<PAGE> 1
As filed with the U.S. Securities and Exchange Commission
on February 24, 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. 18 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 19 [x]
(Check appropriate box or boxes)
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.
Warburg, Pincus 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> 2
Approximate Date of Proposed Public Offering: February 29, 2000
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on February 29, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[ ] 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.
----------------------------------
-2-
<PAGE> 3
[Warburg Pincus Logo] [Credit Suisse Logo]
[Credit Suisse Logo]
PROSPECTUS
February 29, 2000
WARBURG PINCUS INSTITUTIONAL FUND, INC.
-- VALUE PORTFOLIO
-- SMALL COMPANY VALUE PORTFOLIO
-- SMALL COMPANY GROWTH PORTFOLIO
-- POST-VENTURE CAPITAL 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.
Warburg Pincus Funds are advised by Credit Suisse Asset
Management, LLC.
<PAGE> 4
CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goals and Principal Strategies.................. 4
Investor Profile................................ 4
A Word About Risk............................... 5
PERFORMANCE SUMMARY............... ................ 6
Year-by-Year Total Returns...................... 6
Average Annual Total Returns.................... 7
INVESTOR EXPENSES................ ................. 10
Fees and Portfolio Expenses..................... 10
Example......................................... 11
THE PORTFOLIOS IN DETAIL............. ............. 12
The Management Firms............................ 12
Portfolio Information Key....................... 13
VALUE PORTFOLIO................. .................. 14
SMALL COMPANY VALUE PORTFOLIO.......... ........... 16
SMALL COMPANY GROWTH PORTFOLIO.......... .......... 18
POST-VENTURE CAPITAL PORTFOLIO.......... .......... 20
MORE ABOUT RISK................. .................. 22
Introduction.................................... 22
Types of Investment Risk........................ 22
Certain Investment Practices.................... 25
MEET THE MANAGERS................ ................. 28
ABOUT YOUR ACCOUNT................ ................ 30
Share Valuation................................. 30
Account Statements.............................. 30
Distributions................................... 30
Taxes........................................... 31
BUYING SHARES.................. ................... 32
SELLING SHARES.................. .................. 34
OTHER POLICIES.................. .................. 36
FOR MORE INFORMATION............... ............... back cover
</TABLE>
3
<PAGE> 5
KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
PORTFOLIO/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
VALUE PORTFOLIO Total return - Invests primarily in equity
Risk factors: securities
Market risk - Focuses on large U.S. companies
- Analyzes such factors as
price-to-earnings and
price-to-book ratios, using a
value investment style
SMALL COMPANY VALUE Long-term capital - Invests in equity securities of
PORTFOLIO appreciation small U.S. companies
Risk factors: - Analyzes factors such as
Market risk price-to-earnings, price-to-book
Start-up and other and price-to-cash flow ratios,
small companies using a value investment style
Special-situation
companies
SMALL COMPANY GROWTH Capital growth - Invests in equity securities of
PORTFOLIO small U.S. companies
Risk factors: - Using a growth investment style,
Market risk may look for either developing
Start-up and other or older companies in a growth
small companies stage or companies providing
Special-situation products or services with a high
companies unit-volume growth rate
Non-diversified
status
POST-VENTURE CAPITAL Long-term growth of - Invests primarily in equity
PORTFOLIO capital securities of U.S. companies
Risk factors: considered to be in their post-
Market risk venture-capital stage of
Start-up and other development
small companies - May invest in companies of any
Special-situation size
companies - Takes a growth investment
approach to identifying
attractive post-venture-capital
investments
</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 investing for total return or capital appreciation
- want to diversify their portfolios with stock funds
- are investing for long-term goals
THEY 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 primarily for income
You should base your selection of a portfolio on your own goals, risk
preferences and time horizon.
4
<PAGE> 6
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.
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.
START-UP AND OTHER SMALL COMPANIES
Small Company Value Portfolio,
Small Company Growth Portfolio,
Post-Venture Capital Portfolio
Start-up and other small companies may have less-experienced management,
limited product lines, unproven track records or inadequate capital reserves.
Their securities may carry increased market, liquidity and other risks. Key
information about the company may be inaccurate or unavailable.
SPECIAL-SITUATION COMPANIES
Small Company Value Portfolio,
Small Company Growth Portfolio,
Post-Venture Capital Portfolio
"Special situations" are unusual developments that affect a company's market
value. Examples include mergers, acquisitions and reorganizations. Securities of
special-situation companies may decline in value if the anticipated benefits of
the special situation do not materialize.
NON-DIVERSIFIED STATUS
Small Company Growth Portfolio
Compared to a diversified mutual fund, a non-diversified portfolio may invest
a greater share of its assets in the securities of fewer companies. As a result,
the portfolio may be subject to greater volatility with respect to its portfolio
securities than a portfolio that is more broadly diversified.
5
<PAGE> 7
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in these portfolios. The bar chart shows you how each
portfolio's performance has varied from year to year for up to 10 years. The
table compares each portfolio's performance over time to that of a broadly based
securities market index and other indexes, if applicable. As with all mutual
funds, past performance is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS
[PERFORMANCE SUMMARY BAR CHARTS]
<TABLE>
<CAPTION>
YEAR ENDED 12/31: 1996 1997 1998 1999
<S> <C> <C> <C> <C>
VALUE PORTFOLIO 13.75% 3.08%
Best quarter: 16.79% (Q2 99)
Worst quarter: -14.25% (Q3 98)
Inception date: 6/30/97
SMALL COMPANY VALUE PORTFOLIO -12.63% 0.42%
Best quarter: 12.70% (Q2 99)
Worst quarter: -22.61% (Q3 98)
Inception date: 10/31/97
SMALL COMPANY GROWTH PORTFOLIO 33.10% 16.53% -4.00% 71.80%
Best quarter: 54.01% (Q4 99)
Worst quarter: -23.39% (Q3 98)
Inception date: 12/29/95
POST VENTURE CAPITAL PORTFOLIO -2.54% 68.74%
Best quarter: 51.63% (Q4 99)
Worst quarter: -27.52% (Q3 98)
Inception date: 10/31/97
</TABLE>
6
<PAGE> 8
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/99: 1999 1995-1999 1990-1999 PORTFOLIO DATE
<S> <C> <C> <C> <C> <C>
VALUE PORTFOLIO 3.08% NA NA 11.45% 6/30/97
S&P 500 INDEX(1) 21.02% NA NA 24.19%
SMALL COMPANY VALUE
PORTFOLIO 0.42% NA NA -7.34% 10/31/97
RUSSELL 2000 INDEX(2) 21.26% NA NA 8.55%
SMALL COMPANY GROWTH
PORTFOLIO 71.80% NA NA 26.39% 12/29/95
RUSSELL 2000 GROWTH
INDEX(3) 43.10% NA NA 16.16%
POST-VENTURE CAPITAL
PORTFOLIO 68.74% NA NA 24.25% 10/31/97
RUSSELL 2000 GROWTH
INDEX(3) 43.10% NA NA 17.37%
RUSSELL 2500 GROWTH
INDEX(4) 55.48% NA NA 23.24%
NASDAQ INDUSTRIALS
INDEX(5) 71.67% NA NA 29.97%
</TABLE>
(1) The S&P 500 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of McGraw-Hill Co., Inc.
(2) The Russell 2000 Index is an unmanaged index (with no defined investment
objective) of approximately 2,000 small-cap stocks, includes reinvestment of
dividends, and is compiled by Frank Russell Company.
(3) The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with a
greater-than-average growth orientation. The Russell 2000 Growth Index
includes reinvestment of dividends, and is compiled by Frank Russell
Company.
(4) The Russell 2500 Growth Index measures the performance of those companies in
the Russell 2500 Index with higher price-to-book values and higher
forecasted growth rates. The Russell 2500 Index is composed of the 2,500
smallest companies in the Russell 3000 Index, which measures the performance
of the 3,000 largest U.S. companies based on total market capitalization.
The Russell 2500 Index represents approximately 22% of the total market
capitalization of the Russell 3000 Index.
(5) The NASDAQ Industrials Index measures the stock price performance of more
than 3,000 industrial issues included in the NASDAQ OTC Composite Index. The
NASDAQ OTC Composite Index represents 4,500 stocks traded over the counter.
7
<PAGE> 9
UNDERSTANDING PERFORMANCE
- TOTAL RETURN tells you how much an investment in a portfolio has changed
in value over a given time period. It assumes that all dividends and
capital gains (if any) were reinvested in additional shares. The change
in value can be stated either as a cumulative return or as an average
annual rate of return.
- A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.
- An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what constant annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, assuming you held it for the entire
period.
- Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.
8
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9
<PAGE> 11
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 October 31,
1999.
<TABLE>
<CAPTION>
SMALL SMALL
COMPANY COMPANY POST-VENTURE
VALUE VALUE GROWTH CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(paid directly from your investment)
Sales charge "load" on
purchases NONE NONE NONE NONE
Deferred sales charge "load" NONE NONE NONE NONE
Sales charge "load" on reinvested
distributions NONE NONE NONE NONE
Redemption fees NONE NONE NONE NONE
Exchange fees NONE NONE NONE NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(deducted from portfolio assets)
Management fee .75% .90% .90% 1.10%
Distribution and service
(12b-1) fee NONE NONE NONE NONE
Other expenses .40% 9.78% .29% 7.24%
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES* 1.15% 10.68% 1.19% 8.34%
</TABLE>
* Actual fees and expenses for the fiscal year ended October 31, 1999 are shown
below. Fee waivers and expense reimbursements or credits reduced some expenses
during 1999 but may be discontinued at any time:
<TABLE>
<CAPTION>
SMALL SMALL
COMPANY COMPANY POST-VENTURE
EXPENSES AFTER WAIVERS VALUE VALUE GROWTH CAPITAL
AND REIMBURSEMENTS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
Management fee .42% .00% .71% .00%
Distribution and service
(12b-1) fee NONE NONE NONE NONE
Other expenses .33% .99% .28% 1.25%
----- ----- ----- -----
TOTAL ANNUAL PORTFOLIO
OPERATING
EXPENSES .75% .99% .99% 1.25%
</TABLE>
10
<PAGE> 12
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 FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
VALUE PORTFOLIO $117 $365 $633 $1,398
SMALL COMPANY VALUE PORTFOLIO $1,038 $2,940 $4,631 $8,089
SMALL COMPANY GROWTH PORTFOLIO $121 $378 $654 $1,443
POST-VENTURE CAPITAL PORTFOLIO $820 $2,379 $3,835 $7,072
</TABLE>
11
<PAGE> 13
THE PORTFOLIOS IN DETAIL
THE MANAGEMENT FIRMS
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
- Investment adviser for the portfolios
- Responsible for managing each portfolio's assets according to its goal and
strategies and supervising Abbott's activities for the Post-Venture Capital
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 approximately $72 billion in
the U.S. and $203 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those in
Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and
Zurich) are not registered with the U.S. Securities and Exchange Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this Prospectus.
ABBOTT CAPITAL MANAGEMENT, LLC
50 Rowes Wharf, Suite 240
Boston, MA 02110-3328
- Sub-investment adviser for the Post-Venture Capital Portfolio
- Responsible for managing the portfolio's investments in private-equity
portfolios
- A registered investment adviser concentrating on venture-capital, buyout, and
special-situation investments
- Currently manages approximately $4.1 billion in assets
12
<PAGE> 14
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 or sub-investment
adviser to handle the portfolio's day-to-day management.
INVESTOR EXPENSES
Actual portfolio expenses for the 1999 fiscal year. Future expenses may be
higher or lower.
- MANAGEMENT FEE The fee paid to the investment adviser and sub-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 administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.
FINANCIAL HIGHLIGHTS
A table showing the portfolio's audited financial performance for up to five
years.
- TOTAL RETURN How much you would have earned on an investment in the
portfolio, assuming you had reinvested all dividend and capital-gain
distributions.
- PORTFOLIO TURNOVER An indication of trading frequency. The portfolios may
sell securities without regard to the length of time they have been held. A
high turnover rate may increase the portfolio's transaction costs and
negatively affect its performance. Portfolio turnover may also result in
capital-gain distributions that could raise your income-tax liability.
The Annual Report includes the auditors' report, along with the portfolio's
financial statements. It is available free upon request.
13
<PAGE> 15
VALUE PORTFOLIO
GOAL AND STRATEGIES
The Value Portfolio seeks total return. To pursue this goal, it invests
primarily in equity securities of value companies.
Value companies are companies whose earnings power or asset value does not
appear to be reflected in the current stock price. As a result, value companies
look underpriced according to financial measurements of their intrinsic worth or
business prospects. These measurements include price-to-earnings, price-to-book,
price-to-cash flow and debt-to-equity ratios. The portfolio managers determine
value based upon research and analysis, taking all relevant factors into
account.
Under normal market conditions, the portfolio will invest at least 65% of its
assets in equity securities of value companies. This portfolio expects to focus
on large U.S. companies with market capitalizations of $1 billion or more,
although it may invest in companies of any size.
The Board of Directors may change the portfolio's goal without shareholder
approval.
PORTFOLIO INVESTMENTS
This portfolio intends to invest at least 80% of its assets in equity
securities of value companies, including:
- common and preferred stocks
- securities convertible into common stocks
- rights and warrants
It may also invest in non-convertible debt securities such as bonds,
debentures and notes.
This portfolio may invest up to:
- 10% of net assets in debt securities rated from BB/Ba to C (junk bonds)
- 15% of assets in real-estate investment trusts (REITs)
- 20% of assets in foreign securities
To a limited extent, the portfolio may also engage in other investment
practices.
RISK FACTORS
This portfolio's principal risk factor is:
- market risk
The value of your investment generally will fluctuate in response to
stock-market movements. The amount of income you receive from the portfolio also
will fluctuate.
The portfolio's emphasis on large-company value stocks may reduce its
volatility and downside risk. Of course, this is not guaranteed. Value stocks in
theory are already underpriced, and large-company stocks tend to be less
volatile than small-company stocks. However, a value stock may never reach what
the manager believes is its full value, or may even go down in price. In the
long run, the portfolio may produce more modest returns than riskier stock
portfolios as a trade-off for this potentially lower risk.
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<PAGE> 16
"More About Risk" details certain other investment practices the portfolio
may use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
Scott T. Lewis and Stacy Dutton manage the portfolio. You can find out more
about them in "Meet the Managers."
INVESTOR EXPENSES
Management fee .42%
All other expenses .33%
--------
Total expenses .75%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 10/99 10/98 10/97(1)
<S> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $11.53 $10.64 $10.00
----- ------ ------
Investment activities:
Net investment income 0.16 0.16 0.03
Net gains on investments (both realized
and unrealized) 1.76 0.86 0.61
----- ------ ------
Total from investment activities 1.92 1.02 0.64
----- ------ ------
Distributions:
From net investment income (0.13) (0.08) 0.00
From realized capital gains 0.00 (0.05) 0.00
----- ------ ------
Total distributions (0.13) (0.13) 0.00
----- ------ ------
Net asset value, end of period $13.32 $11.53 $10.64
===== ====== ======
Total return 16.82% 9.76% 6.40%(2)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $36,332 $58,910 $15,565
Ratio of expenses to average net assets .76%(4) .75%(4) .75%(3,4)
Ratio of net income to average net assets 1.01% 1.27% 1.60%(3)
Decrease reflected in above operating expense ratios
due to waivers/reimbursements .39% .44% 1.67%(3)
Portfolio turnover rate 79.06% 70.74% 34.81%(2)
</TABLE>
(1) For the period June 30, 1997 (Commencement of Operations) through
October 31, 1997.
(2) Not annualized.
(3) Annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the portfolio's net expense ratio by .01%, .00% and .00% for the years ended
October 31, 1999 and 1998 and the period ended October 31, 1997,
respectively. The Portfolio's operating expense ratios after reflecting
these arrangements were .75%, .75% and .75% for the years ending October 31,
1999 and 1998 and the period ended October 31, 1997, respectively.
15
<PAGE> 17
SMALL COMPANY VALUE PORTFOLIO
GOAL AND STRATEGIES
The Small Company Value Portfolio seeks long-term capital appreciation. To
pursue this goal, it invests in equity securities of small U.S. value companies.
Current income is a secondary consideration in selecting portfolio investments.
Value companies are companies whose earnings power or asset value does not
appear to be reflected in the current stock price. As a result, value companies
look underpriced according to financial measurements of their intrinsic worth or
business prospects. These measurements include price-to-earnings, price-to-book,
price-to-cash flow and debt-to-equity ratios. The portfolio manager determines
value based upon research and analysis, taking all relevant factors into
account.
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of small U.S. companies. The portfolio considers a
"small" company to be one whose market capitalization is within the range of
capitalizations of companies in the Russell 2000 Index. As of December 31, 1999,
the Russell 2000 Index included companies with market capitalizations between
$178 million and $1.3 billion.
Some companies may outgrow the definition of a small company after the
portfolio has purchased their securities. These companies continue to be
considered small for purposes of the portfolio's 65% minimum allocation to
small-company equities. In addition, the portfolio may invest in companies of
any size once the 65% policy is met. As a result, the portfolio's average market
capitalization may sometimes exceed that of the largest company in the Russell
2000 Index.
PORTFOLIO INVESTMENTS
This portfolio invests primarily in equity securities of small-capitalization
value companies. Equity holdings may consist of:
- common and preferred stocks
- securities convertible into common stocks
- rights and warrants
The portfolio may invest up to 20% of assets in foreign securities. To a
limited extent, it may also engage in other investment practices.
RISK FACTORS
This portfolio's principal risk factors are:
- market risk
- start-up and other small companies
- special-situation companies
The value of your investment generally will fluctuate in response to
stock-market movements. Investing in start-up and other small companies may
expose the portfolio to increased market, liquidity and information risks. These
risks are defined in "More About Risk."
Small companies are often involved in "special situations." Securities of
special-situation companies may decline in value and hurt the portfolio's
performance if
16
<PAGE> 18
the anticipated benefits of the special situation do not materialize. "More
About Risk" details certain other investment practices the portfolio may use.
Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
Kyle F. Frey manages the portfolio. You can find out more about him in "Meet
the Managers."
INVESTOR EXPENSES
Management fee .00%
All other expenses .99%
----
Total expenses .99%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 10/99 10/98(1)
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $7.98 $10.00
------ ------
Investment activities:
Net investment income 0.01 0.03
Net losses on investments
(both realized and unrealized) (0.31) (2.05)
------ ------
Total from investment activities (0.30) (2.02)
------ ------
Less Dividends:
Dividends from net investment income (0.08) 0.00
------ ------
Net asset value, end of period $7.60 $7.98
====== ======
Total return (3.85%) (20.20%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) $637 $1,784
Ratio of expenses to average net assets .99%(2) .99%(2)
Ratio of net income to average net assets (.01%) .09%
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 9.69% 1.65%
Portfolio turnover rate 194.20% 248.40%
</TABLE>
(1) For the year October 31, 1997 (Commencement of Operations) through
October 31, 1998.
(2) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the
portfolio's expense ratio.
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<PAGE> 19
SMALL COMPANY GROWTH PORTFOLIO
GOAL AND STRATEGIES
The Small Company Growth Portfolio seeks capital growth. To pursue this goal,
it invests in equity securities of small U.S. growth companies.
In seeking to identify growth companies--companies with attractive
capital-growth potential--the portfolio's portfolio managers often look for:
- companies still in the developmental stage
- older companies that appear to be entering a new stage of growth
- companies providing products or services with a high unit-volume growth rate
The portfolio may also invest in emerging-growth companies--small or
medium-size companies that have passed their start-up phase, show positive
earnings, and offer the potential for accelerated earnings growth. Emerging-
growth companies generally stand to benefit from new products or services,
technological developments, changes in management or other factors.
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of small U.S. companies. The portfolio considers a
"small" company to be one whose market capitalization is within the range of
capitalizations of companies in the Russell 2000 Index. As of December 31, 1999,
the Russell 2000 Index included companies with market capitalizations between
$178 million and $1.3 billion.
Some companies may outgrow the definition of a small company after the
portfolio has purchased their securities. These companies continue to be
considered small for purposes of the portfolio's minimum 65% allocation to
small-company equities. In addition, the portfolio may invest in companies of
any size once the 65% policy is met. As a result, the portfolio's average market
capitalization may sometimes exceed that of the largest company in the Russell
2000 Index.
PORTFOLIO INVESTMENTS
This portfolio intends to invest at least 90% of assets in equity securities
of small-capitalization growth companies. Equity holdings may consist of:
- common and preferred stocks
- securities convertible into common stocks
- rights and warrants
The portfolio may invest up to 20% of assets in foreign securities. To a
limited extent, it may also engage in other investment practices.
RISK FACTORS
This portfolio's principal risk factors are:
- market risk
- start-up and other small companies
- special-situation companies
- non-diversified status
The value of your investment generally will fluctuate in response to
stock-market movements. Investing in start-up and other small companies may
expose the
18
<PAGE> 20
portfolio to increased market, liquidity and information risks. These risks are
defined in "More About Risk."
Small companies and emerging-growth companies are often involved in "special
situations." Securities of special-situation companies may decline in value and
hurt the portfolio's performance if the anticipated benefits of the special
situation do not materialize.
"More About Risk" details certain other investment practices the portfolio
may use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
Stephen J. Lurito and Sammy Oh manage the portfolio. You can find out more
about them in "Meet the Managers."
