Long-Short Market Neutral
Portfolio is to seek long-term capital appreciation while minimizing exposure to
general equity market risk.
GENERAL INVESTMENT STRATEGIES
Unless otherwise indicated, all of the Portfolios are permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below. Any percentage limitation on a
Portfolio's ability to invest in debt securities will not be applicable during
periods when the Portfolio pursues a temporary defensive strategy as discussed
below.
The Portfolios 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.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- ALL PORTFOLIOS
FOREIGN INVESTMENTS
Investors should recognize that investing in foreign companies
involves certain risks, including those discussed below, which are in addition
to those associated with investing in U.S. issuers. Individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments positions. In addition,
foreign investments by the Portfolios are subject to the risk that natural
disasters (such as an earthquake) will weaken a country's economy and cause
investments in that country to lose money. Natural disaster risks are, of
course, not limited to foreign investments and may apply to a Portfolio's
domestic investments as well. The Portfolios 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.
For the purposes of this investment policy, foreign
investments include investments in companies located or conducting a majority of
their business outside of the U.S., companies which have issued securities
traded principally outside of the U.S., or non-U.S. governments, governmental
entities or political subdivisions.
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
1
<PAGE>
currencies against the U.S. dollar, which have had a substantial impact on
investment in foreign fixed-income securities. The relative performance of
various countries' fixed-income markets historically has reflected wide
variations relating to the unique characteristics of each country's economy.
Year-to-year fluctuations in certain markets have been significant, and negative
returns have been experienced in various markets from time to time.
The foreign government securities in which the Portfolios 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 euro,
the new single currency for eleven Economic and Monetary Union member states.
The euro represents specified amounts of the currencies of certain member states
of the Economic and Monetary Union and was introduced on January 1, 1999.
National currencies of the eleven member states participating in the euro will
become subdivisions of the euro, but will continue to circulate as legal tender
until January 1, 2002, when they will be withdrawn permanently.
FOREIGN CURRENCY EXCHANGE
Since the Portfolios may invest in securities denominated in
currencies of non-U.S. countries, the Portfolios 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 Portfolio assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Portfolio. Unless otherwise contracted, the rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. Changes in the exchange rate
may result over time from the interaction of many factors directly or indirectly
affecting economic and political conditions in the United States and a
particular foreign country, including economic and political developments in
other countries. Governmental intervention may also play a significant role.
National governments rarely voluntarily allow their currencies to float freely
in response to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their currencies.
The Portfolios may use hedging techniques with the objective of protecting
2
<PAGE>
against loss through the fluctuation of the value of the yen against the U.S.
dollar, particularly the forward market in foreign exchange, currency options
and currency futures.
INFORMATION
Foreign securities held by the Portfolios may not be
registered with, and the issuers thereof may not be subject to reporting
requirements of, the Securities and Exchange Commission (the "SEC").
Accordingly, there may be less publicly available information about these
securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies
are generally subject to financial reporting standards, practices and
requirements that are either not uniform or less rigorous than those
applicable to U.S. companies.
POLITICAL INSTABILITY
With respect to some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Portfolios, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
FOREIGN MARKETS
Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold which may result in increased
exposure to market and foreign exchange fluctuations and increased illiquidity.
INCREASED EXPENSES
To the extent that the Portfolios invest in foreign
securities, the operating expenses of the Portfolios can be expected to be
higher than that of an investment company investing exclusively in U.S.
securities, since the expenses of the Portfolios, 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, will be higher than those costs
incurred by other investment companies not investing in foreign securities. In
addition, foreign securities may be subject to foreign government taxes that
would reduce the net yield on such securities.
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 fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time.
3
<PAGE>
DEPOSITARY RECEIPTS
The assets of each Portfolio may be invested in the securities
of foreign issuers in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and International Depositary Receipts
("IDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe, and IDRs, which are sometimes referred to as Global Depositary Receipts
("GDRs"), are issued outside the United States. EDRs (CDRs) and IDRs (GDRs) are
typically issued by non-U.S. banks and trust companies and evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs (CDRs) and IDRs (GDRs) in
bearer form are designed for use in European and non-U.S. securities markets,
respectively.
BRADY BONDS
Each Portfolio may invest in so-called "Brady Bonds," which
are securities created through the exchange of existing commercial bank loans
to public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are currently actively traded in the OTC
secondary market for debt instruments. 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.
EMERGING MARKETS
Each Portfolio may invest in securities of issuers located in
"emerging markets" (less developed countries located outside of the U.S.).
Investing in emerging markets involves not only the risks described above with
respect to investing in foreign securities, but also other risks, including
exposure to economic structures that are generally less diverse and mature than,
and to political systems that can be expected to have less stability than, those
of developed countries. For example, many investments in emerging markets
experienced significant declines in value due to political and currency
volatility in emerging markets countries during the latter part of 1997 and the
first half of 1998. Other characteristics of emerging markets that may affect
investment include certain national policies that may restrict investment by
foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed structures governing private and foreign
investments and private property. The typically small size of the markets of
securities of issuers located in emerging markets and the possibility of a low
or nonexistent volume of trading in those securities may also result in a lack
of liquidity and in price volatility of those securities.
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SOVEREIGN DEBT
Investments in sovereign debt involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and a Portfolio may have limited legal
recourse in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in
one or more of the countries issuing sovereign debt could adversely affect a
Portfolio's investments in sovereign debt. Political changes or a deterioration
of a country's domestic economy or balance of trade may affect the willingness
of countries to service their sovereign debt. To the extent a Portfolio invests
in sovereign debt, the Adviser intends to manage the Portfolios in a manner that
will minimize the exposure to such risks, although there can be no assurance
that adverse political changes will not cause a Portfolio to suffer a loss of
interest or principal on any such holdings.
Investors should also be aware that certain sovereign debt
instruments in which a Portfolio may invest involve great risk. Sovereign debt
issued by issuers in many emerging markets generally is deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Services ("S&P"). Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such sovereign debt, which may not be paying
interest currently or may be in payment default, may be comparable to securities
rated "D" by S&P or "C" by Moody's. A Portfolio may have difficulty disposing of
certain sovereign debt obligations because there may be a limited trading market
for such securities. Because there is no liquid secondary market for many of
these securities, the Portfolios anticipate that such securities could be sold
only to a limited number of dealers or institutional investors. The lack of a
liquid secondary market may have an adverse impact on the market price of such
securities and a Portfolio's ability to dispose of particular issues when
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necessary to meet a Portfolio's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also may make it
more difficult for a Portfolio to obtain accurate market quotations for purposes
of valuing a Portfolio's portfolio and calculating its net asset value. When and
if available, fixed income securities may be purchased by a Portfolio at a
discount from face value. However, the Portfolios do not intend to hold such
securities to maturity for the purpose of achieving potential capital gains,
unless current yields on these securities remain attractive. From time to time,
a Portfolio may purchase securities not paying interest at the time acquired if,
in the opinion of the Adviser, such securities have the potential for future
income or capital appreciation.
CURRENCY EXCHANGE TRANSACTIONS
The value in U.S. dollars of the assets of the Portfolios 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
Portfolios 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. Each Portfolio will
conduct its currency exchange transactions (i) on a spot (I.E., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
herein for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
The Portfolios may engage in currency exchange transactions
for both hedging purposes and to increase total return, which may involve
speculation.
FORWARD CURRENCY CONTRACTS
Each Portfolio may use forward currency contracts to protect
against uncertainty in the level of future exchange rates and to enhance total
return. Each of the Portfolios except the Major Foreign Markets Portfolio will
not invest more than 50% of their respective total assets in such contracts for
the purpose of enhancing total return. The Major Foreign Markets Portfolio has
no limit on the amount of assets it may invest in forward currency contracts for
the purpose of enhancing total return. There is no limit on the amount of assets
that the Portfolios may invest in such transactions for hedging purposes.
The Portfolios may also enter into forward currency contracts
with respect to specific transactions. For example, when a Portfolio anticipates
the receipt in a foreign currency of interest payments on a security that it
holds, a Portfolio may desire to "lock-in" the U.S. dollar price of the security
or the U.S. dollar equivalent of such payment, as the case may be, by entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars, of the amount of foreign currency involved in the underlying
transaction. A Portfolio will thereby be able to protect itself against a
possible loss resulting from an adverse change in the
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relationship between the currency exchange rates during the period between the
date on which the security is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.
A forward currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract as agreed upon by the parties, at a price set
at the time of the contract. These contracts are entered into in the interbank
market conducted directly between currency traders (usually large commercial
banks and brokers) and their customers. Forward currency contracts are similar
to currency futures contracts, except that futures contracts are traded on
commodities exchanges and are standardized as to contract size and delivery
date.
At or before the maturity of a forward contract, the
Portfolios 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 Portfolio retains the portfolio
security and engages in an offsetting transaction, the Portfolio, 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.
CURRENCY OPTIONS
The Portfolios 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
Each Portfolio'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 a Portfolio 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 Portfolio 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 Portfolio'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 Portfolio
may purchase foreign currency put options. If the value of the foreign currency
does decline, the Portfolio will have the right to sell the currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on the U.S. dollar value of its securities that otherwise would have
resulted. Conversely, if a rise in the U.S. dollar value of a currency in which
securities to be
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acquired are denominated is projected, thereby potentially increasing the cost
of the securities, the Portfolio 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 a Portfolio
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, a Portfolio 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 Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's investments
denominated in that currency. A currency hedge, for example, should protect a
non-dollar denominated bond against a decline in the non-dollar currency, but
will not protect the Portfolio against a price decline if the issuer's
creditworthiness deteriorates.
HEDGING GENERALLY
In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income to
offset expenses or increase return, each Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether a Portfolio
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 a
Portfolio'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, a Portfolio's hedge positions may be in a greater or
lesser dollar amount than the dollar amount of the hedged position. Such "over
hedging" or "under hedging" may adversely affect the Portfolio's net investment
results if market movements are not as anticipated when the hedge is
established. Securities index futures transactions may be subject to additional
correlation risks. First, all
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participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the securities index and movements in the price
of securities index futures, a correct forecast of general market trends by the
Adviser still may not result in a successful hedging transaction.
Each Portfolio will engage in hedging transactions only when
deemed advisable by the Adviser, and successful use by the Portfolio of hedging
transactions will be subject to the Adviser's ability to predict trends in
currency, interest rate or securities markets, as the case may be, and to
predict correctly movements in the directions of the hedge and the hedged
position and the correlation between them, which predictions could prove to be
inaccurate. This requires different skills and techniques than predicting
changes in the price of individual securities, and there can be no assurance
that the use of these strategies will be successful. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends. Losses incurred in hedging transactions and the costs of these
transactions will affect a Portfolio's performance.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES;
UNSEASONED ISSUERS
Each Portfolio except the Major Foreign Markets Portfolio will
not invest in securities of unseasoned issuers, including equity securities of
unseasoned issuers which are not readily marketable, if the aggregate investment
in such securities would exceed 5% of such Portfolio's net assets. The Major
Foreign Markets Portfolio has no limit on the amount of assets it may invest in
such securities of unseasoned issuers. The term "unseasoned" refers to issuers
which, together with their predecessors, have been in operation for less than
three years.
Such investments involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent financial disclosure requirements, illiquidity of
securities and markets, higher brokerage commissions and fees and greater market
risk in general. In addition, securities of these companies may involve greater
risks since these securities may have limited marketability and, thus, may be
more volatile.
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
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek growth of capital or capital appreciation by investing in
better-known, larger companies.
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U.S. GOVERNMENT SECURITIES
The obligations issued or guaranteed by the U.S. government in
which a Portfolio may invest include direct obligations of the U.S. Treasury and
obligations issued by U.S. government agencies and instrumentalities. Included
among direct obligations of the United States are Treasury Bills, Treasury Notes
and Treasury Bonds, which differ in terms of their interest rates, maturities
and dates of issuance. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ("GNMA")); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") bonds).
Other U.S. government securities the Portfolios may invest in
include securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
Because the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a Portfolio will invest in obligations issued by
such an instrumentality only if the Adviser determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable for
investment by the Portfolio.
CONVERTIBLE SECURITIES
Convertible securities in which a Portfolio may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require sale of such
securities, although the Adviser will consider such event in its determination
of whether a Portfolio should continue to hold the securities.
DEBT SECURITIES
Each Portfolio may invest in investment grade debt securities
(other than money market obligations) for the purpose of seeking capital
appreciation (with respect to the Major
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Foreign Markets Portfolio, up to 35% of its total assets may be invested in
investment grade debt securities). Any percentage limitation on a Portfolio's
ability to invest in debt securities will not be applicable during periods when
the Portfolio pursues a temporary defensive strategy as discussed below. Each
Portfolio may invest to a limited extent in zero coupon securities and
government zero coupon securities. See "Additional Information Concerning Taxes"
for a discussion of the tax consequences to shareholders of a Portfolio that
invests in zero coupon securities.
The interest income to be derived may be considered as one
factor in selecting debt securities for investment by the Adviser. Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon the Adviser's ability
to forecast accurately changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's or S&P or, if unrated, is
determined to be of comparable quality by the Adviser. Securities rated in the
fourth highest grade may have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. Subsequent to its purchase by a Portfolio, an issue of securities
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event will require sale of such
securities, although the Adviser will consider such event in its determination
of whether the Portfolio should continue to hold the securities.
BELOW INVESTMENT GRADE SECURITIES
Each Portfolio may invest in debt securities rated below
investment grade (with respect to the Major Foreign Markets Portfolio, up to 5%
of its total assets may be invested in such securities). Below investment grade
debt securities may be rated as low as C by Moody's or D by S&P, or be deemed by
the Adviser 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. A security rated D by
S&P is in default or is expected to default upon maturity or payment date.
Investors should be aware that ratings are relative and subjective and are not
absolute standards of quality.
Below investment grade securities (commonly referred to as
"junk bonds"), (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
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
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is
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significantly greater because these securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
While the market values of medium- and lower-rated securities
and unrated securities of comparable quality tend to react less to fluctuations
in interest rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
Issuers of medium- and lower-rated securities and unrated securities are often
highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their obligations during an
economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
An economic recession could disrupt severely the market for
such securities and may adversely affect the value of such securities and the
ability of the issuers of such securities to repay principal and pay interest
thereon. A Portfolio 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 Portfolios
anticipate that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for higher-rated securities. The lack of a liquid secondary market, as
well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and a Portfolio's ability
to dispose of particular issues when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.
The market value of securities in medium- and lower-rated
categories is also more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact a
Portfolio's net asset value. A Portfolio will rely on the judgment, analysis and
experience of the Adviser in evaluating the creditworthiness of an issuer. In
this evaluation, in addition to relying on ratings assigned by Moody's or S&P,
the Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. Interest rate trends and specific developments which may affect
individual issuers will also be analyzed. Subsequent to its purchase by a
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced. Neither event will require sale of such securities, although the
Adviser will consider such event in its determination of whether a Portfolio
should continue to hold the securities. Normally, medium- and lower-rated and
comparable unrated securities are not intended for short-term investment. A
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings of such securities. At times, adverse publicity regarding lower-rated
securities has depressed the prices for such securities to some extent.
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MORTGAGE-BACKED SECURITIES
Each Portfolio may invest in mortgage-backed securities
sponsored by U.S. The Major Foreign Markets Portfolio may invest in
mortgage-backed securities sponsored by foreign issuers as well as
non-governmental issuers.
Mortgage-backed securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities include those issued by GNMA, FNMA
and FHLMC. Non-government issued mortgage-backed securities may offer higher
yields than those issued by government entities, but may be subject to greater
price fluctuations. Mortgage-backed securities represent direct or indirect
participations in, or are secured by and payable from, mortgage loans secured by
real property. The mortgages backing these securities include, among other
mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate mortgages.
Although there may be government or private guarantees on the payment of
interest and principal of these securities, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Portfolio's shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees. Some
mortgage-backed securities, such as collateralized mortgage obligations
("CMOs"), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
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
Portfolios' yield. In addition, mortgage-backed securities issued by certain
non-government entities and collateralized mortgage obligations may be less
marketable than other securities.
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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
Each Portfolio may invest in U.S. governmental asset-backed
securities. The Major Foreign Markets Portfolio may invest in foreign
governmental and private asset-backed securities.
Asset-backed securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities include those issued by the
Student Loan Marketing Association. Asset-backed securities 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. In certain
circumstances, asset-backed securities may be considered illiquid securities
subject to the percentage limitations described herein. Asset-backed securities
are considered an industry for industry concentration purposes, and a Portfolio
will therefore not purchase any asset-backed securities which would cause 25% or
more of a Portfolio's net assets at the time of purchase to be invested in
asset-backed securities.
Asset-backed securities present certain risks that are not
presented by other securities in which the Portfolios may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, there is no assurance that the
security interest in the collateral can be realized. The remaining maturity of
any asset-backed security a Portfolio invests in will be 397 days or less. A
Portfolio may purchase asset-backed securities that are unrated.
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LOAN PARTICIPATIONS AND ASSIGNMENTS
Each Portfolio 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
each Portfolio'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"). Each Portfolio currently anticipates that it
will not invest more than 5% of its net assets in Loan Participations and
Assignments.
Participations typically will result in the Portfolio having a
contractual relationship only with the Lender, not with the Borrower. The
Portfolio 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 Portfolio 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 Portfolio
may not directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Portfolio 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 Portfolio
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 Portfolio will acquire
Participations only if the Lender interpositioned between the Portfolio and the
Borrower is determined by the Adviser to be creditworthy.
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
Portfolio'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.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolios may also purchase CMOs issued by a U.S.
Government instrumentality which are backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligations to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. Generally, CMOs are partitioned into
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several classes with a ranked priority by which the classes of obligations are
redeemed. These securities may be considered mortgage derivatives. The
Portfolios may only invest in CMOs issued by FHLMC, FNMA or other agencies of
the U.S. Government or instrumentalities established or sponsored by the U.S.
Government.
CMOs provide an investor with a specified interest in the cash
flow of a pool of underlying mortgages or other mortgage-related securities.
Issuers of CMOs frequently elect to be taxed as pass-through entities known as
real estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. Coupons can be fixed or variable. If variable, they can move
with or in the reverse direction of interest rates. The coupon changes could be
a multiple of the actual rate change and there may be limitations on what the
coupon can be. Cash flows of pools can also be divided into a principal only
class and an interest only class. In this case the principal only class will
only receive principal cash flows from the pool. All interest cash flows go to
the interest only class. The relative payment rights of the various CMO classes
may be structured in many ways, either sequentially or by other rules of
priority. Generally, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments will
be made on a CMO class until all other classes having an earlier stated maturity
date are paid in full. Sometimes, however, CMO classes are "parallel pay" (I.E.
payments of principal are made to two or more classes concurrently). CMOs may
exhibit more or less price volatility and interest rate risk than other types of
mortgaged-related obligations.
The CMO structure returns principal to investors sequentially,
rather than according to the pro rata method of a pass-through. In the
traditional CMO structure, all classes (called tranches) receive interest at a
stated rate, but only one class at a time receives principal. All principal
payments received on the underlying mortgages or securities are first paid to
the "fastest pay" tranche. After this tranche is retired, the next tranche in
the sequence becomes the exclusive recipient of principal payments. This
sequential process continues until the last tranche is retired. In the event of
sufficient early repayments on the underlying mortgages, the "fastest-pay"
tranche generally will be retired prior to its maturity. Thus the early
retirement of a particular tranche of a CMO held by a Portfolio would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security as described above.
ZERO COUPON SECURITIES
Each Portfolio may invest in "zero coupon" U.S. Treasury,
foreign government and U.S. and foreign corporate debt securities, which are
bills, notes and bonds that have been stripped of their unmatured interest
coupons and receipts or certificates representing interests in such stripped
debt obligations and coupons. Each Portfolio currently anticipates that zero
coupon securities will not exceed 5% of its net assets.
A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest. The Portfolios
anticipate that they 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
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security was purchased as income each year, even though the holder receives no
interest payment on the security during the year.
OPTIONS GENERALLY
The Portfolios may purchase and write (sell) securities,
securities indices and currencies for both hedging purposes and to increase
total return, which may involve speculation (with respect to the Major Foreign
Markets Portfolio, up to 25% of its total assets). The amount of assets
considered to be "at risk" is, in the case of purchasing options, the amount of
premium paid, and, in the case of writing options, the value of the underlying
obligation. Options may be traded on an exchange or over-the-counter ("OTC").
SECURITIES OPTIONS
Each Portfolio may write covered put and call options on stock
and debt securities and each Portfolio may purchase such options that are traded
on foreign and U.S. exchanges, as well as OTC options. A Portfolio realizes fees
(referred to as "premiums") for granting the rights evidenced by the options it
has written. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying security
at a specified price for a specified time period or at a specified time. In
contrast, a call option embodies the right of its purchaser to compel the writer
of the option to sell to the option holder an underlying security at a specified
price for a specified time period or at a specified time.
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved from its use. However, for an option writer the exposure to adverse
price movements in the underlying security or index is potentially unlimited
during the exercise period. Writing securities options may result in substantial
losses to a Portfolio, force the sale or purchase of portfolio securities at
inopportune times or at less advantageous prices, limit the amount of
appreciation the Portfolio could realize on its investments or require the
Portfolio to hold securities its would otherwise sell.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Portfolio,
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
Portfolio that writes call options retains the risk of an increase in the price
of the underlying security. The size of the premiums that the Portfolios 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.
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In the case of options written by a Portfolio that are deemed
covered by virtue of the Portfolio'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 Portfolio has written options may exceed the time within which the Portfolio
must make delivery in accordance with an exercise notice. In these instances, a
Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio 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 Portfolio 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 Portfolio may write covered call options. For example, if
the Portfolio 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 Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by a Portfolio 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. Each Portfolio that can write put and call
options on securities may write (i) in-the-money call options when the Adviser
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (ii) at-the-money call options when the
Adviser expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, each Portfolio 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 Portfolio
prior to the exercise of options that it has purchased or written, respectively,
of options of the same series) in which a Portfolio 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 Portfolio has purchased an option and
engages in a closing sale transaction, whether the Portfolio realizes a profit
or loss will depend upon whether the amount
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received in the closing sale transaction is more or less than the premium the
Portfolio initially paid for the original option plus the related transaction
costs. Similarly, in cases where a Portfolio 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. A Portfolio 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 Portfolio under an option it has written would
be terminated by a closing purchase transaction (the Portfolio would not be
deemed to own an option as a result of the transaction). So long as the
obligation of a Portfolio as the writer of an option continues, the Portfolio
may be assigned an exercise notice by the broker-dealer through which the option
was sold, requiring the Portfolio to deliver the underlying security against
payment of the exercise price. This obligation terminates when the option
expires or the Portfolio effects a closing purchase transaction. A Portfolio
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 Portfolio'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 Portfolio. The Portfolios, however, intend to
purchase OTC options only from dealers whose debt securities, as determined by
the Adviser, are considered to be investment grade. If, as a covered call option
writer, a Portfolio 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
Portfolios and other clients of the Adviser and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Portfolios
will be able to purchase on a particular security.
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SECURITIES INDEX OPTIONS
A securities index measures the movement of a certain group of
securities by assigning relative values to the securities included in the index,
fluctuating with changes in the market values of the securities included in the
index. Some securities index options are based on a broad market index, such as
the NYSE Composite Index, or a narrower market index such as the Standard &
Poor's 100. Indexes may also be based on a particular industry or market
segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the securities index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the index and the exercise price of the option times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Securities index options may
be offset by entering into closing transactions as described above for
securities options.
OTC OPTIONS
The Major Foreign Markets Portfolio 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 Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, it would lose the
premium it paid for the option and the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid
market while OTC or dealer options do not. Consequently, the Portfolio 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 Portfolio 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 Portfolio originally wrote the option.
Although the Portfolio 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 Portfolio, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time prior
to expiration. The inability to enter into a closing transaction may result in
material losses to the Portfolio. Until the
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Portfolio, 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 a Portfolio's ability to sell portfolio
securities at a time when such sale might be advantageous.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES,
OPTIONS ON FUTURES AND SWAPS
Each Portfolio will comply with guidelines established by
the SEC and other applicable regulatory bodies with respect to coverage of
options written by a Portfolio on securities and indexes; currency, interest
rate and security index futures contracts and options on these futures
contracts; and forward currency contracts. These guidelines may, in certain
instances, require segregation by the Portfolio of cash or liquid securities
with its custodian or a designated sub-custodian to the extent the
Portfolio's obligations with respect to these strategies are not otherwise
"covered" through ownership of the underlying security or financial
instrument or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is
no longer necessary to segregate them. As a result, there is a possibility
that segregation of a large percentage of a Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests
or other current obligations.
For example, a call option written by a Portfolio on
securities may require the Portfolio 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 a Portfolio on
an index may require the Portfolio 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 a Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. A Portfolio 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 Portfolio. If a Portfolio holds a futures
contract, the Portfolio could purchase a put option on the same futures contract
with a strike price as high or higher than the price of the contract held. A
Portfolio 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.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Each Portfolio may enter into reverse repurchase agreements
with member banks of the Federal Reserve System with respect to portfolio
securities for temporary purposes (such as to obtain cash to meet redemption
requests when the liquidation of portfolio securities is deemed disadvantageous
or inconvenient by the Adviser) and "dollar rolls." The Portfolios do not
presently intend to invest more than 5% of net assets in reverse repurchase
agreements or dollar rolls during the coming year.
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Reverse repurchase agreements involve the sale of securities
held by a Portfolio pursuant to such Portfolio's agreement to repurchase them at
a mutually agreed upon date, price and rate of interest. At the time a Portfolio
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
securities having a value not less than the repurchase price (including accrued
interest). The segregated assets will be marked-to-market daily and additional
assets will be segregated on any day in which the assets fall below the
repurchase price (plus accrued interest). A Portfolio's liquidity and ability to
manage its assets might be affected when it sets aside cash or portfolio
securities to cover such commitments. Reverse repurchase agreements involve the
risk that the market value of the securities retained in lieu of sale may
decline below the price of the securities a Portfolio 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
Portfolio's obligation to repurchase the securities, and a Portfolio's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
Each Portfolio also may enter into "dollar rolls," in which it
sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, a
Portfolio would forgo principal and interest paid on such securities. A
Portfolio 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 Portfolio 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.
ILLIQUID SECURITIES
Each Portfolio is authorized to, but does not presently intend
to, invest up to 15% of its net assets in 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,
certain Rule 144A Securities (as defined below), and time deposits maturing in
more than seven days. Securities that have legal or contractual restrictions on
resale but have a readily available market are not considered illiquid for
purposes of this limitation. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Companies whose securities are not publicly traded
may not be subject to the disclosure and other investor protection requirements
applicable to companies whose securities are publicly traded. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and
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a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days without borrowing. A mutual
fund might also have to register such restricted securities in order to dispose
of them resulting in additional expense and delay. Adverse market conditions
could impede such a public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
RULE 144A SECURITIES
Rule 144A under the Securities Act adopted by the SEC
allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes
a "safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. The Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Portfolios' limit on the purchase of
illiquid securities unless the Portfolio's Board of Directors (the "Board") or
its delegates determines that the Rule 144A Securities are liquid. In reaching
liquidity decisions, the Board or its delegates may consider, INTER ALIA, the
following factors: (i) the unregistered nature of the security; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security and (v)
the nature of the security and the nature of the marketplace trades (E.G., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Investing in Rule 144A securities could have the effect of
increasing the level of illiquidity in the Portfolios to the extent that
qualified institutional buyers are unavailable or uninterested in purchasing
such securities from the Portfolios. The Boards may adopt guidelines and
delegate to the Adviser the daily function of determining and monitoring the
liquidity of Rule 144A Securities, although each Board will retain ultimate
responsibility for liquidity determinations.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio may lend portfolio securities to brokers,
dealers and other financial organizations that meet capital and other credit
requirements or other criteria established by the
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Board. These loans, if and when made, may not exceed 33-1/3% of the Portfolios'
total assets (including the loan collateral). The Portfolios will not lend
portfolio securities to the Adviser or its affiliates unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash or liquid securities, which are
maintained at all times in an amount equal to at least 102% (105% in the case of
foreign securities) of the current market value of the loaned securities. Any
gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Portfolios. From
time to time, the Portfolios 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 Portfolios and that is acting as a
"finder."
