<PAGE>
[LOGO] WARBURG PINCUS FUNDS [LOGO] CREDIT ASSET
SUISSE MANAGEMENT
EMERGING MARKETS FUND
DECEMBER 10, 1999 PROSPECTUS
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR
INSTITUTIONAL SHARES
As with all mutual funds, the Securities and Exchange Commission
has not approved this fund, nor has it passed upon the adequacy or
accuracy of this PROSPECTUS. It is a criminal offense to state otherwise.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................................................. 4
Goal and Principal Strategies............................. 4
Investor Profile.......................................... 4
A Word About Risk......................................... 5
PERFORMANCE SUMMARY......................................... 6
Year-by-Year Total Returns ............................... 6
Average Annual Total Returns.............................. 7
INVESTOR EXPENSES........................................... 8
Fees and Fund Expenses.................................... 8
Example................................................... 8
THE FUND IN DETAIL.......................................... 10
The Management Firms...................................... 10
Multi-Class Structure..................................... 10
Fund Information Key...................................... 11
Goal and Strategies....................................... 12
Portfolio Investments..................................... 12
Risk Factors.............................................. 12
Portfolio Management...................................... 13
Investor Expenses......................................... 13
MORE ABOUT RISK............................................. 14
Introduction.............................................. 14
Types of Investment Risk.................................. 14
CERTAIN INVESTMENT PRACTICES................................ 16
MEET THE MANAGERS........................................... 18
ABOUT YOUR ACCOUNT.......................................... 20
Share Valuation........................................... 20
Buying and Selling Shares................................. 20
Buying Fund Shares........................................ 20
Selling Fund Shares....................................... 21
Exchanging Fund Shares.................................... 21
Other Policies............................................ 22
Account Statements........................................ 22
Distributions............................................. 23
Taxes .................................................... 23
OTHER INFORMATION........................................... 24
About the Distributor..................................... 24
FOR MORE INFORMATION........................................ back cover
</TABLE>
CREDIT SUISSE ASSET MANAGEMENT INSTITUTIONAL FUNDS IS THE NAME UNDER WHICH THE
INSTITUTIONAL CLASS OF SHARES OF CERTAIN WARBURG PINCUS FUNDS ARE OFFERED.
3
<PAGE>
KEY POINTS
GOAL AND PRINCIPAL STRATEGIES
<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
EMERGING MARKETS FUND Growth of capital / / Invests in foreign equity securities
Risk factors: / / Focuses on the world's less developed
EMERGING-MARKETS FOCUS countries
FOREIGN SECURITIES / / Analyzes companies using a value-based,
MARKET RISK bottom-up investment approach
NON-DIVERSIFIED STATUS / / Favors companies whose stocks appear to be
discounted relative to earnings, assets or
projected growth
/ / Sells securities when the stock has reached
its fair market value, when the fundamentals
of the company have deteriorated or when the
managers believe other investments offer
better opportunities
</TABLE>
- --- INVESTOR PROFILE
- ---------------------------
THIS FUND IS DESIGNED FOR INVESTORS WHO:
- are investing for long-term goals
- are willing to assume the risk of losing money in exchange for attractive
potential long-term returns
- are investing for growth
- want to diversify their portfolios internationally
IT 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 investment decision on your own goals, risk preferences and
time horizon.
4
<PAGE>
- --- A WORD ABOUT RISK
- -----------------------------
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the fund are discussed below. Before you invest,
please make sure you understand the risks that apply to the fund. As with any
mutual fund, you could lose money over any period of time.
Investments in the fund are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
EMERGING-MARKETS FOCUS
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 fund
to operational and other risks as well. Some countries may have restrictions
that could limit the fund'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 fund to increased
volatility or substantial declines in value.
FOREIGN SECURITIES
A fund that invests outside the U.S. carries additional risks that include:
- CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses. The fund may, but is not
required to, seek to reduce currency risk by hedging part or all of its
exposure to various foreign currencies.
- INFORMATION RISK Key information about an issuer, security or market may
be inaccurate or unavailable.
- POLITICAL RISK Foreign governments may expropriate assets, impose capital
or currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security
prices and impair the fund's ability to bring its capital or income back
to the U.S. Other political risks include economic policy changes, social
and political instability, military action and war.
MARKET RISK
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. Market risk is common to most investments -- including stocks
and bonds, and the mutual funds that invest in them.
NON-DIVERSIFIED STATUS
The fund is considered a non-diversified investment company under the
Investment Company Act of 1940 and is permitted to invest a greater proportion
of its assets in the securities of a smaller number of issuers. As a result, the
fund may be subject to greater volatility with respect to its respective
portfolio securities than a fund that is more broadly diversified.
5
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PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in the fund. The bar chart shows you how fund performance has
varied from year to year for up to 10 years. The table compares the fund'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
<TABLE>
<CAPTION>
YEAR ENDED 12/31: 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
EMERGING MARKETS FUND(*)
Best quarter: 11.51% (Q4 98)
Worst quarter: -26.30% (Q3 98)
Inception date: 12/30/94
Total return for the period 1/1/99-9/30/99: 30.97% (not
annualized)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1995 17.23%
1996 9.94%
1997 -19.99%
1998 -29.23%
</TABLE>
* The Institutional Class had not been offered prior to the date of this
PROSPECTUS. The returns shown are for the fund's Common Class, which would
have substantially similar returns as the Institutional Class. However,
since the Institutional Class is subject to slightly lower expenses, the
returns of the Institutional Class would have been slightly higher.
6
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/98: 1998 1996-1998 1994-1998 FUND DATE
<S> <C> <C> <C> <C> <C>
EMERGING MARKETS FUND -29.23% -14.61% N/A -7.56% 12/30/94(1)
MSCI EMERGING MARKETS FREE
INDEX(2) -25.33% -11.20% N/A -9.74%
</TABLE>
(1) The Institutional Class had not been offered prior to the date of this
PROSPECTUS. The returns shown are for the fund's Common Class, which would
have substantially similar returns as the Institutional Class. However,
since the Institutional Class is subject to slightly lower expenses, the
returns of the Institutional Class would have been slightly higher.
(2) 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.
<TABLE>
<S> <C>
UNDERSTANDING PERFORMANCE
/ / TOTAL RETURN tells you how much an investment in a fund has changed in value
over a given time period. It assumes that all dividends and capital gains
(if any) were reinvested in additional shares. The change in value can be
stated either as a CUMULATIVE RETURN or as an AVERAGE ANNUAL RATE OF RETURN.
/ / A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The YEAR-BY-YEAR TOTAL RETURNS in the bar chart are
examples of one-year cumulative total returns.
/ / An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year. It
smoothes out the variations in year-by-year performance to tell you what
CONSTANT annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, ASSUMING you held it for the entire period.
/ / Because of compounding, the average annual total returns in the table cannot
be computed by averaging the returns in the bar chart.
</TABLE>
------------------------------------------------------------------------------
7
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INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal period ending October 31,
2000.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT)
<S> <C>
Sales charge "load" on purchases NONE
Deferred sales charge "load" NONE
Sales charge "load" on reinvested distributions NONE
Redemption fees NONE
Exchange fees NONE
ANNUAL FUND OPERATING EXPENSES
(DEDUCTED FROM FUND ASSETS)
Management fee 1.25%
Distribution and service (12b-1) fee NONE
Other expenses(1) .77%
TOTAL ANNUAL FUND OPERATING EXPENSES(2) 2.02%
</TABLE>
(1) Other expenses are based on estimated amounts to be charged in the current
fiscal period.
(2) Fund service providers have voluntarily agreed to waive some of their fees
and reimburse some expenses. These waivers and reimbursements are expected
to lower the fund's expenses as follows:
<TABLE>
<CAPTION>
EXPENSES AFTER WAIVERS AND REIMBURSEMENTS
<S> <C>
Management fee .63%
Distribution and service (12b-1) fee NONE
Other expenses .77%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.40%
</TABLE>
EXAMPLE
This example may help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
Assume you invest $10,000, the fund returns 5% annually, expense ratios remain
as listed in the first table above (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 TEN YEARS
<S> <C> <C> <C>
$205 $634 $1,088 $2,348
</TABLE>
8
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9
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THE FUND 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 fund
- - Responsible for managing the fund's assets according to its goal and strategy
- - A member of Credit Suisse Asset Management (CSAM), the institutional asset
management and mutual fund arm of Credit Suisse Group, one of the world's
leading banks
- - CSAM companies manage more than $58 billion in the U.S. and $186 billion
globally
- - CSAM 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
- --- MULTI-CLASS STRUCTURE
- ----------------------------------
This PROSPECTUS describes the Institutional Class shares of the fund. The
Common Class and Advisor Class shares of the fund are described in separate
prospectuses.
10
<PAGE>
- --- FUND INFORMATION KEY
- ---------------------------------
A concise fund description begins on the next page. The description provides
the following information:
GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use
in pursuing that goal. Percentages of fund assets are based on total assets
unless indicated otherwise.
PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."
PORTFOLIO MANAGEMENT
The individuals designated by the investment adviser to handle the fund's
day-to-day management.
INVESTOR EXPENSES
Expected expenses for the 1999 fiscal period. Actual expenses may be higher
or lower.
- MANAGEMENT FEE The fee paid to the investment adviser for providing
investment advice to the fund. Expressed as a percentage of average net
assets after waivers.
- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal, registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets
after waivers, credits and reimbursements.
FINANCIAL HIGHLIGHTS
Shares of the Institutional Class of the fund had not been issued as of the
date of this PROSPECTUS, and, accordingly, no financial information is provided
with respect to such shares. Financial information with respect to shares of the
Common Class and Advisor Class of the fund are contained in the fund's most
recent ANNUAL REPORT, copies of which may be obtained without charge by calling
CSAM Institutional Shares at 800-222-8977.
11
<PAGE>
- --- GOAL AND STRATEGIES
- -------------------------------
The fund 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 or companies whose securities trade primarily 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 Europe, Japan, Australia and New Zealand) are considered
emerging markets.
Under normal market conditions, the fund will invest at least 65% of assets
in equity securities of issuers from at least three emerging markets. The fund
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.
- --- PORTFOLIO INVESTMENTS
- ----------------------------------
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 fund may also engage in other investment practices.
- --- RISK FACTORS
- ---------------------
The fund's principal risk factors are:
- emerging-markets focus
- foreign securities
- market risk
- non-diversified status
The value of your investment will fluctuate in response to stock-market
movements. Because the fund invests internationally, it carries additional
risks, including currency, information and political risks. These risks are
defined in "More About Risk."
Although the portfolio managers typically have diversified the fund's
investments, the fund's non-diversified status allows the fund to invest a
greater share of its assets in the securities of fewer companies. Non-
diversification might cause the fund to be more volatile than a diversified
fund.
Because the fund 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 fund to increased volatility or
substantial declines in value.
12
<PAGE>
- --- PORTFOLIO MANAGEMENT
- -----------------------------------
Harold E. Sharon and Vincent J. McBride are Co-Portfolio Managers of the
fund. Associate Portfolio Managers Morid Kamshad, Jun Sung Kim and Frederico D.
Laffan assist them. You can find out more about the fund's managers in "Meet the
Managers."
- --- INVESTOR EXPENSES
- ----------------------------
<TABLE>
<S> <C>
Management fee .63%
All other expenses .77%
----
Total expenses 1.40%
</TABLE>
13
<PAGE>
MORE ABOUT RISK
- --- INTRODUCTION
- ----------------------
A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of the fund's risk profile in "Key Points."
The fund discussion contains more detailed information. This section discusses
other risks that may affect the fund.
The fund may use certain investment practices that have higher risks
associated with them. However, the fund has limitations and policies designed to
reduce many of the risks. The "Certain Investment Practices" table describes
these practices and the limitations on their use.
- --- TYPES OF INVESTMENT RISK
- -------------------------------------
The following risks are referred to throughout this PROSPECTUS.
ACCESS RISK Some countries may restrict the fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to the fund.
CORRELATION RISK The risk that changes in the value of a hedging instrument
will not match those of the investment being hedged.
CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation.
CURRENCY RISK Fluctuations in exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. Adverse changes in
exchange rates may erode or reverse any gains produced by foreign-currency
denominated investments and may widen any losses.
EXPOSURE RISK The risk associated with investments (such as derivatives) or
practices (such as short selling) that increase the amount of money the fund
could gain or lose on an investment.
- HEDGED Exposure risk could multiply losses generated by a derivative or
practice used for hedging purposes. Such losses should be substantially
offset by gains on the hedged investment. However, while hedging can
reduce or eliminate losses, it can also reduce or eliminate gains.
- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks. Gains or losses from
speculative positions in a derivative may be much greater than the
derivative's original cost. For example, potential losses from writing
uncovered call options and from speculative short sales are unlimited.
EXTENSION RISK An unexpected rise in interest rates may extend the life of
a mortgage-backed security beyond the expected prepayment time, typically
reducing the security's value.
INFORMATION RISK Key information about an issuer, security or market may be
inaccurate or unavailable.
INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
LIQUIDITY RISK Certain fund securities may be difficult or impossible to
sell at the time and the price that the fund would like. The fund may have to
lower the price, sell other securities instead or forego an investment
opportunity. Any of these could have a negative effect on fund management or
performance.
MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to as
"volatility," may cause a security to be worth less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most investments --
including stocks and bonds, and the mutual funds that invest in them.
14
<PAGE>
OPERATIONAL RISK Some countries have less-developed securities markets (and
related transaction, registration and custody practices) that could subject the
fund to losses from fraud, negligence, delay or other actions.
POLITICAL RISK Foreign governments may expropriate assets, impose capital
or currency controls, impose punitive taxes, or nationalize a company or
industry. Any of these actions could have a severe effect on security prices and
impair the fund's ability to bring its capital or income back to the U.S. Other
political risks include economic policy changes, social and political
instability, military action and war.
VALUATION RISK The lack of an active trading market may make it difficult
to obtain an accurate price for a fund security.
YEAR 2000 PROCESSING RISK Many services provided to the fund and its
shareholders by CSAM and certain of its affiliates (CSAM Service Providers) and
the fund's other service providers rely on the functioning of their respective
computer systems. Many computer systems cannot distinguish the year 2000 from
the year 1900, resulting in potential difficulty in performing various
calculations (Year 2000 Issue). The Year 2000 Issue affects practically all
companies, organizations, governments, markets and economies throughout the
world -- including companies or governmental entities in which the fund invests
and markets in which it trades. The fund's operations are dependent upon
interactions among many participants in the financial-services and other related
industries, and the Year 2000 Issue could potentially have an adverse impact on
the handling of security trades, the payment of interest and dividends, pricing,
account services and other fund operations. It has been reported that foreign
institutions have made less progress in addressing the Year 2000 Issue than
major U.S. entities, which could adversely affect the fund's foreign
investments. The CSAM Service Providers are monitoring this progress with the
assistance of the fund's custodian and are evaluating appropriate actions.
The CSAM Service Providers recognize the importance of the Year 2000 Issue
and are taking appropriate steps in preparation for the year 2000. The CSAM
Service Providers anticipate that their systems and those of the fund's other
major service providers will be adapted in time for the year 2000. The CSAM
Service Providers have completed mission critical systems testing and have
participated in industry-wide testing programs. In addition, the CSAM Service
Providers have formulated a contingency plan to address the Year 2000 Issue.
The CSAM Service Providers continue to monitor the Year 2000 Issue and its
potential impact on the fund. However, at this time no one knows precisely what
the degree of impact will be, and there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the fund nor can there be any
assurance that the Year 2000 Issue will not have an adverse effect on the fund's
investments or on global markets or economies, generally. To the extent that the
impact on a fund holding or on markets or economies is negative, it could
seriously affect the fund's performance.
15
<PAGE>
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable
investment limitation. Risks are indicated for each practice.
KEY TO TABLE:
/X/ Permitted without limitation; does not indicate actual use
/20%/ ITALIC TYPE (E.G., 20%) represents an investment limitation as a
percentage of NET fund assets; does not indicate actual use
20% Roman type (e.g., 20%) represents an investment limitation as a
percentage of TOTAL fund assets; does not indicate actual use
/ / Permitted, but not expected to be used to a significant extent
- -- Not permitted
<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
BORROWING The borrowing of money from banks to meet redemptions or for other temporary or emergency
purposes. SPECULATIVE EXPOSURE RISK. 30%
- ------------------------------------------------------------------------------------------------------------------
COUNTRY/REGION FOCUS Investing a significant portion of fund assets in a single country or region.
Market swings in the targeted country or region will be likely to have a greater effect on fund
performance than they would in a more geographically diversified equity fund. CURRENCY, MARKET,
POLITICAL RISKS. /X/
- ------------------------------------------------------------------------------------------------------------------
CURRENCY HEDGING Instruments, such as options, futures, forwards or swaps, intended to manage
fund exposure to currency risk. Options, futures or forwards involve the right or obligation to buy
or sell a given amount of foreign currency at a specified price and future date. Swaps involve the
right or obligation to receive or make payments based on two different currency rates.(1) CORRELATION,
CREDIT, CURRENCY, HEDGED EXPOSURE, LIQUIDITY, POLITICAL, VALUATION RISKS. /X/
- ------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS Countries generally considered to be relatively less developed or industrialized.
Emerging markets often face economic problems that could subject the fund to increased volatility or
substantial declines in value. Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose the fund to risks beyond those generally encountered in
developed countries. ACCESS, CURRENCY, INFORMATION, LIQUIDITY, MARKET, OPERATIONAL, POLITICAL, VALUATION
RISKS. /X/
- ------------------------------------------------------------------------------------------------------------------
FUTURES AND OPTIONS ON FUTURES Exchange-traded contracts that enable the fund to hedge against or
speculate on future changes in currency values, interest rates or stock indexes. Futures obligate the
fund (or give it the right, in the case of options) to receive or make payment at a specific future time
based on those future changes.(1) CORRELATION, CURRENCY, HEDGED EXPOSURE, INTEREST-RATE, MARKET,
SPECULATIVE EXPOSURE RISKS.(2) / /
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT-GRADE DEBT SECURITIES Debt securities rated within the four highest grades (AAA/Aaa through
BBB/Baa) by Standard & Poor's or Moody's rating service, and unrated securities of comparable quality.
CREDIT, INTEREST-RATE, MARKET RISKS. 35%
- ------------------------------------------------------------------------------------------------------------------
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities 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) or sell (put) a particular security, currency
or index of securities at a fixed price within a certain time period. The fund may purchase or sell
(write) both put and call options for hedging or speculative purposes.(1) CORRELATION, CREDIT, HEDGED
EXPOSURE, LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. 25%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PRACTICE LIMIT
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
PRIVATIZATION PROGRAMS Foreign governments may sell all or part of their interests in enterprises they
own or control. ACCESS, CURRENCY, INFORMATION, LIQUIDITY, OPERATIONAL, POLITICAL, VALUATION RISKS. /X/
- ------------------------------------------------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with restrictions on trading, or those not actively
traded. May include private placements. LIQUIDITY, MARKET, VALUATION RISKS. /15%/
- ------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING Lending portfolio securities to financial institutions; the fund receives cash,
U.S. government securities or bank letters of credit as collateral. CREDIT, LIQUIDITY, MARKET,
OPERATIONAL RISKS. 33 1/3%
- ------------------------------------------------------------------------------------------------------------------
SHORT SALES "AGAINST THE BOX" A short sale when the fund owns enough shares of the security involved
to cover the borrowed securities, if necessary. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. / /
- ------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING Selling a security shortly after purchase. A fund engaging in short-term trading
will have higher turnover and transaction expenses. Increased short-term capital gains distributions
could raise shareholders' income tax liability. / /
- ------------------------------------------------------------------------------------------------------------------
START-UP AND OTHER SMALL COMPANIES Companies with small relative market capitalizations, including
those with continuous operations of less than three years. INFORMATION, LIQUIDITY, MARKET, VALUATION
RISKS. /X/
- ------------------------------------------------------------------------------------------------------------------
SWAPS A contract between a fund and another party in which the parties agree to exchange streams of
payments based on certain benchmarks. For example, a fund may use swaps to gain access to the
performance of a benchmark asset (such as an index or one or more stocks) where the fund's direct
investment is restricted. CREDIT, CURRENCY, INTEREST-RATE, LIQUIDITY, MARKET, POLITICAL, SPECULATIVE
EXPOSURE, VALUATION RISKS. / /
- ------------------------------------------------------------------------------------------------------------------
TEMPORARY DEFENSIVE TACTICS Placing some or all of the fund's assets in investments such as
money-market obligations and investment-grade debt securities for defensive purposes. Although intended
to avoid losses in adverse market, economic, political or other conditions, defensive tactics might be
inconsistent with the fund's principal investment strategies and might prevent the fund from achieving
its goal. / /
- ------------------------------------------------------------------------------------------------------------------
WARRANTS Options issued by a company granting the holder the right to buy certain securities,
generally common stock, at a specified price and usually for a limited time. LIQUIDITY, MARKET,
SPECULATIVE EXPOSURE RISKS. /10%/
- ------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase or sale of securities for delivery at a
future date; market value may change before delivery. LIQUIDITY, MARKET, SPECULATIVE EXPOSURE RISKS. 20%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund is not obligated to pursue any hedging strategy and does not
represent that these techniques are available now or will be available
at any time in the future.
(2) The Fund is limited to 5% of net assets for initial margin and premium
amounts on futures positions considered to be speculative by the Commodity
Futures Trading Commission.