INVESTOR EXPENSES
Management fee .71%
All other expenses .28%
----
Total expenses .99%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 10/99 10/98 10/97 10/96(1)
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $12.89 $15.89 $12.92 $10.00
-------- ------- -------- -------
Investment activities:
Net investment loss (0.12) (0.08) (0.05) (0.01)
Net gains or losses on investments (both
realized and unrealized) 5.12 (2.92) 3.02 2.93
-------- ------- -------- -------
Total from investment activities 5.00 (3.00) 2.97 2.92
-------- ------- -------- -------
Net asset value, end of period $17.89 $12.89 $15.89 $12.92
======== ======= ======== =======
Total return 38.79% (18.88%) 22.99% 29.20%(2)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $236,679 $194,164 $217,861 $96,827
Ratio of expenses to average net assets 1.00%(4) .99%(4) .99%(4) .99%(3,4)
Ratio of net loss to average net assets (.68%) (.54%) (.53%) (.18%)(3)
Decrease reflected in above operating expense
ratio due to waivers/reimbursements .19% .18% .20% .69%(3)
Portfolio turnover rate 107.56% 75.20% 91.59% 57.38%(2)
</TABLE>
(1) For the period December 29, 1995 (Commencement of Operations) through
October 31, 1996.
(2) Not annualized.
(3) Annualized.
(4) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the portfolio's net expense ratio by .01%, .00%, .00% and .00% for the years
ended October 31, 1999, 1998 and 1997 and the period ended October 31, 1996,
respectively. The Portfolio's operating expense ratios after reflecting
these arrangements were .99%, .99%, .99% and .99% for the years ending
October 31, 1999, 1998, 1997 and the period ended October 31, 1996,
respectively.
19
<PAGE> 21
POST-VENTURE CAPITAL PORTFOLIO
GOAL AND STRATEGIES
The Post-Venture Capital Portfolio seeks long-term growth of capital. To
pursue this goal, it invests in equity securities of U.S. companies considered
to be in their post-venture-capital stage of development.
A post-venture-capital company is one that has received venture-capital
financing either:
- during the early stages of the company's existence or the early stages of the
development of a new product or service, or
- as part of a restructuring or recapitalization of the company
In either case, one or more of the following will have occurred within 10
years prior to the portfolio's purchase of the company's securities:
- the investment of venture-capital financing
- distribution of the company's securities to venture-capital investors
- the initial public offering
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of post-venture-capital companies. The portfolio may
invest in companies of any size.
PORTFOLIO INVESTMENTS
This portfolio invests primarily in equity securities of post-venture-capital
companies. Equity holdings may consist of:
- common and preferred stocks
- rights and warrants
- securities convertible into common stocks
- partnership interests
The portfolio may invest up to:
- 10% of assets in special-situation companies
- 10% of assets in private-equity portfolios that invest in venture-capital
companies
- 20% of assets in foreign securities
To a limited extent, the portfolio may also engage in other investment
practices.
RISK FACTORS
This portfolio's principal risk factors are:
- market risk
- start-up and other small companies
- special-situation companies
The value of your investment will fluctuate in response to stock-market
movements. Investing in start-up and other small companies may expose the
portfolio to increased market, information and liquidity risks. These risks are
defined in "More About Risk."
Post-venture-capital companies are often involved in "special situations."
Securities of special-situation companies may decline in value and hurt the
portfolio's performance if the anticipated benefits of the special situation do
not materialize.
To the extent that it invests in private equity portfolios, the portfolio
takes on additional liquidity, valuation and other risks. "More About Risk"
details certain other investment practices the portfolio
20
<PAGE> 22
may use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
Elizabeth B. Dater and Robert S. Janis are Co-Portfolio Managers of the
portfolio. Raymond L. Held and Thaddeus I. Grey manage the portfolio's
investments in private-equity portfolios. You can find out more about the
portfolio's managers in "Meet the Managers."
INVESTOR EXPENSES
Management fee .00%
All other expenses 1.25%
-----
Total expenses 1.25%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 10/99 10/98(1)
<S> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period $8.23 $10.00
------- -------
Investment activities:
Net investment loss (0.08) (0.09)
Net gains or losses on investments
(both realized and unrealized) 3.14 (1.68)
------- -------
Total from investment activities 3.06 (1.77)
------- -------
Less Dividends:
Dividends from net investment income (0.01) 0.00
------- -------
Net asset value, end of period $11.28 $8.23
------- -------
Total return 37.25% (17.70%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) $1,251 $1,180
Ratio of expenses to average net assets 1.25%(2) 1.25%(2)
Ratio of net loss to average net assets (.84%) (.76%)
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 7.09% 4.19%
Portfolio turnover rate 93.67% 98.89%
</TABLE>
(1) For the year October 31, 1997 (Commencement of Operations) through October
31, 1998.
(2) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the
portfolio's expense ratio.
21
<PAGE> 23
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 of 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 may 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.
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency-
denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money a 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.
22
<PAGE> 24
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 portfolio 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.
YEAR 2000 PROCESSING RISK The inability of a computer system to distinguish
the year 2000 from the year 1900 (the "Year 2000 Issue") could cause
difficulties for system users after December 31, 1999. Although this date has
passed, the impact of the failure by companies or foreign markets in which a
portfolio invests to address the Year 2000 Issue effectively could continue to
be felt into 2000 and may negatively impact the portfolios' performance.
23
<PAGE> 25
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24
<PAGE> 26
LOGO
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
<TABLE>
<S> <C>
[-] Permitted without limitation; does not indicate
actual use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of NET fund assets; does
not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of TOTAL fund assets; does
not indicate actual use
[ ] Permitted, but not expected to be used to a
significant extent
- -- Not permitted
</TABLE>
<TABLE>
<CAPTION>
SMALL SMALL POST-
COMPANY COMPANY VENTURE
VALUE VALUE GROWTH CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INVESTMENT PRACTICE LIMIT
<S> <C> <C> <C> <C>
BORROWING The borrowing of money from banks to meet
redemptions or for other temporary or emergency purposes.
Speculative exposure risk. 30% 30% 30% 30%
- --------------------------------------------------------------------------------------------------------
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) [ ] [ ] [ ] [ ]
- --------------------------------------------------------------------------------------------------------
FOREIGN SECURITIES Securities of foreign issuers. May
include depositary receipts. Currency, euro conversion,
information, liquidity, market, political, valuation risks. 20% 10% 10% 20%
- --------------------------------------------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities rated
below the fourth-highest grade (BBB/Baa) by Standard &
Poor's or Moody's rating service, and unrated securities of
comparable quality. Commonly referred to as junk bonds.
Credit, information, interest-rate, liquidity, market,
valuation risks. 10% 10% [ ] [ ]
- --------------------------------------------------------------------------------------------------------
OPTIONS Instruments that provide a right to buy (call) or
sell (put) a particular security, currency or index of
securities at a fixed price within a certain time period. A
portfolio may purchase or sell (write) both put and call
options for hedging or speculative purposes.(1) Correlation,
credit, hedged exposure, liquidity, market, speculative
exposure, valuation risks. 25% 25% 25% 25%
- --------------------------------------------------------------------------------------------------------
PRIVATE-EQUITY PORTFOLIOS Private limited partnerships or
other investment funds that themselves invest in equity or
debt securities of:
- -companies in the venture-capital or post-venture-capital
stages of development
- -companies engaged in special situations or changes in
corporate control, including buyouts
Information, liquidity, market, valuation risks. [ ] [ ] [ ] 10%
- --------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
SMALL SMALL POST-
COMPANY COMPANY VENTURE
VALUE VALUE GROWTH CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INVESTMENT PRACTICE LIMIT
<S> <C> <C> <C> <C>
REAL-ESTATE INVESTMENT TRUSTS (REITS) Pooled investment
vehicles that invest primarily in income-producing real
estate or real-estate-related loans or interests. Credit,
interest-rate, market risks. [ ] [ ] [ ] [ ]
- --------------------------------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Certain securities
with restrictions on trading, or those not actively traded.
May include private placements. Liquidity, market, valuation
risks. 15% 10% 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% 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. Liquidity, market, speculative
exposure risks. -- -- -- 10%
- --------------------------------------------------------------------------------------------------------
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. [ ] [ ] [ ] [ ]
- --------------------------------------------------------------------------------------------------------
SPECIAL-SITUATION COMPANIES Companies experiencing unusual
developments affecting their market values. Special
situations may include acquisition, consolidation,
reorganization, recapitalization, merger, liquidation,
special distribution, tender or exchange offer, or
potentially favorable litigation. Securities of a
special-situation company could decline in value and hurt a
portfolio's performance if the anticipated benefits of the
special situation do not materialize. Information, market
risks. [ ] [- ] [- ] 10%
- --------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
SMALL SMALL POST-
COMPANY COMPANY VENTURE
VALUE VALUE GROWTH CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INVESTMENT PRACTICE LIMIT
<S> <C> <C> <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. [ ] [- ] [- ] [- ]
- -------------------------------------------------------------------------------------------------------
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% 10% 10% 10%
- -------------------------------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20% 20% 20% 20%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolios are not obligated to pursue any hedging strategy. In
addition, hedging practices may not be available, may be too costly to be
used effectively or may be unable to be used for other reasons.
(2) Each 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.
27
<PAGE> 29
MEET THE MANAGERS
[LIZ DATER PHOTO]
ELIZABETH B. DATER
Managing Director
- Co-Portfolio Manager,
Post-Venture Capital Portfolio
since inception
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus Asset Management, Inc. (Warburg Pincus)
- With Warburg Pincus since 1978
[KYLE F. FREY PHOTO]
KYLE F. FREY
Managing Director
- Portfolio Manager,
Small Company Value Portfolio
since inception
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1989
[ROBERT S. JANIS PHOTO]
ROBERT S. JANIS
Managing Director
- Co-Portfolio Manager,
Post-Venture Capital Portfolio
since March 1999
- Associate Portfolio Manager, Post-Venture Capital Portfolio since
inception to March 1999
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1994
[SCOTT T. LEWIS PHOTO]
SCOTT T. LEWIS
Managing Director
- Co-Portfolio Manager,
Value Portfolio
since December 1999
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1986
Job titles indicate position with the investment adviser.
28
<PAGE> 30
[STEVEN J. LURITO PHOTO]
STEPHEN J. LURITO
Managing Director
- Co-Portfolio Manager, Small Company Growth Portfolio since inception
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1987
[STACY DUTTON PHOTO]
STACY DUTTON
Director
- Co-Portfolio Manager, Value Portfolio since June 1999
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1997
- Senior vice president and analyst with Jennison Associates Capital Corp.,
1993 to 1997
[Sammy Oh Photo]
SAMMY OH
Director
- Co-Portfolio Manager, Small Company Growth Portfolio since March 1999
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1997
- Vice president with Bessemer Trust, 1995 to 1997
- Vice president with Forstmann-Leff, 1993 to 1995
SUB-INVESTMENT ADVISER PORTFOLIO MANAGERS
Post-Venture Capital Portfolio
RAYMOND L. HELD and THADDEUS I. GRAY manage the Post-Venture Capital
Portfolio's investments in private-equity portfolios. Both are Investment
Managers and Managing Directors of Abbott Capital Management LLC, the
portfolio's sub-investment adviser. Mr. Held has been with Abbott since
1986, while Mr. Gray joined the firm in 1989.
29
<PAGE> 31
ABOUT YOUR ACCOUNT
SHARE VALUATION
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the 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.
The Post-Venture Capital Portfolio initially values its investments in
private-equity portfolios at cost. After that, the Post-Venture Capital
Portfolio values these investments according to reports from the private-equity
portfolios that the sub-investment adviser generally receives on a quarterly
basis. The portfolio's net asset value typically will not reflect interim
changes in the values of its private-equity-portfolio investments.
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 portfolios typically distribute dividends and capital gains annually,
usually in December.
30
<PAGE> 32
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.
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 retirement
account, you should be especially aware of the following 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.
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.
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.
31
<PAGE> 33
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
Value Portfolio $1,000,000
Small Company Value
Portfolio $1,000,000
Small Company Growth
Portfolio $1,000,000
Post-Venture Capital
Portfolio $1,000,000
There is no minimum subsequent investment. The minimum initial investment for
any group of related persons is an aggregate $4,000,000.
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 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.
32
<PAGE> 34
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY EXCHANGE
- - Call our Institutional Shareholder - Call our Institutional Shareholder
Service Center to request an exchange Service Center to request an exchange
from another Warburg Pincus fund or from another Warburg Pincus fund or
portfolio. Be sure to read the current portfolio
Prospectus for the new fund or If you do not have telephone privileges,
portfolio. mail or fax a letter of instruction.
If you do not have telephone privileges,
mail or fax a letter of instruction.
BY WIRE
- - Complete and sign the New Account - Call our Institutional Shareholder
Application. Service Center by 4 p.m. ET to inform us
- - Call our Institutional Shareholder of the incoming wire. Please be sure to
Service Center and fax the signed New specify the account registration,
Account Application by 4 p.m. ET. account number and the fund and
- - Institutional Shareholder Services will portfolio name on your wire advice.
telephone you with your account number. - Wire the money for receipt that day.
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
33
<PAGE> 35
SELLING SHARES
<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
<S> <C>
BY MAIL
Write us a letter of instruction that - Sales of any amount.
includes:
- - your name(s) and signature(s)
- - 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 Warburg Pincus
Institutional Fund, Inc.
If only a letter of instruction is
required, you can fax it to the
Institutional Shareholder Service Center
(unless a signature guarantee is
required).
BY EXCHANGE
- - Call our Institutional Shareholder - Accounts with telephone privileges.
Service Center to request an exchange If you do not have telephone privileges,
into another Warburg Pincus fund or mail or fax a letter of instruction to
portfolio. Be sure to read the current exchange shares.
Prospectus for the new fund or portfolio.
BY PHONE
Call our Institutional Shareholder - Accounts with telephone privileges.
Service Center to request a redemption.
You can receive the proceeds as:
- - a check mailed to the address of record
- - a wire to your bank
See "By Wire" for details.
BY WIRE
- - Complete the "Wire Instructions" or - Requests by phone or mail.
"ACH on Demand" section of your New
Account Application.
- - For federal-funds wires, proceeds will
be wired on the next business day.
</TABLE>
34
<PAGE> 36
HOW TO REACH US
Institutional Shareholder Service Center
Toll free: 800-222-8977
Fax: 212-370-9833
Mail:
Warburg Pincus Institutional
Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
Overnight/Courier Service:
Boston Financial
Attn: Warburg Pincus 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.
Warburg Pincus 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
35
<PAGE> 37
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon as
your purchase order is executed.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by 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
36
<PAGE> 38
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37
<PAGE> 39
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38
<PAGE> 40
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's 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 Warburg Pincus 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:
Warburg Pincus
Institutional Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Warburg Pincus Institutional Fund, Inc.
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBER:
Warburg Pincus Institutional
Fund, Inc. 811-6670
[WARBURG PINCUS LOGO]
P.O. Box 9030, Boston, MA 02205-9030
800-222-8977 - www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR WPINU-1-0200
<PAGE> 41
[Warburg Pincus Logo] [Credit Suisse Logo]
PROSPECTUS
February 29, 2000
WARBURG PINCUS INSTITUTIONAL FUND, INC.
-- INTERNATIONAL EQUITY PORTFOLIO
-- EMERGING MARKETS PORTFOLIO
-- JAPAN GROWTH 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.
Warburg Pincus Funds are advised by Credit Suisse Asset
Management, LLC.
<PAGE> 42
CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goals and Principal Strategies.................. 4
Investor Profile................................ 4
A Word About Risk............................... 5
PERFORMANCE SUMMARY................................ 8
Year-by-Year Total Returns...................... 8
Average Annual Total Returns.................... 9
INVESTOR EXPENSES.................................. 10
Fees and Portfolio Expenses..................... 10
Example......................................... 11
THE PORTFOLIOS IN DETAIL........................... 12
The Management Firm............................. 12
Portfolio Information Key....................... 13
INTERNATIONAL EQUITY PORTFOLIO..................... 14
EMERGING MARKETS PORTFOLIO......................... 16
JAPAN GROWTH PORTFOLIO............................. 20
MORE ABOUT RISK.................................... 22
Introduction.................................... 22
Types of Investment Risk........................ 22
Certain Investment Practices.................... 24
MEET THE MANAGERS.................................. 28
ABOUT YOUR ACCOUNT................................. 31
Share Valuation................................. 31
Account Statements.............................. 31
Distributions................................... 31
Taxes........................................... 32
BUYING SHARES...................................... 33
SELLING SHARES..................................... 35
OTHER POLICIES..................................... 37
FOR MORE INFORMATION............................... back cover
</TABLE>
3
<PAGE> 43
KEY POINTS
GOALS AND PRINCIPAL STRATEGIES
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------
PORTFOLIO/RISK FACTORS GOAL STRATEGIES
- ----------------------------------------------------------------------------------
INTERNATIONAL EQUITY Long-term capital - Invests in foreign equity
PORTFOLIO appreciation securities
Risk factors: - Diversifies its investments
Market risk across countries, including
Foreign securities emerging markets
- Favors stocks with discounted
valuations, using a value-based,
bottom-up investment approach
- ----------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO Growth of capital - Invests in foreign equity
Risk factors: securities
Market risk - Focuses on the world's less
Foreign securities developed countries
Emerging-markets focus - Analyzes a company's growth
Non-diversified status potential, using a bottom-up
investment approach
- ----------------------------------------------------------------------------------
JAPAN GROWTH PORTFOLIO Long-term growth - Invests in equity securities of
Risk factors: of capital Japanese companies
Market risk - May invest in companies of any
Foreign securities size
Country focus - May look for companies with
Non-diversified status attractive growth potential or
companies whose equity
securities appear undervalued
- ----------------------------------------------------------------------------------
</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 investing for growth or 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> 44
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.
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.
FOREIGN SECURITIES
All portfolios
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.
COUNTRY FOCUS
Japan Growth Portfolio
Focusing on a single country involves increased currency, political,
regulatory and other risks. Market swings in the targeted country (Japan) likely
will have a greater effect on portfolio performance than they would in a more
geographically diversified equity portfolio.
5
<PAGE> 45
EMERGING-MARKETS FOCUS
Emerging Markets Portfolio
Focusing on emerging (less developed) markets involves higher levels of risk,
including increased currency, information, liquidity, market, political and
valuation risks. Deficiencies in regulatory oversight, market infrastructure,
shareholder protections and company laws could expose the portfolio to
operational and other risks as well. Some countries may have restrictions that
could limit the portfolio's access to attractive opportunities. Additionally,
emerging markets often face serious economic problems (such as high external
debt, inflation and unemployment) that could subject the portfolio to increased
volatility or substantial declines in value.
NON-DIVERSIFIED STATUS
Emerging Markets Portfolio,
Japan Growth Portfolio
Compared to a diversified mutual fund, a non-diversified portfolio may invest
a greater share of its assets in the securities of fewer companies. As a result,
the portfolios may be subject to greater volatility with respect to their
respective portfolio securities than a portfolio that is more broadly
diversified.
6
<PAGE> 46
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7
<PAGE> 47
PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in these portfolios. The bar chart shows you how each
portfolio's performance has varied from year to year for up to 10 years. The
table compares each portfolio's performance over time to that of a broadly based
securities market index. As with all mutual funds, past performance is not a
prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS
[BAR GRAPH]
<TABLE>
<CAPTION>
BALANCED FUND
-------------
<S> <C>
1992
1993 52.36
1994 0.86
1995 9.91
1996 11.23
1997 -2.57
1998 6.15
1999 57.69
- ------------------------------------------------------------------------------------------
</TABLE>
[BAR GRAPH]
<TABLE>
<CAPTION>
BALANCED FUND
-------------
<S> <C>
1992
1993
1994
1995
1996
1997 -14.49
1998 -25.23
1999 85.69
- ------------------------------------------------------------------------------------------
</TABLE>
[BAR GRAPH]
<TABLE>
<CAPTION>
BALANCED FUND
-------------
<S> <C>
1992
1993
1994
1995
1996
1997
1998 8.75
1999 279.8
- ------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 48
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/99: 1999 1995-1999 1990-1999 PORTFOLIO DATE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY
PORTFOLIO 57.69% 14.80% NA 16.55% 9/1/92
- ---------------------------------------------------------------------------------------
MSCI ALL COUNTRY WORLD
EXCLUDING THE U.S.
INDEX(1) 31.80% 12.10% NA 13.47%(2)
- ---------------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO 85.69% NA NA 6.63% 9/30/96
- ---------------------------------------------------------------------------------------
MSCI EMERGING MARKETS FREE
INDEX(3) 66.41% NA NA 2.75%
- ---------------------------------------------------------------------------------------
JAPAN GROWTH PORTFOLIO 279.86% NA NA 87.67% 10/31/97
- ---------------------------------------------------------------------------------------
TOPIX(4) 78.54% NA NA 25.58%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country World Excluding the
U.S. Index is a market-capitalization-weighted index of companies listed on
stock exchanges outside of the U.S.
(2) Performance since August 31, 1992.
(3) The Morgan Stanley Capital International Emerging Markets Free Index is a
market-capitalization-weighted index of emerging-market countries determined
by Morgan Stanley. The index includes only those countries open to non-local
investors.
(4) The Topix is an unmanaged capitalization-weighted index (with no defined
investment objective) designed to reflect the general movement of the
Japanese stock market. The index consists of all shares listed on the First
Section of the Tokyo Stock Exchange, which is generally reserved for Japan's
larger companies.
UNDERSTANDING PERFORMANCE
- TOTAL RETURN tells you how much an investment in a portfolio has changed
in value over a given time period. It assumes that all dividends and
capital gains (if any) were reinvested in additional shares. The change
in value can be stated either as a cumulative return or as an average
annual rate of return.