By lending its securities, each Portfolio 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. Each
Portfolio will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Portfolio must receive at least 102% (105% in the
case of foreign securities) 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 Portfolio must be able to terminate the
loan at any time; (iv) the Portfolio 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 Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan agreements
involve certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon a Portfolio's ability to recover
the loaned securities or dispose of the collateral for the loan.
BORROWING
Each Portfolio may borrow up to 33-1/3% of its total assets
for temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Additional
investments (including roll-overs) will not be made when borrowings exceed 5% of
a Portfolio's total assets. Although the principal of such borrowings will be
fixed, a Portfolio's assets may change in value during the time the borrowing is
outstanding. Each Portfolio 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.
SECURITIES OF OTHER INVESTMENT COMPANIES
Each Portfolio may invest in securities issued by other
investment companies to the extent permitted by the Investment Company Act of
1940 (the "1940 Act"). As a shareholder of another investment company, each
Portfolio would bear, along with other shareholders, its pro rata portion of
the other investment
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company's expenses, including advisory fees. These expenses would be in addition
to the advisory and other expenses that a Portfolio bears directly in connection
with its own operations.
Presently, under the 1940 Act, a Portfolio 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 Portfolio's total assets and (iii) when added to all other investment
company securities held by the Portfolio, do not exceed 10% of the value of the
Portfolio's total assets.
FUTURES ACTIVITIES
Each Portfolio may enter into futures contracts (and related
options) on securities, securities indices, foreign currencies and interest
rates, and purchase and write (sell) related options traded on exchanges
designated by the Commodity Futures Trading Commission (the "CFTC") or
consistent with CFTC regulations, on foreign exchanges. These futures contracts
are standardized contracts for the future delivery of a non-U.S. currency, an
interest rate sensitive security or, in the case of index futures contracts or
certain other futures contracts, a cash settlement with reference to a specified
multiplier times the change in the index. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions as well as
for the purpose of increasing total return, which may involve speculation.
Aggregate initial margin and premiums (discussed below) required to establish
positions other than those considered to be "bona fide hedging" by the CFTC will
not exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into Each Portfolio reserves the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Portfolio's
policies. There is no overall limit on the percentage of Portfolio assets that
may be at risk with respect to futures activities.
FUTURES CONTRACTS
A foreign currency futures contract provides for the future
sale by one party and the purchase by the other party of a certain amount of a
specified non-U.S. currency at a specified price, date, time and place. An
interest rate futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific interest rate
sensitive financial instrument (debt security) at a specified price, date, time
and place. Securities indexes are capitalization weighted indexes which reflect
the market value of the securities represented in the indexes. A securities
index futures contract is an agreement to be settled by delivery of an amount of
cash equal to a specified multiplier times the difference between the value of
the index at the close of the last trading day on the contract and the price at
which the agreement is made.
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No consideration is paid or received by a Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to deposit
in a segregated account with its custodian an amount of cash or liquid
securities acceptable to the broker, equal to approximately 1% to 10% of the
contract amount (this amount is subject to change by the exchange on which the
contract is traded, and brokers may charge a higher amount). This amount is
known as "initial margin" and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. The broker will have access to amounts in the margin account if
the Portfolio 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." A Portfolio will
also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, a
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio'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 each Portfolio may enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting the Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
a Portfolio 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 Portfolio 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 a Portfolio's performance.
OPTIONS ON FUTURES CONTRACTS
Each Portfolio may purchase and write put and call options on
foreign currency, interest rate and stock index futures contracts and may enter
into closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected;
the ability to establish and close out positions on such options will be subject
to the existence of a liquid market.
An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
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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 each Portfolio.
SHORT SALES "AGAINST THE BOX"
Each Portfolio may engage in Short Sales "Against the Box"
(with respect to the Major Foreign Markets Portfolio, up to 10% of its net
assets (taken at current value) may be used as collateral for short sales
against the box). In a short sale, a Portfolio 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. While a short sale is
made by selling a security the Portfolio does not own, a short sale is "against
the box" to the extent that the Portfolio contemporaneously owns or has the
right to obtain, at no added cost, securities identical to those sold short. It
may be entered into by the Portfolio, for example, to lock in a sales price for
a security the Portfolio does not wish to sell immediately. If the Portfolio
engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position.
A Portfolio may make a short sale as a hedge when it believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio (or a security convertible or exchangeable for
such security). In such case, any future losses in a Portfolio's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position. The extent
to which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount a Portfolio owns. There will be
certain additional transactions costs associated with short sales against the
box, but a Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
If a Portfolio 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 a Portfolio 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 Portfolio may effect short sales.
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The Portfolios do not presently intend to invest more than 5%
of net assets in short sales against the box.
TEMPORARY INVESTMENTS
To the extent permitted by its investment objectives and
policies, each of the Portfolios may hold cash or cash equivalents pending
investment or to meet redemption requests. In addition, for defensive purposes
due to abnormal market conditions or economic situations as determined by the
Credit Suisse Asset Management, LLC ("CSAM"), each Portfolio's adviser (the
"Adviser"), each Portfolio may reduce its holdings in other securities and
invest up to 100% of its assets in cash or certain short-term (less than twelve
months to maturity) and medium-term (not greater than five years to maturity)
interest-bearing instruments or deposits of the United States and foreign
issuers. The short-term and medium-term debt securities in which a Portfolio may
invest for temporary defensive purposes consist of: (a) obligations of the
United States or foreign governments, their respective agencies or
instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations;
and (e) repurchase agreements with banks and broker-dealers with respect to such
securities.
Where CSAM believes that it would be beneficial to a Portfolio
and appropriate considering the factors of return and liquidity, a Portfolio may
invest up to 5% of its net assets in securities of money market mutual funds
that are unaffiliated with the Fund or CSAM. A money market mutual fund is an
investment company that invests in short-term high quality money market
instruments. A money market mutual fund generally does not purchase securities
with a remaining maturity of more than one year. As a shareholder in any mutual
fund, a Portfolio will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Portfolio's
administration fees, including management fees and other expenses with respect
to assets so invested.
REPURCHASE AGREEMENTS
The Portfolios may invest in repurchase agreement transactions
with member banks of the Federal Reserve System and certain non-bank dealers.
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under the terms of a typical repurchase agreement, a Portfolio
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 Portfolio to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Portfolio's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio'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 Portfolio 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 Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value
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of the underlying securities during the period in which the Portfolio seeks to
assert this right. The Adviser monitors the creditworthiness of those bank and
non-bank dealers with which each Portfolio enters into repurchase agreements to
evaluate this risk. A repurchase agreement is considered to be a loan under the
1940 Act.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS AND
LONG-SHORT MARKET NEUTRAL PORTFOLIOS
SECTION 4(2) PAPER
"Section 4(2) paper" is commercial paper which is issued in
reliance on the "private placement" exemption from registration which is
afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) paper is
restricted as to disposition under the federal securities laws and is generally
sold to institutional investors such as the Portfolios which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of investment dealers who make a market in the Section 4(2) paper,
thereby providing liquidity. See "Illiquid Securities" above. See Appendix "A"
for a list of commercial paper ratings.
NON-DIVERSIFIED STATUS
Each Portfolio is classified as non-diversified within the
1940 Act, which means that each Portfolio is not limited by such Act in the
proportion of its assets that it may invest in securities of a single issuer.
As a non-diversified fund, each Portfolio may invest a greater proportion of
its assets in the obligations of a smaller number of issuers and, as a
result, may be subject to greater risk with respect to portfolio securities.
The investments of these Portfolios will be limited, however, in order to
qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"). See "Additional Information
Concerning Taxes." To qualify, a Portfolio 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 Portfolio will not own more than 10% of the
outstanding voting securities of a single issuer.
COMMON INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS AND MAJOR
FOREIGN MARKETS PORTFOLIOS
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS
Each Portfolio may purchase securities on a when-issued basis
or on a forward commitment basis, and it may 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 Global Telecommunications Portfolio
currently anticipates that when-issued securities will not exceed 25% of its net
assets. The Major Foreign Markets Portfolio may utilize up to 20% of it total
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assets to purchase securities on a when-issued basis or to purchase or sell
securities for delayed delivery. Each Portfolio does not intend to engage in
when-issued purchases and forward commitments for speculative purposes but only
in furtherance of its investment objectives.
In these transactions, payment for and delivery of the
securities occur beyond the regular settlement dates, normally within 30-45 days
after the transaction. The Portfolios will not enter into a when-issued or
delayed-delivery transaction for the purpose of leverage, but may sell the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive securities in a delayed-delivery transaction before
the settlement date if the Adviser deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued and
delayed-delivery transactions 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 prices obtained on such securities
may be higher or lower than the prices available in the market on the dates when
the investments are actually delivered to the buyers. Each Portfolio will
establish a segregated account with its custodian consisting of cash or liquid
securities in an amount equal to its when-issued and delayed-delivery purchase
commitments and will segregate the securities underlying commitments to sell
securities for delayed delivery.
When a Portfolio 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 a Portfolio 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 Portfolio's commitment.
It may be expected that a Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. When a Portfolio 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
Portfolios' incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
STAND-BY COMMITMENT AGREEMENTS
Each Portfolio may from time to time enter into stand-by
commitment agreements. The Global Telecommunications Portfolio does not
presently intend to invest more than 5% of net assets in stand-by commitment
agreements during the coming year.
Such agreements commit a Portfolio, for a stated period of
time, to purchase a stated amount of a fixed income securities which may be
issued and sold to the Portfolio at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, a Portfolio is paid a commitment fee, regardless of
whether or not the security is ultimately issued. A Portfolio will enter into
such agreements only for the purpose of investing in the security underlying the
commitment at a yield and price that is considered advantageous to a Portfolio.
Each Portfolio will not enter into a stand-by commitment with a remaining term
in excess of 45 days and it will limit its investment in such commitments so
that the aggregate purchase price of the securities subject to such commitments,
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together with the value of portfolio securities subject to legal restrictions on
resale, will not exceed 10% of its assets taken at the time of acquisition of
such commitment or security.
Each Portfolio will at all times maintain a segregated account
with its custodian consisting of cash or liquid securities denominated in U.S.
dollars or non-U.S. currencies in an aggregate amount equal to the purchase
price of the securities underlying the commitment. The assets contained in the
segregated account will be marked-to-market daily and additional assets will be
placed in such account on any day in which assets fall below the amount of the
purchase price. A Portfolio's liquidity and ability to manage its assets might
be affected when it sets aside cash or portfolio securities to cover such
commitments.
There can be no assurance that the securities subject to a
stand-by commitment will be issued and the value of the security, if issued, on
the delivery date may be more or less than its purchase price. Because the
issuance of the security underlying the commitment is at the option of the
issuer, a Portfolio may bear the risk of a decline in the value of such security
and may not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a stand-by commitment
agreement and the related commitment fee will be recorded on the date on which
the security can reasonably be expected to be issued, and the value of the
security will be adjusted by the amount of the commitment fee. In the event the
security is not issued, the commitment fee will be recorded as income on the
expiration date of the stand-by commitment.
RIGHTS OFFERINGS AND PURCHASE WARRANTS
The Global Telecommunications Portfolio may purchase rights
and each Portfolio may purchase warrants. In the case of the Major Foreign
Markets Portfolio, it may invest up to 10% of its total assets in warrants.
Rights offerings and purchase warrants are privileges issued
by a corporation which enable the owner to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. Subscription rights normally have a short lifespan to
expiration. The purchase of rights or warrants involves the risk that a
Portfolio could lose the purchase value of a right or warrant if the right to
subscribe to additional shares is not executed prior to the rights and warrants
expiration. Also, the purchase of rights and/or warrants involves the risk that
the effective price paid for the right and/or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- GLOBAL TELECOMMUNICATIONS
PORTFOLIO
TELECOMMUNICATIONS
Telecommunications companies in both developed and emerging
countries are undergoing significant change due to varying and evolving levels
of governmental regulation or deregulation and other factors. As a result,
competitive pressures are intense and the securities of such companies may be
subject to rapid price volatility. Telecommunications regulation typically
limits rates charged, returns earned, providers of services, types of services,
ownership,
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areas served and terms for dealing with competitors and customers.
Telecommunications regulation generally has tended to be less stringent for
newer services than for traditional telephone service, although there can be no
assurances that such newer services will not be heavily regulated in the future.
Regulation may also limit the use of new technologies and hamper efficient
depreciation of existing assets. If regulation limits the use of new
technologies by established carriers or forces cross-subsidies, large private
networks may emerge. Service providers may also be subject to regulations
regarding ownership and control, providers of services, subscription rates and
technical standards.
Companies offering telephone services are experiencing
increasing competition from cellular telephones, and the cellular telephone
industry, because it has a limited operating history, faces uncertainty
concerning the future of the industry and demand for cellular telephones. All
telecommunications companies in both developed and emerging countries are
subject to the additional risk that technological innovations will make their
products and services obsolete. While telephone companies in developed countries
and certain emerging countries may pay an above average dividend, the
Portfolio's investment decisions are based upon capital appreciation potential
rather than income considerations.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- LONG-SHORT MARKET NEUTRAL
PORTFOLIO
SHORT SALES
The Long-Short Neutral Portfolio will seek to realize
additional gains through short sales. Short sales are transactions in which the
Portfolio sells a security it does not own, in anticipation of a decline in the
value of that security relative to the long positions held by the Portfolio. To
complete such a transaction, the Portfolio must borrow the security from a
broker or other institution to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing it at the market price
at or prior to the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Portfolio. Until the
security is replaced, the Portfolio is required to repay the lender any
dividends or interest that accrue during the period of the loan. To borrow the
security, the Portfolio also may be required to pay a premium, which would
increase the cost of the security sold. The net proceeds of the short sale will
be retained by the broker (or by the Portfolio's custodian in a special custody
account), to the extent necessary to meet margin requirements, until the short
position is closed out. The Portfolio also will incur transaction costs in
effecting short sales.
The Portfolio will incur a loss as a result of the short sale
if the price of the security increases between the date of the short sale and
the date on which the Portfolio replaces the borrowed security. The Portfolio
will realize a gain if the security declines in price between those dates. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of the premium, dividends, interest or expenses the Portfolio may be
required to pay in connection with a short sale. An increase in the value of a
security sold short by the Portfolio over the price at which it was sold short
will result in a loss to the Portfolio, and there can be no assurance that the
Portfolio will be able to close out the position at any particular time or at an
acceptable price. Although the Portfolio's gain is limited to the amount at
which it sold a security short, its potential loss is limited only by the
maximum attainable price of the security
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less the price at which the security was sold. Until the Portfolio replaces a
borrowed security, it will maintain in a segregated account at all times cash,
U.S. Government Securities, or other liquid securities in an amount which, when
added to any amount deposited with a broker as collateral will at least equal
the current market value of the security sold short. Depending on arrangements
made with brokers, the Portfolio may not receive any payments (including
interest) on collateral deposited with them. The Portfolio will not make a short
sale if, after giving effect to such sale, the market value of all securities
sold short exceeds 100% of the value of the Portfolio's net assets.
SUPPLEMENTAL INVESTMENT OBJECTIVES AND POLICIES -- MAJOR FOREIGN MARKETS
PORTFOLIO
REITS
The Portfolio 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 Portfolio, REITs are not taxed on
income distributed to shareholders provided they comply with several
requirements of the Code. By investing in a REIT, the Portfolio will
indirectly bear its proportionate share of any expenses paid by the REIT in
addition to the expenses of the Portfolio.
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.
INVESTMENT RESTRICTIONS
The following investment limitations of each Portfolio may not
be changed without the affirmative vote of the holders of a majority of a
Portfolio's outstanding shares ("Fundamental Restrictions"). Such majority is
defined as the lesser of (i) 67% or more of the shares present at the meeting,
if the holders of more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 of each of the Portfolios) is adhered to at the
time of an investment, a later increase or decrease in the percentage of assets
resulting from a change in the values of portfolio securities or in the amount
of the Portfolios' assets will not constitute a violation of such restriction.
Each Portfolio may not:
1. Borrow money, except from banks, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of the
Portfolio; or mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 33 1/3% of the value of the Portfolio's
33
<PAGE>
total assets at the time of such borrowing; provided, however, with respect to
the Long-Short Neutral Portfolio only, that: (a) short sales and related
borrowings of securities are not subject to this restriction; and, (b) for the
purposes of this restriction, collateral arrangements with respect to options,
short sales, stock index, interest rate, currency or other futures, options on
futures contracts, collateral arrangements with respect to initial and variation
margin and collateral arrangements with respect to swaps and other derivatives
are not deemed to be a pledge or other encumbrance of assets;
2. Act as an underwriter of securities within the meaning of
the Securities Act, except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the limitation
on purchases of restricted securities;
3. Purchase or sell real estate (including real estate limited
partnership interests), provided that a Portfolio may invest in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein;
4. Purchase or sell commodities or commodity contracts, except
that a Portfolio may deal in forward foreign exchange transactions between
currencies of the different countries in which it may invest and purchase and
sell stock index and currency options, stock index futures, financial futures
and currency futures contracts and related options on such futures;
5. Make loans, except through loans of portfolio instruments
and repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, Loan Participations and Assignments,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan; and
6. Except for the Global Telecommunications Portfolio,
purchase any securities, which would cause 25% or more of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued or guaranteed by the United States, any state, territory
or possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, and (ii)
repurchase agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry. The Global
Telecommunications Portfolio will concentrate in the telecommunications
industry.
For purposes of Investment Limitation No. 1, collateral
arrangements with respect to, if applicable, the writing of options, futures
contracts, options on futures contracts, forward currency contracts and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets.
In addition to the fundamental investment limitations
specified above, a Portfolio may not:
34
<PAGE>
1. Make investments for the purpose of exercising control or
management, but investments by a Portfolio in wholly-owned investment
entities created under the laws of certain countries will not be deemed
the making of investments for the purpose of exercising control or
management;
2. Purchase securities on margin, except for short-term
credits necessary for clearance of portfolio transactions, and except
that a Portfolio may make margin deposits in connection with its use of
options, futures contracts, options on futures contracts and forward
contracts;
3. Purchase or sell interests in mineral leases, oil, gas or
other mineral exploration or development programs, except that a
Portfolio may invest in securities issued by companies that engage in
oil, gas or other mineral exploration or development activities;
4. (LONG-SHORT NEUTRAL PORTFOLIO ONLY) Acquire any securities
of registered open-end investment companies or registered unit
investment trusts in reliance on Section 12(d)(1)(F) or (G) of the 1940
Act;
5. (MAJOR FOREIGN MARKETS PORTFOLIO ONLY) Make additional
investment (including roll-overs) if the Portfolio's borrowings exceed
5% of its net assets; and
6. (MAJOR FOREIGN MARKETS PORTFOLIO ONLY) Make short sales of
securities or maintain a short position, except that the Portfolio may
maintain short positions in forward currency contracts, options and
futures contracts and make short sales "against the box."
The policies set forth above are not fundamental and thus may
be changed by the Portfolios' Board of Directors without a vote of the
shareholders. If a percentage restriction (other than the percentage limitation
set forth in No. 6 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 the Portfolio's assets will
not constitute a violation of such restriction.
Securities held by a Portfolio generally may not be purchased
from, sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
PORTFOLIO VALUATION
The following is a description of the procedures used by the
Portfolios in valuing their assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an OTC market will be valued at the most recent
sale as of the time the valuation is made or, in the absence of sales, at the
mean between the highest bid and lowest asked quotations. If there are no such
35
<PAGE>
quotations, the value of the securities will be taken to be the most recent bid
quotation on the exchange or market. Options contracts will be valued similarly.
Futures contracts will be valued at the most recent settlement price at the time
of valuation. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. 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. Notwithstanding the foregoing, in determining the market value of
portfolio investments, the Portfolios 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 Portfolio under the general supervision and
responsibility of the Boards, which may replace a Pricing Service at any time.
Securities, options, futures contracts and other assets for which market
quotations are not available will be valued at their fair value as determined in
good faith pursuant to consistently applied procedures established by the
Boards. In addition, the Boards or their 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 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 the Portfolios' net asset value is not calculated. As a
result, calculation of the Portfolios' net asset value does not take place
contemporaneously with the determination of the prices of the majority of the
Portfolios' securities. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing exchange rate as quoted by a Pricing Service as of 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 Boards. Although the Long-Short Neutral Portfolio does not invest
directly in foreign securities, it invests in American Depositary Receipts, the
value of which depends on the underlying foreign security.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for establishing, reviewing and,
where necessary, modifying each Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by a Portfolio 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
36
<PAGE>
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 OTC markets,
but the price of securities traded in OTC markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality. No brokerage commissions are typically paid on
purchases and sales of U.S. Government Securities.
In selecting broker-dealers, the Adviser does business
exclusively with those broker-dealers that, in the Adviser's judgment, can be
expected to provide the best service. The service has two main aspects: the
execution of buy and sell orders and the provision of research. In negotiating
commissions with broker-dealers, the Adviser will pay no more for execution and
research services 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 the Adviser's standards may be
higher than for execution services alone or for services that fall below the
Adviser's standards. The Adviser believes that these arrangements may benefit
all clients and not necessarily only the accounts in which the particular
investment transactions occur that are so executed. Further, the Adviser will
only receive brokerage or research service in connection with securities
transactions that are consistent with the "safe harbor" provisions of Section
28(e) of the Securities Exchange Act of 1934 when paying such higher
commissions.
All orders for transactions in securities or options on behalf
of a Portfolio are placed by the Adviser with broker-dealers that it selects,
including Credit Suisse Asset Management Securities, Inc. ("CSAMSI") and
affiliates of Credit Suisse Group ("Credit Suisse"). A Portfolio may utilize
CSAMSI or affiliates of Credit Suisse in connection with a purchase or sale of
securities when the Adviser 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 the Portfolios concerning specific
portfolio securities are made independently from those for other clients advised
by the Adviser. Such other investment clients may invest in the same securities
as the Portfolios. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each client, including the
Portfolios. In some instances, this investment procedure may adversely affect
the price paid or received by the Portfolios or the size of the position
obtained or sold for the Portfolios. To the extent permitted by law, the Adviser
may aggregate the securities to be sold or purchased for each Portfolio with
those to be sold or purchased for such other investment clients in order to
obtain best execution.
37
<PAGE>
Transactions for each of the Portfolios may be effected on
foreign securities exchanges. In transactions for securities not actively traded
on a foreign securities exchange, the Portfolios 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.
Each Portfolio may participate, if and when practicable, in
bidding for the purchase of securities for the Portfolio's portfolio directly
from an issuer in order to take advantage of the lower purchase price available
to members of such a group. A Portfolio will engage in this practice, however,
only when the Adviser, in its sole discretion, believe such practice to be
otherwise in the Portfolio's interest.
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 except as permitted by the SEC exemptive
order or by applicable law. In addition, the Portfolios will not give preference
to any institutions with whom the Portfolios enter into distribution or
shareholder servicing agreements concerning the provisions of distribution
services or support services.
PORTFOLIO TURNOVER
The Portfolios do not intend to seek profits through
short-term trading, but the rate of turnover will not be a limiting factor when
a Portfolio deems it desirable to sell or purchase securities. The Portfolios'
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 Portfolios could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold. To the extent that its
portfolio is traded for the short-term, a Portfolio will be engaged essentially
in trading activities based on short-term considerations affecting the value of
an issuer's stock instead of long-term investments based on fundamental
valuation of securities. Because of this policy, portfolio securities may be
sold without regard to the length of time for which they have been held.
It is not possible to predict portfolio turnover rates.
However, it is anticipated that for the Global Telecommunications, Long-Short
Market Neutral and Major Foreign Market Portfolios, portfolio turnover rates
may exceed 100%. High portfolio turnover rates (100% or more) may result in
higher brokerage commissions, dealer markups or underwriting commissions as
well as other transaction costs. In addition, gains realized from portfolio
turnover may be taxable to shareholders.
38
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of the Fund are managed by the Board
of Directors of the Fund in accordance with the laws of the State of Maryland.
The Board elects officers who are responsible for the day-to-day operations of a
Portfolio and who execute policies authorized by the Board. Under the Fund's
charter, the Board may classify or reclassify any unissued shares of the
Portfolios into one or more additional classes by setting or changing in any one
or more respects their relative rights, voting powers, restrictions, limitations
as to dividends, qualifications and terms and conditions of redemption. The
Board may similarly classify or reclassify any class of its shares into one or
more series and, without shareholder approval, may increase the number of
authorized shares of the Fund.
The names (and ages) of the Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard H. Francis (68) DIRECTOR
40 Grosvenor Road Currently retired; Executive Vice President and Chief
Short Hills, New Jersey 07078 Financial Officer of Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group Incorporated;
Director/Trustee of other CSAM-advised investment
companies.
Jack W. Fritz (73) DIRECTOR
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 and operators of radio stations) since 1987; Director of
Advo, Inc. (direct mail advertising); Director/Trustee of
other CSAM-advised investment companies.
Jeffrey E. Garten (53) DIRECTOR
Box 208200 Dean of Yale School of Management and William S. Beinecke
New Haven, Connecticut 06520-8200 Professor in the Practice of International Trade and
Finance; Undersecretary of Commerce for International Trade
from November 1993 to October 1995; Professor at Columbia
University from September 1992 to November 1993; Director
of Aetna, Inc.; Director of Calpine Energy Corporation;
Director/Trustee of other CSAM-advised investment
companies.
39
<PAGE>
<CAPTION>
<S> <C>
James S. Pasman, Jr. (69) DIRECTOR
29 The Trillium Currently retired; President and Chief Operating Officer
Pittsburgh, Pennsylvania 15238 of National InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from April 1989 to
March 1991; Director of Education Management Corp.,
Tyco International Ltd.; Trustee, BT Insurance Funds
Trust; Director/Trustee of other CSAM-advised investment
companies.
William W. Priest* (58) CHAIRMAN OF THE BOARD
466 Lexington Avenue Chairman- Management Committee, Chairman since 2000, Chief
New York, New York 10017-3147 Executive Officer from 1990 to 2000, Managing Director of
CSAM (U.S.) since 1990; Director of TIG Holdings, Inc.;
Director/Trustee of other CSAM-advised investment
companies.
Steven N. Rappaport (51) DIRECTOR
40 East 52nd Street President of Loanet, Inc. (on-line accounting service)
New York, New York 10022 since 1997; Executive Vice President of Loanet, Inc. from
1994 to 1997; Director, President, North American
Operations, and former Executive Vice President from 1992
to 1993 of Worldwide Operations of Metallurg Inc.;
Executive Vice President, Telerate, Inc. from 1987 to
1992; Partner in the law firm of Hartman & Craven until
1987; Director/Trustee of other CSAM-advised investment
companies.
--------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
40
<PAGE>
<CAPTION>
<S> <C>
Alexander B. Trowbridge (70) DIRECTOR
1317 F Street, N.W., President of Trowbridge Partners, Inc. (business
5th Floor consulting) from January 1990 to November 1996; Director
Washington, DC 20004 or Trustee of ICOS Corporation (biopharmaceuticals), IRI
International (energy services), The Rouse Company (real
estate development), Harris Corp. (electronics and
communications equipment), The Gillette Co. (personal care
products) and Sunoco, Inc. (petroleum refining and
marketing); Director/Trustee of other CSAM-advised
investment companies.