17
<PAGE>
MEET THE MANAGERS
<TABLE>
<C> <S>
[PHOTO]
HAROLD E. SHARON
MANAGING DIRECTOR
/ / Co-Portfolio Manager since July 1999
/ / Joined Credit Suisse Asset Management in 1999 as a
result of CSAM's acquisition of Warburg Pincus Asset
Management
/ / Joined Warburg Pincus in March 1998
/ / Executive director and portfolio manager with CIBC
Oppenheimer, 1994 to 1998
/ / Warburg Pincus Senior Vice President and portfolio
manager, 1990 to 1994
[PHOTO]
MORID KAMSHAD
VICE PRESIDENT
/ / Associate Portfolio Manager since April 1998
/ / Joined Credit Suisse Asset Management in 1999 as a
result of CSAM's acquisition of Warburg Pincus Asset
Management
/ / With Warburg Pincus since 1997
/ / Senior investment manager with Pictet Asset
Management, 1995 to 1997
/ / Investment analyst with HSBC Asset Management, 1994
to 1995
/ / Business development manager with Air Products and
Chemicals-France, 1989 to 1994
</TABLE>
<TABLE>
<C> <S>
[PHOTO]
VINCENT J. MCBRIDE
SENIOR VICE PRESIDENT
/ / Co-Portfolio Manager since 1997
/ / Joined Credit Suisse Asset Management in 1999 as a
result of CSAM's acquisition of Warburg Pincus Asset
Management
/ / With Warburg Pincus since 1994
/ / Previously international equity analyst with Smith
Barney Inc., 1993 to 1994
JUN SUNG KIM
VICE PRESIDENT
/ / Associate Portfolio Manager since April 1998
/ / Joined Credit Suisse Asset Management in 1999 as a
result of CSAM's acquisition of Warburg Pincus Asset
Management
/ / 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
</TABLE>
18
<PAGE>
<TABLE>
<C> <S>
[PHOTO]
FEDERICO D. LAFFAN
VICE PRESIDENT
/ / Associate Portfolio Manager since April 1998
/ / Joined Credit Suisse Asset Management in 1999 as a
result of CSAM's acquisition of Warburg Pincus Asset
Management
/ / 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
</TABLE>
19
<PAGE>
ABOUT YOUR ACCOUNT
- --- SHARE VALUATION
- --------------------------
The price of your shares is also referred to as their net asset value (NAV).
The NAV is determined at the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the NYSE is open for
business. It is calculated by dividing the Institutional Class's total assets,
less its liabilities, by the number of Institutional Class shares outstanding.
The fund values its securities based on market quotations when it calculates
its NAV. If market quotations are not readily available, securities and other
assets are valued by another method that the Board 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 fund securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when the fund does not compute its price. This
could cause the value of the fund's portfolio investments to be affected by
trading on days when you cannot buy or sell shares.
- --- BUYING AND SELLING SHARES
- ---------------------------------------
The 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. Eastern Time), 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. You are entitled to dividend and capital-gain distributions
(described below) as soon as your purchase order is executed.
The fund has authorized financial-services firms, such as banks, brokers and
financial advisors (and other intermediaries that the firms may designate) to
accept orders. When an authorized firm or its designee has received your order,
it is considered received by the fund and will be priced at the next-computed
NAV.
- --- BUYING FUND SHARES
- ------------------------------
INVEST BY WIRE
Institutional Class shares are generally available only to investors who
have entered into an investment management agreement with the adviser. Investors
should complete an account application and forward it to CSAM Institutional
Shares. After calling the fund to place an order, you may wire funds to:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
CSAM Institutional Shares
DDA# 9905-227-6
F/F/C: [ACCOUNT NUMBER AND REGISTRATION]
You can also purchase shares by mailing a check or Federal Reserve draft to:
CSAM Institutional Shares
P.O. Box 8500
Boston, Massachusetts 02266-8500
or overnight to:
Boston Financial
Attn: CSAM Institutional Shares
66 Brooks Drive
Braintree, Massachusetts 02184
Please use either a personal, company or bank check payable in U.S. dollars.
Unfortunately, we cannot accept checks that are not pre-printed or checks that
are payable to you or another party. These types of
20
<PAGE>
checks may be returned to you and your purchase order may not be processed.
Limited exceptions include IRA rollover and government checks. Federal Reserve
drafts are available at national banks and at state Federal Reserve member
banks. Please indicate the fund's name on any check or Federal Reserve draft.
The application contains further instructions.
INVEST BY PURCHASES IN KIND
With the adviser's permission, investors may acquire Institutional
Class shares in exchange for fund portfolio securities. The portfolio securities
must meet the following requirements:
- Match the investment objectives and policies of the fund
- Be considered by the fund's adviser to be an appropriate fund investment
- Be easily valued, liquid and not subject to restrictions on transfer
You may have to pay administrative or custody costs if you make purchases in
kind and the execution of your purchase order may be delayed.
MINIMUM INVESTMENTS
Minimum investments for Institutional Class shares are the following,
including investment by purchases in-kind and by exchange (described below):
<TABLE>
<S> <C>
Initial investment $3,000,000
Subsequent investment $ 100,000
</TABLE>
Clients of the adviser, along with the adviser's affiliates, client officers
and certain other related persons, may purchase shares without entering into an
investment management agreement with the adviser subject to a minimum initial
investment of $100,000 and a minimum subsequent investment of $1,000.
You must maintain an account balance in the fund of at least $500. If your
account balance falls below the minimum required to keep it open due to
redemptions or exchanges, the fund may ask you to increase your balance. If it
is still below the minimum after 30 days, the fund may close your account and
mail you the proceeds.
- --- SELLING FUND SHARES
- -------------------------------
SELL FUND SHARES IN WRITING
You can sell (redeem) your shares on any day the fund is open by writing to
CSAM Institutional Shares. The request must be signed by all record owners
(exactly as registered) or by an authorized person such as an investment adviser
or other agent. Additional documents may be required for redemption by a
corporation, partnership, trust, fiduciary, executor or administrator or in
certain other cases.
REDEMPTION PROCEEDS
After selling fund shares you will receive the proceeds by either wire or
check, mailed within seven days of the redemption. For shares purchased by
check, if the fund has not yet collected payment for the shares you are selling,
it will delay sending you the proceeds until your purchase payment clears. This
may take up to 10 calendar days after the purchase.
- --- EXCHANGING FUND SHARES
- ------------------------------------
You may exchange Institutional Class shares for Institutional shares in any
other CSAM Fund by writing to CSAM Institutional Shares. If you are purchasing
shares in a new fund by exchange, the new fund account will be registered
exactly as the fund from which you are exchanging. If you want to change account
information or privileges you must specify this in the redemption request and
have all signatures guaranteed. You can obtain a signature guarantee from most
banks or securities dealers, but not from a notary public.
21
<PAGE>
- --- OTHER POLICIES
- ------------------------
TRANSACTION DETAILS
Your purchase order will be canceled and you may be liable for losses or
fees incurred by the fund if:
- your investment check or Federal Reserve draft does not clear
- you place a telephone order by 4 p.m. Eastern Time and we do not receive
your wire that day
If you wire money without first calling the fund to place an order, and your
wire arrives after the close of regular trading on the NYSE, then your order
will not be executed until the end of the next business day. In the meantime,
your payment will be held uninvested. Your bank or other financial-services firm
may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
The fund reserves the right to:
- 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 60 days' notice to
current investors, or temporarily suspend this privilege during unusual
market conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind" -- payment in portfolio securities rather than
cash -- for certain large redemptions that could hurt fund operations
- suspend redemptions or postpone payment dates as permitted by the
Investment Company Act of 1940 (such as during periods other than weekends
or holidays when the NYSE is closed, or when trading on the NYSE is
restricted, or any other time that the SEC permits)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
ACCOUNT CHANGES
You should update your account records whenever you change your address. You
can call 800-222-8977 to change your account information or privileges.
- --- 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 quarter
You will receive annual and semiannual financial reports.
22
<PAGE>
- --- DISTRIBUTIONS
- ----------------------
As a fund investor, you will receive distributions.
The fund earns dividends from stocks and interest from bond, money-market
and other investments. These are passed along as dividend distributions. A fund
realizes capital gains whenever it sells securities for a higher price than it
paid for them. These are passed along as capital-gain distributions.
The fund typically distributes dividends and capital gains annually, usually
in December.
Most investors have their distributions reinvested in additional shares of
the same fund. Distributions will be reinvested unless you choose on your
account application to have a check for your distributions mailed to you or sent
by electronic transfer.
- --- TAXES
- ------------
As with any investment, you should consider how your investment in the fund
will be taxed. If your account is not a tax-advantaged account, you should be
especially aware of the following potential tax implications. Please consult
your tax professional concerning your own tax situation.
TAXES ON DISTRIBUTIONS
As long as the fund continues to meet the requirements for being a
tax-qualified regulated investment company, the fund pays no federal income tax
on the earnings it distributes to shareholders.
Distributions you receive from the fund, whether reinvested or taken in
cash, are generally considered taxable. Distributions from the fund's long-term
capital gains are taxed as long-term capital gains, regardless of how long you
have held fund shares. Distributions from other sources are generally taxed as
ordinary income. The funds will mostly make capital-gain distributions, which
could be short-term or long-term.
If you buy shares shortly before or on the "record date" -- the date that
establishes you as the person to receive the upcoming distribution -- you may
receive a portion of the money you just invested in the form of a taxable
distribution.
The Form 1099 that is mailed to you every January details your distributions
and their federal tax category, including the portion taxable as long-term
capital gains.
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. In addition, you
may have a gain or loss when you purchase shares in exchange for fund portfolio
securities. You are responsible for any tax liabilities generated by your
transactions.
23
<PAGE>
OTHER INFORMATION
- --- ABOUT THE DISTRIBUTOR
- ----------------------------------
Credit Suisse Asset Management Securities, Inc., at no cost to the fund, is
responsible for:
- making the fund available to you
- account servicing and maintenance
- other administrative services related to the sale of the Institutional
Class
24
<PAGE>
FOR MORE INFORMATION
More information about the fund 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 fund's managers discussing
market conditions and investment strategies that significantly affected fund
performance during their past fiscal year.
- --- OTHER INFORMATION
- ------------------------------
A current STATEMENT OF ADDITIONAL INFORMATION (SAI) which provides more
details about the fund is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet website (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
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009 or electronically to
[email protected].
Please contact CSAM Institutional Shares to obtain, without charge, the SAI
and ANNUAL and SEMIANNUAL REPORTS and to make shareholder inquiries:
<TABLE>
<S> <C>
BY TELEPHONE:
800-222-8977
BY MAIL:
CSAM Institutional Shares
P.O. Box 8500
Boston, MA 02266-8500
BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: CSAM Institutional Shares
66 Brooks Drive
Braintree, MA 02171
SEC FILE NUMBER:
CSAM Institutional Shares/Warburg Pincus
Emerging Markets Fund 811-08252
</TABLE>
[LOGO]
P.O. BOX 8500, BOSTON, MA 02266-8500
800-222-8977
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., DISTRIBUTOR. CSIEM-1-1299
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 22, 1999
AS REVISED DECEMBER 10, 1999
WARBURG PINCUS MAJOR FOREIGN MARKETS FUND
WARBURG PINCUS INTERNATIONAL EQUITY FUND
WARBURG PINCUS INTERNATIONAL SMALL COMPANY FUND
WARBURG PINCUS EMERGING MARKETS FUND
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND
This combined STATEMENT OF ADDITIONAL INFORMATION provides information about
Warburg Pincus Major Foreign Markets Fund (the "Major Foreign Markets Fund"),
Warburg Pincus International Equity Fund (the "International Equity
Fund"),Warburg Pincus International Small Company Fund (the "International Small
Company Fund"), Warburg Pincus Emerging Markets Fund (the "Emerging Markets
Fund") and Warburg Pincus Global Post-Venture Capital Fund (the "Global
Post-Venture Capital Fund") (collectively, the "Funds") that supplements
information in the combined PROSPECTUS for the Common Shares of the Funds, dated
February 22, 1999, the PROSPECTUS for the Advisor Shares of the International
Equity Fund, dated February 22, 1999, the PROSPECTUS for the Advisor Shares of
the Emerging Markets Fund and Global Post-Venture Capital Fund, dated February
22, 1999 (as revised March 22, 1999) and the PROSPECTUS for the Institutional
Shares of the Emerging Markets Fund, dated December 10, 1999, as amended or
supplemented from time to time (collectively, the "PROSPECTUS").
Each Fund's audited ANNUAL REPORT dated October 31, 1998, 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 Funds should be made solely upon the information
contained herein. Copies of the PROSPECTUS, ANNUAL REPORTS and information
regarding each Fund's current performance can be obtained by writing or
telephoning:
<TABLE>
<CAPTION>
COMMON SHARES ADVISOR SHARES INSTITUTIONAL SHARES
<S> <C> <C>
Warburg Pincus Funds Warburg Pincus Advisor Funds CSAM Institutional Shares
P.O. Box 9030 P.O. Box 9030 P.O. Box 8500
Boston, MA 02205-9030 Boston, MA 02205-9030 Boston, MA 02266-8500
800-WARBURG Attn.: Institutional Services 800-WARBURG
800-222-8977
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES................................................................................1
Options on Securities and Securities Indices and Currency Exchange Transactions..............................4
Securities Options.......................................................................................4
Securities Index Options.................................................................................7
OTC Options..............................................................................................7
Futures Activities.......................................................................................8
Futures Contracts...................................................................................8
Options on Futures Contracts........................................................................9
Currency Exchange Transactions..........................................................................10
Forward Currency Contracts.........................................................................10
Currency Options...................................................................................11
Currency Hedging...................................................................................11
Swaps...................................................................................................12
Hedging Generally.......................................................................................12
Asset Coverage for Forward Contracts, Options, Futures, Options on Futures and Swaps....................13
Additional Information on Other Investment Practices........................................................14
U.S. Government Securities..................................................................................14
Money Market Obligations....................................................................................15
Repurchase Agreements...................................................................................15
Money Market Mutual Funds...............................................................................15
Convertible Securities......................................................................................16
Debt Securities.............................................................................................16
Below Investment Grade Securities.......................................................................17
Structured Securities.......................................................................................18
Mortgage-Backed Securities..............................................................................18
Asset-Backed Securities.................................................................................19
Structured Notes, Bonds or Debentures...................................................................20
Loan Participations and Assignments.....................................................................20
REITs.......................................................................................................21
Securities of Other Investment Companies....................................................................21
Lending of Portfolio Securities.............................................................................21
Foreign Investments.........................................................................................22
Foreign Currency Exchange...............................................................................22
Euro Conversion.........................................................................................23
Information.............................................................................................23
Political Instability...................................................................................23
Foreign Markets.........................................................................................23
Increased Expenses......................................................................................24
Foreign Debt Securities.................................................................................24
Sovereign Debt..........................................................................................24
Depositary Receipts.....................................................................................26
<PAGE>
Privatizations..........................................................................................26
Brady Bonds.............................................................................................26
Emerging Markets........................................................................................27
Japanese Investments........................................................................................27
Domestic Politics.......................................................................................28
Economic Background.....................................................................................28
Economic Trends.........................................................................................29
Currency Fluctuation....................................................................................30
Securities Markets......................................................................................31
Other Factors...........................................................................................32
Short Sales.................................................................................................32
Short Sales "Against the Box................................................................................32
Warrants....................................................................................................33
Non-Publicly Traded and Illiquid Securities.................................................................34
Rule 144A Securities....................................................................................35
Borrowing...................................................................................................35
Stand-By Commitments........................................................................................35
Reverse Repurchase Agreements...............................................................................36
When-Issued Securities and Delayed-Delivery Transactions....................................................37
Emerging Growth and Small Companies; Unseasoned Issuers.....................................................37
Dollar Rolls................................................................................................38
Temporary Defensive Strategies..............................................................................39
Debt Securities.........................................................................................39
Money Market Obligations................................................................................39
Non-Diversified Status (Emerging Markets Fund Only).....................................................39
Strategies Available to the Global Post-Venture Capital Fund Only...........................................39
Private Fund Investments....................................................................................39
Other Strategies............................................................................................41
INVESTMENT RESTRICTIONS..........................................................................................41
All Funds...................................................................................................41
Major Foreign Markets Fund..................................................................................41
International Equity Fund...................................................................................43
International Small Company Fund............................................................................44
Emerging Markets Fund.......................................................................................46
Global Post-Venture Capital Fund............................................................................48
PORTFOLIO VALUATION..............................................................................................49
PORTFOLIO TRANSACTIONS...........................................................................................51
PORTFOLIO TURNOVER...............................................................................................54
MANAGEMENT OF THE FUNDS..........................................................................................54
Officers and Board of Directors.............................................................................54
Directors' Total Compensation...............................................................................58
Portfolio Managers of the Funds.............................................................................62
Major Foreign Markets Fund..............................................................................62
International Small Company Fund........................................................................63
(ii)
<PAGE>
International Equity Fund and Emerging Markets Fund.....................................................64
Global Post-Venture Capital Fund........................................................................64
Investment Advisers and Co-Administrators...................................................................65
Custodians and Transfer Agent...............................................................................69
Organization of the Funds...................................................................................69
Distribution and Shareholder Servicing......................................................................71
Distributor.............................................................................................71
Common Shares...........................................................................................71
Advisor Shares..........................................................................................72
Institutional Shares....................................................................................73
General.................................................................................................74
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................74
Automatic Cash Withdrawal Plan..............................................................................74
EXCHANGE PRIVILEGE...............................................................................................75
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................................75
The Funds and Their Investments.............................................................................76
Passive Foreign Investment Companies........................................................................78
Fund Taxes on Swaps.........................................................................................79
Dividends and Distributions.................................................................................79
Sales of Shares.............................................................................................80
Foreign Taxes...............................................................................................80
Backup Withholding..........................................................................................80
Notices.....................................................................................................81
Other Taxation..............................................................................................81
DETERMINATION OF PERFORMANCE.....................................................................................81
TOTAL RETURN.....................................................................................................81
INDEPENDENT ACCOUNTANTS AND COUNSEL..............................................................................86
MISCELLANEOUS....................................................................................................86
FINANCIAL STATEMENTS.............................................................................................86
APPENDIX - DESCRIPTION OF RATINGS...............................................................................A-1
</TABLE>
(iii)
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each
Fund's investment objective and policies in the PROSPECTUS. There are no
assurances that the Funds will achieve their investment objectives.
MAJOR FOREIGN MARKETS FUND. The investment objective of the
Major Foreign Markets Fund is long-term capital appreciation, which it seeks to
achieve by investing, under normal market conditions, at least 65% of its total
assets in securities of issuers, wherever organized, having their principal
business activities and interests in countries considered to be major foreign
securities markets ("Major Foreign Markets").
Determinations as to whether an issuer has its principal
business activities and interests in a Major Foreign Market will be made by
Credit Suisse Asset Management, LLC ("CSAM") based on publicly available
information and inquiries made to the issuers. In making such determinations,
CSAM will consider the following factors: (i) whether the issuer's principal
securities trading market is in a Major Foreign Market; (ii) whether the issuer
derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in a Major Foreign Markets, or has at least 50% of its total or net
assets situated in one or more Major Foreign Markets; or (iii) whether the
issuer is organized under the laws of, and has a principal office in, a Major
Foreign Market.
INTERNATIONAL EQUITY FUND. The investment objective of the
International Equity Fund is long-term capital appreciation, which it seeks to
achieve by investing in international equity securities that are considered by
CSAM to have above-average potential for appreciation.
INTERNATIONAL SMALL COMPANY FUND. The investment objective of
the International Small Company Fund is capital appreciation, which it seeks to
achieve by investing in a portfolio of equity securities of small-sized
companies, wherever organized, that in CSAM's judgment have their principal
business activities and interests outside of the U.S. The Fund will invest
primarily in companies whose securities are traded on national securities
exchanges or in an organized over-the-counter ("OTC") market, such as the Japan
Securities Dealers Association Automated Quotation Systems ("JASDAQ"), the
European Association of Securities Dealers Automated Quotation System ("EASDAQ")
and the U.K. Alternative Investment Market ("AIM").
In appropriate circumstances, such as when a direct investment
by the International Small Company Fund 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 Fund may, consistent with
the provisions of the Investment Company Act of 1940, as amended (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
Fund will bear its ratable share of the investment company's expenses, including
<PAGE>
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
EMERGING MARKETS FUND. The investment objective of the
Emerging Markets Fund is growth of capital, which it seeks to achieve by
investing primarily in equity securities of non-U.S. issuers consisting of
companies in emerging securities markets ("Emerging Markets"). The Fund will not
necessarily seek to diversify investments on a geographical basis or on the
basis of the level of economic development of any particular country and the
Emerging Markets in which the Fund invests will vary from time to time. An
equity security of an issuer in an Emerging Market is defined as common stock
and preferred stock (including convertible preferred stock); bonds, notes and
debentures convertible into common or preferred stock; stock purchase warrants
and rights; equity interests in trusts and partnerships; and depositary receipts
of an issuer: (i) the principal securities trading market for which is in an
Emerging Market; (ii) which derives at least 50% of its revenues or earnings,
either alone or on a consolidated basis, from goods produced or sold,
investments made or services performed in an Emerging Market, or which has at
least 50% of its total or net assets situated in one or more Emerging Markets;
or (iii) that is organized under the laws of, and with a principal office in, an
Emerging Market. Determinations as to whether an issuer is an Emerging Markets
issuer will be made by CSAM, based on publicly available information and
inquiries made to the issuers.
Among the countries which CSAM currently considers to be
Emerging Markets are the following: Algeria, Angola, Antigua, Argentina,
Armenia, Azerbaijan, Bangladesh, Barbuda, Barbados, Belarus, Belize, Bhutan,
Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile, People's Republic of
China, Republic of China (Taiwan), Colombia, Cyprus, Czech Republic, Dominica,
Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong Kong,
Hungary, India, Indonesia, Israel, Ivory Cost, Jamaica, Jordan, Kazakhstan,
Kenya, Republic of Korea (South Korea), Latvia, Lebanon, Lithuania, Malawi,
Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco, Mozambique,
Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua New Guinea,
Paraguay, Peru, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia,
Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines, Swaziland, Tanzania, Thailand, Trinidad
and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uruguay, Uzbekistan,
Venezuela, Vietnam, Yugoslavia, Zambia and Zimbabwe. Among the countries that
will not be considered Emerging Markets are: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg,
The Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United
Kingdom and the United States.