- A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.
- An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what constant annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, assuming you held it for the entire
period.
- Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.
9
<PAGE> 49
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 October 31,
1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
INTERNATIONAL EMERGING JAPAN
EQUITY MARKETS GROWTH
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 fund assets)
- --------------------------------------------------------------------------------------------
Management fee .80% 1.00% 1.10%
- --------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee NONE NONE NONE
- --------------------------------------------------------------------------------------------
Other expenses .33% 1.21% 1.57%
- --------------------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES* 1.13% 2.21% 2.67%
- --------------------------------------------------------------------------------------------
</TABLE>
* Actual fees and expenses for the fiscal year ended October 31, 1999 are shown
below. Fee waivers and expense reimbursements or credits reduced expenses for
some portfolios during 1999 but may be discontinued at any time:
<TABLE>
<CAPTION>
EXPENSES AFTER INTERNATIONAL EMERGING JAPAN
WAIVERS AND EQUITY MARKETS GROWTH
REIMBURSEMENTS PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
Management fee .63% .44% .16%
Distribution and service (12b-1) fee NONE NONE NONE
Other expenses .32% .81% 1.09%
----- ----- -----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES .95% 1.25% 1.25%
</TABLE>
10
<PAGE> 50
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 and credits), and you close your account at the end of
each of the time periods shown. Based on these assumptions, your cost would be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNATIONAL EQUITY PORTFOLIO $115 $359 $622 $1,375
- ----------------------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO $224 $691 $1,185 $2,544
- ----------------------------------------------------------------------------------------------
JAPAN GROWTH PORTFOLIO $270 $829 $1,415 $3,003
- ----------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 51
THE PORTFOLIOS IN DETAIL
THE MANAGEMENT FIRM
CREDIT SUISSE ASSET
MANAGEMENT, LLC
One Citicorp Center
153 East 53rd Street
New York, NY 10022
- Investment adviser for the 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 approximately $72 billion in
the U.S. and $203 billion globally
- Credit Suisse Asset Management has offices in 14 countries, including
SEC-registered offices in New York and London; other offices (such as those in
Budapest, Frankfurt, Milan, Moscow, Paris, Prague, Sydney, Tokyo, Warsaw and
Zurich) are not registered with the U.S. Securities and Exchange Commission
For easier reading, Credit Suisse Asset Management, LLC will be referred to
as "CSAM" or "we" throughout this Prospectus.
12
<PAGE> 52
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 fund 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
Actual portfolio expenses for the 1999 fiscal year. Future expenses may be
higher or lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the portfolio. Expressed as a percentage of average net
assets after waivers.
- OTHER EXPENSES Fees paid by the portfolio for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.
FINANCIAL HIGHLIGHTS
A table showing the portfolio's audited financial performance for up to five
years.
- TOTAL RETURN How much you would have earned on an investment in the
portfolio, assuming you had reinvested all dividend and capital-gain
distributions.
- PORTFOLIO TURNOVER An indication of trading frequency. The portfolios may
sell securities without regard to the length of time they have been held. A
high turnover rate may increase the portfolio's transaction costs and
negatively affect its performance. Portfolio turnover may also result in
capital-gain distributions that could raise your income-tax liability.
The Annual Report includes the auditor's report, along with the portfolio's
financial statements. It is available free upon request.
13
<PAGE> 53
INTERNATIONAL EQUITY PORTFOLIO
GOAL AND STRATEGIES
The International Equity Portfolio seeks long-term capital appreciation. To
pursue this goal, it invests in equity securities of companies located or
conducting a majority of their business outside the U.S.
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of issuers from at least three foreign countries.
The portfolio intends to diversify its investments across different countries,
although at times it may invest a significant part of its assets in a single
country. Although the portfolio emphasizes developed countries, it may also
invest in emerging markets.
In choosing equity securities, the portfolio's 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
This portfolio intends to invest substantially all of its assets in the
following types of equity securities:
- common stocks
- 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 the portfolio invests in emerging markets or focuses on a
single country or region, it takes on additional risks that could hurt its
performance. Investing in emerging markets involves access, operational and
other risks not generally encountered in developed countries. Focusing on a
single country or region may cause the portfolio to be more volatile than a more
geographically diversified equity fund. "More About Risk" details these and
certain other investment practices the portfolio may use. Please read that
section carefully before you invest.
14
<PAGE> 54
PORTFOLIO MANAGEMENT
P. Nicholas Edwards, Harold W. Ehrlich, Vincent J. McBride and Harold E.
Sharon manage the portfolio. You can find out more about them in "Meet the
Managers."
INVESTOR EXPENSES
Management fee .63%
All other expenses .32%
-----------
Total expenses .95%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 10/99 10/98 10/97 10/96 10/95
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
year $14.41 $16.51 $16.14 $15.10 $16.34
- -------------------------------------------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.20(1) 0.21 0.20 0.26 0.15
Net gains or losses on
investments
and foreign currency related
items
(both realized and unrealized) 4.38 (0.91) 0.78 1.28 (0.64)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities 4.58 (0.70) 0.98 1.54 (0.49)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.14) (0.18) (0.13) (0.50) (0.18)
Distributions from realized
gains 0.00 (1.22) (0.48) 0.00 (0.57)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.14) (1.40) (0.61) (0.50) (0.75)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $18.85 $14.41 $16.51 $16.14 $15.10
- --------------------------------------------------------------------------------------------------------------------------------
Total return 32.02% (4.11%) 6.20% 10.48% (2.83%)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(000s omitted) $551,830 $1,019,242 $1,169,817 $937,443 $507,759
Ratio of expenses to average
net assets .96%(2) .95%(2) .95%(2) .96%(2) .95%
Ratio of net income to average
net assets 1.23% 1.21% .98% 1.05% 1.20%
Decrease reflected in above
operating expense ratios due
to waivers/reimbursement .17% .13% .14% .18% .23%
Portfolio turnover rate 120.24% 113.58% 69.99% 29.91% 39.70%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share information is calculated using the average shares outstanding
method.
(2) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements resulted in a reduction to
the portfolio's expenses by .01%, .00%, .00% and .01%, for the years ending
October 31, 1999, 1998, 1997 and 1996, respectively. The portfolio's
operating expense ratio after reflecting these arrangements were .95%, .95%,
.95% and .95% for the years ended October 31, 1999, 1998, 1997 and 1996,
respectively.
15
<PAGE> 55
EMERGING MARKETS PORTFOLIO
GOAL AND STRATEGIES
The Emerging Markets Portfolio seeks growth of capital. To pursue this goal,
it invests in equity securities of companies located in or conducting a majority
of their business in emerging markets.
An emerging market is any country:
- generally considered to be an emerging or developing country by the United
Nations, or by the World Bank and the International Finance Corporation (IFC),
or
- included in the IFC Investable Index or the Morgan Stanley Capital
International Emerging Markets Index, or
- having a per-capita gross national product of $2,000 or less
Under this definition, most countries of the world (other than the U.S.,
Canada, Western European countries, Japan, Australia and New Zealand) are
considered emerging markets.
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of issuers from at least three emerging markets. The
portfolio may invest in companies of any size, including emerging-growth
companies--small or medium-size companies that have passed their start-up phase,
show positive earnings, and offer the potential for accelerated earnings growth.
Its non-diversified status allows the portfolio to invest a greater share of
its assets in the securities of fewer companies. However, the portfolio managers
typically have diversified the portfolio's investments.
PORTFOLIO INVESTMENTS
This portfolio invests primarily in equity securities of emerging-markets
issuers. Equity holdings may consist of:
- common and preferred stocks
- debt securities convertible into common or preferred stock
- rights and warrants
- equity interests in trusts and partnerships
- depositary receipts
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
- emerging-markets focus
- non-diversified status
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."
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<PAGE> 56
Because the portfolio focuses on emerging markets, you should expect it to be
riskier than a more broadly diversified international equity fund. Investing in
emerging markets involves access, operational and other risks not generally
encountered in developed countries. In addition, emerging markets often face
serious economic problems that could subject the portfolio to increased
volatility or substantial declines in value.
Non-diversification might cause the portfolio to be more volatile than a
diversified portfolio. "More About Risk" details certain other investment
practices the portfolio may use. Please read that section carefully before you
invest.
PORTFOLIO MANAGEMENT
Vincent J. McBride and Harold E. Sharon are Co-Portfolio Managers of the
portfolio. Associate Portfolio Managers Jun Sung Kim and Frederico D. Laffan
assist them. The Credit Suisse Asset Management International Equity Team is
also responsible for the management of the portfolio. You can find out more
about the fund's managers in "Meet the Managers."
INVESTOR EXPENSES
Management fee .44%
All other expenses .81%
------------
Total expenses 1.25%
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<PAGE> 57
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 10/99 10/98 10/97 10/96(1)
<S> <C> <C> <C> <C>
PER-SHARE DATA
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.72 $9.36 $9.86 $10.00
- -------------------------------------------------------------------------------------------
Investment activities:
Net investment income 0.37 0.11(2) 0.10 0.01
Net gains or losses on investments and
foreign currency related items (both
realized and unrealized) 2.00 (2.99) (0.53) (0.15)
- -------------------------------------------------------------------------------------------
Total from investment activities 2.37 (2.88) (0.43) (0.14)
- -------------------------------------------------------------------------------------------
Distributions:
From net investment income (0.06) (0.01) (0.02) 0.00
From realized capital gains 0.00 (0.75) (0.05) 0.00
- -------------------------------------------------------------------------------------------
Total distributions (0.06) (0.76) (0.07) 0.00
- -------------------------------------------------------------------------------------------
Net asset value, end of period $8.03 $5.72 $9.36 $9.86
- -------------------------------------------------------------------------------------------
Total return 41.90% (32.90%) (4.43%) (1.40%)(4)
- -------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $1,235 $23,427 $37,281 $29,698
Ratio of expenses to average net assets 1.25%(3) 1.25%(3) 1.25%(3) 1.25%(5,3)
Ratio of net income to average net assets 1.23% 1.54% .92% 1.75%(5)
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements .96% .16% .40% 2.18%(5)
Portfolio turnover rate 150.10% 152.57% 107.21% 2.39%(4)
</TABLE>
(1) For the period September 30, 1996 (Commencement of Operations) through
October 31, 1996.
(2) Per share information is calculated using the average share outstanding
method.
(3) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the
portfolio's expense ratio.
(4) Not annualized.
(5) Annualized.
18
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19
<PAGE> 59
JAPAN GROWTH PORTFOLIO
GOAL AND STRATEGIES
The Japan Growth Portfolio seeks long-term growth of capital. To pursue this
goal, it invests in equity securities of growth companies located in or
conducting a majority of their business in Japan.
CSAM believes that Japanese industry is in an important period of
deregulation and restructuring. By investing in growth companies positioned to
benefit from the dynamic structural changes taking place in the Japanese
industrial system, the portfolio intends to provide investors with an
opportunity to participate in these developments.
In choosing equity securities, the portfolio's managers seek to identify
Japanese companies with attractive growth potential. The managers also look for
companies whose equity securities appear undervalued based on factors such as
earnings or assets. The portfolio may invest in companies of any size, whether
traded on an exchange or over-the-counter.
Under normal market conditions, the portfolio will invest at least 65% of
assets in equity securities of Japanese issuers. The remaining portion may be
invested in securities of other Asian issuers. Except for temporary defensive
purposes, the portfolio does not intend to invest in securities of non-Asian
issuers.
PORTFOLIO INVESTMENTS
This portfolio currently intends to invest at least 80% of assets in equity
securities of Japanese issuers. Equity holdings may consist of:
- common and preferred stocks
- rights and warrants
- securities convertible into or exchangeable for common stocks
- American Depositary Receipts ("ADRs")
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
- country focus
- non-diversified status
The value of your investment generally will fluctuate in response to the
Japanese stock market. Because the portfolio invests internationally, it carries
additional risks, including currency, information and political risks. These
risks are defined in "More About Risk."
Targeting a single country could hurt the portfolio's performance or may
cause the portfolio to be more volatile than a more geographically diversified
equity portfolio. Portfolio performance is closely tied to economic and
political conditions within Japan. In addition, non-diversification might cause
the portfolio to be more volatile than a diversified mutual fund.
To the extent that the portfolio invests in smaller companies or
special-situation companies, it takes on further risks that could hurt its
performance. "More About Risk" details these and certain other investment
practices the portfolio may
20
<PAGE> 60
use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT
P. Nicholas Edwards and Todd Jacobson manage the portfolio. You can find out
more about them in "Meet the Managers."
INVESTOR EXPENSES
Management fee .16%
All other expenses 1.09%
Total expenses 1.25%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the portfolio's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PERIOD ENDED: 10/99 10/98
- ------------------------------------------------------------------------------------
<S> <C> <C>
PER-SHARE DATA
- ------------------------------------------------------------------------------------
Net asset value, beginning of year $9.13 $10.00
- ------------------------------------------------------------------------------------
Investment activities:
Net investment income (loss) (0.09) 0.07
Net gains or losses on investments and foreign currency
related items (both realized and unrealized) 18.79 (0.85)
- ------------------------------------------------------------------------------------
Total from investment activities 18.70 (0.78)
- ------------------------------------------------------------------------------------
Distributions:
From net investment income (0.09) (0.09)
- ------------------------------------------------------------------------------------
Total distributions (0.09) (0.09)
- ------------------------------------------------------------------------------------
Net asset value, end of year $27.74 $9.13
- ------------------------------------------------------------------------------------
Total return 206.60% (7.84%)
- ------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $18,398 $1,476
Ratio of expenses to average net assets 1.27%* 1.25%*
Ratio of net income (loss) to average net assets (.85%) 0.39%
Decrease reflected in above operating expense ratios due to
waivers/reimbursements 1.40% 4.52%
Portfolio turnover rate 70.37% 39.88%
- ------------------------------------------------------------------------------------
</TABLE>
* Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements resulted in a reduction to the net
expense ratio by .02% and .00% for the years ended October 31, 1999 and 1998,
respectively. The operating expense ratio after reflecting these arrangements
was 1.25% and 1.25% for the years ended October 31, 1999 and 1998,
respectively.
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<PAGE> 61
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 of 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 may 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.
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
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<PAGE> 62
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 portfolio 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.
YEAR 2000 PROCESSING RISK The inability of a computer system to distinguish
the year 2000 from the year 1900 (the "Year 2000 Issue") could cause
difficulties for system users after December 31, 1999. Although this date has
passed, the impact of the failure by companies or foreign markets in which a
portfolio invests to address the Year 2000 Issue effectively could continue to
be felt into 2000 and may negatively impact the portfolios' performance.
23
<PAGE> 63
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
<TABLE>
<S> <C>
[-] Permitted without limitation; does not indicate actual
use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of NET portfolio assets; does
not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of TOTAL portfolio assets;
does not indicate actual use
[ ] Permitted, but not expected to be used to a significant
extent
- -- Not permitted
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING JAPAN
EQUITY MARKETS GROWTH
PORTFOLIO PORTFOLIO 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. 30% 30% 30%
- ------------------------------------------------------------------------------------
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 portfolio.
Currency, market, political risks. [- ] [- ] [- ]
- ------------------------------------------------------------------------------------
CURRENCY TRANSACTIONS Instruments, such as options, futures,
forwards or swaps, 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. Swaps involve the right or obligation to
receive or make payments based on two different currency
rates. Correlation, credit, currency, hedged exposure,
liquidity, political, speculative exposure, valuation
risks.(1) [- ] [- ] [- ]
- ------------------------------------------------------------------------------------
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 SWAPS A contract between a portfolio and another
party in which the parties agree to exchange streams of
payments based on certain benchmarks. For example, a
portfolio may use equity 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. [ ] [ ] [ ]
- ------------------------------------------------------------------------------------
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) [ ] [ ] [ ]
- ------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 64
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING JAPAN
EQUITY MARKETS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------
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. [ ] 35% [ ]
- ------------------------------------------------------------------------------------
OPTIONS Instruments that provide a right to buy (call), a
particular security, currency or an index of securities at a
fixed price within a certain time period. A portfolio may
purchase or sell (write) both put and call options for
hedging or speculative purposes.(1) Correlation, credit,
hedged exposure, liquidity, market, speculative exposure,
valuation risks. 25% 25% 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. [- ] [- ] [ ]
- ------------------------------------------------------------------------------------
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% 10%
- ------------------------------------------------------------------------------------
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 "AGAINST THE BOX" A short sale when the
portfolio owns enough shares of the security involved to
cover the borrowed securities, if necessary. Liquidity,
market, speculative exposure risks. [ ] [ ] [ ]
- ------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 65
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING JAPAN
EQUITY MARKETS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------
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% 10% 10%
- ------------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20% 20% 20%
- ------------------------------------------------------------------------------------
</TABLE>
(1) The portfolios are not obligated to pursue any hedging strategy. In
addition, hedging practices may not be available, may be too costly to be
used effectively or may be unable to be used for other reasons.
(2) Each 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.
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27
<PAGE> 67
MEET THE MANAGERS
Job titles indicate position with the investment adviser.
[Edwards PHOTO]
P. NICHOLAS EDWARDS
Managing Director
- Co-Portfolio Manager, International Equity Portfolio since April 1998
- Co-Portfolio Manager, Japan Growth Portfolio since inception
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus Asset Management, Inc. (Warburg Pincus)
- With Warburg Pincus since 1995
- Director at Jardine Fleming Investment Advisers, Tokyo, 1984 to 1995
[SHARON PHOTO]
HAROLD E. SHARON
Managing Director
- Co-Portfolio Manager, International Equity Portfolio since December 1998
- Co-Portfolio Manager, Emerging Markets Portfolio since July 1999
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since March 1998
- Executive director and portfolio manager with CIBC Oppenheimer, 1994 to 1998
[ERLICH PHOTO]
HAROLD W. EHRLICH, CFA, CIC
Managing Director
- Co-Portfolio Manager, International Equity Portfolio since April 1998
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1995
- Senior vice president, portfolio manager and analyst at Templeton Investment
Counsel Inc., 1987 to 1995
[JACOBSON PHOTO]
TODD JACOBSON
Director
- Co-Portfolio Manager,
Japan Growth Portfolio
since 1999
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1997
28
<PAGE> 68
[LAFFAN PHOTO]
FEDERICO D. LAFFAN
Director
- Associate Portfolio Manager, Emerging Markets Portfolio since April 1998
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1997
- Senior manager and partner with Green Cay Asset Management, 1996 to 1997
- Senior portfolio manager and director with Foreign & Colonial Emerging
Markets, London, 1990 to 1996
[MCBRIDE PHOTO]
VINCENT J. MCBRIDE
Director
- Co-Portfolio Manager, International Equity Portfolio since April 1998
- Co-Portfolio Manager, Emerging Markets Portfolio since 1997
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1994
- International equity analyst with Smith Barney Inc., 1993 to 1994
[KIM PHOTO]
JUN SUNG KIM
Vice President
- Associate Portfolio Manager, Emerging Markets Portfolio since April 1998
- With CSAM since 1999 as a result of Credit Suisse's acquisition of Warburg
Pincus
- With Warburg Pincus since 1997
- Investment manager with Asset Korea Ltd., Seoul, 1995 to 1997
- Investment analyst with Baring Securities Ltd., Seoul, 1994 to 1995
- Assistant investment manager with Koeneman Capital Management, Singapore,
1992 to 1994
29
<PAGE> 69
The day-to-day management of the Emerging Markets Portfolio is also the
responsibility of the Credit Suisse Asset Management International Equity
Management Team. The team consists of the following individuals:
[Watt PHOTO]
RICHARD WATT
Managing Director
- Team member since 1995
- With CSAM since 1995
- Director and head of emerging markets investments and research at Gartmore
Investment Limited in London, 1992 to 1995
[Hrabchak PHOTO]
ROBERT B. HRABCHAK
Director
- Team member since 1997
- With CSAM since 1997
- Senior portfolio manager at Merrill Lynch Asset Management, 1995 to 1997
- Associate at Salomon Brothers, 1993 to 1995
[Alejos PHOTO]
EMILY ALEJOS
Director
- Team member since 1997
- With CSAM since 1997
- Vice president and emerging markets portfolio manager with Bankers Trust,
1993 to 1997
[Zlatar PHOTO]
ALAN ZLATAR
Vice President
- Team member since 1997
- With CSAM since 1997
- European equity analyst at Credit Suisse Group in Zurich, 1994 to 1997
30
<PAGE> 70
ABOUT YOUR ACCOUNT
SHARE VALUATION
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing 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.
The portfolios typically distribute dividends and capital gains annually,
usually 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.
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<PAGE> 71
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 retirement
account, you should be especially aware of the following 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 will
largely be derived from the portfolio's short-term or long-term capital gains.
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.
TAXES ON TRANSACTIONS
Any time you sell or exchange shares, it is considered a taxable event for
you. Depending on the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
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<PAGE> 72
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
International Equity
Portfolio $3,000,000
Emerging Markets Portfolio $2,000,000
Japan Growth Portfolio $1,000,000
MINIMUM SUBSEQUENT INVESTMENT
International Equity Portfolio $50,000
Emerging Markets Portfolio $50,000
Japan Growth Portfolio NONE
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.
33
<PAGE> 73
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------
<S> <C>
BY EXCHANGE
- ----------------------------------------------------------------------------------------
- - Call our Institutional Shareholder -Call our Institutional Shareholder
Service Center to request an exchange Service Center to request an exchange
from another Warburg Pincus fund or from another Warburg Pincus fund or
portfolio. Be sure to read the current portfolio.
Prospectus for the new fund or If you do not have telephone privileges,
portfolio. mail or fax a letter of instruction.