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 Warburg Pincus Asset Management
("Warburg") in July 1999; with Warburg since 1991; Vice
President of Citibank, N.A. from 1987 to 1991; Officer
of CSAMSI and of other CSAM-advised investment companies.
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
466 Lexington Avenue Managing Director and General Counsel of CSAM; Associated
New York, New York 10017-3147 with Lehman Brothers, Inc. from 1996 to 1997; Associated
with CSAM from 1995 to 1996; Associated with CS First
Boston Investment Management from 1994 to 1995; Associated
with Division of Enforcement, U.S. Securities and Exchange
Commission from 1991 to 1994; Officer of CSAMSI and other
CSAM-advised investment companies.
Michael A. Pignataro (40) TREASURER AND CHIEF FINANCIAL OFFICER
466 Lexington Avenue Vice President and Director of Fund Administration of
New York, New York 10017-3147 CSAM; Associated with CSAM since 1984; Officer of other
CSAM-advised investment companies.
41
<PAGE>
<CAPTION>
<S> <C>
Stuart J. Cohen, Esq. (31) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM; Associated with
New York, New York 10017-3147 CSAM since CSAM acquired Warburg in July 1999; with
Warburg since 1997; Associated with the law firm of Gordon
Altman Butowsky Weitzen Shalov & Wein from 1995 to 1997;
Officer of other CSAM-advised investment companies.
Rocco A. DelGuercio (37) ASSISTANT TREASURER
466 Lexington Avenue Assistant Vice President and Administrative Officer of
New York, New York 10017-3147 CSAM; Associated with CSAM since June 1996; Assistant
Treasurer, Bankers Trust Corp. -- Fund Administration
from March 1994 to June 1996; Officer of other CSAM-advised investment
companies.
</TABLE>
No employee of CSAM, PFPC Inc. ("PFPC"), Credit Suisse
Asset Management Limited ("CSAM U.K.") and CSAMSI, the Portfolios'
co-administrators, or any of their affiliates, receives any compensation from
the Portfolios for acting as an officer or director of a Portfolio. Each
Director who is not a director, trustee, officer or employee of CSAM, PFPC,
CSAMSI, CSAM U.K. or any of their affiliates receives the following annual
and per meeting fees:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Fee for Each Board Fee for Each Audit Committee
Annual Fee as Director Meeting Attended Meeting Attended
------------------------------------------------------------------------------------------
<S> <C> <C>
$750 $250 $250*
------------------------------------------------------------------------------------------
</TABLE>
* The Chairman of the Audit Committee receives $325 for each
Audit Committee Meeting attended.
Each Director is reimbursed for expenses incurred in
connection with his attendance at Board meetings.
DIRECTORS' ESTIMATED TOTAL COMPENSATION FOR FISCAL PERIOD ENDING
OCTOBER 31, 2000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
All Investment Companies
Name of Director Total Compensation from Fund in the Fund Complex(1)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
William W. Priest(2) None None
-----------------------------------------------------------------------------------------------
Richard H. Francis $2,500 $112,500
-----------------------------------------------------------------------------------------------
Jack W. Fritz $2,500 $112,500
-----------------------------------------------------------------------------------------------
Jeffrey E. Garten $2,500 $60,000
-----------------------------------------------------------------------------------------------
James S. Pasman, Jr. $2,500 $112,500
-----------------------------------------------------------------------------------------------
Steven N. Rappaport $2,500 $112,500
-----------------------------------------------------------------------------------------------
Alexander B. Trowbridge $2,725 $122,625
-----------------------------------------------------------------------------------------------
</TABLE>
(1) Each Director serves as a Director or Trustee of 45 investment
companies and portfolios for which CSAM serves as investment adviser
("Fund Complex"), except for Mr. Garten, who serves as Director or
Trustee of 24 investment companies and portfolios in the Fund
Complex.
(2) Mr. Priest receives compensation as an affiliate of CSAM, and,
accordingly, receives no compensation from the Portfolios or any
other investment company advised by CSAM.
42
<PAGE>
PORTFOLIO MANAGERS
GLOBAL TELECOMMUNICATIONS PORTFOLIO
SCOTT T. LEWIS, Managing Director, manages portfolios of
medium- to large-capitalization U.S. equities and global telecommunications
equities. He joined Warburg Pincus Asset Management (WPAM) in 1986 and came to
CSAM in 1999 when it acquired WPAM. Previously, he was an assistant portfolio
manager at The Bench Corporation, and an equity trader at Atalanta/Sosnoff
Management Corp. and E.F. Hutton. Mr. Lewis holds a B.S. in Management and
International Business from New York University and an M.B.A. in Finance from
New York University's Stern School of Business.
VINCENT J. MCBRIDE, Director, is a portfolio manager and
analyst for global equity portoflios, with special emphasis on the
telecommunications industry. He joined WPAM in 1994 and came to CSAM in 1999
when it acquired WPAM. Previously, he was an international equity analyst at
Smith Barney; an international equity analyst at General Electric Investments; a
portfolio manager/analyst at United Jersey Bank; and a portfolio manager at
First Fidelity Bank. Mr. McBride holds a B.S. in Economics from the University
of Delaware and an M.B.A. in Finance from Rutgers University.
LONG-SHORT MARKET NEUTRAL PORTFOLIO
WILLIAM W. PRIEST, JR., Managing Director, is Chairman and
head of U.S. equities. He joined in 1972 from Anchor Corp., where he was a
portfolio manager and head of institutional equities. Mr. Priest is a co-author
of THE FINANCIAL REALITY OF PENSION FUNDING UNDER ERISA. His articles have
appeared in the JOURNAL OF PORTFOLIO MANAGEMENT and the FINANCIAL ANALYSTS
JOURNAL. He also co-authored the first academic paper dealing with equity
transaction costs at the University of Chicago's Center for Research in Security
Prices and has testified before the U.S. Congress on amendments to ERISA. He is
a trustee of Duke University's Fuqua School of Business and a Director of TIG
Holdings, a NYSE-listed company. Mr. Priest holds a B.A. from Duke University
and an M.B.A. in Finance from the University of Pennsylvania's Wharton School.
He is a Chartered Financial Analyst and a Certified Public Accountant.
ERIC N. REMOLE, Managing Director, is the global head of the
Structured Equity Group. He has managed quantitative core portfolios since 1983
and long-short market neutral portfolios since 1992. Mr. Remole joined in 1997
from Chancellor/LGT Asset Management, where he was a Managing Director and
portfolio manager responsible for the firm's quantitative equity strategies.
While at Chancellor, he developed the firm's stock selection models and
established its capability to execute quantitative equity trades. Previously, he
was an internal management consultant in securities operations at Bankers Trust
and a systems analyst at Jaycor, Inc. Mr. Remole holds a B.A. in Biology from
Dartmouth College and an M.S. in Operations Research from Stanford University.
MARC E. BOTHWELL, Vice President, is responsible for the
design, research and management of structured equity portfolios. He joined in
1997 from Chancellor LGT Asset
43
<PAGE>
Management, where he was a portfolio manager and performed quantitative
research. Previously, he designed and operated proprietary, fully automated
trading systems for large brokerage firms at Keane Dealer Services. Mr. Bothwell
holds a B.S. in Electrical Engineering from Cornell University and currently
attends New York University's Stern School of Business for an M.B.A. in Finance.
He also served in the U.S. Navy as a lieutenant and pilot.
MICHAEL A. WELHOELTER, Vice President, specializes in the
management of structured equity portfolios. He joined in 1997 from Chancellor
LGT Asset Management, where he was a portfolio manager and quantitative research
analyst. Mr. Welhoelter holds a B.A. in Computer and Information Science from
Colgate University. He is a member of the Society of Quantitative Analysts.
MAJOR FOREIGN MARKETS PORTFOLIO
HAROLD W. EHRLICH, Managing Director, is a portfolio manager
and analyst specializing in non-U.S. developed equity markets. He joined WPAM in
1995 and came to CSAM in 1999 when it acquired WPAM. Previously, he was a Senior
Vice President, portfolio manager and analyst at Templeton Investment Counsel
(including several years as an analyst working directly with Sir John
Templeton); a research analyst and assistant portfolio manager at Fundamental
Management Corporation; and a research analyst/trader at First Equity
Corporation of Florida. Mr. Ehrlich holds a B.S.B.A. in Finance from the
University of Florida. He is a Chartered Financial Analyst and Chartered
Investment Counselor, and has been a member of the Council of Examiners for the
Chartered Financial Analyst examination.
HAROLD E. SHARON, Managing Director, is a portfolio manager
and analyst specializing in non-U.S. equities. He joined WPAM in 1998 and came
to CSAM in 1999 when it acquired WPAM. Previously, he was a hedge fund manager
at Oppenheimer & Co.; an analyst and associate portfolio manager at Warburg
Pincus Asset Management; an investment officer at Credit Suisse Asset
Management; and an associate at Batterymarch Financial Management. Mr. Sharon
holds a B.A. in Economics and Political Science from the University of Rochester
and an M.S. in Management from the Sloan School of Management at Massachusetts
Institute of Technology.
TODD D. JACOBSON, Director, is a portfolio manager and analyst
specializing in Japanese equities. He joined WPAM in 1997 and came to CSAM in
1999 when it acquired WPAM. Previously, he was a Japanese equity analyst at
Brown Brothers Harriman and an analyst with Value Line Securities. Mr. Jacobson
holds a B.A. in Economics from the State University of New York at Binghamton
and an M.B.A. in Finance from the University of Pennsylvania's Wharton School.
He is a Chartered Financial Analyst.
NANCY NIERMAN, Director, is a portfolio manager and analyst
specializing in European equities. She joined WPAM in 1996 and came to CSAM in
1999 when it acquired WPAM. Previously, she was a portfolio manager/analyst at
Fiduciary Trust Company International and an international equity trader at
TIAA-CREF. Ms. Nierman holds a B.B.A. in
44
<PAGE>
International Business from Baruch College, City University of New York. Control
Persons and Principal Holders of Securities
CSAM will hold all of the shares of each Portfolio on the date
the Fund's Registration Statement becomes effective.
INVESTMENT ADVISER, SUB-INVESTMENT ADVISER AND CO-ADMINISTRATORS
INVESTMENT ADVISER
CSAM, located at 466 Lexington Avenue, New York, New York
10017-3147, serves as investment adviser to each Portfolio 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 $737.5 billion of global
assets under management and employs approximately 63,000 people worldwide. The
principal business address of Credit Suisse is Paradeplatz 8, CH 8070, Zurich,
Switzerland.
CSAM has investment discretion for the Portfolios and will
make all decisions affecting assets in the Portfolios under the supervision of
the Fund's Board of Directors and in accordance with each Portfolio's stated
policies. The Adviser will select investments for the Portfolios and will place
purchase and sale orders on behalf of the Portfolios. For its services to the
Global Telecommunications and Major Foreign Markets Portfolios, CSAM will be
paid (before any voluntary waivers or reimbursements) a monthly fee computed at
an annual rate of 1.00% and .60% of average daily net assets, respectively.
The Long-Short Neutral Portfolio pays CSAM a basic management
fee, computed daily and payable monthly, at the annual rate of 1.50% of the
average net assets of the Portfolio. This basic management fee may be increased
or decreased by applying an adjustment formula (the "Performance Adjustment").
The Performance Adjustment is calculated monthly by comparing the Fund's
investment performance to a Target (as defined below) during the most recent
twelve-month period. The "Target" is the investment record of the Salomon Smith
Barney 1-Month U.S. Treasury Bill Index-TM- plus 5 percentage points. The
Performance Adjustment is added to or subtracted from the basic fee.
The Performance Adjustment may increase or decrease the basic
fee in five steps. The first step would occur if the Long-Short Market Neutral
Portfolio's performance during the most recent 12-month period differed from
that of the Target by more than one but not more than two percentage points. In
this event, the Performance Adjustment would be 0.10%, and the annual rate of
the total management fee would be either 1.40% or 1.60%. The second step would
occur if the Portfolio's performance during the most recent 12-month period
differed from that of the Target by more than two but not more than three
percentage points. In this event, the Performance Adjustment would be 0.20%, and
the annual rate of the total management fee
45
<PAGE>
would be either 1.30% or 1.70%. The third step would occur if the Portfolio's
performance during the most recent 12-month period differed from that of the
Target by more than three but not more than four percentage points. In this
event, the Performance Adjustment would be 0.30%, and the annual rate of the
total management fee would be either 1.20% or 1.80%. The fourth step would occur
if the Portfolio's performance during the most recent 12-month period differed
from that of the Target by more than four but not more than five percentage
points. In this event, the Performance Adjustment would be 0.40%, and the annual
rate of the total management fee would be either 1.10% or 1.90%. The fifth step
would occur if the Portfolio's performance during the most recent 12-month
period differed from that of the Target by five percentage points or more. In
this event, the Performance Adjustment would be 0.50%, and the annual rate of
the total management fee would be either 1.00% or 2.00%. Thus:
<TABLE>
<CAPTION>
PERFORMANCE
TOTAL MANAGEMENT BASIC RATE ADJUSTMENT FEE RATE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
No adjustment 1.50% N/A 1.50%
-------------------------------------------------------------------------------------------------------------------
First Step:
Performance exceeds
Target by more than 1
but not more than 2
percentage points 1.50 .10% 1.60
-------------------------------------------------------------------------------------------------------------------
Performance lags Target by
more than 1 but not
more than 2 percent
points 1.50 (.10) 1.40
-------------------------------------------------------------------------------------------------------------------
Second Step:
Performance exceeds
Target by more than 2
but not more than 3
percentage points 1.50 .20 1.70
-------------------------------------------------------------------------------------------------------------------
Performance lags Target by
more than 1 but not
more than 3 percent
points 1.50 (.20) 1.30
-------------------------------------------------------------------------------------------------------------------
Third Step:
Performance exceeds
Target by more than 3
but not more than 4
percentage points 1.50 .30 1.80
46
<PAGE>
<CAPTION>
PERFORMANCE
TOTAL MANAGEMENT BASIC RATE ADJUSTMENT FEE RATE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Performance lags Target by
more than 3 but not
more than 4 percent
points 1.50 (.30) 1.20
-------------------------------------------------------------------------------------------------------------------
Fourth Step:
Performance exceeds
Target by more than 4
but not more than 5
percentage points 1.50 .40 1.90
-------------------------------------------------------------------------------------------------------------------
Performance lags Target by
more than 4 but not
more than 5 percent
points 1.50 (.40) 1.10
-------------------------------------------------------------------------------------------------------------------
Fifth Step:
Performance exceeds
Target by more than 5
percentage points 1.50 .50 2.00
-------------------------------------------------------------------------------------------------------------------
Performance lags Target by
more than 5 percent
points 1.50 (.50) 1.00
</TABLE>
SUB-INVESTMENT ADVISER (GLOBAL TELECOMMUNICATIONS PORTFOLIO
ONLY)
CSAM U.K., located at Beaufort House, 15 St. Botolph
Street, London EC3A 7JJ, England, serves as sub-investment adviser to the
Global Telecommunications Portfolio. CSAM U.K. is a corporation organized
under the laws of England in 1982 and is registered as an investment adviser
under the Advisers Act. CSAM U.K. is a diversified asset manager, handling
global equity, balanced, fixed income and derivative securities accounts for
other investment companies, corporate pension and profit-sharing plans, state
pension funds, union funds, endowments and other charitable institutions.
CSAM U.K. has been in the money management business for over 15 years and
currently manages approximately $37 billion in assets.
CSAM U.K. is a wholly owned subsidiary of Credit Suisse
Asset Management (UK) Holding Limited ("CSAM Holding"). CSAM Holding is a
wholly owned subsidiary of Credit Suisse, the parent company of the Funds'
investment adviser, CSAM. Both Credit Suisse and CSAM Holding are located at
Paradeplatz 8, 8001 Zurich, Switzerland.
Subject to the supervision of CSAM, Credit Suisse Asset
Management Limited ("CSAM U.K."), in the exercise of its best judgment, will
provide investment advisory assistance and portfolio management advice to the
Global Telecommunications Portfolio in accordance with the Articles of
Incorporation as it relates to the Portfolio, as may be amended from time to
time, the PROSPECTUS and STATEMENT OF ADDITIONAL INFORMATION as each relates to
the Portfolio, as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board.
In connection with the Sub-Investment Advisory Agreement among
the Fund, CSAM and CSAM U.K., CSAM U.K. (the "Sub-Advisory Agreement") will:
1. furnish CSAM on behalf of the Portfolio such
information, investment recommendations, advice and assistance as CSAM shall
from time to time reasonably request;
2. execute, or place orders for the execution of,
securities transactions on behalf of the Portfolio, after consultation with
CSAM;
47
<PAGE>
3. confer with CSAM concerning the purchase, retention or
sale of securities on behalf of the Portfolio;
4. provide CSAM with statistical, research and other
factual data for its use in connection with the Portfolio's investment program;
5. assist CSAM in monitoring the execution of securities
transactions and the settlement and clearance of securities transactions on
behalf of the Portfolio; and
6. furnish CSAM and the Board with such periodic and
special reports as the Portfolio or CSAM may reasonably request.
In connection with the performance of the services of CSAM
U.K. as provided for in the Sub-Advisory Agreement, CSAM U.K. may contract at
its own expense with third parties for the acquisition of research, clerical
services and other administrative services that would not require such parties
to be required to register as an investment adviser under the Advisers Act;
provided that CSAM U.K. remain liable for the performance of its duties.
The services of CSAM U.K. under the Sub-Advisory Agreement are
not exclusive. CSAM U.K. has the right to provide similar services to other
investment companies or to engage in other activities, provided that those
activities do not adversely affect CSAM U.K.'s ability to perform its services
under the Sub-Advisory Agreement.
The Sub-Advisory Agreement will terminate automatically in the
event of its assignment. In addition, it may be terminated by CSAM or CSAM U.K.
upon 60 days' written notice to the other parties; or with respect to the
Portfolio, upon the vote of a majority of the Board or a majority of the
outstanding voting securities of the Portfolio, upon 60 days' written notice to
CSAM and CSAM U.K.
Under the Sub-Advisory Agreement, CSAM pays CSAM U.K. an
annual fee equal to 50% of the net quarterly amount (after fee waivers and
reimbursements) received by CSAM for CSAM's services as the Portfolio's
investment adviser. Upon the termination of the Sub-Advisory Agreement before
the end of a quarter, the fee for such part of that quarter shall be prorated
according to the proportion that such period bears to the full quarterly period.
CO-ADMINISTRATORS
CSAMSI and PFPC serve as co-administrators to the Portfolios
pursuant to separate written agreements (the "CSAMSI Co-Administration
Agreements" and the "PFPC Co-Administration Agreements," respectively).
As co-administrator, CSAMSI provides shareholder liaison
services to the Portfolios, including responding to shareholder inquiries and
providing information on shareholder investments. CSAMSI also performs a variety
of other services, including furnishing certain executive and administrative
services, acting as liaison between each Portfolio and its various service
providers, furnishing corporate secretarial services, which include preparing
materials for meetings of the Board, preparing proxy statements and annual and
semiannual reports, assisting in the preparation of tax returns and developing
and monitoring
48
<PAGE>
compliance procedures for the Portfolios. As compensation, each Portfolio pays
CSAMSI a fee calculated at an annual rate of .10% of the Portfolio's average
daily net assets.
As a co-administrator, PFPC calculates each Portfolio's net
asset value, provides all accounting services for the Portfolios and assists
in related aspects of the Portfolios' operations. As compensation, The Major
Foreign Markets Portfolio pays PFPC a fee calculated at an annual rate of
.12% of the Portfolio's first $250 million in average daily net assets, .10%
of the next $250 million in average daily net assets, .08% of the next $250
million in average daily net assets and .05% of average daily net assets over
$750 million. Each of the Global Telecommunications Portfolio and the
Long-Short Market Neutral Portfolio pays PFPC a fee calculated at an annual
rate of .125% of average daily net assets. PFPC has its principal offices at
400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN AND TRANSFER AGENT
Brown Brothers Harriman & Co. ("BBH") acts as the custodian
for the Portfolios pursuant to a Custodian Agreement (the "Custodian
Agreement"). BBH (a) maintains a separate account or accounts in the name of
each Portfolio, (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities, and (e) makes
periodic reports to the Board of Directors concerning each Portfolio's
operations. BBH is authorized to select one or more banks or trust companies to
serve as sub-custodian on behalf of the Portfolios, provided that BBH remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Portfolios harmless from the negligent acts and omissions of any
sub-custodian. For its services to the Portfolios under the Custodian Agreement,
BBH receives a fee which is calculated based upon the average daily market value
of each Portfolio's assets, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Portfolios.
State Street Bank and Trust Company ("State Street") serves as
the shareholder servicing, transfer and dividend disbursing agent of the
Portfolios pursuant to a Transfer Agency and Service Agreement, under which
State Street (i) issues and redeems shares of the Portfolios, (ii) addresses and
mails all communications by the Portfolios to record owners of Portfolio shares,
including reports to shareholders, dividend and distribution notices and proxy
material for meetings of shareholders, (iii) maintains shareholder accounts and,
if requested, sub-accounts and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Portfolios. State
Street has delegated to Boston Financial Data Services, Inc., an affiliate of
State Street ("BFDS"), responsibility for most shareholder servicing functions.
BFDS's principal business address is 2 Heritage Drive, North Quincy,
Massachusetts 02171.
CODE OF ETHICS
The Fund, CSAM, CSAM U.K. and CSAMSI have each adopted a
written Code of Ethics, which permits personnel covered by the Code of Ethics
("Covered Persons") to invest in securities, including securities that may be
purchased or held by the Portfolio. The Code of Ethics also contains
provisions designed to address the conflicts of interest that could arise
from personal trading by advisory personnel, including: (1) all Covered
Persons must report their personal securities transactions at the end of each
quarter; (2) with certain limited exceptions, all Covered Persons must obtain
preclearance before executing any personal securities transactions;
49
<PAGE>
(3) Covered Persons may not execute personal trades in a security if there are
any pending orders in that security by a Portfolio; and (4) Covered Persons may
not invest in initial public offerings.
The Board reviews the administration of the Code of Ethics
at least annually and may impose sanctions for violations of the Code of
Ethics.
ORGANIZATION OF THE FUND
The Portfolios are portfolios of an open-end series investment
company, the Fund, which has one class of common stock outstanding. The Fund was
incorporated on May 13, 1992 under the laws of the State of Maryland under the
name "Warburg, Pincus Institutional Fund, Inc." On May 11, 2000, the Fund
changed its name to "Credit Suisse Institutional Fund, Inc." The Fund's charter
authorizes the Board of Directors to issue sixteen billion full and fractional
shares of capital stock, par value $.001 per share. Shares of twelve series have
been classified, one of which constitutes the interests in the Portfolios.
The Global Telecommunications Portfolio is a non-diversified
open-end management investment company. The Long-Short Market Neutral and Major
Foreign Markets Portfolios are each a diversified open-end management company.
All shareholders of a Portfolio, upon liquidation, will
participate ratably in the Portfolio's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
DISTRIBUTION AND SHAREHOLDER SERVICING
Provident Distributors, Inc. ("PDI") serves as the distributor
of the Portfolio. PDI's principal business address is Four Falls Corporate
Center, West Conshohocken, Pennsylvania 19428-2961.
Each Portfolio has authorized certain broker-dealers,
financial institutions, recordkeeping organizations and other industry
professionals (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 Portfolio'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
Portfolio 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 Portfolio in proper form will be priced at
the Portfolio'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 shares are purchased directly from the
Portfolio. Service Organizations may also be reimbursed for marketing costs. The
Portfolio may reimburse part of the Service Fee at rates it would normally pay
to the transfer agent for providing the services.
50
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Portfolio's shares is equal to the
per share net asset value of the relevant class of shares of the Portfolio.
Under the 1940 Act, each Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which The New
York Stock Exchange, Inc. (the "NYSE") is closed (other than customary weekend
and holiday closings), or during which trading on said Exchange is restricted,
or during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of Portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (Each
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
If conditions exist which make payment of redemption proceeds
wholly in cash unwise or undesirable, each Portfolio may make payment wholly or
partly in securities or other investment instruments which may not constitute
securities as such term is defined in the applicable securities laws. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Portfolio has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Portfolio is obligated to redeem shares,
with respect to any one shareholder during any 90 day period, solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
The Portfolio may, in certain circumstances and in its
discretion, accept securities as payment for the purchase of the Portfolio's
shares from an investor who has received such securities as redemption proceeds
from another Credit Suisse fund.
EXCHANGE PRIVILEGE
Shareholders of the Portfolios may exchange all or part of
their shares for shares of another portfolio or other portfolios of the Fund
organized by CSAM or another Credit Suisse Institutional Fund in the future on
the basis of their relative net asset values per share at the time of exchange.
The exchange privilege enables shareholders to acquire shares in a fund or
portfolio with a different investment objective when they believe that a shift
between funds or portfolios is an appropriate investment decision.
If an exchange request is received by Credit Suisse
Institutional Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at the Portfolio'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
Portfolios may refuse exchange purchases at any time without notice.
The exchange privilege is available to investors in any state
in which the shares being acquired may be legally sold. When an investor effects
an exchange of shares, the exchange is treated for federal income tax purposes
as a redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. Investors wishing to exchange shares of the
Portfolio for shares in another Credit Suisse Institutional Fund or another
portfolio of the Fund should review the prospectus of the other Credit Suisse
Institutional Fund
51
<PAGE>
or other portfolio prior to making an exchange. For further information
regarding the exchange privilege or to obtain a current prospectus for another
Credit Suisse Institutional Fund or another portfolio of the Fund, an investor
should contact the Credit Suisse Institutional Funds at 1-800-222-8977.
The Portfolios reserve the right to refuse exchange purchases
by any person or group if, in CSAM's judgment, a Portfolio 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 a Portfolio receives or
anticipates receiving large exchange orders at or about the same time and when a
pattern of exchanges within a short period of time (often associated with a
marketing timing strategy) is discerned. Each Portfolio reserves the right to
terminate or modify the exchange privilege at any time upon 30 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in the Portfolios. Each prospective shareholder is urged
to consult his own tax adviser with respect to the specific federal, state,
local and foreign tax consequences of investing in the Portfolios. The summary
is based on the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
THE PORTFOLIOS AND THEIR INVESTMENTS
Each Portfolio intends to continue to qualify to be treated as
a regulated investment company each taxable year under the Code. To so qualify,
a Portfolio 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, gains from the sale or other disposition of stock or
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 (the "Asset Diversification Requirement") so that, at the
end of each quarter of the Portfolio's taxable year, (i) at least 50% of the
market value of the Portfolio's assets is represented by cash, securities of
other regulated investment companies, United States government securities and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the market value of the Portfolio'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 United States government securities or securities of
other regulated investment companies) of any one issuer or any two or more
issuers that the Portfolio 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, a Portfolio will not be
subject to United States federal income tax on its investment company taxable
income (I.E., income other than any excess of its net realized long-term capital
gains over its net realized short-term capital losses ("net realized capital
gains")) or on its net realized 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
52
<PAGE>
company taxable income and its net tax-exempt interest income for the taxable
year is distributed (the "Distribution Requirement"), 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 Portfolio 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
Portfolio not later than such December 31, provided that such dividend is
actually paid by the Portfolio during January of the following calendar year.
Each Portfolio intends to distribute at least annually to
its shareholders substantially all of its investment company taxable income.
The Board of Directors will determine annually whether to distribute any net
realized capital gains. Each Portfolio currently expects to distribute any
such excess annually to its shareholders. However, if a Portfolio retains for
investment an amount equal to all or a portion of its net realized capital
gains, it will be subject to a corporate tax (currently at a rate of 35%) on
the amount retained. In that event, the Portfolio 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 Portfolio on the
undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax
basis, for United States federal income tax purposes, in their shares by an
amount equal to 65% of the amount of undistributed capital gains included in
the shareholder's income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their pro
rata share of such taxes paid by the Portfolio upon filing appropriate
returns or claims for refund with the Internal Revenue Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on each
Portfolio to the extent the Portfolio does not distribute by the end of any
calendar year at least 98% of its net investment income for that year and 98% of
the net amount of its capital gains (both long-and short-term) for the one-year
period ending, as a general rule, on October 31 of that year. For this purpose,
however, any income or gain retained by the Portfolio 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 Portfolio
anticipates that it will pay such dividends and will make such distributions as
are necessary in order to avoid the application of this tax.