The Emerging Markets Fund may invest in securities of
companies of any size, whether traded on or off a national securities exchange.
The Fund's 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.
2
<PAGE>
In appropriate circumstances, such as when a direct investment
by the Emerging Markets Fund 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 Fund 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 Fund will bear its ratable share of the investment company's
expenses, including management fees, and will remain subject to payment of the
Fund's administration fees and other expenses with respect to assets so
invested.
GLOBAL POST-VENTURE CAPITAL FUND. The investment objective of
the Global Post-Venture Capital Fund is long-term growth of capital, which it
seeks to achieve by investing primarily in equity securities of U.S. and foreign
issuers considered by CSAM to be in their post-venture capital stage of
development. The Fund pursues an aggressive investment strategy. A post-venture
capital company will be considered to be located in the country where (i) the
company is organized, (ii) where its principal activities are conducted and
where at least 50% of its revenues or profits from goods produced and sold are
derived, investments are made or services are performed, or where at least 50%
of its total or net assets are situated; or (iii) where the principal trading
market for the company's securities is located. The Fund intends to invest in
post-venture capital companies, traded on national securities exchanges and in
OTC markets and other public markets in various developed countries as well as
emerging markets. Due to the nature of the venture-capital to post-venture
cycle, the Fund anticipates that the average market capitalization of companies
in which the Fund invests will be less than $1 billion at the time of
investment. 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 acquired at prices significantly below the initial
public offering ("IPO") 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 venture capitalists 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 U.S., 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.
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Unless otherwise indicated, all of the Funds are permitted,
but not obligated to, engage in the following investment strategies, subject to
any percentage limitations set forth below.
The Funds are not obligated to pursue any of the following
strategies and do not represent that these techniques are available now or will
be available at any time in the future.
OPTIONS ON SECURITIES AND SECURITIES INDICES AND CURRENCY EXCHANGE TRANSACTIONS
Each Fund may purchase and write (sell) options on
securities, securities indices and currencies for hedging purposes or to
increase total return, which may involve speculation. Up to 25% of each
Fund's total assets may be at risk in connection with these strategies. The
amount of assets considered to be "at risk" is, in the case of purchasing
options, the amount of premium paid, and, in the case of writing options, the
value of the underlying obligation. Options may be traded on an exchange or
over-the-counter ("OTC").
SECURITIES OPTIONS. Each Fund may write covered put and call
options on stock and debt securities and each Fund may purchase such options
that are traded on foreign and U.S. exchanges, as well as OTC options. A Fund
realizes fees (referred to as "premiums") for granting the rights evidenced by
the options it has written. A put option embodies the right of its purchaser to
compel the writer of the option to purchase from the option holder an underlying
security at a specified price for a specified time period or at a specified
time. In contrast, a call option embodies the right of its purchaser to compel
the writer of the option to sell to the option holder an underlying security at
a specified price for a specified time period or at a specified time.
The potential loss associated with purchasing an option is
limited to the premium paid, and the premium would partially offset any gains
achieved from its use. However, for an option writer the exposure to adverse
price movements in the underlying security or index is potentially unlimited
during the exercise period. Writing securities options may result in substantial
losses to a Fund, force the sale or purchase of portfolio securities at
inopportune times or at less advantageous prices, limit the amount of
appreciation the Fund could realize on its investments or require the Fund to
hold securities its would otherwise sell.
The principal reason for writing covered options on a security
is to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). A Fund that
writes call options retains the risk of an increase in the price of the
underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the
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same over time, it is likely that the writer will also profit, because it should
be able to close out the option at a lower price. If security prices decline,
the put writer would expect to suffer a loss. This loss may be less than the
loss from purchasing the underlying instrument directly to the extent the
premium received offsets the effects of the decline.
In the case of options written by a Fund that are deemed
covered by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stock with respect to which the Fund
has written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may purchase
or temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, the Fund will not bear any market risk, since the Fund
will have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed securities, but the
Fund may incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to certain of the
securities for which a Fund may write covered call options. For example, if a
Fund writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Fund will compensate for the decline in the value of the cover by
purchasing an appropriate additional amount of mortgage-backed securities.
Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. A Fund may write (i) in-the-money call options
when CSAM expects that the price of the underlying security will remain flat or
decline moderately during the option period, (ii) at-the-money call options when
CSAM expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when CSAM expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, a Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.
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Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by a Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which a Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When a Fund has purchased an option and engages
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. A Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of a Fund under an option it has written
would be terminated by a closing purchase transaction (a Fund would not be
deemed to own an option as a result of the transaction). So long as the
obligation of a Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or a Fund
effects a closing purchase transaction. A Fund cannot effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Fund's ability to terminate options positions established in the OTC market
may be more limited than for exchange-traded options and may also involve the
risk that securities dealers participating in OTC transactions would fail to
meet their obligations to the Fund. The Funds, however, intend to purchase OTC
options only from dealers whose debt securities, as determined by CSAM, are
considered to be investment grade. If, as a covered call option writer, the Fund
is unable to effect a closing purchase transaction in a secondary market, it
will not be able to sell the underlying security and would continue to be at
market risk on the security.
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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 a Fund
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 the Fund will be able to
purchase on a particular security.
SECURITIES INDEX OPTIONS. Each Fund may purchase and write
exchange-listed and OTC put and call options on securities indices. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities index options are based on a broad market index, such as the NYSE
Composite Index, or a narrower market index such as the Standard & Poor's 100.
Indexes may also be based on a particular industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Securities index options may be offset by entering into
closing transactions as described above for securities options.
OTC OPTIONS. A Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Fund were to
purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by a Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
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Exchange-traded options generally have a continuous liquid
market while OTC or dealer options do not. Consequently, a Fund will generally
be able to realize the value of a dealer option it has purchased only by
exercising it or reselling it to the dealer who issued it. Similarly, when a
Fund writes a dealer option, it generally will be able to close out the option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to which the Fund originally wrote the option. Although a Fund
will seek to enter into dealer options only with dealers who will agree to and
that are expected to be capable of entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to the Fund.
Until a Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair a Fund's ability to sell portfolio
securities at a time when such sale might be advantageous.
FUTURES ACTIVITIES. Each Fund may enter into futures contracts
on securities, securities indices, foreign currencies and interest rates, and
purchase and write (sell) related options traded on exchanges designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges for hedging purposes or to increase total
return. These futures contracts are standardized contracts for the future
delivery of a non-U.S. currency, an interest rate sensitive security or, in the
case of index futures contracts or certain other futures contracts, a cash
settlement with reference to a specified multiplier times the change in the
index. An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract.
The Funds may enter into futures contracts and options on
futures contracts on securities, securities indices and currencies for both
hedging purposes and to increase total return, which may involve speculation.
Aggregate initial margin and premiums required to establish
positions other than those considered by the CFTC to be "bona fide hedging" will
not exceed 5% of a Fund's net asset value, after taking into account unrealized
profits and unrealized losses on any such contracts.
A Fund reserves the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities.
FUTURES CONTRACTS. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indexes are capitalization
weighted indexes which reflect the market value of the securities represented in
the indexes. An index futures contract
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is an agreement to be settled by delivery of an amount of cash equal to a
specified multiplier times the difference between the value of the index at the
close of the last trading day on the contract and the price at which the
agreement is made.
No consideration is paid or received by a Fund upon entering
into a futures contract. Instead, the Fund is required to deposit in a
segregated account with its custodian an amount of cash or liquid securities
acceptable to the broker, equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange on which the contract
is traded, and brokers may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. The
broker will have access to amounts in the margin account if the Fund fails to
meet its contractual obligations. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the financial instrument
or securities index underlying the futures contract fluctuates, making the long
and short positions in the futures contract more or less valuable, a process
known as "marking-to-market." A Fund will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, a
Fund may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Funds may enter into futures contracts only if there is an active market for
such contracts, there is no assurance that an active market will exist at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting a Fund to substantial losses. In such event, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such situations, if a Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances a
Fund may realize a loss on a futures contract or option that is not offset by an
increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect a Fund's
performance.
OPTIONS ON FUTURES CONTRACTS. A Fund may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
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An option on a currency, interest rate or securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of a Fund.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of
the assets of a Fund that are invested in foreign securities may be affected
favorably or unfavorably by a variety of factors not applicable to investment in
U.S. securities, and the Fund may incur costs in connection with conversion
between various currencies. Currency exchange transactions may be from any
non-U.S. currency into U.S. dollars or into other appropriate currencies. A Fund
will conduct its currency exchange transactions (i) on a spot (I.E., cash) basis
at the rate prevailing in the currency exchange market, (ii) through entering
into futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
herein for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
The Funds may engage in currency exchange transactions for
both hedging purposes and to increase total return, which may involve
speculation.
FORWARD CURRENCY CONTRACTS. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.
At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to enter into an offsetting
transaction. If a Fund retains the portfolio security and
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engages in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices.
CURRENCY OPTIONS. The Funds may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
CURRENCY HEDGING. A Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. A Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in
which a Fund's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.
The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions in
the U.S. dollar value of non-dollar denominated securities it holds, a Fund may
purchase foreign currency put options. If the value of the foreign currency does
decline, a Fund will have the right to sell the currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on the
U.S. dollar value of its securities that otherwise would have resulted.
Conversely, if a rise in the U.S. dollar value of a currency in which securities
to be acquired are denominated is projected, thereby potentially increasing the
cost of the securities, a Fund may purchase call options on the particular
currency. The purchase of these options could offset, at least partially, the
effects of the adverse movements in exchange rates. The benefit to a Fund
derived from purchases of currency options, like the benefit derived from other
types of options, will be reduced by premiums and other transaction costs.
Because transactions in currency exchange are generally conducted on a principal
basis, no fees or commissions are generally involved. Currency hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, a Fund may not be able to contract to sell
a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of a Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-
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denominated bond against a decline in the Yen, but will not protect a Fund
against a price decline if the issuer's creditworthiness deteriorates.
SWAPS. Each Fund may enter into swaps relating to indexes,
currencies, interest rates, equity and debt interests of foreign issuers without
limit. A swap transaction is an agreement between a Fund and a counterparty to
act in accordance with the terms of the swap contract. Index swaps involve the
exchange by a Fund with another party of the respective amounts payable with
respect to a notional principal amount related to one or more indexes. Currency
swaps involve the exchange of cash flows on a notional amount of two or more
currencies based on their relative future values. An equity swap is an agreement
to exchange streams of payments computed by reference to a notional amount based
on the performance of a basket of stocks or a single stock. Each Fund may enter
into these transactions to preserve a return or spread on a particular
investment or portion of its assets, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the
price of securities a Fund anticipates purchasing at a later date. Each Fund may
also use these transactions for speculative purposes, such as to obtain the
price performance of a security without actually purchasing the security in
circumstances, for example, the subject security is illiquid, is unavailable for
direct investment or available only on less attractive terms. Swaps have risks
associated with them including possible default by the counterparty to the
transaction, illiquidity and, where swaps are used as hedges, the risk that the
use of a swap could result in losses greater than if the swap had not been
employed.
A Fund will usually enter into swaps on a net basis (i.e. the
two payment streams are netted out in a cash settlement on the payment date or
dates specified in the agreement, with a Fund receiving or paying, as the case
may be, only the net amount of the two payments). Swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps is limited to the net amount of payments that
a Fund is contractually obligated to make. If the counterparty to a swap
defaults, a Fund's risk of loss consists of the net amount of payments that a
Fund 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 1940 Act and, accordingly, will not treat them as being
subject to a Fund's borrowing restrictions. Where swaps are entered into for
other than hedging purposes, a Fund will segregate an amount of cash or liquid
securities having a value equal to the accrued excess of its obligations over
entitlements with respect to each swap on a daily basis.
HEDGING GENERALLY. In addition to entering into options,
futures and currency exchange transactions for other purposes, including
generating current income to offset expenses or increase return, a Fund may
enter into these transactions as hedges to reduce investment risk, generally by
making an investment expected to move in the opposite direction of a portfolio
position. A hedge is designed to offset a loss in a portfolio position with a
gain in the hedged position; at the same time, however, a properly correlated
hedge will result in a gain in the portfolio position being offset by a loss in
the hedged position. As a result, the use of options, futures and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge.
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With respect to futures contracts, since the value of portfolio securities will
far exceed the value of the futures contracts sold by a Fund, an increase in the
value of the futures contracts could only mitigate, but not totally offset, the
decline in the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will
realize a gain or loss depends upon movements in the level of securities prices
in the stock market generally or, in the case of certain indexes, in an industry
or market segment, rather than movements in the price of a particular security.
The risk of imperfect correlation increases as the composition of a Fund's
portfolio varies from the composition of the index. In an effort to compensate
for imperfect correlation of relative movements in the hedged position and the
hedge, a Fund's hedge positions may be in a greater or lesser dollar amount than
the dollar amount of the hedged position. Such "over hedging" or "under hedging"
may adversely affect a Fund's net investment results if market movements are not
as anticipated when the hedge is established. Securities index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in a securities index and movements in the price
of securities index futures, a correct forecast of general market trends by CSAM
still may not result in a successful hedging transaction.
A Fund will engage in hedging transactions only when deemed
advisable by CSAM, and successful use by the Fund of hedging transactions will
be subject to CSAM's ability to predict trends in currencies, interest rates or
securities markets, as the case may be, and to predict correctly movements in
the directions of the hedge and the hedged position and the correlation between
them, which predictions could prove to be inaccurate. This requires different
skills and techniques than predicting changes in the price of individual
securities, and there can be no assurance that the use of these strategies will
be successful. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends. Losses incurred in hedging
transactions and the costs of these transactions will affect a Fund's
performance.
To the extent that a Fund engages in the strategies described
above, the Fund may experience losses greater than if these strategies had not
been utilized. In addition to the risks described above, these instruments may
be illiquid and/or subject to trading limits, and the Fund may be unable to
close out a position without incurring substantial losses, if at all. The Fund
is also subject to the risk of a default by a counterparty to an off-exchange
transaction.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES,
OPTIONS ON FUTURES AND SWAPS. Each Fund will comply with guidelines established
by the Securities and Exchange Commission (the "SEC") and other applicable
regulatory bodies with respect to
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coverage of options written by a Fund on securities and indexes; currency,
interest rate and security index futures contracts and options on these futures
contracts; and forward currency contracts. These guidelines may, in certain
instances, require segregation by the Fund of cash or liquid securities with its
custodian or a designated sub-custodian to the extent the Fund's obligations
with respect to these strategies are not otherwise "covered" through ownership
of the underlying security or financial instrument or by other portfolio
positions or by other means consistent with applicable regulatory policies.
Segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. As a
result, there is a possibility that segregation of a large percentage of a
Fund's assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
For example, a call option written by a Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by a Fund on an index
may require the Fund to own portfolio securities that correlate with the index
or to segregate assets (as described above) equal to the excess of the index
value over the exercise price on a current basis. A put option written by a Fund
may require the Fund to segregate assets (as described above) equal to the
exercise price. A Fund could purchase a put option if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Fund. If a Fund holds a futures contract, the Fund could purchase a put option
on the same futures contract with a strike price as high or higher than the
price of the contract held. A Fund may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
ADDITIONAL INFORMATION ON OTHER INVESTMENT PRACTICES.
U.S. GOVERNMENT SECURITIES. The obligations issued or
guaranteed by the U.S. government in which a Fund may invest include: direct
obligations of the U.S. Treasury and obligations issued by U.S. government
agencies and instrumentalities. Included among direct obligations of the U.S.
are Treasury Bills, Treasury Notes and Treasury Bonds, which differ in terms of
their interest rates, maturities and dates of issuance. Treasury Bills have
maturities of less than one year, Treasury Notes have maturities of one to 10
years and Treasury Bonds generally have maturities of greater than 10 years at
the date of issuance. Included among the obligations issued by agencies and
instrumentalities of the U.S. are: instruments that are supported by the full
faith and credit of the U.S. (such as certificates issued by the Government
National Mortgage Association ("GNMA")); instruments that are supported by the
right of the issuer to borrow from the U.S. Treasury (such as securities of
Federal Home Loan Banks); and instruments that are supported by the credit of
the instrumentality (such as Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC") bonds).
Other U.S. government securities the Funds may invest in
include securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Loan
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Administration, Export-Import Bank of the U.S., Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Because the U.S. government is not
obligated by law to provide support to an instrumentality it sponsors, a Fund
will invest in obligations issued by such an instrumentality only if CSAM
determines that the credit risk with respect to the instrumentality does not
make its securities unsuitable for investment by the Fund.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest,
under normal market conditions up to 20% of its total assets in domestic and
foreign short-term (one year or less remaining to maturity) money market
obligations and (with the exception of the Major Foreign Markets Fund)
medium-term (five years or less remaining to maturity) money market obligations.
Money market instruments consist of obligations issued or guaranteed by the U.S.
government or a foreign government, their agencies or instrumentalities; bank
obligations (including certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic savings and loans and similar
institutions) that are high quality investments; commercial paper rated no lower
than A-2 by Standard & Poor's Ratings Services ("S&P") or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt issue
then rated within the three highest rating categories; and repurchase agreements
with respect to the foregoing.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase
agreement transactions with member banks of the Federal Reserve System and
certain non-bank dealers. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under the terms of a typical
repurchase agreement, a Fund would acquire any underlying security for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Fund's holding period. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will at all times be at least
equal to the total amount of the purchase obligation, including interest. The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert this
right. CSAM monitors the creditworthiness of those bank and non-bank dealers
with which the Fund enters into repurchase agreements to evaluate this risk.
A repurchase agreement is considered to be a loan under the 1940 Act.
MONEY MARKET MUTUAL FUNDS. Where CSAM believes that it would
be beneficial to a Fund and appropriate considering the factors of return and
liquidity, a Fund may invest up to 5% of its net assets in securities of money
market mutual funds that are unaffiliated with the Fund or CSAM. A money market
mutual fund is an investment company
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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 Fund will bear its
ratable share of the mutual fund's expenses, including management fees, and will
remain subject to payment of the Fund's administration fees, including
management fees and other expenses with respect to assets so invested.
CONVERTIBLE SECURITIES. Convertible securities in which a Fund
may invest, including both convertible debt and convertible preferred stock, may
be converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced. Neither event will
require sale of such securities, although CSAM will consider such event in its
determination of whether the Fund should continue to hold the securities.
DEBT SECURITIES. Each Fund may invest with respect to up to
35% of its total assets in investment grade debt securities (other than money
market obligations). Each Fund may also invest to a limited extent in zero
coupon securities. See "Additional Information Concerning Taxes" for a
discussion of the tax consequences to shareholders of a Fund that invests in
zero coupon securities. A security will be deemed to be investment grade if it
is rated within the four highest grades by Moody's, S&P or, if unrated, is
determined to be of comparable quality by CSAM. Bonds rated in the fourth
highest grade have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. Debt obligations of corporations in which the Funds may invest include
corporate bonds, debentures, debentures convertible into common stocks and
notes. Debt securities convertible into common stock and certain preferred
stocks may have risks similar to those described below. The interest income to
be derived may be considered as one factor in selecting debt securities for
investment by CSAM. The market value of debt obligations may be expected to vary
depending upon, among other factors, interest rates, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions. Because the market value of debt obligations can be
expected to vary inversely to changes in prevailing interest rates, investing in
debt obligations may provide an opportunity for capital appreciation when
interest rates are expected to decline. The success of such a strategy is
dependent upon CSAM's ability to accurately forecast changes in interest rates.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of such securities, although CSAM will
consider such event in its determination of whether the Fund should continue to
hold the securities. Any percentage limitation on a Fund's ability to invest in
debt securities will not be applicable during periods when the Fund pursues a
temporary defensive strategy as discussed below.
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BELOW INVESTMENT GRADE SECURITIES. Each Fund may (with respect
to the Emerging Markets Fund up to 35% of its net assets) invest up to 5% of its
total assets in debt securities (including convertible debt securities) rated
below investment grade and as low as C by Moody's or D by S&P, or in unrated
securities considered to be of equivalent quality. Debt securities held by a
Private Fund (as defined below) in which the Global Post-Venture Capital Fund
invests will tend to be rated below investment grade and may be rated as low as
C by Moody's or D by S&P. A security will be deemed to be investment grade if it
is rated below the four highest grades by Moody's or S&P or, if unrated, is
determined to be a comparable quality by CSAM. A Fund's holdings of debt
securities rated below investment grade (commonly referred to as "junk bonds")
may be rated as low as C by Moody's or D by S&P at the time of purchase, or may
be unrated securities considered to be of equivalent quality. Securities that
are rated C by Moody's comprise the lowest rated class and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated D by S&P is in default or is expected to default upon maturity or
payment date. Bonds rated below investment grade may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Investors should be aware
that ratings are relative and subjective and are not absolute standards of
quality.
Securities rated below investment grade and comparable unrated
securities: (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.
While the market values of medium- and lower-rated securities
and unrated securities of comparable quality tend to react less to fluctuations
in interest rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
Issuers of medium- and lower-rated securities and unrated securities are often
highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their obligations during an
economic downturn or during sustained periods of rising interest rates may be
impaired. Investors should be aware that ratings are relative and subjective and
are not absolute standards of quality. The risk of loss due to default by such
issuers is significantly greater because medium- and lower-rated securities and
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness.
An economic recession could disrupt severely the market for
such securities and may adversely affect the value of such securities and the
ability of the issuers of such securities to repay principal and pay interest
thereon. A Fund may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Funds anticipate that
these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a
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secondary trading market for these securities does exist, it generally is not as
liquid as the secondary market for higher-rated securities. The lack of a liquid
secondary market, as well as adverse publicity and investor perception with
respect to these securities, may have an adverse impact on market price and a
Fund's ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for a
Fund to obtain accurate market quotations for purposes of valuing the Fund and
calculating its net asset value.