If you do not have telephone privileges,
mail or fax a letter of instruction.
- ----------------------------------------------------------------------------------------
BY WIRE
- ----------------------------------------------------------------------------------------
- - Complete and sign the New Account -Call our Institutional Shareholder
Application. Service Center by 4 p.m. ET to inform us
- - Call our Institutional Shareholder of the incoming wire. Please be sure to
Service Center and fax the signed New specify the account registration,
Account Application by 4 p.m. ET. account number and the fund and
- -Institutional Shareholder Services will portfolio name on your wire advice.
telephone you with your account number. - Wire the money for receipt that day.
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
34
<PAGE> 74
SELLING SHARES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
- ---------------------------------------------------------------------------------------
<S> <C>
BY MAIL
- ----------------------------------------------------------------------------------------
Write us a letter of instruction that - Sales of any amount.
includes:
- - your name(s) and signature(s)
- - 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 Warburg Pincus
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 - Accounts with telephone privileges.
Service Center to request an exchange
into another Warburg Pincus fund or If you do not have telephone privileges,
portfolio. Be sure to read the current mail or fax a letter of instruction to
Prospectus for the new fund or portfolio. exchange shares.
- ----------------------------------------------------------------------------------------
BY PHONE
- ----------------------------------------------------------------------------------------
Call our Institutional Shareholder - Accounts with telephone privileges.
Service Center to request a redemption.
You can receive the proceeds as:
- - a check mailed to the address of record
- - a wire to your bank
See "By Wire" for details.
- ----------------------------------------------------------------------------------------
BY WIRE
- ----------------------------------------------------------------------------------------
- -Complete the "Wire Instructions" section - Requests by phone or mail.
of your New Account Application.
- - For federal-funds wires, proceeds will
be wired on the next business day.
- ----------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 75
HOW TO REACH US
Institutional Shareholder Service Center
Toll Free: 800-222-8977
Fax: 212-370-9833
Mail:
Warburg Pincus Institutional
Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
Overnight/Courier Service:
Boston Financial
Attn: Warburg Pincus 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.
Warburg Pincus 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
- redemptions in certain large accounts (other than by exchange)
- requests to send the proceeds to a different payee or address
- shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED SHARES
For 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
36
<PAGE> 76
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned-dividend distributions as soon as
your purchase order is executed.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by 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
37
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38
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39
<PAGE> 79
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 Warburg Pincus 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:
Warburg Pincus Institutional Fund, Inc.
P.O. Box 9030
Boston, MA 02205-9030
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Warburg Pincus Institutional Fund, Inc.
66 Brooks Drive
Braintree, MA 02184
ON THE INTERNET:
www.warburg.com
SEC FILE NUMBER:
Warburg Pincus Institutional
Fund, Inc. 811-6670
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-222-8977 - www.warburg.com
PROVIDENT DISTRIBUTORS, INC., DISTRIBUTOR WPINI-1-0200
<PAGE> 80
STATEMENT OF ADDITIONAL INFORMATION
February 29, 2000
WARBURG PINCUS INSTITUTIONAL FUND, INC.
POST-VENTURE CAPITAL PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
VALUE PORTFOLIO
EMERGING MARKETS PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
JAPAN GROWTH PORTFOLIO
This Statement of Additional Information provides information about Warburg
Pincus Institutional Fund, Inc. (the "Fund"), relating to the Post-Venture
Capital, Small Company Growth, Small Company Value and Value Portfolios (each a
"U.S. Portfolio" and collectively the "U.S. Portfolios") and relating to the
Emerging Markets, International Equity and Japan Growth Portfolios (each an
"International Portfolio," collectively, the "International Portfolios" and
together with the U.S. Portfolios, the "Portfolios") that supplements
information contained in the Prospectus for the U.S. Portfolios and the
Prospectus for the International Portfolios (collectively, the "Prospectuses"),
each dated February 29, 2000.
The Fund's audited Annual Report dated October 31, 1999, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.
This Statement of Additional Information is not itself a Prospectus and no
investment in shares of the Portfolios should be made solely upon the
information contained herein. Copies of the Fund's Prospectuses, Annual Report
and information regarding each Portfolio's current performance may be obtained
by writing or telephoning:
Warburg Pincus
P.O. Box 9030
Boston, MA 02205-9030
1-800-222-8977
<PAGE> 81
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES............................................................................... 1
Options on Securities and Securities Indices and Futures and Currency Exchange Transactions................... 1
Securities Options......................................................................................... 1
Securities Index Options................................................................................... 4
OTC Options................................................................................................ 5
Currency Exchange Transactions............................................................................. 5
Forward Currency Contracts................................................................................. 5
Currency Options........................................................................................... 6
Currency Hedging........................................................................................... 6
Futures Activities............................................................................................ 7
Futures Contracts.......................................................................................... 7
Options on Futures Contracts............................................................................... 8
Hedging Generally............................................................................................. 9
Swaps...................................................................................................... 10
Asset Coverage for Forward Contracts, Options, Futures and Options on Futures and Swaps....................... 10
Foreign Investments........................................................................................... 11
Foreign Currency Exchange.................................................................................. 11
Information................................................................................................ 12
Political Instability...................................................................................... 12
Foreign Markets............................................................................................ 12
Increased Expenses......................................................................................... 12
Privatizations............................................................................................. 12
Foreign Debt Securities.................................................................................... 13
Brady Bonds................................................................................................ 13
Depositary Receipts........................................................................................ 13
Emerging Markets........................................................................................... 14
Euro Conversion............................................................................................ 14
Special Considerations Regarding Japan........................................................................ 14
U.S. Government Securities.................................................................................... 16
Money Market Obligations...................................................................................... 17
Repurchase Agreements...................................................................................... 17
Money Market Mutual Funds.................................................................................. 17
Debt Securities............................................................................................... 18
Below Investment Grade Securities.......................................................................... 18
Structured Securities...................................................................................... 20
Mortgage-Backed Securities................................................................................. 20
</TABLE>
<PAGE> 82
<TABLE>
<S> <C>
Asset-Backed Securities.................................................................................... 21
Structured Notes, Bonds or Debentures...................................................................... 21
Loan Participations and Assignments........................................................................ 22
Temporary Defensive Strategies................................................................................ 22
Securities of Other Investment Companies...................................................................... 23
Lending of Portfolio Securities............................................................................... 23
When-Issued Securities and Delayed-Delivery Transactions...................................................... 23
Short Sales................................................................................................... 24
Short Sales Against the Box................................................................................ 25
Convertible Securities........................................................................................ 25
Warrants...................................................................................................... 25
Non-Publicly Traded and Illiquid Securities................................................................... 26
Rule 144A Securities....................................................................................... 27
Emerging Growth and Smaller Capitalization Companies; Unseasoned Issuers...................................... 27
Special Situation Companies................................................................................... 28
Private Funds................................................................................................. 28
Borrowing..................................................................................................... 29
Reverse Repurchase Agreements and Dollar Rolls................................................................ 30
REITs......................................................................................................... 30
Non-Diversified Status........................................................................................ 31
Investment Policies of the Emerging Markets Portfolio Only.................................................... 31
Stand-By Commitments....................................................................................... 31
General.................................................................................................... 32
INVESTMENT RESTRICTIONS.......................................................................................... 32
All Portfolios............................................................................................. 32
International Equity Portfolio............................................................................. 32
Small Company Growth, Value and Emerging Markets Portfolios................................................ 34
Post-Venture Capital, Small Company Value and Japan Growth Portfolios...................................... 36
PORTFOLIO VALUATION.............................................................................................. 37
Private Funds................................................................................................. 38
</TABLE>
ii
<PAGE> 83
<TABLE>
<S> <C>
PORTFOLIO TRANSACTIONS........................................................................................... 39
PORTFOLIO TURNOVER............................................................................................... 41
MANAGEMENT OF THE FUND........................................................................................... 42
Officers and Board of Directors............................................................................... 42
Portfolio Managers............................................................................................ 45
Post-Venture Capital Portfolio............................................................................. 45
Small Company Growth Portfolio............................................................................. 46
Small Company Value Portfolio.............................................................................. 46
Value Portfolio............................................................................................ 46
International Equity Growth Portfolio...................................................................... 47
Emerging Markets Portfolio................................................................................. 47
Japan Growth Portfolio..................................................................................... 48
Investment Advisers and Co-Administrators..................................................................... 48
Custodians and Transfer Agent................................................................................. 51
Distributor................................................................................................... 52
Organization of the Fund...................................................................................... 52
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................................................... 53
EXCHANGE PRIVILEGE............................................................................................... 53
ADDITIONAL INFORMATION CONCERNING TAXES.......................................................................... 54
The Portfolios and Their Investments.......................................................................... 54
Passive Foreign Investment Companies.......................................................................... 56
Dividends and Distributions................................................................................... 57
Sales of Shares............................................................................................... 58
Foreign Taxes................................................................................................. 59
Backup Withholding............................................................................................ 59
Notices....................................................................................................... 60
Other Taxation................................................................................................ 60
DETERMINATION OF PERFORMANCE..................................................................................... 60
INDEPENDENT ACCOUNTANTS AND COUNSEL.............................................................................. 64
MISCELLANEOUS.................................................................................................... 64
FINANCIAL STATEMENTS............................................................................................. 67
Appendix -- Description of Ratings............................................................................... A-1
</TABLE>
iii
<PAGE> 84
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the descriptions of each
Portfolio's investment objective and policies in the Prospectuses. There are no
assurances that the Portfolios will achieve their investment objectives.
The investment objective of the Small Company Value and
International Equity Portfolios is long-term capital appreciation.
The investment objective of the Small Company Growth and
Emerging Markets Portfolios is capital growth.
The investment objective of each of the Post-Venture Capital
and Japan Growth Portfolios is long-term growth of capital.
The investment objective of the Value Portfolio is total
return.
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.
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.
Options on Securities and Securities Indices and Currency
Transactions.
Each Portfolio may purchase and write (sell) options on
securities, securities indices and currencies for hedging purposes or to
increase total return. Up to 25% of the Portfolio's total assets may be at risk
in connection with investing in options on securities, securities indices and,
if applicable, currencies. The amount of assets considered to be "at risk" in
these transactions is, in the case of purchasing options, the amount of the
premium paid, and, in the case of writing options, the value of the underlying
obligation.
Securities Options. Each 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
<PAGE> 85
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 it would otherwise sell.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a 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 Portfolio may receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices decline, the put writer would expect to suffer a
loss. This loss may be less than the loss from purchasing the underlying
instrument directly to the extent that the premium received offsets the effects
of the decline.
In the case of options written by a 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 a Portfolio may write covered call options. For example, if
a 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. The Portfolios (other than the Emerging
Markets Portfolio) may write (i) in-the-money call options when Credit Suisse
Asset Management, LLC ("CSAM"), the Portfolios' investment adviser, expects that
the price of the underlying security will remain flat or decline moderately
during the option period, (ii) at-
2
<PAGE> 86
the-money call options when CSAM expects that the price of the underlying
security will remain flat or advance moderately during the option period and
(iii) out-of-the-money call options when CSAM expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, a 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 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. 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
3
<PAGE> 87
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 Portfolio, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by CSAM, are
considered to be investment grade. If, as a covered call option writer, the
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
Fund or a Portfolio and other clients of CSAM and certain of its affiliates may
be considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of options
a Portfolio will be able to purchase on a particular security.
Securities Index Options. Each Portfolio may purchase (in the
case of each of the Post-Venture Capital, the Small Company Growth, the Small
Company Value and the Value Portfolios, with respect to up to 10% of its total
assets) and each Portfolio (other than the Emerging Markets Portfolio) may write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the securities index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the index and the exercise price of the option times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Securities
4
<PAGE> 88
index options may be offset by entering into closing transactions as described
above for securities options.
OTC Options. The Portfolios 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 a 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, the Portfolio 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 Portfolios 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 Portfolios, 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 a Portfolio. Until the 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 the
Portfolio's ability to sell portfolio securities or, with respect to currency
options, currencies at a time when such sale might be advantageous.
Currency Transactions. The value in U.S. dollars of the assets
of a Portfolio that are invested in foreign securities may be affected favorably
or unfavorably by changes in 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. Each
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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.
Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.
At or before the maturity of a forward contract, the 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 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 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. The Portfolios' 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. A 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, 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 acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Portfolio may
purchase call options on the particular currency. The
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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 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
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against a price decline if the issuer's creditworthiness deteriorates.
Futures Activities. Each Portfolio may enter into foreign
currency, interest rate and securities index futures contracts and purchase and
write (sell) related options traded on exchanges designated by the Commodity
Futures Trading Commission (the "CFTC") or consistent with CFTC regulations on
foreign exchanges. These futures contracts are standardized contracts for the
future delivery of foreign currency or an interest rate sensitive security or,
in the case of stock index and certain other futures contracts, a cash
settlement with reference to a specified multiplier times the change in the
specified index, exchange rate or interest rate. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract. These transactions may be entered into for "bona
fide hedging" purposes as defined in CFTC regulations and other permissible
purposes including hedging against changes in the value of portfolio securities
due to anticipated changes in currency values, interest rates and/or market
conditions and increasing return. Aggregate initial margin and premiums
(discussed below) required to establish positions other than those considered to
be "bona fide hedging" by the CFTC will not exceed 5% of a Portfolio's net asset
value after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. The Portfolios reserve the right to engage
in transactions involving futures contracts and options on futures contracts to
the extent allowed by CFTC regulations in effect from time to time and in
accordance with a Portfolio's policies. There is no overall limit on the
percentage of Portfolio assets that may be at risk with respect to futures
activities.
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Futures Contracts. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities represented in
the indexes. A securities index futures contract is an agreement to be settled
by delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the close of the last trading day
on the contract and the price at which the agreement is made.
No consideration is paid or received by a Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to
segregate with its custodian an amount of cash or securities acceptable to the
broker equal to approximately 1% to 10% of the contract amount (this amount is
subject to change by the exchange on which the contract is traded, and brokers
may charge a higher amount). This amount is known as "initial margin" and is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the 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." The Portfolios 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 the Portfolios may enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting a 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.
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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
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the Portfolio.
Hedging Generally. In addition to entering into options and
futures 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 and futures transactions for hedging
purposes could limit any potential gain from an increase in the value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. With respect to futures
contracts, since the value of portfolio securities will far exceed the value of
the futures contracts sold by 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 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 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
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requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the securities
index and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in the securities index and movements in
the price of securities index futures, a correct forecast of general market
trends by CSAM still may not result in a successful hedging transaction.
A Portfolio will engage in hedging transactions only when
deemed advisable by CSAM, and successful use by the Portfolio of hedging
transactions will be subject to CSAM's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to predict
correctly movements in the directions of the hedge and the hedged position and
the correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions will
affect the Portfolio's performance.
Swaps (Emerging Markets, International Equity and Japan Growth
Portfolios). The Emerging Markets, International Equity and Japan Growth
Portfolios may each enter into swaps relating to indexes, interest rates,
currencies and equity and debt interests of foreign issuers. A swap transaction
is an agreement between a Portfolio and a counterparty to act in accordance with
the terms of the swap contract. Index swaps involve the exchange by the
Portfolio with another party of the respective amounts payable with respect to a
notional principal amount related to one or more indexes. Interest rate swaps
involve the exchange by the Portfolios with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Currency swaps involve the exchange of cash
flows on a notional amount of two or more currencies based on their relative
future values. An equity or debt swap is an agreement to exchange streams of
payments computed by reference to a notional amount based on the performance of
a securities index, a basket of securities or a single security. A Portfolio may
enter into these transactions for hedging purposes, such as to preserve a return
or spread on a particular investment or portion of its assets, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. The Portfolios may also use these transactions for
speculative purposes to increase total return, such as to obtain the price
performance of a security without actually purchasing the security in
circumstances where, for example, the subject security is illiquid, is
unavailable for direct investment or available only on less attractive terms.
Swaps have risks associated with them, including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
A Portfolio will usually enter into swaps on a net basis,
i.e., the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the agreement, with the Portfolio receiving or
paying, as the case may be, only the net amount of
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the two payments. Swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Portfolio is
contractually obligated to make. If the counterparty to a swap defaults, the
Portfolio's risk of loss consists of the net amount of payments that the
Portfolio is contractually entitled to receive. Where swaps are entered into for
good faith hedging purposes, CSAM believes such obligations do not constitute
senior securities under the Investment Company Act of 1940, as amended (the
"1940 Act"), and, accordingly, will not treat them as being subject to a
Portfolio's borrowing restrictions. Where swaps are entered into for other than
hedging purposes, a Portfolio will segregate an amount of cash or liquid
securities having a value equal to the accrued excess of its obligations over
its entitlements with respect to each swap on a daily basis.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures and Swaps. Each Portfolio will comply with guidelines
established by the U.S. Securities and Exchange Commission (the "SEC") with
respect to coverage of forward currency contracts; options written by the
Portfolio on currencies, securities and indexes; currency, interest rate and
index futures contracts and options on these futures contracts and, in the case
of the Emerging Markets, International Equity and Japan Growth Portfolios,
swaps. 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, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of a 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 the 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 the 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 the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The 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 the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The 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.
Foreign Investments. Each of the International Portfolios will
invest, under normal market conditions, at least 65% of its total assets in
securities of issuers located outside the United States. The U.S. Portfolios may
invest, up to 20% of its total assets in the case of the Post-Venture Capital
and Value Portfolios and up to 10% of its total assets
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in the case of the Small Company Growth and Small Company Value Portfolios, in
securities of issuers located outside the United States. 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. A 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.
Foreign Currency Exchange. Since the International Portfolios
will, and the U.S. Portfolios may, be investing in securities denominated in
currencies other than the U.S. dollar, and since a Portfolio may temporarily
hold funds in bank deposits or other money market investments denominated in
foreign currencies, each 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
a 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 a Portfolio with
respect to its foreign investments. 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.
A Portfolio may use hedging techniques with the objective of protecting against
loss through the fluctuation of the value of foreign currencies against the U.S.
dollar, particularly the forward market in foreign exchange, currency options
and currency futures.
Information. The majority of the foreign securities held by a
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally subject to financial reporting
standards, practices and requirements that are either not uniform or less
rigorous than those applicable to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation 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.
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Foreign Markets. Securities of some foreign companies are less
liquid and their prices are more volatile than securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold, which may result
in increased exposure to market and foreign exchange fluctuations and increased
illiquidity.
Increased Expenses. The operating expenses of the
International Portfolios (and, to the extent they invest in foreign securities,
the U.S. 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 associated with foreign investing, such as custodial costs, valuation
costs and communication costs, as well as, in the case of the International
Portfolios, the rate of the investment advisory fees, though similar to such
expenses of some other funds investing internationally, are higher than those
costs incurred by other investment companies.
Privatizations. Each Portfolio may invest in privatizations
(i.e. foreign government programs of selling interests in government-owned or
controlled enterprises). The ability of U.S. entities, such as the Portfolios,
to participate in privatizations may be limited by local law, or the terms for
participation may be less advantageous than for local investors. There can be no
assurance that privatization programs will be available or successful. The
International Equity and Emerging Markets Portfolios could invest to a
significant extent in privatizations.
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 debt securities in which a 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 debt 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-government agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states
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of the European Economic Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
Brady Bonds. Each Portfolio may invest in so-called "Brady
Bonds," which have been issued by Costa Rica, Mexico, Uruguay and Venezuela and
which may be issued by other Latin American countries. Brady Bonds are issued as
part of a debt restructuring in which the bonds are issued in exchange for cash
and certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers. In light of the
history of commercial bank loan defaults by Latin American public and private
entities, investments in Brady Bonds may be viewed as speculative. The
International Equity and Emerging Markets Portfolios could invest to a
significant extent in Brady Bonds.
Depositary Receipts. Certain of the above risks may be
involved with ADRs, European Depositary Receipts ("EDRs") and International
Depositary Receipts ("IDRs"), instruments that evidence ownership of underlying
securities issued by a foreign corporation. ADRs, EDRs and IDRs may not
necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies. The risks associated with investing in securities of non-U.S. issuers
are generally heightened for investments in securities of issuers in emerging
markets.
Emerging Markets. Each Portfolio may, and the Emerging Markets
Portfolio will, invest in securities of issuers located in less developed
countries considered to be "emerging markets." Investing in securities of
issuers located 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. Other
characteristics of emerging markets that may affect investment there 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 legal structures governing private and foreign investments and private
property. The typically small size of the markets for 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.
Euro Conversion. The introduction of a single European
currency, the euro, on January 1, 1999 for participating European nations in the
Economic and Monetary Union presented unique risks and uncertainties for
investors in those countries, including (i) the functioning of the payment and
operational systems of banks and other financial institutions; (ii) the creation
of suitable clearing and settlement payment schemes for the euro; (iii) the
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fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (iv) whether
the interest rate, tax and labor regimes of the European countries participating
in the euro will converge over time. Further, the conversion of the currencies
of other Economic Monetary Union countries, such as the United Kingdom, and the
admission of other countries, including Central and Eastern European countries,
to the Economic and Monetary Union could adversely affect the euro. These or
other factors may cause market disruptions and could adversely affect the value
of foreign securities and currencies held by the Portfolios.
Special Considerations Regarding Japan
The Japan Growth Portfolio (as well as the other International
Portfolios, each of which may invest a significant portion of its assets in
Japanese securities), will be subject to general economic and political
conditions in Japan. To the extent that it invests a significant amount in
Japan, a Portfolio may be more volatile than a portfolio which is broadly
diversified geographically. Additional factors relating to Japan that an
investor should consider include the following:
Economic Background
Generally, since the end of World War II, Japan has
experienced significant economic development. Since the mid-1980's, Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970's, Japan has generally experienced very low
levels of inflation. There is no guarantee, however, that these favorable trends
will continue.