If, in any taxable year, a Portfolio 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 Portfolio in
computing its taxable income. In addition, in the event of a failure to qualify,
the Portfolio's distributions, to the extent derived from the Portfolio's
current or accumulated earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might otherwise
(at least in part) have been treated in the shareholders' hands as long-term
capital gains or tax-exempt interest. If a Portfolio fails to qualify as a
53
<PAGE>
regulated investment company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a regulated
investment company. In addition, if a Portfolio failed to qualify as a regulated
investment company for a period greater than one taxable year, the Portfolio may
be required to recognize any net built-in gains with respect to certain of its
assets (the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated) in
order to qualify as a regulated investment company in a subsequent year.
A Portfolio'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 Portfolio (I.E., may
affect whether gains or losses are ordinary or capital), accelerate recognition
of income to the Portfolio and defer Portfolio losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Portfolio 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 Portfolio 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 Portfolio 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 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 Portfolio as a
regulated investment company.
A Portfolio's investments in zero coupon securities, if any,
may create special tax consequences. Zero coupon securities do not make current
interest payments, although a portion of the difference between a zero coupon
security's face value and its purchase price is imputed as interest income to
the Portfolio each year even though the Portfolio receives no cash distribution
until maturity. Under the U.S. federal tax laws, the Portfolio will not be
subject to tax on this income if it pays dividends to its shareholders
substantially equal to all the income received from, or imputed with respect to,
its investments during the year, including its zero coupon securities. These
dividends ordinarily will constitute taxable income to the shareholders of the
Portfolio.
"Constructive sale" provisions apply to activities by the
Portfolio which lock in gain on an "appreciated financial position." Generally,
a "position" is defined to include stock, a debt instrument, or partnership
interest, or an interest in any of the foregoing, including through a short
sale, an option, or a future or forward contract. The entry into a short sale, a
swap contract or a future or forward contract relating to an appreciated direct
position in any stock or debt instrument, or the acquisition of a stock or debt
instrument at a time when the Portfolio holds an offsetting (short) appreciated
position in the stock or debt instrument, is treated as a "constructive sale"
that gives rise to the immediate recognition of gain (but not loss). The
application of these rules may cause the Portfolio to recognize taxable income
from these offsetting transactions in excess of the cash generated by such
activities.
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<PAGE>
SPECIAL TAX CONSIDERATIONS
The following discussion relates to the particular federal
income tax consequences of the investment policies of the Portfolios.
STRADDLES
The options transactions that the Portfolios enter into may
result in "straddles" for federal income tax purposes. The straddle rules of the
Code may affect the character of gains and losses realized by the Portfolios. In
addition, losses realized by the Portfolios on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the investment company taxable income and net realized
capital gain of the Portfolios for the taxable year in which such losses are
realized. Losses realized prior to October 31 of any year may be similarly
deferred under the straddle rules in determining the "required distribution"
that the Portfolios must make in order to avoid federal excise tax. Furthermore,
in determining their investment company taxable income and ordinary income, the
Portfolios may be required to capitalize, rather than deduct currently, any
interest expense on indebtedness incurred or continued to purchase or carry any
positions that are part of a straddle. The tax consequences to the Portfolios of
holding straddle positions may be further affected by various elections provided
under the Code and Treasury regulations, but at the present time the Portfolios
are uncertain which (if any) of these elections they will make.
OPTIONS AND SECTION 1256 CONTRACTS
The writer of a covered put or call option generally does not
recognize income upon receipt of the option premium. If the option expires
unexercised or is closed on an exchange, the writer generally recognizes
short-term capital gain. If the option is exercised, the premium is included in
the consideration received by the writer in determining the capital gain or loss
recognized in the resultant sale. However, certain options transactions as well
as futures transactions and transactions in forward foreign currency contracts
that are traded in the interbank market, will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year (I.E., marked-to-market), regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end marking-to-market of
Section 1256 contracts is combined (after application of the straddle rules that
are described above) with any other gain or loss that was previously recognized
upon the termination of Section 1256 contracts during that taxable year. The net
amount of such gain or loss for the entire taxable year is generally treated as
60% long-term capital gain or loss and 40% short-term capital gain or loss,
except in the case of marked-to-market forward foreign currency contracts for
which such gain or loss is treated as ordinary income or loss. Such short-term
capital gain (and, in the case of marked-to-market forward foreign currency
contracts, such ordinary income) would be included in determining the investment
company taxable income of the relevant Portfolio for purposes of the
Distribution Requirement, even if it were wholly attributable to the year-end
marking-to-market of Section 1256 contracts that the relevant Portfolio
continued to hold. Investors should also note that
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Section 1256 contracts will be treated as having been sold on October 31 in
calculating the "required distribution" that a Portfolio must make to avoid
federal excise tax liability.
Each of the Portfolios may elect not to have the year-end
mark-to-market rule apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of such Portfolio that are not Section 1256
contracts (the "Mixed Straddle Election").
FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign
currency options, foreign currency futures and forward foreign exchange
contracts relating to investments in stock, securities or foreign currencies
will be qualifying income for purposes of determining whether the Portfolio
qualifies as a regulated investment company under the Code. It is currently
unclear, however, who will be treated as the issuer of a foreign currency
instrument or how foreign currency options, futures or forward foreign currency
contracts will be valued for purposes of the Asset Diversification Requirement.
Under Code Section 988 special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional currency
(I.E., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss. In certain
circumstances where the transaction is not undertaken as part of a straddle, a
Portfolio may elect capital gain or loss treatment for such transactions.
Alternatively, a Portfolio may elect ordinary income or loss treatment for
transactions in futures contracts and options on foreign currency that would
otherwise produce capital gain or loss. In general gains or losses from a
foreign currency transaction subject to Code Section 988 will increase or
decrease the amount of the Portfolio's investment company taxable income
available to be distributed to shareholders as ordinary income, rather than
increasing or decreasing the amount of the Portfolio's net realized capital
gain. Additionally, if losses from a foreign currency transaction subject to
Code Section 988 exceed other investment company taxable income during a taxable
year, a Portfolio will not be able to make any ordinary dividend distributions,
and any distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing each shareholder's basis in his Shares.
PASSIVE FOREIGN INVESTMENT COMPANIES
If a Portfolio acquires shares in certain foreign investment
entities, called "passive foreign investment companies" ("PFICs"), such
Portfolio may be subject to federal income tax on any "excess distribution"
received with respect to such shares or on any gain recognized upon a
disposition of such shares, notwithstanding the distribution of such income to
the shareholders of such Portfolio. Additional charges in the nature of interest
may also be imposed on a Portfolio in respect of such deferred taxes. However,
in lieu of the foregoing tax consequences, a Portfolio may elect to have its
investment in any PFIC taxed as an investment in a "qualified electing fund"
("QEF"). A Portfolio making a QEF election would be required to include in its
income each year a ratable portion, whether or not distributed, of the ordinary
earnings and net realized capital gain of the QEF. Any such QEF inclusions would
have to be taken into account
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by a Portfolio for purposes of satisfying the Distribution Requirement and the
excise tax distribution requirement.
A Portfolio may elect (in lieu of paying deferred tax or
making a QEF election) to mark-to-market annually any PFIC shares that it owns
and to include any gains (but not losses) that it was deemed to realize as
ordinary income. A Portfolio generally will not be subject to deferred federal
income tax on any gains that it is deemed to realize as a consequence of making
a mark-to-market election, but such gains will be taken into account by the
Portfolio for purposes of satisfying the Distribution Requirement and the excise
tax distribution requirement.
ASSET DIVERSIFICATION REQUIREMENT
For purposes of the Asset Diversification Requirement, the
issuer of a call option on a security (including an option written on an
exchange) will be deemed to be the issuer of the underlying security. The
Internal Revenue Service has informally ruled, however, that a call option that
is written by a fund need not be counted for purposes of the Asset
Diversification Requirement where the fund holds the underlying security.
However, the Internal Revenue Service has also informally ruled that a put
option written by a fund must be treated as a separate asset and its value
measured by "the value of the underlying security" for purposes of the Asset
Diversification Requirement, regardless (apparently) of whether it is "covered"
under the rules of the exchange. The Internal Revenue Service has not explained
whether in valuing a written put option in this manner a fund should use the
current value of the underlying security (its prospective future investment);
the cash consideration that must be paid by the fund if the put option is
exercised (its liability); or some other measure that would take into account
the fund's unrealized profit or loss in writing the option. Under the Code, a
fund may not rely on informal rulings of the Internal Revenue Service issued to
other taxpayers. Consequently, a Portfolio may find it necessary to seek a
ruling from the Internal Revenue Service on this issue or to curtail its writing
of options in order to stay within the limits of the Asset Diversification
Requirement.
FOREIGN TAXES
Dividends and interest received by the Portfolios on
investments in foreign securities 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 a Portfolio
qualifies as a regulated investment company, if certain asset and distribution
requirements are satisfied and if more than 50% of the Portfolio's total assets
at the close of its fiscal year consists of stock or securities of foreign
corporations, the Portfolio may elect for U.S. income tax purposes to treat
foreign income taxes paid by it as paid by its shareholders. A Portfolio may
qualify for and make this election in some, but not necessarily all, of its
taxable years. If a Portfolio were to make such an election, shareholders of the
Portfolio would be required to take into account an amount equal to their pro
rata portions of such foreign taxes in computing their taxable income and then
treat an amount equal to those foreign taxes as a U.S. federal income tax
deduction or as a foreign tax credit against their U.S. federal income taxes.
Shortly after any year for which it makes such an election, each Portfolio will
report to its shareholders the amount per share of such foreign income tax that
must be included in each shareholder's gross income and the amount which will be
available for the deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize
57
<PAGE>
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
PORTFOLIO TAXES ON SWAPS
As a result of entering into index swaps, the Portfolios may
make or receive periodic net payments. They may also make or receive a payment
when a swap is terminated prior to maturity through an assignment of the swap or
other closing transaction. Periodic net payments will constitute ordinary income
or deductions, while termination of a swap will result in capital gain or loss
(which will be a long-term capital gain or loss if a Portfolio has been a party
to the swap for more than one year).
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that a Portfolio 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
Portfolio. Dividends and distributions paid by a Portfolio (except for the
portion thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Portfolio) will not qualify for the deduction for dividends
received by corporations. Distributions in excess of the Portfolio'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 Portfolio, and as a capital gain thereafter (if the shareholder holds his
shares of the Portfolio as capital assets).
Shareholders receiving dividends or distributions in the form
of additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If a Portfolio 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 Portfolio'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 Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Portfolio 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.
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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 Portfolio,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be increased to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Portfolio 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.
BACKUP WITHHOLDING
A Portfolio may be required to withhold, for United States
federal income tax purposes, 31% of the dividends, distributions and redemption
proceeds payable to shareholders who fail to provide the Portfolio with their
correct taxpayer identification numbers or to make required certifications, or
who have been notified by the IRS that they are subject to backup withholding.
Certain shareholders are exempt from backup withholding. Backup withholding is
not an additional tax and any amount withheld may be credited against a
shareholder's United States federal income tax liabilities.
NOTICES
Shareholders will be notified annually by the relevant
Portfolio 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 Portfolios and Their Investments") made by the
Portfolio to its shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Portfolio's taxable
year regarding the United States federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are treated as
having been paid) by the Portfolio 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
THE PORTFOLIOS AND THEIR SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE PORTFOLIOS.
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DETERMINATION OF PERFORMANCE
TOTAL RETURN
From time to time, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders.
Each Portfolio that advertises its "average annual total
return" computes such return separately for each class of shares by determining
the average annual compounded rate of return during specified periods that
equates the initial amount invested to the ending redeemable value of such
investment according to the following formula:
n
P(1+T) = ERV
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return"
computes such returns separately for each class of shares by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(---) - l]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Although total return is calculated in a separate manner for
each class of shares, under certain circumstances, performance information for a
class may include performance information of another class with an earlier
inception date.
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
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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
such return may not be representative of any Portfolio's return over a longer
market cycle. A Portfolio may also advertise aggregate total return figures for
various periods, representing the cumulative change in value of an investment in
the relevant Portfolio for the specific period. 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 Portfolio may advertise, from time to time, comparisons of
its performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio 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 Portfolio's
total return in longer market cycles.
A Portfolio's performance will vary from time to time
depending upon market conditions, the composition of its portfolio and operating
expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Portfolio's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time.
The Portfolios may also from time to time include in such
advertising an aggregate total return figure or a total return figure that is
not calculated according to the formula set forth above in order to compare more
accurately a Portfolio's performance with other measures of investment return.
For example, in comparing a Portfolio's total return with data published by
Lipper Analytical Services, Inc., CDA/Weisenberger Investment Technologies, Inc.
or Weisenberger Investment Company Service, or with the performance of the
Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average, as
appropriate, a Portfolio may calculate its aggregate and/or average annual total
return for the specified periods of time by assuming the investment of $10,000
in Portfolio shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. The Portfolios do not,
for these purposes, deduct from the initial value invested any amount
representing sales charges. The Portfolios will, however, disclose the maximum
sales charge and will also disclose that the performance data do not reflect
sales charges and that inclusion of sales charges would reduce the performance
quoted. Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under SEC rules,
and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
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INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The financial statements that are incorporated by
reference in this Statement of Additional Information have been audited by PwC,
and have been included herein in reliance upon the report of such firm of
independent accountants given upon their authority as experts in accounting and
auditing.
Willkie Farr & Gallagher serves as counsel for the Fund and
provides legal services from time to time for CSAM and CSAMSI.
FINANCIAL STATEMENTS
The Portfolios' financial statements follow the Report of
Independent Accountants.
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APPENDIX A
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
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 it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance,
as predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-2
<PAGE>
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 comprise the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-3
<PAGE>
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities and
it is not soliciting an offer to buy these Securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED MAY 26, 2000
STATEMENT OF ADDITIONAL INFORMATION
____________, 2000
CREDIT SUISSE INSTITUTIONAL FUND, INC.
HIGH YIELD PORTFOLIO
This STATEMENT OF ADDITIONAL INFORMATION provides information about
Credit Suisse Institutional Fund, Inc. (the "Fund"), relating to the High Yield
Portfolio (the "Portfolio"), that supplements information contained in the
Prospectus for the Portfolio dated [ ], 2000, as amended or supplemented from
time to time (the "PROSPECTUS"), and is incorporated by reference in its
entirety into that PROSPECTUS.
This STATEMENT OF ADDITIONAL INFORMATION is not itself a prospectus
and no investment in shares of the Portfolio should be made solely upon the
information contained herein. Copies of the PROSPECTUS and information regarding
the Portfolio's current performance and the status of shareholder accounts may
be obtained by writing or telephoning:
Credit Suisse Institutional Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
800-222-8977
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVE AND POLICIES.................................................................................1
General Investment Strategies..................................................................................1
Non-Diversified Status.........................................................................................1
Temporary Investments..........................................................................................1
Repurchase Agreements..........................................................................................2
Reverse Repurchase Agreements and Dollar Rolls.................................................................2
Illiquid Securities............................................................................................3
Rule 144A Securities.....................................................................................4
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers.......................................4
Lending of Portfolio Securities................................................................................5
Borrowing......................................................................................................5
Securities of Other Investment Companies.......................................................................6
Options Generally..............................................................................................6
Securities Options.......................................................................................6
Securities Index Options.................................................................................9
When-Issued Securities, Delayed Delivery Transactions and Forward Commitments..................................9
Stand-By Commitment Agreements................................................................................10
U.S. Government Securities....................................................................................11
Foreign Investments...........................................................................................11
Foreign Debt Securities.................................................................................12
Foreign Currency Exchange...............................................................................13
Information.............................................................................................13
Political Instability...................................................................................13
Foreign Markets.........................................................................................13
Increased Expenses......................................................................................14
Dollar-Denominated Debt Securities of Foreign Issuers...................................................14
Depositary Receipts.....................................................................................14
Brady Bonds.............................................................................................14
Emerging Markets........................................................................................15
Sovereign Debt..........................................................................................15
Convertible Securities........................................................................................16
Debt Securities...............................................................................................17
Below Investment Grade Securities.......................................................................17
Mortgage-Backed Securities..............................................................................19
Asset-Backed Securities.................................................................................20
Loan Participations and Assignments.....................................................................20
Structured Notes, Bonds or Debentures...................................................................21
Collateralized Mortgage Obligations.....................................................................21
Zero Coupon Securities..................................................................................22
Futures Activities............................................................................................23
Futures Contracts.......................................................................................23
Options on Futures Contracts............................................................................24
i
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CONTENTS (continued)
Currency Exchange Transactions................................................................................25
Forward Currency Contracts..............................................................................25
Currency Options........................................................................................26
Currency Hedging........................................................................................26
Hedging Generally.............................................................................................27
Short Sales "Against the Box".................................................................................28
Section 4(2) Paper............................................................................................28
INVESTMENT RESTRICTIONS..........................................................................................29
PORTFOLIO VALUATION..............................................................................................31
PORTFOLIO TRANSACTIONS...........................................................................................32
PORTFOLIO TURNOVER...............................................................................................33
MANAGEMENT OF THE FUND...........................................................................................34
Officers and Board of Directors...............................................................................34
Directors' Estimated Total Compensation for Fiscal Period Ending October 31,
2000.......................................................................................................38
Portfolio Managers............................................................................................38
Control Persons and Principal Holders of Securities...........................................................39
Investment Adviser and Co-Administrators......................................................................39
Code of Ethics................................................................................................40
Custodian and Transfer Agent..................................................................................40
Distribution and Shareholder Servicing........................................................................41
Organization of the Fund......................................................................................41
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................42
EXCHANGE PRIVILEGE...............................................................................................42
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................................43
The Portfolio and Its Investments.............................................................................43
Passive Foreign Investment Companies..........................................................................45
Dividends and Distributions...................................................................................46
Sales of Shares...............................................................................................47
Foreign Taxes.................................................................................................47
Backup Withholding............................................................................................48
Notices.......................................................................................................48
Other Taxation................................................................................................48
DETERMINATION OF PERFORMANCE.....................................................................................48
Total Return..................................................................................................48
Yield.........................................................................................................50
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................................51
FINANCIAL STATEMENT..............................................................................................51
APPENDIX A......................................................................................................A-1
DESCRIPTION OF RATINGS..........................................................................................A-1
Commercial Paper Ratings.....................................................................................A-1
Corporate Bond Ratings.......................................................................................A-1
Municipal Note Ratings.......................................................................................A-4
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the description of the
Portfolio's investment objective and policies in the PROSPECTUS. There are no
assurances that the Portfolio will achieve its investment objective.
The investment objective of Portfolio is to provide high total return.
GENERAL INVESTMENT STRATEGIES
Unless otherwise indicated, the Portfolio is permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below. Any percentage limitation on the
Portfolio's ability to invest in debt securities will not be applicable during
periods when the Portfolio pursues a temporary defensive strategy as discussed
below.
The Portfolio is not obligated to pursue any of the following
strategies and does not represent that these techniques are available now or
will be available at any time in the future.
NON-DIVERSIFIED STATUS
The Portfolio is classified as non-diversified within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act"), which means
that it is not limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. As a non-diversified fund, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to portfolio securities. The investments of the Portfolio will be
limited, however, in order to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"). See
"Additional Information Concerning Taxes." To qualify, the Portfolio 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 Portfolio will not own more than 10% of
the outstanding voting securities of a single issuer.
TEMPORARY INVESTMENTS
To the extent permitted by its investment objectives and policies, the
Portfolio may hold cash or cash equivalents pending investment or to meet
redemption requests. In addition, for defensive purposes due to abnormal market
conditions or economic situations as determined by Credit Suisse Asset
Management, LLC ("CSAM"), the Portfolio's adviser (the "Adviser"), the Portfolio
may reduce its holdings in other securities and invest up to 100% of its assets
in cash or certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) interest-bearing
instruments or deposits of the United States and foreign issuers. The short-term
and medium-term debt securities in which the Portfolio may invest for temporary
defensive purposes consist of: (a) obligations of the United States or
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foreign governments, their respective agencies or instrumentalities; (b) bank
deposits and bank obligations (including certificates of deposit, time deposits
and bankers' acceptances) of U.S. or foreign banks denominated in any currency;
(c) floating rate securities and other instruments denominated in any currency
issued by international development agencies; (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of U.S. and
foreign corporations; and (e) repurchase agreements with banks and
broker-dealers with respect to such securities.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreement transactions with
member banks of the Federal Reserve System and certain non-bank dealers.
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under the terms of a typical repurchase agreement, the Portfolio
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 Portfolio to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Portfolio's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio'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 Portfolio 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 Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value of the underlying securities during the
period in which the Portfolio seeks to assert this right. The Adviser monitors
the creditworthiness of those bank and non-bank dealers with which the Portfolio
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
The Portfolio may enter into reverse repurchase agreements with member
banks of the Federal Reserve System with respect to portfolio securities for
temporary purposes (such as to obtain cash to meet redemption requests when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the Adviser) and "dollar rolls." The Portfolio does not presently intend to
invest more than 5% of net assets in reverse repurchase agreements or dollar
rolls during the coming year.
Reverse repurchase agreements involve the sale of securities held by
the Portfolio pursuant to the Portfolio's agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Portfolio
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
securities having a value not less than the repurchase price (including accrued
interest). The segregated assets will be marked-to-market daily and additional
assets will be segregated on any day in which the assets fall below the
repurchase price (plus accrued interest). The Portfolio's liquidity and ability
to manage its assets might be affected when it sets aside cash or portfolio
securities to cover such commitments. Reverse repurchase agreements involve the
risk that the market value of the securities retained in lieu of sale may
decline below the price of the
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securities the Portfolio has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.
The Portfolio also may enter into "dollar rolls," in which it sells
fixed income securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Portfolio
would forgo principal and interest paid on such securities. The Portfolio 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 the Portfolio 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.
ILLIQUID SECURITIES
The Portfolio is authorized to, but does not presently intend to,
invest up to 15% of its net assets in 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, certain
Rule 144A Securities (as defined below), and time deposits maturing in more than
seven days. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days without borrowing. A mutual fund might
also have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered
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security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
RULE 144A SECURITIES
Rule 144A under the Securities Act adopted by the Securities and
Exchange Commission (the "SEC") allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The Adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will
expand further as a result of this regulation and use of automated systems
for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Portfolio's limit on the purchase of illiquid
securities unless the Board of Directors (the "Board") or its delegates
determines that the Rule 144A Securities are liquid. In reaching liquidity
decisions, the Board or its delegates may consider, INTER ALIA, the following
factors: (i) the unregistered nature of the security; (ii) the frequency of
trades and quotes for the security; (iii) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (iv)
dealer undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Investing in Rule 144A securities could have the effect of increasing
the level of illiquidity in the Portfolio to the extent that qualified
institutional buyers are unavailable or uninterested in purchasing such
securities from the Portfolio. The Board may adopt guidelines and delegate to
the Adviser the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Board will retain ultimate responsibility for
liquidity determinations.
EMERGING GROWTH AND SMALLER CAPITALIZATION COMPANIES; UNSEASONED ISSUERS
The Portfolio will not invest in securities of unseasoned issuers,
including equity securities of unseasoned issuers which are not readily
marketable, if the aggregate investment in such securities would exceed 5% of
the Portfolio's net assets. The term "unseasoned" refers to issuers which,
together with their predecessors, have been in operation for less than three
years.
Such investments involve considerations that are not applicable to
investing in securities of established, larger-capitalization issuers, including
reduced and less reliable information about issuers and markets, less stringent
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of these companies may involve greater risks since these securities
may have limited marketability and, thus, may be more volatile.
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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 the
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek growth of capital or capital appreciation by investing in
better-known, larger companies.
LENDING OF PORTFOLIO SECURITIES
The Portfolio may lend portfolio securities to brokers, dealers and
other financial organizations that meet capital and other credit requirements or
other criteria established by the Board. These loans, if and when made, may not
exceed 33-1/3% of the Portfolio's total assets (including the loan collateral).
The Portfolio will not lend portfolio securities to the Adviser or its
affiliates unless it has applied for and received specific authority to do so
from the SEC. Loans of portfolio securities will be collateralized by cash or
liquid securities, which are maintained at all times in an amount equal to at
least 102% (105% in the case of foreign securities) of the current market value
of the loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Portfolio. From time to time, the Portfolio 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 Portfolio and
that is acting as a "finder."
By lending its securities, the Portfolio 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 Portfolio
will adhere to the following conditions whenever its portfolio securities are
loaned: (i) the Portfolio must receive at least 102% (105% in the case of
foreign securities) 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 Portfolio must be able to terminate the
loan at any time; (iv) the Portfolio 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 Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower, provided, however, that if a
material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan agreements
involve certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Portfolio's ability to
recover the loaned securities or dispose of the collateral for the loan.
BORROWING
The Portfolio may borrow up to 33-1/3% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Additional investments
(including roll-overs) will not be made when borrowings exceed 5% of the
Portfolio's total assets. Although the principal of such borrowings will be
fixed, the
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Portfolio's assets may change in value during the time the borrowing is
outstanding. The Portfolio 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.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Portfolio may invest in securities issued by other investment
companies to the extent permitted by the 1940 Act. As a shareholder of another
investment company, the Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Portfolio bears directly in connection with its own operations.
OPTIONS GENERALLY
The Portfolio may purchase and write (sell) securities, securities
indices and currencies for both hedging purposes and to increase total return,
which may involve speculation.
SECURITIES OPTIONS
The Portfolio may write covered put and call options on stock and
debt securities and the Portfolio may purchase such options that are traded
on foreign and U.S. exchanges, as well as over the counter ("OTC") options.
The Portfolio realizes fees (referred to as "premiums") for granting the
rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from
the option holder an underlying security at a specified price for a specified
time period or at a specified time. In contrast, a call option embodies the
right of its purchaser to compel the writer of the option to sell to the
option holder an underlying security at a specified price for a specified
time period or at a specified time.
The potential loss associated with purchasing an option is limited to
the premium paid, and the premium would partially offset any gains achieved from
its use. However, for an option writer the exposure to adverse price movements
in the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities its would otherwise sell.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, the Portfolio, as
the writer of a covered call option, forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). The Portfolio
as the writer of call options retains the risk of an increase in the price of
the underlying security. The size of the premiums that the Portfolio may receive
may be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
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If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by the Portfolio that are deemed
covered by virtue of the Portfolio'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 Portfolio has written options may exceed the time within which the Portfolio
must make delivery in accordance with an exercise notice. In these instances,
the Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio 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 Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Portfolio may write covered call options. For example, if the
Portfolio 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 Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by the Portfolio will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the- money" and
"out-of-the-money," respectively. The Portfolio may write (i) in-the-money call
options when the Adviser expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when the Adviser expects that the price of the underlying security
will remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when the Adviser expects that the premiums
received from writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, the Portfolio 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.
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Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Portfolio may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When the Portfolio has purchased an option and
engages in a closing sale transaction, whether the Portfolio 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 Portfolio initially paid for
the original option plus the related transaction costs. Similarly, in cases
where the Portfolio 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 Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to unfreeze
an underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). The
obligation of the Portfolio under an option it has written would be terminated
by a closing purchase transaction (the Portfolio would not be deemed to own an
option as a result of the transaction). So long as the obligation of the
Portfolio as the writer of an option continues, the Portfolio may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Portfolio to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Portfolio effects a closing purchase transaction. The Portfolio cannot effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options, no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Portfolio'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 Portfolio. The Portfolio, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by the Adviser,
are considered to be investment grade. If, as a covered call option writer, the
Portfolio 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
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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 Portfolio and other
clients of the Adviser and certain of its affiliates may be considered to be
such a group. A securities exchange may order the liquidation of positions found
to be in violation of these limits and it may impose certain other sanctions.