The market value of securities in medium- and lower-rated
categories is also more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact a
Fund's net asset value. A Fund will rely on the judgment, analysis and
experience of CSAM in evaluating the creditworthiness of an issuer. In this
evaluation, in addition to relying on ratings assigned by Moody's or S&P, 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. Interest
rate trends and specific developments which may affect individual issuers will
also be analyzed. Subsequent to its purchase by a Fund, an issue of securities
may cease to be rated or its rating may be reduced. Neither event will require
sale of such securities, although CSAM will consider such event in its
determination of whether a Fund should continue to hold the securities.
Normally, medium- and lower-rated and comparable unrated securities are not
intended for short-term investment. A Fund may incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. At times,
adverse publicity regarding lower-rated securities has depressed the prices for
such securities to some extent.
STRUCTURED SECURITIES. The Funds may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage - and asset - backed securities, structured notes, bonds or debentures,
and assignments of and participations in loans.
MORTGAGE-BACKED SECURITIES. Each Fund may invest in
mortgage-backed securities sponsored by U.S. and foreign issuers as well as
non-governmental issuers. Non-government issued mortgage-backed securities may
offer higher yields than those issued by government entities, but may be subject
to greater price fluctuations. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property. The mortgages backing these securities include, among
other mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate mortgages.
Although there may be government or private guarantees on the payment of
interest and principal of these securities, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees. Some
mortgage-backed securities, such as collateralized mortgage obligations
("CMOs"), make payments of both principal and interest at
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a variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. At present, pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-backed securities. Conversely, in periods of rising rates the
rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting a Fund's
yield.
The rate of interest on mortgage-backed securities is lower
than the interest rates paid on the mortgages included in the underlying pool
due to the annual fees paid to the servicer of the mortgage pool for passing
through monthly payments to certificate holders and to any guarantor, such as
GNMA, and due to any yield retained by the issuer. Actual yield to the holder
may vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the issuer
receives mortgage payments from the servicer and the time the issuer makes the
payments on the mortgage-backed securities, and this delay reduces the effective
yield to the holder of such securities.
ASSET-BACKED SECURITIES. Each Fund may invest in U.S. and
foreign governmental and private asset-backed securities. Asset-backed
securities, which represent participations in, or are secured by and payable
from, pools of consumer loans on assets such as motor vehicle installment sales,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest ultimately
depend on payments in respect of the underlying loans by individuals and may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation.
Asset-backed securities present certain risks that are not
presented by other securities in which a Fund may invest. Automobile receivables
generally are secured by
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automobiles. Most issuers of automobile receivables permit the loan servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in the underlying automobiles. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. Credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. In addition, there is no assurance that the security interest in the
collateral can be realized. The remaining maturity of any asset-backed security
a Fund invests in will be 397 days or less. A Fund 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 Fund's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition,
the change in interest rate or the value of the security at maturity may be a
multiple of the change in the value of the Reference so that the security may be
more or less volatile than the Reference, depending on the multiple.
Consequently, structured securities may entail a greater degree of market risk
and volatility than other types of debt obligations.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Funds may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government and one or more financial institutions ("Lenders").
The majority of a Fund's investments in Loans are expected to be in the form of
participations in Loans ("Participants") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in a
Fund having a contractual relationship only with the Lender, not with the
borrower. A participating Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and a Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, a participating Fund will assume the credit risk of both the
borrower and the Lender that is
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selling the Participation. In the event of the insolvency of the Lender selling
a Participation, a Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. A Fund
will acquire Participations only if the Lender interpositioned between a Fund
and the borrower is determined by the Adviser to be creditworthy. A Fund's
rights and obligations as the purchaser of an Assignment may differ from, and be
more limited than, those held by the assigning Lender. The lack of a liquid
secondary market for both Participations and Assignments will have an adverse
impact on the value of such securities and on a Fund's ability to dispose of
Participations or Assignments. The lack of a liquid market for assignments and
participations also may make it more difficult for a Fund to assign a value to
these securities for purposes of valuing a Fund's portfolio and calculating its
net asset value.
REITs. Each Fund may invest in real estate investment trusts
("REITs"), which are pooled investment vehicles that invest primarily in
income-producing real estate or real estate related loans or interests. Like
regulated investment companies such as the Funds, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code of 1986, amended (the "Code"). By investing in a REIT,
a Fund will indirectly bear its proportionate share of any expenses paid by the
REIT in addition to the expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be
affected by changes in the value of the underlying property owned by such REIT
or by the quality of any credit extended by the REIT. REITs are dependent on
management skills, are not diversified (except to the extent the Code requires),
and are subject to the risks of financing projects. REITs are subject to heavy
cash flow dependency, default by borrowers, self-liquidation, the possibilities
of failing to qualify for the exemption from tax for distributed income under
the Code and failing to maintain their exemptions from the 1940 Act. REITs are
also subject to interest rate risks.
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest in
securities of other investment companies to the extent permitted under the 1940
Act. Presently, under the 1940 Act, a Fund may hold securities of another
investment company in amounts which (i) do not exceed 3% of the total
outstanding voting stock of such company, (ii) do not exceed 5% of the value of
the Fund's total assets and (iii) when added to all other investment company
securities held by the Fund, do not exceed 10% of the value of the Fund's total
assets.
LENDING OF PORTFOLIO SECURITIES. Each Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors. These loans, if and when made, may not exceed 33 1/3%
of each Fund's total assets taken at value (including the loan collateral). A
Fund will not lend portfolio securities to its investment adviser, any
sub-investment adviser or their affiliates unless it has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash or liquid securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of the
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Fund. From time to time, a Fund may return a part of the interest earned from
the investment of collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Fund and that is acting as a
"finder."
By lending its securities, a Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. A Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive at least 100% cash collateral or equivalent securities
of the type discussed in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (iii) the Fund must be able
to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities and any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may pass to the borrower, provided, however,
that if a material event adversely affecting the investment occurs, the Board
must terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon a Fund's ability to
recover the loaned securities or dispose of the collateral for the loan.
FOREIGN INVESTMENTS. Each Fund may invest its assets in the
securities of foreign issuers. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, which
are in addition to those associated with investing in U.S. issuers. Individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments positions. A
Fund may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
FOREIGN CURRENCY EXCHANGE. Since the Funds will invest in
securities denominated in currencies other than the U.S. dollar, and since a
Fund may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, a Fund's investments in foreign
companies may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the dollar value of the Fund's assets
denominated in that foreign currency. Changes in foreign currency exchange rates
may also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if any,
to be distributed to shareholders by a Fund. Unless otherwise contracted, the
rate of exchange between the U.S. dollar and other currencies is determined by
the forces of supply and demand in the foreign exchange markets. Changes in the
exchange rate may result over time from the interaction of many factors directly
or indirectly affecting economic and political conditions in the U.S. and a
particular foreign country, including economic and political developments in
other countries. The Fund bears a risk of loss in the
22
<PAGE>
event that the other party to the loan agreement defaults on its obligations or
becomes bankrupt and the Fund is delayed or prevented from exercising its right
to retrieve and dispose of the loaned securities, including the risk of a
possible decline in the value of the loaned securities during the period in
which the Fund seeks to assert its rights. Governmental intervention may also
play a significant role. National governments rarely voluntarily allow their
currencies to float freely in response to economic forces. Sovereign governments
use a variety of techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. A Fund may use hedging techniques with the objective of
protecting against loss through the fluctuation of the valuation of foreign
currencies against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures.
EURO CONVERSION. The introduction of a single European
currency, the euro, on January 1, 1999 for participating European nations in the
Economic and Monetary Union presents unique risks and uncertainties for
investors in those countries, including (i) the functioning of the payment and
operational systems of banks and other financial institutions; (ii) the creation
of suitable clearing and settlement payment schemes for the euro; (iii) the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (iv) whether
the interest rate, tax and labor regimes of the European countries participating
in the euro will converge over time. Further, the conversion of the currencies
of other Economic Monetary Union countries, such as the United Kingdom, and the
admission of other countries, including Central and Eastern European countries,
to the Economic 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 Funds.
INFORMATION. The majority of the foreign securities held by a
Fund will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally subject to financial reporting
standards, practices and requirements that are either not uniform or less
rigorous than those applicable to U.S. companies.
POLITICAL INSTABILITY. With respect to some foreign countries,
there is the possibility of expropriation, nationalization, or confiscatory
taxation and limitations on the use or removal of funds or other assets of a
Fund, including the withholding of dividends. Political or social instability,
or domestic developments could affect U.S. investments in those and neighboring
countries.
FOREIGN MARKETS. Securities of some foreign companies are less
liquid and their prices are more volatile than securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold which may result
in increased exposure to market and foreign exchange fluctuations and increased
illiquidity.
23
<PAGE>
INCREASED EXPENSES. The operating expenses of a Fund, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Fund, such as the cost of converting foreign currency into U.S. dollars,
the payment of fixed brokerage commissions on foreign exchanges, custodial
costs, valuation costs and communication costs, may be higher than those costs
incurred by investment companies not investing in foreign securities. In
addition, foreign securities may be subject to foreign government taxes that
would reduce the net yield on such securities.
FOREIGN DEBT SECURITIES. Each Fund may invest up to 35% of its
assets in foreign debt securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those countries
and the effect of gains and losses in the denominated currencies against the
U.S. dollar, which have had a substantial impact on investment in foreign
fixed-income securities. The relative performance of various countries'
fixed-income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Funds may
invest generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Union to reflect changes in relative values of the
underlying currencies.
SOVEREIGN DEBT. Investments in sovereign debt involve special
risks. The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or interest
when due in accordance with the terms of such debt, and a Fund may have limited
legal recourse in the event of a default.
24
<PAGE>
Sovereign debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat limited. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank loans to the same sovereign entity
may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in
one or more of the countries issuing sovereign debt could adversely affect a
Fund's investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. While CSAM intends to manage the Funds in a manner that
will minimize the exposure to such risks, there can be no assurance that adverse
political changes will not cause a Fund to suffer a loss of interest or
principal on any of its holdings.
Investors should also be aware that certain sovereign debt
instruments in which a Fund may invest involve great risk. Sovereign debt issued
by issuers in many emerging markets generally is deemed to be the equivalent in
terms of quality to securities rated below investment grade by Moody's and S&P.
Such securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such sovereign debt, which may not be paying interest currently or may
be in payment default, may be comparable to securities rated "D" by S&P or "C"
by Moody's. A Fund may have difficulty disposing of certain sovereign debt
obligations because there may be a limited trading market for such securities.
Because there is no liquid secondary market for many of these securities, the
Funds anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse impact on the market price of such securities and a Fund's
ability to dispose of particular issues when necessary to meet a Fund's
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for a
Fund to obtain accurate market quotations for purposes of valuing a Fund's
portfolio and calculating its net asset value. When and if available, fixed
income securities may be purchased by a Fund at a discount from face value.
However, the Funds do not intend to hold such securities to maturity for the
purpose of achieving potential capital gains, unless current yields on these
25
<PAGE>
securities remain attractive. From time to time, a Fund may purchase securities
not paying interest at the time acquired if, in the opinion of CSAM, such
securities have the potential for future income or capital appreciation.
DEPOSITARY RECEIPTS. The assets of a Fund may be invested in
the securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). Certain of the risks relating to investments in foreign
securities may be involved with respect to investments in ADRs, EDRs and IDRs.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe,
and IDRs, which are sometimes referred to as Global Depository Receipts
("GDRs"), are receipts issued outside the U.S. EDRs (CDRs) and IDRs (GDRs) are
typically issued by non-U.S. banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets, and EDRs (CDRs) and IDRs (GDRs) in
bearer form are designed for use in European securities markets and non-U.S.
securities markets, respectively.
PRIVATIZATIONS. Each Fund may invest in privatizations (i.e.
foreign government programs of selling interests in government-owned or
controlled enterprises). The Major Foreign Markets Fund, the International
Equity Fund, the International Small Company Fund and the Emerging Markets Fund
could invest to a significant extent in Privatizations. The ability of U.S.
entities, such as the Funds, to participate in privatizations may be limited by
local law, or the terms for participation may be less advantageous than for
local investors. There can be no assurance that privatization programs will be
available or successful.
BRADY BONDS. Each Fund may invest in so-called "Brady Bonds,"
which are securities created through the exchange of existing commercial bank
loans to public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady. The Major Foreign Markets Fund, the
International Equity Fund, the International Small Company Fund and the Emerging
Markets Fund could invest to a significant extent in Brady Bonds. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are currently actively traded in the OTC
secondary market for debt instruments. Brady Bonds have been issued only
recently and therefore do not have a long payment history. In light of the
history of commercial bank loan defaults by Latin American public and private
entities, investments in Brady Bonds may be viewed as speculative.
Dollar-denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are collateralized in full
as to principal by U.S. Treasury zero coupon bonds having the same maturity as
the bonds. Interest payment on these Brady Bonds generally are collateralized by
cash or securities in the amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of
26
<PAGE>
floating rate bonds, initially is equal to at least one year's rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").
EMERGING MARKETS. Each Fund may (in the case of the Major
Foreign Markets Fund, with respect to up to 10% of its net assets, and in the
case of the International Small Company Fund, up to 25% of its net assets)
invest in securities of issuers located in "emerging markets" (less developed
countries located outside of the U.S.). Investing in emerging markets involves
not only the risks described above with respect to investing in foreign
securities, but also other risks, including exposure to economic structures that
are generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. For example,
many investments in emerging markets experienced significant declines in value
due to political and currency volatility in emerging markets countries during
the latter part of 1997 and the first half of 1998. Other characteristics of
emerging markets that may affect investment include certain national policies
that may restrict investment by foreigners in issuers or industries deemed
sensitive to relevant national interests and the absence of developed structures
governing private and foreign investments and private property. The typically
small size of the markets of securities of issuers located in emerging markets
and the possibility of a low or nonexistent volume of trading in those
securities may also result in a lack of liquidity and in price volatility of
those securities.
JAPANESE INVESTMENTS. Because the International Equity and
Major Foreign Markets Funds may from time to time have large positions in
Japanese securities and the International Small Company Fund may also invest in
Japanese securities, these Funds may be subject to general economic and
political conditions in Japan. These conditions include future political and
economic developments, the possible imposition of, or changes in, exchange
controls or other Japanese governmental laws or restrictions applicable to such
investments, diplomatic developments, political or social unrest and natural
disasters.
Securities in Japan are denominated and quoted in "yen." Yen
are fully convertible and transferable based on floating exchange rates. In
determining the net asset value of shares of the Fund, assets or liabilities
initially expressed in terms of Japanese yen will be translated into U.S.
dollars at the current selling rate of Japanese yen against U.S. dollars. As a
result, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in the value of Japanese yen
relative to the U.S. dollar.
The decline in the Japanese securities markets since 1989 has
contributed to a weakness in the Japanese economy, and the impact of a further
decline cannot be ascertained. The common stocks of many Japanese companies
continue to trade at high price-earnings ratios in comparison with those in the
U.S., even after the recent market decline. Differences
27
<PAGE>
in accounting methods make it difficult to compare the earnings of Japanese
companies with those of companies in other countries, especially the U.S.
THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED
FROM VARIOUS GOVERNMENTAL PUBLICATIONS AND OTHER SOURCES. THE FUNDS MAKE NO
REPRESENTATION AS TO THE ACCURACY OF THE INFORMATION, NOR HAVE THE FUNDS
ATTEMPTED TO VERIFY IT. FURTHERMORE, NO REPRESENTATION IS MADE THAT ANY
CORRELATION EXISTS BETWEEN JAPAN OR ITS ECONOMY IN GENERAL AND THE PERFORMANCE
OF EACH FUND.
DOMESTIC POLITICS
Japan has a parliamentary form of government. The legislative
power is vested in the Japanese Diet, which consists of a House of
Representatives (lower house) and a House of Councillors (upper house). Various
political parties are represented in the Diet, including the conservative
Liberal Democratic Party ("LDP"), which until August 1993, had been in power
nationally since its formation in 1955. The LDP ceased to have a majority of the
lower house in June 1993, when certain members of the lower house left the LDP
and formed two new political parties. After several years of political unrest,
the LDP elected Ryutaro Hashimoto in August 1995, the minister for international
trade and industry, as its new leader, and in January 1996, he became prime
minister. Mr. Hashimoto dissolved the Diet and called a general election in
October 1996, in which the LDP won 239 of the 500 lower-house seats. As a
result, LDP members filled all the new cabinet seats for the first time in three
years. The LDP, along with its former coalition partners (the Social Democratic
Party and Shinto Sakigake) agreed to continue to work together, but only in
loose alliance. Meanwhile, many dissatisfied Diet members from the main
opposition party have left the party to join the LDP. By September 1997, enough
Diet members from the main opposition party and other parties had defected to
the LDP for the LDP to regain its simple majority in the lower house. In August
of 1998, Keizo Obuchi, foreign minister under Hashimoto, was elected to the
office of prime minister. Japan's continuing political instability may hamper
its ability to establish and maintain effective economic and fiscal policies,
and recent and future political developments may lead to changes in policy that
might adversely affect the Funds' investments.
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 government has called for a transformation of the
economy away from its high dependency on export-led growth towards greater
stimulation of the domestic economy. In addition, there has been a move toward
more economic liberalization and discounting in the consumer sector. These
shifts have already begun to take place and may cause disruption in the Japanese
economy.
28
<PAGE>
Strains in the 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 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.
Japan is largely dependent upon foreign economies for raw
materials. For instance, almost all of its oil is imported, the majority from
the Middle East. 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 and assembly-type industries, has contributed to the reduction of oil
consumption. However, there is no guarantee this favorable trend will continue.
ECONOMIC TRENDS. The following tables set forth Japan's gross
domestic product and certain other economic indicators for the years shown.
GROSS DOMESTIC PRODUCT (GDP)
(YEN IN BILLIONS)
<TABLE>
<CAPTION>
1998* 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consumption Expenditures
Private............... Y 303,050 Y 308,472 Y 299,440 Y 290,515 Y 286,154
Government............ 50,083 50,239 48,969 47,555 45,743
Gross Fixed
Capital Formation..... 133,044 143,217 148,190 136,792 137,291
Increase (Decrease) in
Stocks................ 914 828 1,058 947 50
Exports of Goods and
Services................ 56,355 55,979 49,598 45,393 44,410
Imports of Goods and
Services................ 46,753 51,331 46,900 38,272 34,387
GDP (Expenditures)...... 499,191 507,403 500,356 482,930 479,260
Change in GDP from
Preceding Year.......... (1.6)% 1.4% 3.6% 0.8% 0.8%
<CAPTION>
1993 1992 1991 1990
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consumption Expenditures
Private............... Y 278,703 Y 272,294 Y 261,891 Y 249,288
Government............ 44,771 43,262 41,356 38,807
Gross Fixed
Capital Formation..... 140,433 143,525 143,998 136,467
Increase (Decrease) in
Stocks................ 620 1,489 3,453 2,430
Exports of Goods and
Services................ 44,197 47,384 46,723 45,920
Imports of Goods and
Services................ 33,343 36,891 39,121 42,872
GDP (Expenditures)...... 475,381 471,064 458,299 430,040
Change in GDP from
Preceding Year.......... 0.9% 2.8% 6.6% --
</TABLE>
Source: International Monetary Fund, International Financial Statistics
- ------------------
* Average of the first and second quarters of 1998.
29
<PAGE>
<TABLE>
<CAPTION>
WHOLESALE PRICE INDEX CONSUMER PRICE INDEX
(BASE YEAR: 1990) (BASE YEAR: 1990)
All Change from Change from
Year Commodities Preceding Year General Preceding Year
---- ----------- -------------- ------- --------------
<S> <C> <C> <C> <C>
1990 100.0 -- 100.0 --
1991 100.2 0.2 103.3 3.3
1992 98.7 (1.5) 105.1 1.8
1993 95.0 (3.7) 106.4 1.3
1994 93.0 (2.0) 107.1 0.7
1995 92.2 (0.8) 107.0 (0.1)
1996 92.3 0.1 107.2 0.2
1997 93.7 1.4 109.0 0.5
1998 91.7* (2.0) 109.6** 0.6
Source: International Monetary Fund, Source: International Monetary Fund,
International Financial Statistics International Financial Statistics
</TABLE>
- ------------------
* Average of the first eleven months of 1998.
** Average of the first ten months of 1998.
CURRENCY FLUCTUATION. Investments by a Fund in Japanese
securities will be denominated in yen and most income received by these Funds
from such investments will be in yen. However, the Funds' 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 Fund's Japanese investments. The following
table presents the average exchange rates of Japanese yen for U.S. dollars for
the years shown:
<TABLE>
<CAPTION>
AVERAGE CURRENCY EXCHANGE RATES
Year Yen Per U.S. Dollar
---- -------------------
<S> <C>
1990 144.79
1991 134.71
1992 126.65
1993 111.20
1994 102.21
1995 94.06
1996 108.78
1997 120.99
1998 139.11*
</TABLE>
Source: International Monetary Fund, International Financial Statistics
------------------
* Average of the first eleven months of 1998.
30
<PAGE>
SECURITIES MARKETS
THE EXCHANGE MARKET. The Japanese exchange market is a highly
systematized, government regulated market currently consisting of eight stock
exchanges. The three main Japanese Exchanges (Tokyo, Osaka and Nagoya) are
comprised of First and Second Sections. The First Sections have more stringent
listing standards with respect to a company's number of years in existence,
number of outstanding shares and trading volume and, accordingly, list larger,
more established companies than the Second Sections. The Tokyo Stock Exchange
("TSE") is the largest exchange and, as of December 31, 1998, the First Section
of the TSE listed 1,340 companies with market capitalization of approximately
267.8 trillion yen (approximately $2.3 trillion as of such date). The Second
Sections of the main Japanese Exchanges generally list smaller, less capitalized
companies than those traded on the First Sections. As of December 31, 1998, the
Second Section of the TSE listed 498 companies with market capitalization of
approximately 7.4 trillion yen (approximately $64 billion as of such date).