The Japanese economy has languished for much of the 1990's.
Lack of effective government action in the areas of tax reform to reduce high
tax rates, banking regulation to address enormous amounts of bad debt, and
economic reforms to attempt to stimulate spending are among the factors cited as
possible causes to Japan's economic problems. Steps have been taken to
deregulate and liberalize protected areas of the economy, but the pace of change
has been slow.
Strains in the financial system have also been one of the
major causes of Japan's economic weakness. The non-performing loans of financial
institutions have hampered their ability to take on risk, thus obstructing the
flow of funds into capital outlays as well as equities. The large commercial
banks are having to bear a heavy burden of the bad-debt problem (e.g., in
accepting write-offs of loans they have extended to distressed smaller
institutions, in recapitalizing failed institutions and in stepping up
contributions to the Deposit Insurance Corporation, an organization jointly
established in 1971 by the government and private financial institutions to
protect depositors). While the banking system appears to be making some progress
in its attempt to deal with non-performing assets, it is extremely difficult to
gauge the true extent of the bad-debt problem which, if not adequately
addressed, could lead to a crisis in the banking system.
Japan's economy is a market economy in which industry and
commerce are predominantly privately owned and operated. However, the Japanese
government is involved in establishing and meeting objectives for developing the
economy and improving the standard of living of the Japanese people, so that
changes in government policies could have an
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adverse effect on the economy and the companies in which a Portfolio invests.
Changes in government policies cannot be predicted.
Currency Fluctuation. Investments by a Portfolio in Japanese
securities will be denominated in yen and most income received by the Portfolio
from such investments will be in yen. However, the Portfolio's net asset value
will be reported, and distributions will be made, in U.S. dollars. Therefore, a
decline in the value of the yen relative to the U.S. dollar could have an
adverse effect on the value of a Portfolio's Japanese investments. The yen has
had a history of unpredictable and volatile movements against the dollar. A
Portfolio is not required to hedge against declines in the value of the yen.
Securities Markets. The common stocks of many Japanese
companies trade at high price-earnings ratios, and the Japanese stock markets
have often been considered significantly overvalued. Differences in accounting
methods make it difficult to compare the earnings of Japanese companies with
those of companies in other countries, especially the United States.
The Japanese securities markets are less regulated than those
in the United States and, at times, have been very volatile. Evidence has
emerged from time to time of distortion of market prices to serve political or
other purposes. Shareholders' rights are also not always enforced to the same
extent as in the United States.
Foreign Trade. Much of Japan's economy is dependent upon
international trade. The country is a leading exporter of automobiles and
industrial machinery as well as industrial and consumer electronics.
Consequently, Japan's economy and export growth are largely dependent upon the
economic development of its trading partners, particularly the United States and
the developing nations in Southeast Asia.
Because of the large trade surpluses it has generated, Japan
at times has had difficult relations with its trading partners, particularly the
U.S. It is possible that trade sanctions or other protectionist measures could
impact Japan adversely in both the short- and long-term.
Natural Resource Dependency. An island nation with limited
natural resources, Japan is also heavily dependent upon imports of essential
products such as oil, forest products and industrial metals. Accordingly,
Japan's industrial sector and domestic economy are highly sensitive to
fluctuations in international commodity prices. In addition, many of these
commodities are traded in U.S. dollars and any strength in the exchange rate
between the yen and the dollar can have either a positive or a negative effect
upon corporate profits.
Energy. Japan has historically depended on oil for most of its
energy requirements. Almost all of its oil is imported. In the past, oil prices
have had a major impact on the domestic economy, but more recently Japan has
worked to reduce its dependence on oil by encouraging energy conservation and
use of alternative fuels. In addition, a restructuring of industry, with
emphasis shifting from basic industries to processing
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and assembly-type industries, has contributed to the reduction of oil
consumption. However, there is no guarantee this favorable trend will continue.
Natural Disasters. The islands of Japan lie in the western
Pacific Ocean, off the eastern coast of the continent of Asia. Japan has in the
past experienced earthquakes and tidal waves of varying degrees of severity, and
the risks of such phenomena, and the damage resulting therefrom, continue to
exist. The long-term economic effects of such geological factors on the Japanese
economy as a whole, and on the Portfolio's investments, cannot be predicted.
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 CSAM determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable for
investment by the Portfolio.
Money Market Obligations. Each Portfolio is authorized to
invest, under normal market conditions (up to 20% of its assets in the case of
each U.S. Portfolio) in domestic and foreign short-term (one year or less
remaining to maturity) money market obligations. Money market instruments
consist of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign, domestic savings and loans and similar institutions) that are high
quality investments; commercial paper rated no lower than A-2 by Standard &
Poor's Ratings Services ("S&P") or Prime-2 by Moody's Investors Service, Inc.
("Moody's") or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then
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rated within the three highest rating categories; and repurchase agreements with
respect to the foregoing.
Repurchase Agreements. Each 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, 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 of the underlying
securities during the period while the Portfolio seeks to assert this right.
CSAM 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.
Money Market Mutual Funds. 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 assets in securities of
money market mutual funds that are unaffiliated with the Portfolio 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 management fees and other expenses with respect to
assets so invested.
Debt Securities. Each International Portfolio may invest up to
35% of its total assets, and each U.S. Portfolio may invest up to 20% of its
total assets, in 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.
The interest income to be derived may be considered as one
factor in selecting debt securities for investment by CSAM. 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 growth when interest rates are expected to decline. The
success of such a strategy is dependent upon CSAM'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.
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Each Portfolio may invest to a limited extent in 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.
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 CSAM. 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 CSAM will consider such event in its determination of whether the
Portfolio should continue to hold the securities.
Below Investment Grade Securities. The Emerging Markets
Portfolio may invest or hold up to 35% of its net assets in debt securities
rated below investment grade. Within their 20% limitation on investing in debt
securities, each of the Value Portfolio and the Small Company Value Portfolio
may invest up to 10% of its total assets in debt securities rated below
investment grade. Within their respective percentage limitation on investing in
debt securities, each of the Small Company Growth, Post-Venture Capital,
International Equity and Japan Growth Portfolios may invest up to 5% of its
total assets in debt securities rated below investment grade. A Portfolio's
investments in convertible debt or equity securities rated below investment
grade will be included in determining these percentage limitations.
Below investment grade debt securities may be rated as low as
C by Moody's or D by S&P, or be deemed by CSAM 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. 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 significantly greater because these securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. While the market values of below investment grade securities tend
to react less to fluctuations in interest rate levels than do those of
investment grade securities, the market values of certain of these securities
also tend to be more sensitive to individual corporate developments and changes
in economic conditions than investment grade securities. In addition, below
investment grade securities generally present a higher degree of credit risk.
Issuers of below investment grade 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
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because below investment grade 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 investment grade securities. The lack of a liquid secondary market,
as well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and 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 below investment grade securities is more
volatile than that of investment grade 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
CSAM in evaluating the creditworthiness of an issuer. In this evaluation, CSAM
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
Normally, below investment grade 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.
Structured Securities. Each Portfolio may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage-backed securities; structured notes, bonds or debentures; and
assignments of and participations in loans.
Mortgage-Backed Securities. Each Portfolio may invest in
mortgage-backed securities issued by U.S. government entities, such the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). In
addition, the Japan Growth Portfolio may invest in mortgage-backed securities
sponsored by U.S. and foreign issuers as well as non-governmental issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, the guarantees do not extend
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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.
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, collateralized mortgage obligations may be less
marketable than other securities.
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
asset-backed securities, which represent participations in, or are secured by
and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts and special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a financial institution unaffiliated with the trust or
corporation.
Asset-backed securities present certain risks that are not
presented by other securities in which the Portfolio may invest. Automobile
receivables generally are
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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 Emerging Markets and Japan Growth Portfolios
may purchase asset-backed securities that are unrated.
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.
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 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").
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
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the Lender interpositioned between the Portfolio and the Borrower is determined
by CSAM to be creditworthy.
When the Portfolio purchases Assignments from Lenders, the
Portfolio will acquire direct rights against the Borrower on the Loan. However,
since Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. The Portfolio may have difficulty disposing of them because there
is no liquid market for such securities. The lack of a liquid secondary market
will have an adverse impact on the value of such securities and on the
Portfolio's ability to dispose of particular Participations or Assignments 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 Borrower.
The lack of a liquid market for Participations and Assignments also may make it
more difficult for the Portfolio to assign a value to these securities for
purposes of valuing the Portfolio's portfolio and calculating its net asset
value.
Temporary Defensive Strategies. When CSAM believes that a
defensive posture is warranted, each Portfolio may invest temporarily without
limit in investment grade debt obligations and in domestic and foreign money
market obligations, including repurchase agreements.
Securities of Other Investment Companies. Each Portfolio may
invest in securities of other investment companies to the extent permitted under
the 1940 Act. 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.
Lending of Portfolio Securities. A 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
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 33-1/3% of a Portfolio's net assets (including the loan collateral) taken
at value. A Portfolio will not lend portfolio securities to its investment
adviser, any sub-investment adviser or their affiliates unless it has applied
for and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S. Government
Securities, which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio involved. From time to time,
a 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."
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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. Each
Portfolio will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Portfolio must receive at least 100% cash
collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the 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.
When-Issued Securities and Delayed-Delivery Transactions. Each
Portfolio may utilize up to 20% of its total assets to purchase securities on a
when-issued basis and purchase or sell securities on a delayed-delivery basis.
In these transactions, payment for and delivery of the securities occurs beyond
the regular settlement dates. A 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 if CSAM
deems it advantageous to do so. The payment obligation and the interest rate
that will be received in 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 of 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 segregate with its custodian 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 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 a Portfolio may be required subsequently to segregate additional assets in
order to ensure that the value of the segregated assets 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 Portfolio incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
Short Sales (Post-Venture Capital Portfolio). The Post-Venture
Capital Portfolio may engage in "short sales" that do not meet the definition of
short sales "against the box" with respect to up to 10% of its total assets. In
a short sale, the investor sells a borrowed
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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.
To deliver the securities to the buyer, the Portfolio must arrange through a
broker to borrow the securities and, in so doing, the Portfolio becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Portfolio will make a profit or
incur a loss as a result of a short sale depending on whether the price of the
security decreases or increases between the date of the short sale and the date
on which the Portfolio purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Portfolio is required to pay in
connection with a short sale.
The Portfolio's obligation to replace the securities borrowed
in connection with a short sale will be secured by cash or liquid securities
deposited as collateral with the broker. In addition, the Portfolio will
segregate with its custodian or a qualified subcustodian an amount of cash or
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short and (ii) any cash or
liquid securities deposited as collateral with the broker in connection with the
short sale (not including the proceeds of the short sale). Until it replaces the
borrowed securities, the Portfolio will maintain the segregated assets daily at
a level so that (a) the amount segregated plus the amount deposited with the
broker (not including the proceeds from the short sale) will equal the current
market value of the securities sold short and (b) the amount segregated plus the
amount deposited with the broker (not including the proceeds of the short sale)
will not be less than the market value of the securities at the time they were
sold short.
Short Sales Against the Box. Each Portfolio may enter into
short sales "against the box." Not more than 10% of a Portfolio's net assets
(taken at current value) may be held as collateral for such sales at any one
time, except that the Emerging Markets Portfolio will not be subject to such
limitation. While a short sale is made by selling a security a 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. A Portfolio will segregate with its custodian or
a qualified subcustodian, the securities sold short or convertible or
exchangeable preferred stocks or debt securities in connection with short sales
against the box. No Portfolio, other than the Small Company Value Portfolio,
intends to engage in short sales against the box for investment purposes. 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 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
transaction 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 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
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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 a Portfolio may effect short sales.
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. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock.
Warrants. Each Portfolio may invest up to 10% of its net
assets in warrants. Warrants are securities that give the holder the right, but
not the obligation to purchase equity issues of the company issuing the
warrants, or a related company, at a fixed price either on a date certain or
during a set period. A Portfolio may invest in warrants to purchase equity
securities consisting of common and preferred stock. The equity security
underlying a warrant is authorized at the time the warrant is issued or is
issued together with the warrant.
Investing in warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and,
thus, can be a speculative investment. At the time of issue, the cost of a
warrant is substantially less than the cost of the underlying security itself,
and price movements in the underlying security are generally magnified in the
price movements of the warrant. This leveraging effect enables the investor to
gain exposure to the underlying security with a relatively low capital
investment. This leveraging increases an investor's risk, however, in the event
of a decline in the value of the underlying security and can result in a
complete loss of the amount invested in the warrant. In addition, the price of a
warrant tends to be more volatile than, and may not correlate exactly to, the
price of the underlying security. If the market price of the underlying security
is below the exercise price of the warrant on its expiration date, the warrant
will generally expire without value. The value of a warrant may decline because
of a decline in the value of the underlying security, the passage of time,
changes in interest rates or in the dividend or other policies of the company
whose equity underlies the warrant or a change in the perception as to the
future price of the underlying security, or any combination thereof. Warrants
generally pay no dividends and confer no voting or other rights other than to
purchase the underlying security.
Non-Publicly Traded and Illiquid Securities. Each Portfolio
(other than the Post-Venture Capital, Value and Emerging Markets Portfolios) may
not invest more than 10% of its net assets in illiquid securities, including
certain 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), time deposits
maturing in more than seven days and, with respect to the Post-Venture Capital
Portfolio, Private Funds (as defined below). The Post-Venture Capital, Value and
Emerging Markets Portfolios may invest up to 15% of its net assets in such
securities. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered
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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 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. CSAM anticipates that the market for certain restricted securities such
as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to a Portfolio's limit on the purchase of
illiquid securities unless the Board or its delegates determines that the Rule
144A Securities are liquid. CSAM will monitor the liquidity of restricted
securities in a Portfolio under the supervision of the Board. In reaching
liquidity decisions, CSAM may consider, inter alia, the following factors: (i)
the unregistered nature of the security; (ii) the frequency of trades and quotes
for the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer undertakings
to make a market in the security and (v) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
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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 Board has adopted guidelines and
delegated to CSAM 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. Each Portfolio may invest in small- and medium- sized and
emerging growth companies and, except for the International Equity Portfolio,
companies with continuous operations of less than three years ("unseasoned
issuers"), which may include foreign securities, involve considerations that are
not applicable to investing in securities of established, 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 small- and medium-sized
and emerging growth companies, unseasoned issuers or issuers in "special
situations" (see below) 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.
"Special Situation Companies." "Special situation companies"
are involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, may provide an
attractive investment opportunity. If the actual or prospective situation does
not materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly.
Private Funds (Post-Venture Capital Portfolio). Up to 10% of
the Portfolio's assets may be invested in United States or foreign private
limited partnerships or other investment funds ("Private Funds") that themselves
invest in equity or debt securities of (a) companies in the venture capital or
post-venture capital stages of development or (b) companies engaged in special
situations or changes in corporate control, including buyouts. In selecting
Private Funds for investment, Abbott Capital Management, LLC, the Portfolio's
sub-investment adviser with respect to Private Funds ("Abbott"), attempts to
invest in a mix of Private Funds that will provide an above average internal
rate of return (i.e., the discount rate at which the present value of an
investment's future cash inflows (dividend income and capital gains) are equal
to the cost of the investment). CSAM believes that the Portfolio's investments
in Private Funds offer individual investors a unique opportunity to participate
in venture capital and other private investment funds, providing access to
investment
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opportunities typically available only to large institutions and accredited
investors. Although investments in Private Funds offer the opportunity for
significant capital gains, these investments involve a high degree of business
and financial risk that can result in substantial losses in the portion of the
Post-Venture Capital Portfolio's assets invested in these investments. Among
these are the risks associated with investment in companies in an early stage of
development or with little or no operating history, companies operating at a
loss or with substantial variation in operation results from period to period,
companies with the need for substantial additional capital to support expansion
or to maintain a competitive position, or companies with significant financial
leverage. Such companies may also face intense competition from others including
those with greater financial resources or more extensive development,
manufacturing, distribution or other attributes, over which the Portfolio will
have no control.
Interests in the Private Funds in which the Post-Venture
Capital Portfolio may invest will be subject to substantial restrictions on
transfer and, in some instances, may be non-transferable for a period of years.
Private Funds may participate in only a limited number of investments and, as a
consequence, the return of a particular Private Fund may be substantially
adversely affected by the unfavorable performance of even a single investment.
Certain of the Private Funds in which the Portfolio may invest may pay their
investment managers a fee based on the performance of the Portfolio, which may
create an incentive for the manager to make investments that are riskier or more
speculative than would be the case if the manager was paid a fixed fee. Private
Funds are not registered under the 1940 Act and, consequently, are not subject
to the restrictions on affiliated transactions and other protections applicable
to regulated investment companies. The valuation of companies held by Private
Funds, the securities of which are generally unlisted and illiquid, may be very
difficult and will often depend on the subjective valuation of the managers of
the Private Funds, which may prove to be inaccurate. Inaccurate valuations of a
Private Fund's portfolio holdings may affect the Portfolio's net asset value
calculations. Private Funds in which the Portfolio invests will not borrow to
increase the amount of assets available for investment or otherwise engage in
leverage. Debt securities held by a Private Fund will tend to be rated below
investment grade and may be rated as low as C by Moody's or D by S&P. Securities
in these rating categories are in payment default or have extremely poor
prospects of attaining any investment standing. The Portfolio may also hold
non-publicly traded equity securities of companies in the venture and
post-venture stages of development, such as those of closely held companies or
private placements of public companies. The portion of the Portfolio's assets
invested in these non-publicly traded securities will vary over time depending
on investment opportunities and other factors. The Portfolio's illiquid assets,
including interests in Private Funds and other illiquid non-publicly traded
securities, may not exceed 15% of the Portfolio's net assets.
CSAM believes that venture capital participation in a
company's capital structure can lead to revenue/earnings growth rates above
those of older, public companies such as those in the Dow Jones Industrial
Average, the Fortune 500 or the Morgan Stanley Capital International Europe,
Australasia, Far East ("EAFE") Index. Venture capitalists finance start-up
companies, companies in the early stages of developing new products or services
and companies undergoing a restructuring or recapitalization, since these
companies may not have access to conventional forms of financing (such as bank
loans or public issuances of stock). Venture capitalists may hold substantial
positions in companies that may have been
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acquired at prices significantly below the initial public offering price. This
may create a potential adverse impact in the short-term on the market price of a
company's stock due to sales in the open market by a venture capitalist or
others who acquired the stock at lower prices prior to the company's IPO. CSAM
will consider the impact of such sales in selecting post-venture capital
investments. Venture capitalists may be individuals or funds organized by
venture capitalists which are typically offered only to large institutions, such
as pension funds and endowments, and certain accredited investors. Outside of
the United States, venture capitalists may also consist of merchant banks and
other banking institutions that provide venture capital financing in a manner
similar to U.S. venture capitalists. Venture capital participation in a company
is often reduced when the company engages in an IPO of its securities or when it
is involved in a merger, tender offer or acquisition.
CSAM has experience in researching small companies, companies
in the early stages of development and venture capital-financed companies. Its
team of analysts, led by Elizabeth Dater, regularly monitors portfolio companies
whose securities are held by over 400 of the larger domestic venture capital
funds. Ms. Dater has managed post-venture equity securities in separate accounts
for institutions since 1989 and currently manage over $1 billion of such assets
for investment companies and other institutions.
Borrowing. Each Portfolio may borrow up to 30% of its total
assets for temporary or emergency purposes, including to meet portfolio
redemption requests so as to permit the orderly disposition of portfolio
securities or to facilitate settlement transactions on portfolio securities.
Investments (including roll-overs) will not be made when borrowings exceed 5% of
the Portfolio's net assets. Although the principal of such borrowings will be
fixed, the 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.
Reverse Repurchase Agreements and Dollar Rolls. Each of the
Portfolios may enter into reverse repurchase agreements with member banks of the
Federal Reserve System and certain non-bank dealers. Reverse repurchase
agreements involve the sale of securities held by the Portfolio pursuant to its
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 segregate with an approved custodian cash or liquid securities having a
value not less than the repurchase price (including accrued interest). The
segregated assets will be marked-to-market daily and additional assets will be
segregated on any day in which the assets fall below the repurchase price (plus
accrued interest). The 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 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.
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The Portfolios also may enter into "dollar rolls," in which
the Portfolio sells fixed-income securities for delivery in the current month
and simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio would forego 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 their value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.
REITs. Each 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 Fund, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code of 1986, amended (the "Code"). By investing in a REIT,
the 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.
Non-Diversified Status (Small Company Growth, Emerging Markets
and Japan Growth Portfolios). These Portfolios are classified as non-diversified
within the meaning of 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 portfolio, 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. Each Portfolio's investments will be limited, however,
in order to qualify as a "regulated investment company" for purposes of the
Code. 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
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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.
Investment Policies of the Emerging Markets Portfolio Only
Stand-By Commitments (Emerging Markets Portfolio). The
Emerging Markets Portfolio may acquire "stand-by commitments" with respect to
securities held in its portfolio. Under a stand-by commitment, a dealer agrees
to purchase at the Portfolio's option specified securities at a specified price.
The Portfolio's right to exercise stand-by commitments is unconditional and
unqualified. Stand-by commitments acquired by the Portfolio may also be referred
to as "put" options. A stand-by commitment is not transferable by the Portfolio,
although the Portfolio can sell the underlying securities to a third party at
any time.