These limits may restrict the number of options the Portfolio will be able to
purchase on a particular security.
SECURITIES INDEX OPTIONS
A securities index measures the movement of a certain group of
securities by assigning relative values to the securities included in the index,
fluctuating with changes in the market values of the securities included in the
index. Some securities index options are based on a broad market index, such as
the NYSE Composite Index, or a narrower market index such as the Standard &
Poor's 100. Indexes may also be based on a particular industry or market
segment.
Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for securities options.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND FORWARD COMMITMENTS
The Portfolio may purchase securities on a when-issued basis or on a
forward commitment basis, and it may 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 Portfolio currently anticipates that when-issued
securities will not exceed 25% of its net assets. The Portfolio does not intend
to engage in when-issued purchases and forward commitments for speculative
purposes but only in furtherance of its investment objective.
In these transactions, payment for and delivery of the securities
occur beyond the regular settlement dates, normally within 30-45 days after the
transaction. The Portfolio will not enter into a when-issued or delayed-delivery
transaction for the purpose of leverage, but may sell the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive securities in a delayed-delivery transaction before the settlement
date if the Adviser deems it advantageous to do so. The payment obligation and
the interest rate that will be received on when-issued and delayed-delivery
transactions are fixed at the time the buyer enters
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into the commitment. Due to fluctuations in the value of securities purchased or
sold on a when-issued or delayed-delivery basis, the prices obtained on such
securities may be higher or lower than the prices available in the market on the
dates when the investments are actually delivered to the buyers. The Portfolio
will establish a segregated account with its custodian consisting of cash or
liquid securities in an amount equal to its when-issued and delayed-delivery
purchase commitments and will segregate the securities underlying commitments to
sell securities for delayed delivery.
When the Portfolio 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 Portfolio 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 Portfolio commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. When the Portfolio 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 Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENT AGREEMENTS
The Portfolio may from time to time enter into stand-by commitment
agreements. The Portfolio does not presently intend to invest more than 5% of
net assets in stand-by commitment agreements during the coming year.
Such agreements commit the Portfolio, for a stated period of time, to
purchase a stated amount of a fixed income securities which may be issued and
sold to the Portfolio at the option of the issuer. The price and coupon of the
security is fixed at the time of the commitment. At the time of entering into
the agreement, the Portfolio is paid a commitment fee, regardless of whether or
not the security is ultimately issued. The Portfolio will enter into such
agreements only for the purpose of investing in the security underlying the
commitment at a yield and price that is considered advantageous to the
Portfolio. The Portfolio will not enter into a stand-by commitment with a
remaining term in excess of 45 days and it will limit its investment in such
commitments so that the aggregate purchase price of the securities subject to
such commitments, together with the value of portfolio securities subject to
legal restrictions on resale, will not exceed 10% of its assets taken at the
time of acquisition of such commitment or security.
The Portfolio will at all times maintain a segregated account with its
custodian consisting of cash or liquid securities denominated in U.S. dollars or
non-U.S. currencies in an aggregate amount equal to the purchase price of the
securities underlying the commitment. The assets contained in the segregated
account will be marked-to-market daily and additional assets will be placed in
such account on any day in which assets fall below the amount of the purchase
price. The Portfolio's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover such
commitments.
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There can be no assurance that the securities subject to a stand-by
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Because the issuance
of the security underlying the commitment is at the option of the issuer, the
Portfolio may bear the risk of a decline in the value of such security and may
not benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a stand-by commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued, and the value of the security
will be adjusted by the amount of the commitment fee. In the event the security
is not issued, the commitment fee will be recorded as income on the expiration
date of the stand-by commitment.
U.S. GOVERNMENT SECURITIES
The obligations issued or guaranteed by the U.S. government in which
the Portfolio may invest include direct obligations of the U.S. Treasury and
obligations issued by U.S. government agencies and instrumentalities. Included
among direct obligations of the United States are Treasury Bills, Treasury Notes
and Treasury Bonds, which differ in terms of their interest rates, maturities
and dates of issuance. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ("GNMA")); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") bonds).
Other U.S. government securities the Portfolio may invest in include
securities issued or guaranteed by the Federal Housing Administration, Farmers
Home Loan Administration, Export-Import Bank of the United States, Small
Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association.
Because the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, the Portfolio will invest in obligations issued by
such an instrumentality only if the Adviser determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable for
investment by the Portfolio.
FOREIGN INVESTMENTS
Investors should recognize that investing in foreign companies
involves certain risks, including those discussed below, which are in addition
to those associated with investing in U.S. issuers. Individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments positions. In addition,
foreign
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investments by the Portfolio are subject to the risk that natural disasters
(such as an earthquake) will weaken a country's economy and cause investments in
that country to lose money. Natural disaster risks are, of course, not limited
to foreign investments and may apply to a Portfolio's domestic investments as
well. The Portfolio 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.
For the purposes of this investment policy, foreign investments
include investments in companies located or conducting a majority of their
business outside of the U.S., companies which have issued securities traded
principally outside of the U.S., or non-U.S. governments, governmental entities
or political subdivisions.
FOREIGN DEBT SECURITIES
The returns on foreign debt securities reflect interest rates and
other market conditions prevailing in those countries and the effect of gains
and losses in the denominated currencies against the U.S. dollar, which have had
a substantial impact on investment in foreign fixed-income securities. The
relative performance of various countries' fixed-income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time.
The foreign government securities in which the Portfolio 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 euro,
the new single currency for eleven Economic and Monetary Union member states.
The euro represents specified amounts of the currencies of certain member states
of the Economic and Monetary Union and was introduced on January 1, 1999.
National currencies of the eleven member states participating in the euro will
become subdivisions of the euro, but will continue to circulate as legal tender
until January 1, 2002, when they will be withdrawn permanently.
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FOREIGN CURRENCY EXCHANGE
Since the Portfolio may invest in securities denominated in currencies
of non-U.S. countries, the Portfolio 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 Portfolio's assets denominated in that foreign currency. Changes in foreign
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Portfolio.
Unless otherwise contracted, the rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. The Portfolio may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the value of the yen against the U.S. dollar, particularly the forward market
in foreign exchange, currency options and currency futures.
INFORMATION
Foreign securities held by the Portfolio may not be registered with,
and the issuers thereof may not be subject to reporting requirements of the SEC.
Accordingly, there may be less publicly available information about these
securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies are
generally subject to financial reporting standards, practices and requirements
that are either not uniform or less rigorous than those applicable to U.S.
companies.
POLITICAL INSTABILITY
With respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Portfolio, political or social instability, or domestic
developments which could affect U.S. investments in those and neighboring
countries.
FOREIGN MARKETS
Securities of some foreign companies are less liquid and their prices
are more volatile than securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold which may result in increased exposure to
market and foreign exchange fluctuations and increased illiquidity.
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INCREASED EXPENSES
To the extent that the Portfolio invests in foreign securities, the
operating expenses of the Portfolio can be expected to be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Portfolio, 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, will be higher than those costs incurred by other
investment companies not investing in foreign securities. In addition, foreign
securities may be subject to foreign government taxes that would reduce the net
yield on such securities.
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 fluctuations in certain markets have been significant, and negative
returns have been experienced in various markets from time to time.
DEPOSITARY RECEIPTS
The assets of the Portfolio may be invested in the securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and International Depositary Receipts ("IDRs").
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe,
and IDRs, which are sometimes referred to as Global Depositary Receipts
("GDRs"), are issued outside the United States. EDRs (CDRs) and IDRs (GDRs) are
typically issued by non-U.S. banks and trust companies and evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs (CDRs) and IDRs (GDRs) in
bearer form are designed for use in European and non-U.S. securities markets,
respectively.
BRADY BONDS
The Portfolio may invest in so-called "Brady Bonds," which are
securities created through the exchange of existing commercial bank loans to
public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are currently actively traded in the OTC
secondary market for debt instruments. 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.
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EMERGING MARKETS
The Portfolio may invest in securities of issuers located in "emerging
markets" (less developed countries located outside of the U.S.). Investing in
emerging markets involves not only the risks described above with respect to
investing in foreign securities, but also other risks, including exposure to
economic structures that are generally less diverse and mature than, and to
political systems that can be expected to have less stability than, those of
developed countries. For example, many investments in emerging markets
experienced significant declines in value due to political and currency
volatility in emerging markets countries during the latter part of 1997 and the
first half of 1998. Other characteristics of emerging markets that may affect
investment include certain national policies that may restrict investment by
foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed structures governing private and foreign
investments and private property. The typically small size of the markets of
securities of issuers located in emerging markets and the possibility of a low
or nonexistent volume of trading in those securities may also result in a lack
of liquidity and in price volatility of those securities.
SOVEREIGN DEBT
Investments in sovereign debt involve special risks. The issuer of the
debt or the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and the Portfolio may have limited legal recourse
in the event of a default.
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or
more of the countries issuing sovereign debt could adversely affect the
Portfolio's investments in sovereign debt. Political changes or a deterioration
of a country's domestic economy or balance of trade may affect the willingness
of countries to service their sovereign debt. To the extent the Portfolio
invests in sovereign debt, the Adviser intends to manage the Portfolio in a
manner that
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will minimize the exposure to such risks, although there can be no assurance
that adverse political changes will not cause the Portfolio to suffer a loss of
interest or principal on any such holdings.
Investors should also be aware that certain sovereign debt instruments
in which the Portfolio may invest involve great risk. Sovereign debt issued by
issuers in many emerging markets generally is deemed to be the equivalent in
terms of quality to securities rated below investment grade by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Services ("S&P"). Such
securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such sovereign debt, which may not be paying interest currently or may
be in payment default, may be comparable to securities rated "D" by S&P or "C"
by Moody's. The Portfolio may have difficulty disposing of certain sovereign
debt obligations because there may be a limited trading market for such
securities. Because there is no liquid secondary market for many of these
securities, the Portfolio anticipates that such securities could be sold only to
a limited number of dealers or institutional investors. The lack of a liquid
secondary market may have an adverse impact on the market price of such
securities and the Portfolio's ability to dispose of particular issues when
necessary to meet the Portfolio's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also may make it
more difficult for the Portfolio to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value.
CONVERTIBLE SECURITIES
Convertible securities in which the Portfolio may invest, including
both convertible debt and convertible preferred stock, may be converted at
either a stated price or stated rate into underlying shares of common stock.
Because of this feature, convertible securities enable an investor to benefit
from increases in the market price of the underlying common stock. Convertible
securities provide higher yields than the underlying equity securities, but
generally offer lower yields than non-convertible securities of similar quality.
The value of convertible securities fluctuates in relation to changes in
interest rates like bonds and, in addition, fluctuates in relation to the
underlying common stock. Subsequent to purchase by the Portfolio, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require sale of such
securities, although the Adviser will consider such event in its determination
of whether the Portfolio should continue to hold the securities.
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DEBT SECURITIES
The Portfolio may invest in investment grade debt securities (other
than money market obligations) for the purpose of seeking capital appreciation.
Any percentage limitation on the Portfolio's ability to invest in debt
securities will not be applicable during periods when the Portfolio pursues a
temporary defensive strategy as discussed below. The Portfolio may invest to a
limited extent in zero coupon securities and government zero coupon securities.
See "Additional Information Concerning Taxes" for a discussion of the tax
consequences to shareholders of a fund that invests in zero coupon securities.
The interest income to be derived may be considered as one factor in
selecting debt securities for investment by the Adviser. Because the market
value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon the Adviser's ability
to forecast accurately changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within
the four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by the Adviser. Securities rated in the fourth highest grade
may have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by the Portfolio, an issue of securities may cease to be rated or
its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require sale of such securities, although the
Adviser will consider such event in its determination of whether the Portfolio
should continue to hold the securities.
When and if available, fixed income securities may be purchased by
the Portfolio at a discount from face value. However, the Portfolio does not
intend to hold such securities to maturity for the purpose of achieving
potential capital gains, unless current yields on these securities remain
attractive. From time to time, the Portfolio may purchase securities not
paying interest at the time acquired if, in the opinion of the Adviser, such
securities have the potential for future income or capital appreciation.
BELOW INVESTMENT GRADE SECURITIES
The Portfolio has established no rating criteria for the debt
securities in which it may invest.
Below investment grade debt securities may be rated as low as C by
Moody's or D by S&P, or be deemed by the Adviser 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. A security rated D by S&P is in default or is expected to
default upon maturity or payment date. Investors should be aware that ratings
are relative and subjective and are not absolute standards of quality.
Below investment grade securities (commonly referred to as "junk
bonds"), (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
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
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and changes in economic conditions than investment grade 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.
While the market values of medium- and lower-rated securities and
unrated securities of comparable quality tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities, the market values
of certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
An economic recession could disrupt severely the market for such
securities and may adversely affect the value of such securities and the ability
of the issuers of such securities to repay principal and pay interest thereon.
The Portfolio 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 Portfolio anticipates
that these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and the Portfolio's ability to dispose of
particular issues when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.
The market value of securities in medium- and lower-rated categories
is also more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the
Portfolio's net asset value. The Portfolio will rely on the judgment, analysis
and experience of the Adviser in evaluating the creditworthiness of an issuer.
In this evaluation, in addition to relying on ratings assigned by Moody's or
S&P, the Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. Interest rate trends and specific developments which may affect
individual issuers will also be analyzed. Subsequent to its purchase by the
Portfolio, an issue of securities may cease to be rated or its rating may be
reduced. Neither event will require sale of such securities, although the
Adviser will consider such event in its determination of whether the Portfolio
should continue to hold the securities. Normally, medium- and lower-rated and
comparable unrated securities are not intended for short-term investment. The
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the
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payment of principal or interest on its portfolio holdings of such securities.
At times, adverse publicity regarding lower-rated securities has depressed the
prices for such securities to some extent.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities include those issued by GNMA, FNMA
and FHLMC. Non-government issued mortgage-backed securities may offer higher
yields than those issued by government entities, but may be subject to greater
price fluctuations. Mortgage-backed securities represent direct or indirect
participations in, or are secured by and payable from, mortgage loans secured by
real property. The mortgages backing these securities include, among other
mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate mortgages.
Although there may be government or private guarantees on the payment of
interest and principal of these securities, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Portfolio's shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees. Some
mortgage-backed securities, such as collateralized mortgage obligations
("CMOs"), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
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
Portfolio's yield. In addition, mortgage-backed securities issued by certain
non-government entities and collateralized mortgage obligations may be less
marketable than other securities.
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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
Asset-backed securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities include those issued by the Student Loan
Marketing Association. Asset-backed securities 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. In certain circumstances, asset-backed securities
may be considered illiquid securities subject to the percentage limitations
described herein. Asset-backed securities are considered an industry for
industry concentration purposes, and the Portfolio will therefore not purchase
any asset-backed securities which would cause 25% or more of the Portfolio's net
assets at the time of purchase to be invested in asset-backed securities.
Asset-backed securities present certain risks that are not presented
by other securities in which the Portfolio may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. In addition, there is no assurance that the security interest in
the collateral can be realized. The remaining maturity of any asset-backed
security the Portfolio invests in will be 397 days or less. The Portfolio may
purchase asset-backed securities that are unrated.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Portfolio may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign government (a
"Borrower") and one or more
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financial institutions ("Lenders"). The majority of the Portfolio'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"). The Portfolio currently anticipates that it will not invest
more than 5% of its net assets in Loan Participations and Assignments.
Participations typically will result in the Portfolio having a
contractual relationship only with the Lender, not with the Borrower. The
Portfolio 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 Portfolio 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 Portfolio
may not directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Portfolio 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 Portfolio
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 Portfolio will acquire
Participations only if the Lender interpositioned between the Portfolio and the
Borrower is determined by the Adviser to be creditworthy.
STRUCTURED NOTES, BONDS OR DEBENTURES
Typically, the value of the principal and/or interest on these
instruments is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indexes or other financial indicators
(the "Reference") or the relevant change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured securities may provide that in certain circumstances no
principal is due at maturity and, therefore, may result in the loss of the
Portfolio'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.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolio may also purchase CMOs issued by a U.S. Government
instrumentality which are backed by a portfolio of mortgages or mortgage-backed
securities. The issuer's obligations to make interest and principal payments is
secured by the underlying portfolio of mortgages or mortgage-backed securities.
Generally, CMOs are partitioned into several classes with a ranked priority by
which the classes of obligations are redeemed. These securities may be
considered mortgage derivatives. The Portfolio may only invest in CMOs issued by
FHLMC, FNMA or other agencies of the U.S. Government or instrumentalities
established or sponsored by the U.S. Government.
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CMOs provide an investor with a specified interest in the cash flow of
a pool of underlying mortgages or other mortgage-related securities. Issuers of
CMOs frequently elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. Coupons can be fixed or variable. If variable, they can move with or in
the reverse direction of interest rates. The coupon changes could be a multiple
of the actual rate change and there may be limitations on what the coupon can
be. Cash flows of pools can also be divided into a principal only class and an
interest only class. In this case the principal only class will only receive
principal cash flows from the pool. All interest cash flows go to the interest
only class. The relative payment rights of the various CMO classes may be
structured in many ways, either sequentially or by other rules of priority.
Generally, payments of principal are applied to the CMO classes in the order of
their respective stated maturities, so that no principal payments will be made
on a CMO class until all other classes having an earlier stated maturity date
are paid in full. Sometimes, however, CMO classes are "parallel pay" (I.E.
payments of principal are made to two or more classes concurrently). CMOs may
exhibit more or less price volatility and interest rate risk than other types of
mortgaged-related obligations.
The CMO structure returns principal to investors sequentially, rather
than according to the pro rata method of a pass-through. In the traditional CMO
structure, all classes (called tranches) receive interest at a stated rate, but
only one class at a time receives principal. All principal payments received on
the underlying mortgages or securities are first paid to the "fastest pay"
tranche. After this tranche is retired, the next tranche in the sequence becomes
the exclusive recipient of principal payments. This sequential process continues
until the last tranche is retired. In the event of sufficient early repayments
on the underlying mortgages, the "fastest-pay" tranche generally will be retired
prior to its maturity. Thus the early retirement of a particular tranche of a
CMO held by the Portfolio would have the same effect as the prepayment of
mortgages underlying a mortgage-backed pass-through security as described above.
ZERO COUPON SECURITIES
The Portfolio may invest in "zero coupon" U.S. Treasury, foreign
government and U.S. and foreign corporate debt securities, which are bills,
notes and bonds that have been stripped of their unmatured interest coupons and
receipts or certificates representing interests in such stripped debt
obligations and coupons. The Portfolio currently anticipates that zero coupon
securities will not exceed 5% of its net assets.
A zero coupon security pays no interest to its holder prior to
maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest. The Portfolio
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.
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FUTURES ACTIVITIES
The Portfolio may enter into futures contracts (and related options)
on securities, securities indices, foreign currencies and interest rates, and
purchase and write (sell) related options traded on exchanges designated by the
Commodity Futures Trading Commission (the "CFTC") or consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of a non-U.S. currency, an interest rate
sensitive security or, in the case of index futures contracts or certain other
futures contracts, a cash settlement with reference to a specified multiplier
times the change in the index. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract.
These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions as well as
for the purpose of increasing total return, which may involve speculation.
Aggregate initial margin and premiums (discussed below) required to establish
positions other than those considered to be "bona fide hedging" by the CFTC will
not exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Portfolio reserves the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Portfolio's
policies. There is no overall limit on the percentage of Portfolio assets that
may be at risk with respect to futures activities.
FUTURES CONTRACTS
A foreign currency futures contract provides for the future sale by
one party and the purchase by the other party of a certain amount of a specified
non-U.S. currency at a specified price, date, time and place. An interest rate
futures contract provides for the future sale by one party and the purchase by
the other party of a certain amount of a specific interest rate sensitive
financial instrument (debt security) at a specified price, date, time and place.
Securities indexes are capitalization weighted indexes which reflect the market
value of the securities represented in the indexes. A securities index futures
contract is an agreement to be settled by delivery of an amount of cash equal to
a specified multiplier times the difference between the value of the index at
the close of the last trading day on the contract and the price at which the
agreement is made.
No consideration is paid or received by the Portfolio upon entering
into a futures contract. Instead, the Portfolio is required to deposit in a
segregated account with its custodian an amount of cash or liquid securities
acceptable to the broker, equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange on which the contract
is traded, and brokers may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Portfolio upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
The broker will have access to amounts in the margin account if the Portfolio
fails to meet its contractual obligations. Subsequent payments, known as
"variation
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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 Portfolio will also incur
brokerage costs in connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, the
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio'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 Portfolio may enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting the Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio 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 Portfolio 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 Portfolio's performance.
OPTIONS ON FUTURES CONTRACTS
The Portfolio may purchase and write put and call options on foreign
currency, interest rate and stock index futures contracts and may enter into
closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected;
the ability to establish and close out positions on such options will be subject
to the existence of a liquid market.
An option on a currency, interest rate or securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract;
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however, the value of the option does change daily and that change would be
reflected in the net asset value of the Portfolio.
CURRENCY EXCHANGE TRANSACTIONS
The value in U.S. dollars of the assets of the Portfolio that is
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
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. The Portfolio will
conduct its currency exchange transactions (i) on a spot (I.E., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. The Portfolio may engage in
currency exchange transactions for both hedging purposes and to increase total
return, which may involve speculation.
FORWARD CURRENCY CONTRACTS
The Portfolio may use forward currency contracts to protect against
uncertainty in the level of future exchange rates and to enhance total return.
The Portfolio will not invest more than 50% of its total assets in such
contracts for the purpose of enhancing total return. There is no limit on the
amount of assets that the Portfolio may invest in such transactions for hedging
purposes.
The Portfolio may also enter into forward currency contracts with
respect to specific transactions. For example, when the Portfolio anticipates
the receipt in a foreign currency of interest payments on a security that it
holds, the Portfolio may desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such payment, as the case may be, by
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
transaction. The Portfolio will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
A forward currency contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed upon by the parties, at a price set at the
time of the contract. These contracts are entered into in the interbank market
conducted directly between currency traders (usually large commercial banks and
brokers) and their customers. Forward currency contracts are similar to currency
futures contracts, except that futures contracts are traded on commodities
exchanges and are standardized as to contract size and delivery date.
At or before the maturity of a forward contract, the Portfolio 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
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enter into an offsetting transaction. If the Portfolio retains the portfolio
security and engages in an offsetting transaction, the Portfolio, 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.
CURRENCY OPTIONS
The Portfolio may purchase exchange-traded put and call options on
foreign currencies. Put options convey the right to sell the underlying currency
at a price which is anticipated to be higher than the spot price of the currency
at the time the option is exercised. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than the spot price
of the currency at the time the option is exercised.
CURRENCY HEDGING
The Portfolio'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 Portfolio generally accruing in connection with the purchase or
sale of its portfolio securities. Position hedging is the sale of forward
currency with respect to portfolio security positions. The Portfolio may not
position hedge to an extent greater than the aggregate market value (at the time
of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which the
Portfolio's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of non-dollar denominated securities it holds, the Portfolio may
purchase foreign currency put options. If the value of the foreign currency does
decline, the Portfolio will have the right to sell the currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the adverse
effect on the U.S. dollar value of its securities that otherwise would have
resulted. Conversely, if a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby potentially
increasing the cost of the securities, the Portfolio 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 Portfolio 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 Portfolio may
not be able to contract to sell a currency at a price above the devaluation
level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not
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reflect other factors that may affect the value of the Portfolio's investments
and a currency hedge may not be entirely successful in mitigating changes in the
value of the Portfolio's investments denominated in that currency. A currency
hedge, for example, should protect a non-dollar denominated bond against a
decline in the non-dollar currency, but will not protect the Portfolio against a
price decline if the issuer's creditworthiness deteriorates.
HEDGING GENERALLY
In addition to entering into options, futures and currency exchange
transactions for other purposes, including generating current income to offset
expenses or increase return, the Portfolio may enter into these transactions as
hedges to reduce investment risk, generally by making an investment expected to
move in the opposite direction of a portfolio position. A hedge is designed to
offset a loss in a portfolio position with a gain in the hedged position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options, futures, contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in the value of
the position hedged. In addition, the movement in the portfolio position hedged
may not be of the same magnitude as movement in the hedge. With respect to
futures contracts, since the value of portfolio securities will far exceed the
value of the futures contracts sold by the Portfolio, an increase in the value
of the futures contracts could only mitigate, but not totally offset, the
decline in the value of the Portfolio's assets.
In hedging transactions based on an index, whether the Portfolio 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
Portfolio'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 Portfolio's hedge positions may be in a greater or
lesser dollar amount than the dollar amount of the hedged position. Such "over
hedging" or "under hedging" may adversely affect the Portfolio's net investment
results if market movements are not as anticipated when the hedge is
established. Securities index futures transactions may be subject to additional
correlation risks. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
securities index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the securities
index and movements in the price of securities index futures, a correct forecast
of general market trends by the Adviser still may not result in a successful
hedging transaction.
The Portfolio will engage in hedging transactions only when deemed
advisable by the Adviser, and successful use by the Portfolio of hedging
transactions will be subject to the Adviser's ability to predict trends in
currency, interest rate or securities markets, as the case may be, and to
predict correctly movements in the directions of the hedge and the hedged
position and
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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 Portfolio's performance.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio 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. While a short sale is
made by selling a security the Portfolio does not own, a short sale is "against
the box" to the extent that the Portfolio contemporaneously owns or has the
right to obtain, at no added cost, securities identical to those sold short. It
may be entered into by the Portfolio, for example, to lock in a sales price for
a security the Portfolio does not wish to sell immediately. If the Portfolio
engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position.
The Portfolio may make a short sale as a hedge when it believes that
the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio (or a security convertible or exchangeable for
such security). In such case, any future losses in the Portfolio's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be reduced by a loss in the short position. The extent
to which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transactions costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
If the Portfolio 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 Portfolio closes out the short sale with securities other than
the appreciated securities held at the time of the short sale and if certain
other conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which the Portfolio may effect
short sales.
The Portfolio does not presently intend to invest more than 5% of net
assets in short sales against the box.
SECTION 4(2) PAPER
"Section 4(2) paper" is commercial paper which is issued in reliance
on the "private placement" exemption from registration which is afforded by
Section 4(2) of the
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Securities Act of 1933. Section 4(2) paper is restricted as to disposition under
the federal securities laws and is generally sold to institutional investors
such as the Portfolio which agrees that it is purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. See "Illiquid Securities" above. See Appendix "A" for a
list of commercial paper ratings.
INVESTMENT RESTRICTIONS
The following investment limitations of the Portfolio may not be
changed without the affirmative vote of the holders of a majority of the
Portfolio's outstanding shares ("Fundamental Restrictions"). Such majority is
defined as the lesser of (i) 67% or more of the shares present at the meeting,
if the holders of more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares.
If a percentage restriction (other than the percentage limitation set
forth in No. 1) is adhered to at the time of an investment, a later increase or
decrease in the percentage of assets resulting from a change in the values of
portfolio securities or in the amount of the Portfolio's assets will not
constitute a violation of such restriction.