THE OTC MARKET. The Japanese OTC market ("JASDAQ") is less
systematized than the stock exchanges. Trading of equity securities through the
JASDAQ market is conducted by securities firms in Japan, primarily through an
organization which acts as a "matching agent," as opposed to a recognized stock
exchange. Consequently, securities traded through JASDAQ may, from time to time,
and especially in falling markets, become illiquid and experience short-term
price volatility and wide spreads between bid and offer prices. This combination
of limited liquidity and price volatility may have an adverse effect on the
investment performance of a Fund. In periods of rapid price increases, the
limited liquidity of JASDAQ restricts a Fund's ability to adjust its portfolio
quickly in order to take full advantage of a significant market increase, and
conversely, during periods of rapid price declines, it restricts the ability of
a Fund to dispose of securities quickly in order to realize gains previously
made or to limit losses on securities held in its portfolio. In addition,
although JASDAQ has generally experienced sustained growth in aggregate market
capitalization and trading volume, there have been periods in which aggregate
market capitalization and trading volume have declined.
As of December 31, 1998, 868 issues were traded through
JASDAQ, having an aggregate market capitalization in excess of 7.7 trillion yen
(approximately $67.8 billion as of such date). The entry requirements for JASDAQ
were amended on December 1, 1998. As of February 22, 1999, there was no English
translation of the amendments available. JASDAQ has generally attracted small
growth companies or companies whose major shareholders wish to sell only a small
portion of the company's equity.
MARKET RISKS. Although the market for Japanese equities traded
on the First Section of the TSE is substantial in terms of trading volume and
liquidity, the TSE has nonetheless exhibited significant market volatility in
the past several years. With respect to the OTC market, trades of certain stocks
may not be effected on days when the matching of buy and sell orders for such
stocks does not occur. The liquidity of the Japanese OTC market, as well as that
of the Second Sections of the exchanges, although increasing in recent years, is
limited by the small number of publicly held shares which trade on a regular
basis. Overall,
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<PAGE>
Japanese securities markets have declined significantly since 1989 which has
contributed to a weakness in the Japanese economy and the impact of a further
decline cannot be ascertained.
OTHER FACTORS
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 Fund's investments, cannot be predicted. In addition, Japan
has one of the world's highest population densities. A significant percentage of
the total population of Japan is concentrated in the metropolitan areas of
Tokyo, Yokohama, Osaka and Nagoya.
SHORT SALES. The International Small Company Fund and the
Global Post-Venture Capital Fund may from time to time sell securities short. A
short sale is a transaction in which the Fund sells securities it does not own
in anticipation of a decline in the market price of the securities. The current
market value of the securities sold short (excluding short sales "against the
box") will not exceed 10% of each Fund's net assets.
To deliver the securities to the buyer, the Fund must arrange
through a broker to borrow the securities and, in so doing, the Fund becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Fund will make a profit or incur
a loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Fund purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Fund is required to pay in connection
with a short sale.
The Fund's obligation to replace the securities borrowed in
connection with a short sale will be secured by cash or liquid securities
deposited as collateral with the broker. In addition, the Fund will place in a
segregated account with its custodian or a qualified subcustodian an amount of
cash or liquid securities equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short and (ii)
any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, a Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
SHORT SALES "AGAINST THE BOX". With the exception of the
International Equity Fund, each Fund may use up to 10% of its net assets (taken
at current value) as collateral for short sales against the box. In a short
sale, a Fund sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The seller does not
32
<PAGE>
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. A Fund may engage in a short sale if at
the time of the short sale the Fund owns or has the right to obtain without
additional cost an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." It may be
entered into by a Fund to, for example, lock in a sale price for a security the
Fund does not wish to sell immediately. If a Fund engages in a short sale, the
collateral for the short position will be segregated in an account with the
Fund's custodian or qualified sub-custodian.
The Funds do not intend to engage in short sales against the
box for investment purposes. Each Fund may, however, make a short sale as a
hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund (or a security convertible
or exchangeable for such security). In such case, any future losses in the
Fund's long position should be offset by a gain in the short position and,
conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Fund owns.
There will be certain additional transaction costs associated with short sales
against the box, but a Fund will endeavor to offset these costs with the income
from the investment of the cash proceeds of short sales.
If a Fund effects a short sale of securities at a time when it
has an unrealized gain on the securities, it may be required to recognize that
gain as if it had actually sold the securities (as a "constructive sale") on the
date it effects the short sale. However, such constructive sale treatment may
not apply if the Fund closes out the short sale with securities other than the
appreciated securities held at the time of the short sale and if certain other
conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which a Fund may effect short
sales.
WARRANTS. Each Fund may invest up to 10% of its net assets (in
the case of the Major Foreign Markets and Global Post-Venture Capital Funds, up
to 10% of total 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 Fund 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
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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 Fund may not
invest more than 15% of its net assets (10% of total assets in the case of the
International Equity Fund) in non-publicly traded and illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market, time deposits maturing in more than seven days, certain Rule
144A Securities (as defined below), Private Funds (in the case of the Global
Post-Venture Capital Fund), and repurchase agreements which have a maturity of
longer than seven days. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Non-publicly traded securities (including Rule 144A
Securities and, with respect to the Global Post-Venture Capital Fund, Private
Funds) may involve a high degree of business and financial risk and may result
in substantial losses. These securities may be less liquid than publicly traded
securities, and a Fund may take longer to liquidate these positions than would
be the case for publicly traded securities. Companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. Limitations on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose of restricted
or other illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. A Fund's
investment in illiquid securities is subject to the risk that should the Fund
desire to sell any of these securities when a ready buyer is not available at a
price that is deemed to be representative of their value, the value of the
Fund's net assets could be adversely affected. A mutual fund might also have to
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
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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 the Fund's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board and its
delegates may consider, INTER ALIA, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Investing in Rule 144A Securities could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers are unavailable or uninterested in purchasing such
securities from the Funds. The Boards may adopt guidelines and delegate to CSAM
the daily function of determining and monitoring the liquidity of Rule 144A
Securities, although each Board will retain ultimate responsibility for any
liquidity determinations.
BORROWING. A Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities, so long as there is asset
coverage of at least 300% for all borrowings of the Fund and each Fund may
pledge its assets to the extent necessary to secure permitted borrowings (up to
10% of its total assets in the case of the International Equity Fund).
Additional investments (including roll-overs) will not be made when borrowings
(including reverse repurchase agreements) exceed 5% of a Fund's total assets
(net assets in the case of the Global Post-Venture Capital Fund). Although the
principal of such borrowings will be fixed, the Fund's assets may change in
value during the time the borrowing is outstanding. Each Fund expects that some
of its borrowings may be made on a secured basis. In such situations, either the
custodian will segregate the pledged assets for the benefit of the lender or
arrangements will be made with a suitable subcustodian, which may include the
lender.
STAND-BY COMMITMENTS. The Major Foreign Markets Fund, the
Emerging Markets Fund, the International Small Company Fund and the Global
Post-Venture Capital
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Fund may invest in stand-by commitments with respect to securities held in their
portfolios. Under a stand-by commitment, a dealer agrees to purchase at a Fund's
option specified securities at a specified price. A Fund's right to exercise
stand-by commitments is unconditional and unqualified. Stand-by commitments
acquired by a Fund may also be referred to as "put" options. A stand-by
commitment is not transferable by a Fund, although a Fund can sell the
underlying securities to a third party at any time.
The principal risk of stand-by commitments is that the writer
of a commitment may default on its obligation to repurchase the securities
acquired with it. When investing in stand-by commitments, the Funds 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. A Fund acquires stand-by commitments only in
order to facilitate portfolio liquidity and does not expect to exercise its
rights under stand-by commitments for trading purposes.
The amount payable to a Fund upon its exercise of a stand-by
commitment is normally (i) a Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period a Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
Each Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in a Fund's portfolio will not
exceed 1/2 of 1% of the value of a Fund's total assets calculated immediately
after each stand-by commitment is acquired.
The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by a Fund would be valued at zero in determining net asset value. Where
a Fund paid any consideration directly or indirectly for a stand-by commitment,
its cost would be reflected as unrealized depreciation for the period during
which the commitment was held by a Fund. Stand-by commitments would not affect
the average weighted maturity of a Fund's portfolio.
REVERSE REPURCHASE AGREEMENTS. With the exception of the
International Equity Fund, each Fund may enter into reverse repurchase
agreements with member banks of the Federal Reserve System and certain non-bank
dealers, although none of the Funds intend to enter into reverse repurchase
agreements in the coming year. Reverse repurchase agreements involve the sale of
securities held by a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time a Fund enters
into a reverse repurchase agreement, it will segregate with an approved
custodian cash or liquid high-grade
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debt securities having a value not less than the repurchase price (including
accrued interest). The segregated assets will be marked-to-market daily and
additional assets will be segregated on any day in which the assets fall below
the repurchase price (plus accrued interest). A Fund's liquidity and ability to
manage its assets might be affected when it sets aside cash or portfolio
securities to cover such commitments. Reverse repurchase agreements involve the
risk that the market value of the securities retained in lieu of sale may
decline below the price of the securities the Fund has sold but is obligated to
repurchase. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, such buyer or its trustee
or receiver may receive an extension of time to determine whether to enforce a
Fund's obligation to repurchase the securities, and the Fund's use of the
proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each
Fund may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (I.E.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). In these transactions, payment for and delivery of the securities
occur beyond the regular settlement dates, normally within 30-45 days after the
transaction. The Funds will enter into a when-issued transaction for the purpose
of acquiring portfolio securities and not for the purpose of leverage, but may
sell the securities before the settlement date if CSAM deems it advantageous to
do so. The payment obligation and the interest rate that will be received on
when-issued and delayed-delivery securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. When-issued securities may include securities purchased on a "when, as
and if issued" basis, under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring.
When a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or certain liquid securities that
are acceptable as collateral to the appropriate regulatory authority equal to
the amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case, a Fund may be required subsequently to place additional assets in
the segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that a Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
a Fund engages in when-issued or delayed-delivery transactions, it relies on the
other party to consummate the trade. Failure of the seller to do so may result
in a Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
EMERGING GROWTH AND SMALL COMPANIES; UNSEASONED ISSUERS. Each
Fund may invest its assets in the securities of Emerging Growth, Small Companies
and unseasoned issuers. Investments in emerging growth and small-sized
companies, as well as companies with continuous operations of less than three
years ("unseasoned issuers"), which may include
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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 and accounting standards, illiquidity of
securities and markets, higher brokerage commissions and fees and greater market
risk in general. In addition, securities of emerging growth and small-sized
companies and unseasoned issuers may involve greater risks since these
securities may have limited marketability and, thus, may be more volatile.
Because such companies normally have fewer shares outstanding than larger
companies, it may be more difficult for a Fund to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices. These
companies may have limited product lines, markets or financial resources and may
lack management depth. In addition, these companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies. There is typically less publicly available
information concerning these companies than for larger, more established ones.
Although investing in securities of these companies offers
potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in the
Funds may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing in more established, larger
companies.
SPECIAL SITUATION COMPANIES. Each Fund may invest in "special
situation companies." "Special situation companies" are involved in an actual or
prospective acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; or
litigation which, if resolved favorably, may provide an attractive investment
opportunity. If the actual or prospective situation does not materialize as
anticipated, the market price of the securities of a "special situation company"
may decline significantly.
DOLLAR ROLLS. With the exception of the International Equity
Fund, each Fund also may enter into "dollar rolls," in which the Fund sells
fixed-income securities for delivery in the current month and simultaneously
contracts to repurchase similar but not identical (same type, coupon and
maturity) securities on a specified future date. During the roll period, the
Fund would forego principal and interest paid on such securities. The Fund would
be compensated by the difference between the current sale price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time the Fund enters into a dollar roll
transaction, it will segregate with an approved custodian cash or liquid
securities having a value not less than the repurchase price (including accrued
interest) and will subsequently monitor the segregated assets to ensure that its
value is maintained.
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TEMPORARY DEFENSIVE STRATEGIES.
DEBT SECURITIES. When CSAM believes that a defensive posture
is warranted, each Fund may invest temporarily without limit in investment grade
debt obligations and in domestic and foreign money market obligations, including
repurchase agreements.
MONEY MARKET OBLIGATIONS. Each Fund, for temporary defensive
purposes, may invest in domestic and foreign short-term (one year or less
remaining to maturity) and medium-term (five years or less remaining to
maturity) money market obligations without limit.
NON-DIVERSIFIED STATUS (EMERGING MARKETS FUND ONLY). The Emerging Markets Fund
is classified as a non-diversified investment company under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that it may invest in the obligations of a single issuer. As a
non-diversified investment company, the Fund may invest a greater proportion of
its assets in the obligations of a small number of issuers and, as a result, may
be subject to greater risk with respect to portfolio securities. To the extent
that the Fund assumes large positions in the securities of a small number of
issuers, its return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
The Fund's investments will be limited, however, in order to
qualify as a "regulated investment company" for purposes of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify, the Fund will comply with
certain requirements, including limiting its investments so that at the close of
each quarter of the taxable year (i) not more than 25% of the market value of
its total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer.
STRATEGIES AVAILABLE TO THE GLOBAL POST-VENTURE CAPITAL FUND ONLY
PRIVATE FUND INVESTMENTS. Up to 10% of the Fund's net assets
may be invested in U.S. 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 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 Fund'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 opportunities typically available only to
large institutions and accredited investors. Although the Fund's investments in
Private Funds are limited to a maximum of 10% of the Fund's assets, these
investments are highly speculative and volatile and may
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produce gains or losses in this portion of the Fund that exceed those of the
Fund's other holdings and of more mature companies generally.
Because Private Funds generally are investment companies for
purposes of the 1940 Act, the Fund's ability to invest in them will be limited.
In addition, Fund shareholders will remain subject to the Fund's expenses while
also bearing their pro rata share of the operating expenses of the Private
Funds. The ability of the Fund to dispose of interests in Private Funds is very
limited and will involve certain risks. In valuing the Fund's holdings of
interests in Private Funds, the Fund will be relying on the most recent reports
provided by the Private Funds themselves prior to calculation of the Fund's net
asset value. These reports, which are provided on an infrequent basis, often
depend on the subjective valuations of the managers of the Private Funds and, in
addition, would not generally reflect positive or negative subsequent
developments affecting companies held by the Private Fund. 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.
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 a Fund's portfolio 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 Fund will have no control.
Interests in the Private Funds in which a Fund 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 Fund may invest may pay their investment managers a fee based
on the performance of the Fund, 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 Fund's net asset value calculations. Private Funds in which the
Fund invests will not borrow to increase the amount of assets available for
investment or otherwise engage in leverage.
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The Fund may also hold non-publicly traded equity securities
of companies in the venture capital and post-venture capital stages of
development, such as those of closely-held companies or private placements of
public companies. The portion of the Fund's assets invested in these
non-publicly traded securities will vary over time depending on investment
opportunities and other factors. The Fund's illiquid assets, including Private
Funds and other non-publicly traded securities, may not exceed 15% of the Fund's
net assets.
OTHER STRATEGIES. The Fund will invest in securities of
post-venture capital companies that are traded on a national securities exchange
or in an organized OTC market, such as The Nasdaq Stock Market, Inc., JASDAQ,
EASDAQ and AIM. The Fund may invest, directly or through Private Funds, in
securities of issuers engaged at the time of purchase in "special situations,"
such as a restructuring or recapitalization; an acquisition, consolidation,
merger or tender offer; a change in corporate control or investment by a venture
capitalist. For temporary defensive purposes, such as during times of
international political or economic uncertainty, all of the Fund's investments
may be made temporarily in the U.S.
INVESTMENT RESTRICTIONS
ALL FUNDS. Certain investment limitations of each Fund may not
be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding shares ("Fundamental Restrictions"). Such majority is defined
as the lesser of (i) 67% or more of the shares present at the meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
MAJOR FOREIGN MARKETS FUND. The investment limitations
numbered 1 through 9 may not be changed without the affirmative vote of the
holders of a majority of the Fund's outstanding shares. Investment limitations
10 through 14 may be changed by a vote of the Board at any time. The Major
Foreign Markets Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that
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this 5% limitation does not apply to U.S. Government Securities and except that
up to 25% of the value of the Fund's total assets may be invested without regard
to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
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14. Make short sales of securities or maintain a short
position, except that the Fund may maintain short positions in forward currency
contracts, options and futures contracts and make short sales "against the box."
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12 above) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.
INTERNATIONAL EQUITY FUND. The investment limitations numbered
1 through 11 are Fundamental Restrictions. Investment limitations 12 through 14
may be changed by a vote of the Board at any time. The International Equity Fund
may not:
1. Borrow money or issue senior securities except that the
Fund may (a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 30% of the value of the Fund'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 or 10% of the value of the Fund's total assets at the time of such
borrowing. Whenever borrowings described in (a) exceed 5% of the value of the
Fund's total assets, the Fund will not make any investments (including
roll-overs). For purposes of this restriction, (a) the deposit of assets in
escrow in connection with the purchase of securities on a when-issued or
delayed-delivery basis and (b) collateral arrangements with respect to initial
or variation margin for futures contracts will not be deemed to be pledges of
the Fund's assets.
2. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
3. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
4. Make loans, except that the Fund may purchase or hold
publicly distributed fixed-income securities, lend portfolio securities and
enter into repurchase agreements.
5. 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 Fund's
investment objective, policies and limitations may be deemed to be underwriting.
6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in (a)
fixed-income securities secured
43
<PAGE>
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. The entry into forward foreign
currency exchange contracts is not and shall not be deemed to involve investing
in commodities.
7. Make short sales of securities or maintain a short
position.
8. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may (a) purchase put and call options
on securities, (b) write covered call options on securities, (c) purchase and
write put and call options on stock indices and (d) enter into options on
futures contracts.
9. 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.
10. Purchase more than 10% of the voting securities of any one
issuer, more than 10% of the securities of any class of any one issuer or more
than 10% of the outstanding debt securities of any one issuer; provided that
this limitation shall not apply to investments in U.S. government securities.
11. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin.
12. Invest more than 10% of the value of the Fund's total
assets in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available
market quotations. For purposes of this limitation, (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.
13. Invest in warrants (other than warrants acquired by the
Fund 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 Fund's net assets.
14. Invest in oil, gas, or mineral leases.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12) is adhered to at the time of
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.
INTERNATIONAL SMALL COMPANY FUND. The investment limitations
numbered 1 through 9 may not be changed without the affirmative vote of the
holders of a majority of the Fund's outstanding shares. Investment limitations
10 through 14 may be changed by a vote of the Board at any time. The
International Small Company Fund may not:
44
<PAGE>
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales and the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including structured securities, lend portfolio
securities and enter into repurchase agreements.
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indices, and options on futures contracts, securities, currencies or
indices, and purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
45
<PAGE>
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 writing of covered put
and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Invest in warrants (other than warrants acquired by the
Fund 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 Fund's net assets.
14. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.
EMERGING MARKETS FUND. The investment limitations numbered 1
through 9 are Fundamental Restrictions. Investment limitations 10 through 14 may
be changed by a vote of the Board at any time. The Emerging Markets Fund may
not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
46
<PAGE>
3. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. Make short sales of securities or maintain a short
position, except that the Fund may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and may
enter into short sales "against the box".
7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
47
<PAGE>
13. Invest in warrants (other than warrants acquired by the
Fund 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 Fund's net assets.
14. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12) is adhered to at the time of
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.
GLOBAL POST-VENTURE CAPITAL FUND. The 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. The Global
Post-Venture Capital Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
(a) securities secured by real estate,
48
<PAGE>
mortgages or interests therein and (b) securities of companies that invest in or
sponsor oil, gas or mineral exploration or development programs.
7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 12) is adhered to at the time of
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.
PORTFOLIO VALUATION
The following is a description of the procedures used by the
Funds in valuing their assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an
49
<PAGE>
OTC market will be valued at the most recent sale as of the time the valuation
is made or, in the absence of sales, at the mean between the highest bid and
lowest asked quotations. If there are no such quotations, the value of the
securities will be taken to be the most recent bid quotation on the exchange or
market. Options contracts will be valued similarly. Futures contracts will be
valued at the most recent settlement price at the time of valuation. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. The
valuation of short sales of securities, which are not traded on a national
exchange, will be at the mean of bid and asked prices. In determining the market
value of portfolio investments, the Fund may employ outside organizations (each
a "Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of each Fund under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time.
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. The Global Post-Venture Capital Fund's investments in Private Funds
will be valued initially at cost and, thereafter, in accordance with periodic
reports received by Abbott from the Private Funds (generally quarterly). Because
the issuers of securities held by Private Funds are generally not subject to the
reporting requirements of the federal securities laws, interim changes in the
value of investments in Private Funds will not generally be reflected in the
Fund's net asset value. However, CSAM will report to the Board of the Fund
information about certain holdings of Private Funds that, in its judgment, could
have a material impact on the valuation of a Private Fund. The Board of the Fund
will take these reports into account in valuing Private Funds.
Securities, options, futures contracts and other assets for
which market quotations are not available, including with respect to the Global
Post-Venture Capital Fund, Private Funds, 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, "NYSE", is open
for trading). The NYSE is currently scheduled to be closed on New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. In addition, securities trading in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and days on which a Fund's
50
<PAGE>
net asset value is not calculated. As a result, calculation of the Fund's net
asset value may not take place contemporaneously with the determination of the
prices of certain foreign portfolio securities used in such calculation. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of regular trading on the NYSE will not be
reflected in the Fund's calculation of net asset value unless the Board or its
delegates deems that the particular event would materially affect net asset
value, in which case an adjustment may be made. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service as of 12:00
noon (Eastern time). If such quotations are not available, the rate of exchange
will be determined in good faith pursuant to consistently applied procedures
established by the Board.