The principal risk of stand-by commitments is that the writer
of a commitment may default on its obligation to repurchase the securities
acquired with it. When investing in stand-by commitments, the Portfolio will
seek to enter into stand-by commitments only with brokers, dealers and banks
that, in the opinion of CSAM, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, CSAM will periodically
review relevant financial information concerning the issuer's assets,
liabilities and contingent claims.
The amount payable to the Portfolio upon its exercise of a
stand-by commitment is normally (i) the Portfolio's acquisition cost of the
securities (excluding any accrued interest which the Portfolio paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Portfolio owned the securities,
plus (ii) all interest accrued on the securities since the last interest payment
date during that period.
The Portfolio expects that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolio may pay for a stand-by
commitment either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities). The total amount paid
in either manner for outstanding stand-by commitments held in the Portfolio's
portfolio will not exceed 1/2 of 1% of the value of the Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
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The Portfolio would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment would
not affect the valuation or assumed maturity of the underlying securities.
Stand-by commitments acquired by the Portfolio would be valued at zero in
determining net asset value. Where the Portfolio paid any consideration directly
or indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment was held by
the Portfolio. Stand-by commitments would not affect the average weighted
maturity of the Portfolio's portfolio.
General. The Portfolio may invest in securities of companies
of any size, whether traded on or off a national securities exchange. Portfolio
holdings may include emerging growth companies, which are small-or medium-sized
companies that have passed their start-up phase and that show positive earnings
and prospects for achieving profit and gain in a relatively short period of
time.
In appropriate circumstances, such as when a direct investment
by the Portfolio in the securities of a particular country cannot be made or
when the securities of an investment company are more liquid than the underlying
portfolio securities, the Portfolio may, consistent with the provisions of the
1940 Act, invest in the securities of closed-end investment companies that
invest in foreign securities. As a shareholder in a closed-end investment
company, the Portfolio will bear its ratable share of the investment company's
expenses, including management fees, and will remain subject to payment of the
Portfolio's administration fees and other expenses with respect to assets so
invested.
INVESTMENT RESTRICTIONS
All Portfolios. Certain investment limitations may not be
changed without the affirmative vote of the holders of a majority of the
relevant 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
limitations set forth in each No. 1 below) 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.
International Equity Portfolio. The following investment
limitations numbered 1 through 12 are Fundamental Restrictions. Investment
limitations 13 through 14 may be changed by a vote of the Board at any time.
The International Equity Portfolio may not:
1. Borrow money or issue senior securities except that the
Portfolio may (a) borrow from banks for temporary or emergency purposes, and not
for leveraging, and then in
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amounts not in excess of 30% of the value of the Portfolio's total assets at the
time of such borrowing and (b) enter into futures contracts; or mortgage, pledge
or hypothecate any assets except in connection with any bank borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed. Whenever
borrowings described in (a) exceed 5% of the value of the Portfolio's total
assets, the Portfolio will not make any investments (including roll-overs). For
purposes of this restriction, (a) the deposit of assets in escrow in connection
with certain of the Portfolio's investment strategies and (b) collateral
arrangements with respect to initial or variation margin for futures contracts
will not be deemed to be pledges of the Portfolio's assets.
2. 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 issuers conducting their principal business activities in
the same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolio may purchase or hold
publicly distributed fixed income securities, lend portfolio securities and
enter into repurchase agreements.
4. Underwrite any issue of securities except to the extent
that the investment in restricted securities and the purchase of fixed income
securities directly from the issuer thereof in accordance with the Portfolio's
investment objective, policies and limitations may be deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in real estate limited
partnerships, oil, gas or mineral exploration or development programs or oil,
gas and mineral leases, except that the Portfolio may invest in (a) securities
secured by real estate, mortgages or interests therein, (b) securities of
companies that invest in or sponsor oil, gas or mineral exploration or
development programs and (c) futures contracts and related options and commodity
options. The entry into forward foreign currency exchange contracts is not and
shall not be deemed to involve investing in commodities.
6. Make short sales of securities or maintain a short
position, except that a Portfolio may maintain short positions in forward
currency contracts, options and futures contracts and make short sales "against
the box."
7. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities and foreign currencies, (b) write covered call options on
securities and (c) purchase or write options on futures contracts.
8. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
9. Purchase securities on margin, except that the Portfolio
may obtain any short-term credits necessary for the clearance of purchases and
sales of securities. For
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purposes of this restriction, the deposit or payment of initial or variation
margin in connection with futures contracts or related options will not be
deemed to be a purchase of securities on margin.
10. Purchase the securities of any issuer if as a result more
than 5% of the value of the Portfolio's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Portfolio's
total assets may be invested without regard to this 5% limitation.
11. Purchase any security if as a result the Portfolio would
then have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
12. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in U.S.
Government Securities.
13. Invest more than 10% of the value of the Portfolio's net
assets in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available
market quotations. For purposes of this limitation, (a) repurchase agreements
with maturities greater than seven days and (b) time deposits maturing in more
than seven calendar days shall be considered illiquid securities.
14. Invest in oil, gas or mineral leases.
Small Company Growth, Value and Emerging Markets Portfolios.
The following investment limitations numbered 1 through 9 are Fundamental
Restrictions. Investment limitations 10 through 13 may be changed by a vote of
the Board at any time.
Each of the Small Company Growth, Value and Emerging Markets
Portfolios may not:
1. Borrow money except that the Portfolios may (a) borrow from
banks for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolios may not exceed 30% of the value of the
Portfolios' total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Portfolios' total assets at the time of purchase to be invested
in the securities of issuers conducting their principal business activities in
the same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
35
<PAGE> 119
3. Make loans, except that the Portfolios may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Portfolios' investment objective, policies and limitations
may be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolios may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. Make short sales of securities or maintain a short position,
except that the Portfolios may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box".
7. Purchase securities on margin, except that the Portfolios may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Portfolios may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, and purchase and sell currencies on a forward commitment or
delayed-delivery basis and, with respect to the Emerging Markets Portfolio,
enter into stand-by commitments.
9. Issue any senior security except as permitted in the Portfolios'
investment limitations.
10. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the purchase of securities on
a forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts and, with respect to the
Small Company Growth Portfolio and Value Portfolio, writing covered put and call
options.
12. Invest more than 15% of each of the Value Portfolio's and the
Emerging Markets Portfolio's net assets and 10% of the Small Company Growth
Portfolio's net assets in securities which may be illiquid because of legal or
contractual restrictions on resale or securities for which there are no readily
available market quotations. For purposes of this
36
<PAGE> 120
limitation, repurchase agreements with maturities greater than seven days shall
be considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Portfolios' borrowings exceed 5% of its net assets.
Post-Venture Capital, Small Company Value and Japan Growth
Portfolios. The following investment limitations numbered 1 through 10 are
Fundamental Restrictions. Investment limitations 11 through 15 may be changed by
a vote of the Board at any time.
Each of the Post-Venture Capital, Small Company Value and Japan
Growth Portfolios may not:
1. Borrow money except that the Portfolios may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolios may not exceed 30% of the value of the
Portfolios' total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Portfolios' total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolios may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Portfolios' investment objective, policies and limitations
may be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolios may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. With respect to the Small Company Value and Japan Growth
Portfolios only, make short sales of securities or maintain a short position,
except that each Portfolio may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box."
7. Purchase securities on margin, except that the Portfolios may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection
37
<PAGE> 121
with transactions in currencies, options, futures contracts or related options
will not be deemed to be a purchase of securities on margin.
8. Invest in commodities, except that the Portfolios may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, and purchase and sell currencies on a forward commitment or
delayed-delivery basis.
9. Issue any senior security except as permitted in the Portfolios'
investment limitations.
10. With respect to the Post-Venture Capital and Small Company Value
Portfolios only, purchase the securities of any issuer if as a result more than
5% of the value of the Portfolio's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Portfolio's
total assets may be invested without regard to this 5% limitation.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
12. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the purchase of securities on
a forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
13. Invest more than 15% of each Portfolio's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
14. Make additional investments (including roll-overs) if each
Portfolio's borrowings exceed 5% of its net assets.
15. Invest in warrants (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 10% of the value of the Portfolio's net assets.
PORTFOLIO VALUATION
The following is a description of the procedures used by each
Portfolio in valuing its assets.
Securities listed on an exchange or traded in an over-the-counter
market will be valued at the closing price on the exchange or market on which
the security is primarily traded (the "Primary Market") at the time of valuation
(the "Valuation Time"). If the security did not trade on the Primary Market, the
security will be valued at the
38
<PAGE> 122
closing price on another exchange or market where it trades at the Valuation
Time. If there are no such sales prices, the security will be valued at the most
recent bid quotation as of the Valuation Time or at the lowest asked quotation
in the case of a short sale of securities. If there are no such quotations, the
value of the security will be taken to be the most recent bid quotation on the
exchange or market. In determining the market value of portfolio investments,
the 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 under the general supervision and responsibility of the
Board, which may replace a Pricing Service at any time. If a Pricing Service is
not able to supply closing prices and bid/asked quotations, and there are two or
more dealers, brokers or market makers in the security, the security will be
valued at the mean between the highest bid and the lowest asked quotations from
at least two dealers, brokers or market makers or, if such dealers, brokers or
market makers only provide bid quotations, at the mean between the highest and
the lowest bid quotations provided. If a Pricing Service is not able to supply
closing prices and bid/asked quotations, and there is only one dealer, broker or
market maker in the security, the security will be valued at the mean between
the bid and the asked quotations provided, unless the dealer, broker or market
maker can only provide a bid quotation in which case the security will be valued
at such bid quotation. Options contracts will be valued similarly. Futures
contracts will be valued at the most recent settlement price at the time of
valuation. Short-term obligations with maturities of 60 days or less are valued
at amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to other debt obligations with 60 days or less remaining to
maturity. Securities, options, futures contracts and other assets which cannot
be valued pursuant to the foregoing will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. In addition, the Board or its delegates may value a security at
fair value if it determines that such security's value determined by the
methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Portfolio's net asset value is not calculated. As a result,
calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service as of 12:00
noon (Eastern time). If such quotations are not available, the rate of exchange
will be determined in good faith pursuant to consistently applied procedures
established by the Board.
39
<PAGE> 123
Private Funds (Post-Venture Capital Portfolio). Private Funds are
initially valued at cost (i.e., the actual dollar amount invested). Thereafter,
Private Funds are valued at the prices set forth in periodic reports received by
Abbott from the Private Funds. These reports are generally made quarterly.
Neither Abbott nor the Portfolio will monitor interim changes in the value of
portfolio holdings of the Private Funds. As a result, these changes will not be
taken into account by the Portfolio in calculating its net asset value.
PORTFOLIO TRANSACTIONS
CSAM 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 agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. Purchases
of Private Funds by the Post-Venture Capital Portfolio through a broker or
placement agent may also involve a commission or other fee. There is generally
no stated commission in the case of securities traded in domestic or foreign
over-the-counter markets, but the price of securities traded in over-the-counter
markets includes an undisclosed commission or mark-up. U.S. Government
Securities are generally purchased from underwriters or dealers, although
certain newly issued U.S. Government Securities may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.
Except for the Post-Venture Capital Portfolio's investments in
Private Funds, which will be managed by Abbott, CSAM will select specific
portfolio investments and effect transactions for each Portfolio. In selecting
broker-dealers, CSAM does business exclusively with those broker-dealers that,
in CSAM's judgment, can be expected to provide the best service. The service has
two main aspects: the execution of buy and sell orders and the provision of
research. In negotiating commissions with broker-dealers, CSAM will pay no more
for execution and research services that it considers either, or both together,
to be worth. The worth of execution service depends on the ability of the
broker-dealer to minimize costs of securities purchased and to maximize prices
obtained for securities sold. The worth of research depends on its usefulness in
optimizing portfolio composition and its changes over time. Commissions for the
combination of execution and research services that meet CSAM's standards may be
higher than for execution services alone or for services that fall below CSAM's
standards. CSAM believes that these arrangements may benefit all clients and not
necessarily only the accounts in which the particular investment transactions
occur that are so executed. Further, CSAM will only receive brokerage or
research service in
40
<PAGE> 124
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. For the fiscal year ended October 31, 1999,
$23,988, $42,938, $868, $551,404, $672 and $3,806 was paid by the Small Company
Growth, Value, Emerging Markets, International Equity, Post-Venture Capital and
Small Company Value Portfolios, respectively, to brokers and dealers who
provided such research and other services. Research received from brokers or
dealers is supplemental to CSAM's own research program. The fees to CSAM under
its agreements with each Portfolio are not reduced by reason of its receiving
any brokerage and research services.
The Fund paid the following commissions to broker-dealers for
execution of portfolio transactions on behalf of the indicated Portfolios for
the indicated fiscal years ended October 31.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Value $ 131,455 $ 115,662 $ 22,297
- --------------------------------------------------------------------------------
Small Company Value $ 10,337 $ 27,058 0
- --------------------------------------------------------------------------------
Small Company Growth $ 244,650 $ 299,840 $ 251,682
- --------------------------------------------------------------------------------
Post-Venture Capital $ 2,118 $ 3,314 0
- --------------------------------------------------------------------------------
International Equity $5,809,748 $6,610,396 $4,321,534
- --------------------------------------------------------------------------------
Emerging Markets $ 129,672 $ 294,677 $ 289,393
- --------------------------------------------------------------------------------
Japan Growth* $ 36,252 $ 8,210 0
- --------------------------------------------------------------------------------
</TABLE>
* For the fiscal year ended October 31, 1999, the increase in the amounts
paid by the Portfolio in commissions to broker-dealers was due to an increase in
(i) purchases and sales of portfolio securities in response to volatility in
market prices and (ii) large capital inflows and outflows due to purchases and
redemptions, including active trading, of the Portfolio's shares.
All orders for transactions in securities or options on behalf of a
Portfolio are placed by CSAM with broker-dealers that it selects, including
Credit Suisse Asset Management Securities, Inc. ("CSAMSI") and affiliates of
Credit Suisse Group ("Credit Suisse"). A Portfolio may utilize CSAMSI or
affiliates of Credit Suisse in connection with a purchase or sale of securities
when CSAM believes that the charge for the transaction does not exceed usual and
customary levels and when doing so is consistent with guidelines adopted by the
Board.
Investment decisions for each Portfolio concerning specific
portfolio securities are made independently from those for other clients advised
by CSAM or Abbott, as relevant. Such other investment clients may invest in the
same securities as a 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 CSAM or Abbott, as the case may be, believes to be
equitable
41
<PAGE> 125
to each client, including the Portfolios. In some instances, this investment
procedure may adversely affect the price paid or received by a Portfolio or the
size of the position obtained or sold for a Portfolio. To the extent permitted
by law, securities may be aggregated with those to be sold or purchased for a
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, Abbott, CSAMSI or Credit Suisse First Boston ("CSFB") or any affiliated
person of such companies.
Transactions for the Portfolios may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Fund will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
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 CSAM, in its sole discretion, believes such practice to be otherwise in the
Portfolio's interest.
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. A Portfolio's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of its
portfolio securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by a 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
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. Consequently, the
annual portfolio turnover rate of a Portfolio may be higher than mutual funds
having a similar objective that do not utilize these strategies.
It is not possible to predict the Portfolios' portfolio turnover
rates. High portfolio turnover rates (100% or more) may result in higher
brokerage commissions, dealer
42
<PAGE> 126
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.
Richard H. Francis (67) Director
40 Grosvenor Road Currently retired; Executive Vice President
Short Hills, New Jersey 07078 and Chief Financial Officer of Pan Am
Corporation and Pan American World Airways,
Inc. from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group
Incorporated; Director/Trustee of other
Warburg Pincus Funds and other CSAM-advised
investment companies.
Jack W. Fritz (72) Director
2425 North Fish Creek Road Private investor; Consultant and Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and operators of
radio stations); Director/Trustee of other
Warburg Pincus Funds.
Jeffrey E. Garten (53) Director
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and Finance;
Undersecretary of Commerce for International
Trade from November 1993 to October 1995;
Professor at Columbia University from
September 1992 to November 1993; Director of
Aetna, Inc.; Director of Calpine Energy
Corporation; Director/Trustee of other
Warburg Pincus Funds.
43
<PAGE> 127
James S. Pasman, Jr. (69) Director
29 The Trillium Currently retired; President and Chief
Pittsburgh, Pennsylvania 15238 Operating Officer of National InterGroup,
Inc. from April 1989 to March 1991;
Chairman of Permian Oil Co. from April 1989
to March 1991; Director of Education
Management Corp., Tyco International Ltd.;
Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
William W. Priest* (58) Chairman of the Board
153 East 53rd Street Chairman--Management Committee, Chief
New York, New York 10022 Executive Officer and Executive Director of
CSAM since 1990; Director/Trustee of other
Warburg Pincus Funds and other CSAM-advised
investment companies.
Steven N. Rappaport (51) Director
40 East 52nd Street President of Loanet, Inc. (on-line
New York, New York 10022 accounting service) since 1997; Executive
Vice President of Loanet, Inc. from 1994 to
1997; Director, President, North American
Operations, and former Executive Vice
President from 1992 to 1993 of Worldwide
Operations of Metallurg Inc.; Executive Vice
President, Telerate, Inc. from 1987 to 1992;
Partner in the law firm of Hartman & Craven
until 1987; Director/Trustee of other
Warburg Pincus Funds and other CSAM-advised
investment companies.
Alexander B. Trowbridge (70) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) since January 1990;
Director or Trustee of New England Mutual
Life Insurance Co., ICOS Corporation
(biopharmaceuticals), IRI International
(energy services), The Rouse Company (real
estate development), Harris Corp.
(electronics and communications equipment),
The Gillette Co. (personal care products)
and Sunoco, Inc. (petroleum refining and
marketing); Director/Trustee of other
Warburg Pincus Funds.
- ------------------
* Indicates a Director who is an "interested person" of the Fund as
defined in the 1940 Act.
44
<PAGE> 128
Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director 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 1991;
Vice President of Citibank, N.A. from 1987
to 1991; Officer of CSAMSI and of other
Warburg Pincus Funds.
Hal Liebes, Esq. (35) Vice President and Secretary
153 East 53rd Street Managing Director and General Counsel of
New York, New York 10022 CSAM; Associated with CSAM since 1995;
Associated with Lehman Brothers, Inc. from
1996 to 1997; Associated with CS First
Boston Investment Management from 1994 to
1995; Associated with Division of
Enforcement, U.S. Securities and Exchange
Commission from 1991 to 1994; Officer of
CSAMSI, other Warburg Pincus Funds and other
CSAM-advised investment companies.
Michael A. Pignataro (40) Treasurer and Chief Financial Officer
153 East 53rd Street Vice President and Director of Fund
New York, New York 10022 Administration of CSAM; Associated with
CSAM since 1984; Officer of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
Stuart J. Cohen, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM;
New York, New York 10017-3147 Associated with CSAM since Credit Suisse
acquired the Funds' predecessor adviser in
July 1999; with the predecessor adviser
since 1997; Associated with the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein
from 1995 to 1997; Officer of other Warburg
Pincus Funds.
Rocco A. DelGuercio (36) Assistant Treasurer
153 East 53rd Street Assistant Vice President and Administrative
New York, New York 10022 Officer of CSAM; Associated with CSAM since
June 1996; Assistant Treasurer, Bankers
Trust Corp. -- Fund Administration from
March 1994 to June 1996; Mutual Fund
Accounting Supervisor, Dreyfus Corporation
from April 1987 to March 1994; Officer of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
45
<PAGE> 129
No employee of CSAM, 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, PFPC or any of their affiliates
receives an annual fee of $750 per fund for Director services provided and $250
for each meeting attended in addition to reimbursement for expenses incurred in
connection with attendance at Board meetings. Each member of the Audit Committee
receives an annual fee of $250, and the Chairman of the Audit Committee receives
an annual fee of $325.
Directors' Compensation
(for the fiscal year ended October 31, 1999)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by CSAM(1)
- ---------------------------- ----------------- -------------------------
<S> <C> <C>
William W. Priest(2) None None
Arnold M. Reichman(3) None None
Richard N. Cooper(4) $1,127 $47,500
Richard H. Francis(5) $1,001 $38,250
Jack W. Fritz $2,247 $94,250
Jeffrey E. Garten $2,247 $94,250
Thomas A. Melfe(4) $1,372 $40,750
James S. Pasman, Jr.(5) $1,001 $38,250
Steven N. Rappaport(5) $1,001 $38,250
Alexander B. Trowbridge $2,324 $97,100
</TABLE>
- ------------------------
(1) Each Director serves as a Director or Trustee of 51 investment companies
and portfolios in the Warburg Pincus Family of Funds, except for Mr.
Garten, who, as of February 3, 2000, serves as a Director or Trustee of 33
investment companies in the Warburg Pincus Family of Funds.
(2) Mr. Priest receives compensation as an affiliate of CSAM, and,
accordingly, receives no compensation from the Fund or any other
investment company advised by CSAM.
(3) Mr. Reichman resigned as a Director of the Fund effective August 18,
1999.
(4) Messrs. Cooper and Melfe resigned as a Director of each Fund effective
July 6, 1999.
(5) Messrs. Francis, Pasman and Rappaport became Directors of the Fund
effective July 6, 1999.
As of January 31, 2000, the Directors and officers of the Fund as a
group owned less than 1% of the outstanding shares of each Portfolio.
Portfolio Managers
Post-Venture Capital Portfolio. Elizabeth B. Dater is
Co-Portfolio Manager of the Post-Venture Capital Portfolio. Ms. Dater has
been associated with CSAM since Credit Suisse acquired the Portfolio's
predecessor adviser in July 1999 and joined the predecessor adviser in 1978.