The Portfolio may not:
1. Borrow money, except from banks, and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate any of its assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 33 1/3% of the value of the Portfolio's total assets at the time of
such borrowing;
2. Act as an underwriter of securities within the meaning of the
Securities Act, except insofar as it might be deemed to be an underwriter upon
disposition of certain portfolio securities acquired within the limitation on
purchases of restricted securities;
3. Purchase or sell real estate (including real estate limited
partnership interests), provided that the Portfolio may invest in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein;
4. Purchase or sell commodities or commodity contracts, except that
the Portfolio may deal in forward foreign exchange transactions between
currencies of the different countries in which it may invest and purchase and
sell stock index and currency options, stock index futures, financial futures
and currency futures contracts and related options on such futures;
5. Make loans, except through loans of portfolio instruments and
repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, Loan
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Participations and Assignments, short-term commercial paper, certificates of
deposit and bankers' acceptances shall not be deemed to be the making of a loan;
and
6. Purchase any securities, which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
(i) instruments issued or guaranteed by the United States, any state, territory
or possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, and (ii)
repurchase agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
For purposes of Investment Limitation No. 1, collateral arrangements
with respect to, if applicable, the writing of options, futures contracts,
options on futures contracts, forward currency contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be a
pledge of assets.
In addition to the fundamental investment limitations specified above,
the Portfolio may not:
1. Make investments for the purpose of exercising control or
management, but investments by the Portfolio in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management;
2. Purchase securities on margin, except for short-term credits
necessary for clearance of portfolio transactions, and except that the Portfolio
may make margin deposits in connection with its use of options, futures
contracts, options on futures contracts and forward contracts; and
3. Purchase or sell interests in mineral leases, oil, gas or other
mineral exploration or development programs, except that the Portfolio may
invest in securities issued by companies that engage in oil, gas or other
mineral exploration or development activities.
The policies set forth above are not fundamental and thus may be
changed by the Board without a vote of the shareholders.
Securities held by the Portfolio generally may not be purchased from,
sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the 1940 Act.
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PORTFOLIO VALUATION
The following is a description of the procedures used by the Portfolio
in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an OTC market will be valued at the most recent sale as of the time
the valuation is made or, in the absence of sales, at the mean between the
highest bid and lowest asked quotations. If there are no such quotations, the
value of the securities will be taken to be the most recent bid quotation on the
exchange or market. Options contracts will be valued similarly. Futures
contracts will be valued at the most recent settlement price at the time of
valuation. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. 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. Notwithstanding the foregoing, in determining the market value of
portfolio investments, the Portfolio may employ outside organizations (each a
"Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Fund on behalf of the Portfolio under the
general supervision and responsibility of the Board, which may replace a Pricing
Service at any time. Securities, options, futures contracts and other assets for
which market quotations are not available 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 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 the Portfolio's net asset value is not calculated. As a result,
calculation of the Portfolio's net asset value does not take place
contemporaneously with the determination of the prices of the majority of the
Portfolio's securities. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing exchange rate as quoted by a Pricing Service as of 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.
31
<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser is responsible for establishing, reviewing and, where
necessary, modifying the Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by the Portfolio 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 OTC markets, but the price of securities traded in OTC markets includes
an undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality. No brokerage commissions are typically
paid on purchases and sales of U.S. Government Securities.
In selecting broker-dealers, the Adviser does business exclusively
with those broker-dealers that, in the Adviser's judgment, can be expected to
provide the best service. The service has two main aspects: the execution of buy
and sell orders and the provision of research. In negotiating commissions with
broker-dealers, the Adviser will pay no more for execution and research services
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 the Adviser's standards may be higher than for
execution services alone or for services that fall below the Adviser's
standards. The Adviser believes that these arrangements may benefit all clients
and not necessarily only the accounts in which the particular investment
transactions occur that are so executed. Further, the Adviser will only receive
brokerage or research service in connection with securities transactions that
are consistent with the "safe harbor" provisions of Section 28(e) of the
Securities Exchange Act of 1934 when paying such higher commissions.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by the Adviser with broker-dealers that it selects,
including Credit Suisse Asset Management Securities, Inc. ("CSAMSI") and
affiliates of Credit Suisse Group ("Credit Suisse"). The Portfolio may utilize
CSAMSI or affiliates of Credit Suisse in connection with a purchase or sale of
securities when the Adviser 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.
32
<PAGE>
Investment decisions for the Portfolio concerning specific portfolio
securities are made independently from those for other clients advised by the
Adviser. Such other investment clients may invest in the same securities as the
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to each client, including the
Portfolio. In some instances, this investment procedure may adversely affect the
price paid or received by the Portfolio or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for the Portfolio with those to
be sold or purchased for such other investment clients in order to obtain best
execution.
Transactions for the Portfolio may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Portfolio will deal directly with the dealers who make
a market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of securities for its portfolio directly from an issuer in order to
take advantage of the lower purchase price available to members of such a group.
The Portfolio will engage in this practice, however, only when the Adviser, in
its sole discretion, believes such practice to be otherwise in the Portfolio's
interest.
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 except as permitted by the SEC exemptive order or by
applicable law. In addition, the Portfolio will not give preference to any
institutions with whom the Portfolio enters into distribution or shareholder
servicing agreements concerning the provision of distribution services or
support services.
PORTFOLIO TURNOVER
The Portfolio does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the
Portfolio deems it desirable to sell or purchase securities. The 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 Portfolio could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
33
<PAGE>
traded for the short-term, the Portfolio will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
It is not possible to predict the Portfolio's portfolio turnover
rates. However, it is anticipated that the Portfolio's portfolio turnover
rate will not exceed 100%. High portfolio turnover rates (100% or more) may
result in higher brokerage commissions, dealer markups or underwriting
commissions as well as other transaction costs. In addition, gains realized
from portfolio turnover may be taxable to shareholders.
MANAGEMENT OF THE FUND
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of the Fund are managed by the Board of
Directors in accordance with the laws of the State of Maryland. The Board elects
officers who are responsible for the day-to-day operations of the Fund and who
execute policies authorized by the Board. Under the Fund's charter, the Board
may classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard H. Francis (68) DIRECTOR
40 Grosvenor Road Currently retired; Executive Vice President and Chief
Short Hills, New Jersey 07078 Financial Officer of Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group Incorporated;
Director/Trustee of other CSAM-advised investment
companies.
Jack W. Fritz (73) DIRECTOR
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 and operators of radio stations) since 1987; Director of
Advo, Inc. (direct mail advertising); Director/Trustee of
other CSAM-advised investment companies.
34
<PAGE>
Jeffrey E. Garten (53) DIRECTOR
Box 208200 Dean of Yale School of Management and William S. Beinecke
New Haven, Connecticut 06520-8200 Professor in the Practice of International Trade and
Finance; Undersecretary of Commerce for International Trade
from November 1993 to October 1995; Professor at Columbia
University from September 1992 to November 1993;
Director of Aetna, Inc.; Director of Calpine Energy
Corporation; Director/Trustee of other CSAM-advised
investment companies.
James S. Pasman, Jr. (69) DIRECTOR
29 The Trillium Currently retired; President and Chief Operating Officer
Pittsburgh, Pennsylvania 15238 of National InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from April 1989 to March
1991; Director of Education Management Corp., Tyco
International Ltd.; Trustee, BT Insurance Funds Trust;
Director/Trustee of other CSAM-advised investment companies.
William W. Priest* (58) CHAIRMAN OF THE BOARD
466 Lexington Avenue Chairman- Management Committee, Chairman since 2000, Chief
New York, New York 10017 Executive Officer from 1990 to 2000, Managing Director of
CSAM since 1990; Director/Trustee of other CSAM-advised
investment companies.
Steven N. Rappaport (51) DIRECTOR
40 East 52nd Street President of Loanet, Inc. (On-line accounting service)
New York, New York 10022 since 1997; Executive Vice President of Loanet, Inc. from
1994 to 1997; Director, President, North American
Operations, and former Executive Vice President from 1992 to
1993 of Worldwide Operations of Metallurg Inc.;
Executive Vice President, Telerate, Inc. from 1987 to
1992; Partner in the law firm of Hartman & Craven until 1987;
Director/Trustee of other Warburg Pincus Funds and other
CSAM-advised investment companies.
-------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
35
<PAGE>
Alexander B. Trowbridge (70) DIRECTOR
1317 F Street, N.W., President of Trowbridge Partners, Inc. (business
5th Floor consulting) since January 1990; Director or Trustee of
Washington, DC 20004 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 CSAM-advised investment
companies.
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 Portfolio's Warburg Pincus
Asset Management ("Warburg") in July 1999; with Warburg
since 1991; Vice President of Citibank, N.A. from 1987 to
1991; Officer of CSAMSI and of other CSAM-advised
investment companies.
Hal Liebes, Esq. (35) VICE PRESIDENT AND SECRETARY
466 Lexington Avenue Managing Director and General Counsel of CSAM; Associated
New York, New York 10017 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 and other CSAM-advised
investment companies.
Michael A. Pignataro (40) TREASURER AND CHIEF FINANCIAL OFFICER
466 Lexington Avenue Vice President and Director of Fund Administration of
New York, New York 10017 CSAM; Associated with CSAM since 1984; Officer of other
CSAM-advised investment companies.
36
<PAGE>
Stuart J. Cohen, Esq. (31) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM; Associated with
New York, New York 10017-3147 CSAM since Credit Suisse acquired Warburg 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 CSAM-advised
investment companies.
Rocco A. DelGuercio (37) ASSISTANT TREASURER
466 Lexington Avenue Assistant Vice President and Administrative Officer of
New York, New York 10017 CSAM; Associated with CSAM since June 1996; Assistant
Treasurer, Bankers Trust Corp. -- Fund Administration from
March 1994 to June 1996; Officer of other CSAM-advised investment
companies.
</TABLE>
No employee of CSAM, PFPC Inc. ("PFPC") and CSAMSI, the Portfolios'
co-administrators, or any of their affiliates, receives any compensation from
the Portfolios for acting as an officer or director of a Portfolio. Each
Director who is not a director, trustee, officer or employee of CSAM, PFPC,
CSAMSI or any of their affiliates receives the following annual and per
meeting fees:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ANNUAL FEE AS DIRECTOR FEE FOR EACH BOARD MEETING FEE FOR EACH AUDIT COMMITTEE
ATTENDED MEETING ATTENDED
-----------------------------------------------------------------------------------------
<S> <C> <C>
$750 $250 $250*
-----------------------------------------------------------------------------------------
</TABLE>
---------------------------
* The Chairman of the Audit Committee receives $325 for each Audit
Committee Meeting attended.
Each Director is reimbursed for expenses incurred in connection with his
attendance at Board meetings.
37
<PAGE>
DIRECTORS' ESTIMATED TOTAL COMPENSATION FOR FISCAL PERIOD ENDING
OCTOBER 31, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
ALL INVESTMENT
TOTAL COMPENSATION COMPANIES IN
FROM FUND FUND
NAME OF DIRECTOR COMPLEX(1)
-------------------------------------------------------------------------------
<S> <C> <C>
William W. Priest(2) None None
-------------------------------------------------------------------------------
Richard H. Francis $2,500 $112,500
-------------------------------------------------------------------------------
Jack W. Fritz $2,500 $112,500
-------------------------------------------------------------------------------
Jeffrey E. Garten $2,500 $60,000
-------------------------------------------------------------------------------
James S. Pasman, Jr. $2,500 $112,500
-------------------------------------------------------------------------------
Steven N. Rappaport $2,500 $112,500
-------------------------------------------------------------------------------
Alexander B. Trowbridge $2,725 $122,625
-------------------------------------------------------------------------------
</TABLE>
(1) Each Director serves as a Director or Trustee of 45
investment companies and portfolios for which CSAM serves as
investment adviser ("Fund Complex"), except for Mr. Garten,
who serves as Director or Trustee of 24 investment companies
and portfolios in the Fund Complex.
(2) Mr. Priest receives compensation as an affiliate of CSAM,
and, accordingly, receives no compensation from the
Portfolio or any other investment company advised by CSAM.
PORTFOLIO MANAGERS
RICHARD J. LINDQUIST, Managing Director, is head of high yield. He
joined in 1995 as a result of the acquisition of CS First Boston Investment
Management. Previously, he managed high yield portfolios at Prudential Insurance
Company of America and a high yield mutual fund at T. Rowe Price Associates. Mr.
Lindquist won the Lipper Analytical Services Award for the best-performing fixed
income mutual fund in 1988 and 1993. He holds a B.S. in Finance from Boston
College, where he also received the Raymond J. Aherne Award for the outstanding
Finance major, and an M.B.A. in Finance from the University of Chicago Graduate
School of Business. Mr. Lindquist is a Chartered Financial Analyst.
MISIA K. DUDLEY, Director, is a member of the high yield team
specializing in the credit analysis of aerospace, casino, cable and broadcasting
companies. She joined in 1995 as a result of the acquisition of CS First Boston
Investment Management. Previously, she analyzed recapitalized companies at
Stockbridge Partners; covered the casino, communications and entertainment
sectors at E.F. Hutton; and was a generalist analyst for the Value Line
Investment Survey. Ms. Dudley holds a B.A. in History from Yale University.
PHILIP L. SCHANTZ, Director, is a member of the high yield team
specializing in the credit analysis of consumer goods and services companies and
automobile suppliers. He joined in 2000 from Prudential Securities, where he was
a Senior Vice President and high yield analyst. Previously, he was a Vice
President and high yield analyst at Lazard Freres; a First Vice President and
co-head of the high yield securities group at E.F. Hutton; a Vice President and
38
<PAGE>
manager of the special lending group at Wells Fargo Bank; and a Second Vice
President and lending officer at The Chase Manhattan Bank. Mr. Schantz holds a
B.A. in Government from Lehigh University.
MARY ANN THOMAS, Director, is a member of the high yield team
specializing in the credit analysis of telecommunications, health care and
financial companies. Before joining in 1997, she was a Vice President and high
yield bond analyst with the Capital Management Group at the Prudential Insurance
Company of America. Ms. Thomas holds a B.A. in Economics and Political Science
from Yale University and an M.B.A. in Finance from the University of
Pennsylvania's Wharton School. She is a Chartered Financial Analyst.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CSAM will hold all of the shares of the Portfolio on the date the
Fund's Registration Statement becomes effective.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
CSAM, located at 466 Lexington Avenue, New York, New York 10017,
serves as investment adviser to the Portfolio 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 $737.5 billion of global assets under management and employs
approximately 63,000 people worldwide. The principal business address of Credit
Suisse is Paradeplatz 8, CH 8070, Zurich, Switzerland.
CSAM, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Portfolio in
accordance with the Portfolio's investment objective and stated investment
policies. CSAM makes investment decisions for the Portfolio and places orders to
purchase or sell securities on behalf of the Portfolio. CSAM also employs a
support staff of management personnel to provide services to the Fund and
furnishes the Fund with office space, furnishings and equipment. For its
services to the Portfolio, CSAM will be paid (before any voluntary waivers or
reimbursements) a monthly fee computed at an annual rate of .70% of average
daily net assets.
CSAMSI and PFPC serve as co-administrators to the Portfolio pursuant
to separate written agreements (the "CSAMSI Co-Administration Agreement" and the
"PFPC Co-Administration Agreements," respectively).
As co-administrator, CSAMSI provides shareholder liaison services to
the Portfolio, including responding to shareholder inquiries and providing
information on shareholder investments. CSAMSI also performs a variety of other
services, including furnishing certain executive and administrative services,
acting as liaison between the Portfolio and its various service providers,
furnishing corporate secretarial services, which include
39
<PAGE>
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual reports, assisting in the preparation of tax returns and
developing and monitoring compliance procedures for the Portfolio. As
compensation, the Portfolio pays CSAMSI a fee calculated at an annual rate of
.10% of the Portfolio's average daily net assets.
As a co-administrator, PFPC calculates the Portfolio's net asset
value, provides all accounting services for the Portfolio and assists in
related aspects of the Portfolio's operations. As compensation, the Portfolio
pays PFPC a fee calculated at an annual rate of .125% of the Portfolio's
average daily net assets. PFPC has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809.
CODE OF ETHICS
The Fund, CSAM and CSAMSI have each adopted a written Code of Ethics
(the "Code"), which permits personnel covered by the Code ("Covered Persons") to
invest in securities, including securities that may be purchased or held by the
Portfolio. The Code also contains provisions designed to address the conflicts
of interest that could arise from personal trading by advisory personnel,
including: (1) all Covered Persons must report their personal securities
transactions at the end of each quarter; (2) with certain limited exceptions,
all Covered Persons must obtain preclearance before executing any personal
securities transactions; (3) Covered Persons may not execute personal trades in
a security if there are any pending orders in that security by the Portfolio;
and (4) Covered Persons may not invest in initial public offerings.
The Board reviews the administration of the Code at least annually and
may impose sanctions for violations of the Code.
CUSTODIAN AND TRANSFER AGENT
Brown Brothers Harriman & Co. ("BBH") acts as the custodian for the
Portfolio pursuant to a Custodian Agreement (the "Custodian Agreement"). Under
the Custodian Agreement, BBH (a) maintains a separate account or accounts in the
name of the Portfolio, (b) holds and transfers portfolio securities on account
of the Portfolio, (c) accepts receipts and makes disbursements of money on
behalf of the Portfolio, (d) collects and receives all income and other payments
and distributions on account of the Portfolio's portfolio securities, and (e)
makes periodic reports to the Board of Directors concerning the Portfolio's
operations. BBH is authorized to select one or more banks or trust companies to
serve as sub-custodian on behalf of the Portfolio, provided that BBH remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Portfolio harmless from the negligent acts and omissions of any
sub-custodian. For its services to the Portfolio under the Custodian Agreement,
BBH receives a fee which is calculated based upon the average daily market value
of the Portfolio's assets, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Portfolio.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Portfolio pursuant to a Transfer Agency and
Service Agreement, under
40
<PAGE>
which State Street (i) issues and redeems shares of the Portfolio, (ii)
addresses and mails all communications by the Portfolio to record owners of
Portfolio shares, including reports to shareholders, dividend and distribution
notices and proxy material for its meetings of shareholders, (iii) maintains
shareholder accounts and, if requested, sub-accounts and (iv) makes periodic
reports to the Board concerning the transfer agent's operations with respect to
the Portfolio. 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.
DISTRIBUTION AND SHAREHOLDER SERVICING
Provident Distributors, Inc. ("PDI") serves as the distributor of the
Portfolio. PDI's principal business address is Four Falls Corporate Center, West
Conshohocken, Pennsylvania 19428-2961.
The Portfolio has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other industry professionals
(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 Portfolio'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 Portfolio
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 Portfolio in proper form will be priced at the
Portfolio'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 shares are purchased directly from the Portfolio.
Service Organizations may also be reimbursed for marketing costs. The Portfolio
may reimburse part of the Service Fee at rates it would normally pay to the
transfer agent for providing the services.
ORGANIZATION OF THE FUND
The Portfolio is a portfolio of an open-end series investment company,
the Fund, which has one class of common stock outstanding. The Fund was
incorporated on May 13, 1992 under the laws of the State of Maryland under the
name "Warburg, Pincus Institutional Fund, Inc." On May 11, 2000, the Fund
changed its name to "Credit Suisse Institutional Fund, Inc." The Fund's charter
authorizes the Board of Directors to issue sixteen billion full and fractional
shares of capital stock, par value $.001 per share. Shares of twelve series have
been classified, one of which constitutes the interests in the Portfolio.
The Portfolio is a non-diversified open-end management investment
company.
All shareholders of the Portfolio, upon liquidation, will participate
ratably in the Portfolio's net assets. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Directors can elect all Directors. Shares are transferable but have
no preemptive, conversion or subscription rights.
41
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Portfolio's shares is equal to its per share
net asset value. Under the 1940 Act, the Portfolio 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 Portfolio may also suspend or postpone the
recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)
If conditions exist which make payment of redemption proceeds wholly
in cash unwise or undesirable, the Portfolio may make payment wholly or partly
in securities or other investment instruments which may not constitute
securities as such term is defined in the applicable securities laws. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Portfolio is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
The Portfolio may, in certain circumstances and in its discretion,
accept securities as payment for the purchase of the Portfolio's shares from an
investor who has received such securities as redemption proceeds from another
Credit Suisse Institutional Fund.
EXCHANGE PRIVILEGE
Shareholders of the Portfolio may exchange all or part of their shares
for shares of another portfolio or other portfolios of the Fund organized by
CSAM in the future or another Credit Suisse Institutional Fund on the basis of
their relative net asset values per share at the time of exchange. The exchange
privilege enables shareholders to acquire shares in a fund or portfolio with a
different investment objective when they believe that a shift between funds or
portfolios is an appropriate investment decision.
If an exchange request is received by Credit Suisse Institutional
Funds or its agent prior to the close of regular trading on the NYSE, the
exchange will be made at the Portfolio'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 Portfolio may
refuse exchange purchases at any time without notice.
The exchange privilege is available to investors in any state in which
the shares being acquired may be legally sold. When an investor effects an
exchange of shares, the exchange is treated for federal income tax purposes as a
redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. Investors wishing to exchange shares of the
Portfolio for shares in another Credit Suisse Institutional Fund or portfolio of
the Fund should review the prospectus of the other fund or portfolio prior to
making an exchange. For further information regarding the exchange privilege or
to obtain a current
42
<PAGE>
prospectus for another Credit Suisse Institutional Fund or portfolio of the
Fund, an investor should contact Credit Suisse Institutional Funds at
1-800-222-8977.
The Portfolio reserves the right to refuse exchange purchases by any
person or group if, in CSAM's judgment, the Portfolio 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 Portfolio receives or
anticipates receiving large exchange orders at or about the same time and when a
pattern of exchanges within a short period of time (often associated with a
marketing timing strategy) is discerned. The Portfolio reserves the right to
terminate or modify the exchange privilege at any time upon 30 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Portfolio. Each prospective shareholder is urged to consult his
own tax adviser with respect to the specific federal, state, local and foreign
tax consequences of investing in the Portfolio. 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 PORTFOLIO AND ITS INVESTMENTS
The Portfolio intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Code. To so qualify,
the Portfolio 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, gains from the sale or other disposition of stock or
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 (the "Asset Diversification Requirement") so that, at the
end of each quarter of the Portfolio's taxable year, (i) at least 50% of the
market value of the Portfolio's assets is represented by cash, securities of
other regulated investment companies, United States government securities and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Portfolio'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 United States government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the
Portfolio controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses.
As a regulated investment company, the Portfolio will not be subject
to United States federal income tax on its investment company taxable income
(I.E., income other than any excess of its net realized long-term capital gains
over its net realized short-term capital losses ("net realized capital gains"))
or on it net realized 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, plus or minus certain other adjustments as
specified in the Code, is distributed to its shareholders, but will be subject
to tax at regular corporate rates on any taxable
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income or gains that it does not distribute. Any dividend declared by the
Portfolio 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 Portfolio not later than such December 31, provided
that such dividend is actually paid by the Portfolio during January of the
following calendar year.
The Portfolio intends to distribute at least annually to its
shareholders substantially all of its investment company taxable income. The
Board will determine annually whether to distribute any net realized capital
gains. The Portfolio currently expects to distribute any such excess annually
to its shareholders. However, if the Portfolio retains for investment an
amount equal to all or a portion of its net realized capital gains, it will
be subject to a corporate tax (currently at a rate of 35%) on the amount
retained. In that event, the Portfolio will designate such retained amounts
as undistributed capital gains in a notice to its shareholders who (a) will
be required to include in income for United States federal income tax
purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate
shares of the 35% tax paid by the Portfolio 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
Portfolio upon filing appropriate returns or claims for refund with the
Internal Revenue Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on the Portfolio to the
extent the Portfolio 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 Portfolio 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. The Portfolio
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.
If, in any taxable year, the Portfolio 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 Portfolio in
computing its taxable income. In addition, the Portfolio's distributions, to the
extent derived from the Portfolio's current or accumulated earnings and profits,
would constitute dividends (eligible for the corporate dividends-received
deduction) which are taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If the Portfolio 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 Portfolio failed to qualify as a
regulated investment
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company for a period greater than one taxable year, the Portfolio 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 Portfolio had been liquidated) with respect to certain of its assets in
order to qualify as a regulated investment company in a subsequent year.
The Portfolio'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 Portfolio (I.E., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Portfolio and defer Portfolio losses. These rules could therefore
affect the character, amount and timing of distributions to shareholders. These
provisions also (a) will require the Portfolio 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 Portfolio to recognize income without receiving cash with
which to pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Portfolio
will monitor its transactions, will make the appropriate tax elections and will
make the appropriate entries in its books and records when it engages in a short
sale against-the-box or acquires any foreign currency, forward contract, option,
futures contract or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Portfolio as a regulated investment
company.
The Portfolio's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make current interest
payments, although a portion of the difference a zero coupon security's face
value and its purchase price is imputed as interest income to the Portfolio each
year even though the Portfolio receives no cash distribution until maturity.
Under the U.S. federal tax laws, the Portfolio will not be subject to tax on
this income if it pays dividends to its shareholders substantially equal to all
the income received from, or imputed with respect to, its investments during the
year, including its zero coupon securities. These dividends ordinarily will
constitute taxable income to the shareholders of the Portfolio.
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Portfolio 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 Portfolio to its shareholders.
Additional charges in the nature of interest may be imposed on the Portfolio in
respect of deferred taxes arising from such distributions or gains. If the
Portfolio 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
Portfolio 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 Portfolio, and such amounts would be subject to the 90%
and excise tax distribution requirements described above. In order to make this
election, the Portfolio would be required to obtain certain annual information
from the PFICs in which it invests, which may be difficult or impossible to
obtain. If the Portfolio were able to make the election described in this
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paragraph, the Portfolio would not be able to treat any portion of the long-term
capital gains included in income pursuant to the election as eligible for the
20% maximum capital gains rate.
Alternatively, the Portfolio may make mark-to-market elections that
will result in the Portfolio being treated as if it had sold and repurchased all
of the PFIC stock at the end of each year. In such case, the Portfolio 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 Portfolio,
unless revoked with the consent of the IRS. By making the election, the
Portfolio could potentially ameliorate the adverse tax consequences with respect
to its ownership of shares in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it receives from PFICs and
its proceeds from dispositions of PFIC stock. The Portfolio may have to
distribute this "phantom" income and gain to satisfy the 90% distribution
requirement and to avoid imposition of the 4% excise tax. The Portfolio will
make the appropriate tax elections, if possible, and take any additional steps
that are necessary to mitigate the effect of these rules.
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income and distributions of net realized
short-term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net-realized
long-term capital gains, if any, that the Portfolio 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
Portfolio. Dividends and distributions paid by the Portfolio (except for the
portion thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Portfolio) will not qualify for the deduction for dividends
received by corporations. Distributions in excess of the Portfolio'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 Portfolio, and as a capital gain thereafter (if the shareholder holds his
shares of the Portfolio as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If the Portfolio 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 Portfolio'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 Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Portfolio may be
46
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required to pay dividends based on anticipated earnings, and shareholders may
receive dividends in an earlier year than would otherwise be the case.
SALES OF SHARES
Upon the sale or exchange of his shares, a shareholder will realize a
taxable gain or loss equal to the difference between the amount realized and his
basis in his shares. Such gain or loss will be treated as capital gain or loss,
if the shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Portfolio, within a 61-day
period beginning 30 days before and ending 30 days after the disposition of the
shares. In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a shareholder on the sale of a
Portfolio 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
Income received by the Portfolio from non-U.S. sources may be subject
to withholding and other taxes imposed by other countries. The Portfolio may
elect for U.S. income tax purposes to treat foreign income taxes paid by it as
paid by its shareholders if: (i) the Portfolio qualifies as a regulated
investment company, (ii) certain asset and distribution requirements are
satisfied, and (iii) more than 50% of the Portfolio's total assets at the close
of its taxable year consists of stock or securities of foreign corporations. The
Portfolio may qualify for and make this election (the "Foreign Tax Credit
Election") in some, but not necessarily all, of its taxable years. If the
Portfolio were to make such an election, shareholders of the Portfolio would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, the Portfolio will report to its shareholders
the amount per share of such foreign income taxes 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.