PORTFOLIO TRANSACTIONS
CSAM is responsible for establishing, reviewing and, where
necessary, modifying a Fund'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 OTC, depending on where it appears that
the best price or execution will be obtained. The purchase price paid by a Fund
to underwriters of newly issued securities usually includes a concession paid by
the issuer to the underwriter, and purchases of securities from dealers, acting
as either principals or agents in the after market, are normally executed at a
price between the bid and asked price, which includes a dealer's mark-up or
mark-down. Transactions on U.S. stock exchanges and some foreign stock exchanges
involve the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. Purchases
of Private Funds through a broker or placement agent may also involve a
commission or other fee. There is generally no stated commission in the case of
securities traded in domestic or foreign OTC markets, but the price of
securities traded in OTC markets includes an undisclosed commission or mark-up.
U.S. Government securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
Except for Private Funds managed by Abbott (with respect to
the Global Post-Venture Capital Fund), CSAM will select specific portfolio
investments and effect transactions for a Fund and in doing so seeks to obtain
the overall best execution of portfolio transactions. In evaluating prices and
executions, CSAM will consider the factors it deems relevant, which may include
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
CSAM may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section
51
<PAGE>
28(e) of the Securities Exchange Act of 1934) to a Fund and/or other accounts
over which CSAM exercises investment discretion. CSAM may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting the transaction if CSAM determines in good faith that such amount
of commission was reasonable in relation to the value of such brokerage and
research services provided by such broker or dealer viewed in terms of either
that particular transaction or of the overall responsibilities of CSAM. Research
and other services received due to brokerage business on behalf of the Funds may
be useful to CSAM in serving its other clients and, conversely, research or
other services obtained by the placement of business of other clients may be
useful to CSAM in carrying out its obligations to the Funds. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services; and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist CSAM in carrying out its
responsibilities. Research received from brokers or dealers is supplemental to
CSAM's own research program. For the fiscal year ended October 31, 1998,
$9,749.88, $867,683.19, $9.00, $8,276.36 and $1,448.00 of total brokerage
commissions was paid by the Major Foreign Markets Fund, the International Equity
Fund, the International Small Company Fund, the Emerging Markets Fund and the
Global Post-Venture Capital Fund, respectively, to brokers and dealers who
provided such research and other services.
The following table details amounts paid by each Fund in
commissions to broker-dealers for execution of portfolio transactions during the
indicated fiscal years or periods ended October 31.
<TABLE>
<CAPTION>
- -------------------------------------------------- ------------------- -------------------- ---------------------
FUND 1996 1997 1998
- -------------------------------------------------- ------------------- -------------------- ---------------------
<S> <C> <C> <C>
Major Foreign Markets Fund N/A $19,273(1) $192,591(2)
- -------------------------------------------------- ------------------- -------------------- ---------------------
International Equity Fund $8,400,700 $12,784,100(3) $13,044,983
- -------------------------------------------------- ------------------- -------------------- ---------------------
International Small Company Fund N/A N/A $5,459
- -------------------------------------------------- ------------------- -------------------- ---------------------
Emerging Markets Fund $1,416,683 $2,287,575 (3) $1,052,556(4)
- -------------------------------------------------- ------------------- -------------------- ---------------------
Global Post-Venture Capital Fund $3,819 $15,386 (2) $15,541
- -------------------------------------------------- ------------------- -------------------- ---------------------
</TABLE>
(1) During the period March 31, 1997 (commencement of operations) through
October 31, 1997; commissions paid by the Warburg, Pincus Institutional
Fund, Inc. on behalf of the Managed EAFE-Registered Trademark-
Countries Portfolio.
52
<PAGE>
(2) The increased size in commissions payments in the 1998 fiscal year
(with respect to the Major Foreign Markets Fund) and in the 1996 and
1997 fiscal years (with respect to the Global Post-Venture Capital
Fund) was attributable to the increased size of those Funds and
increased equity investments.
(3) The increase in brokerage commissions paid by the International Equity
and Emerging Markets Funds in 1997 was a result of sharp increases in
the volume of share-related activity as the Funds experienced large
inflows or outflows of capital, as the case may be.
(4) The decrease in brokerage commissions paid by the Emerging Markets Fund
in 1998 was a result of fluctuations in the net asset value of the
Fund.
The table below shows the amount of outstanding repurchase
agreements that each Fund had, as of October 31, 1998, with State Street Bank &
Co., one of the regular broker-dealers of each Fund.
<TABLE>
<S> <C>
-------------------------------------------------------- -------------------------
Major Foreign Markets Fund $4,736,000
-------------------------------------------------------- -------------------------
International Equity Fund $139,336,000
-------------------------------------------------------- -------------------------
International Small Company Fund $201,000
-------------------------------------------------------- -------------------------
Emerging Markets Fund $3,968,000
-------------------------------------------------------- -------------------------
Global Post-Venture Capital Fund $178,000
-------------------------------------------------------- -------------------------
</TABLE>
Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by CSAM
or, in the case of the Global Post-Venture Capital Fund, Abbott. Such other
investment clients may invest in the same securities as the Fund. When purchases
or sales of the same security are made at substantially the same time on behalf
of such other clients, transactions are averaged as to price and available
investments allocated as to amount, in a manner which CSAM or Abbott, as the
case may be, believes to be equitable to each client, including the Funds. In
some instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or sold for the Fund.
To the extent permitted by law, CSAM may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
investment clients in order to obtain best execution.
In no instance will portfolio securities be purchased from
or sold to CSAM, Credit Suisse Asset Management Securities, Inc. ("CSAMSI"),
or Credit Suisse First Boston ("CS First Boston") or, Abbott (in the case of
the Global Post-Venture Capital Fund) or any affiliated person of the
foregoing entities except as permitted by SEC exemptive order or by
applicable law. In addition, a Fund will not give preference to any
institutions with whom the Fund enters into distribution or shareholder
servicing agreements concerning the provision of distribution services or
support services.
Transactions for a Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will
53
<PAGE>
deal directly with the dealers who make a market in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve brokerage commissions. Securities firms may receive brokerage
commissions on certain portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options.
A Fund may participate, if and when practicable, in bidding
for the purchase of securities for the Fund's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when CSAM, in
its sole discretion, believes such practice to be otherwise in the Fund's
interest.
PORTFOLIO TURNOVER
The Funds do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. A Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by a Fund could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, a Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
It is not possible to predict the Funds' portfolio turnover
rates. High portfolio turnover rates (100% or more) may result in higher
brokerage commissions, dealer markups or underwriting commissions as well as
other transaction costs. In addition, gains realized from portfolio turnover may
be taxable to shareholders.
MANAGEMENT OF THE FUNDS
OFFICERS AND BOARD OF DIRECTORS
The business and affairs of each Fund are managed by the Board
of Directors in accordance with the laws of the State of Maryland. Each Board
elects officers who are responsible for the day-to-day operations of a Fund and
who execute policies authorized by the Board. Under each Fund's Charter, a Board
may classify or reclassify any unissued shares of the Funds into one or more
additional classes by setting or changing in any one or more
54
<PAGE>
respects their relative rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption. A Board may
similarly classify or reclassify any class of its shares into one or more series
and, without shareholder approval, may increase the number of authorized shares
of the Funds.
The names (and ages) of each Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
<TABLE>
<CAPTION>
<S> <C>
Richard H. Francis (67) DIRECTOR/TRUSTEE
40 Grosvenor Road Currently retired; Executive Vice President and Chief
Short Hills, New Jersey 07078 Financial Officer of Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group Incorporated;
Director/Trustee of other Warburg Pincus Funds and other
CSAM-advised investment companies.
Jack W. Fritz (72) DIRECTOR/TRUSTEE
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers
Wilson, Wyoming 83014 and operators of radio stations); Director of Advo, Inc.
(direct mail advertising); Director/Trustee of other
Warburg Pincus Funds.
Jeffrey E. Garten (53) DIRECTOR/TRUSTEE
Box 208200 Dean of Yale School of Management and William S. Beinecke
New Haven, Connecticut 06520-8200 Professor in the Practice of International Trade and
Finance; Undersecretary of Commerce for International Trade
from November 1993 to October 1995; Professor at Columbia
University from September 1992 to November 1993;
Director/Trustee of other Warburg Pincus Funds.
55
<PAGE>
James S. Pasman, Jr. (68) DIRECTOR/TRUSTEE
29 The Trillium Currently retired; President and Chief Operating Officer
Pittsburgh, Pennsylvania 15238 of National InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from
April 1989 to March 1991; Director of
Education Management Corp., Tyco
International Ltd.; Trustee, BT Insurance
Funds Trust; Director/Trustee of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
William W. Priest* (58) CHAIRMAN OF THE BOARD
153 East 53rd Street Chairman-Management Committee, Chief Executive Officer
New York, New York 10022 and Managing Director of CSAM (U.S.) since 1990; Director
of TIG Holdings, Inc.; Director/Trustee of
other Warburg Pincus Funds and other
CSAM-advised investment companies.
Steven N. Rappaport (51) DIRECTOR/TRUSTEE
153 East 53rd Street, President of Loanet, Inc. since 1997; Executive Vice
Suite 5500 President of Loanet, Inc. from 1994 to 1997; Director,
New York, New York 10022 President, North American Operations, and former Executive
Vice President from 1992 to 1993 of Worldwide Operations
of Metallurg Inc.; Executive Vice President, Telerate,
Inc. from 1987 to 1992; Partner in the law firm of Hartman
& Craven until 1987; Director/Trustee of other Warburg
Pincus Funds and other CSAM-advised investment companies.
- -------------------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
56
<PAGE>
Alexander B. Trowbridge (69) DIRECTOR/TRUSTEE
1317 F Street, N.W., 5th Floor Currently retired; President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990 to November 1996;
Director or Trustee of New England Mutual
Life Insurance Co., ICOS Corporation
(biopharmaceuticals), IRI International
(energy services), The Rouse Company (real
estate development), Harris Corp.
(electronics and communications
equipment), The Gillette Co. (personal
care products) and Sunoco, Inc.
(petroleum refining and marketing);
Director/Trustee of other Warburg Pincus Funds.
Eugene L. Podsiadlo (42) PRESIDENT
466 Lexington Avenue Managing Director of CSAM; Associated with CSAM since CSAM
New York, New York 10017-3147 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 Director and General Counsel of CSAM; Associated with CSAM
New York, New York 10022 since 1995; 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 Administration of
New York, New York 10022 CSAM; Associated with CSAM since 1984; Officer of other
Warburg Pincus Funds and other CSAM-advised investment companies.
Stuart J. Cohen, Esq. (30) ASSISTANT SECRETARY
466 Lexington Avenue Vice President and Legal Counsel of CSAM; Associated with
New York, New York 10017-3147 CSAM since CSAM 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.
57
<PAGE>
Rocco A. DelGuercio (36) ASSISTANT TREASURER
153 East 53rd Street Assistant Vice President and Administrative Officer of
New York, New York 10022 CSAM; Associated with CSAM since June 1996; Assistant
Treasurer, Bankers Trust Corp. -- Fund Administration from
March 1994 to June 1996; Mutual Fund Accounting
Supervisor, Dreyfus Corporation from April 1987 to March
1994; Officer of other Warburg Pincus Funds and other CSAM-advised
investment companies.
</TABLE>
No employee of CSAM, PFPC Inc. ("PFPC") or CSAMSI, the Funds'
co-administrators, or any of their affiliates receives any compensation from the
Funds for acting as an officer or director/trustee of a Fund. Each Director who
is not a director, trustee, officer or employee of CSAM, PFPC or CSAMSI or any
of their affiliates receives the following annual and per-meeting fees:
<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------- ------------------------ ------------------------
Fee for Each Audit
Fee for Each Meeting Committee Meeting
Fund Annual Fee Attended Attended
- ---------------------------------------- ----------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Major Foreign Markets Fund $ 750 $250 $250 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
International Equity Fund $ 750 $250 $250 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
International Small Company Fund $ 750 $250 $250 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
Emerging Markets Fund $ 750 $250 $250 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
Global Post-Venture Capital Fund $ 750 $250 $250 *
- ---------------------------------------- ----------------------- ------------------------ ------------------------
</TABLE>
* Alexander B. Trowbridge will receive $325 per fund serving as chairman of the
Audit Committee.
Each Director is reimbursed for expenses incurred in
connection with attendance at Board meetings.
DIRECTORS' TOTAL COMPENSATION
(for the fiscal period ended October 31, 1998);
58
<PAGE>
<TABLE>
<CAPTION>
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
ALL INVESTMENT
INTERNATIONAL MAJOR GLOBAL COMPANIES IN
EMERGING INTERNATIONAL SMALL FOREIGN POST-VENTURE WARBURG PINCUS
NAME OF DIRECTOR/TRUSTEE MARKETS FUND EQUITY FUND COMPANY FUND MARKETS FUND CAPITAL FUND FUND COMPLEX*
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
William W. Priest** None None None None None None
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Arnold M. Reichman+ None None None None None None
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Richard N. Cooper*** $1,900 $2,400 $500 $1,900 $1,900 $56,600
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Donald J. Donahue*** $475 $600 None $475 $475 $13,525
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Richard H. Francis**** None None None None None None
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Jack W. Fritz $2,150 $2,650 $500 $2,150 $2,150 $63,100
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Jeffrey E. Garten**** $1,675 $2,050 $500 $1,675 $1,675 $49,325
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Thomas A. Melfe*** $2,150 $2,650 $500 $2,150 $2,150 $60,700
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
James S. Pasman, Jr. **** None None None None None None
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Steven N. Rappaport**** None None None None None None
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
Alexander B. Trowbridge $2,250 $2,750 $500 $2,250 $2,250 $64,000
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------------
</TABLE>
* Each Director/Trustee serves as a Director or Trustee of 51 investment
companies or portfolios in the Warburg Pincus family of funds.
** Mr. Priest receives compensation as an employee of CSAM, and,
accordingly, receives no compensation from any Fund or any other
investment company advised by CSAM.
*** Mr. Donahue resigned as a Director/Trustee of each Fund effective
February 6, 1998. Messrs. Cooper and Melfe resigned as a Director/
Trustee of each Fund effective July 6, 1999.
**** Mr. Garten became a Director/Trustee of each Fund effective February 6,
1998. Messrs. Francis, Pasman and Rappaport became Directors/Trustees
of the Funds effective July 6, 1999.
+ Mr. Reichman resigned as a Director/Trustee of each Fund effective
August 18, 1999. Mr. Reichman had been an employee of CSAM and,
accordingly, had received no compensation from any Fund or any other
investment company managed by CSAM.
As of October 31, 1999, Directors or officers of the Funds as a group
owned less than 1% of the outstanding shares of each Fund. As of that date, the
following shareholders beneficially owned 5% or more of each Fund's outstanding
shares.
MAJOR FOREIGN MARKETS FUND
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON SHARES The Northern Trust Co TTEE* 18.41%
FBO Gatx Master Trust Ret Trust
DTD 12/19/79
500 W Monroe St.
Chicago, IL 60661-3630
Charles Schwab & Co Inc.* 11.18%
Special Custody Account For The
Exclusive Benefit of Customers
Attn Mutual funds
101 Montgomery St
San Francisco, CA 94104-4112
Agnes E. Williams 6.96%
8901 Durham Drive
Potomac, MD 20854-4613
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL EQUITY FUND
COMMON SHARES Charles Schwab & Co. Inc.* 27.65%
Special Custody Account For The Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Nat'l Financial Svcs Corp.* 10.71%
FBO Customers
Church St. Station
PO Box 3908
New York, NY 10008-3908
ADVISOR SHARES Connecticut General Life Ins. Co.* 99.41%
On Behalf Of Its Separate Account
55F c/o Melissa Spencer M110
CIGNA Corp PO Box 2975
Hartford, CT 06104-2975
INTERNATIONAL SMALL COMPANY FUND
COMMON SHARES Charles Schwab & Co Inc* 25.52%
Special Custody Account For The
Exclusive Benefit of Customers
Attn Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
Nat'l Financial Svcs Corp* 16.71%
FBO Customers
Church St Station
P.O. Box 3908
New York, NY 10008-3908
National Investor Services Corp* 12.35%
For the Exclusive Benefit of
Our Customers
55 Water St Fl 32
New York, NY 10041-3299
Donaldson Lufkin & Jenrette* 7.19%
Securities Corp Pershing Division
Mutual Fund Balancing
1 Pershing Plz Fl 14
Jersey City, NJ 07399-0001
Charles V. Prothro 5.53%
2304 Midwestern Pkwy Ste 200
Wichita Falls, TX 76308-2334
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
EMERGING MARKETS FUND
COMMON SHARES Charles Schwab & Co Inc.* 28.88%
Special Custody Account For The
Exclusive Benefit Of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Salomon Smith Barney Inc.* 16.12%
Book Entry Account
Attn: Matt Maesstri
333 West 34th Street
7th Floor, Mutual Fund Dept.
New York, NY 10001-2483
Nat'l Financial Svcs. Corp.* 12.73%
FBO Customers
P.O. Box 3908
Church St. Station
New York, NY 10008-3908
ADVISOR SHARES Donaldson Lufkin & Jenrette Secs* 43.07%
PO Box 2052
Jersey City, NJ 07303-2052
Lewco Securities Corp* 21.49%
FBO A/C # W68-202016-9-01
34 Exchange Place 4th Floor
Jersey City, NJ 07302-3885
Bear Stearns Securities Corp* 10.24%
FBO 523-00435-14
1 Metrotech Center North
Brooklyn, NY 11201-3870
Bank of America Securities LLC* 8.95%
110-41287-16
Attn: Mutual Funds - 4th Floor
600 Montgomery Street
San Francisco, CA 94111-2702
Bank of America Securities LLC* 8.53%
110-41287-13
Attn: Mutual Funds - 4th Floor
600 Montgomery Street
San Francisco, CA 94111-2702
Bank of America Securities LLC* 5.12%
110-39647-12
Attn: Mutual Funds: 4th Floor
600 Montgomery St.
San Francisco, CA 94111-2702
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
GLOBAL POST VENTURE CAPITAL FUND
COMMON SHARES Charles Schwab & Co. Inc.* 19.72%
Special Custody Account For The
Exclusive Benefit Of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Donaldson Lufkin & Jenrette* 16.35%
Securities Corp Pershing Division
Mutual Fund Balancing
1 Pershing Plz Fl 14
Jersey City, NJ 07399-0001
Nat'l Financial Svcs Corp* 7.39%
FBO Customers
P.O. Box 3908
Church St Station
New York, NY 10008-3908
Elizabeth B. Dater 5.52%
c/o Credit Suisse Asset Management
466 Lexington Avenue
Floor 12
New York, NY 10017
ADVISOR SHARES SEMA & Co.* 96.15%
95400141
12 E 49th St 41st Fl
New York, NY 10017-1038
</TABLE>
*Each Fund believes these entities are not the beneficial owners of shares held
of record by them.
PORTFOLIO MANAGERS OF THE FUNDS
MAJOR FOREIGN MARKETS FUND.
P. Nicholas Edwards is Co-Portfolio Manager of the Major
Foreign Markets Fund. Mr. Edwards has been associated with CSAM since CSAM
acquired the Fund's predecessor adviser in July 1999 and joined the predecessor
adviser in 1995. Mr. Edwards
62
<PAGE>
was a director at Jardine Fleming Investment Advisers, Tokyo from 1984 to
1995. Mr. Edwards earned M.A. degrees from Oxford University and Hiroshima
University in Japan.
Harold W. Ehrlich is Co-Portfolio Manager of the Major Foreign
Markets Fund. Mr. Ehrlich has been associated with CSAM since CSAM acquired the
Fund's predecessor adviser in July 1999 and joined the predecessor adviser in
1995. 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 the University of Florida and
earned his Chartered Financial Analyst designation in 1990.
Vincent J. McBride is an Associate Portfolio Manager of the
Major Foreign Markets Fund. Mr. McBride has been associated with CSAM since CSAM
acquired the Fund's predecessor adviser in July 1999 and joined the predecessor
adviser in 1994. Mr. McBride was an international equity analyst at Smith Barney
Inc. from 1993 to 1994, and at General Electric Investment Corp. 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.
Nancy Nierman is an Associate Portfolio Manager of the Major
Foreign Markets Fund. Ms. Nierman has been associated with CSAM since CSAM
acquired the Fund's predecessor adviser in July 1999 and joined the predecessor
adviser in 1996. She was a vice president at Fiduciary Trust Company
International from 1990 to 1996 and an international equity trader at TIAA-CREF
from 1985 to 1990. She received her B.B.A. degree from Baruch College in 1985.
J.H. Cullum Clark, CFA, is an Associate Portfolio Manager of
the Major Foreign Markets Fund. Mr. Clark has been associated with CSAM since
CSAM acquired the Fund's predecessor adviser in July 1999 and joined the
predecessor adviser in 1996. Mr. Clark was an analyst and portfolio manager at
Brown Brothers Harriman from 1993 to 1996 and a research assistant at the U.S.
Senate Select Committee on Intelligence from 1992 to 1993. Mr. Clark received an
A.M. degree from Harvard University and a B.A. degree from Yale University. Mr.
Clark also studied at the Stanford Inter-University Center for Japanese Language
Studies in 1990.
Todd Jacobson, CFA, is an Associate Portfolio Manager and
Research Analyst of the Major Foreign Markets Fund. Mr. Jacobson has been
associated with CSAM since CSAM acquired the Fund's predecessor adviser in July
1999 and joined the predecessor adviser in 1997. He was an analyst at Brown
Brothers Harriman from 1993 to 1997. Mr. Jacobson was also an analyst with Value
Line from 1989 to 1991. Mr. Jacobson received his M.B.A. degree in Finance from
the Wharton School and his B.A. degree Phi Beta Kappa in Economics from the
State University of New York - Binghamton.
INTERNATIONAL SMALL COMPANY FUND.
63
<PAGE>
Harold E. Sharon is Co-Portfolio Manager of the International
Small Company Fund and manages other Warburg Pincus funds. Mr. Sharon has been
associated with CSAM since CSAM acquired the Fund's predecessor adviser in July
1999 and joined the predecessor adviser in 1998. Mr. Sharon was an executive
director and portfolio manager at CIBC Oppenheimer from 1994-1998. Mr. Sharon
was previously a Vice President and Portfolio Manager at Warburg from 1990-1994.
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.