Previously, she was a vice president of Research at Fiduciary Trust Company
of New York and an institutional sales assistant at Lehman Brothers. Ms.
Dater has been a regular panelist on Maryland Public Television's Wall Street
Week with Louis
46
<PAGE> 130
Rukeyser since 1976. Ms. Dater earned a B.A. degree from Boston University in
Massachusetts.
Robert S. Janis is Co-Portfolio Manager of the Post-Venture
Capital Portfolio. Previously, Mr. Janis was a vice president and senior
research analyst at U.S. Trust Company of New York. He earned B.A. and
M.B.A. degrees from the University of Pennsylvania.
Raymond L. Held and Thaddeus I. Gray, Investment Managers and
Managing Directors of Abbott, manage the Post-Venture Capital Portfolio's
investments in Private Funds. Prior to co-founding a predecessor of Abbott
in 1986, Mr. Held had been an investment analyst and portfolio manager at
Manufacturers Hanover Investment Corporation since 1970, before which time he
had been a security analyst with Weis, Voisin, Cannon, Inc., L.M. Rosenthal &
Co., Shearson, Hammill & Co. and Standard & Poor's Corporation. Mr. Held
earned an M.B.A. from New York University, an M.A. from Columbia University
and a B.A. from Queens College.
Prior to joining a predecessor of Abbott in 1989, Mr. Gray was an
assistant vice president at Commerzbank Capital Markets Corporation, where he
managed the area responsible for underwriting and distributing all new issues
of securities. Prior to this, he was an associate with Credit Commercial de
France in Paris in the Corporate Finance Department. Mr. Gray received his
B.A. in History from the University of Pennsylvania and his M.B.A. in Finance
from New York University. He is also a Chartered Financial Analyst.
Small Company Growth Portfolio. Stephen J. Lurito and Sammy Oh
are Co-Portfolio Managers of the Small Company Growth Portfolio. Mr. Lurito
has been associated with CSAM since Credit Suisse acquired the Funds'
predecessor adviser in July 1999 and joined the predecessor adviser in 1987.
Prior to that he was a research analyst at Sanford C. Bernstein & Company,
Inc. Mr. Lurito earned a B.A. degree from the University of Virginia and an
M.B.A. from The Wharton School, University of Pennsylvania.
Mr. Oh has been associated with CSAM since Credit Suisse acquired
the Portfolio's predecessor adviser in July 1999 and joined the predecessor
adviser in 1997. Previously, Mr. Oh was a vice president of Bessemer Trust
from 1995 to 1996, and he was a vice president of Forstmann-Leff from 1993 to
1995.
Small Company Value Portfolio. Kyle F. Frey is the Portfolio
Manager of the Small Company Value Portfolio. Mr. Frey has been associated
with CSAM since Credit Suisse acquired the Portfolio's predecessor adviser in
July 1999 and joined the predecessor adviser in 1989. Previously, Mr. Frey
was with Goldman, Sachs & Co. in the institutional sales division. Mr. Frey
earned a B.S. degree from the University of New Hampshire and an M.B.A. from
New York University.
Value Portfolio. Scott T. Lewis and Stacy Dutton are the
Co-Portfolio Managers of the Value Portfolio. Mr. Lewis has been associated
with CSAM since Credit Suisse acquired the Funds' predecessor adviser in July
1999 and joined the predecessor adviser in 1986. Prior to that Mr. Lewis was an
assistant portfolio manager at Bench
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<PAGE> 131
Corporation from 1984 to 1985 and a trader at Atlanta/Sosnoff Management Corp.
from 1984 to 1985 and a trader at E.F. Hutton & Co. from 1982 to 1984. Mr. Lewis
received a M.B.A. and a B.S. degree from New York University.
Ms. Dutton has been associated with CSAM since Credit Suisse
acquired the Portfolio's predecessor adviser in July 1999 and joined the
predecessor adviser in 1997. Previously, Ms. Dutton was a senior vice
president and analyst for Jennison Associates Capital Corp. from 1993 to 1997.
International Equity Portfolio. P. Nicholas Edwards is
Co-Portfolio Manager of the International Equity Portfolio. Mr. Edwards has
been associated with CSAM since Credit Suisse acquired the Portfolio's
predecessor adviser in July 1999 and joined the predecessor adviser in
1995. Previously, Mr. Edwards was a director at Jardine Fleming Investment
Advisers, Tokyo. He was a vice president of Robert Fleming Inc. in New York
City from 1988 to 1991. Mr. Edwards earned M.A. degrees from Oxford
University and Hiroshima University in Japan.
Harold W. Ehrlich is Co-Portfolio Manager of the International
Equity Portfolio. Mr. Ehrlich has been associated with CSAM since Credit
Suisse acquired the Portfolio's predecessor adviser in July 1999 and joined
the predecessor adviser in 1995. Previously, Mr. Ehrlich was a senior vice
president, portfolio manager and analyst at Templeton Investment Counsel Inc.
from 1987 to 1995. He was a research analyst and assistant portfolio manager
at Fundamental Management Corporation from 1985 to 1986 and a research
analyst at First Equity Corporation of Florida from 1983 to 1985. Mr.
Ehrlich earned a B.S.B.A. degree from University of Florida and earned his
Chartered Financial Analyst designation in 1990.
Vincent J. McBride is Co-Portfolio Manager of the International
Equity Portfolio. Mr. McBride has been associated with CSAM since Credit
Suisse acquired the Portfolio's predecessor adviser in July 1999 and joined
the predecessor adviser in 1994. Previously, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994 and at
General Electric Investment Corporation from 1992 to 1993. He was also a
portfolio manager/analyst at United Jersey Bank from 1989 to 1992 and a
portfolio manager at First Fidelity Bank from 1987 to 1989. Mr. McBride
earned a B.S. degree from the University of Delaware and an M.B.A. degree
from Rutgers University.
Harold E. Sharon is Co-Portfolio Manager of the International
Equity Portfolio. Mr. Sharon has been associated with CSAM since Credit
Suisse acquired the Portfolio's predecessor adviser in July 1999 and joined
the predecessor adviser in 1998. Previously, Mr. Sharon was an executive
director and portfolio manager at CIBC Oppenheimer from 1994 to 1998. Mr.
Sharon was previously a Vice President and Portfolio Manager at the
predecessor adviser from 1990 to 1994. Mr. Sharon earned a B.S. Degree with
honors from the University of Rochester and an M.S. degree in Management from
the Sloan School of Management, M.I.T.
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<PAGE> 132
Emerging Markets Portfolio. Mr. McBride and Mr. Sharon are also
Co-Portfolio Managers of the Emerging Markets Portfolio (see biographies above).
Mr. Jun Sung Kim is an Associate Portfolio Manager of the Emerging
Markets Portfolio. Mr. Kim has been associated with CSAM since Credit Suisse
acquired the Portfolio's predecessor adviser in July 1999 and joined the
predecessor adviser in 1997. Previously, he was an investment manager with Asset
Korea Ltd., Seoul from 1994 to 1995. He was also an assistant investment manager
with Koeneman Capital Management, Singapore from 1992 to 1994.
Federico D. Laffan is an Associate Portfolio Manager of the Emerging
Markets Portfolio. Mr. Laffan has been associated with CSAM since Credit Suisse
acquired the Portfolio's predecessor adviser in July 1999 and joined the
predecessor adviser in 1997. Previously, Mr. Laffan was a senior manager and
partner with Green Cay Asset Management from 1996 to 1997 and a senior portfolio
manager and director with Foreign & Colonial Emerging Markets, London, from 1990
to 1996.
As described in the Prospectus for the International Portfolios, the
Credit Suisse Asset Management International Equity Management Team is also
responsible for the management of the Emerging Markets Portfolio.
Japan Growth Portfolio. Mr. Edwards (see biography above) and
Todd Jacobson, CFA, serve as the Co-Portfolio Managers of, the Japan Growth
Portfolio. Mr. Jacobson has been associated with CSAM since Credit Suisse
acquired the Portfolio's predecessor adviser in July 1999 and joined the
predecessor adviser in 1997. Previously, Mr. Jacobson was an analyst at
Brown Brothers Harriman from 1993 to 1997.
Investment Advisers and Co-Administrators
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 $680 billion of global
assets under management and employs approximately 62,000 people worldwide. The
principal business address of Credit Suisse is Paradeplatz 8, CH 8070, Zurich,
Switzerland.
Prior to July 6, 1999, Warburg Pincus Asset Management, Inc.
("Warburg") served as investment adviser to each Portfolio. On that date, Credit
Suisse acquired Warburg and combined Warburg with Credit Suisse's existing
U.S.-based asset management business ("Credit Suisse Asset Management").
Consequently, the combined entity, CSAM, became the Portfolios' investment
adviser. Credit Suisse Asset Management, formerly known as BEA Associates,
together with its predecessor firms, has been engaged in the investment advisory
business for over 60 years.
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<PAGE> 133
CSAM, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Portfolios in
accordance with each Portfolio's investment objective and stated investment
policies. CSAM makes investment decisions for each Portfolio and places orders
to purchase or sell securities on behalf of the Portfolio and, with respect to
the Post-Venture Capital Portfolio, supervises the activities of Abbott. 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.
Abbott, in accordance with the investment objective and policies of the
Post-Venture Capital Portfolio, makes investment decisions for the Portfolio
regarding investments in Private Funds, effects transactions in Private Funds on
behalf of the Portfolio and assists in other administrative functions relating
to investments in Private Funds.
For the services provided by CSAM, the Fund pays CSAM a fee
calculated at an annual rate equal to percentages of the relevant Portfolio's
average daily net assets, as follows: Small Company Growth Portfolio -- .90%,
Small Company Value Portfolio -- .90%, Value Portfolio -- .75%, Emerging Markets
Portfolio -- 1.00%, International Equity Portfolio -- .80%, and Japan Growth
Portfolio -- 1.10%. For the services provided by CSAM, the Post-Venture Capital
Portfolio pays CSAM a fee calculated at an annual rate of 1.10% of the
Portfolio's average daily net assets, out of which CSAM pays Abbott for
sub-investment advisory services. CSAM and the Portfolios' co-administrators may
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne by the Portfolios.
CSAM earned the following investment advisory fees with respect to
the Portfolios shown for the indicated fiscal years ended October 31 and
voluntarily waived the amounts shown.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Portfolio 1999** Waiver 1998* Waiver 1997+ Waiver
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Post-Venture $ 13,924 $ 13,924 $ 17,840 $ 17,840 N/A N/A
Capital
- -------------------------------------------------------------------------------------------
Small $2,045,138 $ 434,248 $2,012,526 $ 396,698 $1,405,403 $ 314,893
Company
Growth
- -------------------------------------------------------------------------------------------
Small $ 9,775 $ 9,775 $ 55,629 $ 52,149 N/A N/A
Company Value
- -------------------------------------------------------------------------------------------
Value $ 365,121 $ 158,857 $ 382,122 $ 196,905 $ 22,250 $ 22,250
- -------------------------------------------------------------------------------------------
Emerging $ 55,304 $ 31,023 $ 314,334 $ 13,496 $ 376,368 $ 103,632
Markets
- -------------------------------------------------------------------------------------------
International $6,827,752 $1,411,815 $9,511,718 $1,511,306 $9,423,008 $1,627,352
Equity
- -------------------------------------------------------------------------------------------
Japan Growth $ 78,901 $ 60,572 $ 15,596 $ 14,514 N/A N/A
- -------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 134
+ CSAM reimbursed expenses in the amount of $24,195 to the Value
Portfolio during the fiscal year ended October 31, 1997.
* CSAM reimbursed expenses in the amount of $48,425, $43,388, $553 and
$47,843 for the Post-Venture Capital Portfolio, Small Company Value
Portfolio, Value Portfolio and Japan Growth Portfolio, respectively,
during the fiscal year ended October 31, 1998.
** CSAM reimbursed expenses in the amount of $15,194, $31,312, $74,508
and $94,383 for the Emerging Markets Portfolio, Japan Growth
Portfolio, Post-Venture Capital Portfolio and Small Company Value
Portfolio, respectively, during the fiscal year ended
October 31, 1999.
CSAMSI and PFPC serve as co-administrators to the Fund pursuant to
separate written agreements (the "CSAMSI Co-Administration Agreements" and the
"PFPC Co-Administration Agreements," respectively). CSAMSI became
co-administrator to the Fund on November 1, 1999. Prior to that, Counsellors
Funds Service, Inc. ("Counsellors Service") served as co-administrator tot he
Fund.
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 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.
Counsellors Service (the Fund's predecessor co-administrator) earned
the following administration fees with respect to the Portfolios shown for the
indicated fiscal years ended October 31.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Portfolio 1999 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
Post-Venture Capital $ 1,266 $ 1,622 N/A
---------------------------------------------------------------------
Small Company Growth $227,237 $ 223,614 $ 156,156
---------------------------------------------------------------------
Small Company Value $ 1,086 $ 6,181 N/A
---------------------------------------------------------------------
Value $ 48,683 $ 50,950 $ 2,967
---------------------------------------------------------------------
Emerging Markets $ 5,530 $ 31,433 $ 37,637
---------------------------------------------------------------------
International Equity $853,469 $1,188,965 $1,177,876
---------------------------------------------------------------------
Japan Growth $ 7,173 $ 1,414 N/A
---------------------------------------------------------------------
</TABLE>
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<PAGE> 135
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, each U.S.
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. The International Portfolios each 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. PFPC has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809.
PFPC earned the following administration fees with respect to the
Portfolios shown for the indicated fiscal years ended October 31 and voluntarily
waived the amounts shown.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Portfolio 1999 Waiver 1998 Waiver 1997 Waiver
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Post-Venture $ 4,170 $ 1,266 $ 3,150 $ 1,622 N/A N/A
Capital
- -------------------------------------------------------------------------------------------------------
Small Company $231,631 $ 0 $229,049 $ 0 $156,156 0
Growth
- -------------------------------------------------------------------------------------------------------
Small Company $ 3,609 $ 1,086 $ 7,923 $ 6,181 N/A N/A
Value
- -------------------------------------------------------------------------------------------------------
Value $ 53,110 $33,233 $ 56,058 $27,867 $ 2,966 $ 2,966
- -------------------------------------------------------------------------------------------------------
Emerging $ 11,438 $ 6,636 $ 48,970 $37,720 $ 45,164 $45,164
Markets
- -------------------------------------------------------------------------------------------------------
International $806,818 $ 0 $995,886 $ 0 $963,938 0
Equity
- -------------------------------------------------------------------------------------------------------
Japan Growth $ 13,587 $ 8,607 $ 4,474 $ 1,701 N/A N/A
- -------------------------------------------------------------------------------------------------------
</TABLE>
Custodians and Transfer Agent
Pursuant to separate custodian agreements (the "Custodian
Agreements"), PFPC Trust Company ("PFPC Trust") and State Street Bank and Trust
Company ("State Street") serve as custodians of the each Portfolio's U.S. and
non-U.S. assets, respectively. Under the Custodian Agreements, PFPC Trust and
State Street each (i) maintains a separate account or accounts in the name of
the Portfolio, (ii) holds and transfers portfolio securities for the account of
the Portfolio, (iii) makes receipts and disbursements of money on behalf of the
Portfolio, (iv) collects and receives all income and other payments and
distributions on account of the Portfolio's portfolio securities held by it
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<PAGE> 136
and (v) makes periodic reports to the Board concerning the Portfolio's custodial
arrangements. PFPC Trust may delegate its duties under its Custodian Agreement
with the Fund to a wholly owned direct or indirect subsidiary of PFPC Trust or
PNC Bank Corp. upon notice to the Fund and upon the satisfaction of certain
other conditions. State Street is authorized to select one or more foreign
banking institutions and foreign securities depositaries as sub-custodian on
behalf of the Portfolios and PFPC Trust is authorized to select one or more
domestic banks or trust companies to serve as sub-custodian on behalf of the
Portfolios. PFPC Trust has entered into a sub-custodian agreement with PNC Bank,
National Association ("PNC"), pursuant to which PNC provides asset safekeeping
and securities clearing services. PFPC Trust and PNC are indirect, wholly owned
subsidiaries of PNC Bank Corp., and their principal business address is 8800
Tinicum Boulevard, Philadelphia, Pennsylvania 19153. The principal business
address of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
PNC also provides certain custodial services generally in connection
with purchases and sales of the International Equity Portfolio's shares.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Fund pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of each
Portfolio, (ii) addresses and mails all communications by the Fund 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 Fund. State Street has delegated to Boston Financial Data
Services, Inc., an affiliate of State Street ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Distribution and Shareholder Servicing
Provident Distributors, Inc. ("PDI") serves as the distributor of
the Portfolios. 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 Portfolios.
Service Organizations may also be reimbursed
53
<PAGE> 137
for marketing costs. The Portfolios 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 Fund was incorporated on May 13, 1992 under the laws of the
State of Maryland under the name "Warburg, Pincus 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
nine series have been classified, seven of which constitute the interests in the
Portfolios.
The Post-Venture Capital, Small Company Value, Value and
International Equity Portfolios are diversified, open-end management investment
companies. The Small Company Growth, Emerging Markets and Japan Growth
Portfolios are non-diversified, open-end management investment companies.
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Portfolio's shares is equal to its per
share net asset value. Under the 1940 Act, a 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. (A 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, a 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
each 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.
A 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
Warburg Pincus Fund.
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<PAGE> 138
EXCHANGE PRIVILEGE
Shareholders of a 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 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 Portfolio with a different investment objective when they believe
that a shift between Portfolios is an appropriate investment decision.
If an exchange request is received by Warburg Pincus Funds or its
agent prior to the close of regular trading on the NYSE, the exchange will be
made at each 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. A 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 a
Portfolio for shares in another portfolio of the Fund should review the
Prospectus of the other portfolio prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current Prospectus
for another portfolio of the Fund, an investor should contact the Fund at
1-800-222-8977.
Each Portfolio reserves 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. The Portfolios reserve the right to
terminate or modify the exchange privilege at any time upon 30 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in 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 and
existing judicial and administrative interpretations thereof, both of which are
subject to change.
The Portfolios and Their Investments
Each Portfolio intends to continue to qualify as a regulated
investment company under the Code during each of its taxable years. To so
qualify, a Portfolio must, among other things: (a) derive at least 90% of its
gross income in each taxable year from
55
<PAGE> 139
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 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 net investment income (i.e., income
other than its net realized long-term and short-term capital gains) and on its
net realized long-term and short-term capital gains, if any, that it distributes
to its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) is distributed to
its shareholders, but will be subject to tax at regular corporate rates on any
taxable income or gains that it does not distribute. Any dividend declared by a
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 annually to its shareholders
substantially all of its investment company taxable income. The Board will
determine annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). Each 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 long-term capital gains in excess of
its net short-term capital losses and capital loss carryovers, it will be
subject to a corporate tax (currently at a rate of 35%) on the amount retained.
In that event, the 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
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<PAGE> 140
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 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. 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 excise 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, 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 a 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 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 (the excess of the aggregate
gains, including items of income, over aggregate losses that would have been
realized if the Portfolio 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 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.
57
<PAGE> 141
A Portfolio's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the 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 a 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 a
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 a Portfolio were able to make the election described in this
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, a 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. A 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. Each 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 a Portfolio
58
<PAGE> 142
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 a 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 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.
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 during such six-month
period.
59
<PAGE> 143
Foreign Taxes
Income received by a Portfolio from non-U.S. sources may be subject
to withholding and other taxes imposed by other countries. A 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. A Portfolio may
qualify for and make this election (the "Foreign Tax Credit Election") in some,
but not necessarily all, of its taxable years. If a Portfolio were to make 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, a 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 Portfolios other than the Emerging Markets,
International Equity and the Japan Growth Portfolios 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.
In the opinion of Japanese counsel for the Fund, in the absence of
any activities in Japan by the Fund other than those contemplated and disclosed
in the Prospectuses and this Statement of Additional Information, the operations
of the Japan Growth Portfolio will not subject the Portfolio to any Japanese
income, capital gains or other taxes except for withholding taxes on interest
and dividends paid to the Portfolio by Japanese corporations. In the opinion of
such counsel, under the tax convention between the United States and Japan (the
"Convention") as currently in force, a Japanese withholding tax at a rate of 15%
is, within certain exceptions, imposed upon dividends paid by Japanese
corporations to the Portfolio. Pursuant to the present terms of the Convention,
interest received by the Portfolio from sources within Japan is subject to a
Japanese withholding tax at a rate of 10%.
Backup Withholding
A 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 number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
60
<PAGE> 144
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.
DETERMINATION OF PERFORMANCE
From time to time, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. The total
return of each Portfolio listed below for the fiscal periods ended October 31,
1999 were as follows (performance figures calculated without waiver of fees by
the Fund's service provider(s), if any, are noted in italics):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
PORTFOLIO ONE-YEAR FIVE-YEARS SINCE INCEPTION
(INCEPTION DATE)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Post-Venture 37.25% 27.46% N/A N/A 6.27% (0.60)%
Capital
(10/31/97)
- ---------------------------------------------------------------------------------
Small Company 38.79% 38.56% N/A N/A 16.34% 16.17%
Growth
(12/29/95)
- ---------------------------------------------------------------------------------
Small Company (3.85)% (18.23)% N/A N/A (12.39)% (27.03)%
Value
(10/31/97)
- ---------------------------------------------------------------------------------
Value 16.82% 16.23% N/A N/A 14.20% 13.57%
(6/30/97)
- ---------------------------------------------------------------------------------
Emerging 41.90% 37.73% N/A N/A (3.45)% (4.65)%
</TABLE>
61
<PAGE> 145
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Markets
(9/30/96)
- ---------------------------------------------------------------------------------
International 32.02% 31.71% 7.61% 7.43% 13.06% 12.84%
Equity
(9/1/92)
- ---------------------------------------------------------------------------------
Japan Growth 206.60% 203.71% N/A N/A 67.98% 65.99%
Portfolio+
(10/31/97)
- ---------------------------------------------------------------------------------
</TABLE>
+ Not annualized.