It is expected that the Portfolio will not be eligible to make the
Foreign Tax Credit Election. In the absence of such an election, the foreign
taxes paid by a portfolio will reduce its investment company taxable income, and
distributions of investment company taxable income received by the Portfolio
from non-U.S. sources will be treated as United States source income when
distributed to shareholders.
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BACKUP WITHHOLDING
The Portfolio 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 Portfolio with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
NOTICES
Shareholders will be notified annually by the Portfolio 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 Portfolio and Its Investments") made by the Portfolio to its
shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Portfolio's taxable year
regarding the United States federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are treated as
having been paid) by the Portfolio 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
THE PORTFOLIO 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 PORTFOLIO.
DETERMINATION OF PERFORMANCE
TOTAL RETURN
From time to time, the Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. 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 Portfolio's
operations or on a year-by-year, quarterly or current year-to-date basis).
Each Portfolio that advertises its "average annual total return"
computes such return separately for each class of shares by determining the
average annual compounded rate of return during specified periods that
equates the initial amount invested to the ending redeemable value of such
investment according to the following formula:
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P(1+T) TO THE POWER OF n = ERV
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the end
of the applicable period (or fractional portion
thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years
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 such return may not be representative of the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
aggregate total return figures for various periods, representing the cumulative
change in value of an investment in the Portfolio for the specific period.
Aggregate and average total returns may be shown by means of schedules, charts
or graphs, and may indicate various components of total return (I.E., change in
value of initial investment, income dividends and capital gain distributions).
The Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar investment
objectives. The Portfolio 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 Portfolio's total return in longer
market cycles.
The Portfolio's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently, any
given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information may
be useful as a basis for comparison with other investment alternatives. However,
the Portfolio's performance will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time.
The Portfolio may compare its performance with (i) that of other
mutual funds with similar investment objectives and policies, which may be based
on the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or (ii) other
appropriate indexes of investment securities or with data developed by CSAM
derived from such indexes. The Portfolio may also include evaluations of the
Portfolio 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, the Portfolio may from time to time
compare its expense ratio 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.
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In reports or other communications to investors or in advertising, the
Portfolio may also describe the general biography or work experience of the
portfolio managers of the Portfolio and may include quotations attributable to
the portfolio managers describing approaches taken in managing the Portfolio's
investments, research methodology underlying stock selection or the Portfolio's
investment objective. In addition, the Portfolio and its portfolio managers may
render updates of Portfolio activity, which may include a discussion of
significant portfolio holdings; analysis of holdings by industry, country,
credit quality and other characteristics; and comparison and analysis of the
Portfolio with respect to relevant market and industry benchmarks. The Portfolio
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.
YIELD
The Portfolio may advertise a 30-day (or one month) standard yield as
described in the Prospectus. Such yields are calculated in accordance with the
method prescribed by the SEC for mutual funds:
YIELD = 2[(a - b +1) to the power of 6 - 1)
-----
cd
Where: a = dividends and interest earned by a Fund during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares outstanding during the
period, entitled to receive dividends; and
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Portfolio is recognized by accruing 1/360 of the stated dividend rate of
the security each day that the security is in the Portfolio. Except as noted
below, interest earned on debt obligations held by the Portfolio is calculated
by computing the yield to maturity of each obligation based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest)
and dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held by the Portfolio. For purposes of this calculation, it is
assumed that each month contains 30 days. The maturity of an obligation with a
call provision is the next call date
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on which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market value of such debt obligations. Expenses accrued for the period
(variable "b" in the formula) include all recurring fees charged by the
Portfolio to all shareholder accounts in proportion to the length of the base
period and the Portfolio's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in the
formula).
With respect to receivables-backed obligations that are expected to be
subject to monthly payments of principal and interest ("pay-downs"), (i) gain or
loss attributable to actual monthly pay downs are accounted for as an increase
or decrease to interest income during the period, and (ii) the Portfolio may
elect either (a) to amortize the discount and premium on the remaining security,
based on the cost of the security, to the weighted average maturity date, if
such information is available, or to the remaining term of the security, if any,
if the weighted average date is not available or (b) not to amortize discount or
premium on the remaining security.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Fund. The financial statements that are incorporated by
reference in this STATEMENT OF ADDITIONAL INFORMATION have been audited by PwC,
and have been included herein in reliance upon the report of such firm of
independent accountants given upon their authority as experts in accounting and
auditing.
Willkie Farr & Gallagher serves as counsel for the Fund and provides
legal services from time to time for CSAM and CSAMSI.
FINANCIAL STATEMENT
The Portfolio's financial statement follows the Report of Independent
Accountants.
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APPENDIX A
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
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 it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Although it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in higher
rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and
A-1
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protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt rated
D.
To provide more detailed indications of credit quality, the ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While
A-2
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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 comprise the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-3
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MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-4
<PAGE>
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED MAY 26, 2000
STATEMENT OF ADDITIONAL INFORMATION
[ ], 2000
CREDIT SUISSE INSTITUTIONAL FUND, INC.
WARBURG PINCUS CASH RESERVE PORTFOLIO
This STATEMENT OF ADDITIONAL INFORMATION provides information about
Credit Suisse Institutional Fund, Inc. (the "Fund"), relating to the Cash
Reserve Portfolio (the "Portfolio") that supplements information that is
contained in the Prospectus for the Portfolio dated [ ], 2000, as amended from
time to time (the "PROSPECTUS"), and is incorporated by reference in its
entirety into that PROSPECTUS.
This STATEMENT OF ADDITIONAL INFORMATION is not itself a prospectus
and no investment in shares of the Portfolio should be made solely upon the
information contained herein. Copies of the PROSPECTUS and information regarding
the Portfolio's current performance and the status of shareholder accounts may
be obtained by writing or telephoning:
Credit Suisse Institutional Funds
P.O. Box 9030
Boston, MA 02205-9030
1-800-222-8977
<PAGE>
CONTENTS
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INVESTMENT OBJECTIVE..........................................................1
GENERAL.......................................................................1
Price and Portfolio Maturity.........................................1
Portfolio Quality and Diversification................................1
INVESTMENT POLICIES...........................................................2
Bank Obligations.....................................................2
Variable Rate Master Demand Notes....................................2
Government Securities................................................3
When-Issued Securities...............................................3
Repurchase Agreements................................................4
Reverse Repurchase Agreements and Borrowings.........................4
OTHER INVESTMENT LIMITATIONS..................................................4
PORTFOLIO VALUATION...........................................................6
PORTFOLIO TRANSACTIONS AND TURNOVER...........................................6
MANAGEMENT OF THE FUND........................................................7
Officers and Board of Directors......................................7
Estimated Directors' Compensation...................................11
Portfolio Managers..................................................11
Control Persons and Principal Holders of Securities.................11
Investment Adviser and Co-Administrators............................11
Custodian and Transfer Agent........................................12
Distribution and Shareholder Servicing..............................13
Organization of the Fund............................................13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................14
EXCHANGE PRIVILEGE...........................................................14
ADDITIONAL INFORMATION CONCERNING TAXES......................................15
The Portfolio and Its Investments...................................15
DETERMINATION OF YIELD.......................................................18
INDEPENDENT ACCOUNTANTS AND COUNSEL..........................................18
FINANCIAL STATEMENT..........................................................18
APPENDIX....................................................................A-1
Description of Commercial Paper Ratings............................A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE
The following information supplements the discussion of the
Portfolio's investment objective and policies in the PROSPECTUS. There are no
assurances that the Portfolio will achieve its investment objective.
The investment objective of the Portfolio is to provide investors with
high current income consistent with liquidity and stability of principal.
Unless otherwise indicated, the Portfolio is permitted, but not
obligated, to engage in the following investment strategies, subject to any
percentage limitations set forth below.
The Portfolio is not obligated to pursue any of the following
strategies and does not represent that these techniques are available now or
will be available at any time in the future.
GENERAL
Price and Portfolio Maturity. The Portfolio invests only in securities
which are purchased with and payable in U.S. dollars and which have (or,
pursuant to regulations adopted by the Securities and Exchange Commission (the
"SEC"), are deemed to have) remaining maturities of 397 calendar days or less at
the date of purchase by the Portfolio. For this purpose, variable rate master
demand notes (as described below), which are payable on demand, or, under
certain conditions, at specified periodic intervals not exceeding 397 calendar
days, in either case on not more than 30 days' notice, will be deemed to have
remaining maturities of 397 calendar days or less. The Portfolio maintains a
dollar-weighted average portfolio maturity of 90 days or less. The Portfolio
follows these policies to maintain a constant net asset value of $1.00 per
share, although there is no assurance that it can do so on a continuing basis.
Portfolio Quality and Diversification. The Portfolio will limit its
investments to securities that its Board determines present minimal credit risks
and which are "Eligible Securities" at the time of acquisition by the Portfolio.
The term Eligible Securities includes securities rated by the "Requisite NRSROs"
in one of the two highest short-term rating categories, securities of issuers
that have received such ratings with respect to other short-term debt securities
and comparable unrated securities. "Requisite NRSROs" means (i) any two
nationally recognized statistical rating organizations ("NRSROs") that have
issued a rating with respect to a security or class of debt obligations of an
issuer, or (ii) one NRSRO, if only one NRSRO has issued a rating with respect to
such security or issuer at the time that the Portfolio acquires the security.
The Portfolio may purchase securities that are unrated at the time of purchase
that the Portfolio's investment adviser (the "Adviser") deems to be of
comparable quality to rated securities that the Portfolio may purchase. The
NRSROs currently designated as such by the SEC are Standard & Poor's Ratings
Services ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Services, Inc., Duff and Phelps, Inc. and IBCA Limited and its affiliate, IBCA,
Inc. A discussion of the ratings categories of the NRSROs is contained in the
Appendix to this STATEMENT OF ADDITIONAL INFORMATION.
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The Portfolio is subject to certain credit quality, maturity and
diversification requirements under Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"), as operating policies. Under these policies,
there are two tiers of Eligible Securities, first and second tier, based on
their ratings by NRSROs or, if the securities are unrated, on determinations by
the Adviser. These policies generally restrict the Portfolio from investing more
than 5% of its assets in second tier securities and limit to 5% of assets the
portion that may be invested in any one issuer.
INVESTMENT POLICIES
BANK OBLIGATIONS. The Portfolio may purchase bank obligations,
including United States dollar-denominated instruments issued or supported by
the credit of the United States or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. While the
Portfolio will invest in obligations of foreign banks or foreign branches of
United States banks only if the Adviser deems the instrument to present minimal
credit risks, such investments may nevertheless entail risks that are different
from those of investments in domestic obligations of United States banks due to
differences in political, regulatory and economic systems and conditions. Such
risks include future political and economic developments, the possible
imposition of withholding taxes on interest income, possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. The Portfolio may also make interest-bearing savings deposits in
commercial and savings banks.
VARIABLE RATE MASTER DEMAND NOTES. The Portfolio may also purchase
variable rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Although the notes are not normally traded and there may be no
secondary market in the notes, the Portfolio may demand payment of principal and
accrued interest at any time and may resell the note at any time to a third
party. In the event an issuer of a variable rate master demand note defaulted on
its payment obligation, the Portfolio might be unable to dispose of the note
because of the absence of a secondary market and might, for this or other
reasons, suffer a loss to the extent of the default.
Variable rate master demand notes held by the Portfolio may have
maturities of more than thirteen months, provided: (i) the Portfolio is entitled
to payment of principal and accrued interest upon not more than seven days'
notice and (ii) the rate of interest on such notes is adjusted automatically at
periodic intervals which may extend up to thirteen months. In determining the
Portfolio's average weighted portfolio maturity and whether a variable rate
master demand note has a remaining maturity of thirteen months or less, each
note will be deemed by the Portfolio to have a maturity equal to the longer of
the period remaining until its next interest rate adjustment or the period
remaining until the principal amount owed can be recovered through demand. In
determining whether an unrated variable rate master demand note is of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service or when purchasing variable rate master demand notes, the Adviser
will consider the earning power, cash flow and other liquidity ratios of the
issuer of the note and will continuously monitor its financial condition. In
addition, when necessary to ensure that a note is
2
<PAGE>
of "high quality," the Portfolio will require that the issuer's obligation to
pay the principal of the note be backed by an unconditional bank letter of line
of credit, guarantee or commitment to lend.
In the event an issuer of a variable rate master demand note defaults
on its payment obligation, the Portfolio might be unable to dispose of the note
because of the absence of a secondary market and might, for this or other
reasons, suffer a loss to the extent of the default. However, the Portfolio will
invest in such instruments only where the Adviser believes that the risk of such
loss is minimal. In determining average weighted portfolio maturity, a variable
rate master demand note will be deemed to have a maturity equal to the longer of
the period remaining to the next interest rate adjustment or the demand note
period.
GOVERNMENT SECURITIES. Government Securities in which the Portfolio
may invest include Treasury Bills, Treasury Notes and Treasury Bonds; other
obligations that are supported by the full faith and credit of the United States
Treasury, such as Government National Mortgage Association pass-through
certificates; obligations that are supported by the right of the issuer to
borrow from the Treasury, such as securities of Federal Home Loan Banks; and
obligations that are supported only by the credit of the instrumentality, such
as Federal National Mortgage Association bonds.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. The Portfolio expects that commitments to
purchase when-issued securities will not exceed 25% of the value of its total
assets absent unusual market conditions, and that a commitment by the Portfolio
to purchase when-issued securities will generally not exceed 45 days. The
Portfolio does not intend to purchase when-issued securities for speculative
purposes but only in furtherance of its investment objective.
When the Portfolio agrees to purchase when-issued securities, its
custodian will set aside cash or liquid securities in a segregated account equal
to the amount of the commitment. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Portfolio 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 Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Portfolio will set aside cash and liquid assets to satisfy its
purchase commitments in the manner described, the Portfolio's liquidity and
ability to manage its portfolio might be affected in the event its commitments
to purchase when-issued securities ever exceeded 25% of the value of its assets.
3
<PAGE>
When the Portfolio engages in when-issued transactions, it relies on
the seller to consummate the trade. Failure of the seller to do so may result in
the Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase money
market instruments from financial institutions such as banks and broker-dealers
subject to the seller's agreement to repurchase them at an agreed-upon date and
price ("repurchase agreements"). The repurchase price generally equals the price
paid by the Portfolio plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the securities
underlying the repurchase agreement). Default by a seller, if the Portfolio is
delayed or prevented from exercising its rights to dispose of the collateral
securities, could expose the Portfolio to possible loss, including the risk of a
possible decline in the value of the underlying securities during the period
while the Portfolio seeks to assert its rights thereto. Repurchase agreements
are considered to be loans by the Portfolio under the 1940 Act. The seller under
a repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements will be held by
the Portfolio's custodian or in the Federal Reserve/Treasury book-entry system
or another authorized securities depository.
REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. The Portfolio may borrow
funds for temporary purposes and not for leverage by agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed-upon date and price. At the time the
Portfolio enters into such an arrangement (a "reverse repurchase agreement"), it
will place in a segregated custodial account cash or liquid securities having a
value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of those securities. Reverse repurchase agreements are considered to be
borrowings by the Portfolio under the 1940 Act.
OTHER INVESTMENT LIMITATIONS
The investment limitations numbered 1 through 6 may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 7 through 10 may
be changed by a vote of the Fund's Board of Directors (the "Board") at any time.
If a percentage restriction (other than the percentage limitation set forth in
No. 2) is adhered to at the time of an investment, a later increase or decrease
in the percentage of assets resulting from a change in the values of portfolio
securities or in the amount of the Portfolio's assets will not constitute a
violation of such restriction.
4
<PAGE>
The Portfolio may not:
1. Purchase the securities of any issuer if as a result more than 5% of
the value of the Portfolio's assets would be invested in the
securities of such issuer, except that this 5% limitation does not
apply to securities issued or guaranteed by the United States
government, its agencies or instrumentalities, and except that up to
25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation.
2. Borrow money, issue senior securities or enter into reverse repurchase
agreements except for temporary or emergency purposes and not for
leveraging, and then in amounts not in excess of 10% of the value of
the Portfolio's assets at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Portfolio's assets at the
time of such borrowing. Whenever borrowings exceed 5% of the value of
the Portfolio's total assets, the Portfolio will not make any
additional investments.
3. Purchase any securities which would cause more than 25% of the value
of the Portfolio'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 obligations issued or guaranteed by the United
States, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies,
instrumentalities or political sub-divisions or certificates of
deposit, time deposits, savings deposits and bankers' acceptances.
4. Make loans except that the Portfolio may lend portfolio securities,
may purchase or hold debt obligations in accordance with its
investment objective, policies and limitations and may enter into
repurchase agreements.
5. Underwrite any issue of securities except to the extent that the
purchase of debt obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and
limitations may be deemed to be underwriting.
6. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may
purchase securities issued by companies that invest in real estate or
interests therein.
7. Write or sell puts, calls, straddles, spreads or combinations thereof.
8. Purchase securities on margin, make short sales of securities or
maintain a short position.
9. Invest more than 10% of the value of the Portfolio 's total 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 after
notice by the Portfolio, variable rate master demand notes
5
<PAGE>
providing for settlement upon maturities longer than seven days and
savings accounts which require more than seven days' notice prior to
withdrawal shall be considered illiquid securities.
10. Invest in oil, gas or mineral leases.
PORTFOLIO VALUATION
The Portfolio's securities are valued on the basis of amortized cost.
Under this method, the Portfolio values a portfolio security at cost on the date
of purchase and thereafter assumes a constant value of the security for purposes
of determining net asset value, which normally does not change in response to
fluctuating interest rates. Although the amortized cost method seems to provide
certainty in portfolio valuation, it may result in periods during which values,
as determined by amortized cost, are higher or lower than the amount the
Portfolio would receive if it sold the securities. In connection with amortized
cost valuation, the Board has established procedures that are intended to
stabilize the Portfolio's net asset value per share for purposes of sales and
redemptions at $1.00. These procedures include review by the Board, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
Portfolio's net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the amount of any deviations from the
Portfolio's $1.00 amortized cost price per share may result in material dilution
or other unfair results to investors or existing shareholders, it will take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the
Portfolio's average portfolio maturity; withholding or reducing dividends;
redeeming shares in kind; reducing the number of the Portfolio's outstanding
shares without monetary consideration; or utilizing a net asset value per share
determined by using available market quotations.
PORTFOLIO TRANSACTIONS AND TURNOVER
Credit Suisse Asset Management, LLC, the Portfolio's investment
adviser ("CSAM"), is responsible for establishing, reviewing, and, where
necessary, modifying the Portfolio's investment program to achieve its
investment objective and will select specific portfolio investments and effect
transactions for the Portfolio. Purchases and sales of portfolio securities are
usually principal transactions without brokerage commissions effected directly
with the issuer or with dealers who specialize in money market instruments. CSAM
seeks to obtain the best net price and the most favorable execution of orders.
To the extent that the execution and price offered by more than one dealer are
comparable, CSAM may, in its discretion, effect transactions in portfolio
securities with dealers who provide the Portfolio with research advice or other
services.
Investment decisions for the Portfolio 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
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
6
<PAGE>
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
Portfolio. In some instances, this investment procedure may adversely affect the
price paid or received by the Portfolio or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, CSAM may aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for such other investment clients in order to obtain best execution.
In no instance will portfolio securities be purchased from or sold to
CSAM, Credit Suisse Asset Management Securities, Inc. ("CSAMSI") or Credit
Suisse First Boston ("CS First Boston") or any affiliated person of such
companies, except pursuant to an exemption received from the SEC. In addition,
the Portfolio will not give preference to any institutions with whom the Fund on
behalf of the Portfolio enters into distribution or shareholder servicing
agreements concerning the provision of distribution services or support
services.
The Portfolio does not intend to seek profits through short-term
trading. The Portfolio's annual portfolio turnover will be relatively high but
its portfolio turnover is not expected to have a material effect on its net
income. Portfolio turnover is expected to be zero for regulatory reporting
purposes.
MANAGEMENT OF THE FUND
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of the Fund are managed by the Board of
Directors in accordance with the laws of the State of Maryland. The Board elects
officers who are responsible for the day-to-day operations of the Fund and who
execute policies authorized by the Board. Under the Fund's Charter, the Board
may classify or reclassify any unissued shares of the Fund into one or more
additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard H. Francis (68) Director
40 Grosvenor Road Currently retired; Executive Vice President and Chief
Short Hills, New Jersey 07078 Financial Officer of Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group Incorporated;
Director/Trustee of other CSAM-advised investment
companies.
7
<PAGE>
Jack W. Fritz (73) Director
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 and operators of radio stations) since 1987; Director of
Advo, Inc. (direct mail advertising); Director/Trustee of
other CSAM-advised investment companies.
Jeffrey E. Garten (53) DIRECTOR
Box 208200 Dean of Yale School of Management and William S. Beinecke
New Haven, Connecticut 06520-8200 Professor in the Practice of International Trade and Finance;
Undersecretary of Commerce for International Trade
from November 1993 to October 1995; Professor at Columbia
University from September 1992 to November 1993; Director of Aetna,
Inc.; Director of Calpine Energy Corporation; Director/Trustee of
other CSAM-advised investment companies.
James S. Pasman, Jr. (69) Director
29 The Trillium Currently retired; President and Chief Operating Officer
Pittsburgh, Pennsylvania 15238 of National InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from April 1989 to March
1991; Director of Education Management Corp., Tyco
International Ltd.; Trustee, BT Insurance Funds Trust;
Director/Trustee of other CSAM-advised investment companies.
William W. Priest* (58) Chairman of the Board
466 Lexington Avenue Chairman- Management Committee, Chairman since 2000,
New York, New York 10017 Managing Director of CSAM since 1990, Chief Executive
Officer of CSAM from 1990 to 2000; Director/Trustee of
other CSAM-advised investment companies.
-------------------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
8
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Steven N. Rappaport (51) Director
40 East 52nd Street, President of Loanet, Inc. (on-line accounting service)
New York, New York 10022 since 1997; Executive Vice President of Loanet, Inc. from
1994 to 1997; Director, President, North American
Operations, and former Executive Vice President from 1992 to
1993 of Worldwide Operations of Metallurg Inc.; Executive Vice
President, Telerate, Inc. from 1987 to 1992; Partner in the
law firm of Hartman & Craven until 1987; Director/Trustee of
other Warburg Pincus Funds and other CSAM-advised investment companies.
Alexander B. Trowbridge (70) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) since January 1990; Director or Trustee of
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 CSAM-advised investment companies.
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 CSAM-advised investment companies.
Hal Liebes, Esq. (35) Vice President and Secretary
466 Lexington Avenue Managing Director and General Counsel of CSAM; Associated
New York, New York 10017 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 and other CSAM-advised
investment companies.
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Michael A. Pignataro (40) Treasurer and Chief Financial Officer
466 Lexington Avenue Vice President and Director of Fund Administration of
New York, New York 10017 CSAM; Associated with CSAM since 1984; Officer of other
CSAM-advised investment companies.
Stuart J. Cohen, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM; Associated with
New York, New York 10017-3147 CSAM since Credit Suisse acquired the Funds' predecessor
adviser in July 1999; with the predecessor adviser since 1997;
Associated with the law firm of Gordon Altman Butowsky
Weitzen Shalov & Wein from 1995 to 1997; Officer of other
CSAM-advised investment companies.
Rocco A. DelGuercio (37) Assistant Treasurer
466 Lexington Avenue Assistant Vice President and Administrative Officer of
New York, New York 10017 CSAM; Associated with CSAM since June 1996; Assistant
Treasurer, Bankers Trust Corp. -- Fund Administration from
March 1994 to June 1996; Officer of other CSAM-advised investment
companies.
</TABLE>
No employee of CSAM, CSAMSI, PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund for
acting as an officer or director of the Fund. Each Director who is not a
director, trustee, officer or employee of CSAM, CSAMSI, PFPC or any of their
affiliates receives the following annual and per-meeting fees:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
FEE FOR EACH BOARD FEE FOR EACH AUDIT
ANNUAL FEE AS DIRECTOR MEETING ATTENDED COMMITTEE MEETING ATTENDED
----------------------------------------------------------------------------------------
<S> <C> <C>
$750 $250 $250*
----------------------------------------------------------------------------------------
</TABLE>
-------------------
* The Chairman of the Audit Committee receives $325 for each Audit Committee
Meeting attended.
Each Director is reimbursed for expenses incurred in connection with
his attendance at Board meetings.
10
<PAGE>
ESTIMATED DIRECTORS' COMPENSATION
<TABLE>
<CAPTION>
Total Compensation from all
Compensation From Investment Companies
Name of Director the Fund in Fund Complex(1)
---------------- -------- ------------------
<S> <C> <C>
William W. Priest(2) None None
Richard H. Francis $2,500 $112,500
Jack W. Fritz $2,500 $112,500
Jeffrey E. Garten $2,500 $60,000
James S. Pasman, Jr. $2,500 $112,500
Steven N. Rappaport $2,500 $112,500
Alexander B. Trowbridge $2,725 $122,625
</TABLE>
-------------------
1 Each Director serves as a Director or Trustee of 45 investment companies
and portfolios for which CSAM serves as investment adviser ("Fund
Complex"), except for Mr. Garten, who serves as Director or Trustee of 24
investment companies and portfolios in the Fund Complex.
2 Mr. Priest receives compensation as an affiliate of CSAM, and, accordingly,
receives no compensation from any Fund or any other investment company
advised by CSAM.
PORTFOLIO MANAGERS
Jose A. ("Tony") Rodriguez, Director, is responsible for the
management of investment-grade corporate debt. He joined in 1999 from Prudential
Investments, where he was a Managing Director and senior portfolio manager for
high-grade corporate bonds. Previously, he managed funds investing in high-grade
corporates, high yield, dollar-denominated emerging market debt and money market
instruments at Prudential; and managed short-term investment portfolios and all
securities lending activities at General Electric Investment Corporation. Mr.
Rodriguez holds a B.A. in Economics from Lafayette College and an M.B.A. in
Finance from New York University's Stern School of Business. He is fluent in
Spanish.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Credit Suisse Asset Management International, an affiliate of CSAM,
will hold all of the shares of the Portfolio on the date the Fund's Registration
Statement becomes effective.
INVESTMENT ADVISER AND CO-ADMINISTRATORS
CSAM, located at 466 Lexington Avenue, New York, New York 10017,
serves as investment adviser to the Portfolio pursuant to a written agreement
(the "Advisory Agreement"). CSAM is an indirect wholly-owned U.S. subsidiary of
Credit Suisse ("Credit Suisse"). Credit Suisse is a global financial services
company, providing a comprehensive range of banking and insurance products.
Active on every continent and in all major financial centers, Credit Suisse
11
<PAGE>
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 $737.5 billion of global
assets under management and employs approximately 63,000 people worldwide. The
principal business address of Credit Suisse is Paradeplatz 8, CH 8070, Zurich,
Switzerland.
CSAM, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Portfolio in
accordance with the Portfolio's investment objective and stated investment
policies. CSAM makes investment decisions for the Portfolio and places orders to
purchase or sell securities on behalf of the Portfolio. CSAM also employs a
support staff of management personnel to provide services to the Fund and
furnishes the Fund with office space, furnishings and equipment.
For the services provided pursuant to the Advisory Agreement, CSAM is
entitled to receive a fee, computed daily and payable monthly, at the annual
rate of .10% of the value of the Portfolio's average daily net assets. CSAM and
the Portfolio's co-administrators may voluntarily waive a portion of their fees
from time to time and temporarily limit the expenses to be paid by the
Portfolio.