J.H. Cullum Clark is a CFA and Co-Portfolio Manager of the
International Small Company Fund (see biography above).
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND.
P. Nicholas Edwards is Co-Portfolio Manager of the
International Equity Fund (see biography above).
Harold W. Ehrlich is Co-Portfolio Manager of the International
Equity Fund (see biography above).
Vincent J. McBride is Co-Portfolio Manager of the
International Equity Fund and the Emerging Markets Fund (see biography above).
Harold E. Sharon is Co-Portfolio Manager of the International
Equity Fund and the Emerging Markets Fund (see biography above).
Morid Kamshad is an Associate Portfolio Manager of the
Emerging Markets Fund. Mr. Kamshad has been associated with CSAM since CSAM
acquired the Fund's predecessor adviser in July 1999 and joined the predecessor
adviser in 1997. He was a senior investment manager with Pictet Asset Management
from 1995 to 1997. Mr. Morid was also an investment analyst with HSBC Asset
Management from 1994 to 1995 and a business development manager with Air
Products and Chemicals - France from 1989 to 1994.
Jun Sung Kim is an Associate Portfolio Manager of the Emerging
Markets Fund. Mr. Kim has been associated with CSAM since CSAM acquired the
Fund's predecessor adviser in July 1999 and joined the predecessor adviser in
1997. 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 Fund. Mr. Laffan has been associated with CSAM since CSAM
acquired the Fund's predecessor adviser in July 1999 and joined the predecessor
adviser in 1997. He 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.
GLOBAL POST-VENTURE CAPITAL FUND.
64
<PAGE>
Elizabeth B. Dater is a Co-Portfolio Manager of the Fund and
manages other Warburg Pincus funds. Ms. Dater has been associated with CSAM
since CSAM acquired the Fund's predecessor adviser in July 1999 and joined the
predecessor adviser in 1978. Prior to that, 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 RUKEYSER since 1976. Ms. Dater earned a
B.A. degree from Boston University in Massachusetts.
J.H. Cullum Clark is Co-Portfolio Manager of the Global
Post-Venture Capital Fund (see biography above).
Harold E. Sharon is Co-Portfolio Manager of the Global
Post-Venture Capital Fund (see biography above).
Raymond L. Held and Thaddeus I. Gray, Investment Managers and
Managing Directors of Abbott, manage the Global Post-Venture Capital Fund's
investments in Private Funds. Abbott also acts as sub-investment adviser for
other Warburg Pincus 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
served as an assistant vice president at Commerzbank Capital Markets Corporation
and as 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.
INVESTMENT ADVISERS AND CO-ADMINISTRATORS
CSAM, located at 153 East 53rd Street, New York, New York
10022, serves as investment adviser to each Fund pursuant to a written agreement
(the "Advisory Agreement"). CSAM is an indirect wholly-owned U.S. subsidiary of
Credit Suisse ("Credit Suisse"). 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 Fund. On that date, Credit
Suisse acquired Warburg and combined Warburg with Credit Suisse's existing
U.S.-based asset management business ("Credit Suisse Asset Management").
Consequently, the combined entity, CSAM, became the
65
<PAGE>
Funds' investment adviser. Credit Suisse Asset Management, formerly known as BEA
Associates, together with its predecessor firms, has been engaged in the
investment advisory business for over 60 years.
Abbott, located at 50 Rowes Wharf, Suite 240, Boston,
Massachusetts 02110-3328, serves as sub-investment adviser to the Global
Post-Venture Capital Fund pursuant to a written agreement. Abbott, in accordance
with the investment objective and policies of the Global Post-Venture Capital
Fund, makes investment decisions for the Fund regarding investments in Private
Funds, effects transactions in interests in Private Funds on behalf of the Fund
and assists in administrative functions relating to investments in Private
Funds. Abbott is an independent specialized investment firm with assets under
management of approximately $2.3 billion. Abbott is a registered investment
adviser which concentrates on venture capital, buyout and special situations
partnership investments. Abbott's management team provides full-service private
equity programs to clients. The predecessor firm to Abbott was organized in 1986
as a Delaware limited partnership and converted to a Delaware limited liability
company effective July 1, 1997.
CSAMSI and PFPC serve as co-administrators to each Fund
pursuant to separate written agreements. CSAMSI became co-administrator to each
Fund on November 1, 1999. Prior to that, Counsellors Funds Service, Inc.
("Counsellors Service") served as co-administrator to the Funds. CSAMSI provides
shareholder liaison services to each Fund including responding to shareholder
inquiries and providing information on shareholder investments. CSAMSI also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing certain corporate secretarial services, which
include preparing materials for meetings of the Board, assisting with proxy
statements and annual and semiannual reports, assisting in the preparation of
tax returns and monitoring and developing certain compliance procedures for the
Funds. As compensation, the Common Shares and Advisor Shares of each Fund pay
CSAMSI a fee calculated at an annual rate of .10% of their respective average
daily net assets. CSAMSI receives no compensation for the services provided to
the Institutional Shares.
PFPC calculates each Fund's net asset value, provides all
accounting services for each Fund and assists in related aspects of each Fund's
operations. As compensation, each Fund pays PFPC a fee calculated at an annual
rate of .12% of a Fund's first $250 million in average daily net assets, .10% of
the next $250 million in average daily net assets, .08% of the next $250 million
in average daily net assets, and .05% of average daily net assets over $750
million, subject in each case to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
Each class of shares of a Fund bears its proportionate share
of fees payable to CSAM, CSAMSI and PFPC in the proportion that its assets bear
to the aggregate assets of the Fund at the time of calculation. These fees are
calculated at an annual rate based on a percentage of a Fund's average daily net
assets. Each Fund's co-administrators may
66
<PAGE>
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne by a Fund.
67
<PAGE>
For the fiscal years ended October 31, 1996, October 31, 1997
and October 31, 1998 during which a Fund had investment operations, investment
advisory fees earned by CSAM's predecessor, waivers and net advisory fees for
each Fund were as follows:
<TABLE>
<CAPTION>
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
YEAR/ PERIOD GROSS NET
FUND ENDED ADVISORY FEE WAIVER ADVISORY FEE
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Major Foreign Markets Fund October 31, 1997* $12,662 $12,662 0
---------------------- ------------------- ---------------- -----------------
(commenced operations on 10/24/97) October 31, 1998 $230,682 $202,603 $28,079
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
International Equity Fund October 31, 1996 $30,605,750 None $30,605,750
---------------------- ------------------- ---------------- -----------------
October 31, 1997 $33,440,864 None $33,440,864
---------------------- ------------------- ---------------- -----------------
October 31, 1998 $21,710,859 $21,710,859
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
International Small Company Fund October 31, 1998 $5,026 $5,026 0
(commenced operations on 4/2/98)
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
Emerging Markets Fund October 31, 1996 $1,789,738 $1,031,252 $758,486
---------------------- ------------------- ---------------- -----------------
October 31, 1997 $3,124,684 $1,146,495 $1,978,189
---------------------- ------------------- ---------------- -----------------
October 31, 1998 $1,232,557 $524,180 $708,377
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
Global Post-Venture Capital Fund October 31, 1996 $2,470 $2,470 0
(commenced operations on 9/30/96) ---------------------- ------------------- ---------------- -----------------
October 31, 1997 $49,452 $49,452 0
---------------------- ------------------- ---------------- -----------------
October 31, 1998 $43,604 $43,604 0
- -------------------------------------- ---------------------- ------------------- ---------------- -----------------
</TABLE>
PFPC and Counsellors Service earned the following amounts in
co-administration fees (portions of fees waived, if any, noted in parenthesis).
<TABLE>
<CAPTION>
--------------------------------------- ---------------------- ---------------------------- ---------------------------
FUND YEAR PFPC COUNSELLORS SERVICE
--------------------------------------- ---------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Major Foreign Markets Fund October 31, 1997* $1,899 ($1,899) $1,583 ($1,583)
---------------------- ---------------------------- ---------------------------
(commenced operations on 10/24/97) October 31, 1998 $44,290 ($27,841) $23,200
--------------------------------------- ---------------------- ---------------------------- ---------------------------
International Equity Fund October 31, 1996 $1,905,288 $3,060,575
---------------------- ---------------------------- ---------------------------
October 31, 1997 $2,047,043 $3,344,086
---------------------- ---------------------------- ---------------------------
October 31, 1998 $1,486,215 $2,171,086
--------------------------------------- ---------------------- ---------------------------- ---------------------------
International Small Company Fund October 31, 1998 $3,988 ($548) $457
(commenced operations on 4/2/98)
--------------------------------------- ---------------------- ---------------------------- ---------------------------
Emerging Markets Fund October 31, 1996 $171,815 ($71,109) $143,179
---------------------- ---------------------------- ---------------------------
October 31, 1997 $297,624 $249,975
---------------------- ---------------------------- ---------------------------
October 31, 1998 $133,902 ($11,373) $98,604
--------------------------------------- ---------------------- ---------------------------- ---------------------------
</TABLE>
- -------------------
* With respect to the Managed EAFE-Registered Trademark- Countries Portfolio
of the Warburg, Pincul Institutional Fund, Inc. during the fiscal period
from March 31, 1997 (commencement of operations) to October 31, 1997.
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<PAGE>
<TABLE>
<CAPTION>
--------------------------------------- ---------------------- ---------------------------- ---------------------------
FUND YEAR PFPC COUNSELLORS SERVICE
--------------------------------------- ---------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
--------------------------------------- ---------------------- ---------------------------- ---------------------------
Global Post-Venture Capital Fund October 31, 1996 $237 ($237) $198
(commenced operations on 9/30/96) ---------------------- ---------------------------- ---------------------------
October 31, 1997 $4,747 ($4,747) $3,956
---------------------- ---------------------------- ---------------------------
October 31, 1998 $9,320 ($4,186) $3,489
--------------------------------------- ---------------------- ---------------------------- ---------------------------
</TABLE>
CUSTODIANS AND TRANSFER AGENT
PFPC Trust Company ("PFPC Trust") and State Street Bank and
Trust Company serve as custodians of each Funds' U.S. and non-U.S. assets,
respectively, pursuant to separate custodian agreements (the "Custodian
Agreements"). Under the Custodian Agreements, PFPC and State Street each (i)
maintains a separate account or accounts in the name of the Fund, (ii) holds and
transfers portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions for the account of the Fund's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Fund's custodial arrangements. PFPC may delegate its duties under
its Custodian Agreement with the Fund to a wholly owned direct or indirect
subsidiary of PFPC or PNC Bank Corp. upon notice to the Fund and upon the
satisfaction of certain other conditions. With the approval of the Board, State
Street is authorized to select one or more foreign banking institutions and
foreign securities depositories to serve as sub-custodian on behalf of the Fund
and PFPC Trust is authorized to select one or more domestic banks or trust
companies to serve as sub-custodian on behalf of the Funds. PFPC Trust has
entered into a sub-custodian agreement with PNC Bank, National Association
("PNC"), pursuant to which PNC provides asset safekeeping and securities
clearing services. PFPC Trust and PNC are indirect, wholly owned subsidiaries of
PNC Bank Corp. and their principal business address is Attn: Mutual Fund Custody
Services, 200 Stevens Drive, Lester, Pennsylvania 19113. The principal business
address of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street also acts as the shareholder servicing, transfer
and dividend disbursing agent of each Fund pursuant to a Transfer Agency and
Service Agreement, under which State Street (i) issues and redeems shares of the
Fund, (ii) addresses and mails all communications by the Fund to record owners
of Fund shares, including reports to shareholders, dividend and distribution
notices and proxy material for its meetings of shareholders, (iii) maintains
shareholder accounts and, if requested, sub-accounts and (iv) makes periodic
reports to the Board concerning the transfer agent's operations with respect to
the Fund. State Street has delegated to Boston Financial Data Services, Inc., an
affiliate of State Street ("BFDS"), responsibility for most shareholder
servicing functions. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.
ORGANIZATION OF THE FUNDS
The Major Foreign Markets Fund was incorporated on October 24,
1997 under the laws of the State of Maryland under the name "Warburg, Pincus
Managed EAFE Countries Fund, Inc." On December 22, 1997, the Fund acquired all
of the assets and liabilities of the
69
<PAGE>
Managed EAFE-Registered Trademark- Countries Portfolio of Warburg, Pincus
Institutional Fund, Inc. On February 9, 1998, the Fund changed its name to
"Warburg, Pincus Major Foreign Markets Fund, Inc." The International Equity
Fund was incorporated on February 9, 1989 under the laws of the State of
Maryland under the name "Counsellors International Equity Fund, Inc." On
October 27, 1995, the Fund amended its Charter to change its name to
"Warburg, Pincus International Equity Fund, Inc." The International Small
Company Fund was incorporated on April 2, 1998 under the laws of the State of
Maryland under the name "Warburg, Pincus International Small Company Fund,
Inc." The Emerging Markets Fund was incorporated on December 23, 1993 under
the laws of the State of Maryland under the name "Warburg, Pincus Emerging
Markets Fund, Inc." The Global Post-Venture Capital Fund was incorporated on
July 16, 1996 under the laws of the State of Maryland under the name
"Warburg, Pincus Global Post-Venture Capital Fund, Inc."
Each Fund (with the exception of the Major Foreign Markets
Fund, the International Small Company Fund and the Emerging Markets Fund)
currently offers two classes of shares, Common Shares and Advisor Shares. The
Major Foreign Markets Fund and the International Small Company Fund currently
offer only Common Shares. The Emerging Markets Fund currently offers three
classes of shares, Common Shares, Advisor Shares and Institutional Shares.
Unless otherwise indicated, references to a "Fund" apply to each class of shares
of that Fund.
With the exception of the Emerging Markets Fund which is
non-diversified, each Fund is a diversified, open-end investment management
company.
Each Fund's charter (with the exception of the Emerging
Markets Fund) authorizes the Board to issue three billion full and fractional
shares of common stock, $.001 par value per share, of which one billion shares
are designated "Common Shares" and two billion shares are designated "Advisor
Shares". The Emerging Market Fund's charter authorizes the board to issue three
billion full and fractional shares of common stock, $.001 par value per share,
of which one billion shares are designated "Common Shares," one billion shares
are designated "Advisor Shares" and one billion shares are designated
"Institutional Shares."
All shareholders of the Fund in each class, upon liquidation,
will participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the governing Board
unless and until such time as less than a majority of the members holding office
have been elected by investors. Any Director of a Fund may be removed from
office upon the vote of shareholders holding at least a majority of the relevant
Fund's outstanding
70
<PAGE>
shares, at a meeting called for that purpose. A meeting will be called for the
purpose of voting on the removal of a Board member at the written request of
holders of 10% of the outstanding shares of a Fund.
DISTRIBUTION AND SHAREHOLDER SERVICING
Distributor. In addition to serving as each Fund's
co-administrator, CSAMSI serves as distributor of each Fund's shares. CSAMSI
offers each Fund's shares on a continuous basis. No compensation is payable by
any of the Funds to CSAMSI for distribution services under the Distribution
Agreement, but CSAMSI receives compensation from each Fund under the CSAMSI
Co-Administration Agreement as described herein. CSAMSI's principal business
address is 466 Lexington Avenue, New York, New York 10017-3147.
COMMON SHARES. With the exception of the International Equity
Fund, each Fund has entered into a Shareholder Servicing and Distribution Plan
(the "Common Shares 12b-1 Plan"), pursuant to Rule 12b-1 under the 1940 Act,
pursuant to which the Fund pays CSAMSI, in consideration for Services (as
defined below), a fee calculated at an annual rate of .25% of the average daily
net assets of the Common Shares of the Fund. The fee is intended to compensate
CSAMSI, or to enable CSAMSI to compensate other persons ("Service Providers"),
for providing Services (as defined below) to the Funds. Services performed by
CSAMSI under the CSAMSI Co-Administration Agreement or Service Providers include
(i) services that are primarily intended to result in, or that are primarily
attributable to, the sale of the Common Shares, as set forth in the Common
Shares 12b-1 Plan ("Selling Services") and (ii) ongoing servicing and/or
maintenance of the accounts of Common Shareholders of the Fund, as set forth
in the Common Shares 12b-1 Plan ("Shareholder Services"; together with
Selling Services, "Services"). Shareholder Services may include, without
limitation, responding to Fund shareholder inquiries and providing services
to shareholders not otherwise provided by the Funds' distributor or transfer
agent. Selling Services may include, without limitation, (a) the printing and
distribution to prospective investors in Common Shares of prospectuses and
statements of additional information describing the Funds; (b) the
preparation, including printing, and distribution of sales literature,
advertisements and other informational materials relating to the Common
Shares; (c) providing telephone services relating to the Funds, including
responding to inquiries of prospective Fund investors; (d) formulating and
implementing marketing and promotional activities, including, but not limited
to, direct mail promotions and television, radio, newspaper, magazine and
other mass media advertising; and (e) obtaining whatever information,
analyses and reports with respect to marketing and promotional activities
that the Funds may, from time to time, deem advisable. In providing
compensation for Services in accordance with this Plan, CSAMSI is expressly
authorized (i) to make, or cause to be made, payments to Service Providers
reflecting an allocation of overhead and other office expenses related to
providing Services and (ii) to make, or cause to be made, payments to
compensate selected dealers or other authorized persons for providing any
Services.
Payments under the Common Shares 12b-1 Plan are not tied
exclusively to the distribution expenses actually incurred by CSAMSI under
the CSAMSI Co-Administration
71
<PAGE>
Agreement or any other Service Provider and the payments may exceed distribution
expenses actually incurred.
Pursuant to the Common Shares 12b-1 Plan, CSAMSI provides the
Board with periodic reports of amounts expended under the Common Shares 12b-1
Plan and the purpose for which the expenditures were made.
For the period or year ended October 31, 1998, the Funds'
Common Shares paid the following amounts pursuant to the Common Shares 12b-1
Plan, all of which was spent on advertising, marketing communications and public
relations.
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------
FUND PAYMENT
- ------------------------------------------------ ---------------------
<S> <C>
Major Foreign Markets Fund $2,142
- ------------------------------------------------ ---------------------
International Small Company Fund $1,143
- ------------------------------------------------ ---------------------
Emerging Markets Fund $246,045
- ------------------------------------------------ ---------------------
Global Post-Venture Capital Fund $8,718
- ------------------------------------------------ ---------------------
</TABLE>
Each Fund 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 Fund's pricing on the
following business day. If payment is not received by such time, the Service
Organization could be held liable for resulting fees or losses. The Fund may be
deemed to have received a purchase or redemption order when a Service
Organization, or, if applicable, its authorized designee, accepts the order.
Such orders received by the Fund in proper form will be priced at the Fund's net
asset value next computed after they are accepted by the Service Organization or
its authorized designee. Service Organizations may impose transaction or
administrative charges or other direct fees, which charges or fees would not be
imposed if Fund shares are purchased directly from the Funds.
For administration, subaccounting, transfer agency and/or
other services, CSAM or its affiliates may pay Service Organizations a fee up to
.40% of the average annual value of accounts with the Funds maintained by such
Service Organizations (the "Service Fee"). Service Organizations may also be
reimbursed for marketing costs. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of services provided, the operations processing requirements of the
relationship and the standardized fee schedule of the Service Organization or
recordkeeper. The Funds may reimburse part of the Service Fee at rates they
would normally pay to the transfer agent for providing the services.
ADVISOR SHARES. The Funds may enter into agreements
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and/or accounting services for their clients
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<PAGE>
or customers (or participants in the case of retirement plans) ("Customers") who
are beneficial owners of Advisor Shares. Agreements will be governed by a
distribution plan (the "Advisor Shares 12b-1 Plan") pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which the Fund pays in consideration for services, a
fee calculated at an annual rate of .50% of the average daily net assets of the
Advisor Shares of the Fund. The Advisor Shares 12b-1 Plan requires the Board, at
least quarterly, to receive and review written reports of amounts expended under
the Advisor Shares 12b-1 Plan and the purposes for which such expenditures were
made. The Funds' Advisor Shares paid Institutions the following fees for the
years or periods ended October 31, 1998, all of which were paid to Institutions:
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------
FUND PAYMENT
- ------------------------------------------------ ---------------------
<S> <C>
International Equity Fund $1,982,695
- ------------------------------------------------ ---------------------
Emerging Markets Fund $1,242
- ------------------------------------------------ ---------------------
Global Post-Venture Capital Fund $6
- ------------------------------------------------ ---------------------
</TABLE>
Certain Institutions may receive additional fees from the
CSAMSI, CSAM or their affiliates for providing supplemental services in
connection with investments in the Funds. Institutions may also be reimbursed
for marketing costs. Additional fees may be up to 0.10% per year of the value of
Fund accounts maintained by the firm. Fees payable to any particular Institution
are determined based upon a number of factors, including the nature and quality
of the services provided, the operations processing requirements of the
relationship and the standardized fee schedules of the Institutions. To the
extent that CSAMSI, CSAM, or their affiliates provide additional compensation or
reimbursements for marketing expenses, such payments would not represent an
additional expense to the Funds or their shareholders.
An Institution with which a Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution and shareholder servicing
arrangements. A Customer of an Institution should read the relevant Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature describing the services and related fees that would be
provided by the Institution to its Customers prior to any purchase of Fund
shares. Prospectuses are available from the Funds' distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.
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<PAGE>
INSTITUTIONAL SHARES. CSAMSI serves as the distributor for the
Institutional Shares of the Emerging Markets Fund. CSAMSI offers the Fund's
Institutional Shares on a continuous basis. No compensation is payable to CSAMSI
for distribution services for the Fund's Institutional Class.
GENERAL. The Common Shares 12b-1 Plan and the Advisor Shares
12b-1 Plan will continue in effect for so long as their continuance is
specifically approved at least annually by the Board, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Distribution Plans or the
12b-1 Plan ("Independent Directors"). Any material amendment of the Common
Shares 12b-1 Plan and the Advisor Shares 12b-1 Plan would require the approval
of the Board in the same manner. Neither the Common Shares 12b-1 Plan nor the
Advisor Shares 12b-1 Plan may be amended to increase materially the amount to be
spent thereunder without shareholder approval of the relevant class of shares.