These total return figures show the average percentage change in
value of an investment in a Portfolio from the beginning of the measurement
period to the end of the measurement period. The figures reflect changes in the
price of the Portfolio's shares assuming that any income dividends and/or
capital gain distributions made by the Portfolio during the period were
reinvested in shares of the Portfolio. 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).
A Portfolio's average annualized total return is calculated by
finding the average annual compounded rates of return for the one-, five- and
ten- (or such shorter period as the Portfolio has been offered) year periods
that would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)(n) = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year
periods (or fractional portion thereof). Total return or "T" is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period and assumes that all dividends and distributions are reinvested
during the period.
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 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
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<PAGE> 146
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.
A 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; (ii) in the
case of the Post-Venture Capital Portfolio, with the Nasdaq Industrials Index
and appropriate indexes prepared by Frank Russell Company relating to securities
represented in the Portfolio, which are unmanaged indexes of common stocks; in
the case of the Small Company Growth Portfolio, with appropriate indexes
prepared by Frank Russell Company relating to securities represented in the
Portfolio; in the case of the Small Company Value Portfolio, with appropriate
indexes prepared by Frank Russell Company relating to securities represented in
the Portfolio, which are unmanaged indexes; in the case of the Value Portfolio,
with appropriate indexes prepared by Frank Russell Company relating to
securities represented in the Portfolio; in the case of the Emerging Markets
Portfolio, with the Morgan Stanley Capital International Emerging Markets Free
Index; in the case of the International Equity Portfolio, the Morgan Stanley
Capital International All Country World Excluding U.S. Index and/or other
indexes prepared by Morgan Stanley relating to securities represented in the
Portfolio; and in the case of the Japan Growth Portfolio, the Topix Index, which
is an unmanaged index of common stocks; or (iii) other appropriate indexes of
investment securities or with data developed by CSAM derived from such indexes.
A 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, each 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.
In reports or other communications to investors or in advertising,
each 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, a 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
63
<PAGE> 147
market and industry benchmarks. The Post-Venture Capital Portfolio may discuss
characteristics of venture capital financed companies and the benefits expected
to be achieved from investing in these companies. Each 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.
CSAM believes that a diversified portfolio of international equity
securities, when combined with a similarly diversified portfolio of domestic
equity securities, tends to have a lower volatility than a portfolio composed
entirely of domestic securities. Furthermore, international equities have been
shown to reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research indicates that volatility can be significantly
decreased when international equities are added.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE(R)) Index (the "EAFE Index"), has equaled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S&P 500 Index") in 15 of the last 28
years. The following table compares annual total returns of the EAFE Index and
the S&P 500 Index for the calendar years shown.
<TABLE>
<CAPTION>
EAFE INDEX VS. S&P 500 INDEX
1972-1999
ANNUAL TOTAL RETURN+
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
<S> <C> <C>
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
</TABLE>
64
<PAGE> 148
<TABLE>
<CAPTION>
EAFE INDEX VS. S&P 500 INDEX
1972-1999
ANNUAL TOTAL RETURN+
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
<S> <C> <C>
1994* 6.24 -1.54
1995 9.42 34.11
1996 4.40 20.26
1997 0.24 31.01
1998 18.29 26.23
1999* 26.97 21.02
</TABLE>
- -------------------------
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 15 out of the last 28
years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not intended to
indicate the future performance of the International Equity or Emerging Markets
Portfolios. Advertising or supplemental sales literature relating to a Portfolio
may describe the percentage decline from all-time high levels for certain
foreign stock markets. It may also describe how the Portfolio differs from the
EAFE Index in composition.
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 for the Portfolios that are
incorporated by reference in this Statement of Additional Information have been
audited by PwC, and have been included herein by reference in reliance upon the
report of such firm of independent accountants given upon their authority as
experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Fund and provides
legal services from time to time for CSAM and CSAMSI.
MISCELLANEOUS
The Portfolios are not sponsored, endorsed, sold or promoted by
Warburg, Pincus & Co. Warburg, Pincus & Co. makes no representation or
warranty, express or implied, to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in
the Portfolios particularly. Warburg, Pincus & Co. licenses certain
trademarks and trade names of Warburg, Pincus & Co., and is not responsible
for and has not participated in the calculation of the Funds' net asset
value, nor is Warburg, Pincus & Co. a distributor of the Portfolios.
Warburg, Pincus & Co. has no obligation or liability in connection with the
administration, marketing or trading of the Funds.
65
<PAGE> 149
As of January 31, 2000, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of a
Portfolio are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Portfolio Name and Address Percentage Owned
--------------------------------------------------------------------------------
<S> <C> <C>
Post-Venture Beth Dater 60.64%
Capital 555 Park Ave
Apt. 9E
New York, NY 10021-8166
--------------------------------------------------------------------------------
Credit Suisse Asset Management, Inc. 25.09%
Attn: Howard Conroy
466 Lexington Avenue
New York, NY 10017-3140
--------------------------------------------------------------------------------
Small Company MAC & Co* 13.85%
Growth A/C BUCF 1831132
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
--------------------------------------------------------------------------------
National City Bank of KY TTEE 9.82%
Baptist Healthcare System
UAD 05/06/97
Attn: Trust Mutual Funds
PO Box 94777
Cleveland, OH 44101-4777
--------------------------------------------------------------------------------
MAC & Co A/C OBRF 3331022 9.32%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
--------------------------------------------------------------------------------
TTEES of Amherst College 8.16%
Amherst College Ms. Sharon Siege
Treasurer Office
Box 2203 PO Box 5000
Amherst, MA 01004-2203
--------------------------------------------------------------------------------
Northern Trust Co TTEE* 7.00%
FBO Southern California
Rock Products C/O Mutual Funds
P.O. Box 92956
Chicago, IL 60675
--------------------------------------------------------------------------------
Key Trust Co TTEE 6.22%
FBO Thunderbird Mining
A/C# 2020200-1067163
DTD 03/01/98
PO Box 94871
Cleveland, OH 44101-4871
--------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 150
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Portfolio Name and Address Percentage Owned
--------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co Inc.* 5.62%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St. San Francisco,
CA 94104-4122
--------------------------------------------------------------------------------
Strafe & Co. 5.09%
FAO Indianapolis Symphony Orchestra
FD-MUT A/C 2835622612
PO Box 160
Westerville, OH 43086-0160
--------------------------------------------------------------------------------
Small Company Wendel & Co 505031* 61.50%
Value C/O The Bank of New York
Mutual Fund/Reorg Dept
PO Box 1066 Wall St. Station
New York, NY 10268-1066
--------------------------------------------------------------------------------
Guarantee & Trust Co TTEE 16.81%
Stuart Goode IRA R/O
70 E. 77th St. APT 9A
New York, NY 10021-1811
--------------------------------------------------------------------------------
Delaware Charter 12.04%
Guarantee & Trust Co.
FBO Charles A. Steinberg
PO Box 8963
Wilmington, DE 19899-8963
--------------------------------------------------------------------------------
Value National Financial Services Corp.* 49.27%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
--------------------------------------------------------------------------------
Wendel & Co 505031* 48.64%
C/O The Bank of New York
Mutual Fund/Reorg Dept
PO Box 1066 Wall St. Station
New York, NY 10268-1066
--------------------------------------------------------------------------------
Emerging Markets The Greenwall Foundation 96.00%
William C. Stubing
2 Park Avenue
New York, NY 10016-5675
--------------------------------------------------------------------------------
Japan Growth Louis R. Morell & Irene A. Comito TTEES 52.43%
FBO Wake Forest University
U/A DTD 07/02/99
PO Box 7354
Winston Salem, NC 27109-7354
--------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 151
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Portfolio Name and Address Percentage Owned
--------------------------------------------------------------------------------
<S> <C> <C>
The Witt-Touchton Company 24.67%
Attn: John T. Touchton Jr.
1 Tampa City Ctr Suite 3405
Tampa, FL 33602-5818
--------------------------------------------------------------------------------
Sema Co 17.95%
12 E. 49th St.
New York, NY 10017-1028
--------------------------------------------------------------------------------
International The Bank of New York TTEE 11.19%
Equity The Public Services Co. of Colorado
Retirement Plan
Attn: Doreen Murphy
One Wall St. 7th FL
New York, NY 10005-2500
--------------------------------------------------------------------------------
University of Miami Growth Pool 8.03%
Attn: Diane M. Cook, VP & Treasurer
250 Ashe Bldg.
PO Box 248207
Coral Gables, FL 33124-8207
--------------------------------------------------------------------------------
</TABLE>
* Each Portfolio believes these entities are not the beneficial
owners of shares held of record by them.
FINANCIAL STATEMENTS
The Fund's audited Annual Report dated October 31, 1999, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference with respect to all
information regarding the Portfolios included therein. The Fund will furnish
without charge a copy of the Annual Report upon request by calling the Fund at
1-800-222-8977.
68
<PAGE> 152
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted a plus sign designation. Capacity for timely payment on commercial paper
rated A-2 is satisfactory, but the relative degree of safety is not as high as
for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC and C - Debt rated BB and B is regarded, on balance,
as predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality
A-1
<PAGE> 153
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BBB 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 edge." Interest
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<PAGE> 154
payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
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> 155
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(R) 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> 156
Portfolio and the Post-Venture Capital
Portfolio.(5)
b(1) By-Laws.(6)
(2) Amendment to By-Laws.(7)
(3) Form of Amendment to By-Laws.(8)
c Registrant's Forms of Stock Certificates.(1)
d(1) Form of Investment Advisory Agreement.(9)
(2) Sub-Investment Advisory Agreement between Abbott Capital
Management, LLC and the Post-Venture Capital Portfolio.(5)
e(1) Distribution Agreement with Provident Distributors, Inc.
("PDI").(10)
f Not applicable.
- -------------------
(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).
(10) Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A of Warburg, Pincus Balanced Fund,
Inc., filed February 24, 2000 (Securities Act File No. 333-00533).
C-2
<PAGE> 157
g(1) Form of Custodian Services Agreement with PFPC Trust Company.(11)
(2) Form of Sub-Custodian Services Agreement with PFPC Trust Company
and PNC Bank, National Association.(11)
(3) Form of Custodian Contract with State Street Bank and Trust
Company ("State Street")--Small Company Growth Portfolio and
Emerging Markets Portfolio.(12)
(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.(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)
- -------------------
(11) 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).
(12) 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, Inc. filed on December 18,
1995 (Securities Act File No. 33-63655).
(13) 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(R)
Countries Fund, Inc. filed on November 5, 1997 (Securities Act File No.
333-39611).
C-3
<PAGE> 158
(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)
(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)
(5) Form of Services Agreement.(5)
i(1) Opinion and Consent of Willkie Farr & Gallagher, counsel to the
Fund.
(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)
- -------------------
(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).
C-4
<PAGE> 159
(3) Opinion and consent of Hamada & Matsumoto, Japanese counsel to the
Fund, with respect to the Japan Growth Portfolio.
j(1) Consent of PricewaterhouseCoopers LLP, Independent Accountants.
(2) Powers of Attorney. (14)
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)
m Not applicable.
n Not applicable.
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. ("CSAM Securities") 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
C-5
<PAGE> 160
Registration Statement of Warburg, Pincus Post-Venture Capital Fund, Inc., filed
on June 21, 1995.
Item 26. 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 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).
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).
Item 27. Principal Underwriter
(a) PDI acts as distributor for Registrant, as well as for 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 Growth Fund; Warburg Pincus International Small
Company Fund; Warburg Pincus Japan Growth Fund; Warburg Pincus Japan Small
Company Fund; Warburg Pincus Long-Short Equity Fund; Warburg Pincus Long-Short
Market Neutral Fund; Warburg Pincus Major Foreign Markets Fund; Warburg Pincus
Municipal Bond Fund; Warburg Pincus New York Intermediate Municipal Fund;
Warburg Pincus New York Tax Exempt Fund; Warburg Pincus Small Company Growth
Fund; Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Global
Fixed Income Fund; Warburg Pincus Trust; Warburg Pincus Trust II; Warburg Pincus
U.S. Core Equity Fund; Warburg Pincus U.S. Core Fixed Income Fund; Warburg
Pincus Value Fund; Warburg Pincus WorldPerks Money Market Fund and Warburg
Pincus WorldPerks Tax Free Money Market Fund.
C-6
<PAGE> 161
PDI also acts as principal underwriter for the following investment
companies: International Dollar Reserve Fund I, Ltd.; Provident Institutional
Funds Trust; Pacific Innovations Trust; Columbia Common Stock Fund, Inc.;
Columbia Growth Fund, Inc.; Columbia International Stock Fund, Inc.; Columbia
Special Fund, Inc.; Columbia Small Cap Fund, Inc.; Columbia Real Estate Equity
Fund, Inc.; Columbia Balanced Fund, Inc.; Columbia Daily Income Company;
Columbia U.S. Government Securities Fund, Inc.; Columbia Fixed Income Securities
Fund, Inc.; Columbia Municipal Bond Fund, Inc.; Columbia High Yield Fund, Inc.;
Columbia National Municipal Bond Fund, Inc.; GAMNA Series Funds, Inc.; WT
Investment Trust; Kalmar Pooled Investment Trust; The RBB Fund, Inc.; Robertson
Stephens Investment Trust; HT Insight Funds, Inc.; Harris Insight Funds Trust;
Hilliard-Lyons Government Fund, Inc.; Hilliard-Lyons Growth Fund, Inc.;
Hilliard-Lyons Research Trust; Senbanc Fund; ABN AMRO Funds; Alleghany Funds; BT
Insurance Funds Trust; First Choice Funds Trust; Forward Funds, Inc.; IAA Trust
Asset Allocation Fund, Inc.; IAA Trust Growth Fund, Inc.; IAA Trust Tax Exempt
Bond Fund, Inc.; IAA Trust Taxable Fixed Income Series Fund, Inc.; IBJ Funds
Trust; Light Index Funds, Inc.; LKCM Funds; Matthews International Funds; McM
Funds; Metropolitan West Funds; New Covenant Funds, Inc.; Panorama Trust; Smith
Breeden Series Funds; Smith Breeden Trust; Stratton Growth Funds, Inc.; Stratton
Monthly Dividend REIT Shares, Inc.; The Stratton Funds, Inc.; The Galaxy Fund;
The Galaxy VIP Fund; Galaxy Fund II; The Govett Funds, Inc.; Trainer, Wortham
First Mutual Funds; Undiscovered Managers Funds; Wilshire Target Funds, Inc.;
Weiss, Peck & Greer Funds Trust; Weiss, Peck & Greer International Fund; WPG
Growth and Income Fund; WPG Growth Fund; WPG Tudor Fund; RWB/WPG U.S. Large
Stock Fund; Tomorrow Funds Retirement Trust; The BlackRock Funds, Inc.
(distributed by BlackRock Distributors, Inc. a wholly owned subsidiary of PDI);
Northern Funds Trust and Northern Institutional Funds Trust (distributed by
Northern Funds Distributors, LLC a wholly owned subsidiary of PDI); The Offit
Investment Fund, Inc. (distributed by Offit Funds Distributor, Inc. a wholly
owned subsidiary of PDI) and The Offit Variable Insurance Fund, Inc.
(distributed by Offit Funds Distributor, Inc. a wholly owned subsidiary of PDI).
(b) For information relating to each director, officer or partner of
PDI, reference is made to Form BD (SEC File No. 8-46564) filed by PDI under the
Securities Exchange Act of 1934.
(c) None.
Item 28. Location of Accounts and Records
(1) Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and
minute books)
C-7
<PAGE> 162
(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)
(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) PFTC Trust Company
8800 Tinicum Boulevard
Philadelphia, Pennsylvania 19153
(records relating to its functions as custodian)
(8) Provident Distributors, Inc.
Four Falls Corporate Ctr., 6th Fl
West Conshohocken, PA 19428-2961
(records relating to its functions as distributor)
Item 29. Management Services
Not applicable.
Item 30. Undertakings.
Not applicable.
C-8
<PAGE> 163
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 certifies that it meets all of the requirements for effectiveness of
this Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act and 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 24th day of February, 2000.
WARBURG, PINCUS 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/William W. Priest* Chairman of the February 24, 2000
- ---------------------------------- Board of Directors
William W. Priest
/s/Eugene L. Podsiadlo President February 24, 2000
- ----------------------------------
Eugene L. Podsiadlo
/s/Michael A. Pignataro Treasurer February 24, 2000
- ---------------------------------- and Chief Financial
Michael A. Pignataro Officer
/s/Richard H. Francis* Director February 24, 2000
- ----------------------------------
Richard H. Francis
/s/Jack W. Fritz* Director February 24, 2000
- ----------------------------------
Jack W. Fritz
/s/Jeffrey E. Garten* Director February 24, 2000
- ----------------------------------
Jeffrey E. Garten
/s/James S. Pasman, Jr.* Director February 24, 2000
- ----------------------------------
James S. Pasman, Jr.
/s/Steven N. Rappaport* Director February 24, 2000
- ----------------------------------
Steven N. Rappaport
/s/Alexander B. Trowbridge* Director February 24, 2000
- ----------------------------------
Alexander B. Trowbridge
*By:/s/Michael A. Pignataro
------------------------------
Michael A. Pignataro as
Attorney-in-Fact
</TABLE>
<PAGE> 164
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
i(l) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.
(3) Opinion and Consent of Hamada & Matsumoto,
Japanese counsel to the Fund, with respect to
the Japan Growth Portfolio.
j(1) Consent of PricewaterhouseCoopers LLP,
Independent Accountants
<PAGE> 1
February 24, 2000
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Re: Post-Effective Amendment No. 18 to Registration Statement
(Securities Act File No. 33-47880; Investment Company Act
File No. 811-6670)
Ladies and Gentlemen:
You have requested us, as counsel to Warburg, Pincus Institutional Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State of Maryland,
to furnish you with this opinion in connection with the Fund's filing of
Post-Effective Amendment No. 18 (the "Amendment") to its Registration Statement
on Form N-1A (the "Registration Statement").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented to the date hereof (the "Articles"), the Fund's By-Laws, as amended
to the date hereof (the "By-Laws"), and the Amendment. We have also examined
such other records, documents, papers, statutes and authorities as we have
deemed necessary to form a basis for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of common stock
of the Fund, par value $.001 per share (the "Shares"), when and if duly sold,
issued and paid for in accordance with the laws of applicable jurisdictions and
the terms of the Articles, the By-Laws and the Registration Statement, will be
valid, legally issued, fully paid and non-assessable, assuming (i) that at the
time of sale such Shares are sold at a sales price in each case in excess of the
par value of the Shares; (ii) that the issuance of the Shares does not cause the
number of outstanding Shares to exceed the number of authorized Shares provided
for in the Articles, as amended to the date of issuance; and (iii) that
resolutions of the Board of Directors authorizing the issuance of the Shares
that are in effect on the date hereof have not been modified or withdrawn and
are in full force and effect on the date of issuance.
<PAGE> 2
Warburg, Pincus Institutional Fund, Inc.
February 24, 2000
Page 2
We hereby consent to the filing of this opinion as an exhibit to the Amendment,
to any reference to our name under the heading "Independent Accountants and
Counsel" in the Statement of Additional Information included as part of the
Amendment, and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Fund or any distributor or dealer in connection with
the registration or qualification of the Fund or the Shares under the securities
laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/WILLKIE FARR & GALLAGHER
<PAGE> 1
THE LAW FIRM OF
HAMADA & MATSUMOTO
KASUMIGASEKI BUILDING, 25TH FLOOR FAX: 03-3581-4713-4715
2-5, KASUMIGASEKI 3-CHOME 03-3592-0912, 0916
CHIYODA-KU, TOKYO 100, JAPAN 03-5251-7985 (G4)
TEL: 03-3580-3377 TLX: J28844 HYLAW
February 24, 2000
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as legal counsel to Warburg, Pincus Institutional Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, as to
matters of Japanese law.
We hereby confirm that the information concerning Japanese law set forth under
the caption "Foreign Taxes" in the section entitled "ADDITIONAL INFORMATION
CONCERNING TAXES" in the Fund's Statement of Additional Information contained
in the Fund's Registration Statement (the "Registration Statement"), has been
reviewed by us and in our opinion is correct. In addition, we hereby consent to
the reference to us in the Statement of Additional Information and to the
filing of this opinion with the U.S. Securities and Exchange Commission as an
exhibit to the Registration Statement.
Very truly yours,
HAMADA & MATSUMOTO
By: /s/ Yogo Kimura
----------------
Yogo Kimura
YK:ytk
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 18 to the Registration Statement under the Securities Act of 1933
and Post-Effective Amendment No. 19 to the Registration Statement under the
Investment Company Act of 1940 on Form N-1A (File Nos. 033-47880 and 811-6670,
respectively) of our report dated December 10, 1999 on our audit of the
financial statements and financial highlights of Warburg, Pincus Institutional
Fund, Inc., which report is included in the Annual Report to Shareholders for
the year ended October 31, 1999. We also consent to the reference of our firm
under the headings "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants and Counsel" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
February 23, 2000