PFPC serves as administrator to the Portfolio pursuant to a separate
written agreement. As administrator, PFPC calculates the Portfolio's net asset
value, provides all accounting services for the Portfolio and assists in related
aspects of the Portfolio's operations. As compensation, the Portfolio pays PFPC
a fee calculated at an annual rate of .10% of the Portfolio's first $500 million
in average daily net assets, .075% of the next $1 billion in average daily net
assets, and .05% of average daily net assets over $1.5 billion. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN AND TRANSFER AGENT
Brown Brothers Harriman & Co. ("BBH") acts as the custodian for the
Portfolio pursuant to a Custodian Agreement (the "Custodian Agreement"). Under
the Custodian Agreements, BBH (a) maintains a separate account or accounts in
the name of the Portfolio, (b) holds and transfers portfolio securities on
account of the Portfolio, (c) accepts receipts and makes disbursements of money
on behalf of the Portfolio, (d) collects and receives all income and other
payments and distributions on account of the Portfolio's portfolio securities,
and (e) makes periodic reports to the Board of Directors concerning the
Portfolio operations. BBH is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Portfolio, provided that
BBH remains responsible for the performance of all its duties under the
Custodian Agreement and hold the Portfolio harmless from the negligent acts and
omissions of any sub-custodian. For its services to the Portfolio under the
Custodian Agreement, BBH receives a fee which is calculated based upon the
average daily market value of the Portfolio's assets, exclusive of transaction
charges and out-of-pocket expenses, which are also charged to the Portfolio.
12
<PAGE>
State Street Bank and Trust Company ("State Street") has agreed to
serve as the Portfolio's shareholder servicing, transfer and dividend disbursing
agent pursuant to a Transfer Agency and Service Agreement, under which State
Street (i) issues and redeems shares of the Portfolio, (ii) addresses and mails
all communications by the Portfolio to record owners of the Portfolio shares,
including reports to shareholders, dividend and distribution notices and proxy
material for its meetings of shareholders, (iii) maintains shareholder accounts
and, if requested, sub-accounts, and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Portfolio. State
Street has delegated to Boston Financial Data Services, Inc. ("BFDS"), a 50%
owned subsidiary, responsibility for most shareholder servicing functions. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.
DISTRIBUTION AND SHAREHOLDER SERVICING
[Provident Distributors, Inc. ("PDI") serves as the distributor of the
Portfolio. PDI's principal business address is Four Falls Corporate Center, West
Conshohocken, Pennsylvania 19428-2961.]
The Portfolio has authorized certain broker-dealers, financial
institutions, recordkeeping organizations and other industry professionals
(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 Portfolio'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 Portfolio
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 Portfolio in proper form will be priced at the
Portfolio'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 shares are purchased directly from the Portfolio.
Service Organizations may also be reimbursed for marketing costs. The Portfolio
may reimburse part of the Service Fee at rates they would normally pay to the
transfer agent for providing the services.
ORGANIZATION OF THE FUND
The Portfolio is a portfolio of an open-end series investment company,
the Fund, which has one class of common stock outstanding. The Fund was
incorporated on May 13, 1992 under the laws of the State of Maryland under the
name of "Warburg, Pincus Institutional Fund, Inc." On May 11, 2000, the Fund
changed its name to "Credit Suisse Institutional Fund, Inc." The Fund's charter
authorizes the Board of Directors to issue thirteen billion full and fractional
shares of capital stock, par value $.001 per share. Shares of thirteen series
have been classified, one of which constitute the interests in the Portfolio.
The Portfolio is a diversified, open-end management investment
company.
13
<PAGE>
All shareholders of the Portfolio, upon liquidation, will participate
ratably in the Portfolio's net assets. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Directors can elect all Directors. Shares are transferable but have
no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Portfolio has elected to be governed by Rule 18f-1 under the 1940
Act as a result of which the Portfolio is obligated to redeem shares, with
respect to any one shareholder during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
EXCHANGE PRIVILEGE
Shareholders of the Portfolio may exchange all or part of their shares
for shares of another portfolio or other portfolios of the Fund organized by
CSAM in the future or another Credit Suisse Institutional Fund on the basis of
their relative net asset values per share at the time of exchange. The exchange
privilege enables shareholders to acquire shares in a fund or portfolio with a
different investment objective when they believe that a shift between funds or
portfolios is an appropriate investment decision.
If an exchange request is received by Credit Suisse Institutional
Funds or its agent prior to the close of regular trading on the NYSE, the
exchange will be made at the Portfolio's net asset value next determined on that
business day. Exchanges will be effected without a sales charge but must satisfy
the minimum dollar amount necessary for new purchases. The Portfolio may refuse
exchange purchases at any time without notice.
The exchange privilege is available to investors in any state in which
the shares being acquired may be legally sold. When an investor effects an
exchange of shares, the exchange is treated for federal income tax purposes as a
redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. Investors wishing to exchange shares of the
Portfolio for shares in another Credit Suisse Institutional Fund or portfolio of
the Fund should review the prospectus of the other fund or portfolio prior to
making an exchange. For further information regarding the exchange privilege or
to obtain an current prospectus for another Credit Suisse Institutional Fund or
portfolio of the Fund, an investor should contact Credit Suisse Institutional
Funds at 1-800-222-8977.
The Portfolio reserves the right to refuse exchange purchases by any
person or group if, in CSAM's judgment, the Portfolio 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 Portfolio receives or
anticipates receiving large exchange orders at or about the same time and when a
pattern of exchanges within a short period of time (often associated with a
marketing timing strategy) is discerned. The Portfolio reserves the right to
terminate or modify the exchange privilege at any time upon 30 days' notice to
shareholders.
14
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Portfolio. Each prospective shareholder is urged to consult his
own tax adviser with respect to the specific federal, state, local and foreign
tax consequences of investing in the Portfolio. 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 PORTFOLIO AND ITS INVESTMENTS
The Portfolio intends to continue to qualify as a regulated investment
company during each taxable year under Part I of Subchapter M of the Code. To so
qualify, the Portfolio 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
Portfolio's taxable year, (i) at least 50% of the market value of the
Portfolio's assets is represented by cash, securities of other regulated
investment companies, United States government securities and other securities,
with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the market value of the Portfolio'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 United States government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the
Portfolio controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses.
As a regulated investment company, the Portfolio will not be subject
to United States federal income tax on its investment company taxable income
(I.E., income other than any excess of its net realized long-term capital gains
over its net realized short-term capital losses ("net realized capital gains"))
or on its net realized 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, plus or minus certain other adjustments as
specified in the Code, is distributed to its shareholders, but will be subject
to tax at regular corporate rates on any taxable income or gains that it does
not distribute. Any dividend declared by the Portfolio 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
Portfolio not later than such December 31, provided that such dividend is
actually paid by the Portfolio during January of the following calendar year.
The Portfolio intends to declare dividend distributions daily and pay
them monthly. The Board will determine annually whether to distribute any net
realized capital gains. The Portfolio currently expects to distribute any such
excess annually to its shareholders. However, if the Portfolio retains for
investment an amount equal to all or a portion of its net
15
<PAGE>
realized capital gains, it will be subject to a corporate tax (currently at a
rate of 35%) on the amount retained. In that event, the Portfolio 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 Portfolio 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 Portfolio upon
filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on the Portfolio to the
extent the Portfolio 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 Portfolio 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 over distribution, as the case may be, from the previous year. The Portfolio
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.
Although the Portfolio expects to be relieved of all or substantially
all federal income taxes, depending upon the extent of its activities in 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 Portfolio's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any taxes paid by the Portfolio would reduce the amount of income and gains
available for distribution to shareholders.
If, in any taxable year, the Portfolio 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 Portfolio in
computing its taxable income. In addition, in the event of a failure to qualify,
the Portfolio's distributions, to the extent derived from the Portfolio's
current or accumulated earnings and profits, would constitute dividends
(eligible for the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might otherwise
(at least in part) have been treated in the shareholders' hands as long-term
capital gains or tax-exempt interest income. If the Portfolio fails to qualify
as a regulated investment company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a regulated
investment company. In addition, if the Portfolio failed to qualify as a
regulated investment company for a period greater than one taxable year, the
Portfolio may be required to recognize any net built-in gains with respect to
16
<PAGE>
certain of its assets (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if it had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.
Investors in the Portfolio should be aware that it is possible that
some portion of the Portfolio's income from investments in obligations of
foreign banks could become subject to foreign taxes.
While the Portfolio does not expect to realize net realized capital
gains, any such realized gains will be distributed as described in the
PROSPECTUS. Such distributions ("capital gain dividends") will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Portfolio shares, and will be designated as capital gain dividends in a
written notice mailed by the Portfolio to shareholders after the close of the
Portfolio's taxable year. Gain or loss, if any, recognized on the sale or other
disposition of shares of the Portfolio will be taxed as capital gain or loss if
the shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Portfolio before holding it for more than six months, any loss
on the sale or other disposition of such share shall be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share.
A shareholder of the Portfolio receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount.
Each shareholder of the Portfolio will receive an annual statement as
to the federal income tax status of his dividends and distributions from the
Portfolio for the prior calendar year. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the
Portfolio's taxable year regarding the federal income tax status of certain
dividends and distributions that were paid (or that are treated as having been
paid) by the Portfolio to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to withholding, then the shareholder may be subject to a 31% "backup
withholding" tax with respect to taxable dividends and distributions. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability.
17
<PAGE>
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX
CONSEQUENCES AFFECTING THE PORTFOLIO 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 PORTFOLIO.
DETERMINATION OF YIELD
From time to time, the Portfolio may quote its yield and effective
yield, in advertisements or in reports and other communications to shareholders.
The Portfolio's seven-day yield is calculated by (i) determining the net change
in the value of a hypothetical pre-existing account in the Portfolio having a
balance of one share at the beginning of a seven calendar day period for which
yield is to be quoted, (ii) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return and (iii)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. The Portfolio's seven-day compound effective
annualized yield is calculated by adding 1 to the base period return (calculated
as described above), raising the sum to a power equal to 365/7 and subtracting
1.
The Portfolio's yield will vary from time to time depending upon
market conditions, the composition of the Portfolio and operating expenses
allocable to it. Yield information may be useful in reviewing the Fund's
performance and for providing a basis for comparison with other investment
alternatives. However, the Portfolio's yield will fluctuate, unlike certain bank
deposits or other investments which pay a fixed yield for a stated period of
time. In comparing the Portfolio's yield with that of other money market funds,
investors should give consideration to the quality and maturity of the portfolio
securities of the respective funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Fund. The financial statement that is incorporated by
reference into this Statement of Additional Information have been audited by PwC
and have been incorporated by reference herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Fund and provides
legal services from time to time for CSAM and CSAMSI.
FINANCIAL STATEMENT
The Portfolio's financial statement follows the Report of Independent
Accountants.
18
<PAGE>
APPENDIX
DESCRIPTION OF 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 Investor Services, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Short term obligations, including commercial paper, rated A1 + by IBCA
are obligations supported by the highest capacity for timely repayment.
Obligations rated A1 have a very strong capacity for timely repayment.
Obligations rated A2 have a strong capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
Duff & Phelps, Inc. employs the designation of Duff 1 with respect to
top grade commercial paper and bank money instruments. Duff 1+ indicates the
highest certainty of timely payment: short-term liquidity is clearly outstanding
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment: liquidity factors and company fundamentals are sound.
A-1
<PAGE>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
a (1) Articles of Incorporation. (1)
(2) Articles of Amendment establishing the International
Equity Portfolio. (1)
(3) Articles of Amendment Establishing the Managed EAFE
Portfolio. (2)
(4) Articles Supplementary designating the Small Company
Growth Portfolio. (1)
(5) Articles Supplementary increasing the number of
authorized shares (1)
(6) Articles Supplementary designating Emerging Markets
Portfolio. (2)
(7) Articles of Amendment changing the name of
Managed EAFE Portfolio to Managed EAFE
-Registered Trademark- Countries Portfolio.(3)
(8) Articles Supplementary designating Value Portfolio.(4)
(9) Articles Supplementary designating Japan Growth
Portfolio, the Small Company Value
-------------------
1 Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on August
18, 1995.
2 Incorporated by reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on August
20, 1996.
3 Incorporated by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, filed with the Commission
on January 28, 1997.
4 Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, filed with the Commission
on January 31, 1997.
C-1
<PAGE>
Portfolio and the Post-Venture Capital Portfolio.(5)
(10) Articles of Amendment.
(11) Articles of Amendment.
(12) Articles Supplementary designating the Cash
Reserve Portfolio, the Global
Telecommunications Portfolio, the High Yield
Portfolio, the Long-Short Market Neutral
Portfolio and the Major Foreign Markets
Portfolio.
b (1) By-Laws. (6)
(2) Amendment to By-Laws. (7)
(3) Form of Amendment to By-Laws. (8)
(4) Amendment to By-Laws
c Registrant's Forms of Stock Certificates.(1)
d (1) Form of Investment Advisory Agreement. (9)
-------------------
5 Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, filed with the Commission
on August 12, 1997.
6 Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on April 19,
1996.
7 Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on July 2,
1996.
8 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit to
Post-Effective Amendment No. 8 to Registration Statement on Form N-1A of
Warburg, Pincus Global Fixed Income Fund, Inc. filed on February 17, 1998
(Securities Act File No. 33-36066; Investment Company Act File No.
811-06143).
9 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in the
Registration Statement on Form N-14 of Warburg, Pincus Global Post-Venture
Capital Fund, Inc., filed November 4, 1999 (Securities Act File No.
333-90341).
C-2
<PAGE>
(2) Form of Investment Advisory Agreement -- Cash Reserve
Portfolio.
(3) Form of Investment Advisory Agreement -- Global
Telecommunications Portfolio.
(4) Form of Investment Advisory Agreement -- High Yield
Portfolio.
(5) Form of Investment Advisory Agreement -- Long-Short
Market Neutral Portfolio.
(6) Form of Investment Advisory Agreement -- Major Foreign
Markets Portfolio.
(7) Sub-Investment Advisory Agreement between Abbott Capital
Management, LLC and the Post-Venture Capital Portfolio.
(5)
(8) Form of Sub-Investment Advisory Agreement between Credit
Suisse Asset Management Limited and the Global
Telecommunication Portfolio.
e (1) Form of Distribution Agreement with Credit Suisse Asset
Management Securities, Inc.
f Not applicable.
g (1) Form of Custodian Services Agreement with PFPC Trust
Company.(10)
(2) Form of Sub-Custodian Services Agreement with PFPC Trust
Company and PNC Bank, National Association. (10)
(3) Form of Custodian Contract with State Street Bank and
Trust Company ("State Street")--Small Company Growth
Portfolio and Emerging Markets Portfolio. (11)
-------------------
10 Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Warburg, Pincus Trust filed April
16, 1999 (Securities Act File No. 33-58125).
11 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Japan Growth Fund,
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<PAGE>
(4) Form of Custody Agreement with State Street Bank & Trust
Company -- Japan Growth Portfolio, Post-Venture Capital
Portfolio and Small Company Value Portfolio. (5)
(5) Form of Custody Agreement with State Street Bank & Trust
Company -- International Equity, Global Fixed Income and
Value Portfolios.(12)
(6) Form of Custody Agreement with Brown Brothers Harriman &
Co.(13)
h (1) Form of Transfer Agency Agreement.(9)
(2)(A) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Small Company
Growth Portfolio under the Transfer Agency Agreement.(1)
(2)(B) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Japan Growth
Portfolio under the Transfer Agency and Service
Agreement. (5)
(2)(C) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Small Company
Value Portfolio under the Transfer Agency and Service
Agreement. (5)
(2)(D) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Post-Venture
Capital Portfolio under the Transfer Agency and Service
Agreement.(5)
-------------------
Inc. filed on December 18, 1995 (Securities Act File No. 33-63655).
12 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit to the
Registration Statement on Form N-14 of Warburg, Pincus Managed EAFE
-Registered Trademark- Countries Fund, Inc. filed on November 5, 1997
(Securities Act File No. 333-39611).
13 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Emerging Markets II Fund, Inc., filed on August 14, 1998
(Securities Act File No. 333-60677).
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<PAGE>
(2)(E) Form of Letter Agreement between Registrant and State
Street pertaining to the inclusion of the Cash Reserve
Portfolio, the Global Telecommunications Portfolio, the
High Yield Portfolio, the Long-Short Market Neutral
Portfolio and the Major Foreign Markets Portfolio.
(3) Form of Co-Administration Agreements with Credit Suisse
Asset Management Securities, Inc. (14)
(4)(A) Form of Co-Administration Agreements with PFPC Inc.(10)
(4)(B) Form of Letter Agreement with PFPC, Inc. relating to the
Emerging Markets Portfolio. (2)
(4)(C) Form of Letter Agreement with PFPC Inc. relating to the
Value Portfolio. (4)
(4)(D) Form of Co-Administration Agreement with PFPC Inc.
relating to the Japan Growth Portfolio. (5)
(4)(E) Form of Co-Administration Agreement with PFPC Inc.
relating to the Small Company Value Portfolio. (5)
(4)(F) Form of Co-Administration Agreement with PFPC Inc.
relating to the Post-Venture Capital Portfolio. (5)
(4)(G) Form of Co-Administration Agreement with PFPC Inc.
relating to the Cash Reserve Portfolio, the Global
Telecommunications Portfolio, the High Yield Portfolio,
the Long-Short Market Neutral Portfolio and the Major
Foreign Markets Portfolio.
(5) Form of Services Agreement. (5)
i (1) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund. (15)
-------------------
14 Incorporated by reference to the Registration Statement on Form N-14 of
Warburg, Pincus Global Post-Venture Capital Fund, Inc., filed November 4,
1999 (Securities Act File No. 333-90341).
15 Incorporated by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A, filed with the Commission
on February 24, 2000.
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<PAGE>
(2) Consent of Willkie Farr & Gallagher, counsel to the Fund
and Opinion of Willkie Farr & Gallagher relating to the
establishment of the Japan Growth Portfolio, Small
Company Value Portfolio and Post-Venture Capital
Portfolio. (5)
(3) Opinion and Consent of Willkie Farr & Gallagher, counsel
to the Fund and Opinion of Willkie Farr & Gallagher
relating to the establishment of the Cash Reserve
Portfolio, Global Telecommunications Portfolio, High
Yield Portfolio, Long-Short Market Neutral Portfolio
and Major Foreign Markets Portfolio.
(4) Opinion and consent of Hamada & Matsumoto, Japanese
counsel to the Fund, with respect to the Japan Growth
Portfolio. (15)
j (1) Consent of PricewaterhouseCoopers LLP, Independent
Accountants. (15)
(2) Powers of Attorney. (16)
k Not applicable.
l (1) Purchase Agreement pertaining to the International
Equity Portfolio and Global Fixed Income Portfolio. (1)
(2) Form of Purchase Agreement pertaining to the Small
Company Growth Portfolio. (1)
(3) Form of Purchase Agreement pertaining to the Emerging
Market Portfolio. (2)
(4) Purchase Agreement pertaining to the Value Portfolio.
(4)
(5) Purchase Agreement pertaining to the Japan Growth
Portfolio. (5)
(6) Purchase Agreement pertaining to the Small Company Value
Portfolio. (5)
(7) Purchase Agreement pertaining to the Post-Venture
Capital Portfolio. (5)
(8) Form of Purchase Agreement pertaining to the Cash
Reserve Portfolio, the Global Telecommunications
Portfolio, the High Yield
-------------------
16 Incorporated by reference to the Registration Statement on Form N-14 of
Warburg, Pincus Global Post-Venture Capital Fund, Inc., filed November 4,
1999 (Securities Act File No. 333-90341).
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<PAGE>
Portfolio, the Long-Short Market Neutral Portfolio and
the Major Foreign Markets Portfolio.
m Not applicable.
n Not applicable.
o Not applicable.
p (1) Form of Code of Ethics. (17)
(2) Form of Code of Ethics for Abbott Capital Management,
LLC. (17)
(3) Form of Code of Ethics for Credit Suisse Asset
Management Limited (London).*
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
From time to time, Credit Suisse Asset Management, LLC ("CSAM, LLC"),
Registrant's investment adviser, may be deemed to control Registrant and other
registered investment companies it advises through its beneficial ownership of
more than 25% of the relevant fund's shares on behalf of discretionary advisory
clients. CSAM, LLC has three wholly-owned subsidiaries: Warburg, Pincus Asset
Management International, Inc., a Delaware corporation; Warburg Pincus Asset
Management (Japan), Inc., a Japanese corporation; and Warburg Pincus Asset
Management (Dublin) Limited, an Irish corporation.
Item 25. INDEMNIFICATION
Registrant, officers and directors of CSAM, LLC, Credit Suisse Asset
Management Securities, Inc. ("CSAMSI") and of Registrant are covered by
insurance policies indemnifying them for liability incurred in connection with
the operation of Registrant. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of the Registration Statement of Warburg, Pincus
Post-Venture Capital Fund, Inc., filed on June 21, 1995.
Item 26. (a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
CSAM, LLC acts as investment adviser to each Portfolio. CSAM, LLC renders
investment advice to a wide variety of
-------------------
17 Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Warburg, Pincus Trust filed on April
26, 2000 (Securities Act File No. 33-58125).
* To be filed by amendment.
C-7
<PAGE>
individual and institutional clients. The list required by this Item 26 of
officers and directors of CSAM, LLC, together with information as to their other
business, profession, vocation or employment of a substantial nature during the
past two years, is incorporated by reference to Schedules A and D of Form ADV
filed by CSAM, LLC (SEC File No. 801-37170).
(b) BUSINESS AND OTHER CONNECTIONS OF SUB-INVESTMENT ADVISER AND
ADMINISTRATOR
Abbott Capital Management, LLC ("Abbott") acts as sub-investment adviser
for the Registrant's Post-Venture Capital Portfolio. Abbott renders investment
advice and provides full-service private equity programs to clients. The list
required by this Item 26 of Officers and Directors of Abbott, together with
information as to their other business, profession, vocation, or employment of a
substantial nature during the past two years, is incorporated by reference to
Schedules A and D of Form ADV filed by Abbott (SEC File No. 801-27914).
Credit Suisse Asset Management Limited ("CSAM U.K.") act as sub-investment
adviser for the Registrant. CSAM U.K. renders investment advice and provides
full-service private equity programs to clients. The list required by this Item
28 of officers and partners of CSAM U.K., together with information as to their
other business, profession, vocation or employment of a substantial nature
during the past two years, is incorporated by reference to schedules A and D of
Form ADV filed by CSAM U.K. (SEC File No. 801-40177).
Item 27. PRINCIPAL UNDERWRITER
(a) CSAMSI acts as distributor for Registrant, as well as for Credit Suisse
Institutional International Growth Fund; Credit Suisse Institutional Strategic
Global Fixed Income Fund; Credit Suisse Institutional U.S. Core Equity Fund;
Credit Suisse Institutional U.S. Core Fixed Income Fund; Warburg Pincus Balanced
Fund; Warburg Pincus Capital Appreciation Fund; Warburg Pincus Cash Reserve
Fund; Warburg Pincus Central & Eastern Europe Fund; Warburg Pincus Emerging
Growth Fund; Warburg Pincus Emerging Markets Fund; Warburg Pincus European
Equity Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Focus Fund;
Warburg Pincus Global Fixed Income Fund; Warburg Pincus Global Health Sciences
Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg Pincus Global
Telecommunications Fund; Warburg Pincus High Yield Fund; Warburg Pincus
Intermediate Maturity Government Fund; Warburg Pincus International Equity Fund;
Warburg Pincus International Small Company Fund; Warburg Pincus Japan Growth
Fund; Warburg Pincus Japan Small Company Fund; Warburg Pincus Long-Short Market
Neutral Fund; Warburg Pincus Major Foreign Markets Fund; Warburg Pincus
Municipal Bond Fund; Warburg Pincus New York Intermediate
C-8
<PAGE>
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus Small
Company Growth Fund; Warburg Pincus Small Company Value Fund; Warburg Pincus
Trust; Warburg Pincus Trust II; Warburg Pincus Value Fund; Warburg Pincus
WorldPerks Money Market Fund and Warburg Pincus WorldPerks Tax Free Money Market
Fund.
(b) For information relating to each director, officer or partner of
CSAMSI, reference is made to Form BD (SEC File No. 8-32482) filed by CSAMSI
under the Securities Exchange Act of 1934.
(c) None.
C-9
<PAGE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS
(1) Credit Suisse Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and minute books)
(2) Credit Suisse Asset Management, LLC
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(records relating to its functions as investment adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Credit Suisse Asset Management Securities, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
co-administrator and distributor)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as custodian, shareholder
servicing agent, transfer agent and dividend disbursing agent)
(6) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as shareholder servicing
agent, transfer agent and dividend disbursing agent)
(7) PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, Pennsylvania 19153
(records relating to its functions as custodian)
(8) Credit Suisse Asset Management Limited
Beaufort House
15 St Botolph
London, EC3A7JJ
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<PAGE>
(records relating to its functions as sub-investment adviser and
administrator)
(9) Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
(records relating to its functions as custodian)
Item 29. MANAGEMENT SERVICES
Not applicable.
Item 30. UNDERTAKINGS.
Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 26th day of May, 2000.
CREDIT SUISSE
INSTITUTIONAL FUND, INC.
By:/s/Eugene L. Podsiadlo
-----------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act, this Amendment has been
signed below by the following persons in the capacities and on the date
indicated:
SIGNATURE TITLE DATE
/s/William W. Priest* Chairman of the May 26, 2000
---------------------------- Board of Directors
William W. Priest
/s/Eugene L. Podsiadlo President May 26, 2000
----------------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer May 26, 2000
---------------------------- and Chief Financial
Michael A. Pignataro Officer
/s/Richard H. Francis* Director May 26, 2000
----------------------------
Richard H. Francis
/s/Jack W. Fritz* Director May 26, 2000
----------------------------
Jack W. Fritz
/s/Jeffrey E. Garten* Director May 26, 2000
----------------------------
Jeffrey E. Garten
/s/James S. Pasman, Jr.* Director May 26, 2000
----------------------------
James S. Pasman, Jr.
/s/Steven N. Rappaport* Director May 26, 2000
----------------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge* Director May 26, 2000
----------------------------
Alexander B. Trowbridge
*By:/s/Michael A. Pignataro
----------------------------
Michael A. Pignataro as Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
a(10) Articles of Amendment.
a(11) Articles of Amendment.
a(12) Articles Supplementary designating Long-Short Market
Neutral Portfolio, Cash Reserve, Global
Telecommunications, Major Foreign Markets and High
Yield.
b (4) Amendment to By-Laws.
d (2) Form of Investment Advisory Agreement -- Cash Reserve
Portfolio.
(3) Form of Investment Advisory Agreement -- Global
Telecommunications Portfolio.
(4) Form of Investment Advisory Agreement -- High Yield
Portfolio.
(5) Form of Investment Advisory Agreement -- Long-Short
Market Neutral Portfolio.
(6) Form of Investment Advisory Agreement -- Major Foreign
Markets Portfolio.
(8) Form of Sub-Investment Advisory Agreement between
Credit Suisse Asset Management Limited and the Global
Telecommunication Portfolio.
e (1) Distribution Agreement with Credit Suisse Asset
Management Securities, Inc.
h (2)(E) Form of Letter Agreement between Registrant and State
Street pertaining to the inclusion of the Cash
Reserve Portfolio, the Global Telecommunications
Portfolio, the High Yield Portfolio, the Long-Short
Market Neutral Portfolio and the Major Foreign Markets
Portfolio.
(4)(G) Form of Co-Administration Agreement with PFPC Inc.
relating to the Cash Reserve Portfolio, the Global
Telecommunications Portfolio, the High Yield Portfolio,
the Long-Short Market Neutral Portfolio and the Major
Foreign Markets Portfolio.
<PAGE>
i (3) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund Portfolio, Global
Telecommunications Portfolio, High Yield Portfolio,
Long-Short Market Neutral Portfolio and Major Foreign
Markets Portfolio.
l (8) Form of Purchase Agreement pertaining to the Cash
Reserve Portfolio, the Global Telecommunications
Portfolio, the High Yield Portfolio, the Long-Short
Market Neutral Portfolio and the Major Foreign Markets
Portfolio.