The Common Shares 12b-1 Plan and the Advisor Shares 12b-1 Plan may be terminated
at any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the relevant
class of shares of a Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of a Fund's shares is equal to the per
share net asset value of the relevant class of shares of the Fund.
Under the 1940 Act, a Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (A Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)
If conditions exist which make payment of redemption proceeds
wholly in cash unwise or undesirable, a Fund may make payment wholly or partly
in securities or other investment instruments which may not constitute
securities as such term is defined in the applicable securities laws. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Funds will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.
AUTOMATIC CASH WITHDRAWAL PLAN. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of a Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments
74
<PAGE>
may reduce the shareholder's investment and ultimately exhaust it. Withdrawal
payments should not be considered as income from investment in a Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by CSAM
is available to investors in each Fund. A Common Shareholder may exchange Common
Shares of a Fund for Common Shares of another Warburg Pincus fund at their
respective net asset values. An Advisor Shareholder may exchange Advisor Shares
of a Fund for Advisor Shares of another Warburg Pincus fund at their respective
net asset values. An Institutional Shareholder may exchange Institutional Shares
of a Fund for Institutional Shares of another Warburg Pincus fund at their
respective net asset values. If an exchange request is received by Warburg
Pincus Funds or their agent prior to the close of regular trading on the NYSE,
the exchange will be made at each Fund's net asset value determined at the end
of that business day. Exchanges will be effected without a sales charge but must
satisfy the minimum dollar amount necessary for new purchases. The Fund may
refuse exchange purchases at any time without prior notice.
The exchange privilege is available to shareholders residing
in any state in which the Shares being acquired may legally be sold. When an
investor effects an exchange of shares, the exchange is treated for federal
income tax purposes as a redemption. Therefore, the investor may realize a
taxable gain or loss in connection with the exchange. Investors wishing to
exchange Shares of a Fund for Shares in another Warburg Pincus fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus fund, an investor should contact Warburg Pincus Funds
at 800-222-8977.
The Funds reserve the right to refuse exchange purchases by
any person or group if, in CSAM's judgment, a Fund would be unable to invest the
money effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Funds reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in each Fund. Each prospective shareholder is urged to
consult his own tax adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a Fund. The summary is based on the
laws in effect on the date of this Statement of Additional Information, which
are subject to change.
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<PAGE>
THE FUNDS AND THEIR INVESTMENTS.
Each Fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Code. To so qualify,
the Fund must, among other things: (a) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to
securities, loans and gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the Fund's taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, securities of other regulated investment companies, United States
government securities and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the Fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer and (ii) not more than 25% of the value of its assets is invested in the
securities (other than U.S. Government Securities or securities of other
regulated investment companies) of any one issuer or any two or more issuers
that the Fund controls and are determined to be engaged in the same or similar
trades or businesses or related trades or businesses.
As a regulated investment company, each Fund will not be
subject to United States federal income tax on its net investment income (I.E.,
income other than its net realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if any, that it distributes to
its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (I.E., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed, but will be subject to
tax at regular corporate rates on any taxable income or gains that it does not
distribute. Any dividend declared by a Fund in October, November or December of
any calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
during January of the following calendar year.
Each Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board of each
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of net realized short-term capital losses (including any
capital loss carryovers). Each Fund currently expects to distribute any excess
annually to its shareholders. However, if a Fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in excess of
its net short-term capital losses and capital loss carryovers, it will be
subject to a corporate tax (currently at a rate of 35%) on the amount retained.
In that event, a Fund will designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will be required to
include in income for United States federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (b) will
be entitled to credit their
76
<PAGE>
proportionate shares of the 35% tax paid by the Fund on the undistributed amount
against their United States federal income tax liabilities, if any, and to claim
refunds to the extent their credits exceed their liabilities, if any, and (c)
will be entitled to increase their tax basis, for United States federal income
tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income. Organizations
or persons not subject to federal income tax on such capital gains will be
entitled to a refund of their pro rata share of such taxes paid by the Fund upon
filing appropriate returns or claims for refund with the Internal Revenue
Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on a Fund to
the extent the Fund does not distribute by the end of any calendar year at least
98% of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. Each Fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.
With regard to each Fund's investments in foreign securities,
exchange control regulations may restrict repatriations of investment income and
capital or the proceeds of securities sales by foreign investors such as the
Fund and may limit the Fund's ability to pay sufficient dividends and to make
sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
If, in any taxable year, a Fund fails to qualify as a
regulated investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to qualify,
a Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains.
If a Fund fails to qualify as a regulated investment company in any year, it
must pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In addition, if the Fund failed
to qualify as a regulated investment company for a period greater than one
taxable year, the Fund may be required to recognize any net built-in gains (the
excess of the aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
A Fund's short sales against the box, if any, and transactions
in foreign currencies, forward contracts, options and futures contracts
(including options and futures contracts on foreign currencies) will be subject
to special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (i.e., may affect
77
<PAGE>
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require the Fund to mark-to-market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out) and (b) may cause
the Fund to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it engages in a short sale
against the box or acquires any foreign currency, forward contract, option,
futures contract or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.
A Fund's investments in zero coupon securities, if any, may
create special tax consequences. Zero coupon securities do not make interest
payments, although a portion of the difference between zero coupon security's
face value and its purchase price is imputed as income to the Fund each year
even though the Fund receives no cash distribution until maturity. Under the
U.S. federal tax laws, the Fund will not be subject to tax on this income if it
pays dividends to its shareholders substantially equal to all the income
received from, or imputed with respect to, its investments during the year,
including its zero coupon securities. These dividends ordinarily will constitute
taxable income to the shareholders of the Fund.
PASSIVE FOREIGN INVESTMENT COMPANIES.
If a Fund purchases shares in certain foreign investment
entities, called "passive foreign investment companies" (a "PFIC"), it may be
subject to United States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such shares even if such income is
distributed as a taxable dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on the Fund in respect of
deferred taxes arising from such distributions or gains. If a Fund were to
invest in a PFIC and elected to treat the PFIC as a "qualified electing fund"
under the Code, in lieu of the foregoing requirements, the Fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified electing fund, even if not distributed to the
Fund, and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, a Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain.
Alternatively, a Fund may make a mark-to-market election that
will result in a Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, a Fund would report gains as
ordinary income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked with the consent of the
IRS. By making the election, a Fund could potentially ameliorate the adverse tax
consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
company stock. A Fund may have to distribute this
78
<PAGE>
"phantom" income and gain to satisfy its distribution requirement and to avoid
imposition of the 4% excise tax. Each Fund will make the appropriate tax
elections if possible, and take any additional steps that are necessary to
mitigate the effect of these rules.
FUND TAXES ON SWAPS.
As a result of entering into index swaps, the Funds may make
or receive periodic net payments. They may also make or receive a payment when a
swap is terminated prior to maturity through an assignment of the swap or other
closing transaction. Periodic net payments will constitute ordinary income or
deductions, while termination of a swap will result in capital gain or loss
(which will be a long-term capital gain or loss if a Fund has been a party to
the swap for more than one year).
DIVIDENDS AND DISTRIBUTIONS.
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States shareholder as
ordinary income, whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that a Fund designates as capital gains
dividends are taxable as long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has held shares of the Fund.
Dividends and distributions paid by a Fund (except for the portion thereof, if
any, attributable to dividends on stock of U.S. corporations received by the
Fund) will not qualify for the deduction for dividends received by corporations.
Distributions in excess of a Fund's current and accumulated earnings and profits
will, as to each shareholder, be treated as a tax-free return of capital, to the
extent of a shareholder's basis in his shares of the Fund, and as a capital gain
thereafter (if the shareholder holds his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in the form
of additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If a Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
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<PAGE>
SALES OF SHARES.
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference between the amount
realized and his basis in his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets in the shareholder's
hands, and will be long-term capital gain or loss if the shares are held for
more than one year and short-term capital gain or loss if the shares are held
for one year or less. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced, including replacement through
the reinvesting of dividends and capital gains distributions in a Fund, within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such a case, the basis of the shares acquired will be
increased to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of a Fund share held by the shareholder for six months or less will be
treated for United States federal income tax purposes as a long-term capital
loss to the extent of any distributions or deemed distributions of long-term
capital gains received by the shareholder with respect to such share.
FOREIGN TAXES.
A Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders if: (i) the Fund qualifies
as a regulated investment company, (ii) certain asset and distribution
requirements are satisfied, and (iii) more than 50% of the Fund's total assets
at the close of its fiscal year consists of stock or securities of foreign
corporations. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election,
shareholders of the Fund would be required to take into account an amount equal
to their pro rata portions of such foreign taxes in computing their taxable
income and then treat an amount equal to those foreign taxes as a U.S. federal
income tax deduction or as a foreign tax credit against their U.S. federal
income taxes. Shortly after any year for which it makes such an election, a Fund
will report to its shareholders the amount per share of such foreign income tax
that must be included in each shareholder's gross income and the amount which
will be available for the deduction or credit. No deduction for foreign taxes
may be claimed by a shareholder who does not itemize deductions. Certain
limitations will be imposed on the extent to which the credit (but not the
deduction) for foreign taxes may be claimed.
BACKUP WITHHOLDING.
A Fund may be required to withhold, for United States federal
income tax purposes, 31% of the dividends, distributions and redemption proceeds
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
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<PAGE>
NOTICES.
Shareholders will be notified annually by a Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions attributable to undistributed capital gains (discussed
above in "The Funds and Their Investments") made by the Fund to its
shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
United States federal income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as having been paid) by
a Fund to its shareholders during the preceding taxable year.
OTHER TAXATION
Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN A FUND.
DETERMINATION OF PERFORMANCE
From time to time, a Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. The net asset value of Common Shares is listed
in THE WALL STREET JOURNAL each business day under the heading "Warburg Pincus
Funds." Current total return figures may be obtained by calling Warburg Pincus
Funds at 800-927-2874.
With respect to a Funds' Common and Advisor Shares, the Fund's
average annual total returns for the period ended October 31, 1998 were as
follows (performance figures calculated without the waiver of fees, if any, are
noted in parenthesis):
TOTAL RETURN
COMMON SHARES
<TABLE>
<CAPTION>
- --------------------------- ------------------------- --------------------------- -----------------------------
FROM COMMENCEMENT OF
OPERATIONS OR TEN YEAR
FUND ONE-YEAR FIVE-YEAR (COMMENCEMENT DATE)
- --------------------------- ------------------------- --------------------------- -----------------------------
<S> <C> <C> <C>
Major Foreign Markets Fund 2.26% (1.26%) N/A 8.06% (6.21%)
(3/31/97)
- --------------------------- ------------------------- --------------------------- -----------------------------
International Equity Fund -6.11% 5.05% 9.48%
(5/2/89)
- --------------------------- ------------------------- --------------------------- -----------------------------
International Small N/A N/A -13.90% (-17.60%)
Company Fund (4/2/98)
- --------------------------- ------------------------- --------------------------- -----------------------------
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ------------------------- --------------------------- -----------------------------
FROM COMMENCEMENT OF
OPERATIONS OR TEN YEAR
FUND ONE-YEAR FIVE-YEAR (COMMENCEMENT DATE)
- --------------------------- ------------------------- --------------------------- -----------------------------
<S> <C> <C> <C>
- --------------------------- ------------------------- --------------------------- -----------------------------
Emerging Markets Fund -35.95% (-36.47%) N/A -8.55% (-9.86%)
(12/30/94)
- --------------------------- ------------------------- --------------------------- -----------------------------
- --------------------------- ------------------------- --------------------------- -----------------------------
Global Post-Venture -1.91% (-5.98) N/A 4.38% (-2.24%)
Capital Fund (9/30/96)
- --------------------------- ------------------------- --------------------------- -----------------------------
</TABLE>
+Non-annualized.
ADVISOR SHARES
<TABLE>
<CAPTION>
- --------------------------- ------------------------- --------------------------- -----------------------------
FROM COMMENCEMENT OF
OPERATIONS
FUND ONE-YEAR FIVE-YEAR (COMMENCEMENT DATE)
- --------------------------- ------------------------- --------------------------- -----------------------------
<S> <C> <C> <C>
International Equity Fund -6.49% 4.60% 6.99%
(4/5/91)
- --------------------------- ------------------------- --------------------------- -----------------------------
Emerging Markets Fund -37.71% (-41.22%) N/A -9.34% (-12.67%)
(12/30/94)
- --------------------------- ------------------------- --------------------------- -----------------------------
Global Post-Venture Fund -2.31% (-54.34%) N/A 4.00% (-8.61%)
- --------------------------- ------------------------- --------------------------- -----------------------------
+Non-annualized.
</TABLE>
The Institutional Shares of the Emerging Markets Fund had not
commenced operations as of the date of this SAI. The Institutional Class would
have substantially similar returns as the Common Class and Advisor Class.
However, since the Institutional Class is subject to slightly lower expenses,
the returns of the Institutional Class would have been slightly higher.
These total return figures show the average percentage change
in value of an investment in the Common Shares from the beginning of the
measuring period to the end of the measuring period. The figures reflect changes
in the price of Common Shares assuming that any income dividends and/or capital
gain distributions made by the Fund during the period were reinvested in Common
Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year, quarterly or current
year-to-date basis).
These figures are calculated by finding the average annual
compounded rates of return for the one-, five- and ten- (or such shorter
period as the relevant class of shares has been offered) year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T) TO THE POWER OF n = ERV. For
purposes of this formula, "P" is a hypothetical investment of $1,000; "T" is
average annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of
the one-, five- or ten-year periods (or fractional portion thereof). Total
return or "T" is computed by finding the average annual change in the value
of an initial $1,000 investment over the period and assumes that all
dividends and distributions are reinvested during the period. Investors
should note that this performance may not be representative of a Fund's total
return over longer market cycles.
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<PAGE>
When considering average total return figures for periods
longer than one year, it is important to note that the annual total return for
one year in the period might have been greater or less than the average for the
entire period. When considering total return figures for periods shorter than
one year, investors should bear in mind that each Fund seeks long-term
appreciation and that such return may not be representative of any Fund's return
over a longer market cycle. Each Fund may also advertise aggregate total return
figures of its Common Shares for various periods, representing the cumulative
change in value of an investment in the Common Shares of the specific period
(again reflecting changes in share prices and assuming reinvestment of dividends
and distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(I.E., change in value of initial investment, income dividends and capital gain
distributions).
A Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time
to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses allocable to it. As described above, total
return is based on historical earnings and is not intended to indicate future
performance. Consequently, any given performance quotation should not be
considered as representative of performance for any specified period in the
future. Performance information may be useful as a basis for comparison with
other investment alternatives. However, a Fund's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time. Any fees charged by Institutions or other institutional
investors directly to their customers in connection with investments in Fund
shares are not reflected in a Fund's total return, and such fees, if charged,
will reduce the actual return received by customers on their investments.
In addition, reference may be made in advertising a class of
Fund shares to opinions of Wall Street economists and analysts regarding
economic cycles and their effects historically on the performance of small
companies, both as a class and relative to other investments. A Fund may also
discuss its beta, or volatility relative to the market, and make reference to
its relative performance in various market cycles in the United States.
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
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<PAGE>
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 EAFE Index has equaled or exceeded that of
domestic equity securities, as measured by the S&P 500 Index in 14 of the last
27 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
1972-1998
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
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
</TABLE>
- --------------------
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 14 out of the last 27
years.
The quoted performance information shown above is not intended
to indicate the future performance of the Funds.
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<PAGE>
Each Fund may compare its performance with (i) that of
other mutual funds with similar investment objectives and policies, which may
be based on the rankings prepared by Lipper Analytical Services, Inc. or
similar investment services that monitor the performance of mutual funds or
as set forth in the publications listed below; (ii) in the case of the Major
Foreign Markets Fund, the Morgan Stanley Capital International Europe,
Australasia, and Far East ("EAFE") Index, the Salomon Russell Global Equity
Index, the FT-Actuaries World Indices (jointly compiled by the Financial
Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and the S&P
500 Index; in the case of the International Equity Fund, the Morgan Stanley
Capital International All Country World Excluding the U.S. Index and/or other
indexes prepared by Morgan Stanley relating to securities represented in the
Fund, the Salomon Russell Global Equity Index, the FT-Actuaries World Indices
(jointly compiled by The Financial Times, Ltd., Goldman, Sachs & Co. and
NatWest Securities Ltd.) and the S&P 500 Index; in the case of the
International Small Company Fund, the Morgan Stanley Capital International
EAFE-Registered Trademark- Small Cap Index and/or other indexes prepared by
Morgan Stanley that are appropriate benchmarks for securities represented in
the Fund; in the case of the Emerging Markets Fund, with the IFC Emerging
Market Free Index, the IFC Investible Index, the Lipper Emerging Markets
Funds Index or the Morgan Stanley Capital International Emerging Markets
Index; and in the case of the Global Post-Venture Capital Fund, with the
Venture Capital 100 Index (compiled by VENTURE CAPITAL JOURNAL), appropriate
indexes prepared by Frank Russell Company relating to securities represented
in the Fund, the Lipper Global Funds Index, the Morgan Stanley Capital
International EAFE Index, the Morgan Stanley Capital International World
Index, the Salomon Russell Global Equity Index, the FT-Actuaries World
Indices (jointly compiled by The Financial Times, Ltd., Goldman, Sachs & Co.
and NatWest Securities Ltd.) and the S&P 500 Index, all of which are
unmanaged indexes of common stocks; or (iii) other appropriate indexes of
investment securities or with data developed by CSAM derived from such
indexes. A Fund may include evaluations of the Fund published by nationally
recognized ranking services and by financial publications that are nationally
recognized, such as BARRON'S, BUSINESS WEEK, FINANCIAL TIMES, FORBES,
FORTUNE, INC., INSTITUTIONAL INVESTOR, INVESTOR'S BUSINESS DAILY, MONEY,
MORNINGSTAR, MUTUAL FUND MAGAZINE, SMART MONEY, THE WALL STREET JOURNAL and
WORTH. Morningstar, Inc. rates funds in broad categories based on risk/reward
analyses over various time periods. In addition, each Fund may from time to
time compare the expense ratio of its Common Shares to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
Advertising or supplemental sales literature relating to the
International Equity Fund may describe the percentage decline from all-time high
levels for certain foreign stock markets. It may also describe how the Fund
differs from the various indices in composition. Sales literature and
advertising may also discuss trends in the economy and corporate structure in
Japan, including the contrast between the sales growth, profit growth,
price/earnings ratios, and return on equity (ROE) of companies; it may discuss
the cultural changes taking place among consumers in Japan, including increasing
cost-consciousness and accumulation of purchasing power and wealth among
Japanese consumers, and the ability of new companies to take advantage of these
trends. The sales literature for the Fund may also discuss current statistics
and projections of the volume, market capitalization, sector weightings and
number of
85
<PAGE>
issues traded on Japanese exchanges and in Japanese OTC markets, and may include
graphs of such statistics in advertising and other sales literature. Advertising
or supplemental sales literature relating to the Global Post-Venture Capital
Fund may also discuss characteristics of venture capital financed companies and
the benefits expected to be achieved from investing in these companies.
In reports, investor communications or advertisements, each
Fund may include: (i) its total return performance; (ii) its performance
compared with various indexes or other mutual funds; (iii) published evaluations
by nationally recognized ranking services and financial publications; (iv)
descriptions and updates concerning its strategies and portfolio investments;
(v) its goals, risk factors and expenses compared with other mutual funds; (vi)
analysis of its investments by industry, country, credit quality and other
characteristics; (vii) a discussion of the risk/return continuum relating to
different investments; (viii) the potential impact of adding foreign stocks to a
domestic portfolio; (ix) the general biography or work experience of the
portfolio managers of the Funds; (x) portfolio manager commentary or market
updates; (xi) discussion of macroeconomic factors affecting the Fund and its
investments; (xii) research methodology underlying stock selection or a Fund's
investment objective; and (xiii) other information of interest to investors.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The financial statements for the Funds 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 each Fund and
provides legal services from time to time for CSAM and CSAMSI.
MISCELLANEOUS
The Funds are not sponsored, endorsed, sold or promoted by
Warburg, Pincus & Co. Warburg, Pincus & Co. makes no representation or warranty,
express or implied, to the owners of the Funds or any member of the public
regarding the advisability of investing in securities generally or in the Funds
particularly. Warburg, Pincus & Co. licenses certain trademarks and trade names
of Warburg, Pincus & Co., and is not responsible for and has not participated in
the calculation of the Funds' net asset value, nor is Warburg, Pincus & Co. a
distributor of the Funds. Warburg, Pincus & Co. has no obligation or liability
in connection with the administration, marketing or trading of the Funds.
FINANCIAL STATEMENTS
Each Fund's audited ANNUAL REPORT dated October 31, 1998 and
unaudited SEMI-ANNUAL REPORT dated April 30, 1999, which either accompany this
STATEMENT OF
86
<PAGE>
ADDITIONAL INFORMATION or have previously been provided to the
investor to whom this STATEMENT OF ADDITIONAL INFORMATION is being sent, are
incorporated herein by reference with respect to all information regarding the
relevant Fund included therein. Each Fund will furnish without charge a copy of
its ANNUAL REPORT or SEMI-ANNUAL REPORT upon request by calling Warburg Pincus
Funds at 800-927-2874.
87
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
SHORT-TERM NOTE RATINGS
The following summarizes the two highest ratings used by S&P
for short-term notes:
SP-1 - Loans bearing this designation evidence a very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus sign
designation.
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest..
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of
high quality with margins of protection ample although not so large as in the
preceding group.
A-1
<PAGE>
CORPORATE BOND AND MUNICIPAL OBLIGATIONS RATINGS
The following summarizes the ratings used by S&P for corporate
bonds and Municipal Obligations:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B, CCC, CC and C - Debt rated BB and B are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B, and CCC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
A-2
<PAGE>
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds and Municipal Obligations:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
A-3
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Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B." The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-4
